Issues arising from recent marine incidents (“Prestige” and others) that could affect class liability

NOTE: Summary of the Paper provided by Luis Figaredo [1] on 4 March 2006 in Hamburg, at the International Tribunal for the Law of the Sea (ITLOS www.itlos.org  ) during the “Third Maritime Talks” organized by IFLOS (The International Foundation for the Law of the Sea), in cooperation with Bucerius Law School, the Law of the Sea and Maritime Law Institute of the University of Hamburg as well as the Federal Maritime and Hydrographic Agency at Hamburg/Rostock.

The “Prestige” accident followed various other significant casualties that had already spurred the EU and some of its Member States to introduce various legislative measures: the so called “Erika Packages I and II” and the “Prestige Measures”. These measures were introduced in addition to others implemented at an international level.

The pillars of the shipping industry have been shaking for some time now.

1.  The Institution of Limited Liability is under review. Limits are increasing in order to satisfy third party claims. The restrictions imposed on shipowners are often breached.

2. The statutory and judicial protection afforded to third-parties is increasing on a daily basis and on a worldwide scale although with some exceptions.

3. Shipping has become a multi-jurisdictional issue, it is, more than ever, an international business. The shipping market (which is undoubtedly a reality nowadays) is international, as are certain regulations. “But Governments show a diversity of national interests”. As it was very accurately pointed out back in 1999, “this can be appreciated from the names: flag states, port states and coastal states. Only port states and coastal states, but not flag states, are faced with external charges over sea transport”

4. Conversely, advisors, auditors, doctors, engineering companies, service providers and professionals in general are under scrutiny as a consequence of the services they provide. Nowadays, they are prosecuted for negligence in the exercise of their work. In many cases, third parties or even the market, rely on their opinion. New obligations such as the duty to inform or the duty to hold discussions are imposed upon these professionals.

In general, the maritime market is undergoing a significant review, as a consequence of different incidents that have taken place over the years and due to the development of technology.

It was recently stated that “one of the most debated issues in modern maritime law is the liability of classification societies vis-à-vis third parties, with which there is no contractual relationship”

I would like to examine what I consider to be the immediate effects on shipping and how this could have an effect on class societies as a consequence of:

a) Their paramount role in shipping; and

b) Some of the latest incidents, mainly the Erika and the Prestige.

I will examine some of the aspects and trends that make Class more vulnerable to third party claims.

For the purposes of the above, please bear in mind the following:

1. I shall only refer to Class Certificates and not to Statutory Certificates, since this would involve focusing on Flag States, which should be ignored for the sake of brevity. It is important to bear in mind that, of late, there has been a tendency for Flag States to become “certifiers” whilst Class have remained advisors with regard to ship safety compliance. As from now however, Class is covered by Flag State. It seems that power, and thus liability, is shifting more and more towards Flag States than towards Class. Should this be the case, I am pleased to say that it is fully deserved.
2. Class does not limit its liability towards third parties. The vast majority of scholars acknowledge that, for whatever reason, Class Companies were not included amongst those that can limit their liability towards third party claims.

As pointed out with regard to the CLC 92 Convention: “There are some noteworthy omissions from this list: The parties enduring claims for polluting are not precluded from initiating proceedings against the builders of the ship, or its classification society, in respect of any defects which cause or contribute to the incident.” This could also be said in connection with the ‘76 London Convention.

The Conventions establish a “numerus clausus” system, leaving Class outside the scope of those entitled to limit.

3. Even if Class were entitled to limit their liability, they would be liable in the event of a “personal act or omission, committed with the intent to cause such loss, or recklessly and fully aware that such loss would probably arise”.
4.  While Class is not included amongst those which can limit their liability, it will have to abide by the general rules of negligence.

Should Class be included (in the “list”), which is not currently the case, it will have to evidence that it has not acted recklessly and that it had no knowledge that such loss was likely to result from the act.

What is the appropriate meaning of “recklessness”, “recklessly” or just “reckless”?

Recklessness must be coupled with the knowledge that loss would probably arise.

5. Some have argued that Class holds a unique position with regard to other professionals; low fees and high risk. Non-for-profit organizations but still with “earning sheets that are more comparable to successful businesses than service institutions”. Although this may not be accurate, I believe that it is appropriate to quote a market point of view at this stage.
6. Class could recover no pecuniary damage from Shipowners (even if faced with Shipowners’ limited liability) although they have very seldom tried to do so, thus, showing very little confidence in their contractual partner.
7. Class will find it extremely difficult to break Shipowners limited liability and recover damages from the Owner, since they could end up being part of the problem.

The three “Golden Arguments” for Class against liability are, in broad terms:

1. Low classification fees cannot justify a wide liability exposure.

2. Shipowners are ultimately responsible for vessel seaworthiness.

3. The special nature of an almost Public Institution should in itself provide relief from legal responsibility.

Long ago, the Shipping Industry became one of the sectors with the highest degree of “self-regulation”.

Class Societies appeared as a decisive instrument, according to some of these companies, when “self-regulation in the market” was first discussed.

Self-regulation appears to become exceptional and therefore isolated in a business world where the intrusion of local, regional, national, supranational and international rules becomes at some point, suffocating.

Class is essential in Shipping and is an extremely important shackle in the so called “safety chain”.  Therefore whatever image shipping has, Class just follows suit.

Why does shipping, in general, have such a bad image nowadays?

With reference again to a major shipowner’s point of view, which is difficult for any retractor to refute, the answer is: “Because politicians, and the public at large, do not have much trust in the industry”

It is important to remember that trust has been lost, quite simply due to the existence, maintenance and justification of sub-standard ships, shipowners and organizations.

There is a general belief in the sector that the “Good-old-days” in the shipping industry are over, this is linked with the accepted view that shipping is no longer a different business and if so, the existing distinction from other sectors is not justified.

Practitioners, judges, scholars and the shipping market in general, are all aware of the new situation. Class represents a type of quality mark, which is usually essential to dispose of, insure or charter the vessel, to the point that one could argue that a vessel without a class is an insignificant good in legal traffic.

Whether we like it or not, Class Societies are under the spotlight with regard to the safety of vessels. This is how “the market” perceives them, it is what Class Societies represent and more importantly, it is what the market relies on.

At the end of the day, the market associates class with safety.

From my personal point of view, “ships are no longer different”. This would imply that there is no justification to maintain one of the pillars of the shipping industry as it stands: the limitation of liability which has been part of the sector for over 250 years.

The premise of Limitation of Liability has been under severe criticism for quite some time. The grounds for its implementation and maintenance have finally been overcome. There is little justification for its existence other than to maintain a privilege which has become obsolete.

In 1992 Lord MUSTILL was Lord of Appeal in Ordinary. He wrote an article called “Limitation of Liability in Maritime Trade” that was later published under the title “Ships are different-or are they?”

In reviewing this privilege, from a purely logical standpoint, the article concludes that its existence is no longer justified.

The limitation of liability placed the economic burden of loss, on the Coastal State.

The argument raised by those who claim that the current system covers all the damages that can be caused in the event of pollution is undermined by reality. Without a doubt, limitation of liability means limitation of damages.

Are Class Societies prepared to disregard the fact that different courts have confirmed the existence of a duty of care by class and a duty to act in good faith?

I propose a serious and thorough debate at an international level, if at all possible, without the involvement of the courts.

The purpose of this debate would be to discuss the conciliation of safety, liability and financial compensation, for services that are as necessary as they are important. All maritime participants should become involved, including cargo interests.

A realistic proposal should be made, tackling all issues at stake, as we say in Spain, we must “take the bull by its horns”.

Class societies must overlook the existing differences and unite in a common front against the industry. Nobody in the sector is going come to their rescue unless they make it loud and clear that their paramount role in shipping is governed by Class satisfaction, which is very different from assuming no liability on their part. 

Hamburg, March 2004 

NOTE: A summary of the Paper was published by LLOYD’S LIST on February 17, 2006 and a reference by the IMO (www.imo.org) in its Current Awareness Bulletin (Volume XVIII- No. 3, March 2006) was made. In 1948, an international conference in Geneva adopted a convention formally establishing the IMO (the original name was the Inter-Governmental Maritime Consultative Organization, or IMCO, but the name was changed in 1982 to IMO), a body that reports to the UN.

[1] Luis Figaredo is a partner at URÍA MENÉNDEZ in Madrid. He is the head of the Transport & Logistics Department. Any opinions expressed herein, are his personal opinions and not URIA MENÉNDEZ’s. Luis Figaredo is a member of the CMI and of the Spanish Committee of Germanischer Lloyd AG, one of the largest and most prestigious classification societies. In October 2005, he was elected President of this classification society.