‘REAL PARTY IN INTEREST’ MUST BE DETERMINED IN DAMAGE LAWSUITS

The recent New York Second Circuit Court of Appeals decision in “M/V Sundance” vs. The American Bureau of Shipping (1993 U.S. App. Lexis 26847) provides a look at the legal responsibilities of ship classification societies.

Classification societies are non-profit organizations that formulate and publish rules, guides, standards and other criteria for the design and construction of merchant vessels. Shipyards build vessels in accordance with plans and specifications approved by the societies. When requested, these internationally recognized and respected organizations review designs and survey vessels before, during and after construction to verify compliance with safety standards.

Without class certificates, ships cannot operate. Certification is a prerequisite for flag entry. Vessels must sail under the flag of the nation in which they are registered and must carry documents certifying the registry.

A classification certificate is also a requirement for maritime insurance coverage. Charterers will not hire non-classed vessels; cargo interests will not use non-registered ships.

In the “Sundance” case, a shipowner sued a classification society in federal court. The owner alleged that after its vessel was inspected by the society at a cost of $85,000, the ship sank due to structural defects.
The details of the case are as follows. In 1984, the shipowner had purchased a ferry and converted it in a Swedish shipyard to a luxury passenger vessel. The shipowner sought to register the vessel under the Bahamian flag and engaged the classification society to inspect the ship. Inspections took place in Sweden and at sea.

The vessel was certified as a two-compartment ship, meaning that it could survive the flooding of any of two of 13 watertight compartments. On June 29, 1984, the ship struck a rock in Canadian waters and two compartments immediately flooded. Progressive flooding of other compartments occurred when water passed through bulkhead openings and a faulty piping system. As a result, the vessel listed and sank at the pier.

The bulkhead holes and faulty piping were safety violations, not reported by the society. The shipowner claimed the vessel would not have sunk but for the negligent inspections. The district court dismissed the shipowner’s $264 million claim for lack of proof that he was damaged by the society’s purported errors. The matter was appealed.

There Are No Guarantees
On appeal, the Second Circuit affirmed the lower court’s decision that a “shipowner is not entitled to rely on a classification certificate as a guarantee . . . that the vessel is soundly constructed. First, the great disparity between the fee charged ($85,000) . . and the damages sought ($264 million) . . . is strong evidence that such a result was not intended . . . to cover the risk of such liability; the ship classification industry could not continue to exist under such terms.”

The Court went on to say that the shipowner, not the classification society, is ultimately responsible for and in control of the activities aboard ship. This ongoing responsibility is supplemented by the maritime law requirement that the shipowner has a non-delegable duty to furnish a seaworthy vessel. ABS did not take over this obligation by agreeing to inspect and issue a classification certificate to the vessel. “Put simply, the purpose of the classification is not to guarantee safety, but merely to permit (the shipowner) to take advantage of the insurance rates available to a classed vessel.”

The Second Circuit has sent a clear message to vessel interests: “(A shipowner) may not create a condition of unseaworthiness, exercise all control over the reconstruction . . . of the vessel and then burden the classification society with liability.”


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