Classification societies and their liability

It’s easy to look at a superyacht and think that someone drew her exterior lines exterior and interior stylists added their touches, someone built it, and that was that. But in reality, there are many more players involved in its creation.

Of course, the yacht will have been built, and will be run, within a legal framework established by the country where the yacht is registered (the flag state), but there will have been another party key to her initial design and ongoing maintenance and safety standards: the classification society. It’s a big responsibility, and here we’ll be considering the comeback owners may have against the societies when mistakes are made.

The yachting industry’s regulators

Classification societies (often known just as ‘class’) are privately organised groups of engineers and surveyors. They are experts in the technical aspects of yacht construction and maintenance. Their principal role is to research, establish and apply standards (known as ‘rules’) for design, building and maintenance of sea-going vessels. The rules are highly detailed, covering the integrity of the yacht’s hull, engines and key safety systems.

Societies often offer additional consultancy services, going beyond basic classification, during builds and refits. It is also possible to have even fairly modest yachts built according to such rules, which can boost the resale value. They also undertake flag state inspections.

Even before the build contract is signed, the society will review the proposed plans; in particular any novel features or materials. As well as assessing rules compliance, they can assist with design development.

The societies have two principal limitations.

Firstly, they only consider the physical aspects of the yacht and its equipment, not how they are used.

Secondly, because they are more used to examining ships ten times the volume of even the largest superyachts, there is a reliance on sampling rather than full examinations: things can be missed.

It’s also important to remember that classification is voluntary, and the process needs the co-operation of the buyer’s or owner’s team. It is not a means to police design, building and maintenance.

Society surveyors are human and make mistakes. An owner might want to claim against a society where there has been a mistake made during the build process.

More common are omissions made during the regular surveys, especially where the maintenance of the yacht ‘in class’ is a reason underpinning a purchase. The latter may be an important route to getting compensation, given that the societies are large organisations with deep pockets, whereas the seller is often just an owning company with no other assets once the vessel is sold.

The trouble with suing societies

What makes claims against societies difficult is that while commercial parties often automatically choose English law, the societies all have historical links to particular countries, and often insist on the law of their ‘home’ country. Further, there are still no international conventions on this subject, despite some initiatives.

The choice of law is normally agreed in the contract, of course, but this may not automatically be respected by certain courts, and such a choice may be meaningless to a third-party buyer who was not party to the original contract for classification services.

Where the owner is the society’s client, the position in England and the Commonwealth is that the contract itself should shape the relationship. So the societies will, where possible, try to take full advantage of this by expressly excluding their own liability in the terms of the agreement with the owner. These attempts have largely been upheld.

Amazingly, class societies’ terms will commonly state, for example, that the society ‘does not warrant the accuracy of any information or advice supplied…’ and ‘…will not be liable for any… act, omission, error, negligence, or… any inaccuracy in any information or advice given’.

Indeed, the society may also state that if there has been negligence on its part, then it will compensate the owner, but only up to the amount of the society’s fees paid – which will usually be a fraction of the damages sought.

In the US, judges’ attitudes have always been to take the societies’ role at face value. In the case of the Tradeways II, which sank during its voyage from Antwerp to the US as a result of serious technical failings, the owner sued the society. The owner stated that the sinking was due to faults which the society had noticed, and had asked to be repaired within a certain time frame, but had nevertheless allowed the doomed ship to sail with their blessing in the interim.

The New York District Court dismissed the case on the basis that the society was not guaranteeing the seaworthiness of the vessel but was simply responsible for inspecting the conformity of the vessel with the rules.

Unless the contract states otherwise, the society is not there to supervise the construction or maintenance of the vessel. In fact, in the Tradeways II case, the problems were well known to the owner.

Meanwhile, the French Supreme Court (Cour de cassation) has decided that where a society surveyor had displayed gross negligence or wilful misconduct, its contractual limitations (which might otherwise have let the society off the hook) cannot be relied upon.

With regard to whether or not the societies were in effect guaranteeing a vessel’s seaworthiness, the French courts, as with those in the States, have declared that their role is only to make various inspections, diligently, to ensure compliance with standards. A similar stance is taken in Germany.

Besides those who contracted directly, there will also be those who haven’t commissioned a survey but rely on one anyway. Sometimes the law allows such people to sue where they relied on the information provided to their detriment, but there will be little recourse against the societies. They are seen as benevolent parties, undertaking important work for relatively small fees, and helping to make yachting safer. The courts are arguably on their side to start with.

Just to be absolutely certain, however, their contractual terms often make it clear that, for example, they will not be ‘liable or responsible in negligence or otherwise to any person not a party to the agreement… for any information or advice’. So there’s no real choice but for the owner to claim that there has been negligence – a breach of a ‘duty of care’.

The English courts have been very reluctant to recognise third party liability. It was held in a 1990 case regarding the yacht Morning Watch that societies did not owe third parties a duty of care, as the relationship between them was, in legal terms, too remote.

The House of Lords, England’s highest court at the time, confirmed this position in the 1995 case of the Nicholas H. While the judges said that there might (on the facts of the case) have been a relationship giving rise to a duty of care, the recognition of such a duty would be ‘unfair, unjust and unreasonable’, especially since the cost of liability would ultimately have to be paid by all owners who sought the societies’ services.

By comparison, such a duty was held to exist in the 1998 case of Perrett v Collins, in which a passenger was injured when an airworthiness certificate was negligently given in respect of a less-than-airworthy aircraft. The US courts tend to take the same view when it comes to ships and yachts.

The French are also more favourable to buyers. Article 1382 of their Civil Code simply states that where anyone causes loss or damage to another, then that must be put right: there’s only the need to prove negligence, rather than proving a duty of care.

Attempts at harmonising the way laws deal with societies began with a new European Union law in 1994. This has been added to, and provides for unlimited compensation from societies in the event of wilful acts or gross negligence, where the society is working for a state maritime administration.

While these laws do not affect superyacht owners, it does raise the possibility of such liability being extended to owners – whether they are buying services directly, or relying on them later as third parties. Certainly, were the case of the yacht Nicholas H to be decided today, the outcome might not be the same.

Until the courts start to take a more favourable view towards owners, there is no reason why owners shouldn’t try to renegotiate the terms of any contract with the society to remove all of the get-outs they often contain. Third parties should certainly find their own surveyor rather than rely on the work commissioned by another owner.

It’s also worth remembering that the use of classification societies does not relieve the owner and captain of their responsibility to maintain their yacht in a seaworthy condition – for guests and crew alike.

Benjamin Maltby is an English barrister with consultants MatrixLloyd, providing impartial guidance on all aspects of large yacht purchase, building, ownership and operation.