United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/255

Marc Rich & Co. A.G. (Body Corporate) and others

(Appellants) v. Bishop Rock Marine Co. Ltd.

(Body Corporate) and others (Respondents)




JUDGMENT

Die Jovis 6° Julii 1995

Upon Report from the Appellate Committee to whom was
referred the Cause Marc Rich & Co. A.G. and others against Bishop
Rock Marine Co. Ltd. and others, That the Committee had heard
Counsel as well on Tuesday the 25th, Wednesday the 26th and
Thursday the 27th days of April last as on Monday the 1st and
Tuesday the 2nd days of May last upon the Petition and Appeal of
Marc Rich & Co. A.G. of 37 Baarerstrasse, CH-6301 Zug,
Switzerland, V/O Raznoimport of Smolenskaja-Sennaja 32, 121200
Moscow, Russia, VPO Sojuzpolimetall of UL. Akademika Koroleva 13,
Moscow 129515, Russia, and Pertusola Sud of Piazza Flamineo 9,
00196 Rome, Italy, praying that the matter of the Order set forth
in the Schedule thereto, namely an Order of Her Majesty's Court
of Appeal of the 3rd day of February 1994, might be reviewed
before Her Majesty the Queen in Her Court of Parliament and that
the said Order might be reversed, varied or altered or that the
Petitioners might have such other relief in the premises as to
Her Majesty the Queen in Her Court of Parliament might seem meet;
as upon the case of Nippon Kaiji Kyokai lodged in answer to the
said Appeal; and due consideration had this day of what was
offered on either side in this Cause:

It is Ordered and Adjudged. by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of Appeal
of the 3rd day of February 1994 complained of in the said Appeal
be, and the same is hereby, Affirmed and that the said Petition
and Appeal be, and the same is hereby, dismissed this House: And
it is further Ordered. That the Appellants do pay or cause to be
paid to the said Respondents the Costs incurred by them in
respect of the said Appeal, the amount thereof to be certified
by the Clerk of the Parliaments if not agreed between the
parties.

Cler: Parliamentor

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE




MARC RICH & CO. A.G. (BODY CORPORATE)
AND OTHERS
(APPELLANTS)

v.

BISHOP ROCK MARINE CO. LTD. (BODY CORPORATE)

AND OTHERS
(RESPONDENTS)




ON 6 JULY 1995




Lord Keith of Kinkel
Lord Jauncey of Tullichettle
Lord Browne-Wilkinson
Lord Lloyd of Berwick
Lord Steyn




LORD KEITH OF KINKEL

My Lords,

For the reasons given in the speech to be delivered by my noble and
learned friend Lord Steyn, which I have read in draft and with which I agree,
would dismiss this appeal.

LORD JAUNCEY OF TUlLLICHETTLE

I have had the advantage of reading in draft the speech of my noble
and learned friend Lord Steyn. For the reasons he gives I too would dismiss
the appeal.

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LORD BROWNE-WILKINSON

My Lords,

For the reasons to be given in the speech of my noble and learned
friend Lord Steyn I would dismiss the appeal.

LORD LLOYD OF BERWICK

My Lords.

On 20 February 1986 the Nicholas H was in the course of a loaded
voyage from South America to Italy when a crack appeared in the vessel's
hull. On 22 February she anchored off San Juan, Puerto Rico, where further
cracks developed. On 25 February Mr. J. Ducat, a non-exclusive surveyor
employed by Nippon Kaiji Kyokai ("N.K.K.") was called in by the master,
at the instigation of the United States Coastguards. He recommended
permanent repairs, for which, as it happened, facilities were available locally.
But the owners baulked at this. It would have involved dry docking, with
consequential discharge and reloading of the cargo. Mr. Ducat must have
been persuaded to change his mind. For on 2 March 1986 he pronounced that
the vessel was fit to proceed on her intended voyage after completing some
temporary repairs to the shell plating. She sailed the same day. On 3 March
the welding in way of the temporary repairs cracked. On 9 March the vessel
sank. Fortunately there was no loss of life.

For present purposes we are asked to assume that the loss of the ship
and cargo was the result of Mr. Ducat's negligence in altering his initial
recommendation, and permitting the vessel to continue on her voyage without
effecting permanent repairs. We are also asked to assume (1) that the damage
which the plaintiff cargo owners have suffered is physical damage to their
cargo, and (2) that this damage should have been foreseen as the likely
consequence of Mr. Ducat's negligence. Nevertheless, the Court of Appeal
has held that N.K.K. are not liable for Mr. Ducat's negligence, on the ground
that he owed no duty of care to the owners of the cargo. On the face of it
this would seem a strange result, unless classification societies are entitled to
claim immunity in tort on policy grounds, like the barrister in Rondel v.
Worsley [1969] 1 AC 191, or the police officer in Hill v. Chief Constable
of West Yorkshire [1989] AC 53. But Mr. Aikens Q.C. for N.K.K.,
specifically disclaimed any such general immunity. He invited the House to
approach the appeal on the facts of this particular case, as Hirst J. had done
at first instance, and apply ordinary, well established principles of law. Other
claims might be brought against classification societies hereafter, which would
have to be decided on their own facts; they were, he said, of no assistance in



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deciding the present case. I am for my part well content to accept
Mr. Aikens' invitation. I start, therefore, with the judgment of Hirst J.

The judgment of Hirst J.

Mr. Aikens' basic argument before the judge was that shipowners are
under a non-delegable duty to take care of the cargo on board, and that there
was, therefore, no need for, or even room for, the imposition of a further
duty on classification societies: (see [1992] 2 Lloyd's Rep. 481.) Mr. Aikens
relied on Riverstone Meat Co. Pty. Ltd. v. Lancashire Shipping Co. Ltd.
[1961] A.C. 807. In that case cargo was damaged in the course of a voyage
by the failure of a fitter employed by ship repairers to secure the inspection
cover on a storm valve. The cargo owner sued the shipowner in contract, and
recovered. It was held to be no defence that the repairs had been carried out
by a reputable independent contractor. Mr. Aikens makes the point that it was
never even suggested in this House that the owners of the cargo might have
had a claim against the ship repairers in tort.

Hirst J. was unable to see the relevance of this consideration; and I am
bound to say that I share his difficulty. The existence of an alternative
remedy in tort would not have influenced the result in any way. Why, then,
should it have been mentioned?

The judge went on to quote extensively from the many recent decisions
in the modern law of negligence in the Court of Appeal, Privy Council and
House of Lords. Some, like Grant v. Australian Knitting Mills Ltd. [1936]
A.C. 85 and Mobil Oil Hong Kong Ltd. v. Hong Kong United Docklands Ltd.
(the "Hua Lien") [1991] 1 Lloyd's Rep. 309, were cases of physical damage
to person or property. Others, like Caparo Industries Plc. v. Dickman [1990]
2 A.C. 605 and Murphy v. Brentwood District Council [1991] 1 AC 398,
were cases of pure economic loss.

The judge held, correctly, that in addition to the assumed foreseeability
of physical damage, it was necessary for the plaintiffs to establish the
necessary close relationship between the parties, or degree of proximity, in
order to establish a duty of care. As to this, the judge said ([1992] 2 Lloyd's
Rep. 481, 499):

"On the assumed facts of the present case, for the reasons given by
Mr. Gross, it seems to me that there was a very close degree of
proximity between Mr. Ducat and the plaintiffs. Having first
recommended that the vessel should not leave port without having
undergone permanent repairs, knowing that she was fully loaded and
therefore knowing that, if it was dangerous for her to go to sea in that
condition, the goods were just as likely to be damaged or lost as the
vessel itself, he later recommended that she sail after only temporary
repairs had been done. Although it is true, as Mr. Aikens submits,
that Mr. Ducat had no actual direct physical control over the vessel in



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the sense that he could bar her sailing, the sanction imposed by his
first report rendered it highly probable that the shipowner would not
sail (as, in fact, occurred) in view of the dire effects that this would
have on his insurance and on other common commercial arrangements
such as a ship mortgage.

"Conversely, the withdrawal of this sanction in the second report
would, as Mr. Ducat must have appreciated, almost certainly have the
opposite effect, since the shipowner would almost inevitably accept the
recommendation that he should set sail, which was fully in accord with
the commercial object of his voyage. The defects recurred almost
immediately after the vessel had sailed from San Juan, and the vessel
sank in the very early stages of her voyage to Europe."

For reasons which I will develop later, I find myself in complete agreement
with the judge that the degree of proximity in this case was very close indeed.

The judge then turned to consider whether it was "fair, just and
reasonable" to impose on Mr. Ducat a duty of care. He did not consider that
there were any considerations of public policy which militated against such a
duty. As I have already said, Mr. Aikens does not suggest that the judge was
wrong in that respect. He accepts that whatever might be the position of
classification societies in other cases N.K.K. were not entitled to rely on any
immunity on the facts of this case.

The judge then considered the other circumstances of the case, and in
particular the absence of any means of limiting N.K.K.'s liability in tort. He
held that this might be a relevant factor if he were imposing on classification
societies some generalised duty of care towards cargo owners and other parties
across the board. But that was not this case. The judge was careful to limit
his decision to the assumed facts. So limited, he could see nothing unfair or
unreasonable or unjust in making N.K.K. liable in full for the damage caused
by Mr. Ducat's negligence. I quote a paragraph from his judgment to
illustrate his approach ([1992] 2 Lloyd's Rep. 481, 500):

"Finally, so far as the 'floodgates' argument is concerned, I do not
accept, since this is a 'one-off decision, that it will open the way, as
Mr. Aikens suggests, to the imposition of a general duty of care to
owners of cargo, however long after the offending survey on the
following voyage or on subsequent voyages. On the contrary, in my
judgment the proximity test will act as an adequate safeguard against
any such extravagant consequences."

Hirst J. concluded his judgment with a particularly apt quotation from the
judgment of Lord Wright in Grant's case [1936] AC 85, 107:

"Mr. Greene further contended on behalf of the manufacturers that if
the decision in Donoghue's case [1932] AC 562, 591, were extended



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even a hair's-breadth, no line could be drawn, and a manufacturer's
liability would be extended indefinitely. He put as an illustration the
case of a foundry which had cast a rudder to be fitted on a liner: he
assumed that it was fitted and the steamer sailed the seas for some
years: but the rudder had a latent defect due to faulty and negligent
casting, and one day it broke, with the result that the vessel was
wrecked, with great loss of life and damage to property. He argued
that if Donoghue's case were extended beyond its precise facts, the
maker of the rudder would be held liable for damages of an indefinite
amount, after an indefinite time, and to claimants indeterminate until
the event. But it is clear that such a state of things would involve
many considerations far removed from the simple facts of this case.
So many contingencies must have intervened between the lack of care
on the part of the makers and the casualty that it may be that the law
would apply, as it does in proper cases, not always according to strict
logic, the rule that cause and effect must not be too remote: in any
case the element of directness would obviously be lacking. Lord Atkin
deals with that sort of question in Donoghue's case where he refers to
Earl v. Lubbock [1905] 1 KB 253, 259: he quotes the commonsense
opinion of Mathew L.J.: 'It is impossible to accept such a wide
proposition, and, indeed, it is difficult to see how, if it were the law,
trade could be carried on.'

"In their Lordships' opinion it is enough for them to decide this
case on its actual facts."

Once again, I find myself in agreement with the judge. His reasoning is
clear, and the good sense of his conclusion is, to my mind, transparent.

The judgments of the Court of Appeal - "fair, just and reasonable"

The leading judgment was given by Saville L.J. There were two
grounds for his decision. The main ground was that the bill of lading contract
under which the cargo was being carried incorporated the Hague Rules. The
Hague Rules "create an intricate blend of responsibility and liabilities, rights
and immunities . . . indemnities and liberties". It would not be fair and just
to impose on a classification society an identical duty to that imposed on
shipowners "but without any of the balancing factors, which are internationally
recognised and accepted:" [1994] 1 W.L.R. 1071, 1089. Since the primary
responsibility for looking after the cargo lay on the shipowners under the
contract of carriage, there was no need to impose a like duty in tort on
N.K.K. I quote the concluding sentence of Saville L.J.'s judgment, at
p. 1082:

"The balance of rights and duties between the principal parties (cargo
owners and shipowners) has been settled on an internationally
acceptable basis and I can see no justice or good reason for adding to
or altering this by imposing on the society a like duty to that owed by



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the shipowners, but without any of the checks and balances which exist
in the present regime."

The second ground for Saville L.J.'s decision was that the relationship
between the cargo owners and N.K.K. was not sufficiently close to support
a duty of care.

Balcombe L.J. doubted whether "fair, just and reasonable" added
anything to the test of proximity. But if it did he agreed with Saville L.J. on
both grounds: [1994] 1 W.L.R. 1071, 1088-1089.

Mann LJ. held, at p. 1087, that it was unfair, unjust and unreasonable
that the plaintiffs should have an unlimited claim in tort against N.K.K., when
they had a contractual claim against the shipowners for breach of a non-
delegable duty. In his view, the judge fell into error by failing to take
account of the shipowner's position.

As to the first of Saville L.J.'s grounds, I have to say that in my
opinion the Hague Rules have little if anything to do with the case. It is true
that the cargo happened to be carried under bills of lading which incorporated
the Hague Rules, and that much of the world's seaborne traffic, especially in
the liner trades (which this was not), is carried on similar terms. But the
cargo might just as well have been carried under a charterparty, in common
with much of the world's bulk trade. If it had been, then "the intricate blend
of liabilities and responsibilities, rights and immunities" contained in the
Hague Rules would have had nothing to say on the matter, for the simple
reason that the Hague Rules do not apply to charterparties: see Article V.

It is of course true that Articles III and IV of the Hague Rules, are
frequently incorporated into voyage charterparties by a clause paramount, or
otherwise. But this is by agreement between the parties, and not by force of
any international convention. In this very case the voyage charterparty dated
20 January 1986 (Stemmor Charter Party (1983)) between the plaintiffs Marc
Rich and Co. A.G. and the second defendants does not incorporate the Hague
Rules. It provides, by typed insertion, that bills of lading issued under the
charterparty should incorporate the Hague Rules - a very different thing. If
therefore the relevant contract of carriage in this case had been contained in
the charterparty, and not the bills of lading, as would have been the case if
Marc Rich had been the receivers as well as the shippers of the cargo, the
irrelevance of the Hague Rules would have been apparent.

It would make nonsense of the law if a surveyor in the position of Mr.
Ducat owed a duty of care towards cargo if the contract of carriage were
contained in a charterparty, which does not incorporate the Hague Rules, but
not if it were contained in a bill of lading which does.

But even if one assumes that all carriage of goods by sea were subject
to the Hague Rules, I have difficulty in seeing why the balance of rights and



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liabilities between shipowners and cargo would be upset by holding the
defendants liable for the consequence of Mr Ducat's negligence. As Mr
Aikens correctly says in paragraph 18 of his written submissions: "The Hague
Rules have nothing to say on the issue of a duty of care on parties other than
cargo owners and carriers: why should they?". There could be no question of
the defendants claiming an indemnity from the shipowners on the assumed
facts of this case, any more than the negligent architect could claim an
indemnity from the building owners in Clay v. A.J. Crump & Sons Ltd.
[1964] 1 Q.B. 533; and even if a claim for an indemnity could be got on its
feet, it would not have increased the shipowners total liability unless the
circumstances were such as to deprive the shipowners of their right to limit.

Then it was said that if claims such as the present became at all
frequent, the classification societies might seek to pass on the cost of
insurance to shipowners. I return later to the question of insurance in another
context. Here it is enough to say that there was no evidence one way or the
other as to the cost of the insurance, or whether it would be passed on. It is
mere guess work. But having regard to the prevailing competition among
classification societies, it by no means follows that the cost of insurance would
be passed on to shipowners; and even if it was, I doubt if it would be a
significant factor in upsetting the balance of rights and liabilities under the
Hague Rules.

With great respect, therefore, the "intricate regime" of the Hague
Rules to which all three judges in the Court of Appeal referred, has nothing
to do with whether it is fair, just and reasonable that Mr. Ducat and his
employers should be liable to cargo for their assumed negligence. The
irrelevance of the Hague Rules is underlined by the further consideration that
the limitation provisions on which the shipowners relied to limit their liability,
and which is said to contrast with the unlimited liability sought to be imposed
on the N.K.K., is not derived from the Hague Rules at all, but from section
503 of the Merchant Shipping Act 1894, shortly to be re-enacted as section
185 of and Schedule 7 to the Merchant Shipping Act 1995.

If therefore, as I think, the incorporation of the Hague Rules in this
particular contract of carriage must be left out of account, the Court of
Appeal's judgment on this part of the case can only be supported if the mere
existence of a contract of carriage under which the shipowners can limit their
liability, is inconsistent with, or militates against, the imposition of unlimited
liability on a third party in tort.

But why should this be so? This was surely the very error which was
exposed in Donoghue v. Stevenson [1932] AC 562, and Grant v. Australian
Knitting Mills Ltd. [1936] AC 85. Mr. Aikens sought to distinguish Grant's
case on the grounds that

"there was no internationally recognised code ... for regulating the
rights and duties of the party primarily responsible for taking care,



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which in that case the House of Lords clearly considered was the
manufacturer himself": see, per Saville L.J., at p. 1081B.

I accept, of course, that there is no internationally recognised code governing
the manufacture of underpants. But for the reasons already mentioned, I do
not regard this as a relevant consideration in the case of shipowners. More
important, I am not sure what is meant by saying that the shipowners are
"primarily" responsible for taking care, and that this militates against the need
to impose a similar duty on N.K.K. Of course the shipowners are primarily -
indeed solely - responsible for getting the cargo to its destination; and of
course the shipowners must take proper care of the cargo as bailees, subject
to the terms of any contract of carriage between the parties. But I am unable
to see why the existence of the contract of carriage should "militate against"
a duty of care being owed by a third party in tort. The function of the law
of tort is not limited to filling in gaps left by the law of contract, as this
House has recently re-affirmed in Henderson v. Merrett Syndicates Ltd. [1994]
3 W.L.R. 761, 787, per Lord Goff of Chieveley. The House rejected an
approach which treated the law of tort as supplementary to the law of
contract, i.e. as providing for a tortious remedy only where their is no
contract. On the contrary: the law of tort is the general law, out of which the
parties may, if they can, contract.

In Adler v. Dickson [1955] 1 QB 158, the plaintiff was injured when
boarding a ship due to the negligence of the master and boatswain. Her ticket
excluded all liability on the part of the company. So she sued the master and
boatswain in tort. It was held by the Court of Appeal that she could recover.
Jenkins L.J. said, at p. 186:

"If the contract with the company had contained no exempting
provisions, the plaintiff would, as I understand the law, have had
separate and distinct rights of action (a) against the company for
breach of contract or, alternatively, in tort, on the principle of
'respondeat superior,' and (b) against the defendants as the persons
actually guilty of the tortious acts or omissions which caused the
damage. The plaintiffs right of action against the company is clearly
taken away by the exempting provisions of the contract, but I fail to
see how that can have the effect of depriving her also of her separate
and distinct right of action against the defendants as the actual
tortfeasors."

The judgment of Jenkins L.J. was adopted and approved by the High
Court of Australia in Wilson v. Darling Island Stevedoring and Lighterage Co.
Ltd. [1956] 1 Lloyd's Rep. 346. In that case the tortfeasor was not the
servant of the shipowners, as in Adler v. Dickson, but an independent
contractor. The facts were that the plaintiffs' goods were in course of
carriage under a bill of lading which incorporated the Hague Rules. After



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discharge, but before delivery, they were damaged by the negligence of a
stevedore. Fullagar J. said, p. 364:

"The stevedore is a complete stranger to the contract of carriage, and
it is no concern of his whether there is a bill of lading or not, or, if
there is, what are its terms. . . . If the stevedore negligently soaks
cargo with water and ruins it, I can find neither rule of law nor
contract to save him from the normal consequences of his tort."

Midland Silicones Ltd. v. Scruttons Ltd. [1962] AC 446, is another
case involving stevedores. The facts were in all respects similar. Viscount
Simonds said at p. 472, that he agreed with Fullagar J.'s judgment, and with
every line and every word of it. It is true that in Midland Silicones v.
Scruttons Ltd. and Wilson v. Darling Island Stevedoring and Lighterage Co.
Ltd., the damage occurred after the discharge of the cargo. But can it be
supposed that the result would have been different if the damage had occurred
in the course of discharge? Clearly not. The stevedores would have been
under the same duty of care, notwithstanding the "primary" responsibility of
the shipowners under the Hague Rules to carry and discharge the cargo with
due care. It would have been hopeless to argue that the stevedores should not
be liable on the ground that it would not be "just, fair and reasonable" to
impose on them a duty of care in tort with unlimited liability, having regard
to the shipowners' limited liability under the Hague Rules or the Brussels
Convention of 1957 or the London Convention of 1976.

Mr. Aikens argued that Adler v. Dickson, Wilson v. Darling Island
Stevedoring and Lighterage Co. Ltd. and Midland Silicones Ltd. v. Scrutton
Ltd. can all be distinguished on the ground that they are cases of direct
physical or personal injury. But what does this mean? Take the case of
shiprepairers. Mr. Aikens was at first hesitant to concede that shiprepairers
called in by the shipowners to make the ship seaworthy owed any duty of care
to the cargo on board. But in the end he accepted that this must be so. If a
fitter employed by shiprepairers negligently leaves a tap on, and the cargo is
soaked, presumably the damage is direct, and his employers would be liable.
But if instead he negligently fails to secure an inspection cover, and a week
later sea water enters the hold, and damages the cargo, and the vessel sinks
with loss of life, is it to be said that the damage is indirect, and that the
shiprepairers escape liability because the "primary" responsibility to make the
ship seaworthy is on the shipowners? If a delay of a week means that the
damage is indirect, then presumably the injury suffered by the pursuer in
Donoghue v. Stevenson [1932] AC 562 was also indirect, and the defenders
should have succeeded. The question in every case must surely be not
whether the physical damage is direct or indirect, but whether the negligence
of the manufacturer or the stevedores or the shiprepairers caused the damage.

How then does the position of a surveyor, called in by shipowners
because the vessel is leaking, differ from that of the shiprepairer ? The answer



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is that it differs not at all. If it is fair, just and reasonable to hold a
shiprepairer liable to an unlimited extent for damage to cargo on board caused
by his negligence, even though the damage does not occur until after the
vessel has sailed, why should it not be fair, just and reasonable in the case of
a surveyor? Suppose in the case of the inspection cover, the surveyor
negligently tells the fitter that four bolts are sufficient to secure the cover,
instead of the usual six, how could it be fair, just and reasonable that the
surveyor should not be liable? On what principle would the fitter be liable in
such circumstances, when he acts unadvised, but not the surveyor who advises
him? No "coherent system of law" to use the language of Sir Donald Nicholls
V.-C. in White v. Jones [1993] 3 W.L.R. 730, 740, should permit such a
result.

It follows that I cannot share the view of the Court of Appeal that the
existence of a contract of carriage between the cargo owners and the
shipowners "militates against" the liability of the surveyor in tort. To my
mind the existence of the contract is as irrelevant as is the fact that in this
particular case it happened to incorporate the Hague Rules.

The judgments of the Court of Appeal - proximity

I now aim to the second of the two grounds on which Saville L.J.
based his decision, namely, that the relationship between N.K.K. and the
cargo was not sufficiently close to support a duty of care. It is said that the
cargo owners were not even aware that Mr. Ducat had been called in, and
could not therefore have relied on anything which he did or failed to do.

In considering proximity, it is convenient to start with a Guidance Note
prepared by N.K.K. for the use of their surveyors. The opening sentence
reads: "N.K.K. was founded in 1899 with the purpose of promoting the
safeguard of life and property at sea." One would find a similar statement in
the rules of most classification societies. So far as safeguarding life is
concerned, it would seem almost self-evident that Mr. Ducat owed a duty of
care towards the members of the crew. He knew that their lives would be at
risk if he allowed the ship to sail in an unseaworthy condition. It is true that
he had no legal right to stop the ship sailing. But his de facto control was
absolute. If he had maintained his original recommendation, and not changed
his mind, it is inconceivable that in practice the vessel would have sailed.
Mr. Aikens argued that de facto control was not sufficient to found the
necessary proximity. I disagree. I find it difficult to imagine a closer, or
more direct relationship, than that which existed between Mr. Ducat and the
crew. It calls to mind the example of the negligent garage mechanic given by
Lord Devlin in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964]
A.C. 465, 516:

"A defendant who is given a car to overhaul and repair if necessary is
liable to the injured driver (a) if he overhauls it and repairs it
negligently and tells the driver it is safe when it is not; (b) if he



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overhauls it and negligently finds it not to be in need of repair and
tells the driver it is safe when it is not and (c) if he negligently omits
to overhaul it at all and tells the driver that it is safe when it is not.
It would be absurd in any of these cases to argue that the proximate
cause of the driver's injury was not what the defendant did or failed
to do but his negligent statement on the faith of which the driver drove
the car and for which he could not recover."

Mr. Aikens was inclined to accept that Mr. Ducat owed a duty of care to the
crew, although he made no formal concession to that effect.

What about the cargo? In some ways the relationship between Mr.
Ducat and the cargo was even closer. For it is a universal rule of maritime
law - certainly it is the law of England - that ship and cargo are regarded as
taking part in a joint venture. This is the basis on which the whole law of
general average rests. This is why, if the temporary repairs at San Juan had
been successful, and if the voyage had been completed in safety, the cargo
would have had to contribute to the cost of the temporary repairs under Rule
XIV of the York Antwerp Rules. In Morrison Steamship Co. Ltd. v.
Greystoke Castle (Cargo Owners) [1947] A.C. 265, the facts were that the
Cheldale and the Greystoke Castle were in collision off the coast of South
Africa. The Cheldale sank, and the Greystoke Castle put into Durban as a
port of refuge. There she incurred general average expenditure amounting to
$33,127, of which cargo's proportion was $22,802. In proceedings between
the two vessels the Cheldale was held one-quarter to blame, and the Greystoke
Castle three-quarters. The owners of the cargo on board the Greystoke Castle
then commenced proceedings against the owners of the Cheldale claiming,
inter alia, the amount which they had had to contribute in general average.
The claim succeeded. It was submitted on behalf of the defendants that the
plaintiffs' only right was to stand in the shoes of the carrying ship, and that
they had no right of direct recovery against the owners of the colliding ship
to recover their general average contribution. This argument was emphatically
rejected. Lord Porter said, at p. 294:

"Crews' wages, pilotage fees and the cost of feeding the crew [the
subject of the general average expenditure] are no doubt primarily
ship's liability and it does not seem possible to assert that all the
interests concerned are directly liable to pay the crew or pilot once the
general average act has been done and general average expenditure is
incurred. It is more consistent with the realities of the case to hold
that the shipowner is directly liable to pay those whom he employs,
but nevertheless in incurring the debt and making payment is acting
not only for the ship but also on behalf of all the interests concerned.
... So in the present case in my view the owners of the Greystoke
Castle pledged their own credit as principals to answer for the general
average expenditure but yet acted as agents for the contributories
including the respondents in incurring the expense. The expense being



- 11 -

thus incurred for the respondents, they can claim against the
wrongdoer to make good their loss which to the extent of one-quarter
flows from the wrongful act of the Cheldale ..." [my emphasis]

There are repeated references in Lord Porter's speech to ship and cargo being
engaged on a joint venture. At p. 297, he said:

"A further example of the fact that, because of their close connection,
ship and cargo are dealt with on the same principle is to be found in
the fact that innocent cargo carried on the ship which shares the blame
for a collision can recover against the other ship not its whole damages
but only that proportion which the carrying ship can recover against
the other ... In the case of carriage of goods by sea a general
average act is one undertaken to preserve the various interests engaged
in the joint adventure and to enable it to be carried to a successful
conclusion. Expenditure so incurred is in that sense incurred to
preserve those interests, viz., the ship's safety and carrying capacity,
the cargo's preservation and safe arrival, and the earning of the
freight." [my emphasis]

The principle established in Greystoke Castle is thus directly relevant
to the present case. When the Master called in Mr. Ducat, and thereafter
incurred expenditure for the common safety, he was acting as much in the
interests and on behalf of the cargo as of the ship. It seems almost impossible
to say, therefore, that while Mr. Ducat owed a duty of care to the ship, he
owed no duty of care to the cargo on the ground that the relationship between
the parties was insufficiently close. The fact that the cargo owners were
unaware that Mr. Ducat had been called in is quite beside the point.

So, with great respect, I find that I cannot agree with the second
ground of decision in the Court of Appeal. To my mind the necessary
element of proximity was not only present, but established beyond any
peradventure. I would only add at this point that if concern is felt that a
decision in favour of the cargo owners would open a wide field of liability,
I would reply "not so". There is an obvious, sensible and readily defensible
line between the surveyor in the present case, where the cargo was on board,
and the joint venture was in peril, and a surveyor called in to carry out a
periodic survey. Hirst J. confined his decision to the facts of the case. He
was right to do so. Mr. Aikens did not suggest otherwise.

Other considerations

I now come back to "fair, just and reasonable" and consider various
other points made in argument before your Lordships.

First, we were informed that there has never yet been a successful
claim against a classification society in tort. I do not regard this as
significant. A similar argument was advanced in Owners of the Motor Vessel



- 12 -

Tojo Maru v. N.V. Bureau Wijsmuller [1972] A.C. 243, where it was held by
this House for the first time that salvors were liable for damage caused by the
negligence of their employees, even though the salvage operation was
successful. The point was described by Lord Morris of Borth-y-Gest at
p. 272, as having far reaching consequences for salvors and shipowners alike.
But the novelty of the point was brushed aside.

Next it was said that it would not be fair, just and reasonable as
between shipowners and the classification society that the classification society
should incur unlimited liability in tort, in contrast to shipowners who are
entitled to limit under the equivalent of section 503 of the Merchant Shipping
Act 1894. I have already touched on this point. A similar point arose in the
Tojo Maru. One of the questions in that case was whether salvors were
entitled to limit their liability under section 503. It was held that they were
not. Lord Reid said, at p. 270:

"I am bound to say that I have some sympathy with the respondents on
the issue of limitation of liability. But a court must go by the
provisions which have been agreed and enacted. If the special position
of salvors was unforeseen, then we must await alteration of those
provisions if those concerned see fit to make some alteration."

Four years later, in 1976, the limitation provisions were extended to cover
salvors. It was never suggested in the Tojo Maru that the inability of salvors
to limit their liability was a ground for holding them immune from the
consequences of their negligence. Nor was any such suggestion made in Adler
v. Dickson [1955] 1 QB 158 or Midland Silicones Ltd. v. Scruttons Ltd.
[1962] AC 446.

Then it was pointed out that classification societies are charitable non-
profit making organisations, promoting the collective welfare and fulfilling a
public role. But why should this make any difference? Remedies in the law
of tort are not discretionary. Hospitals also are charitable non-profit making
organisations. But they are subject to the same common duty of care under
the Occupier's Liability Acts 1957 and 1984 as betting shops or brothels.
Take again the position of salvors. They also fulfil an important public role.
It was argued in the Tojo Maru that salvors should receive every proper
inducement on grounds of public policy, and that to hold them liable for the
negligence of their servants in the course of salvage operations would only
serve to discourage their beneficial activities. This is very similar to the
argument advanced in the present case. It did not succeed in the Tojo Maru,
and should not, I think, succeed here. It is not as if N.K.K. are unable to
afford the cost of insurance. It is the third largest classification society.
A.B.S., another non-profit making classification society, had a net income of
$11m. in 1990 on operating revenues of $122m: see Lux, Classification
Societies, (1993), p. 53. In paragraph 21(c) of his statement, Mr. Mitsuo
Abe, Executive Vice-President of N.K.K., doubts whether N.K.K. would be



- 13 -

able to survive if they were held liable for claims such as the present. I have
to say that I view this assertion with a good deal of scepticism.

Lastly, it is said (although this was not reflected in Mr. Aikens' written
submission or his oral argument) that to impose liability on classification
societies would involve an extra layer of insurance, and that this would be
wasteful and inconvenient. There was no evidence that classification societies
do not already insure. The point is simply not mentioned in Mr. Mitsuo
Abe's statement. Traditionally the courts have regarded the availability of
insurance as irrelevant to the question whether a duty of care should be
imposed: see Markesinis and Deakin Tort Law, 3rd ed., p. 114. Even if this
traditional view is gradually being displaced, it cannot be right that the courts
should reach conclusions on the availability of insurance, or the impact of
imposing a fresh liability on the insurance market generally, without proper
material. In Caparo Industries Plc. v. Dickman [1989] Q.B. 653, it was
argued in the Court of Appeal that auditors, if held liable in negligence to an
individual shareholder would find it difficult to obtain professional indemnity
cover, and that the cost, which would be high, would have to be passed on.
Bingham L.J., at p. 689, found it hard to assess this argument in the absence
of any evidence or inquiry. Taylor L.J. said, at p. 703:

"It is contended that auditors would find it difficult and cripplingly
expensive to obtain insurance cover. It is even suggested accountants
might decline to be appointed as auditors. No evidence was adduced
on this aspect of the case and if I am right about the difficulties and
disincentives affecting possible claimants the insurance problem should
not be insurmountable."

I agree with Bingham L.J. and Taylor L.J. that the court should be wary of
expressing any view on the insurance position without any evidence on the
point, and should not speculate as to the effect, if any, of an extra layer of
insurance on the cost of settling claims. For what it may be worth, I would
for my part doubt whether it would make much difference. More generally,
I suspect that a decision in favour of the cargo owners would be welcomed by
members of the shipping community at large, who are increasingly concerned
by the proliferation of sub-standard classification societies; see Lux op. cit.
page viii.

Conclusion

The overriding consideration in the present case is that the cargo
owners, as we are asked to assume, have suffered physical damage to their
cargo, and such damage was caused by Mr. Ducat's negligence, for which
N.K.K. are responsible on ordinary principles of respondeat superior. Since
the celebrated formulation of Lord Wilberforce in Anns v. Merton London
Borough Council [1978] AC 728, 751, a series of important cases in the
Court of Appeal and House of Lords have signalled the "retreat from Anns",
culminating in the decision of the House in Murphy v. Brentwood District



- 14 -

Council [1991] 1 AC 398. Almost all these decisions have concerned claims
to recover damages for economic loss, unassociated with physical damage or
personal injury. The most important exception was the Hua Lien [1991] 1
Lloyd's Rep. 309. In that case Lord Brandon of Oakbrook said, at p. 328:

"In their Lordships' view, however, the essential feature of the present
case is that the damage sued for is not purely economic loss but
ordinary physical damage to property. It follows that the decisions
relating to claims for purely economic loss to which their Lordships
have referred have no relevance to the present case."

The concept of proximity, and the requirement that it should be fair,
just and reasonable to impose a duty of care on the defendant in the particular
circumstances of the case, have been developed as a means of containing
liability for pure economic loss under the principles stated in Donoghue v.
Stevenson [1932] AC 562. At the same time, and by a parallel movement
in the opposite direction, the House has in two recent decisions reaffirmed
liability for economic loss based on the principle of assumption of
responsibility as expounded by the House in Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] AC 465, and going back beyond that decision
to Nocton v. Lord Ashburton [1914] AC 932. None of these difficulties
arise in the present case. We are not here asked to extend the law of
negligence into a new field. We are not even asked to make an incremental
advance. All that is required is a straightforward application of Donoghue v.
Stevenson. The ground is already marked out by cases such as Haseldine v.
C.A. Daw & Son Ltd. [1941] 2 K.B. 343, Clay v. A.J. Crump & Sons Ltd.
[1964] 1 Q.B. 533, Voli v. Inglewood Shire Council (1963) 110 C.L.R. 74
and Muirhead v. Industrial Tank Specialities Ltd. [1986] QB 507, 532. In
physical damage cases proximity very often goes without saying. Where the
facts cry out for the imposition of a duty of care between the parties, as they
do here, it would require an exceptional case to refuse to impose a duty on the
ground that it would not be fair, just and reasonable. Otherwise there is a
risk that the law of negligence will disintegrate into a series of isolated
decisions without any coherent principles at all, and the retreat from Anns will
turn into a rout. Having given Mr. Aikens' arguments my best consideration,
I can see no good reason why, on the facts of this case, ordinary well
established principles of the law of negligence should not be allowed to take
effect. Accordingly, I would for my part allow the appeal, and restore the
order of Hirst J.

- 15 -

LORD STEYN

My Lords,

For more than a hundred and fifty years classification societies have
classified merchant ships in the interests of safeguarding life and ships at sea.
For this purpose classification societies attend to the building of ships in order
to determine whether the ships merit classification in accordance with their
standards. Classification societies also conduct periodic surveys of ships to
ascertain whether the ships are entitled to retain classification. Moreover, if
ships sustain damage, classification societies are called in to survey the
damage and to determine what repairs must be done, and when, for the ship
to retain her classification. Such surveys are called occasional surveys.
Typically, the repairs may fall into one of two groups:

(a) those repairs which would prejudice the maintenance of
classification if not dealt with within a specified time;

(b) those repairs which, since they do not affect seaworthiness, may
be left to the owner's convenience.

While classification societies are available to render technical assistance
to other parties, and sometimes do so, instructions for the survey of a vessel
are given by owners. Owners are under irresistible commercial pressure to
obtain and maintain a classification of their vessel. The insurance of an
unclassed vessel and her cargo would not be feasible at economically
justifiable rates of premium. No sensible charterer would charter such a ship.
Owners are therefore in practice compelled to ensure that their vessels remain
in class. For that purpose owners must enter into a contractual engagement
with a classification society. The classification society will grant and maintain
classification of the ship if the requirements of its own rules and regulations
are met. And the classification society has in practice control over the
question whether a damaged vessel, without permanent repairs, will be
allowed to complete her intended voyage.

Owners have apparently never successfully sued a classification society
in England or elsewhere for breach of a contractual or tortious duty in and
about the performance their contractual engagement for a survey of a damaged
vessel. The perceived obstacle to such a claim by owners in a case of patent
damage to the hull of the vessel may be that the seaworthiness of the vessel
is the primary responsibility of the owners. There may also be formidable
problems of causation. See Sundance Cruises Corporation v. American
Bureau of Shipping, 7 F. 3d 1077 (2nd Cir. 1993), at 1084; [1994] 1 Lloyd's
Rep. 183, 211-212; International Ore & Fertilizer Corporation v. SGS Control
Services Inc. 38 F. 3d 1279 (2nd Cir. 1994). That is, however, not the issue
in this case and it is not necessary to express any view on it.

- 16 -

In this case the question is whether a classification society owed a duty
of care to a third party, the owners of cargo laden on a vessel, arising from
the careless performance of a survey of a damaged vessel by the surveyor of
the classification society which resulted in the vessel being allowed to sail and
subsequently sinking. It is a novel question. In England no classification
society, engaged by owners to perform a survey, has ever been held liable to
cargo owners on the ground of a careless conduct of any survey. Your
Lordships have also been informed that there is apparently no reported case
in which such a duty has been recognised in any foreign court. Given the fact
that surveyors of classification societies have regularly performed occasional
surveys of laden vessels for over a century and a half the novel nature of the
problem may not be entirely without significance. Ultimately, however, the
problem must be considered in accordance with our tort law as it now stands
without any a priori disposition for or against the legal sustainability of such
a claim.

The casualty

In early 1986 the bulk carrier the Nicholas H loaded cargoes of lead
and zinc concentrate at South American ports. The vessel loaded the cargo
under bills of lading which incorporated the Hague Rules. Under two bills of
lading dated 29 January 1986 the vessel loaded a cargo at Callao in Peru for
carriage to a Black Sea port. Under a bill of lading dated 6 February 1986
the vessel loaded a cargo at Antofagasta in Chile for carriage to an Italian
port. The vessel proceeded on her voyage. She developed a crack in her
hull. The master of the vessel reported this damage to the United States
Coast Guard. There was concern as to the vessel's fitness for the voyage.
The U.S. Coastguard persuaded the owners of the vessel to request their
classification society, Nippon Kaiji Kyokai ("N.K.K."), to perform a survey
of the damage. For this purpose the vessel anchored three miles off San Juan
in Puerto Rico. A surveyor acting on behalf of N.K.K. inspected the damage
to the vessel while she was at anchor. On 25 March 1986 the surveyor issued
a recommendation that the vessel should proceed to the port of San Juan, and
undergo permanent repairs in dry-dock. That would have required the
unloading of the cargo. It would have been very expensive. The owners of
the vessel objected to the idea of carrying out permanent repairs at San Juan.
Instead they instructed the vessel to proceed to the port of San Juan for
temporary repairs. The owners sent an engineer and welder to the vessel.
With the assistance of local divers they apparently carried out temporary
repairs. On 3 March 1986 the surveyor of the classification society reversed
his initial recommendation. Subject to the temporary repairs being further
examined and dealt with to the satisfaction of an attending surveyor at the
earliest opportunity after the vessel discharged her cargoes, and no later than
May 1986, the surveyor recommended that the vessel be retained in class for
her original voyage. That meant that the vessel could sail. On 2 March 1986
the vessel sailed. Shortly afterwards the vessel reported that the welding of
the temporary repairs had cracked. Despite attempted repairs at sea the vessel



- 17 -

sank a few days later. The cargo was totally lost. The value of the cargo was
in excess of US$6 million.

The cargo owners sued the shipowners, the head charterers and
N.K.K. in the Commercial Court. The cargo owners abandoned the claim
against the charterers. They settled the claim against the owners for about
US$500,000 which was the extent of the shipowners' liability having regard
to the tonnage limitation applicable to the vessel: compare the Brussels
Convention 1957, given the force of law in the United Kingdom by section
503 of the Merchant Shipping Act 1894 (57 & 58 vict. c. 60); now replaced
by the Merchant Shipping Act 1979, section 14, giving the force of law in
the United Kingdom to article 2 of the Convention relating to the Carriage of
Passengers and their Luggage by Sea ("the London Convention"). The cargo
owners pursued N.K.K. for the balance of their claim, namely a sum of the
order of US$5.7 million.

The role of the classification society (N.K.K.)

While it is realistic to accept that classification societies by and large
are constituted on a similar basis, and perform similar functions, it is right to
describe the state of evidence as to the position and role of N.K.K. in the
maritime trade. N.K.K. was founded in 1899. Its headquarters are in Tokyo.
Ir is the third largest classification society in the world. It is an international
ship classification society. It is a non-governmental and non-profit-making
entity which is registered under Japanese law as an association or foundation
"which is related to ... public interests and is not aimed at making a
profit. ..." The particular purpose for which N.K.K. exists is described in
its founding instrument (the Act of Endowment) as follows:

"Article 2 ... to promote the improvement and development of
various matters relating to ships ... so as to safeguard the safety of
life and property at sea ..."

The role of N.K.K. is therefore to promote safety of life and ships at sea in
the public interest.

N.K.K. has various statutory functions. The present case does not
involve the exercise of a statutory function by N.K.K.. That dimension of
N.K.K.'s functions can be put to one side. N.K.K. classifies ships of any
nationality. An owner who is desirous of having his ship classified by
N.K.K. submits an application for N.K.K. to carry out a survey in accordance
with the Rules and Regulations of N.K.K.. Ships classified by N.K.K. are
entered into the published Register of Ships.

Apart from classification surveys in order to obtain initial
classification, N.K.K. conducts various periodic surveys. But the present case
is concerned with an occasional survey which is required inter alia when a
ship has sustained damage to her hull, machinery or equipment to such an



- 18 -

extent that her classification may be affected. Owners are obliged to notify
N.K.K. if the vessel sustains such damage. Rule 1.1.3 of the Rules for the
Survey and Construction of Steel Ships provides:

"Where any damages to hull, machinery or equipment, which affect or
may affect classification (e.g. seaworthiness, stability) were sustained,
the application for examination of the Surveyors is to be made by the
Owners or their representatives. All repairs which may be required in
order that a ship may retain her class are to be carried out under the
inspection of, and to the satisfaction of, the Surveyors.

Rule 1.1.10 states:

"Where repairs are deemed necessary as a result of the survey, the
Surveyor will notify his recommendations to the Owner or its
representative. Upon this notification, the repair is to be made to the
satisfaction of the Surveyor."

The sanction is spelt out in regulation 3.1 of the Regulations for the
Classification and Registry of Ships. So far as it is material it reads as
follows:

"The maintenance of class of any ship is conditional upon compliance
with the requirements of the Rules for periodical, damage and other
surveys. The Committee reserve the right to suspend or cancel the
class of any ship or its machinery when:

1. The ship is not subjected to surveys for compliance with the
   Rules at their due date;

2. The ship has not been rectified in accordance with the
   Surveyor's recommendation;

3. Repair, conversion or alteration which may affect classification
   has been done without approval of the Committee; . . . '

There is an appeal procedure which enables an owner, who considers that a
recommendation made by a surveyor is unnecessary or unreasonable, to
challenge the recommendation. Subject to this qualification, a failure to deal
with a recommendation will result in the suspension or cancellation of the
classification of the ship.

The shape of the proceedings

The case came before the Commercial Court by way of a preliminary
issue which was in the following terms:

- 19 -

"Whether on the facts pleaded in the points of claim [N.K.K.] owed
a duty of care to [the cargo owners] capable of giving rise to a liability
in damages."

It is not necessary to examine the pleadings. In the Commercial Court,
in the Court of Appeal and before your Lordships' House the outline of facts,
as well as the description of the position and role of N.K.K., which I have
given, were uncontroversial for the purpose of the determination of the
preliminary issue. Moreover, in the Court of Appeal and on appeal to your
Lordships' House, four further assumptions of fact were expressly agreed for
the purpose of the determination of the preliminary issue. First, it was agreed
that by reason of their proprietary interest in the cargo the plaintiffs had title
to sue if the classification society otherwise owed them a duty of care.
Secondly, it was agreed that it was foreseeable that lack of care by the
classification surveyor was likely to expose the cargo to danger of physical
damage. Thirdly, it was agreed the damage in fact suffered by the plaintiffs
by reason of the loss of the vessel was physical damage to their goods.
Fourthly, it was agreed that the loss of the vessel and cargo was the result of
the carelessness of the N.K.K. surveyor in (a) reversing the initial
recommendation in favour of immediate permanent repairs and permitting the
vessel to continue on her voyage when only temporary repairs had been
carried out and (b) in failing to ensure that the repairs in fact carried out were
suitable to ensure that the strength of the vessel was adequate for the voyage.
In other words, on the assumption that the carelessness of the surveyor caused
the loss of the cargo the question is whether in law that carelessness amounted
to actionable negligence. In short, the question is simply whether in law the
classification society owed a duty of care to the owners of the cargo.

The judgments at first instance and in the Court of Appeal

At first instance Hirst J. (now Hirst L.J.) concluded that on the
assumed facts N.K.K. did owe the cargo owners a duty of care capable of
giving rise to a liability in damages: The Nicholas H [1992] 2 Lloyd's Reports
481. At the risk of doing an injustice to the careful judgment of Hirst J. I
would summarise it by saying that the closeness of the relationship between
the N.K.K. surveyor and the owners of the cargo led him to conclude that a
duty of care did arise. N.K.K. appealed. The Court of Appeal reversed the
decision of Hirst J: Marc Rich & Co. A.G. v. Bishop Rock Marine Co. Ltd.
[1994] 1 W.L.R. 1071. Each member of the court gave a separate judgment.
Contrary to the submission on behalf of the cargo owners, each member of the
court held that in tort claims for physical damage a plaintiff needs to satisfy
the requirements of foreseeability and proximity as well as the requirement
that the imposition of tort liability is fair, just and reasonable. But Balcombe
L.J. added that he doubted whether the words "fair, just and reasonable"
impose a test additional to that of "proximity."

The leading judgment was given by Saville L.J. Relying on the
international code constituted by the Hague Rules, he concluded, at pp.



- 20 -

1081F-1082D, it was not fair, just , and reasonable to require N.K.K. to
shoulder a duty which by the Hague Rules primarily lies on shipowners.
Secondly, Saville L.J. concluded that, absent any dealing between cargo
interests and N.K.K., the relationship between the parties does not support the
existence of care. Balcombe L.J., at p. 1089A-B, agreed with the conclusions
and reasons of Saville L.J. Mann L.J., at p. 1087D, confined himself to the
question whether the imposition of a duty of care on N.K.K. was fair, just and
reasonable. For substantially the reasons given by Saville L.J. he concluded
that N.K.K. owed no duty of care to cargo interests. The present appeal calls
into question the conclusions of the Court of Appeal.

The issues

Mr. Gross Q.C., who appeared on behalf of the cargo owners,
divided his attack on the reasoning of the Court of Appeal in three parts.
First, he submitted that, since the claim involved foreseeable physical damage
to the cargo owners' property, the additional requirements of proximity and
that it is fair, just and reasonable to impose a duty of care are inapplicable.
Secondly, and assuming that those requirements are applicable, he submitted
that those requirements are fulfilled. He described this way of putting the
case as being squarely based on the principles laid down in Donoghue v.
Stevenson [1932] AC 562. Thirdly, and very much as a subsidiary part of
his case, he submitted that N.K.K. are liable on the ground of the doctrine of
voluntary assumption of responsibility as explained in Henderson v. Merrett
Syndicates Ltd. [1994] 3 W.L.R. 761, per Lord Goff of Chieveley at 773D-H
and 789C-791B.

The requirements in physical damage cases

Counsel for the cargo owners submitted that in cases of physical
damage to property in which the plaintiff has a proprietary or possessory
interest the only requirement is proof of reasonable foreseeability. For this
proposition he relied on observations of Lord Oliver of Aylmerton in Caparo
Industries Plc. v. Dickman [1990] 2 AC 605, 632C-633D. Those
observations, seen in context, do not support his argument. They merely
underline the qualitative difference between cases of direct physical damage
and indirect economic loss. The materiality of that distinction is plain. But
since the decision in Dorset Yacht Co. Ltd. v. Home Office [1970] AC 1004
it has been settled law that the elements of foreseeability and proximity as well
as considerations of fairness, justice and reasonableness are relevant to all
cases whatever the nature of the harm sustained by the plaintiff. Saville L.J.
explained (at 1077D-E):

"... whatever the nature of the harm sustained by the plaintiff, it is
necessary to consider the matter not only by inquiring about
foreseeability but also by considering the nature of the relationship
between the parties; and to be satisfied that in all the circumstances it
is fair, just and reasonable to impose a duty of care. Of course, . . . ,



- 21 -

these three matters overlap with each other and are really facets of the
same thing. For example, the relationship between the parties may be
such that it is obvious that a lack of care will create a risk of harm and
that as a matter of common sense and justice a duty should be
imposed. . . . Again in most cases of the direct infliction of physical
loss or injury through carelessness, it is self-evident that a civilised
system of law should hold that a duty of care has been broken,
whereas the infliction of financial harm may well pose a more difficult
problem. Thus the three so-called requirements for a duty of care are
not to be treated as wholly separate and distinct requirements but
rather as convenient and helpful approaches to the pragmatic question
whether a duty should be imposed in any given case. In the end
whether the law does impose a duty in any particular circumstances
depends upon those circumstances, ..."

That seems to me a correct summary of the law as it now stands. It follows
that I would reject the first argument of counsel for the cargo owners.

The duty of care deriving from Donoghue v. Stevenson

In the course of their submissions counsel took your Lordships on a
tour of many of the landmark cases on negligence from Donoghue v.
Stevenson [1932] AC 562 to White v. Jones [1995] 2 WLR 187. In this
area the common law develops incrementally on the basis of a consideration
of analogous cases where a duty has been recognized or desired. But none of
the cases cited provided any realistic analogy to be used a springboard for a
decision one way or the other in this case. The present case can only be
decided on the basis of an intense and particular focus on all its distinctive
features, and then applying established legal principles to it. No doubt those
principles are capable of further development but, for present purposes, the
applicable principles can readily be identified and require no re-examination.

The factors pointing towards the existence of a duty of care

Not surprisingly, there are substantial factors pointing in favour and
against the recognition of a duty of care. Counsel for the cargo owners
emphasized that except for the legal question whether a duty of care exists
every element of the cargo owners' cause of action must be assumed to be
satisfied. Specifically, he emphasised that it is assumed that it was foreseeable
that carelessness of the surveyor in conducting the survey of the damaged
vessel, or in the making of recommendations, was likely to expose the cargo
actually on board the vessel to the danger of physical damage. The surveyor
was brought in because there was concern for the safety of the vessel on the
intended voyage. But exactly the same dangers would affect the hull and
cargo on that voyage. Counsel for the cargo owners argued that in the
circumstances, and in particularly in the light of the fact that the cargo was
on board when the surveyor carelessly performed his professional services,
the element of proximity was satisfied. Turning to the question whether it is



- 22 -

fair, just and reasonable to impose a duty of care on the classification society
against the cargo owners, he said that neither the contract of carriage between
owners of the vessel and the cargo owners nor the contract between the
owners and the classification society militated against the recognition of a
legal duty of care. Given that third parties, such as cargo owners, are known
in practice to rely on the recommendations of classification societies, he
submitted that it is fair, just and reasonable to recognise a legal duty of care
in this case. Alternatively, he argued that the reliance placed on
recommendations of classification societies by third parties in maritime trade
warranted an inference of an assumption of responsibility by classification
societies as against owners of cargo in cases when the survey work is
performed while the cargo is on board. Lastly, he said that a recognition of
a duty of care in such cases would promote the safety of life, ships and cargo
at sea. All these factors and arguments are relevant and must be taken into
account in the eventual decision.

Other material factors

It is now necessary to examine a number of other factors in order to
put the case in its right perspective, and to consider whether some of those
factors militate against the recognition of a duty of care. For convenience
these factors can be considered under six headings, namely

1. Did the surveyor's carelessness cause direct physical loss?

2. Did the cargo owners rely on the surveyor's recommendations?

(c) The impact of the contract between the shipowners and the owners of
the cargo.

4. The impact of the contract between the classification society and the
   shipowners.

5. The position and role of N.K.K..

6. Policy factors arguably tending to militate against the recognition of a
   duty of care.

Only after an examination of these features will it be possible to
address directly the element of proximity and the question whether it is fair,
just and reasonable to impose a duty of care.

(a) Direct physical loss?

Counsel for the cargo owners argued that the present case involved the
infliction of direct physical loss. At first glance the issue of directness may
seem a matter of terminology rather than substance. In truth it is a material
factor. The law more readily attaches the consequences of actionable



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negligence to directly inflicted physical loss than to indirectly inflicted
physical loss. For example, if the N.K.K. surveyor had carelessly dropped
a lighted cigarette into a cargo hold known to contain a combustible cargo,
thereby causing an explosion and the loss of the vessel and cargo, the
assertion that the classification society was in breach of a duty of care might
have been a strong one. That would be a paradigm case of directly inflicted
physical loss. Counsel for the cargo owners referred your Lordships to Clay
v. A.J. Crump & Sons Ltd. [1964] 1 Q.B. 533 by way of support for the
proposition that, in this case, there was a direct infliction of loss in the
relevant sense. In that case an architect assured a demolition contractor that
he could safely leave a wall standing. The demolition contractor acted on this
advice. The wall collapsed on a workman. The workman sued the architect
in tort. It was held that the architect owed a duty of care to the workman.
The architect was primarily responsible for leaving the wall in a dangerous
condition. In the present case the shipowner was primarily responsible for the
vessel sailing in a seaworthy condition. The role of the N.K.K. was a
subsidiary one. In my view the carelessness of the N.K.K. surveyor did not
involve the direct infliction of physical damage in the relevant sense. That by
no means concludes the answer to the general question. But it does introduce
the right perspective on one aspect of this case.

(b) Reliance

It is possible to visualise direct exchanges between cargo owners and
a classification society, in the context of a survey on behalf of owners of a
vessel laden with cargo, which might give rise to an assumption of
responsibility in the sense explained by Lord Goff in Henderson v. Merrett
Syndicates Ltd. [1994] 3 W.L.R. 761, 773, 789-791, in the passages
previously identified. In the present case there was no contact whatever
between the cargo owners and the classification society. Moreover, as Saville
L.J. pointed out in this case it is not even suggested that the cargo owners
were aware that N.K.K. had been brought in to survey the vessel: see [1994]
1 W.L.R. 1071, 1082B. The cargo owners simply relied on the owners of the
vessel to keep the vessel seaworthy and to look after the cargo. Saville L.J.,
at p. 1082C and Balcombe L.J., at p. 1089A, regarded this feature as
sufficient to demonstrate that the necessary element of proximity was absent.
I would approach the matter differently. In my view this feature is not
necessarily decisive but it also contributes to placing the claim in the correct
perspective.

(c) The bill of lading contracts

The first and principal ground of the decision of Saville L.J. was the
impact of the terms of the bill of lading contracts. He said (at p. 1080 E-G):

"The Hague Rules (and their successor the Hague-Visby Rules) form
an internationally recognised code adjusting the rights and duties
existing between shipowners and those shipping goods under bills of



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lading. As Sir John Donaldson M.R. said in Leigh and Sillavan Ltd.
v. Aliakmon Shipping Co. Ltd. [1985] Q.B. 350, 368, the rules create
an intricate blend of responsibilities and liabilities, rights and
immunities, limitations on the amount of damages recoverable, time
bars, evidential provisions, indemnities and liberties, all in relation to
the carriage of goods under bills of lading. The proposition advanced
by Mr. Gross would add an identical or virtually identical duty owed
by the classification society to that owed by the shipowners, but
without any of these balancing factors, which are internationally
recognised and accepted. I do not regard that as a just, fair or
reasonable proposition.'

Saville L.J. ended this part of his judgment by explicitly stating (at p. 1081H):

"The question is not whether the classification society is covered by
the Rules, but whether in all the circumstances it is just, fair and
reasonable to require them to shoulder a duty which by the Rules
primarily lies on the shipowners, without the benefits of those Rules
or other international conventions."

That question Saville L.J. (and, by adoption, Balcombe L.J.) answered in the
negative. And Mann L.J. was in substantial agreement on this point.

It was the principal task of counsel for the cargo owners to try to
dismantle the reasoning of Saville L.J. He pointed out that Saville L.J.
apparently assumed that the limitation of the claim of cargo owners against the
shipowners arose under the Hague Rules. In truth the limitation arose by
reason of tonnage limitation as already explained. This is not a point of
substance. Tonnage limitation is a part of the international code which
governs the claims under consideration. It is as relevant as any limitation
under the Hague Rules.

Moving on to more substantial matters, counsel for the cargo owners
submitted that the allocation of risks in the Hague Rules between shipowners
and the owners of cargo is irrelevant to the question whether N.K.K. owed a
duty of care to the owners of the cargo. He said the bill of lading contract on
Hague Rules terms, and the international character of those Rules, is only a
piece of history, which explains the positions in which N.K.K. and the owners
of the cargo found themselves. In the course of these submissions Mr. Gross
referred your Lordships to a valuable article by Mr. P.F. Cane, "The liability
of classification societies" [1994] L.M.C.L.Q. 363. Mr. Cane observed
trenchantly (at p. 373):

"But why should an allocation of risks between shipowners and cargo
owners be enforced as between cargo owners and classification
societies? Whatever good reasons there may be to do so, the mere
existence of the Hague Rules is surely not one of them."

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That is a cogent argument against the reasoning of the Court of Appeal.
There is, however, a further dimension of the problem that must be
considered.

The dealings between shipowners and cargo owners are based on a
contractual structure, the Hague Rules, and tonnage limitation, on which the
insurance of international trade depends: Dr. Malcolm Clarke, "Misdelivery
and Time Bars" [1990] L.M.C.L.Q. 314. Underlying it is the system of
double or overlapping insurance of cargo. Cargo owners take out direct
insurance in respect of the cargo. Shipowners take out liability risks insurance
in respect of breaches of their duties of care in respect of the cargo. The
insurance system is structured on the basis that the potential liability of
shipowners to cargo owners is limited under the Hague Rules and by virtue
of tonnage limitation provisions. And insurance premiums payable by owners
obviously reflect such limitations on the shipowners' exposure.

If a duty of care by classification societies to cargo owners is
recognised in this case, it must have a substantial impact on international
trade. In his article Mr. Cane described the likely effect of imposing such
duty of care as follows [1994] L.M.C.L.Q. 363, 375:

"Societies would be forced to buy appropriate liability insurance unless
they could bargain with shipowners for an indemnity. To the extent
that societies were successful in securing indemnities from shipowners
in respect of loss suffered by cargo owners, the limitation of the
liability of shipowners to cargo owners under the Hague(-Visby) Rules
would effectively be destroyed. Shipowners would need to increase
their insurance cover in respect of losses suffered by cargo owners;
but at the same time, cargo owners would still need to insure against
losses above the Hague-Visby recovery limit which did not result from
actionable negligence on the part of a classification society. At least
if classification societies are immune from non-contractual liability,
they can confidently go without insurance in respect of third-party
losses, leaving third parties to insure themselves in respect of losses
for which they could not recover from shipowners."

Counsel for the cargo owners challenged this analysis. On instructions
he said that classification societies already carry liability risks insurance. That
is no doubt right since classification societies do not have a blanket immunity
from all tortious liability. On the other hand, if a duty of care is held to exist
in this case, the potential exposure of classification societies to claims by
cargo owners will be large. That greater exposure is likely to lead to an
increase in the cost to classification societies of obtaining appropriate liability
risks insurance. Given their role in maritime trade classification societies are
likely to seek to pass on the higher cost to owners. Moreover, it is readily
predicable that classification societies will require owners to give appropriate
indemnities. Ultimately, shipowners will pay.

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The result of a recognition of a duty of care in this case will be to
enable cargo owners, or rather their insurers, to disturb the balance created
by the Hague Rules and Hague-Visby Rules as well as by tonnage limitation
provisions, by enabling cargo owners to recover in tort against a peripheral
party to the prejudice of the protection of shipowners under the existing
system. For these reasons I would hold that the international trade system
tends to militate against the recognition of the claim in tort put forward by the
cargo owners against the classification society.

(d) The contract between the classification society and shipowners.

Mr Aikens, QC, who appears for N.K.K., argued that the contract
between the shipowners and the classification society must be a factor against
the recognition of the suggested duty of care. He referred to Pacific
Associates Ltd. v. Baxter [1990] 1 Q.B. 993. That was a case where the
Court of Appeal held that the network of contracts between a building owner,
the head contractor, subcontractors and even suppliers militated against
imposing duties in tort on peripheral parties. In the present case the
classification society was not involved in such a web of contracts.

(e) The position and role of N.K.K.

The fact that a defendant acts for the collective welfare is a matter to
be taken into consideration when considering whether it is fair, just and
reasonable to impose a duty of care: Hill v. Chief Constable of West
Yorkshire [1989] AC 53; Elguzouli-Daf v. Commissioner of Police of the
Metropolis [1995] 2 W.L.R. 173. Even if such a body has no general
immunity from liability in tort, the question may arise whether it owes a duty
of care to aggrieved persons, and, if so, in what classes of case, e.g. only in
cases involving the direct infliction of physical harm or on a wider basis.

In W. Angliss and Co. (Australia) Proprietary Ltd. v. Peninsular and
Oriental Steam Navigation Co. [1927] 2 K.B. 456, 462, Wright J. (later to
become Lord Wright) - a great judge with special expertise in maritime law
and practice - described classification societies, such as Lloyd's, as occupying
"a public and quasi-judicial position." There is a refrain of this idea to be
found in Singh and Colinvaux, Shipowners (British Shipping Laves), vol. 13
(1967), pp. 167-169, paras. 391-394, where the editors describe a
classification society as an impartial critic and arbiter (as opposed to
arbitrator). These observations are helpful but not definitive. Nowadays one
would not describe classification societies as carrying on quasi-judicial
functions. But it is still the case that (apart from their statutory duties) they
act in the public interest. The reality is simply that N.K.K. and I am
deliberately reverting to the evidence about N.K.K. - is an independent and
non-profit-making entity, created and operating for the sole purpose of
promoting the collective welfare, namely the safety of lives and ships at sea.
In common with other classification societies N.K.K. fulfils a role which in



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its absence would have to be fulfilled by states. And the question is whether
N.K.K., and other classification sometimes, would be able to carry out their
functions as efficiently if they become the ready alternative target of cargo
owners, who already have contractual claims against shipowners. In my
judgment there must be some apprehension that the classification societies
would adopt, to the detriment of their traditional role, a more defensive
position.

(f) Policy factors.

Counsel for the cargo owners argued that a decision that a duty of care
existed in this case would not involve wide ranging exposure for N.K.K. and
other classification societies to claims in tort. That is an unrealistic position.
If a duty is recognised in this case there is no reason why it should not extend
to annual surveys, docking surveys, intermediate surveys, special surveys,
boiler surveys, and so forth. And the scale of N.K.K.'s potential liability is
shown by the fact that N.K.K. conducted an average of 14,500 surveys per
year over the last five years.

At present the system of settling cargo claims against shipowners is a
relatively simple one. The claims are settled between the two sets of insurers.
If the claims are not settled, they are resolved in arbitration or court
proceedings. If a duty is held to exist in this case as between the
classification society and cargo owners, classification societies would become
potential defendants in many cases. An extra layer of insurance would
become involved. The settlement process would inevitably become more
complicated and expensive. Arbitration proceedings and court proceedings
would often involve an additional party. And often similar issues would have
to be canvassed in separate proceedings since the classification societies would
not be bound by arbitration clauses in the contracts of carriage. If such a duty
is recognised, there is a risk that classification societies might be unwilling
from time to time to survey the very vessels which most urgently require
independent examination. It will also divert men and resources from the
prime function of classification societies, namely to save life and ships at sea.
These factors are, by themselves, far from decisive. But in an overall
assessment of the case they merit consideration.

Is the imposition of a duty of care
fair, just and reasonable?

Like Mann L.J. in the Court of Appeal [1994] 1 W.L.R. 1071, 1085H,
I am willing to assume (without deciding) that there was a sufficient degree
of proximity in this case to fulfil that requirement for the existence of a duty
of care. The critical question is therefore whether it would be fair, just and
reasonable to impose such a duty. For my part I am satisfied that the factors
and arguments advanced on behalf of cargo owners are decisively outweighed
by the cumulative effect, if a duty is recognised, of the matters discussed in
paragraphs (c), (e) and (f), i.e. the outflanking of the bargain between



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shipowners and cargo owners; the negative effect on the public role of
N.K.K.; and the other considerations of policy. By way of summary, I look
at the matter from the point of view of the three parties concerned. I
conclude that the recognition of a duty would be unfair, unjust and
unreasonable as against the shipowners who would ultimately have to bear the
cost of holding classification societies liable, such consequence being at
variance with the bargain between shipowners and cargo owners based on an
internationally agreed contractual structure. It would also be unfair, unjust
and unreasonable towards classification societies, notably because they act for
the collective welfare and unlike shipowners they would not have the benefit
of any limitation provisions. Looking at the matter from the point of view of
cargo owners, the existing system provides them with the protection of the
Hague Rules or Hague-Visby Rules. But that protection is limited under such
Rules and by tonnage limitation provisions. Under the existing system any
shortfall is readily insurable. In my judgment the lesser injustice is done by
not recognising a duty of care. It follows that I would reject the primary way
in which counsel for the cargo owners put his case.

Assumption of responsibility

Given that the cargo owners were not even aware of N.K.K.'s
examination of the ship, and that the cargo owners simply relied on the
undertakings of the shipowners, it is in my view impossible to force the
present set of facts into even the most expansive view of the doctrine of
voluntary assumption of responsibility.

Conclusion
For the reasons already given I would dismiss the appeal.

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