Class Society’s Liabilities with regard to “unseaworthiness” under Turkish Laws (Would be safe to keep working there or some possible escape come true ?)

In General:

In the past, it was found essential in the shipping sector that general standards on competency and certification for the internationally seagoing ships were in need. That need was met by the Classification Societies which were, actually, established in the second half of 18th century as a supporter of insurance companies/underwriters by providing them with the reports on the ships’ conditions and other technical status. Nowadays, class societies became most trustable institutions on providing safety and security of seas and ships.

As well known, a Flag State is under duty and authorisation to establish the necessary proceedings in order to provide “seaworthiness” of a ship. In Turkish Republic, Turkish flag vessels’ seawothiness are surveyed and approved in accordance with the International Conventions. The responsibility lies not on the ministry level, since here, there is no Ministry specifically dealing with maritime, instead an Under-Secretariat of Maritime Affairs is the highest authority which in fact has governing link with Ministry of Transport.

Under-Secretariat, each year announce a list which consists of a number of Class Societies (member of IACS) ofwhich their credibilities are acknowledged by the Turkish Republic. All vessels bearing turkish flag must approve their seaworthiness by obtaining survey reports and the certifications inspected and produced by those institutions. To top of that Under-Secretariat produces a paper of seaworthiness which is not common for EU state administrations.

Under Turkish maritime laws and the practice, those class certificates are accepted as only prima facie evidence, so contrary facts and evidence can always be raised and proved and the Port Authorities are always entitled to check if she is ok with concerning seaworthiness requirements.

There is no provision in any Turkish Codes defining the “contract” made between the Shipowners and the Class Societies. In doctrine, there are some arguements and thesis about its legal structure, considering as service contract, contract of work, contract of mandate (trustee relation) respectively. The Judges/Arbitrators tend to follow the general/special conditions of the contract as long as they are not contradict with the existing rules of compulsory in nature.

In case of a conflict occurred between a Turkish owned ship and the Class Society and brought before the Turkish Court or the Turkish Arbitration then the judges/arbitrators who were expected to make a decision to release a verdict or an award should be dealing with two cornerstone Codes: Turkish Commercial Code (TCC) (Code number 6762) and Code of Obligations (CoO).

Existing Turkish Commercial Court contains a provision (art 1) indicating that “all of those articles stipulated in TCC are also considered a part of general laws.” This points out the Code of Civil and Code of Obligations. By this status, a judge and/or arbitrator can not see the case as one exclusively attached to TCC unless there exist some provisions attributable, explicitly, to the issue in dispute. The judge or arbitrator can not immune itself from scrutinazing the provisions of the Code of Obligations (CoO).

Class societies have two main functions which are to provide “classification services” and “statutory certification services” in maritime industry. Purpose of classification services is to ascertain the physical conditions and safety conformities of ships in accordance with the rule book of classification society. Meanwhile, statutory services are mainly relating to the conformity of ships to the international conventions and national law.

This statutory duty is actually a duty of Under-Secretariat of Maritime Affairs but Turkish laws allow the Maritime Authority to let private entities to perform this job of surveyance for conforming international standards in the name of and on behalf of the flag state . Class Societies provide statutory certificates on completion of their surveyance. There seems to be an implied requirement that those class societies must be authorized . As a usual practice, there should be a “contract of authorization” between Under-Secretariat of Maritime Affairs and the Class Society. Otherwise, they cannot carry out any business in Turkey.

There is a need for another contract too: The contract between the shipowners and the class society. The authorised CS normally get into business relation with ship-owners through a contractual link.

To Get Business in Turkey a Need for an Authorization for Class Societies

The statutory duty of surveying the ships for the purpose of sea and ship’s safety has long been a duty of Turkish Under-Secretariat of Maritime Affairs, however, it was preferred that the authorization was assigned to internationally well-known and credited ship surveyance and classification societies by a contract of assignment of authorization. It is obvious that many flag states use the same method. For unification of this practice IMO and EU tried to design some rules on assignment of authorization . Currently, the authorization of the class societies is made in accordance with the rules provided by Regulation of Authorization . This authorization is given for a certain period of time not exceeding five years in each occasion.

The CS who has this authorization may enter into a contract with the shipowners in order to survey the ship. By enterring a contractual relation a CS is assumed to be the trustee of the ship-owner who is assumed to be the principal. However the impartiality of the CS is thoroughly required.

The responsibility against the authorities for meeting the standards of seawothiness of the ship rests always with the ship-owner, however ship-owners may open a recourse action to CS and.or its subsequents and or the sub-contractors of CS.

In case of a ship-owner chooses to change the class society then all of the details of the work carried out by that time must be informed to Administration (Under-Secretariat of Maritime Affairs). The subsequent class society is not allowed to carry out its work until all the alterations and repairs required by the previous class society are actually met by the ship-owner. In case of occurrence of signs of non-following the instructions and rules of the Administration by the class society then first notice I sent to correct the deficiencies in service and if nothing changes then the authorization is put on suspension period which runs for three months or it may be decided to an end.

Class societies’ work is so much to deal with seaworthiness of the ships. Proven is acceptable by the port authorities on showing of class certifications on each occasion.

For a Specific Work ? Need a contract between the Ship Interest and the CS

As the contract for the surveyance and/or classification of the ship is made between the ship-owner and the class society, it must be mentioned here that disponent-owner or charterer might be in the place of the ship-owner, too. Since the time saving would be crucial for the ship side, who might be utterly keen on using his ship immediately in the shipping trade, it is practically recognized that the contract also made for both the classification and the surveyance for certification together between the ship-owner and the class society.

In UK law, this contract is considered as service contract with the performance of care and due diligence . However, it differs in views in continent. German law contains two doctrinal views of which one is in favour of service contract and the other is for the sake of contract of construction (work) . Greek law considers it as contract of mandate (attorney agreement). French law has two views as contract of mandate and service contract . Under Turkish law doctrine, there have been several arguments in defining this contract which is actually an undertaking by the CS to fulfill the surveyance and then release certain certificates and classification of a ship against the ship interest. However, mainly three views are raised here, namely, service contract view, contract of work view and contract of mandate (attorney agreement or trustee agreement) view.

Service Contract View:

Service contract is not only designed in Turkish Labour Code but also in Code of Obligations. It is limited for a real person in Labour Code but not in Code of Obligations, therefore, corporate body is regulated by Code of Obligations. The characteristic of a service contract can be defined as being a labour (employee) undertaking to work under the instructions of the employer for a certain period of time in consideration for a fee. The labour is considered having strong connection with the employer. From this point the class societies’ position as being a labour is weakening because of the impartiality of the work utterly expected from a CS. This characteristic is alone may lead in avoiding the probability of being a service contract view. In some, corporate body cannot be considered as labour although there is no restriction to that effect in Code of Obligations.

Contract of Work View:

Within that type of contract the contractor undertakes to construct a thing (either substantial or intellectual) in consideration for a fee. CS performs two main functions such that surveying the ship and making the ship classified and if this contract is considered as contact of work then it is expected that there would be an affirmative outcome of this contact. However, CS performs its work, literally, within two steps, surveying and classifying, and if the outcome was a producing of class certification it would have been the positive result of the surveyance made by CS previously. In the case of previous result was negative then no classification certificate would have been released. Therefore, that contract cannot be considered as contract of work. Remembering also that in contract of work the contractor may somehow be under the supervision of the other contractual party, but this is not so for CS’ work.

Contract of Mandate (Trustee) View:

The trustee, hereby, undertakes to fulfill a specific request of the principal in consideration for fee, but while performing it the trustee (or attorney if it is a legal work) is not under the supervision of the principal, free from principal’s intervention, but the trustee is to act for all benefits of the principal. Additionally, the trustee’s undertaking is to fulfill the transactions not to provide the expected result. The expected result of the CS’ performance is that of a producing of the class certification, however CS donot bear the risk of no availability of producing class certification. Since CS is free and impartial of any interference of the shipowner (principal) but to provide a fulfillment of a work, it is generally considered as contract of mandate under Turkish law doctrine. This view is also supported by the highest court “Yargitay” .

The contract between ship interest and the CS, in principle, is subject to freedom of contract. The terms of the contract are, usually, derived from the Rules Book of the CS. The civil law principle of “good will” prevails if the balance of benefit of each party is disrupted. CS has under the obligations of such that the performance of the surveyance and classification work, duty to care and diligence and loyalty. During the performance of surveyance, CS investigates the structural plans, hull, machinery and electricity systems, and related issues to do with seaworthiness. The ordinary trustee’s duty to care and diligence is recognized as the same as an employer’s duty of care and diligence which must be shown on performing their work. However, CS’ work needs a specialized profession and an experience, for that reason duty of care and diligence is more complicated in CS’ position. For instance, by depending on a ship interest’s knowledge of deficiencies in the skills employers and/or staffs of CS should not relieve CS from its liabilities. Concerning the loyalty issue, in normal trustee relationship the trustee must pay more attention to the interests of the principal than its own. In CS’ rules book, the border of the duty of loyalty is explicitly designed. The difference than the normal relation of trust is that of the compulsory disclosure of the information about the ships they involved in when this is asked for by the port states and flag states.

CS would be liable if there is no performance of the surveyance and/or production class certification. In art 96 of the Code of Obligations, it is mentioned about a prima facie liability that CS is pre-admitted negligent. Therefore, burden of proof lies on CS, not to be negligent. CS is also held liable if it performs its work with no care and due diligence, if the work is not as it is expected to be than the ship interest is not obliged to accept the work as done. Additionally, even if the ship interest accepts it as it is, it is still entitled to apply for a remedy in law. There are four elements that the claimant must prove: namely, the breach of the obligation undertaken by CS, ship interest’s damage actually occurred, the tie of causation between act or non-act and the result in damage, CS is in fault.

Responsibility for Sub-Contractor ?

It is obvious that CS is responsible for the acts and/or omissions of its servants. However, we should find out if CS is also liable for the acts and/or omissions of the sub-contractor. This also includes sub sub-contractors. The individual surveyors are also recognized as in this concept, no matter whether they are servants of the CS or bind by separate service contract. The liability for sub-contractors is designed in art 100 of the Code of Obligations. According to this article, a contractual party is to be responsible for the other party’s damage given by the sub-contractor to whom the performance of the contractual obligation was assigned. This article is generally accepted as non-mandatory and general provision therefore can be stipulated to the contrary in any contract in accordance with the freedom of contract doctrine. A special provision stipulated for the contract of mandate (attorney) in art 391 of the Code of Obligation. In that circumstance, it is admitted that in the case of any CS assigning its duty to the other institution doing same classification is liable for its acts and/or omissions during the time of preforming this duty. However, a CS remains liable for other sub-contractor’s acts and/or omissions (if it is appointed for the performance of other possible duties) in accordance with the art 100 of the Code of Obligations.

There should also be an authorization for the assignment of the surveyance and classification duties to a sub-contractor . This can be provided either in an explicit provision in the contract or it can be derived from a custom . Where CS has no establishment than it is no doubt CS has to appoint a local institution which must have the authority from the State’s Administration to the same effect. Turkish Regulation of Authorization has no restriction on this issue. CS is, also, under the duty of care and diligence in choosing the proper sub-contractor.

Escape of Responsibility ? Contractual Provisions Concerning Liabilities and Limitations:

Class Societies usually tend to find escape holes of the liabilities by stipulating a disclaimer/non liability/immunity clause or limitation of liability clause. Those are valid provisions and not considered as null and void. Actually, those provisions are acceptable according to art 99 and 100/2 and 3 of the Code of Obligations under Turkish Law. However, in some jurisdictions the courts have a tendency to disregard those non-liability/immunity clauses. For that reason, Classification Societies, mostly, try to make the benefit of limitation clauses instead.

In fact, a contract between the Shipowners and the Class Society may contain a clause, giving an assurance of limiting the liability and/or providing some escape holes of the liability for a Class Society, such as;

“In providing services, information, or advice, the CS (“Classification Society”) does not warrant the accurracy of any information or advice supplied. Except as set out in these Terms and Conditions, CS will not be liable for any loss, damage, or expense sustained by any person and caused by any act, omission, error, negligence, or strict liability of any of the CS or caused by any inaccuracy in any information or advice given in any way by or on behalf of the CS even if held amount to a breach of warranty. Nevertheless, if the Client uses the services or relies on any information or advice given by or on behalf of the CS and as a result suffers loss, damage, or expense that is proved to have been caused by any negligent act, omission, or error of the CS or any negligent inaccuracy in information or advice given by or on behalf of the CS, then CS will pay compensation to the Client for its proved loss up to but not exceeding the amount of the fee (if any) charged by CS for that particular service, information, or advice.

Notwithstanding the previous clause no member of the CS will be liable for any loss of profit, loss of contract, loss of use, or any indirect or consequential loss, damage, or expense sustained by any person caused by any act, omission, or error or caused by any inaccuracy in any information or advice given in any way by or on behalf of the CS.”

“Nevertheless, if the Client uses the Services or relies on any information or advice given by or on behalf of the CS and as a result suffers loss, damage, or expense that is proved to have been caused by any negligent act, omission, or error of the CS or any negligent inaccuracy in information or advice given by or on behalf of the CS, then CS will pay compensation to the Client for its proved loss up to but not exceeding the amount of the fee (if any) charged by CS for that particular service, information, or advice.”

Although, that kind of a stipulation is a valid stipulation there might be some circumstances that this stipulation have no place to to be called. There some intervening articles in CoO to that effect.

Articles in Turkish Code of Obligations related to the Shipowners vs Class Society Relations :

We, now, look at some articles in Code of Obligations (CoO). Although those rules do not directly refer to SC and sh’p-woners relations but were found by Turkish Judges proper to apply into such conflicts. Those articles, namely, are art 96, art 99 and art 100, art 105, art 158-161 and art 391 of the Obligations Code.

CoO art 96 says, “if any contractual party,who asks for other party’s work, does not gain, wholly or partly, what it is expecting from the other party, the other party is to be liable to pay the damage unless other party proves that there is no negligence attrıbutable on his part”

CoO art 99/1 says, “if any contractual provision provides an immunity of a liability for a contractual party for a fraudulent (it is construed as equivalent of wilful misconduct) act and/or gross negligence (culpa grosso) attributable to, this is null and void.”

CoO art 99/2 says, “in case of slight negligence (culpa levis), the judge may have a discretion whether this immunity clause is null and void, if the demander (party who expects a work from other party-contractor) became an employee of the contractor at the time of the claiming the immunity clause or the contractor’s liability is depending on a performance of a duty which is granted as a privilege by the Government.”

CoO art 100/1 says, “Any person who endorses a use of a right or a performance of a duty (obligation in accordance with the existing laws, to an employees (servants) and/or persons who live with, would be responsible against other party for the damages which they may cause during their performance.”

CoO art 100/2 says, “the responsibility for the acts of employees (servants) and/or persons who live with may be excluded, wholly or partly, in the contract”

CoO art 100/3 says, “if the demander (party who expects a work from other party-contractor) is an employee of the contractor or the contractor’s liability is depending on a performance of a duty which is granted as a privilege by the Government, the contractor may exempt its responsibility only for slight negligence in the contract.”

CoO art 105/1 says, “In case of the damage, which the demander (creditor) suffers, is higher than the interest legally accrued for the past time, the contractor (debtor) shall indemnify unless it is proven that no negligence is attributable to.”

CoO art 158-161 is about penalty clauses which parties may choose to use in their contracts, no need to transfer into english here.

CoO art 386/2 says, “the provisions of contract of mandate may also be applicable for the contracts not ruled by any other legal rules”

CoO art 391 deals with contract of mandate (trustee relation) and mentions about the situation that if the contractor endorses its duty to a sub-contractor, the contractor is still under a duty to act due diligently and instruct the sub-contractor. This article concerns, also, the Class Societies since they usually prefer to use sub-contractors in other countries in order to have them performed their surveyance & classification duties in the name of and on their behalf.

This art 391/2 of CoO says, “In the case of having authority to appoint a sub-contractor, the contractor shall act and instruct due diligently”.

CoO art 391/3 says, “all and every rights of the contractor have against the sub-contractor may be used by the principal directly to the sub-contractor.”

Supposing the contract between shipowners and class societies contains a clause indicating that the class society is entitled to appoint sub-contractor and if this sub-contractor is a class society in nature, then art 391/2 shall be taken into account. This also be the same if sub-contractor appoints other contractor to fulfill the same work but the art to be applied would be art 391/3 instead.

However, if sub-contractor is in other nature such as then art 100 is to be applies to the conflict. Since this article puts a general view, in the case of sub contractor appointed in other nature then art 100/1 applies which indicating that any person who endorses a use of a right or a performance of a duty (obligation) in accordance with the existing laws, to an employees (servants) and/or persons, would be responsible against other party for the damages which they may cause during their performance. That amounts to the contractor is to be liable in choosing the sub-contractor or instructing sub-contractor if no due diligence was performed. Burden of proof of contrary lies on the contractor.

In case of no authority is given to CS to appoint sub-contractor but nevertheless in the contract then CS is to be responsible for the act and/or omissions of the sub-contrator such that as if CS acted and/or omitted. This time art 391/1 of CoC prevails. This article stipulates that the contractor is liable all the acts and omissions of the sub-contractor as if the contractor made all. Cover of responsibility rests in art 96-100 of CoO instead of art 391/2 of CoO.

There is also a draft for Maritime Safety Code, which is led by Maritime Undersecretariat. In this draft art 44/B contains a provision resembling to the one exists in the contract between shipowners and class society as such; “the responsibility of a class society shall be one of a negligence bases and may limited and/or exempted in the case of slight negligence by simply adding an immunity clause.”

Below there would be a brief scrutinizing of the admiralty court decision released very recently which may cause some worries amongst the Class Societies.

Recent Court Decision concerning LRS’ Responsibility:

The conflict was occurred between Cerrahogullari Umumi Nakliyat Vapurculuk & Ticaret TAS and the Lloyd’s Register of Shipping .

The facts of the Case (in brief) :

The lawsuit, officially, openned on the date of 13.10.1997 and local court released its decision on the date of 8.5.2008 then case was appealed by the defandents.

“Cerrahoğulları Umumi Nakliyat Vapurculuk ve Ticaret TAŞ” was registered owner of the vessel called “Efes” that time. Registered ship-owner (plaintiffs) basicly claimed in their petition that the seaworthiness documents, which were approved by Maritime Under-Secretariat, had actually been prepared in an outcome of the surveyance and release of class certificates provided by the “Lloyd’s Register of Shipping” which its work was done on contractual basis on a special survey. All of the seaworthiness documents were released on 24.6.1994.

This special survey was a five year survey subject to the National and International Rules. This survey was, actually, carried out by Mügesan AŞ, a Turkish company, which was placed the approved correspondences list of the Lloyd’s Register of Shipping. The ship-owners chose that surveyance company by themselves amongst the correspondences in this list . It is well known that the authorization of using some correspondences in Turkey had been given to the LRS (Lloyd’s Register of Shipping) in accordance with the article 5 of the Turkish Code of Protecting Life and Goods at Sea.

Then, the vessel “Efes” was put on time-charter for a certain period of time on 30.6.1994 to Transatlantic Bulk Shipping AB (time-charterer). The vessel “Efes” was delivered to the charterer in Gibraltar. Then she was sent from Ghent (Belgium) to Cartier-Lake District (Canada) in order to receive some cargo which was arranged by the time charterer.

During the passage of Atlantic Ocean the vessel was unloaded and experienced a severe weather condition. According to the evidence understood from the court case files, it was a force of 12 beaufort but this weather condition was not considered as unusual for this time of the year.

Vessel arrived at port Cartier on 10.1.1995. Both Canadian Port Authority staffs and local LRS examined the vessel. Port Authority found the vessel was not suitable for carrying that cargo since she was found unseaworthy. Port Authority did not allow “Efes” to sail back to Belgium through the ocean and, instead, asked for the repair and meeting the standards nearby.

Independent survey institution LRS in Canada stated that the measurements, which were made and certified in Istanbul (which was assessed under by Vine Gordon and Co Ltd), was actually defected and had severe difference (between 50-100%) with the measurement made here in Canada. So thin was the thickness of the steel of the hull recorded in the report of The Salvage Association surveyors placed in Port Cartier and the vessel was found unseaworthy but allowed for coastal voyage for the sake of repair and later came back to the loading Port Cartier but again refused due to unsatisfactory work done near loading Port Cartier. The vessel “Efes” was this time sent to Halifax for repair but nothing achieved. On return a temporary certificate was provided by the Port Cartier just for sailing back to Istanbul.

Here mention more about the difference: the special survey in Istanbul and survey in Cartier differs in subdivisions in holds of hull and 209 to 213 posts which were in fact not inspected. Inner bottom part, top side tank sloping plates, tank inner apparatus were found rusty, subdivisions were found faded, high oxidation was also noticed and recorded, this would not have been due to ordinary wear and tear and also due to severe heavy weather since six (6) months passed only after the usual five years survey. And that was considered because of the unsatisfactory survey made in Istanbul.

After all those misfortune events, the time charterers terminated the charter and claimed for their damages against the ship-owners. Ship-owners not only suffered by the claim made by the time charterers but also the expenses and charges experienced due to the attempts to make the vessel seaworthy as it was required by the port authority.

In the end, the vessel was considered scrap and deleted from the ship registry in Port of Istanbul.

The ship-owners (the plaintiffs) decided to sue the Class Society (the defendants) claiming on mainly for the broken due to care due diligence due on CS for the work of making the vessel seaworthy which was stipulated on a contract.

The CS (the defendants) denied the responsibility mainly depending on there was no link between their acts on work and the result of unseaworthiness (causa proxima). The CS defended itself that CS was not to blame for what they had done for their surveyance and classification work. CS depended also to the exemption/limitation clause by indicating that even if there had to be established a responsibility on their side this was subject to the limitation clause stipulated in the contract made between the ship-owner and CS.

CS made another argument too. The defendants put forward that the actual survey was carried by Istanbul established company “Mügesan AŞ” so that CS should not be blamed for. CS also pointed out that the heavy weather conditions experienced during ocean passage might have been the cause for this damage on hull and perils of the seas allowed CS to escape from the responsibility.

CS, in fact, used a sub-contractor in Istanbul for the survey and classifying. All the documents and reports made by Mügesan AŞ and this company was indeed in the list of correspondences and its reports were approved by LRS.

Appeal Court construed the contract made between the shipowners and the class society as contract of mandate, referring art 391/1 of CoO , therefore the class society has a duty to perform due diligence in classification and surveyance procedure and if it fails in acting due diligently then provisions of art 99 and 100 prevail the contractual immunity clause. In this case, the judges construed the service given by the corresponding company has literaly commercial link with the service provided by the class society and therefore the corresponding company is regarded as sub-contractor of the CS. The negligence of the employees of the corresponding company caused the class society liable due to non performance of due diligence on the works of the employees of this company.

It must be emphasized that the judge found Mügesan AŞ (sub-contractor) and naturally LRS in gross negligence and was not in favour of the immunity or limitation clause in the contract. The verdict also contains a wording that CS has a right to make a recourse action against the sub-contrator.

As it is seen, the claim was on contract, the verdict given allocated only one paragraph on construing the nature of the contract (it is not that satisfactory) and found it as contract of mandate which is in art 391 of Code of Obligation and came to the point that gross negligence occurred and art 99 is applicable, therefore immunity or limitation clause is not justifiable. Hope that may be some help to you and I would be pleased if you need my assistance in any sort of manner.

If any CS would think to stop its activity in Turkey is uncertain for anyone.

Author: Prof Dr Vehbi S Ataergin