Cerrahogullari Umumi Nakliyat Vapurculuk & Ticaret TAS v Lloyd`s Register of Shipping
(Istanbul Denizcilik Ihtisas Mahkemesi, case no 2006/173, verdict no 2008/147; Yargitay11.Division 2008/10423 verdict no 2010/4146;Yargitay11.Division case no 2010/8525 verdict no 2010/9053)

The vessel EFES, owned by the claimants, underwent its special five-year survey by the defendants` local correspondent Mugesan AS in June 1994. All of the necessary repairs, changes and additions were made in accordance with the rule book of the defendant class society, Lloyd`s Register of Shipping (LRS), and all certificates were approved and submitted to the Istanbul Port Authority (regional agent of maritime administration) and a certificate of seaworthiness obtained. The EFES was thereafter time chartered toTransatlantic Bulk Shipping AB-Gothenburg. Later, the vessel was ordered to sail from Ghent (Belgium) to Cartier (Canada) in ballast and there load cargo. En route she experienced heavy weather, registering 10 ^12 on the Beaufort scale, which was weather not unforeseeable given the time of year.The EFES reached Cartier on10 January1995.

After an inspection at Cartier by the Canadian Port State and the defendants` surveyors, the EFES was found to be unseaworthy and not suitable to load cargo. The local representative of the defendants indicated in their report that there were significant differences between the two surveys undertaken,theoneinIstanbulandtheotherinCartier,revealingadiscrepancyofbetween50to100 per cent in the hull`s steel thickness.The survey at Cartier also revealed that the subdivisions in the holds and the posts between 209 and 213 had not been inspected in Istanbul.The inner bottom part, the top side sloping plates and the inner elements of the tanks and side walls were found to be in a rusty condition, the subdivisions to be faded, and high oxidation was also noted. The EFES was permitted to undertake a coastal voyage for the purpose of allowing repairs to be carried out; but permission to carry cargo was again refused due to the unsatisfactory nature of the work done in carrying out the temporary repairs. The vessel was however allowed to sail back to Istanbul in ballast with temporary certificates.

Because of the unseaworthiness of the EFES at the load port, the time charterers terminated the charterparty and commenced legal proceedings against the shipowners. The time charterers also arrested a sister ship, the ISTANBUL, as security for their claim.

Against this background, the claimants claimed under their insurance made on ITCH 83 terms, with the EFES declared a constructive total loss.The claim was settled by agreement, but the EFES was not abandoned to the insurers and the vessel was later sold for scrap.

Surveys carried out by the Salvage Association at Cartier and Vine Gordon & Co Ltd at Istanbul revealed that the special survey undertaken in Istanbul had been carried out negligently, because the defects which materialised in the course of the voyage to the load port, just six months after the special survey, could not have been caused by the severe weather conditions encountered.

The issues

The claimants (shipowners) sued the defendant classification society, Lloyd`s Register of Shipping (LRS), in theTurkish Admiralty Court, alleging that the defendants had been negligent in issuing the class certificate of seaworthiness for the EFES, which later turned out not to represent the true condition of the vessel. The claim was disputed by the defendants on the grounds that:

(a) the steel thickness (density) tests had been carried out by the local company Mugesan AS without the authorisation of the defendants.The defendants submitted an approved certificate signedbyDetNorskeVeritasonbehalfofMugesanAS,seekingtoestablishthatMugesanAShad not been acting on behalf of LRS;
(b) the special survey did not extend to an evaluation of the vessel`s condition of seaworthiness;
(c) after the survey carried out at Istanbul the vessel had not encountered any problems until the time it reached Cartier, which indicated that the cause of the vessel`s loss of condition was the severe sea conditions encountered en route;
(d) theseaworthinesscertificatehadbeenissuedbytheFlagStateAuthority,andnotbythe defendants;
(e) the performance of the thickness tests was not a compulsory element of the work carried out by the defendants; nor was there any obligation to supervise the party which actually carried out the tests;
(f) there was no causal link between the acts of the defendants and the unseaworthiness of the vessel; and
(g) evenifliabilitywasestablished,theexclusionclauseinthecontractbetweenshipownersand defendants was applicable and exonerated the defendants.

Five expert witness reports were introduced and placed on the file.The majority approach taken by the experts identified Mugesan AS to be in the position of a sub-contractor, and accepted that the work it carried out had been designated and assigned to it by the defendants.These conclusions were supported by the fact that Mugesan AS was included in the correspondents list of the defendants, indicating that it was an approved organisation for the purposes of certification.

The decision

The Admiralty Court (Istanbul Denizcilik Ihtisas Mahkemesi), a first instance court, (case no 2006/ 173, verdict no 2008/147) held that the defendant classification society, Lloyd`s Register of Shipping (LRS), was liable to compensate the shipowners as a consequence of the gross negligence and/or omissions of the sub-contractor (Mugesan AS) in accordance with section 100 of the Code of Obligations and also as a consequence of its own non-performance of its due diligence obligation in certifying the vessel in accordance with section 99 of the Code of Obligations.

The judgment also held that LRS had the right to a recourse action against the sub-contractor.

The Appeal Court (Yargitay) approved this judgment (Yargitay 11.Division 2008/10423 verdict no 2010/4146) and returned the case to the Admiralty Court for the determination of outstanding issues. Although the main arguments were solved and determined by the Appeal Court (Yargitay 11.Division case no 2010/8525 verdict no 2010/9053), some arguments are still pending concerning the quantification of the damages.


This case is an example of the impact of Turkish legal doctrine on legal disputes before theTurkish courts. It is a case, in all probability, that will not be welcomed by classification societies.

Classification societies under Turkish Law

A classification society has a twofold role.The first is issuing rules for safe shipping and the conduct of surveys to ensure that the rules are applied properly. The second is a service provided on behalf of national maritime authorities under service contracts, to ensure the application of international maritime standards and the issue of official confirming certificates to ships registered in the state in question.These duties fall directly on flag and port states, which are obliged to ensure the safety and safe navigation of ships in accordance with the UNCLOS Article 94/(3)(4)(5). However, according to SOLAS Article 1(6), a flag state may assign its duties in relation to the surveying and compliance of registered ships to an approved institution.TheTurkish Code of Safety of Life and Goods at Sea (Codeno 4922), section 5, allows the national maritime administration, without any further inspection, to approve certificates issued by an approved institution.

The defendant class society, LRS, was one of the institutions on the list of `approved institutions` which entitled it to conduct surveys on behalf of theTurkish Maritime Administration. LRS was also a member of International Association of Classification Societies (IACS). IMO Rules are applicable to class societies, since IACS has ties with IMO. The Rules of IACS declare that a classification society must itself perform the measurement tests, consultancy work, surveying and approval responsibilities. However, the duty relating to the hull steel thickness test may be assigned to a third party, if authorised by the relevant classification society, although a person designated by the classification society is required to be present and supervise the survey.There is also a requirement that sub-contractors must be appointed from a list of `service providers`.The usual expectation made of a classification society is that it will exercise due diligence in the examination of a vessel`s seaworthiness, whether this work is done by itself or a sub-contractor.

The general judicial approach

It is a broad principle that classification societies do not warrant that a vessel is in a seaworthy condition; this is the shipowner`s responsibility. This general approach is derived from English and American case law. In general, if a classification society performs its responsibilities unsatisfactorily a claim may be brought in one of two ways: in tort or in contract. This analysis deals with the contractual route. However, it is a necessary backdrop to take a quick glance at some of the relevant cases.

In the American case Ryan Stevedoring Co. Inc v. Pan Atlantic Steamship Corp. 350 U.S. 124 (1956), an `implied warranty of workmanlike performance` was recognised in relation to a stevedore company which had entered into a contract with a shipowner.The case involved a stevedore company which failed to secure cargo while unloading, causing injury to another stevedore. The injured stevedore sued the shipowner alleging breach of its duty to provide a seaworthy vessel. In the context of this claim the judge held that the stevedoring company was responsible for its own employee`s negligence, since the stevedoring company had given the shipowner a warranty of workmanlike performance in respect to the stow, and the unsafe securing of the cargo amounted to a breach of this warranty. This in turn provided the shipowner with a right to an indemnity against the stevedoring company. Despite the fact that the case was not concerned with classification societies the attempt has been made to apply the Ryan doctrine to classification societies in a number of subsequent cases.

In Great American Ins.Co. v. M/V Kapitan Byankin (The Great American) No C-96 - 0258 (N D Cal 1996) the court held that classification societies owed a duty to exercise due care, but for several reasons did not recognise the duty as a warranty. First, there was not any physical damage to the vessel; secondly, the burden of proof was on the shipowner and it had not been discharged, and thirdly, for an implied warranty to exist there must be a product of manufacturer with the classification society placed in the position of an insurer.

In another US case, Sundance Cruises Corporation, Sci Cruises Inc. v. The American Bureau of Shipping (The Sundancer) [1994] 1 Lloyd`s Rep 183, a ferry was converted into a luxury cruiser and ABS entered into an agreement with the shipowner for the inspection of the vessel and the performance of regulatory checks on behalf of the Bahamian government. Surveyors of ABS observed the conversion work carried out in Sweden. ABS issued a five-month provisional Load Line certificate, a SOLAS passenger ship safety certificate, and it also issued a classification certificate with regard to compliance with the society`s rules on the watertight integrity of vessels.The Sundancer later collided with rocks and two watertight compartments in the bulkhead failed, with the consequence that sea water rushed into the vessel which sank at a nearby pier, but no lives were lost. The vessel was declared a constructive total loss. The shipowner claimed that two holes in the bulkhead were a violation of SOLAS and ABS Rules, and that the absence of valves in the grey-water system was also a violation of SOLAS.The shipowner also referred to the Ryan case.

The court found that the classification society had not created the defects in the vessel causing her to sink and were not liable. In the Ryan case there had been present expertise, supervision, monitoring and the ability to prevent an accident, but the service provided by the classification society in the present case was different from that of the stevedoring company in the Ryan case. According to the judge, the shipowner had to prove that it intended to use the certificates issued as substantial evidence indicating that the ship was seaworthy, but, nonetheless, the shipowner could not transfer his non-delegatable duty to provide a seaworthy vessel. The judge reasoned that to allow an action against a classification society for damage sustained by an inspected vessel would also be unfair because, in effect, it would make the classification society an absolute insurer of any vessel it classified, and that this was not the intention of the parties.

In Marc Rich & Co AG and others v Bishop Rock Marine Co Ltd Bethmarine Co Ltd and Nippon Kaiji Kyoki (The Nicholas H) [1992] 2 Lloyd`s Rep 481, the vessel Nicholas H suffered a crack in her hull while on a voyage loaded with cargo. The classification society NKK inspected her in San Juan and temporary repairs were carried out. The NKK surveyor recommended that the vessel could proceed on her voyage to the discharging port where further repairs could be done. Unfortunately, she sank with her cargo on this voyage. The cargo owners commenced an action against the classification society in tort. It was held that the recognition of a duty in tort on the part of classification societies to provide a seaworthy vessel would be unfair, unjust and unreasonable as against shipowners, who would ultimately have to bear the cost of keeping the vessel seaworthy. It would also be unfair for classification societies, notably because they act for the collective welfare and, unlike shipowners, they do not have the benefit of limitation of liability.
In Reino de Espana v. American Bureau of Shipping (528 F. Supp. 2d 455-SDNY 2008), a case relating to the Prestige, which memorably broke into two parts, causing significant oil spillage on the coast of Spain and France, the court rejected the coastal state`s argument that ABS owed a duty to coastal states,whichcouldforeseeablybeharmedbyitsconduct,torefrainfromrecklessbehaviour.Ifsucha duty was recognised, there would exist a disproportionality between the relatively small fee paid to classification societies for their services and their potentially limitless third party liability (729 F Supp.2nd 635, 646-SDNY 2010). The court also recognised that classification societies were entitled to the benefit of the limitation of liability conventions.

A French court at first instance took a different view of the right to limitation under the conventions in the Erika case.The tanker split into two parts during its passage across the Bay of Biscay in heavy seas. It was held that the Italian classification society RINA had been negligent in carrying out a survey of the vessel. However, on appeal, the court recognised that it had been performing a public function which entitled it to governmental immunity (Erika Decision, Paris Court of Appeals, area 4, division 11E,General Register No 08/02278, 30 March, 2010 p 325).

In another tort case, The Morning Watch [1990] 1 Lloyd`s Rep 547, in connection with the sale of a yacht, LRS carried out a special survey and the seller, on receipt of an interim certificate from LRS, offered the yacht for sale with a note that she had passed her special survey.The buyer found several defects after the purchase and commenced legal proceedings against LRS. It was held that there was an insufficient degree of proximity between the classification society and the purchaser of the Morning Watch. A classification society`s primary objective was to use its best efforts to enhance safety of life and property at sea; the court`s determination might have been different if its duty had been to guarantee safety of life and property at sea and not merely to enhance it.

Inatortcasein2003,OttoCandiesLLCvNipponKaijiKyokaiCorporation,(346F3d530,5thCir2003), the buyer of a vessel brought a legal action against the vessel`s classification society alleging negligent misrepresentation. The classification society was found liable because it had actual knowledge that the purchaser was relying upon its surveys, and it negligently failed to discover defects that led to the loss suffered by the purchaser. Nonetheless, the general approach adopted by the court was that classification societies should not be held liable for acts of simple negligence; and that third parties should not, in the absence of compelling evidence to the contrary, be able to claim reliance on the work of or documentation issued by classification societies, as this would undermine the non-delegable duty of shipowners to maintain seaworthy vessels, as emphasised in the Great American (above).

Takingaverybroadviewoftheauthoritiestheyappeartoindicateadifferenceinnationalapproaches. The common law courts appear to be much more protective of classification societies than the French courts and also, as this commentary will indicate, theTurkish courts.

Approach of the Turkish courts to the characterisation of the contract between shipowners and classification societies 

In thisTurkish litigation, against a background of continental rather than common law, the first issue for the judge was as to determine the legal characterisation of the contract between the shipowner and classification society.The second issue was to determine whether there had been negligence and, if so, the degree of that negligence. The third issue related to the possibility of the application of the exclusion clause embodied in the contract between the shipowner and classification society.

Although maritime provisions are included in theTurkish Commercial Code, the judge cannot detach his analysis from the provisions of the Code of Obligations, since the Turkish Commercial Code, in section 1, acknowledges that it is also part of the Civil Code, which includes the Code of Obligations. The reason for this is the possible need to resolve a legal dispute where there is an omission or gap in the Turkish Commercial Code and thereby enable the judge to refer to the provisions of the Code of Obligations as the most convenient rule of law. Since there was no express provision in the Commercial Code or Code of Obligations applicable to the precise kind of contract which existed between the shipowner and classification society, the judge faced an initial issue relating to the characterisation of the contract.
The judge addressed this question by referring first to Professor Sami Okay`s view of `contracts of work`, whereby the contractor undertakes to construct a substantial or intellectual thing in consideration for a fee (M. Sami Okay Deniz Ticareti Hukuku C.I, 3rd edi, Istanbul 1970, 117). Secondly he referred to French doctrine relating to the `service contract view` whereby the labourer undertakes to fulfill his service subject to the orders and instructions of the employer (P BoissonThe Liability of Classification Societies in the Marine Industry pp 1^26 in Classification Societies ed J Lux LLP 1993). Thirdly, he referred to the concept of the `contract of mandate`, which has been supported by Professor Turgut Kalpsuz, under which the trustee undertakes to fulfil a specific request of the principal in consideration for a fee, but while acting for the benefit of the principal the trustee is free from any intervention on the part of the principal (Turgut Kalpsuz DenizTicareti Hukuku C.I, Ankara, 1971, 161) and finally to the recent PhD thesis of Duygu Damar (Contractual Liability of Classification Societies LLM Thesis, Istanbul 2005).

After analysing these opinions, the Admiralty Court judge took the view that the duty of classification societies was analogous to that of a trustee`s obligation to exercise due diligence in relation to a contract of mandate. In a contract of mandate, the trustee (the defendant classification society) undertook to fulfil a specific request of the principal (the shipowner) in consideration of a fee, but while performing it the classification society was not under the supervision of the principal, it was free from the principal`s intervention, but, nonetheless, the class society was to act for the benefit of the shipowners. The expected result of the classification society`s performance was the production of a class certification, but the classification society was not under the compulsory duty to produce a class certificate if the condition of the vessel did not justify it (Yargitay 15.Civil Law Division dated 9.3.1978, case number 1977/2113 E and verdict number 1978/463 K).

The Admiralty Court judge based his analysis on sections 390 and 391 of the Code of Obligations, where contracts of mandate are stipulated. Section 390 sets out the general definition of the contract of mandate and Section 391/2 stipulates that the contractor shall act and instruct with due diligence,inacasewherethereisauthoritytoappointasub-contractor.Thejudgetooktheviewthat a classification society`s duty to act with due diligence was analogous to a trustee`s duty to act with due diligence, as in the case of a contract of mandate. Even in the absence of authority, according to section 391/1 the trustee (the classification society) is vicariously responsible for the acts of an assignee, as if they were the acts of the trustee itself.

The relationship between contractor and sub-contractor

The judge then ascertained that the survey had been performed by Mugesan AS, a local contractor. As a general rule LRS would have been expected to perform this duty itself. However, the difficulty in employing sufficient staff and establishing the necessary organisation at all ports results in classification societies being permitted to assign work to third party service providers. IMO regulations and the Rule Book of classification societies indicate that such sub-contractors must carry out their work on behalf of and in the name of the assigning classification society, including the issue of certificates.This is what had been done in the present case, with LRS`s stamp applied to all documents issued.

In fact, Mugesan AS was recorded in Lloyd`s Register List of Firms Approved for Thickness Measurement of Hull Structure as a second class correspondent. This was viewed by the judge as evidence supporting the conclusion that Mugesan was a sub-contractor of LRS. With regard to the hull steel thickness tests they are in the first place to be conducted only by Lloyds Register of Shipping, according to LRS`s Rules and Regulations for the Classification of Ships Division 1, Part 3, Chapter 7. However, if the work is assigned to another company, a first class third party`s work is to be monitored by the random check method and a second class third party`s work is to be checked by a class surveyor. Mugesan, being a second class sub-contractor/surveyor, was required to be checked by the contractor/class surveyor, in this case LRS.This duty LRS had failed to perform and as a result the judge found LRS to be liable.

LRS attempted to raise a defence based on the fact that Mugesan AS had been issued with an approved certificate signed by Det Norske Veritas, indicating that LRS was not the classification society which certified Mugesan AS. The defence failed because it ignored the IACS Rules which provide members with the opportunity of using any sub-contractor approved by other classification society members. This provision was also set out in IACS`s Requirements Concerning Survey and Certification Rules.

The judge went further and expressed the opinion that there was a presumption of solidarity between Mugesan AS, as sub-contractor, and LRS, as the contracting classification society, in accordance with sections 7 and 12 of theTurkish Commercial Code.

The fact that Mugesan AS was actually paid by the claimants did not make any difference to the conclusions arrived at by the court; the reality of the position was that Mugesan AS was a local correspondent of LRS. The concept of sub-contractor included not only persons who assisted the contractor in performing the work undertaken but also the person to whom the work is wholly assigned. The court came to the conclusion that the service provider Mugesan AS was a sub- contractor of LRS and performed its work under the supervision of LRS, which brought the position within the concept envisaged in section 100 of the Code of Obligations. Section 100/1 provides, in effect, that with regard to third party liabilities, the liability is shared as between contractor and sub-contractor.

Was the exclusion clause applicable?

Classification societies invariably incorporate an exclusion clause when entering into a contract with shipowners and this case was no different.The technical expert`s reports found that the classification society`s failure to discover the deficiencies in the vessel amounted to gross negligence. Having accepted that evidence, the judge proceeded to deal with the question whether the exclusion clause in the contract between the parties was applicable, in accordance with sections 99 and 100 of the Code of Obligations.

The Judge established the liability of LRS to be two fold. First, the classification society was in breach of its own primary obligations and, secondly, it was vicariously liable for the sub-contractor`s negligent acts and/or omissions. Section 99/1 applied to the classification society`s primary responsibilities. This section stipulates that if there is wilful misconduct (the section says `fraudulent acts`, but this is to be construed as equivalent to wilful misconduct) and/or gross negligence attributable to a contracting party, an exemption clause in the contract is rendered null and void. Accordingly the classification society could not rely on the exclusion clause, since it was guilty of gross negligence.

The vicarious liability for the negligence of sub-contractors is provided for in section100 of the Code of Obligations. According to section 100/1, a contracting party is responsible for third party loss caused by the negligence of a sub-contractor to whom performance of the contractual obligation was delegated. Following the technical expert`s reports there was no escape from liability for LRS which had approved the work of the sub-contractor, Mugesan AS. However, section 100/2 provides that liability arising from the acts of employees and/or persons who collaborate, may be excluded, wholly or partly, by the contract. Although this section might mean `a release from liability for a classification society`, the judge went further and construed the work of LRS as privileged work provided by the government. It is stipulated in section 100/3 of the Code of Obligations that if the contractor`s liability depends on performance of a duty which is granted as a privilege by the government, the contractor may exempt its contractual liability only for slight negligence on the part of the sub-contractor. In the circumstances this did not assist LRS because, as previously observed, it was found to have been grossly negligent.

The judge also stated that the defendants had the right to commence a recourse action against the sub-contractors since there was a presumption of solidarity between the sub-contractor and classification society in accordance with sections 7 and 12 of theTurkish Commercial Code.

Final point

This case is slightly different from many of the cases cited in this commentary which mainly dealt with tort liabilities. The present case concerned contractual liability, which takes matters in a different legal direction and one that is of a very different character inTurkish law compared with common law doctrine.To some extent, theTurkish Court appears to be developing matters even beyond that of the French court in the Erica case.

Author: Prof Dr Vehbi S Ataergin