Court issues Redwood decision concerning liability of classification societies

Decision
Comment

The Genoa Court of Appeal recently issued its decision in Redwood, which concerned the liability of classification societies. The appeal court quashed the first-instance decision, which had found Lloyd's Register liable for damages suffered by the time charterers of the vessel Redwood (for further details please see "Liability of classification societies").

Decision

The Genoa Court of Appeal overruled the precedent decision of the Tribunal of Genoa by denying the liability of the classification society and rejecting the time charterers' (claimants) demand.

The tribunal had affirmed the liability of Lloyd's Register in a case where the Redwood – having received the highest classification according to the register (LR 100 A1) – was detained by the Hamburg Port Authority subsequent to an inspection and discovery of a number of deficiencies.

According to the tribunal, the vessel should not have been accorded the highest classification; nor should it have been granted a clean class certificate. Consequently, the claim for damages filed by the time charterers (which were forced to discharge their cargo previously loaded onboard the vessel) was granted on the following assumptions:

• The charterers had relied on the classification certificate when concluding the charterparty; and
• The certificate had been wrongly issued as a result of the classification society inspectors' negligence.

The Genoa Court of Appeal carried out an in-depth analysis of the principles of law contained in the first-instance decision by recognising that the liability of a classification society should be affirmed in the event that, when concluding contracts in respect of a vessel (eg, charterparties, sale and purchase and insurance contracts), a third party relies on certificates wrongly issued by the classification society.

However, the court placed a heavy burden of proof on the claimants: in order to establish the liability of the classification society, they had to give evidence that they had effectively relied on the certificate issued by the classification society before concluding the contract concerning the wrongly classed vessel.

Therefore, the court held that the claimants could succeed in their claim for damages against the classification society only if they discharged the following burdens of proof:

• that they had effective knowledge of the certification issued by the classification society;
• that such knowledge had been acquired before conclusion of the charterparty; and
• that they had relied specifically on the contents of the certificate issued by the classification society when deciding whether to conclude the contract of charter.

Since in Redwood the claimants had failed to provide specific evidence that they had entered into the charterparty subsequent to consulting either the certificate of class or the Lloyd's Register website, their claim was dismissed.

Comment

These judgments of the Tribunal of Genoa and the Genoa Court of Appeal are landmark decisions which constitute important case law in the matter of liability of classification societies. The Genoa Court of Appeal judgment in particular will undoubtedly attract the attention of maritime lawyers around the world.

Although the principle of liability for the negligence of classification societies towards third parties (deriving from the issuance of inaccurate certificates of class) has been reaffirmed, the Genoa Court of Appeal has effectively removed any practical effect of this principle of law by imposing an extremely high burden of proof on claimants.

The mere reliance on the fact that the vessel was trading and sailing (and was even insured) by virtue of the class certificate wrongly issued by Lloyd's Register was considered insufficient, as there was no specific evidence that the third party (buyer of the vessel, time charterer or insurer) had actual knowledge of, and relied on, the wrongfully issued certificate (before entering the contract of purchase, the time charter or the contract of insurance).

For further information on this topic please contact Maurizio Dardani or Marco Manzone at Dardani Studio Legale by telephone (+39 010 576 1816), fax (+39 010 595 7705) or email (maurizio.dardani@genoachambers.it or marco.manzone@genoachambers.it). The Dardani Studio Legale website can be accessed at www.dardani.it.