Marc Rich & Co v Bishop Rock Marine Co [1995] UKHL 4

Cargo owners sued a classification society after its surveyor negligently approved a damaged ship for sailing, which later sank. The House of Lords held the society owed no duty of care, finding it not fair, just, or reasonable to impose one.

Facts

The vessel “Nicholas H” was carrying the respondents’ (Marc Rich & Co) cargo when it developed a crack in its hull during a voyage. The ship’s master arranged for temporary repairs in port. The shipowners engaged a surveyor from N.K.K. (Nippon Kaiji Kyokai), a non-profit classification society, to inspect the repairs. The surveyor recommended that the vessel undergo permanent repairs after discharging its cargo. However, after temporary repairs were welded over the crack, the N.K.K. surveyor declared the vessel fit to continue its voyage to its original destination. Shortly after resuming its journey, the vessel’s hull failed, it sank, and the entire cargo was lost. The cargo owners received a fraction of their loss from the shipowners, whose liability was limited under the Hague-Visby Rules. The cargo owners then brought an action in tort against the classification society, alleging its surveyor had been negligent in approving the vessel’s departure.

Issues

The central legal issue before the House of Lords was whether a classification society owes a duty of care in tort to the owners of cargo carried on a vessel which the society has surveyed and certified as seaworthy. This determination rested on the application of the tripartite test established in Caparo Industries Plc. v. Dickman, which requires consideration of:

1. The foreseeability of the damage;
2. A relationship of proximity between the parties;
3. Whether it is fair, just and reasonable to impose such a duty of care.

While foreseeability was conceded and proximity was arguable, the case turned entirely on the third limb of the test.

Judgment

The House of Lords, in a 4-1 majority decision, held that no duty of care was owed by the classification society to the cargo owners. The leading judgment was delivered by Lord Steyn.

Reasoning of the Majority

Lord Steyn, delivering the main speech, focused his analysis on whether it would be ‘fair, just and reasonable’ to impose a duty of care on N.K.K. He concluded that it would not be, for several interdependent policy reasons:

• The Contractual Structure: Lord Steyn emphasised the internationally recognised network of contracts in shipping law (bills of lading incorporating the Hague or Hague-Visby Rules) that governs liability and allocates risk between shipowners and cargo owners. This framework provides a settled structure for insurance and liability. To impose a tortious duty on the classification society would disrupt this carefully balanced commercial arrangement. Lord Steyn noted:
  

  My Lords, the present case can also be viewed as a search for the best allocation of the risk of the cargo being lost … The network of contracts … provided a contractual route for recovery for the cargo owners against the shipowners … It would be a striking departure from the spirit of the Hague-Visby Rules if a classification society could be held liable to the cargo owners for the full amount of their loss.

• The Role of the Classification Society: The court considered the primary purpose of classification societies, which is to promote the safety of life and property at sea for the collective good, not to protect the specific commercial interests of cargo owners. Imposing liability could conflict with this public-facing role.
• Impact on the Society: A finding of liability could lead to classification societies adopting defensive practices, increasing their fees to cover potential liability or insurance costs, with the ultimate economic burden falling on shipowners and their customers.
• Indeterminate Liability: If a duty were owed to cargo owners, it would be difficult to deny a similar duty to a potentially vast and indeterminate class of other parties who might suffer loss, including the shipowner, the crew, and others affected by a maritime incident.
• Ability to Insure: The cargo owner is the party best placed to insure the cargo against risks, and indeed had done so. The court was reluctant to use tort law to provide a redundant remedy, effectively allowing the cargo insurers to subrogate their loss to the society’s liability insurers.

Lord Steyn concluded that these factors, when weighed together, militated against the imposition of a duty of care. He stated:

For the reasons I have given I would hold that N.K.K. owed no duty of care to the cargo owners. That makes it unnecessary to consider the question of causation. I would allow the appeal.

Dissenting Judgment

Lord Lloyd of Berwick delivered a powerful dissent. He argued that all three stages of the Caparo test were satisfied. He found that by directly intervening and making a recommendation upon which the ship’s continued voyage depended, the society had assumed a responsibility towards the cargo owners. He believed the policy arguments against imposing a duty were exaggerated and that finding a duty of care in this specific situation would not open the floodgates to widespread litigation against classification societies.

Implications

The decision in Marc Rich is a landmark case in the law of negligence, particularly concerning claims for economic loss. It serves as a significant check on the expansion of the duty of care, re-emphasising that the ‘fair, just and reasonable’ criterion is a distinct and critical policy-based control mechanism. The judgment demonstrates the courts’ unwillingness to interfere with established contractual risk allocation frameworks in complex commercial contexts, showing deference to the solutions developed by the market and international conventions. It reinforces the principle that tort law should not be used to circumvent limitations on liability agreed by contract or to provide a secondary layer of insurance where parties can, and are expected to, protect their own interests.

Verdict: The appeal was allowed. The House of Lords held that the classification society, N.K.K., did not owe a duty of care to the cargo owners.

Source: Marc Rich & Co v Bishop Rock Marine Co [1995] UKHL 4