Unseaworthiness and liability under Turkish law

The dispute was between the plaintiff Cerraho ulları Umumi Nakliyat Vapurculuk & Ticaret TA (the shipowner) and the defendant Lloyd’s Register of Shipping (‘LRS’; the classification society). The shipowner claimed that the seaworthiness documents of Efes, which were released by the classification society following the five years special survey carried out in accordance with national and international rules, did not reflect the real condition of the vessel and therefore caused over US$2.5m damage.

The Efes was time-chartered to Transatlantic Bulk Shipping AB and sent from Ghent (Belgium) to Port Cartier in Lake District (Canada) in order to receive cargo arranged by the time charterer. During the passage across the Atlantic, the vessel experienced severe weather conditions. According to the evidence presented to the court, the wind force was 12 beaufort which was not considered
unusual at that time of the year.

On arrival, both Canadian Port Authority staff and a local representative of LRS examined the vessel. LRS in Canada stated that the measurements made and certified in Istanbul had been defective and that there was a significant discrepancy (between 50-100 per cent) compared to the measurements made in Canada. So thin was the steel of the hull recorded in the report of the Salvage Association surveyors placed in Port Cartier that the vessel was found unseaworthy. She was only allowed coastal voyages for the purpose of repair and return to the load port, but permission to sail was again refused due to the work
done being unsatisfactory. The Efes sailed to Halifax for repair and upon her return, a temporary certificate was provided by Port Cartier, just for the purpose of sailing back to Istanbul.

The survey in Port Cartier differed from the Istanbul survey with regard to the subdivisions in the holds and due to the 209 to 213 posts which were in fact not inspected. The inner bottom part, the top side tank sloping plates and the tank’s inner apparatus and side walls were found rusty, subdivisions were found faded, high oxidation was noticed and recorded. None of these deficiencies could have been due to ordinary wear and tear or heavy weather since only six months had passed after the usual five year survey. In the end, the vessel was scrapped and deleted from the Port of Istanbul Ship Registry. Following these unfortunate events, the time charterers terminated the charter and claimed damages from the ship-owners. The shipowner suffered not only the loss arising from the claim of the time charterers, but also the expenses and charges incurred to make the vessel seaworthy as required by the port authority.

The shipowner sued the classification society, claiming that it was in breach of its duty of due diligence arising from the contractual undertaking of making the vessel seaworthy, so the dispute was not in tort but in contract.

The classification society denied liability, arguing that there was no causative link between its actions and the unseaworthiness, therefore it was not liable for its survey and classification work. The classification society also relied on the exemption and limitation clause in the contract between the classification society and the shipowner. Thus, even if liability was established, this was subject to the limitation clause. In addition, the classification society argued that the shipowner chose the Turkish company Mügesan AS and the actual survey was carried out by Mügesan AS , therefore if there had been any negligence, this was attributable to the sub-contractor not the classification society. The classification society also pointed out that the heavy weather conditions experienced during the ocean passage might have been the cause of some damage to the hull, relieving the classification society from liability.

In fact, Mügesan AS was in the correspondence list of the classification society. LRS allowed the usage of this sub-contractor for the survey and classification by the shipowner. The class documents and reports were prepared and released by Mügesan AS. However, this company’s reports and work were approved by LRS since Mügesan AS was in the list of correspondence (this authorisation to assign its power to survey to a sub-contractor had been given to LRS in accordance with section 5 of the Turkish Code of Protection of Life and Goods at Sea to use a sub-contractor from their correspondence list).

The dispute was first heard by the Istanbul Admiralty Court on 13 October 1997 (case no 2006/173) and decided on 8 May 2008 (judgment no 2008/147) after a 10 years trial. The judgment was appealed by the classification society. The Appeal Court made its decision in 2010 (Appeal Court-Yargitay 11th Division; case no 2008/10423 verdict no 2010/4146); Yargitay 11th Division then heard the case for the second time for procedural correction (case no 2010/8525 verdict no 2010/9053).

On appeal, the Appeal Court construed the contract made between the shipowners and the classification society as a ‘contract of mandate’. The court reached that conclusion based on s 391/1 of the Code of Obligations (CoO). This provision specifies that under a contract of mandate, the contractor is under a duty of due diligence while choosing and instructing the sub-contractor wherein the contractor assigns its duty to a sub- contractor. This section also concerns classification societies since they often use sub-contractors to perform surveying and classification duties. The contract of mandate view was earlier accepted by another Appeal Court 15th Division Case No 1977/2113 Verdict No 1978/463, applied here as precedent.

Once the contract of mandate view was accepted it was also considered as a contract based on trust. LRS relied on the exemption clauses. However, exemption clauses concerning the contractor’s own gross negligence (s99 CoO) and/or a sub-contractor’s gross negligence (s100 of CoO), contained in the contract between the shipowner and the classification society are regarded as null and void if they are stipulated in a contract based on trust and if this work depends on a performance of the duty granted as a privilege by the Government.

The classification society had been under a duty of care in the classification and surveying procedure. Section 391/2 CoO provides that where there is authority to appoint a sub-contractor, the contractor shall act and instruct with due diligence - where the contractor had failed to act with due diligence, s99 prevailed over the contractual immunity clause. Section 99/1 CoO provides that if any contractual provision provides an immunity from liability for a contractual party for a fraudulent act and/or gross negligence (culpa grosso) attributable to that party, that contractual provision is null and void. There is another article indicating that in the case of a duty given as governmental privilege, only minor negligence can be exempt from liability (s99/2 CoO). The purpose of s99 is to establish the liability of the contractor for its own acts in negligence.

Section 100 of CoO governs exclusion clauses, too. Section 100/1 provides that any person who delegates the use of a right or the performance of a duty to employees is liable to the other party for the damage they may cause during their performance. According to s100/2, liability for the acts of employees or servants may be excluded, wholly or partly, in the contract. Section 100/3 provides that where the claimant is an employee of the contractor or the contractor’s liability depends on a performance of a duty granted as a privilege by the government, the contractor may exclude liability only for minor negligence in the contract. Section 100 is obviously designed for the contractor’s responsibility for the acts of the sub-contractor.

The Appeal Court held that LRS, which held a privilege granted by the government, had been grossly negligent in the approval of its sub-contractor Mügesan AS’s erroneous certificates. This was LRS’s own duty and the decision depended on s99/1 CoO. However, LRS was additionally found liable for its sub-contractor’s gross negligence for faulty surveying and classification procedures, which cost the shipowner more than US$2.5m. The service provided by Mügesan AS had a commercial link with the service provided by LRS and therefore the correspondent company was deemed a sub-contractor of the classification society. Therefore, the decision of the Appeal Court judges was based on s100/3 of the CoO.

The Admiralty Court Judge and Appeal Court Judges thus found that Mügesan AS and via Mügesan AS also LRS had been grossly negligent. The judge found that the exemption clause with regard to immunity could not prevail, since there had been gross negligence on the part of the classification society. However, the judgment also entitles LRS to a recourse action against the sub-contrator. Although the claim was in contract, the judgment dedicates only one paragraph to the construction of the contract. The contract was construed as a contract of mandate under s391 CoO. Further, gross negligence had occurred and that called into play not only s99/1 but also s100/3 CoO, so that the immunity or limitation clause could not survive due to the fact that sub-contractor and the contractor were in gross negligence.