Law Report: No duty owed to cargo owner: Marc Rich & Co AG v Bishop Rock Marine Co Ltd and others: the Nicholas H: Court of Appeal (Lord Justice Balcombe, Lord Justice Mann and Lord Justice Saville) 3 February 1994

The requirements for imposing a duty of care are the same whether the loss caused by the breach of duty is physical damage or purely economic loss. Whatever the nature of the damage sustained, it is necessary to consider the foreseeability of the damage, the nature of the relationship between the parties and whether it is fair, just and reasonable to impose a duty of care.

The Court of Appeal allowed an appeal by the third defendant, classification society Nippon Kaiji Kyskai, against Mr Justice Hirst's decision, on a preliminary point of law, that on the facts pleaded the society owed a duty of care to the plaintiff cargo owner, Marc Rich & Co.

Two weeks after the Nicholas H embarked on her voyage from Peru to Italy loaded with cargoes of lead and zinc concentrate, she anchored off San Juan, having reported a crack in her hull.

After some repairs a surveyor acting on behalf of her classification society recommended that the vessel continue but that the repairs should be dealt with at the earliest opportunity after discharge of the cargo. The day after the vessel sailed from San Juan in Peru she reported that the temporary welding repairs had cracked, and she sank a few days later. The cargo was totally lost.

The cargo owner's proceedings against the shipowners were settled by a payment of a proportion of its claim. The classification society was sued in negligence for the balance of the claim.

Richard Aikens QC and Jonathan Harvie QC (Norton Rose) for the society; Peter Gross QC (Lovell White Durrant) for the cargo owner.

LORD JUSTICE SAVILLE said the first issue was concerned with what the law required for the imposition of a duty of care. The essential issue between the parties was whether there was a difference in kind or merely in degree between cases where the negligence had caused physical damage to the plaintiff's person or property and cases where the damage was of a purely economic nature.

In recent years there had been a number of cases which dealt with situations where no physical damage had resulted from the carelessness in question, but where the claimant had sustained financial loss or expense. The law drew no fundamental difference between such cases and those where there was damage to person or property. Whatever the nature of the loss sustained, the court approached the question in the same way.

The remedy the law afforded in both cases was by way of financial compensation. There was neither logic nor common sense in seeking to draw any distinction between financial loss caused directly and financial loss resulting from physical injury or damage.

Mere foreseeability of harm to the plaintiff had never been the sole touchstone in the modern law of negligence. In all cases more was required. Whatever the nature of the harm sustained by the plaintiff, it was necessary to consider the matter not only by inquiring about foreseeability but also by considering the nature of the relationship between the parties; and to be satisfied that in all the circumstances it was fair, just and reasonable to impose a duty of care. Those three matters overlapped and were really facets of the same thing.

Whether the law did impose a duty in any particular circumstances depended on those circumstances. In differing circumstances the same or similar factors might take on a different significance.

Turning to the circumstances of the present case, the cargo was loaded under bills of lading that incorporated the Hague Rules. The consequence of that under English law was that the shipowners were under a non-delegable duty to the cargo owner to use due diligence to make the vessel seaworthy before and at the beginning of the voyage.

To impose a duty on the classification society in favour of the cargo owner would add an identical or virtually identical duty owed by the classification society to that owed by the shipowners, but without any of the internationally recognised balancing factors in the Hague Rules. That was not just, fair or reasonable. There was a coherent system of internationally recognised law which placed the primary burden of caring for the cargo on the shipowners.

There did not exist a relationship between the cargo owner and the society which could support a duty of care owed by the latter to the former. There was no dealing of any nature between them. The balance of rights and duties between the cargo owner and shipowners had been settled on an internationally acceptable basis and there was no good reason for adding to or altering that by imposing on the society a like duty. The appeal would be allowed.

LORD JUSTICE MANN, concurring, said that the critical question was whether it would be fair, just and reasonable to impose a duty of care. The existence of a contractual claim against the owners for breach of a non-delegable duty as to seaworthiness was the decisive reason for regarding it as unfair, unjust and unreasonable that the cargo owner should have a claim against the society.

LORD JUSTICE BALCOMBE, also concurring, said that the relationship between the cargo owner and the society was not of sufficient proximity nor would it be fair, just or reasonable to impose a duty of care.