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GREAT AMERICAN INS. CO. v. BUREAU VERITAS

February 22, 1972

GREAT AMERICAN INSURANCE COMPANY et al., Plaintiffs,
v.
BUREAU VERITAS, Defendant


Tyler, District Judge.


The opinion of the court was delivered by: TYLER

TYLER, District Judge.

This case arises out of the sinking of a Liberty Ship, TRADEWAYS II, while on a voyage from Antwerp, Belgium to the Great Lakes ports of this country. The vessel, which was owned by the World Tradeways Corp. ("World Tradeways") and chartered by Midland Overseas Trading Corp. ("Midland"), lost her watertight integrity on October 21, 1965 and sank on the following day with loss of the entire cargo and the lives of 11 members of her crew. Plaintiffs World Tradeways, and the insurance companies, with whom Midland and World Tradeways had policies, have settled the various claims asserted against their clients and now seek, by subrogation, indemnification from the defendant, Bureau Veritas, the ships classification society which had surveyed and classified the TRADEWAYS II just prior to her unfortunate voyage. It is plaintiffs' theory that the defendant in surveying and classifying the vessel undertook to provide services pertaining to the seaworthiness of the vessel. It is further alleged that the fact that the vessel sank in unextraordinary circumstances, and other evidence, show that these services were performed either in negligent fashion or were provided in breach of the defendant's implied warranty of workmanlike service, thereby proximately causing the catastrophe which befell the TRADEWAYS II. This case was tried before this court on May 17, 18 and 19, 1971. By agreement of counsel, the trial was limited to the issue of liability.

 Insofar as plaintiffs have failed to meet their burden of proving by a preponderance of the evidence that the alleged breach of warranty or duty was the proximate cause of the sinking, that there were in fact breaches of either warranty or duty, or that the principles of either tort or contract law would entitle them to recovery, judgment is entered in favor of the defendant.

 FACTS

 Tradeways II (hereinafter sometimes referred to as "TRADEWAYS") was built under the name WILLIAM H. DALL by the Oregon Shipbuilding Corporation. After 20 odd years of service under varied flags and owners, the AMELIA, as she was then called, was surveyed in August, 1964, by Bureau Veritas for classification purposes. As a result of this "special", or initial classification survey, she was certified and registered in Bureau Veritas' rolls under the classification "Maltese Cross I 3/3 L 1.1". *fn1" In accordance with the rules of the defendant classification society, a ship in this class must undergo a special survey at least once every 4 years and must have intervening surveys annually in order to maintain classification. The annual survey is a less thorough affair and consists mainly of an external inspection of the hull and outer parts for evidence of damage. The special or classification survey is, of course, a more comprehensive investigation in which the internals of the ship are more carefully inspected.

 At some time prior to June 3, 1965, World Tradeways, being then interested in the purchase of the vessel, retained a Mr. Thomas W. Morgan, Consulting Engineer and Marine Surveyor, Vancouver, British Columbia, to survey the AMELIA. Mr. Morgan surveyed the vessel at New Westminster, British Columbia, and submitted a report to World Tradeways on June 3, 1965. Although numerous defects were found, Morgan's report concluded that the vessel was in average condition for a Liberty of her vintage and that if repairs were effected, she might give 8 years of service to her purchasers. The Morgan report was in the sole possession of World Tradeways, which did not see fit to disclose its findings to Bureau Veritas when the defendant commenced its annual survey three months later. Morgan also reported that the life boats were in "fairly good condition," although he admitted to Bureau Veritas, in correspondence after the sinking, that he had minimized the unsafe condition of the life boats in order not to embarrass the defendant who was responsible for the vessel's classification.

 By memorandum of agreement dated July 8, 1965, World Tradeways agreed to purchase the vessel from its then owners, Mar Rojo Naviera, S.A. of Panama. Although the ship was to be sold "as is", it was required that the vessel be delivered to World Tradeways at a United Kingdom or continent port "with present Bureau Veritas class maintained free of recommendations and free of average affecting class." Accordingly, she was delivered to Antwerp, Belgium sometime prior to September 16, 1965, when Mr. DeWitt, a Bureau Veritas surveyor, boarded her to commence a routine annual survey. In the course of the annual survey, DeWitt surveyed the outer hull while the vessel was in drydock. Even though he was not required to do so, on September 21, 1965, DeWitt entered the holds of the vessel and examined her to the 'tween decks level "for curiosity's sake." Although he did not enter the lower holds, he did shine his flashlight about in a cursory fashion. Seeing nothing amiss in the course of his examinations, he confirmed the vessel in class on September 22, 1965.

 During this period World Tradeways time chartered the vessel to Midland and signed an agreement to that effect on September 16, 1965. On September 17, 1965, World Tradeways, warranting that the vessel was in class, placed insurance with the plaintiff, Steamship Mutual Underwriting Association, Ltd. Midland, making a similar warranty, obtained an indemnity policy from the plaintiffs the "Great American Insurance group" on September 21, 1965. World Tradeways' purchase of the vessel was closed on September 25, 1965.

 On September 25, Midland, through its local agent, Agence Maritime Wall & Co., arranged by telephone to have Bureau Veritas conduct an "on hire" survey before chartering. Mr. DeWitt was assigned to conduct this survey because of his familiarity with the TRADEWAYS II as the ship by this time had been renamed. In conducting this survey, DeWitt was acting as agent for the charterer, Midland. He was accompanied by a Mr. Loze of the J.H. Poll Company, acting as representative of the owner, World Tradeways.

 The primary purpose of an "on hire" survey before charter is to inform the charterer of the condition of the ship so that it may be assured that the ship may safely make the voyage contemplated. In view of this purpose and the fact that a charterer is not generally familiar with the vessel, "on hire" surveys are more thorough than annual surveys. In any event, during the pendency of this "on hire" survey, Mr. DeWitt discovered a number of serious defects in the lower hold areas of the vessel. Among other discrepancies, Mr. DeWitt found 4 portside shell frames in the #1 hold to be severely wasted; holes existing in the #1 deep tank covers; and the frames of the bulkhead between the #2 and #3 holds bent and distorted. These defects concerned Mr. DeWitt, who discussed them with his superior, Van Soom, the head of the Bureau Veritas Antwerp office, after the second day of the inspection. They jointly decided that, as a result of these and other internal defects, Bureau Veritas could no longer certify the vessel in class. Accordingly, Mr. DeWitt returned to TRADEWAYS II and removed the classification certificate on the following day.

 Following the lifting of the certificate, DeWitt and Loze, the owner's representative, apparently had discussions and disagreements as to precisely what repairs would have to be effected in order to restore the TRADEWAYS II to class. At this juncture, Mr. DeWitt asked his supervisor, Mr. Van Soom, to come with them in order to "arbitrate" the differences in opinion as to which repairs had to be done in order to restore class. On the 28th of September, Van Soom, DeWitt, and Mr. Campus, a Bureau Veritas hull expert, boarded the TRADEWAYS II and investigated the internal areas that had been called into question by DeWitt's initial "on hire" report. On the same day, Van Soom sent a letter to World Tradeways itemizing which repairs had to be accomplished immediately before Bureau Veritas would restore class. The letter is divided into two sections; the first is a list of 7 defects to be repaired before class could be restored. The second section contains a list of defects which Bureau Veritas would allow to be deferred until the next annual survey. Among the deferrable defects were the four portside wasted frames and the tops of the deep tanks in the #1 hold. World Tradeways, concerned by the declassification of its vessel, apparently commenced suit in Belgium to rescind their purchase of TRADEWAYS II. Another surveyor, Mr. Spreutels, was appointed by the Nautical Commission of the Court of Commerce in Antwerp to supervise the aforementioned repairs at the Mercantile Engineering and Graving Docks Co., also in Antwerp. Although some of the repairs that were allowed to be deferred were actually carried out, the frames and deep tank tops in the #1 hold, so far as the evidence appears, were not repaired. Upon receipt of a letter from Mr. Spreutels detailing the repairs that had been effected, Bureau Veritas restored class to the vessel on October 7, 1965.

 On October 1, 1965 the Chinese crew and Wang King, the master, arrived in Antwerp to take over the vessel. On taking command, Wang King personally surveyed the ship and found her satisfactory in all respects except that the deck plating on both sides of the #3 hold appeared to him to be weak and wasted. It should be noted that the captain and his officers claim to have inspected and been satisfied with the condition of all of the internal areas of the ship in which repairs were deferred. On October 14, 1965, the ship completed loading approximately 9600 tons of steel coils and plates for shipment to Great Lakes ports.

 On October 15, the vessel broke ground on her ill-fated voyage to the Great Lakes. After a 6 hour delay in Antwerp harbor caused by the failure of a steam condensor pipe, the TRADEWAYS II recommenced her voyage. Although the voyage proceeded smoothly from this point, notations in the engine room log indicate that the vessel was almost continuously pumping water from the engine room, boiler room, and tunnel bilges. The log also indicates that the pumps in those areas broke down frequently and required constant repair by the crew. On October 21, the ship encountered a storm which, according to the captain's evidence, while not exceptional in force, did cause the ship to labor. At 1500 hours, October 21, the engine room log indicates that water was being pumped out of the deep tanks in #1 hold. At 1600 hours, the master noticed that the ship was down by the bow and either went to investigate himself or sent his first officer. Deep water was discovered in the #1 hold below the 'tween decks level, and at 1635 hours the master ordered the engineer to commence pumping the #1 hold.

 The situation onboard TRADEWAYS II rapidly worsened. At 1700 hours, according to the captain, he discovered water in the #2 and #3 holds and ordered immediate pumping of the same. He ordered the engines slowed shortly thereafter, and the engine room log reflects that this was done at 1750 hours. The order to stop engines was given at 1840 hours, and an S.O.S., according to Wang King, was sent 20 minutes before. During the course of the night, several ships responded to the TRADEWAYS' call. At about 2200 hours, some of the crew, with or without orders, launched the life boats, which the captain tells us sank in the proximity of TRADEWAYS and one of the rescuing vessels, the LONDONER. According to Wang King, some of the crew swam back to the TRADEWAYS, and some attempted to reach the LONDONER. A little later, apparently at or about 2300 hours, the LONDONER approached again, and according to the captain, some crew members jumped overboard and attempted to swim over to her without any orders on his part. It is not known whether these men were rescued or not. In any event, the captain and what remained of the crew spent the rest of the night constructing rafts out of dunnage. At about 0700 on October 22, the water had risen to about three feet in the engine room and shorted out the generators, leaving the ship without power, although this is not reflected in the engine room log. At 0740 hours, the LONDONER and another ship closed, one of the rafts was launched and a number of the crew were rescued, leaving the captain and 4 crew members onboard. At some time during the course of the morning of the 22nd, various photographs of the TRADEWAYS II were taken. These photographs show the ship, low in the water, slightly down at the bow, but sinking on essentially an even keel. At about 1020 hours, an American Naval P-3 aircraft dropped a liferaft near enough to the TRADEWAYS to be secured by those onboard. Shortly thereafter, it was boarded by the remaining crew members. The captain testified that as he was convinced at this stage that nothing could be done to save the ship, he was the last to enter the raft and be saved. Shortly thereafter, at an undetermined hour, the vessel sank with a total loss of the cargo, and as a subsequent count revealed, the lives of 11 crew members.

 The surviving crew members were taken by the rescuing ships to various ports of call and eventually found their way back to Taiwan. The captain and certain officers were carried by "a French vessel", apparently the JEAN L.D., to Avonmouth, England. While enroute, the captain wrote out a report describing the sinking of the TRADEWAYS II. This report was translated by King's agent at Avonmouth and forwarded to the plaintiff insurance companies.

 During the course of their subsequent investigations, plaintiff insurance companies attempted to obtain information about the sinking of the TRADEWAYS II from the masters of the LONDONER and the JEAN L.D. Curiously, the manager of the Steamship Mutual Underwriting Association testified that the owners of the vessels that stood by the TRADEWAYS II in her final agonies and rescued her crew were reluctant to become further involved and instructed their masters to give no statements concerning that event.

 I

 The issue of causation of the sinking of the tradeways II

 Plaintiffs, the owner of the illfated vessel and various insurance companies which, having made payment on policies in favor of the owner and/or charterer, sue as subrogees, assert simple and initially appealing theories of recovery. As summarized in the opening paragraphs of this opinion, they submit that Bureau Veritas undertook to make inspections or surveys pertaining to the seaworthiness of TRADEWAYS and that Bureau Veritas performed such services negligently and in breach of its warranties of workmanlike service. These warranties, of course, are said to enure to the benefit not only of the owner but of the subrogees in proportion to their payments on behalf of the owner and/or the time charterer. *fn2"

 Passing initially the question of whether or not there were any warranties or duties owed by Bureau Veritas to persons or firms in the position of plaintiffs in this case, it is necessary, as plaintiffs have recognized, for them to carry the burden, by a preponderance of the evidence, *fn3" of establishing that failures of Bureau Veritas proximately caused the sinking of the TRADEWAYS. Thus, plaintiffs' primary theory of causation advanced at trial was that the vessel sank because of a failure of four wasted frames in the forward area of the ship which permitted seawater to first enter the #1 hold. Further, under this theory, plaintiffs claim that they have shown that the water then passed aft through the transverse bulkhead separating #1 and #2 holds, thereby causing sufficient flooding to bring about the demise of TRADEWAYS.

 In my view, plaintiffs have failed to establish this direct theory of causation. Almost of necessity, there is no direct evidence that the four wasted frames in the #1 hold failed and allowed initial entry of seawater. In major part, then, plaintiffs' proof of causation relies on the statement and deposition of Captain Wang King, the engine room log, some photographs apparently, but not certainly, taken by crew members of rescuing vessels, and the testimony ...


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