Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

SUNDANCE CRUISES CORP. v. AMERICAN BUR. OF SHIPPIN

July 31, 1992

SUNDANCE CRUISES CORP. and SCI CRUISES, INC., formerly known as SUNDANCE CRUISES, INC., Plaintiffs, against THE AMERICAN BUREAU OF SHIPPING, Defendant.


The opinion of the court was delivered by: WHITMAN KNAPP

 WHITMAN KNAPP, S.D.J.

 This action is between plaintiff Sundance Cruises Corp. (hereinafter "plaintiff"), *fn1" the owner of the M/V Sundancer, a ship that flew the flag of the Bahamas, and defendant American Bureau of Shipping (hereinafter "defendant"), a classification society in the business of issuing classification and safety certificates on behalf of itself and the countries by which it is authorized so to do. On June 14, 1984 it issued various safety certificates regarding the vessel. On June 29 the Sundancer ran aground and sank off the coast of British Columbia. Although plaintiff acknowledges responsibility for the ship's running aground, it contends that the ship would not have sunk but for defendant's negligence, gross negligence, negligent misrepresentation, breach of contract, and breach of implied warranty of workmanlike performance in issuing the relevant certificates. Defendant moves for summary judgment on a variety of interconnected theories.

 BACKGROUND *fn2"

 On January 19, 1984 the plaintiff, a Panamanian corporation jointly owned by Seattle-based McDonald Enterprises (50%), Johnson Line of Sweden (25%), and EFFOA of Finland (25%), purchased from Johnson Line the SVEA CORONA, a passenger car ferry then operating in the Baltic Sea between Sweden and Finland. Pl. Aff. P 10. Plaintiff planned to convert the SVEA CORONA into a luxury passenger cruise ship to be operated during the summer months along the west coast of North America from Vancouver to Alaska and in the winter from Los Angeles to Mexico. To that end it bid out conversion specifications outlining the planned changes. It ultimately awarded a Swedish consortium consisting of the Oskarsham Varv shipyard, contractor Skanska/IMS, and naval architects Von Tell Nico the contract to design the plans for and perform the substantial conversion.. *fn3" Pl. 3(g) at III, PP 2, 6; Pl. Aff. P 34; Pl. Aff. Exh. 25; Def. Exhs. 5, 20.

 The Contract Between Plaintiff and Defendant

 On March 5, 1984 plaintiff and defendant entered into a Request for Classification Survey and Agreement (hereinafter the "Agreement") that, inter alia, called upon defendant to survey the vessel according to its own rules and according to the regulations set forth in the SOLAS and Load Line conventions, and to issue classification and statutory safety certificates signalling compliance with those rules and regulations. Pl. Exh. 4; Pl. 3(g) at II. The Agreement was signed on behalf of plaintiff by one Lars Sjogren, the head of Johnson Lines, the company that was to manage the vessel. Immediately above the Agreement's signature lines is a clause in bold capitals stating:

 THE UNDERSIGNED PARTIES ACKNOWLEDGE THAT ALL OF THE TERMS AND CONDITIONS CONTAINED IN PAGES 1 THROUGH 4 HAVE BEEN REVIEWED AND THAT UNLESS OTHERWISE MUTUALLY AGREED IN WRITING, OR REQUIRED BY LAW, ALL SERVICES RENDERED IN CONNECTION WITH THIS REQUEST ARE GOVERNED BY THE TERMS AND CONDITIONS CONTAINED THEREIN.

 Term 2 of the Agreement concerns fees, and states in part that "(a) All fees and payments shall be determined in accordance with normal ABS [defendant] practices and quoted to the client in a separate letter." Term 13 appears in bold capitals:

 13. LIMITATION

 ABS MAKES NO REPRESENTATIONS BEYOND THOSE CONTAINED IN ARTICLES 11 AND 12 HEREOF REGARDING ITS REPORTS, STATEMENTS, PLAN REVIEW, SURVEYS, CERTIFICATES OR OTHER SERVICES.

 Term 11, which is entitled "CLASSIFICATION," warns in part:

 in no way should classification, issuance of certificates or performance of services be deemed to be a representation, statement or warranty of seaworthiness, structural integrity, quality or fitness for a particular use of service, of any vessel, structure, item of material, equipment or machinery beyond ther representation contained in the Rules of the ABS.

 while Term 12, "RESPONSIBILITY AND LIABILITY," declares in part:

 The validity, applicability and interpretation of a certificate issued under the terms of or in contemplation of this Agreement is governed by the Rules and standards of American Bureau of Shipping who shall remain the sole judge thereof. Nothing contained herein or in such a certificate or in any report issued in contemplation of such a certificate shall be deemed to relieve any designer, builder, owner, manufacturer, seller, supplier, reairer, operator or other entity of any warranty express or implied.

 Finally, Term 14 is a Hold Harmless clause that reads in part:

 the party requesting classification hereunder . . . agrees to indemnify and hold harmless ABS from and against any and all claims . . . including legal fees . . . which may be brought against ABS incidental to, arising out of or in connection with the work to be done . . . except for those claims caused solely and completely by the negligence of ABS.

 The above-quoted "Classification" Term 11 makes reference to defendant's Rules for Building and Classing Steel Vessels (1983). Rule 1.3 of those rules, entitled "Representation as to Classification," reads in part:

 The Rules of the American Bureau of Shipping are not meant as a substitute for the independant judgment of professional designers, naval architects and marine engineers, nor as a substitute for the quality control procedures of shipbuilders . . . .

 The Bureau represents solely to the vessel Owner or client of the Bureau that it will use due diligence in the development of Rules, Guides and standards . . . The Bureau further represents to the vessel Owner or other client of the Bureau that its certificates and reports evidence compliance only with one or more of the Rules, Guides, standards or other criteria of the Bureau in accordance with the terms of such certificate or report.

 Rule 1.4, entitled "Responsibility and Liability," essentially repeats above-quoted Term 12. Rule 1.25, entitled "Responsibility," reads:

 The Bureau [defendant], being a technical society, can act only through Surveyors or others who are believed by it to be skilled and competent. It is understood and agreed by all who avail themselves in any way of the services of the Bureau that neither the Bureau nor any of its Committees and employees will, under any circumstances whatever, be responsible or liable in any respect for any act or omission, whether negligent or otherwise, of its Surveyors, agents, employees, officers or Committees, nor for any inaccuracy or omission in the Record or any or the publication of the Bureau, or in any report, certificate or other document issued by the Bureau, its Surveyors, agents, employees or Committees.

 (Emphasis added).

 No alterations which affect or may affect classification or the assignment of load lines are to be made to the hull or machinery of a classed vessel unless plans of the proposed alterations are submitted and approved by the committee before the work of alterations is commenced and such work, when approved, is carried out to the satisfaction of the Surveyor.

 Additionally, attached to the Agreement is an Application for Load Lines, immediately above the date and signature line of which application is a release clause that -- substantially a condensation of the emphasized portion of the above-quoted Rule 1.25 -- states:

 It is understood and agreed that neither the Bureau nor any of its Committees is under any circumstances whatever to be held responsible for any inaccuracy in any report or certificate issued by the Bureau or its Surveyors or in any entry in the Record or other publication of the Bureau or for any errors of judgment, default or negligence of its Officers, Surveyors or Agents.

 While there is no choice of laws clause in the Agreement itself, plaintiff has presented us with a total of seven invoices it had received from defendant in connection with the work performed under the Agreement, on the reverse side of each of which is a series of Terms and Conditions that "unless otherwise mutually agreed in writing" would govern "all services rendered and certificates issued in connection with the invoice." The last of these Terms and Conditions reads in part as follows:

 15. GOVERNING LAW

 The validity, interpretation and performance hereof shall be governed by the laws of the State of New York.

 The parties hereto agree to the submit to the jurisdiction of the United States District Court for the Southern District of New York, and/or the Courts of the State of New York, any claim or dispute arising under this Invoice.

 Three of these invoices had approval stamps pasted over their Terms and Conditions sides that had been initialled by Lars Sjogren, who had signed the Agreement on plaintiff's behalf. Two others had been similarly initialled by an otherwise unidentified Johnson Ships superintendant. Upon examining the original invoices, which were first retrieved from Sweden and introduced into this litigation in early June 1992, we saw that the "approval stamp" is a white rectangle of paper pasted to the Terms and Conditions side of the invoice On each of the three invoices on which Sjogren's initials appear, the stamp obscures more than 90% of the above-quoted law selection clause as shown below:

 [SEE INVOICE IN ORIGINAL]

 Conversion, Survey, Certification, and Casualty

 The conversion of the SVEA CORONA to the luxury passenger ship M/V Sundancer commenced in early February, 1984. It involved substantially increasing the amenities, number of passenger cabins, food preparation and storage capacity, air conditioning, waste disposal, etc. Pl. Aff. Exh. 25.

 Defendant was required to inspect the vessel before issuing certificates. With respect to the requirements of SOLAS and Class inspections, William A. Cleary, one of plaintiff's expert witnesses, stated that (Pl. Rearg. App. Exh. 3 at 15):

 the Subdivision aspects of SOLAS require [inspection to verify the watertight integrity of] ALL watertight bulkheads, at all levels up to the bulkhead deck, all longitudinal bulkheads, many sections of deck, all piping and electrical connections through watertight bulkheads and decks, following piping to be certain they are fully connected to closed systems, etc.

 This inspection, he averred, is the duty of the surveyor.

 Cleary also stated that the general plan review that must be completed prior to the issuance of SOLAS and Load Lines certificates required defendant to review a vast number of design plans, specifically including those concerning "full machinery and piping review with emphasis on changes [and] Watertight Subdivision Arrangement and Details (including bulkhead integrity and flooding)." Id. at 13

 The field surveyor defendant assigned to the project was one Dick Nilsson. He has a degree in marine engineering and a chief engineer's license, and had been a marine engineer for 13 years before joining defendant as a surveyor in 1973. Pl. Rearg. App. Exh. 50. He had had very little experience surveying passenger ships before starting on the Sundancer. Nilsson Tr. at 76-78. He was at the site for much of the conversion from March 9 to May 8, 1984, and aboard the vessel from May 28 to June 16. He devoted additional weeks before, during, and after those periods to paperwork involving the Sundancer. See Nilsson time sheets, Pl. Exh. 60.

 As part of the survey process, defendant required plaintiff to provide for its review complete sets of drawings for the vessel. Berndt Gabrielsson, a Johnson Line naval architect, acted for plaintiff in reviewing "technical facts" and collecting the "drawings" related to the conversion. He testified that, at a January 22, 1984 meeting attended by the parties and members of the consortium converting the vessel, one of defendant's representatives asked for the drawings "as soon as possible." Pl. Rearg. App. Exh. 30 at 84. At a March 1, 1984 meeting attended by many of the same persons, defendant's representatives reiterated this demand and formally presented to plaintiff's naval architects Von Tell Nico its T-8-2 letter listing six pages of "Plans Required for SOLAS 1974 Review on Passenger Ships." Def. Exh. 10; Pl. Exh. 42; Pl. Rearg. Aff. P 234.

 Among the plans explicitly requested in that letter were those for "sanitary piping and similar systems," which included the Grey Water Piping System *fn4" and the Starboard Galley Drain. Plaintiff has indicated that some 600-700 plans were provided to defendant in response to these requests. However, both parties agree that no plans for the Grey water Piping System -- either as it existed in 1984 or when the vessel was first built in 1974 *fn5" -- or the Starboard Galley Drain were ever provided to defendant. (Hearing Tr. at 90-92, 96, 103-04). In a May 21, 1984 Telex Von Tell Nico stated to defendant that "we believe that all listed drawings are now submitted from here or from Johnson Line." Pl. Aff. Exh. 40.

 On May 8, the Sundancer set sail from the Oskarsham yard to Miami, Florida carrying no passengers, but having on board a working crew of some 30-50 to complete some conversion jobs. Def. Aff. P 16. The vessel -- with no public passengers but a similar working crew -- then sailed from Miami to Panama, Acapulco, Puerto Vallarta, Los Angeles, and San Francisco, and ultimately arrived on June 14 in Vancouver, from which port the first public cruise departed on June 16. The inspections that preceded defendant's issuance of the SOLAS, Load Lines, and classification certificates took place from May 28 through June 14 either at the Oskarsham yard or on board the vessel during its voyages.

 Nilsson issued a one-month cargo ship safety certificate on May 8, 1984 when the vessel left the Oskarsham shipyard (Pl. Exh. 49), and subsequently issued a series of one-voyage provisional certificates so that the Sundancer could travel from Mexico to Vancouver via Los Angeles and San Francisco. Pl. Aff. Exh. 57. On June 12, Captain Berquist, the vessel's master, telexed Johnson Lines, stating that "we have now reached a point when neither I nor my crew can handle the situation any longer if no further steps are taken. I intend to stay in port in Vancouver until the building of my ship has been completed so that at least it complies with the SOLAS security regulations." PTO Exh. 512. As a result of this Telex, Sjogren flew to Vancouver and contracted with a local shipyard to complete the outstanding work, whereupon Nilsson on June 14, 1984 issued five-month provisional Load Line and SOLAS certificates. Berquist Tr. 208-11; Pl. Aff. Exh. 58. On June 21 one of defendant's employees noticed that the Interim Class Certificate, which should have been issued simultaneously with the Load Line and SOLAS certificates, had not been so issued. Nilsson on that day issued such certificate, backdating it to match the June 14 date on the others. Pl. Exhs. 47, 59.

 The statutory safety certificates (SOLAS and Load Lines) are necessary to allow a shipowner operate its ship "worldwide" (Hearing Tr. at 41), and "to trade in the world" (Hearing Tr. at 83). See also Pl. Opp. Mem. at 66 (refusal to issue certificates "would mean that the vessel could not be insured or allowed to carry passengers"). The classification certificate enables the shipowner to procure insurance: "He needs that because he cannot get hull insurance, P. & I. insurance [without it]" (Hearing Tr. at 81). See also Tr. at 82-83; Pl. Suppl. Exh. 2 (ABS Company Profile notes, inter alia that classification can result in lower insurance premiums, satisfy jurisdictional requirements, and give owner "peace of mind"); Berquist Testimony Tr. at 36 (classification certificate necessary for insurance).

 The fee paid for the surveys and other services defendant performed incident to issuing the certificates was $ 85,000. Def. Exh. 12. Plaintiff, which purchased the ship for $ 18 million and converted it at the cost of approximately $ 10 million, now seeks compensatory damages in excess of $ 64 million and punitive damages of $ 200 million. Pl. Exh. 1; Def. Exh. 18; Amended Compl.

 Fifteen days after receiving its certificates, four minutes before midnight on its third voyage from Vancouver to Alaska (six hours and 41 minutes after setting sail), the M/V Sundancer ran aground on Maud Island in the Seymour Narrows of the Discovery Passage off the coast of British Columbia. Captain Berquist had retaken control of the ship from the Canadian pilot moments before the grounding when he had observed the pilot order the ship toward Maud Island. Captain Berquist's evasionary tactics, however, were too late, and the Sundancer struck bottom, tearing a hole into it's hull. By 12:07 a.m. Captain Berquist had guided the ship to an anchorage in a nearby bay, and damage assessment was in progress. By 12:09 the lower deck had been evacuated and all watertight doors closed, except for one, which had been wedged open by a piece of wood. One minute later the bilge pumps were started. Captain Berquist raised anchor and sailed for Duncan Bay at 1:04, tying up at a paper mill's dock at 1:20, at which time the Canadian Coast Guard provided the crew with three additional pumps. Passenger evacuation began at 2:12, and within one-half hour over 500 persons had left the ship.

 Although no lives were lost, the evacuation was not without incident. Toward its end, the listing of the ship became so extreme that the gangplank which had connected the ship to the dock broke loose and fell into the Bay. Some passengers then escaped the vessel by jumping into the water and others by climbing down ropes that were hanging over the side. Several were injured seriously enough to require hospitalization. Pl. Rearg. Reply Aff. P 16; Def. Rearg. Opp. Aff. P 3. Captain Berquist, the last person to leave the Sundancer, went ashore at 4:30 a.m. After everyone had been evacuated, the ship settled onto the seabed, and when the tide changed, its weight broke up the dock. See generally PTO Exh. 1233, Berquist Tr. at 82-121, Pl. Rearg. App. Exh. 1 at 23-25.

 It is plaintiff's claim that the proximate causes of the sinking were defects compromising the vessel's watertight integrity, and that these were not detected by defendant's survey and plan review. The parties agree that neither Nilsson nor other representative of defendant discovered or reported to plaintiff the existence of these defects. Specifically, defendant never reported either the defective and violative Grey Water Piping System or Starboard Galley Drain -- which lacked non-return valves designed to prevent progressive flooding from a compromised watertight compartment to a secure one -- or the existence of "the holes" -- a 3.15 inch hole in watertight bulkhead No. 124 and a nearby unsealed pipe penetration in the same bulkhead. Pl. Exh. 31.

 Plaintiff's Claim of Gross Negligence

 In addition to its claims of ordinary negligence and breach of contract, plaintiff further alleged in its amended complaint:

 22. ABS [defendant] was grossly negligent in performing its services, inspections, structural analyses, investigations, and recommendations during Vessel conversion design review and approval, conversion surveys, statutory certification and classification of the Vessel.

 23. ABS was grossly negligent in the appointment, training, supervision, and review of the surveyors who performed the above described functions and in the review of the surveys performed.

 24. Because of ABS's gross negligence, negligence and breach of its contractual obligations and [plaintiff's] reliance on ABS's representations, [plaintiff was] unaware of the Vessel's condition which caused her sinking. [Plaintiff] put the Vessel into service in reliance on the certification issued by ABS.

 26. ABS knew or should have known that at least one of the Vessel's subdivision watertight bulkheads was not watertight at the time they surveyed the Vessel. ABS also knew that they appointed an unfit surveyor to perform the Vessel's on board inspections. Notwithstanding these facts, ABS acted recklessly and with willful and wanton disregard for the lives of the Vessel's passengers and crew and [for] the rights of [plaintiff] and others when they issued the Vessel Load Line, SOLAS and classification certificates so as to justify the assessment of punitive damages in the amount of $ 200,000,000.

 Plaintiff's gross negligence claim is based on defendant's failure to discover the holes in bulkhead 124 and the defective piping systems. Roy Curtis, plaintiff's marine salvage professional who made three investigatory visits to the vessel beginning in October 1988, was the first person to discover the holes and that the piping systems violated SOLAS requirements. See Pl. Rearg. Exh. 2 (Curtis Report). His report was thus the first information that plaintiff or the succeeding owner of the ship had of either defect. From 1976, when the defective Gray Water Piping System was installed, until Curtis's discoveries in 1988, a number of classification societies and government agencies inspected the vessel. These include the classification societies known as bet Norske Veritas and Lloyd's Register, both of which issued classification and safety certificates for the ship (for which they presumably performed full class and SOLAS surveys as well as annual inspections); the Swedish government; and the Canadian Coast Guard, which made an investigation to determine the cause of the sinking.

 Although plaintiff's management had never heard of the holes, which Curtis concluded on the basis of his inspections had been cut into the bulkhead during the conversion at the Oskarsham yard (Pl. Rearg. App. Exh. 2 at 14-15), one Sonny Sorquist, a pipefitter for the contractor, testified that he had spotted them during the 1984 conversion. He apparently told no one of their existence. Sorquist Tr. at 58-59, 64. Dan Ingemar Gustaf Eriksson, another pipefitter on the 1984 conversion job, testified that he had cleaned some debris away from the area in which a "cutting torch" was to be used to cut holes into the same bulkhead during the conversion. Eriksson Dep. at 35-37.

 Against this background plaintiff has presented a number of expert witnesses to support its claims of gross negligence. One of the most frequently relied upon is William A. Cleary, to whom we have already referred. He is an adjunct professor of naval architecture at the Florida Institute of Technology with over 37 years experience in the field of international maritime safety, including 30 years with the United States Coast Guard, from which he retired as Chief, Naval Architecture Branch, marine Technical and Hazardous Materials Division, Office of Marine Safety and Environmental Protection. See Pl. Rearg. App. Exh. 55. His 55-page report commented on standards that should be employed in the issuance of SOLAS and Load Lines certificates, and on the actual performance of a number of defendant's employees. Pl. Rearg. App. Exh. 3.

 Cleary asserted in his report that defendant had "'no set procedure' with regard to plan review and routing" and that "it is inconceivable that [defendant] could perform certification without a 'worklist'" to assure the receipt of all plans relating to the vessel. Id. at 19, 21-22. He stated that defendant should have been weeks earlier in requesting and reviewing plans (Id. at appendix 2), and that the plan reviews should have found that the Starboard Galley Drain violated SOLAS requirements. Id. at 39. Cleary also claimed in his report that (Pl. Rearg. App. Exh. 3 at 15):

 Nilsson specifically testified that he had done all watertight bulkhead inspections on June 14, 1984. Nilsson p. 401.

 He then went on to say:

 It is impossible, in my opinion, for any single inspector to completely inspect all SOLAS aspects of watertight integrity on any passenger ship in one day.

 In the portion of his deposition to which Cleary's report referred, Nilsson had actually ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.