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Bailey Shipping Limited v. American Bureau of Shipping

United States District Court, Second Circuit

September 23, 2013




Upon application by Defendants, the American Bureau of Shipping ("ABS"); its Greek affiliate, American Bureau of Shipping Hellas; and several individual officers and employees of these corporations; the Court issued an order to show cause why an anti-suit injunction against Plaintiff Bailey Shipping's prosecution of a civil action in the courts of the Republic of Greece should not issue. (Dkt. #20). For the reasons set forth in the remainder of this Opinion, Defendants' application for preliminary injunctive relief is granted in part and denied in part. Specifically, Defendants' application for preliminary injunctive relief is granted with respect to Plaintiff's claims that rely on a legal duty on the part of Defendants to make truthful representations, including (i) those based on Greek statutes regulating the activities of classification societies, and (ii) those derived from international conventions on vessel classification, as ratified into Greek parochial law. Defendants' application is denied, however, with respect to Plaintiff's claim based on the Greek consumer protection law, which imposes liability for false representations irrespective of whether that representation was made negligently.


A. The Vessel Sale and the Discovery of Its Poor Condition

Plaintiff is a Marshall Islands corporation engaged in international shipping. Defendants ABS and ABS Hellas are each "a classification society engaged in verifying that marine vessels and offshore structures comply with the rules that the classification society has established for design, construction, and periodic survey." (Compl. ¶ 23).

Classification societies

survey vessels in accordance with the technical specifications designated by themselves or by the flag state of the vessel, that grant to them the relevant authorizations. On the basis of these surveys, on the one hand, they classify the vessels into categories and classes depending on their qualifications and abilities and on the other hand, by authorization of the vessel's flag state, they issue the safety certificates of the vessel provided by the international conventions and by the national law of the vessel's flag state (which in most of the cases incorporates the relevant international conventions). Without these safety certificates the ship cannot operate. Therefore the "class" as it is described in the certificates of class issued by the classification society, demonstrates the degree of safety of the vessel, and the trust that the ship is worth as regards the vessel's construction and mechanical suitability. In addition, the granting and maintenance of the vessel's "class" by an approved classification society is a mandatory condition in law for the issuance of the vessel's safety certificates.

(Original Writ ¶ 1.2). A classification society is responsible for identifying deficiencies with respect to the relevant specifications imposed by their own internal rules and by relevant domestic law and international conventions, recording recommendations for coming into compliance, and suspending or canceling a vessel's class and refusing to issue safety certificates if the vessel fails to come into compliance. (Original Writ ¶ 1.4). Class certificates are also relied upon by sellers of seagoing vessels: a "prospective buyer relies on... the certificates of the ship" and the statements of the sellers in assessing the ship's repair and seaworthiness. (Original Writ ¶ 7). Here, a series of international conventions are implicated, including: the International Convention on Load Lines, the International Convention for the Prevention of Pollution from Ships ("MARPOL"); and the International Convention for the Safety of Life at Sea ("SOLAS"). (Original Writ ¶ 1.5). Each of these conventions has been ratified by and adopted into the parochial law of the Republic of Greece. ( Id. ).

ABS was the classification society of record for the bulk and ore carrying vessel M/V MAX (formerly the M/V ZAIRA) (the "Vessel") before the sale that gives rise to this dispute. (Compl. ¶¶ 4-8). ABS surveyed the condition of the Vessel in February-March 2006, at Piraeus, Greece, and again in February 2007, at Rotterdam, Holland. (Compl. ¶¶ 5-6). In June 2006, Defendants issued a Certificate of Classification for the Vessel. (Compl. ¶ 8). ABS also issued international safety certificates pursuant to the relevant international conventions at various points in 2006. (Original Writ ¶ 3.2(b)). These survey reports and the certificate attested that the Vessel complied with the relevant specifications for the class to which ABS certified the Vessel. (Compl. ¶¶ 25-28).

On August 16, 2007, Plaintiff acquired the Vessel from non-party Wave Navigation, an entity that had owned the Vessel since 2000. (Compl. ¶¶ 3-4). In March 2008, the Vessel sailed to Turkey for a periodic classification survey and scheduled repairs. (Compl. ¶¶ 33-34). The survey revealed substantial wear and tear to the Vessel above and beyond any attributable to the Vessel's sailing under Bailey's ownership. (Compl. ¶ 35). Bailey alleges that this additional corrosion and wear was "in direct conflict" with the Vessel's certificates and the results of the surveys conducted by ABS before Bailey's acquisition. (Compl. ¶¶ 36, 39).

The Turkish shipyard had no capacity for the Vessel at this point and Bailey was forced to sail to Piraeus to continue the survey, where further unanticipated corrosion and damage was discovered. (Compl. ¶¶ 38-39). Bailey returned the Vessel to Turkey for the requisite repairs, as the Greek shipyard lacked capacity to perform repairs of such a scale. (Compl. ¶ 40). In Turkey, an additional survey discovered still more unanticipated corrosion and damage, requiring substantial repairs. (Compl. ¶ 41). These repairs took 12 months to complete. (Compl. ¶ 42).

B. The Greek Litigation

Plaintiff filed two actions against Defendants in the Piraeus Multimember Court of First Instance in Piraeus, Greece in April 2012. (Original Writ at 5; Compl. ¶ 44).[2] Plaintiff alleged that it was "absolutely impossible technically" for the wear and corrosion discovered in 2008 to have occurred during its ownership of the Vessel; thus, it contended, the condition of the Vessel at the time of sale must of necessity have been worse than attested in the surveys and certificates issued by Defendants. (Original Writ ¶ 8).

The Amended Writ alleges three distinct classes of claims:

The basis of [the Greek] lawsuit is [Plaintiff's] claims against the defendants arising out of their liability as service providers in accordance with [the Greek consumer protection statute.[3] Furthermore, all the defendants are liable, also or secondarily to compensation because by gross and inexcusable negligence violated their obligations arising out of international conventions (SOLAS, MARPOL, LOAD LINE CONVENTION etc.) that have been ratified by Greece and for violating Presidential Decrees 482/80 and 32/1997 (for authorization to Classification Societies and their duties in Greece of Greek Civil Code), art. 914 seq. cc.

(Georgopoulos Decl. ¶ 7; Amended Writ at 1). Plaintiff alleges, with respect to the consumer protection law, that classification societies and their employees had been found by Greek courts to fall within the category of "service providers" as contemplated by the statute. (Georgopoulos Decl. ¶ 10; Georgopoulos Decl. Exh. 1 ¶ 8). Plaintiff also asserts in the Amended Writ that Defendants "are liable in accordance with Art. 8 [of the consumer protection law] without [Plaintiff] having to prove fault on the part of [Defendants]." (Georgopoulos Decl. ¶ 8; Georgopoulos Decl. Exh. 1 ¶ 7). According to Plaintiff's Greek counsel, Plaintiff's

claim against the Defendants under the Greek Consumer Protection law is one of strict liability as the consumer only has the burden of proving its damage and the causative link with the services rendered by the service provider and does not have to prove that the service provider acted with negligence or in breach of law or contract.

(Georgopoulos Decl. ¶ 9).

Plaintiff also alleges that Defendants are liable for violating duties stated under international conventions concerning shipping, such as the International Convention for the Safety of Life at Sea ("SOLAS"), the International Convention for the Prevention of Pollution from Ships ("MARPOL"), and the International Convention on Load Lines. (Georgopoulos Decl. ¶ 9; 9/20/13 Tr. 70:15-16). Incorporating an excerpt from a scholarly paper on the liability of classification societies in Greek law, [4] Plaintiff claims that the relevant conventions impose a "general duty of care and protection" on classification societies, and that those duties were further ratified into Greek law by statute and presidential decree. (Georgopoulos Decl. ¶ 9). Plaintiff alleges that "ABS breached its duty under Greek law to accurately survey and report the condition of the vessel." (9/20/13 Tr. 70:16-18). Any violation of those duties - such as, for example, if the society "negligently or erroneously issues, attests, extends, or renews the certification of vessels" - is "per se unlawful" under Greek law and imposes liability on the faulty classification society. (Georgopoulos Decl. ¶ 9 (internal quotation marks omitted)). As Plaintiff's Greek counsel puts it in his declaration opposing Defendants' application for a preliminary injunction, "the classification societies are obliged to carry out their duties ( i.e. the survey, examination and certification of vessels) diligently and not negligently." (Georgopoulos Decl. ¶ 14 (quoting Georgopoulos Decl. Exh. 1 ¶ 9)).

Finally, Plaintiff alleges that Defendants were subject to and violated "specific statutes in Greece that govern and regulate conduct of classification societies." (9/20/13 Tr. 71:3-4). These statutes - distinct from the consumer protection statute and the Greek laws adopting the relevant international conventions into Greek parochial law - impose "certain standards of conduct in the work" of classification societies. ( Id. at 71:7). Plaintiff contends that Defendants, by failing to live up to the "statutory duty" under these laws regarding the standard of conduct required in their classification services, "breached their obligations" and are liable for the damage Plaintiff suffered as a result. ( Id. at 71:11-14).

Plaintiff's Greek counsel avers in his declaration that the "amended and correct lawsuit" now pending in Greece, "limited [Plaintiff's] liability claims against Defendants" to those deriving from the Greek consumer protection law and those sounding in tort based on Defendants' alleged violation of their duties under Greek statutes and international conventions. (Georgopoulos Decl. ¶ 15). However, the Original Writ did specify negligent misrepresentation claims in addition to the claims pled in the Amended Writ. ( See, e.g., Original Writ ¶¶12-15).

Plaintiff seeks in the Greek proceeding $9, 015, 500 in damages for the repair costs, expenses, loss of hire, and loss of profits; a prison sentence of one year against each individual defendants as a means of enforcing money damages; and a penalty of 20ac50, 000 against each individual defendant. (Original Writ at 133).

C. The Demand for Arbitration and the Dispute Regarding Arbitrability

Several months after the commencement of the Greek action, [5] Defendants informed Plaintiff that they regarded Plaintiff's action as subject to mandatory arbitration provisions contained in the underlying surveys on the basis of which the various certificates issued, and demanded arbitration in New York in accordance with the Rules of the Society of Maritime Arbitrators. (Def. Br. Exh. 4). On August 3, 2012, Plaintiff filed the Complaint in this action, seeking a declaratory judgment that it was not bound by any arbitration agreement with Defendants and an injunction against Defendants from pursuing arbitration. (Dkt. #1). During the pendency of the declaratory judgment action, Plaintiff appointed its party-appointed arbitrator to the arbitral panel, under protest and without waiving its objections to arbitration. (Def. Br. Exh. 6).

Defendants, maintaining that Plaintiff was subject to the arbitration provision incorporated in each of the implicated surveys and the class certificate, opposed Plaintiff's motion and cross-moved to compel arbitration pursuant to that provision. Defendants argued that, though Plaintiff and Defendants were not in privity and Plaintiff had never agreed to arbitrate any claims against Defendants, Plaintiff was nonetheless equitably estopped from relying on a contract for some purposes - here, as the basis for its claims of negligent misrepresentation - while rejecting an arbitration clause contained in that contract. (Def. 2012 Opp. 3-8). Plaintiff contended to the contrary that no contract existed in the first place; that even if such a contract existed, it was null and without effect under Greek law due to the misrepresentations contained in the surveys and class certificate; that Plaintiff's claims sounded in tort under Greek law, not in contract; and that Plaintiff received no benefit at all from the underlying services Defendants rendered to the prior owner of the Vessel. (Pl. 2012 Br. 11-12).

Nor did Plaintiff accept that it benefited from the contract by relying on it as the basis for its claims. Plaintiff alleged that its claims were not based on the disputed surveys and certificates, but were "primarily premised on the Defendants' violations of Greek law and international conventions, " which it claimed provided independent bases for suit. (Pl. 2012 Br. 12-13). Because Plaintiff did not allege that Defendants had violated merely their own internal rules but also numerous Greek and international laws, Plaintiff argued that its claims did not depend on interpreting the contract under which Defendants issued the surveys and certificates, and so it should not bound by that contract's arbitration clause. ( Id. at 14-15).

Oral argument was held on August 20, 2012.[6] Plaintiff insisted that, contrary to Defendants' characterization, it was not "relying on" the underlying contract to provide its case because its claims were not "solely for negligent misrepresentation, " but rather derived from "statutory violations" (8/20/12 Tr. 14:24-25), and that the "main thrust" of the Greek action was for "consumer protection violation" ( id. at 25:8-9). Plaintiff accepted that, were its claims exclusively based on negligent misrepresentation, it would be bound by the arbitration provision ( id. at 14:10-14), but maintained that the "statutory violations" and the Greek "consumer protection cause of action" were independent of any negligent misrepresentation claim ( id. at 15:17-18). Defendants argued that "the same acts are giving rise" to all alleged causes of action, and "[i]f there's a violation of one of these conventions, it's as a result of the negligent misrepresentation" that Defendants allegedly committed. ( Id. at 21:3-6). Nonetheless, Defendants did not press for arbitration of all claims, accepting that the arbitration would not cover "Greek statutory law" ( id. at 20:14-15), and acknowledging that Defendants would "defend those claims in Greece or in New York arbitration, it doesn't really matter" ( id. at 17:16-17).

Though Plaintiff characterized its statutory and international law claims as distinct inasmuch as they were based on allegations that Defendants "could not have performed their job correctly" (8/20/12 Tr. at 27:7), the Court noted that alleging Defendants "had not performed their job correctly is the same as saying they misrepresented to us the condition of the vessel" ( id. at 27:10-11). The Court ruled, however, only that "at the very least, there is a cause of action for negligent misrepresentation in the Greek action" ( id. at 34:15-16), and that "at least" that cause of action must be heard in arbitration ( id. at 35:3-5). The Court took letter briefs from the parties on the proper disposition of the action ( id. at 35:14-38:12), and, on August 27, 2012, ordered that it should be stayed pending the outcome of arbitration. (Dkt. #14).

The Court suggested in the August 20, 2012 argument that the appropriate outcome might be to "split the baby and say [Plaintiff] can argue the negligent misrepresentation claims here in New York but the statutory claims should be resolved in Greek courts." (8/20/12 Tr. 18:23-19:1). Plaintiff's counsel responded "that certainly would be a possible outcome, " and Defendants' counsel responded that "it may well be" an appropriate outcome. ( Id. at 19:3-8). As noted, Defendants' counsel had volunteered earlier in the proceeding that Defendants "would defend [the non-negligent misrepresentation] claims in Greece or in New York arbitration, it doesn't really matter." ( Id. at 17:16-17). The Court did not rule regarding the pendency of the Greek action, noting that arbitration and the Greek proceeding "would be going on parallel tracks, ...

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