the role of classification societies

DNV GL © 2018 SAFER, SMARTER, GREENERDNV GL © 2018

The Role of Classification Societies

1

Gesa Heinacher-Lindemann, LL.M.

Senior Vice President

12 August 2019

DNV GL © 2018

Agenda

1. History and Development of Classification Societies

2. Shipping and Shipbuilding Markets

3. Introduction to DNV GL

4. Scope of Maritime Services

5. Contractual Relationships

6. Liability of Ship Owners and other maritime partners

7. Liability of Classification Societies

8. Preceding Cases: Erika & Prestige

2

DNV GL © 2018


▪ In 1696, Edward Lloyd began publishing a

weekly shipping newsletter from his coffeehouse

in London, which evolved into a centre of marine

insurance.

▪ In 1734 “Lloyd’s List” was founded, giving

details of vessel movements, marine casualties,

and other information of interest to the merchant

shipping community.

▪ In 1760 the set up of the Society for the

Registry of Shipping by customers of Edward

Lloyd’s Coffee House marked the beginning of

classification, as it aimed at giving merchants

and underwriters recorded information on the

quality of their vessels.

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▪ Insurers, Brokers and Cargo Owners decided to develop a system that regulates

the essential inspections of ships and their components and formed in 1760 a


▪ Committee for this purpose which was in 1834

reconstituted as a self standing “classification

society” (Lloyd´s Register)

▪ In 1834 this registry was reconstituted as a

self-standing 'classification society' (Lloyd’s

Register)

▪ Publication of construction rules for seagoing

steel ships in 1855

▪ Foundation of DNV in 1864

▪ Foundation of GL in 1867

4

The original facade from Lloyd’s Coffee House

DNV GL © 2018


As basic Principles for the Classification of

vessels it became clear that an organization for

inspecting vessels needs:

▪ To act neutrally and impartially

▪ To act independently

– own rules

– own register

– own exclusive surveyors

▪ And is operating also in the public interest

These are until today the prerequisites for

a classification society.

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6

Classification is important for:

▪ Ship owners and charterers

▪ Shipyards

▪ Ship suppliers

▪ Banks

▪ Maritime insurance companies

▪ National maritime safety authorities

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Since then many international and local societies have been established. The major

ones decided, that a common organization for cooperation would be of benefit for

them. The International Association of Classification Societies (IACS)

▪ Was founded in Hamburg on 11 September 1968

▪ As of today: 12 members

▪ Goals:

− prevention of pollution of the marine environment

− communications and co-operation with international and national

maritime organisations

− cooperation with marine industries

− development of minimum standards

IACS Members classify more than 90% of the world's cargo carrying tonnage

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IACS Members Year of Foundation

LR Lloyd’s Register of Shipping 1760

BV Bureau Veritas 1828

RINA Registro Italiano Navale 1861

ABS American Bureau of Shipping 1862

DNV GL DNV GL 1864

NK Nippon Kaiji Kyokai 1899

RS Russian Maritime Register of Shipping

1913

CCS China Classification Society 1956

KR Korean Register of Shipping 1960

IRS Indian Register of Shipping 1975

PRS Polish Register of Shipping 1936

CRS Croatian Register of Shipping 1949

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9

Source: IHS Fairplay, 01 August 2019

Worldwide Fleet in Service of selected IACS members [in million GT]

267250

218 215

110

60

11 70

50

100

150

200

250

300

LRDNV GL

BVNK ABS CCS KR RINA RS BKI

95

37

mGT

DNV GL © 2018

▪ Paris MOU ranking 2016-2018 for the ROs with “HIGH” performance level

10


Source: parismou.org Recognized Organization performance table, effective from 1 July 2019

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11

World Fleet in Service per main shiptype [in million GT]


461

352

243

58 51 43 35 20

0

100

200

300

400

500

Container Pass./FerryTankerBulker

83

Gas MPV Ro-Ro Misc. OSV

mGT

DNV GL © 2018


12


mGT = million gross tons

World Fleet by ship owning nation [in

mGT]

2018 Shipbuilding output by building

nation [in mGT]

214

189

176

64

64

63

63

58

48

42

41

Korea (South)

Germany

Greece

China

Japan

USA

Singapore

Hong Kong

Bermuda

Norway

UK

22,8

14,5

14,3

2,0

0,5

0,5

0,5

0,4

0,3

0,3

0,2

France

Italy

China

Korea (South)

Japan

Vietnam

Philippines

Germany

Taiwan

USA

Brazil

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Growth of Global Container Trade [in million TEU]

DNV GL Maritime Trend Report 08/2019

100

0

50

150

200

250

300

20152011 2013 2017 201920072005 2009

+4%

+3%

+4%Transpacific (FE-US) North-South

Far East-Europe Other

Other East-West

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3. Introduction to DNV GL

DNV GL © 201815

3. Introduction to DNV GL – Business Areas

MaritimeThe world’s leading ship and offshore classification society and maritime advisory

Oil & GasA leading technical advisor to the global oil and gas industry

Digital SolutionsDigital solutions for managing risk, improving

safety and performance

across industries, incl.

maritime, oil and gas,

energy and healthcare.

EnergyAn energy powerhouse, supporting customers across the energy value chain

Business AssuranceOne of the world’s leading certification bodies

*) 2,020m EUR /2,299m US$

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3. Introduction to DNV GL´s main services to the maritime industry

DNV GL © 201817

▪ Setting own technical

requirements (classification rules)

▪ Verifying compliance with

technical requirements (approval

of specifications and drawings,

surveys and testing)

▪ Documenting compliance with

technical requirements (survey

reports, classification certificates,

test reports)

4. Scope of Maritime Services - three elements

Ship classification services are related to three elements applicable to both

newbuilding projects and in-service vessels:

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4. Scope of maritime Service – Rules structure

▪ A rule structure which is easy to grasp

▪ Supports clear definition of responsibilities both internally and externally

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Pt. Part Name

Pt.1 General Regulations

Pt.2 Materials and Welding

Pt.3 Hull

Pt.4 Systems and Components

Pt.5 Ship Types

Pt.6 Additional Class Notations

Pt.7 Fleet in Service

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4. Scope od maritime Services – Rules setting

▪ As main character of Class, “1A1” is used for ships built to DNV GL rules

▪ A typical Class notation is made up of

– Construction symbol: ✠

– Main character of Class: 1A1

– Ship type notation

– Additional Class notations

– Service areas

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Recognized Organizations

•Issue certificates

Member States

•Ratify the international conventions and possibly add some additional requirements

International Maritime

Organization

•Decides on international conventions

Audit performance of RO

(e.g. by EMSA)

Authorises RO

4. Scope of Maritime Services – Statutory Duties

Statutory Duties

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4. Scope of Maritime Services Statutory Duties

– More than 120 flag states have authorized DNV

GL to perform statutory duties

– Safety: SOLAS (Safety of Life at Sea), LoadLine

Conventions

– Environmental Protection: MARPOL (Marine

Pollution Act)

– Security: International Ship and Port Facility

Security Code (ISPS Code)

– Safety at Work: International Labour

Organization (ILO) Conventions, national

regulations

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CLASS

SAFCON… ships are to be designed,

constructed and maintained in compliance with the structural, mechanical and electrical requirements of a recognised classification society ...

Class entirely embraces the

“Ship Safety Construction Certificate (SAFCON)”

Classification and Statutory Services

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Statutory Services

Ship Register

▪ Name of ship and owner

▪ Call sign, IMO number, class society number, flag etc.

▪ Class, date of construction, tonnage, equipment,

cargo

▪ DNV Exchange (legacy DNV) and Fleet Online (legacy

GL): class society database on survey status for

owners (from 4/2016: My DNV GL)

▪ Equasis: EU Database accessible to the public

Data available to Administration, clients, Port State Officers,

EU Commission

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4. Scope of Maritime Services for classification and statutory duties

Life Cycle

Condition and operational inspections are required throughout the whole life-cycle of a ship

Fleet in Service:

▪ Periodic Surveys

− annually

− intermediate

− renewal

▪ Damage and Repair Surveys

▪ Extraordinary Surveys

Supplier:

▪ Drawing approval of components

▪ Type certification of systems

▪ Production monitoring

New building:

▪ Drawing Approval

▪ Construction Supervision

0 15105 2520 Years

Del

iver

yMC

bild

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4. Scope of Maritime Services – for classification and statutory duties

Life Cycle - Newbuilding

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4. Scope of Maritime Services – for classification and statutory duties

Life Cycle - Newbuilding

▪ Drawing approval

▪ Technical supervision at construction site

▪ Verify relevant tests and trials (sea trial)

▪ Leading to the first Classification Certificate/ statutory

certification

Rule making body observes the implementation of Rules and safeguards their interpretation

Flag State Rules are applicable

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4. Scope of Maritime Services – Life Cycle Supplier

Marine Systems & Components

Even before the construction of a vessel starts, the

needed systems, components & materials have to

comply with the class society’s-building standards

Propulsion and Auxiliary Systems

▪ Certification and classification of propulsion and

auxiliary systems as well as components

Electrical systems and automation

▪ Certification and classification of electronic drive,

automation, navigation and communication

systems

Product Certification

▪ Certification & classification of materials,

components, welding technology, corrosion

protection, pressure vessel, steam boilers,

underwater technology and containers

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4. Scope of Maritime Services - Life Cycle Supplier

Marine Systems & Components

▪ Type Approval

▪ Random Inspections

▪ Final Inspections

▪ Certification of the Manufacturing

Technologies

− Process Certification

− Product Certification

Approving the equipment with a clear understanding of the overall system vessel

Sample:

Productcertificate1

3 4

3 4

2Documents check

Typeapproval

Intermediateinspection

Final inspection

Processapproval

Alternative ProductCertification

C

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4. Scope of Maritime Services – Fleet in Service

Newbuilding

Survey

no

yes

1st Year 5th Year2nd Year 4th Year3rd Year

max. allowed time windows

- month --3 +3

Inter-

mediate

Survey carried

out on 2nd

Anniversary

Date?

Annual

Survey

Intermediate

Survey

Issuing of

Class CertificateAnnual

Survey

Intermediate

Survey

Annual

Survey

-3 +3 -3 +3 -3 +3 -3-6 +6

Annual

Survey

Class RenewalSurvey

Endorsementof existingCertificate

Fleet in Service

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▪ A vessel’s class might be limited by technical findings:

– Memorandum to Surveyor

– Memorandum to Owner

– Condition of Class

– Condition for Administration

In severe cases class might be suspended or withdrawn!

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▪ A 100% of a VLCC would require

– A Climb of 11 km high

– A survey of 330.000 m2

– Checking of 1250 km of welding

– Length of longitude support beams

82 km

– Inner bottom area 11 000 m2

In a dark and

sometimes

dirty environment

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33

Selective surveys

“Risk Based Inspection” with focus on ”Critical Areas”

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Coffee break

34

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Ship-ownerBuilding Contract

Shipyard

ClassificationSociety

Ord

er fo

r C

lass

ifica

tion

Dra

win

g

App

rova

l

Survey ofNewbuildingConstruction

Material and

Industry

Test Certificates

Testing of Materials and Components

Supply of approved Components

Orders

Certificateof Class

NationalStatutory

Certificates

State Authorities

Classification Agreement for ship in service

Components

Supplying

5. Contractual relationships

DNV GL © 2018


▪ Agreements with Flag State Authorities

▪ 1995 IMO Model Agreement, Resolution A 739 (18)

▪ Liability refers to General Terms and Conditions or an amount stipulated in the

agreement whatever is the higher

▪ EU Regulation 391/2009 imposes minimum liability figures

▪ Today this European standard is applied in most Flag State Agreements

– € 2 Mio. for damage to property

– € 4 Mio. for personal injury / death

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DNV GL © 2018


▪ With all 3 business sectors: Contracts of Services

▪ In Germany: § 631 BGB (German Civil Code)

– Performance of Classification Services, e.g. Survey or Approval

– Plus issuance of a corresponding Certificate, Report, Approval etc.

– A Certificate stating compliance with GL Rules is not owed!

▪ Types of Agreements:

– Signed Quotations

– Individual Contracts

– Frame Work Agreements

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6. Liability of Ship-owners and other Maritime Partners

▪ Liability of ship-owners, charters etc. is limited according to

international Conventions such as

– Convention on Limitation of Liability for Maritime Claims (’76) (LLMC)

– International Convention for Civil Liability of Oil Pollution Damage (‘69/’92)

(CLC)

– According to Art. III CLC next to ship-owners liability is excluded for

– Charterers, managers, operators

– Any person taking preventive initiatives

– Pilots or other persons who perform services for the ship

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6. Liability of Ship-owners and other Maritime Partners

▪ No direct reference to classification societies and therefore the

statutory protection of classification societies is not guaranteed

▪ Ongoing discussion whether class societies are protected like

– the Flag State Authorities itself (limited liability of public authorities, public

immunities)

▪ Unclear judgments in the Erika and Prestige cases

▪ Limitation of liability only possible by agreement with our

contractual partners

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Court cases

▪ Liability claims against classification societies are increasing since the mid ’90.

▪ DNV GL has been involved as defendant in several court cases since 1995, but

until today succeeded in all proceedings.

▪ Most Claims are Third Party Claims!

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Newbuilding Classification

▪ Third Party Claim usually by

the Buyer of a new build vessel

▪ Sometimes “Forth” Party Claim with

regard to the material and component

certification

41

YARD

New

build

ing

Cla

ssifa

ctio

n

dam

ages

cau

sed

durin

g bu

ildin

g pe

riod

CLASSIFICATION SOCIETY

OWNERBuilding

Contract

Third Party

Claim

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▪ Fleet in Service

▪ Third Party Claim usually by a Buyer of

a second hand vessel

42

SELLER


Per

iod

ical

S

urv

eys

BUYERSale & Purchase

Contract

Third Party Claim

DNV GL © 2018


▪ Other possible third party claims:

– Insurer assigned rights of the Owner

as basis for claim

– Charterer, Cargo Interests, Banks,

etc. as third party: Contract to the

protective benefit of third parties or

tort of negligence

43

YARD


OWNER

Charterer

Buyer

Cargo Interests

Crew Members

Banks

Insurer

All contractual stipulations between Class Society and Client are applicable to the third Party!

Contributory negligence is to be observed!

DNV GL © 2018

7. Liability of classification societies

▪ Coastal states

▪ In case of environmental damage to

coastal States:

– Strict liability in tort

– Applicable legislation often unclear

▪ Risks are only limited by:

– Responsibility of several parties

– Inclusion of classification societies

under statutory conventions of CLC (still

disputed)

44

YARD

CLASSIFICTION SOCIETY

OWNER

Coastal State

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7. Liability of classification societies

Contract to the Protective Benefit of Third Parties

(German law concept deriving from § 328 German Civil Code)

– Proximity of Performance: close relationship of Third Party and Obligee

– Justifiable Interest: Third Party is affected by the neglect of duty and has a

legitimate interest in the contractual protection

– Foreseeableness: both prerequisites must have been cognizable for the Obligor

– The Third Party must merit protection: lack of equivalent claim

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▪ The Nicholas H case (1995)

▪ A claim was brought by cargo owners against NK for cargo loss (US$ 6 Mio.)

▪ Cargo Claimants alleged that the vessel was approved notwithstanding the fact

that she had cracks in her hull

▪ The House of Lords ruled in favour of NK, because

– Ship-owner is primarily responsible for vessel‘s seaworthiness

– No contract between cargo owners and classification society

– A duty of care towards cargo owners would be unfair, unjust and unreasonable

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DNV GL © 2018

8. Proceeding cases: Erika and Prestige

Liability Claims against Classification Societies are constantly increasing since the

mid 1990.

Fortunately, DNV GL has not been faced with claims threatening our existence,

however this threat is immanent:

RINA in the “Erika” case

or

ABS in the “Prestige” case

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8. Proceeding cases: Erika

Erika – the facts:

▪ On December 12, 1999, the tanker

Erika broke in half and sank 60

kilometers south of Penmarc’h Point in

Brittany. All 26 crew members were

rescued. The tanker was carrying

heavy fuel oil destined for Italy’s

national electric utility ENEL for use in

power generation.

▪ The tanker sank due to severe

corrosion of the vessel’s internal

structures, which were thus unable to

withstand the weather conditions. One

cause of the casualty may be found in

repairs carried at the ballast tanks less

than two years before the accident.

• These repairs were surveyed and

approved by Rina.

• 02/’07 legal proceeding started in

Paris. 70 claimants seeking

compensation from the owner, ship

manager, captain, charterer, the

classification society and other

parties.

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DNV GL © 2018


▪ Erika – 1. Instance Judgement (01/’08)

• Criminal Court of Paris condemned the world's fourth largest oil major Total to the maximum fine of 375,000,- € claiming "ecological prejudice" caused by the sinking of the Erika.

• The Italian Classification Society RINA, which judges blamed for issuing the relevant certificates to the ship without undertaking the necessary checks "under the pressure of commercial constraints", was also fined the maximum amount for a company, 375,000,- €.

• Erika's Italian owner and its Italian manager were also found guilty and fined to the maximum for private persons of 75,000,- € each.

• The different parties were also told to pay out €192 million in damages to some one hundred plaintiffs in the case, including the French state, the regions, environmental protection groups such as Greenpeace, fishermen and hotel owners – but the court did not apportion the damages to the respective parties.

▪ ‚51

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• The second instance upheld all fines. In addition Owner, Manager and RINA have also been found jointly and severally liable to pay the rest of € 194 Mio in civil damages.

• With regard to the protection of Art. III (4) CLC RINA was held to be a service provider for the Flag State, but not for the vessel.

• It was additionally decided that Rina waived it’s right to rely on the Flag States Immunity by defending themselves and not bringing up this argument.

• Total SA was exempted from liability as a subsidiary of and not Total SA itself was the Charterer of the Erika.

• The oil major had already paid € 171.5 Mio by way of an amicable settlement with the claimants. The remaining damages to be borne by the 3 convicted parties amount to € 32.5 Mio.

• Rina, the owner and manager appealed at the Court of Cassation de Paris

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DNV GL © 2018



The 2nd instance judgement was partly amended in 2012 and is now final and

binding:

• With regard to Rina the court left open the question of sovereign immunity.

• The court of cassation revoked the 2nd instance decision concerning Art. IX(1)

CLC, by clarifying that classification societies do benefit from the channeling of

liability, but decided that Rina acted recklessly and can therefore not benefit

from the liability exception.

• With regard to Total SA the court de cassation was of the opinion that Total SA

was indeed a charterer (and thus benefitting from CLC), but also acted

recklessly when chartering the Erika.

• Finally all four parties were convicted to criminal charges and to mutually bear

the remaining financial damages.

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Prestige - the facts:

November 13, 2002:

▪ the single-hulled oil tanker “Prestige“, sent a

distress call offshore in the region of Cape Finisterre

(Galicia, Spain), carrying 77,000 tons of heavy fuel

oil

▪ the engine was damaged and the ship went out of

control and drifted according to the weather

conditions

▪ emergency towing system of the ship did not work

and the different attempts failed

▪ access to ports in Spain and Portugal was denied –

she had to be towed out on sea where she broke

into on November 19th 2002.

▪ before the accident in May 2002, extensive repairs

have been carried out and surveyed by ABS.

▪ Proceedings against ABS were held in New York

where Spain claimed approximately US$ 1 bn.

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DNV GL © 2018


▪ Prestige – 1. Instance Judgment (01/08)

▪ ABS asserted that New York is not the competent forum as ABS falls within the ambit

of the CLC as being a person performing services for the ship according to Art. III CLC

and thus can only be sued in a CLC contracting state). The USA have not ratified the

CLC.

– The judge followed ABS’s arguments and dismissed the claim.

– The appellate court reversed the matter to the lower district court:

– The fact that the USA have not ratified the CLC does not necessarily prevent

jurisdiction

– However, the principle of forum non-convenience or international comity may

substantiate the lack of jurisdiction

▪ A conflict-of-law analysis is to be conducted accordingly

▪ Spain’s contributory negligence is to be considered

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DNV GL © 2018


▪ Prestige – 2. Instance Judgment (08/12)

▪ In the second instance judge Laura Swain accepted jurisdiction but dismissed the

claim on the merits, mainly based on the following:

– The great disparity between the fees charged by ABS and the claimed damage

is a strong evidence that such result was not intended and this also applies to

Spain as a third party.

– Classification Societies do not provide a global guarantee of a vessel’s

seaworthiness, but determine whether the ship conforms to the society’s own

rules at a certain point in time.

– The ship owner is responsible for and in control of the ship and has a non-

delegable duty to furnish a seaworthy vessel.

– Choice of law: Application of the Lauritzen factors decided for US Maritime Law.

▪ The Judgment is now final and binding, however the IOPC Fund is now suing ABS

for recourse in France.

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DNV GL © 2018


The Bordeaux Proceedings:

▪ Defense of ABS: doctrine of jurisdictional immunity of states

Private vs Public role of classification societies overlap:

– Public: ABS acted under orders or on behalf of the flag state

– Public: issuing certificates in the name of the flag state which is in the

interest of a public service and could only be done if classification of a

Recognized Organization is maintained (private)

▪ ABS is entitled to sovereign immunity of states according to the first instance

judgement

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DNV GL © 2018

8. Lessons learned?

▪ MT “ERIKA” and MT “PRESTIGE” are

well known examples

▪ The public lost confidence in Shipping

and in the Politicians

▪ Still a binding concept for a port of

refuge is not in place

▪ Hundreds of kilometers of nice beaches

have been contaminated for years

▪ Millions of animals had to die a

distressful death

▪ Local economy suffered heavily

59

DNV GL © 2018

Summary

▪ Classification plays an important role in ship safety and environmental protection

▪ Today liability is a constantly growing issue for classification societies

▪ Classification societies shall benefit like all maritime partners from statutory

limitations of liability

▪ Clarification of the role of classification societies in the maritime industries

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DNV GL © 2018

SAFER, SMARTER, GREENER

www.dnvgl.com

Thank you for your attention!

61

Gesa Heinacher-Lindemann

[email protected]: +49 40 36149 217

Brooktorkai 1820457 Hamburg

Veritasveien 1 Høvik / Norway