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SOMARELF, ELF UNION v. AMERICAN BUR. OF SHIPPING

September 5, 1989

SOMARELF, ELF UNION and FAIRFIELD MAXWELL SERVICES, LTD., Plaintiffs,
v.
THE AMERICAN BUREAU OF SHIPPING, Defendant



The opinion of the court was delivered by: WOLIN

 This is a maritime action originally brought by plaintiffs Somarelf and Fairfield Maxwell Services Ltd. ("Fairfield Maxwell"), for damages incurred because of mistakes in calculation by defendant American Bureau of Shipping ("ABS"), a classification society which classifies and surveys ships. After the action was commenced, Fairfield Maxwell paid $ 200,000 in settlement to Somarelf for all claims Somarelf had arising from the miscalculation and for breach of the charter warranties extended to Somarelf by vessel owners represented by Fairfield Maxwell as agent. Fairfield Maxwell then pursued an action for indemnification against ABS. ABS's motion for summary judgment was denied. Somarelf v. American Bureau of Shipping, 704 F. Supp. 59 (D.N.J. 1988), and the Court pointed out certain unresolved issues of fact. Id. at 64. This matter was tried on May 9-12, 22-26, 1989 before this Court without a jury. The following constitutes this Court's findings of fact and conclusions of law pursuant to Rule 52(a), Federal Rules of Civil Procedure.

 I. FINDINGS OF FACT

 The Parties and Vessels Involved

 1. Somarelf is a corporation formed and existing under the laws of the country of France. Somarelf is engaged in the business of operating and chartering ocean-going vessels for the carriage of crude oil and petroleum products. Somarelf's chartered vessels are employed in the carriage of crude oil and petroleum products for the account of Somarelf's parent corporation, Elf France, a subsidiary of Society National Elf Aquitaine ("SNEA"); for the account of other subsidiaries of SNEA and, on occasion, for its own account when fixing time chartered vessels in the spot market. SNEA is a French corporation, 51% of the shares of which are held by the French government.

 2. Somarelf was, at all material times, the successor of Elf Union as of January 1, 1980 and the time charterer of two motor tank vessels, the HAPPY SPRITE and JOLLY SPRITE (renamed VIC BILH). Somarelf employed the vessels for the carriage of crude oil and petroleum products. During the material time, Somarelf voyage chartered (sub-chartered) the vessels on four occasions. It was in regard to these sub-charters that Somarelf's claims arose.

 3. Fairfield Maxwell is a corporation organized and existing under the laws of the United Kingdom. Fairfield Maxwell and several other corporations comprise the Fairfield Maxwell group of companies whose primary business is international shipping. Fairfield Maxwell is a ship management and operating affiliate of the Fairfield Maxwell Group.

 4. Fairfield Maxwell was, at all material times, the managing agents for and operators of the motor tank vessels HAPPY SPRITE and JOLLY SPRITE, on behalf of the registered owners of those vessels. Fairfield Maxwell brings this action in its capacity as agents for the registered owners of the motor tank vessels HAPPY SPRITE and JOLLY SPRITE.

 5. ABS is a not-for-profit ship classification society created by Special Act of the New York State Legislature in 1862. In addition to providing ocean-going vessel classification services, ABS, along with other recognized international classification societies, measures ocean-going vessels and certifies such vessel measurements, including gross and net tonnage measurements, on behalf of national governments and the Panama and Suez Canal Authorities. The Suez Canal Authority (the "SCA") authorizes ABS to issue Suez Canal Special Tonnage Certificates. Trial Transcript (hereinafter "Tr.") 1009.

 6. The motor tank vessel HAPPY SPRITE was built by Sasebo Heavy Industries Co., Ltd. of Japan ("Sasebo") as hull 283 and was delivered to her registered owner Astre Tankers Limited of Liberia ("Astre"), a company of the Fairfield Maxwell Group, on or about December 22, 1980. Tr. 20-26. The contract for construction of hull 283 was entered into with Sasebo in July, 1979 by Comet Tankers, a company of the Fairfield Maxwell Group. On delivery, the HAPPY SPRITE was reregistered in the names of New Eastern Limited ("New Eastern") and Astre. New Eastern was a company owned by Taiyo Fisheries, a Japanese corporation, and was a 50% owner of the HAPPY SPRITE. Astre and New Eastern remained joint owners of the HAPPY SPRITE until April 1985, when the vessel was sold to Aquastar Navigation. The sale to Aquastar provided that Astre and New Eastern would take the vessel back on a 10-year charter. At all material times, from 1979 through 1985, the HAPPY SPRITE was at least 50% owned by companies of the Fairfield Maxwell Group.

 7. The motor tank vessel JOLLY SPRITE was built by Sasebo as hull 285 and was delivered to her registered owner, Penmarine Ltd. ("Penmarine"), a Liberian corporation, on or about March 25, 1981. Tr. 33. The contract for construction of hull 283 was entered into with Sasebo in July, 1979 by New Caravel Ltd. ("New Caravel"), a company of the Fairfield Maxwell Group which acted on behalf of SNEA in entering into the construction contract. The vessel was transferred to Penmarine on her delivery. Penmarine was owned by Eton Trading which was, in turn, owned by SNEA. Tr. 22-23. Subsequently, Penmarine decided to transfer the JOLLY SPRITE from Liberian to British flag. As an accommodation to Penmarine and as part of that transfer, Lenox Holdings Limited was established by the Fairfield Maxwell Group to act as registered owner until the transfer to British flag occurred in February, 1982. In February, 1982, ownership of the JOLLY SPRITE was transferred to Lombard Facilities Ltd. and Lombard Discount Ltd., British financing institutions unrelated to either the Fairfield Maxwell Group or SNEA. The vessel's name was then changed from the JOLLY SPRITE to the VIC BILH. The VIC BILH remains in the ownership of Lombard Facilities Ltd. and Lombard Discount Ltd. The VIC BILH left British flag on March 26, 1986 and has changed countries of registry on several occasions. The VIC BILH is presently registered in Hong Kong. Since the transfer of the JOLLY SPRITE's ownership to Lombard in February, 1982, Fairfield Maxwell has continued to have the management and operational responsibilities for the vessel.

 The Suez Canal Special Tonnage Certificates for the Vessels

 9. On or about October 6, 1980, Sasebo issued its "Tonnage Computation Under Register (Liberian) Tonnage Regulation" and its "Tonnage Computation Under Suez Canal Tonnage Regulation" for Sasebo hull 283, the HAPPY SPRITE. Those Tonnage Computations were attested to by ABS's surveyor at the port of Sasebo, Japan. The attestation consisted of a confirmation that the Tonnage Computations accurately reflected the physical dimensions of Sasebo hull 283. The Tonnage Computations were then forwarded to the Tonnage Section of the Hull Structures Department at ABS's headquarters then located in New York City. Vessel tonnages under Liberian and Suez Canal tonnage regulations, and under tonnage regulations of other nations or authorities, refer to measured or calculated volumes, not weights, of a vessel's hull and superstructure.

 In this case, Sasebo prepared two tonnage computations for the HAPPY SPRITE: "Tonnage Computation Under Register (Liberian) Tonnage Regulation" (Exh. 6) and "Tonnage Computation Under Suez Canal Tonnage Regulation" (Exh. 7). The Liberian Tonnage computation contained a complete calculation of the underdeck tonnage. The "number tons below tonnage deck as measured" on Sasebo's computation was 60,320.67. Liberian tonnage regulations exempt underdeck water ballast spaces from the underdeck tonnage. Consequently, Sasebo's computation subtracted a total of 13,698.30 tons for the fore and afterpeak and numbers 2 and 4, port and starboard, ballast tanks. The "number tons below tonnage deck for registry" was therefore 46,622.37 tons. Sasebo's Suez Tonnage Computation contained no calculation of the underdeck tonnage. Rather, in the appropriate space on that computation, Sasebo had simply written: "As similar to Reg.[ister] underdeck tonnage 46,622.37." As Suez Canal tonnage regulations do not exempt underdeck ballast spaces, Sasebo's statement was incorrect. The Suez Canal underdeck tonnage should have been approximately 60,320.67 tons, as determined on the Liberian Tonnage Computation before deduction of the underdeck water ballast spaces. Tr. 529-33.

 These computations were prepared by Sasebo as a courtesy and free of charge to ABS, Tr. 532, and to act as a time saving measure. The tonnage computations were a part of the effort necessary for ABS to prepare the Liberian national and Suez Canal Special Tonnage Certificates. Had they not been prepared by Sasebo, Mr. Boyle of ABS would have prepared them. The responsibility for determining what was necessary to issue the Suez Canal Special Tonnage Certificate was ABS's; its decision to rely on Sasebo's computation in undertaking its job made ABS ultimately responsible for Sasebo's error. Tr. 642-44. Had Mr. Boyle of ABS's tonnage section prepared the Tonnage Computations himself instead of utilizing Sasebo's Tonnage Computations, there would have been no error in the Suez Canal underdeck tonnage. Tr. 575-77. Instead, Mr. Boyle performed a detailed review and check of Sasebo's Tonnage Computations, correcting Sasebo's calculations when he found errors. His review and check, utilizing vessel plans furnished to him, took seven to ten days. He then prepared the Liberian National Tonnage and the Suez Canal Special Tonnage Certificates for the HAPPY SPRITE. The Liberian National Tonnage Certificate took approximately one hour for Mr. Boyle to prepare. The Suez Canal Special Tonnage Certificate required two to three days. Tr. 523-30, 559-60, 567-78. Mr. Boyle failed to detect the error in the Suez Canal Tonnage computation that omitted the ballast tanks from the underdeck tonnage. Consequently, the Suez Canal net tonnage certified by him was 43,453.44 tons. Exhibit 1. It should have been 57,187.74 tons or 13,734.30 tons more. Mr. Boyle conceded that the error in the Suez Canal Tonnages was not a matter of interpretation of the Suez Canal Tonnage regulations but was a plain mistake and "human error" on his part in calculating the tonnages. Tr. 529-30, 531-33, 539-41; Exh. 28. The Suez Canal Special Tonnage Certificate for the HAPPY SPRITE dated November 20, 1980 was signed by Mr. Edward Doherty, principal surveyor and head of ABS's Tonnage Section. Exhibit 1. Mr. Doherty did not review the tonnage computation, but only signed his name. According to Mr. Doherty, an error like the one in the HAPPY SPRITE's Suez Canal tonnages had never occurred before. Tr. 694, 698.

 10. As a result of the error, ABS supplied the owners of the HAPPY SPRITE with incorrect information in the form of an incorrect Suez Canal Special Tonnage certificate. Exhibit 1.

 11. ABS failed to exercise reasonable care in preparing the Suez Canal Special Tonnage certificate for the HAPPY SPRITE.

 12. The JOLLY SPRITE was, in all respects, a sister vessel of the HAPPY SPRITE. Therefore, ABS relied upon the tonnage calculations and its certificates for the HAPPY SPRITE when issuing the Liberian National and Suez Canal Special Tonnage Certificates for the JOLLY SPRITE on March 24, 1981. However, ultimate responsibility for not preparing separate tonnage computations for the JOLLY SPRITE rested with Mr. Boyle. Tr. 643-44. Therefore, the net Suez Canal tonnage certified by ABS for the JOLLY SPRITE in the Suez Canal Special Tonnage Certificate for that vessel dated March 24, 1981 was also 13,734.30 tons less than it should have been. Tr. 608.

 13. As a result, ABS supplied the owners of the JOLLY SPRITE with incorrect information in the form of an incorrect Suez Canal Special Tonnage Certificate. Exhibit 2.

 14. Through its reliance on the HAPPY SPRITE calculations, which were in turn based on the mistaken Sasebo calculations, ABS failed to exercise reasonable care in preparing the Suez Canal special tonnage certificate for the JOLLY SPRITE.

 15. Calculation of vessel tonnages, including Suez Canal tonnages, requires training and expertise beyond that possessed by a vessel owner or manager's employees. Vessel owners, as well as authorizing national governments and agencies themselves, rely upon experts in the field, like ABS, to calculate and certify vessel tonnages, including Suez Canal tonnages. Tr. 277-80, 1006-09.

 16. ABS has an obligation to accurately satisfy requests for issuance of tonnage certificates. Such certificates are relied upon by governments and canal authorities, and are an indispensable part of the maritime industry. ABS knows the importance of their tonnage certificates to the maritime industry, and ABS officers and employees understand that many parties may properly rely on Suez Canal special tonnage certificates issued by ABS. Those Suez Canal certificates are not specifically addressed to any one party and there is no disclaimer of liability or accuracy on the certificates. The Court finds, therefore, that ABS understood that the Suez Canal special tonnage certificates for the HAPPY SPRITE and JOLLY SPRITE could be used for the benefit of other parties in the maritime industry with an obvious need to rely on such certificates; specifically, time charterers and voyage charterers, as well as owners. Tr. 551-52, 565-67, 604-07, 638-42, 668-70, 682-83, 689-90, 981-88, 991-93, 1000-1011.

 The Time Charters for The HAPPY SPRITE and JOLLY SPRITE

 17. The HAPPY SPRITE was built to be time chartered to Somarelf for use in lightering SNEA's very large crude carriers ("VLCCs"). The JOLLY SPRITE was built for the same purpose but for SNEA's account. Tr. 20-21. Both vessels were time chartered to Elf Union of Paris, Somarelf's predecessor in interest. The HAPPY SPRITE time charter between Astre, as the owner, and Elf Union, as the time charterer, was dated April 20, 1979. The JOLLY SPRITE time charter between New Caravel, as the bareboat chartered owner, and Elf Union, as the time charterer, was dated June 5, 1979. Exhs. 52 and 53. The time charters were entered into at approximately the time the construction contracts were entered into with Sasebo. Tr. 32-33. As of January 1, 1980, Somarelf was established as a separate corporation and succeeded to Elf Union's rights and obligations as the time charterers of the vessels. When Sasebo delivered the vessels to the owners, the owners in turn delivered them to Somarelf under the time charters. Tr. 36, 52. Both time charters provided for the monthly payment of hire to the vessel owners. Exhs. 52 and 53, clauses 8 and 44. Somarelf paid time charter hire for the HAPPY SPRITE to Astre's account in New York. Tr. 56-57. From delivery until the JOLLY SPRITE was transferred to British flag, Somarelf paid time charter hire for the JOLLY SPRITE to New Caravel. However, Somarelf paid part of the total hire to Penmarine in connection with repayment of financing for the vessel. Exh. 105. From February 1982, when the JOLLY SPRITE, renamed VIC BILH, entered British registry until assignment of the demise charter to Aquitaine in July 1988, Somarelf paid time charter to Elf U.K. Exh. 105.

 18. The relevant time charters (Exhs. 52 and 53) both provide in pertinent part as follows:

 
CLAUSE 2
 
. . . Owners undertake that throughout the period of service under this charter . . . they will comply with the regulations in force so as to enable the vessel to pass through the Suez and Panama Canals by day and night without delay.
 
CLAUSE 24
 
Owners warrant that at the date of delivery under this charter the vessel shall be of the provisional description set out in Form B dated [April 20, 1979 in the case of the HAPPY SPRITE and June 5, 1979 for the JOLLY SPRITE] attached hereto and signed by them and undertake to use their best endeavours ...

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