Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholas H)

A duty of care in negligence depends on foreseeability, proximity, and whether its imposition is fair, just and reasonable, even where the claimant has suffered physical damage. These considerations overlap and must be assessed by close attention to the particular relationship and its legal and commercial setting.

A classification society retained by a shipowner to survey a damaged vessel owed no duty to cargo owners who had no dealings with it. Imposing liability would disrupt the contractual, limitation and insurance structure governing carriage by sea, expose a public-interest body to unlimited claims, and risk impairing its safety functions. Voluntary assumption of responsibility could not arise where the cargo owners were unaware of the survey and relied only on the shipowner.

The classification society surveyed a laden bulk carrier after its hull cracked. Its surveyor initially required permanent repairs but subsequently permitted the vessel to continue after temporary repairs. The vessel sank and cargo worth more than US$6 million was lost. For a preliminary issue, foreseeability, physical damage, causation and the cargo owners' title to sue were assumed.

The cargo owners settled their claim against the shipowners for about US$500,000, reflecting the applicable tonnage limitation, and pursued the classification society for the balance. Hirst J held that the society owed them a duty of care: The Nicholas H [1992] 2 Lloyd's Rep. 481. The Court of Appeal reversed that decision: Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1994] 1 WLR 1071.

The central question was whether a classification society retained by the shipowner owed cargo owners a duty of care when its negligent occasional survey was assumed to have caused physical loss of their cargo.

1. Appeal dismissed by a majority of four to one. Lord Steyn delivered the leading speech. Lord Keith of Kinkel, Lord Jauncey of Tullichettle and Lord Browne-Wilkinson agreed with his reasons. The Court of Appeal's order was affirmed, and the appellants were ordered to pay the respondents' costs.

2. Per Lord Steyn, foreseeability alone does not establish a duty of care in a physical-damage case. Foreseeability, proximity, and whether a duty is fair, just and reasonable are relevant whatever the nature of the harm. The requirements overlap and are practical approaches to the ultimate question whether the law should impose a duty in the circumstances.

3. Per Lord Steyn, proximity could be assumed without being decided. The decisive question was whether imposing the duty would be fair, just and reasonable. The society's survey did not directly inflict the physical damage in the relevant sense. The shipowner remained primarily responsible for the vessel's seaworthiness, while the society performed a subsidiary role.

4. Per Lord Steyn, the factors favouring liability were decisively outweighed by their cumulative legal and commercial consequences. A duty would enable cargo interests and their insurers to outflank the internationally established allocation of risk under the Hague Rules, the Hague-Visby Rules and tonnage-limitation provisions. It could transfer increased insurance costs back to shipowners, complicate claims through additional parties and proceedings, and encourage classification societies to act defensively. The society also performed independent, non-profit-making safety functions for the collective welfare and lacked the shipowners' limitation protections. The lesser injustice lay in refusing the duty because cargo owners could insure any contractual shortfall.

5. Per Lord Steyn, voluntary assumption of responsibility afforded no alternative basis for liability. Direct dealings might in another case support such an assumption, but these cargo owners were unaware of the survey and relied only on the shipowners' undertakings.

6. Lord Lloyd of Berwick dissented. He regarded the proximity between the surveyor and the laden cargo as exceptionally close because ship and cargo were engaged in a common maritime venture already in peril. In his view, the carriage contract and limitation regime did not displace the ordinary tort liability of a third party. Given the assumed foreseeable physical damage and causation, an exceptional justification was required to deny a duty, and none had been established. He would have allowed the appeal and restored Hirst J's order.

1. House of Lords: By a majority of four to one, dismissed the cargo owners' appeal, affirmed the Court of Appeal's order, and ordered the appellants to pay the respondents' costs.
2. Court of Appeal: Allowed the classification society's appeal and held that it owed no duty of care to the cargo owners: Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1994] 1 WLR 1071.
3. Commercial Court: Hirst J determined the preliminary issue in favour of the cargo owners, holding that the assumed facts were capable of establishing a duty of care: The Nicholas H [1992] 2 Lloyd's Rep. 481.