Otto Candies v. NKK
In this case, the Fifth Circuit affirmed the district court’s decision to hold Nippon Kaiji Kyokai ("NKK"), a maritime classification society, liable to Otto Candies, L.L.C. ("Otto") for negligent misrepresentation, based on statements made in a vessel classification survey in connection with Otto’s purchase of the SPEEDER. NKK argued that Otto was neither entitled to bring nor prevail on a negligent misrepresentation claim. After reviewing the law concerning claims against classification societies, the Fifth Circuit held that "the general maritime law cautiously recognizes the tort of negligent misrepresentation as applied to classification societies." The Court then affirmed the district court’s decision that Otto had properly brought its claim for negligent misrepresentation and that NKK was liable for Otto’s losses sustained in reliance on NKK’s classification.
DMC Category Rating: Developed
Case Note contributed by Jana N. Byron, attorney with the law firm Healy & Baillie LLP. Healy & Baillie are the International Contributors to the website for the USA.
In January 2000, NKK issued a class certificate to Diamond indicating that the SPEEDER was certified within class with no outstanding recommendations or deficiencies. Otto thereafter completed its purchase of the vessel. The SPEEDER was then surveyed by the American Bureau of Shipping ("ABS") in order for Otto to transfer her classification from NKK to ABS.
The ABS surveyor, however, found numerous deficiencies that required repair before ABS would classify the SPEEDER. After effecting over US$325,000 in repairs to the vessel, Otto filed suit against NKK to recover the repair costs. The basis of Otto’s claim against NKK was the tort of negligent misrepresentation.
In so holding, however, the Court specifically rejected "any implication that classification societies can be liable for negligent misrepresentation to parties, including without limitation seamen, longshoremen, passengers, cargo owners, and charterers that may rely upon a survey or class certificate, absent actual knowledge by the classification society that the certificate or survey report was being provided for the guidance and benefit of the party."
The Fifth Circuit went on to affirm the district court’s decision that NKK was liable to Otto for negligent misrepresentation. The Court agreed that Otto proved its claim for negligent misrepresentation because NKK’s certification that the SPEEDER was free of recommendations and deficiencies did not comply with NKK’s standards and rules for classification requiring the various deficiencies in the SPEEDER to be identified during the survey and certification process. The Court specifically noted that NKK was liable under its own standards and rules and not those of ABS.
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