2. Applicability

  The ISM Code was adopted under a resolution of the International Maritime Organisation (IMO) dated 4^th November 1993 which initially had no legal force.  The binding applicability of the ISM Code results from the fact that it was adopted as Chapter IX of the International Convention for the Safety of Life at Sea, 1974 (SOLAS).  The incorporation of the Code into the SOLAS Conven­tion ensures that its provisions will be valid in nearly every maritime nation.[1]   

  The effect of Rule 2 of Chapter IX of the SOLAS Convention is that the ISM Code came into force in respect of all passenger ships, oil tankers, chemical tankers, gas tankers, bulk carriers and high speed cargo vessels with a GRT of more than 500 from 1^st July 1998.  From 1^st July 2002 the Code will apply to other cargo vessels with a GRT of more than 500 and to mobile off-shore drilling units.

  As a result of the issue of the European Community Council Regulation 3051/95 dated 8^th December 1995 concerning measures for the safety of ro-ro passenger vessels[2] (EC ISM Regulation) the Code has had mandatory effect since 1^st July 1996[3] in relation to all ro-ro ferries[4] regardless of their flag which sail either to or from a port in a European Union member state.  From 1^st July 1997, the Code applied to all ro-ro ferries which sail exclusively in protected waters[5] between ports in the same European Union member states.[6]  

3. Responsible Party

  The party responsible for complying with the ISM Code is the “Company”.  This concept is defined in Article 1.1.2 of the Code.  According to that article, the “Company” is the owner of the vessel or any organisation or person (for example the Managing Director of the owner or the bareboat charterer) who has been given responsibility for operating the ship by the owner and who has agreed to take on all the duties and responsibilities of the owner under the Code.  The definition of “Company” in the EC ISM Regulation is not the same but is comparable.  Under Article 2(c) of the EC ISM Regulation the “Company” is the owner of a ro-ro ferry or every organisation or person who has taken over responsibility for the running of the ro-ro ferry from the owner.

  The ISM Code provides that the owner of the vessel must give the administra­tion of the flag state the full name of and other information on the responsible Company when the owner is not himself responsible for the ship.[7]  Also the responsible Company must demonstrate to the administration that it has agreed to take over this responsibility.  

4. The Most Important Provisions

  The aim of the ISM Code is stated in Article 1.2.1.  According to that article the Code is intended to ensure safety at sea, to protect individuals from personal injury and death as well as damage to the environment (in particular the marine environment) and damage to property.

  The main aim of the Code is the duty of every Company to establish and preserve[8] a comprehensive and complete system for the organisation of safety measures (SMS)[9].  The SMS is a plan for the operation of the responsible Company and the ships managed by it which will be largely in writing.  It must be structured in such a way that safety on board and compliance with the relevant legal provisions are both guaranteed.  Above all the Code requires the Company to define clearly in writing the responsibilities of its employees in respect of all on-board and on-shore matters.[10]  There must be clear regulation of who is responsible for what and how far the relevant authorities to issue orders go.  The Code requires the Company to name an individual[11] who is responsible for the safe operation of every ship and who acts as a conduit between the Company on one side and the officers and crew on board on the other.  The Designated Person has to be an employee on shore.  The Code provides that the responsibilities and authority of the Designated Person should include overseeing every aspect of safety relating to the operation of every single ship.[12]  The Company is required to give the Designated Person adequate support to do his job.  A direct right to speak to the Board of the Company must be reserved for him. 

  The SMS should also include plans and instructions for the eventuality of important and critical events on board the ship.[13]  The role of each individual in such circumstances should be set out clearly and the people concerned should be properly qualified for their tasks.  The responsibilities of the Master, in particular in respect of safety, must be set out in writing.[14]  The Master has ultimate responsibility for the carrying out of the SMS on board.  He is required to deal with any problems immediately and to report them to the owners’ office on shore.  The Company is required to make sure that the crew members must have the necessary qualifications[15] and are able to understand each other while carrying out their duties under the SMS.[16]  The Company is also required to make sure that all crew members know and understand the meaning and contents of the provisions as they apply to their own area of operations.[17]  This means that the Company has to translate the SMS into the necessary languages and make sure that all of the crew have the necessary linguistic ability to understand it.

  The Company is also required to introduce a procedure for the orderly maintenance of the ship and her equipment.[18]  The Company must not only maintain the ship regularly and allow for experts to visit her.  It must also work out a procedure under which it can be established which parts of the ship and her machinery might cause danger in the event of a sudden fault.[19]

  The Company is required to check the effectiveness of the SMS at regular intervals.  If possible the employees who carry out this internal check should be independent of the areas they are checking.[20]  The results of the checks should be given to the management of the Company.[21]  Any serious omissions or weaknesses must of course be dealt with immediately.

  Documentation which aids the explanation and application of the SMS should be put together in a "handbook for the organisation of safety measures and prevention of marine pollution" and kept onboard the relevant ship.  

5. Document of Compliance (DOC) and Safety Management Certificate (SMC)

  Wherever the ISM Code applies, the Company must have a Document of Compliance (DOC).[22]  The DOC may only be issued when it has been established that the SMS complies with the provisions of the Code and that there is objective evidence proving that it is effectively implemented.[23]  The DOC acts as evidence that the Company is in a position to fulfil the provisions of the ISM Code.[24]  On top of this it is necessary that every ship has a Safety Management Certificate (SMC).  The SMC should only be given to a ship when it has been established that the ISM Code is being followed on board.[25]  The DOC and the SMC will be issued by the administration[26] or by an organisation recognised by it, which will then verify/audit at regular intervals whether the SMS is being applied properly.[27]

  The DOC is basically valid for five years from the date of its issue as long as there is an annual inspection of whether it is functioning properly.  The SMC is basically also valid for five years from the date of its issue.  Nevertheless its validity depends on an interim verification of whether the SMS is functioning properly on board.[28]  

6. Enforcement

  The contracting states to the Paris Convention on state port controls have decided on a list of measures which are aimed at ensuring via port state control that the ISM Code is enforced.  Under that Convention, vessels entering port must be searched for their SMC and DOC.  If they are not on board, the ship may be detained.  The ship will also be given a warning letter.  The US Coast Guard has also indicated that it will be imposing strict controls on ships entering American ports.

  In general it can be assumed that ships without certification will have extreme problems with port control all round the world.[29]  It is therefore quite possible that the ISM Code will open up a new area of activity for the International Maritime Court.  It can also be assumed that uncertified owners will have problems in agreeing carriage contracts.  Most cargo owners will make ISM certification a precondition.  

  II. Legal Effects

1. Carrier Liability Under Paragraphs 606 and 607 of the German Commercial Code (HGB)     (Equivalent to Article III Rule 2 and Article IV 2 a,b Hague-Visby Rules)      

A. Standard of Care of the Reasonable Carrier

  Paragraph 606 HGB enacts Article III Rule 2 of the Hague-Visby Rules in German law.  It makes a carrier liable to take care of cargo in his possession.  This liability is dependent on fault.  As long as the cargo is in the possession of the carrier, he must show the standard of care of a reasonable carrier.  The standard of care of a reasonable carrier in the sense of Paragraph 606 Sentence 1 HGB is considered an example of the general duty of care in Paragraph 276 of the German Civil Code (BGB) as applied to the special circumstances of the shipping industry.[30]  Paragraph 276 BGB states that a person is liable for his own negligence or deliberate fault.  “Negligence” is defined as a failure to exhibit reasonable care.  In the context of Paragraph 606 HGB, a reasonable standard of care will basically be established by reference to legal provisions, (in particular accident prevention provisions) generally recognised technical provisions, DIN or German TÜV Rules as well as conventions and technical rules applying to the relevant professions.[31]  If the duties and standards of care reflected in these provisions are not complied with, then usually it will be possible to establish negligence.[32]  The ISM Code will further define the carrier’s duty of care within the Code’s area of applicability.  In the context of the organisation of the Company and the operation of the ship, the provisions of the ISM Code will now be the measure of reasonable care. 

  The Code requires the Company to introduce a detailed SMS.  The question therefore arises as to whether the provisions of the SMS (which are specific to that Company) will lead to a further clarification of the duty of care.  This is essentially to be rejected because a standard of care is required to be objective.[33]  Otherwise, a particularly comprehensive SMS would impose a particularly high standard of care on the carrier and would therefore make it more likely to be liable.  Nonetheless, it is not to be forgotten that a lot of SMS’s will be very similar to each other in many respects.  Any rules which become standard to SMS’s could grow into a standard of care and will therefore form a pretext for liability.  The fact that a SMS contains a number of written explanations and instructions as to how to manage the ship can also provide any claimant with useful evidence.  I would refer in particular to the well - known opportunities offered by the discovery process in English and American law.  On the other hand, compliance with the provisions of the ISM Code and the requirements of the SMS can provide evidence that the carrier has been fulfilling his duty of care.[34]  The ISM Code can therefore act as a vehicle for the release of a carrier from liability.

  All in all the Code will nevertheless probably lead to an increased incidence of liability on the part of a carrier.  The German courts will be ready to consider any divergence from the SMS (which is specific to the Company) as an indica­tion of a breach of duty by the carrier.  Moreover, the evidential burden on a claimant will be lessened in many cases because they will be able to refer to the written SMS and in some circumstances even to the results of ISM audits.

B. The Effect on Paragraph 607 HGB (Equivalent to Article IV Rule 2 a,b Hague-Visby Rules)

     Paragraph 607(2) HGB enacts Article IV Rule 2 a,b Hague-Visby Rules in German law.  It provides that the carrier is only liable for damage arising from an error in navigation or other management of the ship or through fire if the carrier has itself exhibited fault.  It is to be expected that the ISM Code and its application through the Company-specific SMS will lead to a loss of significance of this exception because it will be more common for the carrier to have exhibited personal fault.

  aa)     Fault on the part of the carrier will usually only arise (at least where the carrier is a legal person or a company which is not a legal person under German law) where the individuals or groups who are responsible for representing and managing the Company (which we shall call “organs”) have committed fault themselves.[35]  If the carrier is also the Company in the sense of the ISM Code[36] then the Code requires the carrier to make sure that the Company’s organs entitled to represent it are fully informed about the contents and practical application of the SMS, in particular in the context of defects on board the ship.  This means that the Designated Person will have an important function in acting as a conduit between the officers on board and the managers of the Company.  The managers of the Company will be informed of events by the Designated Person and will therefore have an increasing level of responsibility (and therefore potentially of fault).[37]

  (bb)     The exclusion of liability most likely to lose importance will be “errors in management of the ship”.  The main example of the carrier’s own fault in this context would be where it or its representative organs have negligently produced an inadequate SMS and damage results therefrom.

  A carrier could also be liable where it fails to give orders which a reasonable carrier would have given.[38]  The carrier might (for example) fail completely to introduce a practicable SMS.

  Personal fault on the part of the carrier in the context of management of the ship could also arise where the carrier has been negligent in the selection or supervision of its crew.[39]  The ISM Code toughens the requirements for qualifications of crew and also toughens the duties of supervision of the Company.  If the carrier crews the ship with individuals who are not able to converse with each other in the same language and who do not understand the SMS then liability could result in respect of failure to select or supervise the crew properly.[40]

(cc)     In the context of the fire defence in Paragraph 607(2) HGB, there is likely to be a further clarification of the duties of care of a carrier in the context of fire fighting and therefore a narrowing of the exclusion of liability.  It is already established that the carrier is bound to fight a fire on board with the standard of care of a reasonable carrier.  If he breaches this duty, he is liable for damage resulting from the inadequate fire fighting unless the fire fighting can be characterised as management of the ship under Paragraph 607(2) HGB - even where he could otherwise rely on the fire defence in Paragraph 607(2).[41]  Article 8 of the ISM Code provides that the Company must introduce a procedure for the discovery and elimination of emergencies.  The Code even requires practical and theoretical exercises to be undertaken in order to prepare for emergency situations (for example fires).  It is to be expected that these requirements along with further specific rules in the individual SMS’s will set out the standard of care required in the context of the duty to fight fire.  In practice this will lead to an increased liability on the part of the carrier.  

2. Carriers’ Liability Under Paragraph 559 HGB (Equivalent to Article IV Rule 1 Hague-Visby Rules)  

Liability for unseaworthiness and uncargoworthiness at the beginning of the voyage under Paragraph 559 HGB is also an example of a breach of a duty of care based on fault.[42]  As a result, it is also to be expected in the context of this provision that the rules in the Code and those that recur in the Company-specific SMS’s will clarify the duties of care owed by the carrier and therefore increase the likely liability of the carrier.[43]  A further question arises as to the influence that the presence or absence of an SMC can have on the seaworthiness of the ship.  It would certainly be excessive to say that a ship which does not have an SMC is inevitably unseaworthy.  On the other hand, a certified ship can of course not be seen as seaworthy only in view of the existence of the certificate.[44]  It is nevertheless conceivable that in the course of time, courts might take the view that a ship which has none of the systems required by the Code will not be adequately prepared for sea and therefore will not be seaworthy.[45] 

  It can be further assumed that the requirements in relation to seaworthiness will be higher in particular in the context of the “human factor”.  There is judicial authority to the effect that a ship which is manned with inadequately qualified individuals can be unseaworthy as a simple result of this.[46]  As a result of this judicial authority, and against the background of Articles 6.6 and 6.7 of the Code, it is conceivable that a ship will be regarded as unseaworthy when the crew have no knowledge of the SMS or do not understand it.  It may also be possible to establish unseaworthiness when the crew are unable to communicate when carrying out their duties under the SMS - in contravention of Article 6.7.

  In the final analysis nearly every author who has written on this topic (particularly in England) expects that the preconditions of Paragraph 559 HGB (unseaworthiness) will be easier for a claimant to be established.  In view of the commentary above in relation to Paragraph 607(2) HGB it should not be forgotten that a broadening of the applicability of Paragraph 559 HGB will be accompanied by a narrowing of the meaning of the exclusions in Paragraph 607(2) HGB because that paragraph does not apply to Paragraph 559 HGB.[47]  In other words, the carrier’s only defence to a claim of unseaworthiness is that he exercised due diligence to ensure that the vessel was seaworthy before and at the commencement of the voyage.  There are no other defences.  

3. Vicarious Liability of a Carrier Under Paragraph 485 and Paragraph 735 et seq. HGB

     The danger of vicarious liability of a carrier for the fault of the crew will also be increased because the ISM Code leads to a clarification of the duty of care owed by the Master.  The responsibilities of the Master must be set out in writing (as mentioned above).  He has final responsibility for the carrying out of the SMS on board.  If the Master diverges from the written instructions, then this indicates a breach of duty.  If the Master fails to carry out the SMS on board at all then this will also be a basis for an allegation of negligence.  

4. Article 4 of the Convention on The Limitation of Liability for Maritime Claims[48]

  Under the London Convention on the Limitation of Liability for Maritime Claims 1976, the owner of a ship and others in an equivalent position have the right to limit their liability to a specific sum.  Under Article 4 the person liable shall not be entitled to limit liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.  Until now, Article 4 has played a minor role because normally the management of a company is inadequately informed and therefore cannot be accused of personal fault.  This is now likely to change somewhat, because the ISM Code provides that the Company must be more informed about what happens on board.  If it does not impose the necessary measures immediately, then there is a possibility that it will not be allowed to limit its liability.

  The text of the Limitation Convention is formulated in an unfortunate way.    The use of the words “a person liable” makes it unclear who has to exhibit fault in order to prevent the owner or other party seeking to limit from doing so.[49]

  In order to break limitation, it may be enough for the organisation or person who has agreed to take over the operation of the ship from the owner under Article 1.1.2 of the Code to be guilty of the relevant fault.   Such an interpretation does not contradict paragraph 487d HGB.[50]  Rabe[51] correctly points out that this provision should not be interpreted as meaning that the only organs whose fault might lead to the breaking of limitation are the organ entitled to represent a legal person, a member of an unincorporated undertaking or another company in a group of ship owning companies.  This is particularly the case in the light of the requirement that the Convention should be interpreted without reference to the provisions of the implementing national law.  He goes on to point out correctly that a ship owner who passes the conduct of his business substantially to an agent will have to allow for the fact that this agent’s fault may be regarded as his own.  English judicial authority on the “alter ego” of the owner also supports this interpretation.[52]  The person or organisation which has taken over responsibility for the operation of the ship in the sense of the Code will often be viewed as the “alter ego” of the owner. 

  There is a further question as to whether any relevant fault on the part of the Designated Person will be enough to deprive the owner of the right to limit.[53]  Even if the Designated Person is not to be considered as a representative of the shipowner his knowledge could perhaps be attributed to him because the Designated Person has to inform the owner of all defects of the vessel. It is also possible that court decisions might apply Paragraph 31 BGB by way of an analogy. The courts might find that the Designated Person is regarded like the "alter ego" of the shipowner.[54]    It is difficult to predict in what direction the jurisprudence will develop in this very important area of law.  

5. Liability of the Company in Tort

(a) The ISM Code as a protective statute in the sense of paragraph 823(2) BGB (Civil Liability for Breach of Statutory Duty)  

Paragraph 823(2) BGB states that a person who breaches a statutory duty imposed for the protection of a third party may (if it has exhibited fault) be liable in damages.

  The question arises of whether the Code is a protective statute in the sense of paragraph 823(2) BGB.    German judicial authority is split on the question of whether the relevant provision exists for the protection  of the individual interest of a certain grouping within the society or whether it must exist to protect the interests of society as a whole.[55]    The distinction is very grey and the preconditions set out by the case law are very difficult to understand without further explanation.  This means that the question cannot be answered with a detailed analysis but more with a very rough view.

  The first decisive point is that the protective purpose of the Code is set out very generally in Article 1.2.1 i.e. the protection of persons, the environment and transported goods.  This would tend to suggest the protection of society as a whole rather than a limited class of persons.  This would suggest that the ISM Code is not a protective statute in the sense of paragraph 823(2)BGB.  Further support for this interpretation can be found in the fact that the ISM Code has hardly any concrete duties for particular individuals.[56]

  This should be seen in the context of judicial authority on the questions of accident prevention provisions and DIN provisions.  There is a clear line of authority that accident prevention provisions are not protective statutes.[57]  The decisive point in this context is that the provisions were drafted without the intention of defining the extent of a duty of care which might lead to liability for damages.[58]  It is also recognised that DIN provisions are not protective statutes in the sense of paragraph 823(2)BGB.[59]     These rules are comparable with the ISM Code.    The Code is aimed at the prevention of accidents and has similarities with the DIN Rules and ISO 9000 et seq.  In this context it is also not to be assumed that the drafter of the rules intended to create provisions which would aid a judge in deciding whether someone’s behaviour should lead to a liability in damages.   I therefore believe that the ISM Code is not a protective statute in the sense of paragraph 823(2) BGB.[60]  

(b) Liability of the Company under paragraph 823(1) and 831 BGB

  (aa)  I now turn to consider the extent to which the ISM Code might influence the liability of the Company in tort for the operation of the ship.   We have already mentioned several times that the owner of the ship is not necessarily the responsible party in the sense of the ISM Code because under Article 1.1.2 of the Code, it can transfer its responsibility to somebody else.  For the sake of simplicity, I consider only the case of an owner who is responsible for the operation of the ship  and the following of the provisions of the Code.  Since liability in tort is not influenced by the question of the ownership of the ship, our comments also apply to a substantial extent to other organisations or persons who have taken over the responsibility for the operation of the ship from the owner.

  Paragraph 823(1) states that a person who intentionally or negligently causes damage to the life, body, health, freedom, property or another right of another person contrary to law is liable to them in damages.  Paragraph 831 states that a person will be liable for the acts of another whom it selects for the purpose of carrying out an act, unless reasonable care has been taken in selecting in the agent, or the same damage would have occurred even if reasonable care had been taken.

  The Company (or person liable for its acts) is liable when its duty of organisation is breached.  This will happen when its business is not organised in personnel, practical and technical matters in such a way that damage to third parties is avoided.[61]  The most important way to fulfil this duty is by minimising the risk of dangerous events occurring.[62]  If the Company is a legal person then it may be liable under Paragraph 823(1) in connection with Paragraph 31 BGB and Paragraph 831 BGB if its agents or “organs” have committed fault.

  (bb)  The Company itself is responsible for an appropriate business organisation which is able to undertake supervision and has responsibilities properly delineated.[63]  It is to be assumed that the requirements of judicial authority (which have to date been framed in a very general way) for careful organisation of operations in the context of shipping will now be clarified by the provisions of the ISM Code.  The main emphasis of the Code is to require the Company to set up a hierarchical SMS which principally sets out clearly delineated roles and responsibilities.  If these requirements are not followed (for example if no Designated Person is named) then the Company could be liable for a breach of the duty of organisation.  The same applies to inadequate following of duties of supervision.  Article 3.2 of the Code sets out specifically that the Company is required to supervise the activities of every individual who has any relevance to, or effect on the safety of the ship.  If the Company fails to carry out such supervision then it is liable directly under Paragraph 823(1) BGB.[64]

(cc)     The Company might also be liable for the imputed fault of its “organ” in the sense of Paragraph 31 BGB.  That paragraph stipulates that the board, an individual director or another individual who has been appointed to a representative position may by his own fault make the company liable to third parties.  In particular, the question arises whether the owner or the Company could be liable for breaches of duty by the Designated Person in the sense of Article 4 ISM Code under Paragraph 823(1) combined with Paragraph 31 BGB, which would mean that there would be no prospect of the Company having a defence if the Designated Person is liable.  Such circumstances might arise where the Designated Person is also an “organ” in the sense of Paragraph 31 BGB.  If this is not the case, then the test is whether the Company must be liable for the acts of the Designated Person on the basis of imputed liability.  There will only be a question of such imputed liability where someone in a management position in the Company breaches his own legal duty by failing to put a person who has important responsibilities to the Company in the position of an “organ”.  In such a case the manager will be treated as if he had put the individual in the position of an “organ”.  In other words, he is liable for the acts of the individual without any prospect of excluding his liability.[65]  In the recently published decision of Wechselkoffer, the BGH[66] (highest Civil Court in Germany) concluded that the relevant factor in deciding whether doing a particular job could make someone an “organ” was whether they represented the undertaking within their area of responsibility.  The Court said that an employee of a haulage firm who co-ordinated the carriage of dangerous goods was not a representative in this sense because the mere fact that he had a responsible job was not enough.  If this reasoning is applied to a shipping firm, then it would mean that the position of the Designated Person in the sense of the ISM Code could not constitute the position of “organ” in the relevant way.  This means that the company would only be liable for the fault of the Designated Person by way of Paragraph 831 BGB.

(dd)     The Company is also liable for the illegal activity of its representative under Paragraph 831 BGB.  The cases have progressively made it harder for a Defendant to escape liability here, in particular in the context of supervision of such a representative.  The Code will make the requirements imposed on the Company in respect of supervision of employees tougher and at the same time it will narrow the opportunities for the company to absolve itself of liability.  The Code requires the Company to supervise those individuals responsible for safety on board (see for example Article 3.2).  Above all, the Company must also supervise the activities of the Designated Person.  In this context, there arises a further parallel with the above-mentioned Wechselkoffer decision of the BGH.  In that decision the BGH held a haulage company liable under Paragraph 831 BGB while remarking that the managers of the Company were in a position to exercise the required control over the activities of their dangerous goods supervisor because they had general experience in the haulage industry.  This reasoning could be applied without any further development to the Designated Person.

On the other hand, compliance with the business and management structures required by the ISM Code and the SMS could lead to the company being less likely to be liable.  The view of Möllers[67] is that the Company will succeed in discharging its burden of proof that certain behaviour is not an example of fault in the sense of Paragraph 823(1) and Paragraph 831 BGB, if it can establish that the requirements of ISO 9000 et seq. have been fulfilled.  His justification for this is that those provisions not only document organisational requirements but also the requirements of substantive law in respect of the required standard of care.  In basic terms we agree with this.  However, it is not to be expected that the courts will regard compliance with the Code and the SMS as sufficient to exculpate the Defendant in every case.  It will always depend on the individual case.  Nonetheless in general it is to be assumed that the ISM Code and the SMS are capable of having the effect of absolving a carrier from liability.

6. Liability of the Designated Person Under Paragraph 823(1) BGB

  An employee whose behaviour fulfils the criteria of Paragraph 823(1) BGB is personally liable.[68]  This also applies to the Designated Person.  If he fails to carry out his function as a conduit or if he fails to supervise in the manner required, then under the correct circumstances he will himself be liable under Paragraph 823(1) BGB.[69]  In an individual case, the liability of the Designated Person may however be doubtful because his responsibility is mostly in respect of rules imposed within the organisation.  There is some legal controversy as to whether (and under what circumstances) an employee can be liable to a third party in respect of his breach of those duties imposed on him within his organisation.[70]  In this context we cannot go further into detail on the dispute.  It is nevertheless clear that the case law makes it conceivable that the Designated Person can be liable when he exhibits fault in failing to follow rules within his organisation, and a third party suffers loss as a result.[71]  

7. Easier Piercing of The Corporate Veil of Companies Without a Place of Business in Their Country of Incorporation

    The ISM Code will make it easier to pierce the corporate veil of companies which do not have a place of business in their country of incorporation.  Consistent BGH authority has held that the law applied to a foreign legal person is the law of the company in which its main place of business is situated.  This is by reference to the business it carries out, rather than to any place of business mentioned in the memorandum or articles.[72]  This is of particular interest to the creditors of a foreign one ship company.  The formal owner of a ship is frequently a foreign one ship company although in reality these companies are often mere brass plate companies.  If the creditor succeeds in proving this and in showing that the real place of business of the company is in Germany, then there is under German law at least a possibility that the members of this company (or its directors) can be sued directly.[73]  In practice it is difficult to pierce the corporate veil because the creditor cannot always prove where the real place of business of the shipping company is.  This may now change.  The ISM Code requires the owner of the ship who passes its operation to someone else to inform the administration of the flag state.  The owner has to give the administration the full style of that company and further information.[74]  It is clearly possible that this duty of disclosure will make it easier for creditors to find out who the real operator of the ship is.  The usefulness of this as a source of information will depend on the co-operation of the relevant flag administration.  

8. Insurance Cover

  The ISM Code also has important implications for insurance. Under section 58 ADS (German Hull Clauses) and No. 23 DTV Hull Clauses underwriters are not liable for damage caused by the fact that the vessel is unseaworthy at the commencement of the voyage.  She will be unseaworthy in particular when she is not adequately equipped, crewed or loaded or when she lacks the necessary papers in relation to the ship, the crew or the cargo.  There are similar provisions in nearly every jurisdiction and in the rules of the P&I Clubs.  As a result, a ship which has no SMS or SMC may be unseaworthy.  The leading P&I Clubs have indicated that an assured who fails to bring in a SMS and fails to certify his ship will probably have no cover.[75]  Some of the Clubs have already inserted clauses into their rules which deny cover when the assured fails to fulfil the requirements of the ISM Code.[76]

  Some commentators are of the view that a contract of insurance entered into when both the Underwriter and the assured are aware of the uncertified state of the ship will be void for illegality.  This argument has been advanced by English lawyers.[77]  There must be some doubt as to whether the insurance of an uncertified ship would be void under Paragraph 134 BGB (which states that illegal contracts are void. It is not possible for me to go into further depth in the context.

  Under the applicable English and German insurance provisions, underwriters will not be liable where the assured has negligently or deliberately caused the insured peril (see Paragraph 33 ADS).  It is clear from the above that the introduction of the ISM Code will make it more common for the directors of the company operating the ship to be aware of incidents involving the safety of the ship.  It will therefore be more common for the assured to be guilty of fault itself.[78]

  The duties of disclosure in marine insurance law (see paragraph 19 et seq. ADS) mean that it will be harder in the future for the assured to avoid disclosing to the underwriter all the circumstances in his knowledge which might be material to the decision to write the risk.  The ISM Code will mean that the owner will be in possession of more documentation about past damage to the ship.  The owner and his broker will have to be very careful when placing the insurance to ensure that they cannot be accused of breaching their duties of disclosure.  Such breaches usually lead to the Underwriter being released from his liability.  

III. Book shelf solutions versus individual development

In view of the individual nature of the ships it is absolutely vital that there are no book shelf solutions but an individual ISM documentation which is also a sufficient means to exculpate the owner from liability. Each vessel is different from the other and deserves individual ISM documentation.  

IV. Responsability of recognised organisations?

  What do do if the auditors fail? If this is the case there is a liability of the recognised organisations for damages if they fail in issuing certificates. Third parties rely on these certificates and can claim damages if the certificates are wrong and if third parties rely on their correctness. The basis of the claim are the principles of the contract for the advantage of a third party. If these principles are violated there is a claim of a party who relied on the correctness of an ISM certificate[79].  

V. Conclusion

  In general terms the introduction of the ISM Code will increase the danger of ship owners and carriers being liable.  On the one hand the courts will be ready to view a breach of any of the provisions of the Code or the SMS as a breach of the duty of care.  On the other hand, it will be less common for the carrier to be able to rely on limitations and exclusions of his liability.  Paragraph 607(2) HGB will be excluded more often by Paragraph 559 HGB.  Moreover, it will be more difficult to limit liability because the management of the Company will have more knowledge of incidents involving the ship (assuming the SMS is functioning properly) and will therefore be guilty of personal fault.  Where the carrier is guilty of personal fault, he will be deprived of his exclusion of liability under Paragraph 607(2) HGB and the owner will be deprived of his right under Article 4 of the 1976 Convention to limit his liability to a certain sum.

  On the other hand it should not be forgotten that where the SMS is functioning properly, this will make the carrier less likely to be liable because it will be an indication of the required standard of care.  Therefore the implications of the ISM Code should not be exaggerated.

  In basic terms, the same applies to the liability of the owner in tort. On the one hand, the clarification of management and supervision duties will increase the danger of liability.  On the other hand, the Company can avoid liability if it complies with the provisions.  In cases of illegal activity by the Designated Person, the owner will essentially only be liable under Paragraph 831 BGB, which means that it has a potential defence.  Nevertheless, it will be harder to invoke the defence because the Company will have new duties of supervision under the Code.

  The Designated Person can be personally liable for his own fault.  The Code (in particular the duty on the owner to disclose the identity of the true operator of the ship) will in practice make it easier to pierce the corporate the veil of foreign one ship companies. 

  An assured who does not introduce a SMS is in danger of losing his insurance cover.  It will be more common for an insurer to be able to establish that the assured has deliberately or negligently caused the operation of the insured peril.  This will allow the insurer to evade liability.

  It is absolutely vital that there are no book shelf solutions but an individual ISM documentation. If the ISM certificate is incorrect there might be a basis of claims for damages if third parties relied on the correctness of those certificates.

  It remains to be seen whether the ISM Code will succeed in improving safety at sea, protecting individuals from damage to life and limb and preventing damage to the environment and personal property.  However, one thing is already clear now.  In cases of loss or damage the first area of investigation will be the question of whether the ISM Code has been fully complied with.  If that is not the case, then this can have significant legal implications for the owner, the carrier or the Company.