International Ore & Fertilizer Corp. v. SGS Control Services, Inc.

38 F.3d 1279, 1994 WL 580910
Court of Appeals for the Second Circuit·Decided October 24, 1994·No. Nos. 1480, 1481 and 1709, Dockets 93-9046, 93-9332 and 94-7084·Published·Cited by 13 cases

Opinions

WINTER, Circuit Judge:

SGS Control Services, Inc. (“SGS”) appeals from Judge Tenney’s order awarding $713,666.27 to International Ore & Fertilizer Corp. (“Interore”) on the grounds that SGS negligently misrepresented the cleanliness of three ship’s cargo holds resulting in contamination and other damage to the cargo. Inte-rore cross-appeals from the district court’s finding of contributory negligence and the consequent halving of damages. SGS’s counsel also appeal from the district court’s award of Fed.R.Civ.P. 11 sanctions for the making of repetitive motions.

We affirm but on rather different grounds. We believe that any duty that SGS owed to Interore arose from a contract between the parties to inspect the cargo holds and that SGS is not liable in tort. However, we also conclude that SGS breached its contract with Interore and that Interore would ordinarily be entitled to full damages. However, there has been no cross-appeal from the district court’s dismissal of the contract claim, and we therefore leave the smaller judgment in place. We affirm the imposition of Rule 11 sanctions.

BACKGROUND

Interore, a Delaware corporation with its principal place of business in New York City is, as its name suggests, an international corporation specializing in the trading of fertilizer products. Interore contracted to sell 22,202 metric tons of compound phosphate fertilizers to East Coast Fertilizer Company Ltd. (“East Coast”), a New Zealand corporation, on a cost and freight basis for $4,118,-287. Interore chartered the M/V ADELINA to transport the fertilizer from Sweden to Tampa, Florida, and from Tampa to Napier, New Zealand. The agreement with East Coast required Interore to have an independent hold inspector certify the condition of the holds prior to loading the fertilizer. Interore contracted with SGS, as it had several hundred times previously, to inspect the ADELINA’s holds and provide such a certificate. Interore confirmed the oral contract by telex, which read in relevant part: “PLS ACT OUR BEHALF PERFORMING INSPECTION, SAMPLING AND ANALYSIS. PLS ISSUE FLWG DOCS: 1) CERT OF HOLD INSPECTION, CONFIRMING VSLS HOLDS WERE CLEAN, DRY AND ■SUITABLE....” Interore paid SGS $150 for the inspection of the ADELINA’s three holds loaded at Tampa.

The ADELINA has five cargo holds, each approximately eighty-one by eighty-seven feet square and forty-seven feet high, separated fore and aft by vertical bulkheads. The most forward hold, hold one, is slightly narrower. On the port and starboard sides of each hold are vertical ribs protruding two feet from the side of the hull and extending from the top of the hold to where an angled section of the hold begins approximately eight feet from the floor. Horizontal bars, called stringers, are attached at regular intervals to the front of the vertical ribs, and vertical pipes are nested between some of the ribs, each protected by horizontal bars fastened to the front of the ribs. Each hold has a large, square hatch opening at the top, measuring approximately forty-one by twenty-eight feet on hold one and fifty-five by thirty-nine feet on the other holds.

The ADELINA’s previous cargo was coal, but the penultimate cargo had been barley. Although the crew cleaned and painted the holds following the discharge of the coal, they failed to remove a substantial amount of barley grains trapped in the pockets behind the stringers. The inspection of holds one and four in Sweden, performed by SGS’s Swedish affiliate, lasted approximately forty-five minutes, during which the inspector descended into the holds and inspected the stringers and the hatch covers from below. The inspector also inquired of the crew as to the vessel’s prior cargoes. The inspector certified holds one and four as clean, dry, and suitable for loading.

SGS’s subcontractor, Captain Peter Luard, who had four years of experience in hold inspections, performed the Tampa inspection of holds two, three, and five in the early morning hours of July 2,1985. Between 1:45 a.m. and 2:15 a.m., Luard inspected the three holds, spending approximately ten minutes in each hold. He climbed down the aft ladders and walked the floors, inspecting the string[1282] ers and overhead deck beams. Luard did not attempt to look behind the stringers. Following his visual inspection, he was informed of the previous cargoes by the crew but did not return to the holds. At 2:15 a.m., Luard completed a document on SGS letterhead titled “Certificate of Readiness” which read:

Certificate of Readiness
This Is To Certify that the undersigned Marine Surveyor did, at the request of _on behalf of_did attend on board the M.V. Adelina of 16356.78 Gross Tons, Port of Registry Piraeus, whereof Cart. Matselos P. is Master and now lying at Gardiner Terminal for the purpose of surveying the following cargo holds Nos 2, 3 and 5.
Said cargo compartments And Hatch Covers have been surveyed and found suitable to load a cargo of Phosphate this time and date.
Date July 2nd 1985
Time Passed 0215
Peter F. Luard
for Surveyor
SGS Control.Services Ino.
Valid Only At Port Of Issuance
Member of the SGS Group
All Inspections Are Carried Out To The Best Of Our Knowledge And Ability And Our Responsibility Is Limited To The Exercise Of Reasonable Care [italics designate handwriting]

Following Luard’s issuance of this certificate, the ADELINA loaded holds two, three and five with fertilizer and sailed for New Zea-land.

Upon arrival in New Zealand on August 1, 1985, officials of the New Zealand Ministry of Agriculture and Fisheries (“MAF”) discovered that the fertilizer was contaminated with barley and barred its discharge unless East Coast notified all buyers of the contamination and took steps to prevent it from being used in barley-growing areas. East Coast refused to do so or to accept the shipment, and the fertilizer remained aboard the ADELINA. Interore hired New Zealand surveyors who found the barley lodged in the stringers and hatch covers. Following futile attempts to find other buyers in Australia or Southeast Asia, Interore shipped the fertilizer to Antwerp, Belgium, where it was sold off in small lots. During this process Interore incurred damages in costs and lost value of $959,-375.44.

Interore brought the present action against SGS alleging breach of contract, breach of warranty, negligence, and negligent misrepresentation. In a pre-trial order, the district court bifurcated the trial into, first, a bench trial generally concerning liability issues, and, second, a hearing before Chief Magistrate Judge Gershon concerning “[a]ll issues associated with damages.” The order lists the issues to be tried in the first phase as:

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International Ore & Fertilizer Corp. v. SGS Control Services, Inc., 38 F.3d 1279, 1994 WL 580910 (2d Cir. 1994).

38 F.3d 1279 (International Ore & Fertilizer Corp. v. SGS Control Services, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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