Major judgment breaks limits of 1976 law

For probably the first time in 40 years the UK limits had been broken under the Convention on Limitation of Liability for Maritime Claims 1976, although the uniqueness of the case makes it unlikely that a precedent will have been set.

Following the fire and sinking of the bulk carrier Atlantik Confidence off the coast of Oman in April 2013, the owners of the vessel sought to constitute a limitation fund in the Admiralty Court pursuant to the 1976 Convention, and to obtain a declaration that they were entitled to limit their liability due to the size of potential claims advanced against the owners.

The cargo Insurers sought to “break limits” by defending the application on the basis that the loss of the vessel along with her cargo was caused by the “personal act or omission” of the owners and that the exception in Article 4 of the Convention therefore applied.

The insurers argued that the only credible explanation for the sinking of the vessel consistent with all available evidence was that she was deliberately sunk by her crew on the direction of her owners. They argued that the “innocent” explanation for the vessel sinking put forward by the owners required a series of improbable fortuities which, when viewed in the context of the other evidence such as the change of routing of the vessel into deeper water, the Master and Chief Engineer’s response to the fire, and the difficult financial circumstances of the owners’ principal, meant that the only credible conclusion could be that the loss was caused by a deliberate act.

It was not disputed that the insurers had to prove its case on the balance of probabilities and that the Court’s approach should be the same as where a shipowner makes a claim on the hull policy and the insurer alleges the ship was scuttled.

Mr Justice Teare agreed with an earlier case where Mr Justice Aikens made clear that scuttling was a serious charge and that the standard of proof would not fall far short of the criminal standard. By the nature of these cases it would not normally be possible for insurers to obtain any direct evidence; therefore the Court could consider all relevant indirect and circumstantial evidence.

Justice Teare said: “The court will only be able to draw such inference when the case is established on the balance of probabilities. Shipowners do not generally resort to scuttling and an allegation that a shipowner has done so is a grave charge to make…..

In Strive Shipping v Hellenic Mutual War Risks Association (2002) Justice Colman concluded that it must be “highly improbable” that the vessel was lost accidentally and that there must be derived from the whole of the evidence “a high level of confidence that the allegation is true.”

During February and March 2013 the Atlantik Confidence loaded various cargos in Oktyabrsk, Ukraine, Odessa, Ukraine and Gemlik, Turkey for discharge in various ports in Oman, UAE, Saudi Arabia and Pakistan. On completion of loading she progressed via the Suez Canal to the Gulf of Aden.

Shortly before dawn on March 30th, 2013, a fire broke out in the engine room of the vessel on the starboard side of the second deck by the generators and the store room. At the time the vessel was 138nm off Masirah Island. Less than three hours later the Master had taken the decision to abandon the vessel. For four hours the crew remained in lifeboats in the vicinity of the vessel, during which time the Master

and Chief Engineer returned to the vessel twice. They were then picked up by a passing vessel and eventually repatriated to Turkey. By this time it was clear that the fire had been out for some time. The weather was relatively calm and the vessel remained in the vicinity, before eventually developing a port list and a stern trim. These gradually increased until the early hours of April 3rd 2016 when she finally sank.

Following the sinking, the owners of the vessel sought to establish a limitation fund and subsequently applied for a declaration that the owners were entitled to limit their liability. The cargo insurers objected, alleging deliberate scuttling.

The owners’ explanation for the series of events that led ultimately to the Atlantik Confidence sinking was held to be an aggregation of unlikelihoods. The insurers said that various actions taken together constituted a matter of cumulative suspicion.

Justice Teare agreed with the insurers and concluded that the sinking was a deliberate scuttling: “I have concluded that the chief engineer, with the knowledge and agreement of the master, deliberately set a fire in the store room and deliberately caused Atlantik Confidence to sink. They denied that they did so but I cannot accept their evidence.”

Justice Teare found that the scuttling was undertaken at the instruction of the principal: “The vessel was deliberately sunk by the master and chief engineer at the request of Mr. Agaoglu, the alter ego of the Owners. In those circumstances the loss of the cargo resulted from his personal act, committed with the intent to cause such loss. The loss of the cargo was the natural consequence of his act, as he must have appreciated. There can be no doubt that he intended the cargo to be lost just as much as he intended the vessel to be lost. It follows that the Owners’ claim for a limitation decree must be dismissed.”

The judge’s main line appears to be that, while improbable events do happen, the combination of three improbable and uncorrelated events (an accidental fire, an accidental flooding of the engine room caused by the fire and an accidental flooding of two double bottom tanks on the portside caused by the fire) would not have happened in rapid succession by chance.

Holman Fenwick said that, although this was, as far as it was aware, the first time that the UK limits had been broken under the convention in 40 years, “in our view this is a decision which turns on its own unique facts”. As a result “it should not open the floodgates to parties seeking to break limits…”