Kairos Shipping Ltd & Anor v Enka & Co LLC & Ors, Court of Appeal - Admiralty Division, October 11, 2016, [2016] EWHC 2412 (Admlty)

Resolution Date:October 11, 2016
Issuing Organization:Admiralty Division
Actores:Kairos Shipping Ltd & Anor v Enka & Co LLC & Ors
 
FREE EXCERPT

Case No: AD-2013-000175

Neutral Citation Number: [2016] EWHC 2412 (Admlty)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMIRALTY COURT

SITTING AT THE CROWN COURT IN TRURO

Royal Courts of Justice

Rolls Building, 7 Rolls Buildings

Fetter Lane, London EC4A 1NL

Date: 11/10/2016

Before :

MR. JUSTICE TEARE

- - - - - - - - - - - - - - - - - - - - -

Between :

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

Robert Thomas QC, Thomas Macey-Dare and Koye Akoni (instructed by Clyde & Co. LLP) for the Claimants

Nigel Jacobs QC and Ruth Hosking (instructed by Holman Fenwick Willan LLP) for the Third Defendant

Hearing dates: April 11-14, 18-21, 25-28, May 3-5, 9-12, 16-17, 23-25, 27 and July 7-8, 12-13 2016 and further written submissions on 15 and 27 July 2016, 10 and 25 August 2016 and 23 September 2016

- - - - - - - - - - - - - - - - - - - - -

JudgmentMr. Justice Teare :

Introduction

  1. On 30 March 2013 ATLANTIK CONFIDENCE, a geared bulk carrier, was in the Gulf of Aden in the course of a laden voyage from the Ukraine to Oman, via Turkey. She had loaded three cargoes of steel products in Oktyabrsk and Odessa (both in the Ukraine) and in Gemlik (in Turkey). At about 0530 (local time, or 0130 UTC) a fire alarm sounded indicating a fire in the unmanned engine room. Fire fighting took place consisting of boundary cooling and injection of CO2 into the engine room. Shortly afterwards the vessel was observed to be listing to port and her master and crew abandoned her into two lifeboats. They were taken on board by a passing merchant ship. Over the next four days the vessel continued to take on water until she sank on 3 April at 1055 (local time).

  2. The First Claimants, Kairos Shipping, the Owners of the vessel, have issued proceedings in the Admiralty Court seeking a limitation decree, that is, a declaration that the liability of Kairos for losses arising out of the sinking of the vessel is limited pursuant to the provisions of the Limitation Convention 1976.

  3. The cargo laden on board in Turkey, which was to be used in the building of a passenger terminal at Muscat International Airport, was insured by the Third Defendant, Axa Insurance (Gulf) BSC (``Axa''). Axa has been subrogated to the claim of the owners of the cargo against Kairos. Axa's claim is in the sum of about Euros 10.2m (excluding interest) and Kairos' limit of liability under the Convention is of the order of £7.3m plus interest. Axa is only one of several claimants and so, if Kairos is entitled to limit, Axa will only be entitled to its proportionate share of the limitation fund. I am told that the difference between Axa's claim and its share of the limitation fund justifies the cost of these proceedings.

  4. In this judgment I shall refer to Kairos as the Owners and to Axa as Cargo.

  5. A shipowner is entitled to limit his liability unless 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; see Article 4 of the Limitation Convention. The burden of proving such conduct lies upon the person challenging the right to limit, in this case, Cargo. That burden was described by Sheen J. in The Bowbelle [1990] 1 WLR 1330 as a "very heavy burden", which description has been approved by the Court of Appeal in The Leerort [2001] 2 Lloyd's Rep 291 and by the Privy Council in The Cape Bari [2016] UKPC 20. The burden is "very heavy" because of the nature of the conduct which must be proved to break the right to limit. It was described by Lord Clarke in The Cape Bari at paragraph 14 as "a high hurdle to jump". Cargo seeks to jump that hurdle in the present case, and thereby break the right to limit, by alleging that the Owners scuttled the vessel. It is said that the fire was deliberately started and that the sinking was carried out upon the instruction of the alter ego of the Owners, Mr. Ahmet Ali Agaoglu, the sole shareholder and director. If that case is proved then it is said that the loss suffered by Cargo resulted from the personal act or omission of the Owners committed with the intent to cause such loss.

    The burden and standard of proof

  6. It is common ground that Cargo must prove its case on the balance of probabilities and that in determining whether Cargo has discharged that burden the court's approach should be the same as it is when a shipowner makes a claim on a hull insurance policy and the insurer alleges that the ship was scuttled. The two situations are not identical; for example, the shipowner claiming on his hull insurance policy must prove that the loss was caused by an insured peril whereas the shipowner claiming a right to limit bears no such burden of proof. But I accept that in determining whether Cargo has proved on the balance of probabilities that the vessel was scuttled in a limitation action the court should follow the same approach as it does when determining whether a hull underwriter has proved on the balance of probabilities that a vessel was scuttled.

  7. That approach was summarised by Aikens J. in Brownsville Holdings Ltd v Adamjee Insurance Co. (The Milasan) [2000] 2 Lloyd's Reports 458 at paragraph 28 as follows:

    ``(4) if a defendant insurer is to succeed on an allegation that a vessel was deliberately cast away with the connivance of the owner, then the insurer must prove both aspects on a balance of probabilities. However as such allegations amount to an accusation of fraudulent and criminal conduct on the part of the owner, then the standard of proof that the insurer must attain to satisfy the Court that its allegations are proved must be commensurate with the seriousness of the charge laid. Effectively the standard will fall not far short of the rigorous criminal standard;

    (5) although there is no ``presumption of innocence'' of the Owners, due weight must be given to the consideration that scuttling a ship would be fraudulent and criminal behaviour by the Owners;

    (6) when deciding whether the allegation of scuttling with the connivance of the Owners is proved, the Court must consider all the relevant facts and take the story as a whole. By the very nature of these cases it is usually not possible for insurers to obtain any direct evidence that a vessel was wilfully cast away by her owners, so that the Court is entitled to consider all the relevant indirect or circumstantial evidence in reaching a decision;

    (7) it is unlikely that all relevant facts will be uncovered in the course of investigations. Therefore it will not be fatal to the insurers' case that ``parts of the canvas remain unlighted or blank'' (see Michalos and Sons v Prudential Insurance (The Zinovia) [1984] 2 Lloyd's Rep 264 at p.273 per Bingham J.);

    (8) ultimately the issue for the Court is whether the facts proved against the Owners are sufficiently unambiguous to conclude that they were complicit in the casting away of the vessel;

    (9) in such circumstances the fact that an owner was previously of good reputation and respectable will not save him from an adverse judgment;

    (10) the insurers do not have to prove a motive if the facts are sufficiently unambiguously against the Owners. But if there is a motive for dishonesty then it may assist in determining whether there has been dishonesty in fact.''

  8. ATLANTIK CONFIDENCE sank in deep water. The wreck has not been inspected with a view to determining the cause of the fire or the cause of the sinking. The available evidence as to mechanism is therefore limited and consists of surveys of the vessel prior to the final voyage, the observations of the fire by the chief engineer and second engineer and photographs of the vessel taken after the vessel had been abandoned and before she sank. In such circumstances it is inevitable that Cargo will be unable to give a full and complete account of the alleged scuttling (and unsurprising if the account changes as the litigation proceeds). That need not be fatal to Cargo's case so long as, after examining all of the evidence, the court is able to infer that the vessel was scuttled on the instructions of Mr. Agaoglu. In deciding whether the court is able to draw such inference the court must keep well in mind that it is possible, especially where the evidence is limited, that the case may be one where Cargo is unable to establish its case with the result that the cause of the loss remains in doubt and the court is unable to make a finding as to the cause of the loss; see The Popi M [1985] 2 Ll. L. Rep. 1 at pp.3-6.

  9. 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. Thus, as Aikens J. said in The Milasan, ``effectively the standard of proof will fall not far short of the criminal standard''. Precisely what that means and how the court determines whether the charge of scuttling has been proved on the balance of probabilities has been elucidated in the cases, in particular by the Court of Appeal in National Justice Compania Naviera SA v Prudential Assurance (The Ikarian Reefer) [1995] 1 Lloyd's Rep. 455. Thus, if Cargo is unable to exclude ``a substantial as opposed to a fanciful or remote possibility that the loss was accidental'' the court will be unable to draw the inference. But ``the mere existence of an opposing possibility does not prevent the balance from tilting heavily and sufficiently far in favour of the insurers'' (see p.459 rhc). To the same effect is the following later passage, ``there must be a real or plausible explanation which is supported by the evidence, or at the least is not inconsistent with it........It imposes too high a burden on the underwriters to say that such witnesses must be telling the truth unless the underwriters prove their accounts are impossible'' (see p. 484 lhc). In Strive Shipping...

To continue reading

REQUEST YOUR TRIAL