First Ever Given Decision About LLMC Limitation Fund Before The Turkish Courts-2014
Istanbul 52. Denizcilik Ihtisas Mahkemesi
( Istanbul First Instance 52. Commercial Court empowered to Maritime, Admiralty and Insurance Issues )
Case no : 2006/173
Verdict no : 2008/147
Subject : Petition for limitation fund
Filing date : 01/04/2013
Verdict date : 11/02/2014
Mustafa Okan Ogullari Shipping Industry & Trade Corp.
Turkish Petroleum Refinery Corp. (TUPRAS)
M/v “Mustafa Okan”, which is 1,218 GRT and hoisting Turkish flag under Istanbul Ship Registrar, involved in an accident and gave rise to damage to the loading platform at berth no 204 in loading port of TUPRAS on 20th of March 2013 while mooring.
The plaintiffs, Mustafa Okan Ogullari Shipping Industry & Trade Corporation, which is the owner of m/v “Mustafa Okan”, proclaimed that they deposited a security for the amount of USD 2,350,000 so as to enable them to save the vessel out of possible freezing order that was earlier demanded by the defendants from the Court. The plaintiffs further claimed that the amount of the damage must be limited to SDR 1,000,000 in terms of article 2/a of London Convention on The Limitation of Liability for Maritime Claims 1976 (LLMC), which was published by Official Gazette no 17007 dated 4 June 1980, and the amendment protocol 1996, in which it is envisaged that the claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation) occurring on board or in direct connection with the operation of the ship or with salvage operations, and consequential loss resulting therefrom. The plaintiffs, additionally, claimed that the fund to be set must be in Turkish Liras (TRY) in accordance with Turkish Commercial Code (no 6102) sec 1347/2 with the interest yield. The plaintiffs additionally made a request for the release of the security that was given for the TUPRAS’ request.
The defendants, in their defense submission, raised that m/v Mustafa Okan had caused the rope broken off while mooring, in result, she crashed into the loading platform which is located in T-side of the berth area and caused damage on the premises. The defendants further added that damage report was submitted by court expert witness and a declaratory judgement was given by Aliaga First Instance Court and damaged was calculated as TRY 4,236,425. The defendants pointed out that the plaintiffs provided the court with the P&I Club letter of indemnity (LoI) of USD 2,350,000. The defendants kept on alleging that the amount of the damage occurred on the berth and the pipelines were worth over SDR 1,000.000. Additionally, the defendant objected that the plaintiffs were not entitled to limit their prospective liability by virtue of the 1976 LLMC art 4 indicating that the shipowner is not entitled to limit its liability when the damage occurred by the negligent act(s) of the vessel owner/operator and/or the master and/or seafarers.
The Court Reasoning
The court stated that the subject matter of the claim, which was raised by the owners of the Turkish flagged vessel “Mustafa Okan” that was registered in Istanbul, was about a request for the establishment of a limitation fund of SDR 1,000,000, which is contemplated by LLMC 76 and its amendment protocol 96 for the shipowner that can be applicable for the damages occurred after the vessel’s crash into the loading platform of TUPRAS refinery on 20 March 2013.
The court further stated that the information given by the Istanbul Ship Registrar proved that the vessel “Mustafa Okan” holds imo no 9119464 and owned by Mustafa Okan Ogullari Shipping Industry & Trade Corporation.
The court referred also to the plaintiffs’ request of a permission to limit its liability and the sec 1328 of Turkish Commercial Code (TCC no 6102) in which it indicates that the maritime claims can be limited in accordance with LLMC 76 and its amendment Protocol 96. In its justification for its own competency and venue issue, the judge moved on to refer to the sec 1329 of TCC which accepts the application of sec 1328 of TCC even if there is no “foreignness” element by using a reference to the sec 1/1 of the Turkish International Private and Civil Procedure Code (MOHUK) which defines the concept of “foreignness”. In the view the judge, where the claims addressed to the Turkish nationals in the circumstances in which the occurrence of the marine accident happened to be in Turkish territory a Turkish court is therefore competent, so the plaintiffs are entitled to limit liability in accordance with LLMC 76.
TCC sec 1061/1 sets out the liability of the shipowner for the acts and omissions of the seafarers and sec 1061/2 goes on to say that the shipowner’s right to limit its liability envisaged under the international conventions where Turkey is the signatory and recognizing member State about limitation liability of the shipowner by making a clear reference to LLMC 76 and its amendment protocol 96. The judge went further to state that the sec 1328 and sec 1329 of TCC explicitly incorporated the special provisions of LLMC 76 and its amendment Protocol 96. As art 1/2 of LLMC entitles the shipowner (charterer, shipper, operator, manager) to limit its liability in accordance with the art 2 of the same convention. TCC sec 1062 therefore entitles the claimant to limit its liability against the maritime claims.
In art 2/1,a of LLMC 76, whatever the basis of liability may be, it shall be subject to limitation of liability claims in respect of loss of life or personal injury or loss of or damage to property (including damage to harbour works, basins and waterways and aids to navigation), occurring on board or in direct connection to the operation of the ship or with salvage operations, and consequential loss resulting therefrom entitle to limit liability, therefore taking into account of the to the facts of the pending case this article 2 of LLMC 76 does apply to this claim before the court.
According with the interim decisions dated 24th of April 2013 and 30th of April 2013 the plaintiffs’ request to limit their liability with SDR 1,000,000 was objected by the defendants counter-claiming that the actual damage is TRY 4.236.425 and hence that request to limit the liability by SDR 1,000,000 became not applicable. The defendant further raised other defensive points such as there could not be any right to limit the liability because the damage occurred as a result of negligent act of the shipowner and/or the master. The defendants added also that the loading platform is a fixed structure and since the vessel crashed into that fixed structure this situation cannot be within the coverage of LLMC 76 and protocol 96. The court further referred to the art 4 of LLMC 76 where it states that a person cannot apply for a limitation of liability if the accident occurred due to that person’s act or omission where it is proven that this person committed with the intent or reckless behavior and with the knowledge that such damage would probably occur.
The “intention” concept is contemplated under Turkish law and it is well defined. However, as to the interpretation for “the actions made recklessly and with the knowledge that the damage would probably occur” is a new concept and there are different views in the doctrine. In one view, the fact that the allocation of “acts made recklessly and with the knowledge that the damage would probably occur” along with the “intention”, which both set out in Hague-Visby Rules and Hamburg Rules as degrees of the fault, are unfamiliar with the principles under European Law. Those degrees of faulty act would be regarded as “gross negligence” or a degree of fault placed between the “intention” and “willful misconduct” hence as a special version of gross negligence. Under those circumstances the liability of the carrier, where it is found gross negligent, avoids the application of limiting its liability. This situation would also apply to the servants/employees if they were grossly negligent (see Vural Seven, Civil Procedural Law and Enforcement and Insolvency Law, 2005, Vol 1, p 51).
The art 4/2 of the Hague-Visby Rules states that ‘neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from any act, neglect, or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship’. The article shifts the burden of proof to claimant to prove the intention that neither the actual fault nor privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage. Also, neither the carrier nor the ship shall be entitled to the benefit of the limitation of liability provided for in this paragraph if it is proved that the damage resulted from an act or omission of the carrier done with intent to cause damage, or recklessly and with knowledge that damage would probably result.
The court further made a reference to Civil Liability Convention (CLC) 1992 art 5(2), where it says, the shipowner may be deprived of the right to limit his liability if it is proven that the incident occurred as a result of the personal fault (the ‘actual fault or privity’) of the owner. In other words, if a person’s liability exceeds a certain degree, there will be no availability for a limitation. The personal fault has two tiers under Turkish Law. First tier is the ‘intentional’ personal fault. Second tier is explained in Warsaw Convention on Air Carriage, which is enforceable under Turkish Law. Under the art 25 of the Warsaw Convention ‘the carrier shall not be entitled to avail himself of the provisions of this Convention which exclude or limit his liability, if the damage is caused by his willful misconduct or by such default on his part as, in accordance with the law of the Court seized of the case, is considered to be equivalent to willful misconduct.’
Willful misconduct is based on two elements: careless behaviour or negligence, and awareness of this kind of damage that is probable. In order to define the behaviour as careless, the carrier, while performing charter party, must be construed as derogating the duty to perform due diligence with intense and gross negligence. The criteria taken for defining if there is any derogation in performing due diligence is to be the acts of the reasonable and prudent carrier (Dr Kubra Yetis Samlı, Carrier’s Liability for Loss, Damage and Delay in the view of Turkish Commercial Code, pg 170, The loss of Right to Limit liability, pg 92 onwards).
The Ireland High Court interpreted ‘reckless act’ as an act that a reasonable person will recognize and foresee the danger that might cause in the future. This is an objective test and it is applicable to the air carriage too (Dr Kubra Yetis Samlı, Carrier’s Liability for Loss, Damage and Delay in the view of Turkish Commercial Code, pg 170, fn 477). “Reckless act with the knowledge that there would be damage probably occur” has two elements One is the “reckless behavior” or “omit” (objective element) the other is the “knowledge that the damage would probably occur” (subjective test). In order to find the carrier and his men’s acts recklessly an intensive and gross negligence on the duty to care of the cargo must be proved. Here an objective interpretation of a reasonable and prudent carrier must be observed. Other element, which helps to determine whether there is any consciousness of acting with knowledge of damage would probably occur, is the subjective test of a carrier who acts prudently and reasonably.
The burden of proof of no right to limit liability is on the defendant (Vural Seven, Law of Civil Procedure and Debt Enforcement and Bankruptcy law journal, 2005, no 1, pg 72)
In the view of the expert report submitted in this case there is no infringement of art 4 of LLMC 76 hence the court decided so.
Under LLMC 76 as amended by 1996 protocol, according to art 3 and art 6/1,b(i) for the ships which are not exceeding 2,000 GRT the limit is SDR 1,000,000.
As dated on 7 June 2013 interim decision and TCC sec 1347/2, the fund established according to the TCC has to stay in an interest account. By analogy according with TCC sec 1386/4, SDR 1,000,000 has to stay in the account until the allocation of Turkish Lira, which opened, by claimant invested in quarterly periods. Claimant requested SDR 1,000,000 corresponding to USD 1,533,000 invested in Turkish Vakiflar Bank deposit account.
The Unit of Account referred in art 6 and art 7 is the Special Drawing Right (SDR) as defined by the International Monetary Fund. The amounts mentioned in art 6 and art 7 shall be converted into the national currency of the State in which limitation is sought, according to the value of that currency at the date the limitation fund shall have been constituted, payment is made, or security is given which under the law of that State is equivalent to such payment. The value of a national currency in terms of the SDR, of a State Party that is a member of the International Monetary Fund, shall be calculated in accordance with the method of valuation applied by the International Monetary Fund in effect at the date in question for its operations and transactions. The value of a national currency in terms of the Special Drawing Right, of a State Party, which is not a member of the International Monetary Fund, shall be calculated in a manner determined by that State Party.
Turkey is the member of international monetary fund, as based on in art 8 unit of account SDR. Furthermore, according to LLMC 76 and Protocol 96 art 11, the fund shall be constituted in the sum of such of the amounts set out in art 6 and art 7 as are applicable to claims for which that person may be liable, together with interest thereon from the date of the occurrence giving rise to the liability until the date of the constitution of the fund. Any fund thus constituted shall be available only for the payment of claims in respect of which limitation of liability can be invoked.
The court decided to limit liability with SDR 1,000,000 in respect of TRY 3.423.200; between the event date and fund established date the interest was TRY 328.509; accounting for a total amount of TRY 3.752.709 TL. It is held that therefore to establish fund for limitation of liability. According to TCC and 1976 LLMC and 1996 protocol none of those regulations has considered interest; the court considered those interest as legal interest.
It has been decided that under LLMC 76 and its amendment protocol 96 art 3(b), 1 million Units of Account for a ship with a tonnage not exceeding 2,000 tons was applied. Turkey is a member of International Monetary Fund, and has amendment of limits under the art 8(1) of the Convention, which states that ‘ Upon the request of at least one half, but in no case less than six, of the States Parties to this Protocol, any proposal to amend the limits specified in art 6, paragraph 1, art 7, paragraph 1 and Article 8, paragraph 2 of the Convention as amended by this Protocol shall be circulated by the Secretary-General to all Members of the Organization and to all Contracting States’. Also, under the article 11 of the Convention ‘the fund shall be constituted in the sum of such of the amounts set out in art 6 and art 7 as are applicable to claims for which that person may be liable, together with interest thereon from the date of the occurrence giving rise to the liability until the date of the constitution of the fund. Any fund thus constituted shall be available only for the payment of claims in respect of which limitation of liability can be invoked.’
The vessel is 1218 GRT and it will be limited to SDR 1,000,000 that is equivalent to TRY 3,423,200. The Convention on Limitation of Liability for Maritime Claims (LLMC) 1976 and 1996 amendment protocol do not mention any interest rate, therefore the court calculated the interest payable during the period of case order. The interest payable between the dates of 20/03/2013-11/02/2014 amounts to TRY 328.509. The total sum is limited to TRY 3,751,709 and payable as a fund.
Plaintiffs requested the refund of the indemnity paid by P&I club amounted USD 2,350,000, however court decided not to give a decision as the letter of guaranty was not on the name of the claimant, it was decided to leave that matter with the court that decided the payment of the fund under the 1976 Convention.
1. It is held that, the admission of establishing a limitation fund of liability for 1 million SDR equivalent of TRY 3.423.200 plus legal interest of TRY 328,509 that makes a total amount of TRY 3.751.709 which to be deposited in a fund.
2. As TCC sec 1345 reads, once a fund is established, all collateral and personal securities come into end automatically so there is no need to release a further decision.
3. As for court dues, TRY 25.20 is decided as judgment fee and the balance of TRY 0.90, which is the balance difference between the advance due of TRY 24.30 and the final due of TRY 25.20, is held to be paid by the plaintiffs into the Revenue.
4. TRY 1,500 of standard fixed attorney fee is held in favour of the plaintiffs’ attorney for his professional work.
5. All the court expenses made by the plaintiffs shall be remained for the Revenue.
6. The defendants’ expenses made, as it is TRY 43.00, to be paid by the plaintiffs to the defendants.