First Turkish limitation fund court decision: intent or no intent?

Turkey’s legal practice has improved considerably in recent times.The new Turkish Commercial Code, No 6102 (TCC) was enacted and came into force on 1 July 2012. Up to that point, Turkish judicial practice had been struggling with the application of international conventions due to some poor interpretations and a lack of profound and precise legal construction. In particular the Convention on Limitation of Liability for Maritime Claims 1976 (LLMC 1976),1 and its Protocol from 1996,2 took a long time to be applied, although they had been ratified some time ago.The lawmakers of the newTCC made specific provision for the application of international conventions, which are directly referred to in the new Code.The international maritime conventions to which Turkey is a party are included in Part V,“Maritime”,of theTCC.LLMC 1976 and the Protocol of 1996 are both expressly referred to in Part V, Chapter 7.


The first limitation fund was recently established in the dispute between Mustafa Okan Ogullari Shipping Industry & Trade Corporation v Turkish Petroleum Refinery Corporation (TUPRAS) before the 52nd Commercial Court of Istanbul, a court designated for maritime, admiralty and insurance related disputes in Turkey.3

The facts

On 20 March 2013 while mooring, M/V Mustafa Okan, sailing under the Turkish flag and registered in Istanbul, caused damage to the loading platform at berth no 204 in the loading port of TUPRAS. Soon thereafter, the operator of the port commenced litigation against her owner, Mustafa Okan Ogullari Shipping Industry &Trade Corporation.

The shipowner applied to the court claiming that they had deposited security so as to enable the discharge of a possible freezing injunction against the vessel and sought the establishment of a limitation fund limited to SDR1 million in accordance with article 2(a) of LLMC 1976. The article deals with 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 loss resulting therefrom.The shipowner further claimed that the fund must be in Turkish liras (TL) in accordance with the TCC section 1347(2), and must yield interest.

TUPRAS objected, arguing that Mustafa Okan was not entitled to limit her liability by virtue of LLMC 1976 article 4.

The judge’s reasoning

The judge referred to section 1328 of TCC, according to which maritime claims can be limited as per LLMC 1976 and its amending Protocol of 1996. However, the judge was cautious in applying the law since there was also another Code in existence that must be taken into consideration, applicable to disputes containing a “foreign” element. The judge’s justification for the court’s competency was founded on section 1329 of the TCC, accepting the application of section 1328 even where there is no “foreignness” as defined in section 1(1) of the Turkish International Private and Civil Procedure Code. In the judge’s view, claims against Turkish nationals regarding a marine accident that had occurred within Turkish territory are within the scope of the competence of the Turkish court, so that the shipowner should be entitled to limit its liability in accordance with LLMC 1976.

The judge referred to TCC section 1061(1), establishing the liability of the shipowner for the acts and omissions of the seafarers, and section 1061(2), allowing the shipowner to limit its liability in accordance with the international conventions. She also referred to sections 1328 and 1329 of theTCC which explicitly incorporate the special provisions of LLMC 1976 and its amending Protocol of 1996.Article 1(2) of LLMC entitles the shipowner (charterer, shipper, operator, manager) to limit its liability in accordance with article 2 of the same Convention, and TCC section 1062 therefore also entitles the claimant to limit its liability against the maritime claims.

The judge knew that article 2(1)(a) of LLMC 1976, whatever the basis of liability may be, should be subject to the limitation for 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. Therefore, she considered the facts of the case before her and decided to apply article 2 of LLMC 1976. She was aware that a person cannot apply for limitation of liability if the accident occurred due to that person’s “act or omission, committed with the intent” or reckless behaviour and with the “knowledge that such loss would probably result” (article 4 of LLMC 1976).

The concept of “intent” is well established in Turkish law. However, when it comes to the interpretation of acts committed “recklessly and with knowledge” that the damage would probably occur, this is a new concept. The language used, along with the “intent”, as set out in the Hague-Visby Rules4 and Hamburg Rules5 as degrees of fault, is unfamiliar to the principles of the civil law system.Those degrees of fault in acting would be referred to as “gross negligence”, a degree of fault placed between “intent” and “wilful misconduct”, hence it is a special version of gross negligence. Under those circumstances the liability of the carrier, where there is gross negligence, avoids the application of limiting its liability.This situation would also apply to servants or employees if they were grossly negligent (Hamburg Rules article 8(2)).

Article IV rule 2 of the Hague-Visby Rules states: “Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from: (a) 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 the 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 will be entitled to the benefit of 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 judge also made a reference to the Civil Liability Convention (CLC) 1992 article V(2), where it says that 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 possibility of limitation.The personal fault hastwotiersunderTurkishlaw.Thefirsttieris“intentional” personal fault.The second tier is best explained in theWarsaw Convention,6 which is enforceable under Turkish law. Article 25(1) of theWarsaw Convention states:“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 wilful misconduct or by such default on his part as, in accordance with the law of the Court seised of the case, is considered to be equivalent to wilful misconduct”.

The judge analysed the concept of “wilful misconduct” based on two elements: careless behaviour (or negligence), and awareness of damage that is probable. In the judge’s view, “careless behaviour” can be the carrier’s thoughtlessness and ignorance of the result of his intensive and grossly negligent act in executing the charterparty.The relevant criteria to consider refer to the acts of the reasonable and prudent carrier.7

The judge also referred to a case from the Ireland High Court8 wherein “reckless act” is interpreted as an act where a reasonable person will recognise and foresee the danger that it might cause in the future.This is an objective test and it is applicable to air carriage, too.9 The concept of a reckless act committed with the knowledge that loss would probably occur has two elements. One is “reckless behaviour” or “omission” (objective element); the other is “knowledge that the damage would probably occur” (subjective element). In order to find the carrier and his men’s acts reckless an intensive and gross negligence on the duty to care for the cargo must be proved. Here an objective interpretation of a reasonable and prudent carrier must be observed.The other element, which helps to determine whether there is any consciousness of acting with knowledge that damage would probably occur, is the subjective test of a carrier who acts prudently and reasonably.

The judge referred to LLMC 1976 as amended by Protocol 1996 articles 3 and 6(1)(b)(i), under which for ships not exceeding 2,000 grt the limit is SDR1 million. She also referred to TCC section 1347(2), whereby the fund established according to the TCC has to be placed in an interest-bearing account. By analogy with TCC section 1386(4), the SDR1 million has to stay in the account until the allocation ofTurkish liras. The Unit of Account referred to in articles 6 and 7 is the Special Drawing Right (SDR) as defined by the International Monetary Fund of whichTurkey is a member state:

“The amounts mentioned in Articles 6 and 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 Special Drawing Right, of a State Party which 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.” (Article 8.) 

According to LLMC 1976 and the Protocol of 1996 article 11:

“The fund shall be constituted in the sum of such of the amounts set out in Articles 6 and 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.”

Judgment

Given that the vessel was 1,218 grt, not exceeding 2,000 grt, the fund would be limited to SDR1 million which was the equivalent of TL3,423,200 plus legal interest of TL 328,509 so that a total amount of TL3,751,709 should be deposited in a fund. As TCC section 1345 indicates, once a fund is established, all collateral and personal securities automatically come to an end.

The procedures were completed in accordance with the Protocol of 1996 and a judgment was eventually issued establishing the limitation fund, leaving previous securities released, and, for the first time, an owner could successfully limit its liability by a limitation fund established in Turkey. Therefore,this judgment has broken new ground in successfully enabling limitation of liability for maritime claims in Turkey.

1 Ratification by the Turkish parliament published in the Official Gazette No 17007 dated 4 June 1980.
2 The ratification of this Protocol was published in the Official Gazette on 13 March 2010, and it entered into force in Turkey in accordance with article 11 of the 1996 Protocol.
3 Case no 2006/173, decision no 2008/147; filed date 1 April 2013; judgment date 11 February 2014.
4 “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.” (Hague- Visby Rules, article IV rule 5(e).)
5 “(1) The carrier is not entitled to the benefit of the limitation of liability provided for in article 6 if it is proved that the loss, damage or delay in delivery resulted from an act or omission of the carrier done with the intent to cause such loss, damage or delay, or recklessly and with knowledge that such loss, damage or delay would probably result.
(2) Notwithstanding the provisions of paragraph 2 of article 7, a servant or agent of the carrier is not entitled to the benefit of the limitation of liability provided for in article 6 if it is proved that the loss, damage or delay in delivery resulted from an act or omission of such servant or agent, done with the intent to cause such loss, damage or delay, or recklessly and with knowledge that such loss, damage or delay would probably result.” (Hamburg Rules article 8.)
6 Convention for the Unification of Certain Rules Relating to International Carriage by Air, signed at Warsaw on 12 October 1929.
7 Dr Kubra Yetis Samlı, Carrier’s Liability for Loss, Damage and Delay in light of the Turkish Commercial Code (2nd Edition, Istanbul, 2013), page 170; “The loss of Right to Limit liability”, page 92 onwards.
8 APH Manufacturing BV t/aWyeth Medica Ireland v DHL [2000] IEHC 131.
9 Dr Kubra Yetis Samlı, Carrier’s Liability for Loss, Damage and Delay in light of the Turkish Commercial Code, page 170, footnote 477.


Author: Prof Dr Vehbi S Ataergin