On the 26 May 2021, the Court of Appeal delivered a judgment in the names ‘Mare Blu Tuna Farm Limited v Dr Ann Fenech as special mandatory for the vessel MV Coral Water’.

By way of factual background, back in 2006, the vessel MV Coral Water had departed from Porto Torres in Sardinia for Tuzla in Turkey and stopped off Malta to take bunkers. Shortly after taking bunkers and setting sail, at night and in force 5-6 weather, the vessel’s propeller got caught in the mooring ropes of an aquaculture zone (which was not visible on the navigational chart the master was using at the time).

The owners of the fish farm alleged that as a direct consequence of this collision, the vessel had torn the netting around one of its tuna cages causing approximately 207 gross tonnes of blue fin tuna to escape. The claimant alleged that this amounted to a catastrophic loss of nearly EUR2,000,000, over and above the claim for physical damage suffered to the cage, which owners quantified at approximately EUR70,000.

The owners commenced an action for damages and requested the Court to declare that the alleged loss occurred as a result of gross recklessness and with knowledge that the incident was likely to occur. The first Court dismissed the claim on the grounds that the claimant had failed to prove that the MV Coral Water was solely responsible for the incident due to gross negligence and at the same time acted with the knowledge that an incident of this sort was likely to occur.

The Plaintiff company appealed. In May 2021, the Court of Appeal determined that the master’s failure to use the appropriate charts amounted to gross negligence on his part. The Court thus went on to partially overturn the findings of the first Court, determining that the Claimant’s first request was merited.

However, and most importantly, in delivering its decision, the Court of Appeal found that this was largely a ‘fictitious claim’, dismissing the majority of the plaintiff’s claim, throwing out its EUR2,000,000 claim for the alleged loss of tuna. The Court had relied upon the extensive evidence produced by the defendant vessel that proved that at the time of the incident, the relevant tuna cage was in fact empty, and therefore no tuna could have been lost. Nonetheless, the Court ordered the defendant vessel to pay the sum of EUR15,000 in damages caused to replace damaged equipment and cover the cost of labour, finding that the incident was caused due to negligent passage planning by the Captain of the MV Coral Water.

In this instance, the amount of damages awarded was minimal, it did not trigger the vessel’s need to limit its liability. Accordingly, the Court made no findings on the issue of limitation of liability. However, by accepting the claimant’s first request, the Court appears to have, perhaps inadvertently, equated gross negligence with the requirements to break limitation found under Article 4 of the LLMC. This begs the question – had the damages awarded been greater, could the Court’s finding of gross negligence have led to the inability of the ship owner to limit its liability?

As stated by Lord Denning in The Bramley Moore, limitation of liability ‘is not a matter of justice, it is a rule of public policy which has its origin in history and its justification in convenience’. It has also been described as a concept whereby ‘the principle of limited liability is that full indemnity, the natural rights of justice, shall be abridged for political reasons’.

Indeed, limitation of liability provisions in essence are “..expressly designed for the purpose of encouraging shipping and affording protection to shipowners against bearing the full impact of heavy and perhaps crippling pecuniary damage sustained by reason of the negligent navigation of their ships on the part of their servants or agents.”

Malta is a party to the Convention incorporated by means of Schedule 4 into Subsidiary Legislation 234.16 entitled Limitation of Liability for Maritime Claims Regulations,

Article 1 of this Convention defines which persons may be entitled to limit liability. It refers to (i) Ship Owners, defined as ‘the owner, charterer, manager and operator of a seagoing ship’, (ii) salvors and (iii) persons for whose act, neglect or default the shipowner or salvor are responsible. These shall be referred to as the ‘relevant persons’.

Article 2 of this Convention states that a person entitled to limit liability may do so in respect of loss of life or personal injury or in respect of loss resulting in damage to property occurring on board or in direct connection with the operation of the ship and consequential loss resulting therefrom.

The Convention specifies that that the limit of liability for a claim, arising on any distinct occasion shall be calculated according to a sliding scale based on the vessel’s tonnage measured in Units of Accounts which is then converted into a monetary figure by reference to Special Drawing Rights (SDR) as established by the International Monetary Fund.

However, the right to limit liability is not absolute. Under Article 4 of S.L. 234.16,  which replicates ad verbatim the provisions of Article 4 of the LLMC  ‘A person liable shall not be entitled to limit his liability if 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.’

The threshold to break limitation is necessarily a high one, as it would otherwise defeat the purpose of such limitation. The following elements must exist:

1. A person liable
2. By their personal act or omission
3. Caused loss
4. With Intent or recklessly with knowledge to cause such loss

A person liable under Article 4, refers to the persons who are entitled to limit liability, i.e. the relevant persons mentioned under Article 1 of the Convention. This would include persons for whose act, neglect or default the shipowner is liable. Under Article 347 of the Merchant Shipping Act, Chapter 234 of the Laws of Malta, the shipowner is responsible ‘for any damages caused by acts or omissions in the navigation or management of the ship’. Thus, the act or omission by the captain of a vessel to conduct an adequate appraisal of a passage plan, could satisfy the first two criteria.

With respect to the third requirement, the Court dismissed the claimant’s allegations that it suffered a loss of two million Euro as false.  That said, technically speaking, the court did conclude that a loss was caused by the incident, albeit a minimal one of circa Euros 15,000. Thus, whilst the damages sustained fell way short of any sum that would trigger the limitation of liability, it could be argued that the third element of loss existed.

It is the fourth element, that the claimant would have had difficulty proving. In the case of the MV Coral Water, no specific intent to cause the loss was ever alleged, however Claimants had accused the vessel of gross negligence and the Court of Appeal had agreed. However, the Convention speaks of recklessness with knowledge to cause such loss rather than gross negligence. Are the ramifications the same?

Under Maltese law, gross negligence is interpreted as being more than just negligence on a higher degree. Our courts have held that ‘gross negligence’ in our legal system is equivalent to culpa lata – i.e. denoting an absence of any degree of care and acting with reckless disregard to the safety or property of another.

The Maltese concept of gross negligence thus goes somewhat beyond the common law concept of ‘recklessly’, which “connotes either carelessness or utter heedlessness of consequences with the result that the perpetrator is deemed to have considered neither the probability nor even the possibility of a likely result”.

Nevertheless, gross negligence should not in itself mean that there was specific knowledge to cause a particular loss as is required to break the right of limitation of liability.

The wording in Article 4 suggests that the right to limit liability is barred only if the ‘the type of loss intended or envisaged by the person liable is the actual loss suffered by the claimant’. According to the Queen’s Bench Division, England in Goldman v Thai Airways,  it must be proved that the damage complained of is the same damage known to be the probable result. In The Leerort, the Court of Appeal of England and Wales held that foresight was required of the very loss which occurred, and not merely the type of loss that occurred.  ‘It seems to me that where the loss in respect of which a claim is made resulted from a collision between ship A and Ship B, the owners of Ship A , or cargo in Ship A, will only defeat the right to limit liability on the owner of ship B if they can prove that the owner of ship B intended that it should collide with ship A, or acted recklessly with the knowledge that it was likely to do so.”

The Court of Appeal of England and Wales in Nugent and Killick v Michael Goss Aviation Ltd, Auld L.J.  described recklessness as “an obvious risk of damage and failure to give any thought to the possibility of it or recognition of the risk and going on to take it”. It required actual knowledge “in the sense of appreciation or awareness at the time of the conduct in question, that it will probably result in the type of damage caused. Nothing less will do.”

It is arguable that gross negligence alone should therefore not be enough to break a ship owner’s right to limitation under Article 4 of LLMC. It would be reasonable to argue that a Maltese Court would need to ascertain that  the defendant not only acted or failed to act in a manner that disregarded the consequences, or in a manner where it could be reasonable to expect a particular type of damage to be suffer, but that the said defendant had specific knowledge that the actual damage which was suffered would occur.  In this case, the master did not know or realize there was an aquaculture zone in the vicinity. It would seem therefore unreasonable to argue that his conduct could be said to satisfy the requirement of Article 4 of the LLMC, triggering the exclusion of the right to limit liability.

How can we help?

Should you require any further information or assistance on the matter, please do not hesitate to reach out to us personally on ann.fenech@fenechlaw.com or martina.farrugia@fenechlaw.com

©Fenech & Fenech Advocates 2021

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