Untangling Terminology and Establishing the Degree of Fault

In the course of ratifying the Convention on Limitation of Liability for Maritime Claims (LLMC), the term “recklessness” in Article 4 ended up being translated into Russian as “smonadeyannost” (essentially “overconfidence” or “a reckless sort of bravado”). Yet Article 357 of the Russian Merchant Shipping Code, which incorporates Article 4 of the Convention, switches to the term “grubaya neostorozhnost” (“gross negligence”). However, these terms are not legally synonymous, as they refer to different degrees of indifference or disregard for the safety and well-being of others. Anna Arkhipova argues that “recklessness” falls somewhere between deliberate intent and gross negligence.

Another challenge in this context is deciding how the degree of fault should be assessed. The associate professor at the Russian School of Private Law believes that the subjective approach should be set aside in favour of developing an objective standard. She explains her position by noting that it is extremely difficult to prove what was going on in someone’s mind: “We can hardly send the defendant for a psychiatric assessment every time just to establish their motives.”

Currently, in assessing the degree of fault in commercial disputes, reference should be made to Article 401 of the Civil Code and to the guidance provided in Plenum Resolution No. 25 of the Russian Supreme Court of 23 June 2015.

“The person shall be recognised as not guilty, if, taking into account the extent of the care and caution, which has been expected from him in the face of the nature and the terms of the circulation, he has taken all the necessary measures for properly discharging the obligation.”

Article 401(1) of the Civil Code of the Russian Federation

“In determining whether a party’s conduct is to be regarded as in good faith or in bad faith, reference should be made to the standard of behaviour expected of any participant in civil circulation who respects the rights and lawful interests of the other party.”

Para. 1, Supreme Court Plenum Resolution No. 25 of 23 June 2015

That is, intent is present in situations where the party fails to meet even the minimum standard of good-faith behaviour. Arkhipova suggests categorising the various levels at which this standard may be breached. For example, if the standard of good-faith conduct is severely violated, that amounts to intent; a lesser breach would constitute recklessness; and a still lesser one, gross negligence, and so on. This approach is obviously more reliable than expecting the court to second-guess what one of the parties was thinking.

Arkhipova urged that criteria be developed for determining the degree of fault. She believes that building up case law is the way to achieve this, as it enables a generally accepted understanding of the issue to emerge. For instance, providing a vessel in an unseaworthy state could be classified as gross negligence, whereas operating with an insufficient crew would fall into a different degree of fault. The more cases with consistent judgements we accumulate, the easier it will be to interpret subsequent ones.

Inconsistent Judicial Practice

Thus far, only one case has been upheld in Russian judicial practice where the provisions of the Convention on Limitation of Liability for Maritime Claims were applied. The case in question, No. A56- 18440/2006, concerned a damages claim brought against Valday-1 Ltd, owner of the mv Sv. Apostol Andrey, following a collision with Fertis International Limited Corporation’s mv Runner-4 in spring 2006.

Vladimir Apranich, a judge of the Commercial Court of St Petersburg and the Leningrad Region, who authorised a limitation fund of RUB 87.8 million for the shipowner, along with interest at 12% per annum from the date of the casualty to the date the fund was set up (RUB 35,156 per day).

As Apranich observed in the reasoning of his judgment, the Commercial Procedure Code of the Russian Federation does not expressly set out a procedure for establishing such a fund. However, where an international treaty of the Russian Federation establishes rules of procedure other than those stipulated by the legislation of the Russian Federation on commercial court proceedings, the rules of the international treaty shall apply (Article 3(3) of the Commercial Procedure Code). Apranich therefore concluded that the matter should be governed by the Convention on Limitation of Liability for Maritime Claims and by Article 363(3) of the Merchant Shipping Code of the Russian Federation (“Creation of the Limitation Fund”). He further stressed that the fund exhibits counter security features, enabling Article 94 of the Commercial Procedure Code to be applied accordingly.

A decade on, in a comparable case, Judge Nina Korzh held that the shipowners (Pontoporos Special Maritime Enterprise and Delta Tankers Ltd) were not entitled to limit their liability, as the incident had resulted from their gross negligence (Case No. A56-80864/2016). Her judgement drew on the opinions of Rostransnadzor and experts from the Professional Development programme of Admiral Makarov State University of Maritime and Inland Shipping, who found the tanker’s master liable, concluding that his actions had caused the allision with the port facilities.

In effect, Judge Korzh equated the actions of the master and crew with those of the shipowner. Krasnokutskiy considers this interpretation to be flawed, as it leaves shipowners unable, in practical terms, to limit their liability. Arkhipova attributed the current judicial approach in Russia to an entrenched practice whereby, as a general rule, an employer is responsible for the actions and inactions of its employees. This principle is codified in Article 1068 of the Civil Code.

«Delta Tankers Ltd designates itself as the vessel’s operator and exercises management of the vessel pursuant to a contract with Pontoporos Special Maritime Enterprise. Moreover, Delta Tankers Ltd is the employer of the master and crew (as evidenced by the OCIMF-format Extract from the Delta Pioneer tanker questionnaire) and, as such, is obliged under Article 1068 of the Civil Code of the Russian Federation to redress the injury inflicted by the employee during the performance of labour (official) duties. The defendants did not dispute that the tanker’s master was an employee of Delta Tankers Ltd, which, pursuant to Article 70(3.1) of the Commercial Procedure Code, is deemed to be accepted by the defendants.”

Judgment of the Commercial Court of St Petersburg and the Leningrad Region of 7 July 2017 in Case No. A56-80864/2016

Adverse Effects of a Legal Institution That Fails to Operate

Remove the shipowner’s right to limit liability, and the knock-on effects for the global economy will be adverse. Insurers would begin to decline claims en masse, invoking gross negligence, and suddenly the only asset left to cover the damage would be the vessel itself, worth far less than the damage caused.

By contrast, when the limitation of liability system works as intended, it benefits creditors, as it guarantees them a specific recoverable sum. And beyond that, it is one situation when a shipowner knows they can cap their liability, and quite another when there is no such guarantee. In the latter case, most entrepreneurs will be unwilling to invest in maritime transport or fleet renewal, the president of RUMLA believes: “The industry’s commercial appeal collapses.” Furthermore, the limitation of liability provides clarity in dealings between insurers and shipowners, summarised Bulat Karimov, head of yRUMLA’s committee, who took part in the seminar. ■