Damage caused to the environment by failure to perform the duty of lifting a sunken ship shall be compensated by the owner of the ship and not by the charterer (lessee).

Facts of the case

Rosprirodnadzor carried out a survey of the Caspian Sea and discovered a grounded barge (ship) called Sulak Astrakhan.

The investigation revealed that the barge has being used in the northern Caspian Sea to build an offshore ice-resistant stationary complex. On 30 March 2015 during a storm the barge was derailed and carried to the coast of the Republic of Kalmykia, where she sank.

A letter from the captain of the Astrakhan seaport shows that the ownership of the barge was registered in the maritime register in favour of Galaktika. It also appears from the register that a bareboat agreement had been concluded between Galaktika (the ship owner) and Global-Flot (the charterer). At the time of Rosprirodnadzor’s requested the Captain of the port Astrakhan, the ship had been already removed from the State Ship Register and ownership of the facility had been terminated on the basis of the owner’s application.

Rosprirodnadzor conducted a water study in the area of the accident and found an excess of iron in the water at the extraction point (barge Sulak) of 1.02 to 1.68 times the norm.

Rosprirodnadzor concluded that the damage was caused to the environment – the Caspian Sea. Rosprirodnadzor sued against the company Global-Flot for 112,762,320 rubles (the amount of damage).

The amount of damage was determined by the plaintiff based on § 17 of the Methodology for Calculating the Damage Caused to Water Bodies as a Result of Violations of Water Laws, approved by Order No. 87 of the Ministry of Natural Resources and the Environment of the Russian Federation of 13.04.2009 (hereinafter the Methodology) and the formula No. 5 given in it.

Claimant’s arguments:

1. Damage to the environment caused by the actual dumping of the barge “Sulak”.

2. Damage was caused by Global-Flot because it was operating the barge.

Defendant’s arguments:

1. The coordinates given in the water sampling protocols are 27 km away from the barge’s grounding, i.e. no evidence of water pollution by sinking the vessel.

2. There is no causal link between the flooding of the barge in 2015 and the excess iron concentration in 2018.

3. The bareboat agreement was terminated and the charterer had no obligation to lift the vessel.

Ruling of the courts: the case has gone through two rounds of hearings.

In the first round the claim was rejected because the claimant had not proved that the defendant had caused the damage, but the court of third instance remanded the case for a new hearing.

In the second round the claim was satisfied. The courts said that the damage was caused to the environment by the charterer’s failure to properly moor the barge and evade lifting and evacuating the barge. As a result, the charterer’s inaction caused harmful substances to enter and contaminate the seawater.

The Supreme Court of the Russian Federation sent the case to a third round and questioned whether the charterer was a proper defendant in the claim for damages.

The problem is that one day after the barge sinked, the shipowner and the charterer terminated the bareboat agreement. Subsequently, on the basis of the owner’s application, the barge was removed from the State Ship Register and ownership of the object was terminated. According to the opinion of the Supreme Court of the Russian Federation after the termination of the bareboat relationship, the owner of the barge bore the burden of its maintenance and according to the Art. 109 of the Russian Merchant Shipping Code, had an obligation to raise the sunken property.

The Supreme Court concluded that the courts had incorrectly established the mechanism of liability for damage. It should be depends on what activity caused the damages – improper mooring by the charterer Global-Flot or inaction in lifting the barge by the owner.

The Supreme Court noted that the barge was insured in favour of Global-Flot. Under § 9.13 of the Insurance Regulations, to which the insurance policy referred, in the event of total loss of barge, title to the insured barge would pass to the insurer up to the amount paid. According to the Supreme Court, the courts should analyze the fact of the payment of insurance compensation and the transfer of ownership of the barge to the insurance company.

Comment: this case is equally interesting to legal practitioners and academics.

The Supreme Court of the Russian Federation prepares Reviews of Court Practice. The cases, which are included to this reviews, should bind other courts. This case is included to the Supreme Court’s Review of Practice No. 3(2021), it means that the legal position from this case is really important for future court practice.

In this case the classic question of tort law is discussed – who is liable for damage caused by activities related to a source of increased danger (ship) – the possessor (here the charterer) or the owner?

A peculiarity of environmental damage compensation is the difficulties with the calculation of the amount of damage. For ease calculation the RF Ministry of Natural Resources develops methodologies for calculating the damage. The question arise: whether the court is bound by the formula for calculating the damage developed, in fact, by one of the parties to the dispute?

These two issues have been touched upon by the Supreme Court and it makes sense to elaborate on them.

1. Who is liable for environmental damage caused by a ship – the owner of the ship or the charterer (lessee)?

The question of whether the possessor (the charterer) or the owner is liable for damage caused by activities related to a source of increased danger is general and has no specific in Maritime law.

The answer to the question involves two concepts of civil law – (1) what is possession and whether the owner loses possession by leasing the thing, and (2) what is a person liable for – the fact of owning a source of increased danger or for activities related to a source of increased danger?

In Russian court precedents the notion of possession as control over an object is dominated¹.

In Russian law, in contrast to the German Civil Code, there is no division of possession into direct possession and indirect possession as control over an object². However, in court practice there are attempts to introduce such a division³. As a result, taking into account the division of possession into indirect and direct, it is quite possible to interpret Art. 1079 of the Civil Code of the RF on liability so that the owner, by leasing the thing, retains the indirect possession and therefore bears responsibility for the damage. However, the Supreme Court has not followed this line of reasoning.

The Civil Code of the RSFSR of 1964 enshrined liability for the fact of owning a source of increased danger. The concept was changed in the Civil Code of the Russian Federation of 1994 by stipulating liability for activities related to a source of increased danger⁴. The activity is rather performed by the possessor, but the fact of leasing can also be called an activity connected with a source of increased danger. Once again, it is not clear who should be held liable – possessor or owner.

Against the backdrop of ambiguous interpretations of the law, political-legal arguments gets the particular value.

Arguments in favour of owner liability are: (1) the owner bears the burden of maintaining the thing and must control who uses it and be responsible for its actions; (2) the possessor is like a representative of the owner, so the owner is still responsible for its actions (the concept of direct and indirect possession); (3) in cases where the property right is recorded in the register, it is easier for the victim to find the owner using the register data, rather than the possessor.

The arguments in favour of the liability of the possessor are equally convincing: (1) everyone should be responsible for his or her actions, so whoever carried out the activity is responsible for its adverse consequences, i.e. the possessor, not the owner; (2) the concept of direct and indirect possession is not reflected in Russian law, so the possessor cannot be called the owner’s representative and must be personally responsible for his or her actions; (3) if the record of the possession is reflected in the register, the victim can easily find him.

A comparison of the arguments shows that, in order to protect the victim’s rights, in practice, the decision who is liable for damage, cause by the ship, may depends on, has the agreement registered or not.

In the case commented upon, the essence of the legal position of the Supreme Court of the Russian Federation is the following: liability depends on the mechanism of damage and the determination of whose actions caused the damage. However, from the point of view of the ownership approaches outlined above, it remains unclear who should be held liable for the damage caused by a sunken barge. The barge was sunk due to the action of the charterer, i.e. the possessor. However, it was the owner who had to raise the barge (Art. 109 of the Russian Merchant Shipping Code).

Against the background of the charterer’s actions for bad mooring and the owner’s inaction in lifting the barge, the conclusion is that the possessor and the owner are co-defendants and should bear joint and several liability (Art. 1080 of the Civil Code of the Russian Federation). Joint and several liability protects the injured party in the best way as it allows him to recover the damage from any of the responsible parties who have money in their bank account.

The Supreme Court did not pronounce on joint and several liability, but instead emphasised the harm caused by the burial of the barge and the owner’s failure to lift her. In other words, the pendulum swung in favour of the owner’s liability for breach of the duty to lift the barge.

Court practice will always be hesitant on the question of who is liable for damage caused by activities involving a source of increased danger – the possessor or the owner, because there will always be disputes among lawyers as to whether the owner retains possession and carries out activities involving a source of increased danger when he leases the thing. So, despite the inclusion of the case in the Practice Review of the Supreme Court, the revolution on this question doesn’t happen and the discussion is to be continued.

2. The role of the clause on transfer of title to the insurance company in determining who is liable for damage.

The Supreme Court noted that the courts during the new hearing of this case must assess whether the title of the wreck had passed to the insurance company after the payment of the insurance indemnity. At the same time, the Supreme Court expressed itself in favour of the owner’s liability for environmental damage caused by the sinking of the barge and the owner’s failure to raise the barge.

Does the position expressed mean that the tortfeasor is the insurance company? It seems not to be, but this question is the most difficult and the answer is not unambiguous.

The Supreme Court noted that in the new hearing the courts must assess whether the title of the sunken ship passed to the insurance company after payment of the insurance compensation. At the same time, the Supreme Court expressed itself in favour of the owner’s liability for the damage caused to the environment by a sunken ship and the owner’s failure to raise her.

Does this position mean that the insurer is the delinquent (tortfeasor)? It would seem not, but this is the most difficult question in the commented case and the answer is ambiguous.

The following arguments are against the transfer of title to the insurance company:

– the thing (ship) is dead, but the title may pass to the things that exists; a non-existent thing cannot be the subject of the transfer of title. The owner has the right to undertake an obligation to transfer the title that will come into existence in the future, but it is not possible to fulfil the obligation to transfer the title to the thing, that does not exist and to become the owner of a thing that does not exist. In terms of the conditions of transfer in this case, there is an obligation of the shipowner to transfer the title to the insurance company under the condition of lifting the sunken ship. However, until the ship is raised, this obligation has not been fulfilled; it has no property effect, because there is no thing⁵;

– under Russian law, a ship is immovable and title on immovable property arises from the time of registration (Art. 33 of the Russian Merchant Shipping Code, § 2(1) of Art. 130 and Art. 131 of the Civil Code). When title to immovable arises as a result of universal succession (inheritance and reorganisation), the exception to the principle of registration is justified because the successor acquires the entire scope of rights; cases of singular succession, which include the transfer of title to an insurance company following payment of compensation, will not fall here, the owner is known here and his right is recorded in the register;

– the liability of the shipowner, not the liability of insurance company, is insured, it means that from the legal policy point of view the victim is more protected when liability for damage is attributed to the shipowner and not the insurance company;

– again from a legal policy perspective, making insurance organizations responsible for the lifting of wrecks is not compatible with their special legal capacity, i.e. the right to carry out only insurance activities and no other activities.

In any dispute, there are always arguments to justify the opposite point of view. The issue of determining the owner of a wreck is no exception. The following considerations are in favour of the automatic transfer of the title to the wreck to the insurance company after payment of the insurance indemnity:

– the ship is not dead because she could be lifted, but this argument still does not allow to make the conclusion that the shipowner’s obligation to transfer title to the insurance company was performed;

– when the title arises by operation of law, it doesn’t dependent on registration; All exceptions from the principle of arising title by registration must be explicitly stated in the law, but in the case of insurance company law says nothing;

– the insurance company has reserves from which the injured party can receive compensation if there is a shortfall, so the injured party is protected;

– special legal capacity of the insurance company cannot serve as a basis for exemption from the obligation to lift the ship.

The arguments against automatic transfer of the title to the insurance company after payment of indemnity seems to be more persuasive. The insurance company’s entitlement is conditional on the shipowner lifting the ship. This means that the responsibility for failure to lift the ship must be borne by the shipowner – the last registered owner, and not by the insurance company.

Apparently, in order not to give rise to a discussion about the point at which title accrue to the insurance company after compensation is paid, the passage from the Supreme Court design was not included in the Supreme Court Practice Review.

3. How to count the amount of damage caused to the environment – using the Methodology containing the formula for calculating or on any other way?

In Russian courts it is extremely difficult to prove the amount of damages⁶, because courts tends to assess the evidence not with a reasonable degree of certainty as required by law in Art. 393 of the Civil Code of the RF, but in a very formal way – no loss in the amount of 100 is proved, so the claim for recovery must be refused. The trend towards formal assessment of evidence without assuming a reasonable degree of credibility is starts to change slowly.

Representatives of the Russian executive, aware of the problem of evidence assessment by Russian courts, have started to adopt Methodologies, which contain a formula for the calculation of damages. This makes it easier for the court to assess the evidence: the court only needs to establish whether there has been damage and then apply the formula.

Two questions arise: (1) Is the court bound by the formula proposed by one party of the dispute? (2) Is the amount calculated according to the formula rebuttable? In other words, if in a particular dispute the amount of harm is less than the amount calculated by the formula, is it permissible for the defendant to rebut it?

In the case commented upon, the Supreme Court of the Russian Federation spoke on the first issue and found the courts bound to calculate the amount of damage based on the formula. The answer to the second question is open.

This is one of the first cases in which the Supreme Court has pronounced on the legal meaning of the Methodology for Calculating Environmental Damage. The parties did not argue about the amounts calculated according to the Methodology, so the main question – whether the amounts calculated according to the Methodology can be disproved – was left unanswered by the highest court.

Conclusions

The Supreme Court has emphasised the liability of the owner rather than the charterer for damage caused by flooding and failure to act to raise the barge. The Supreme Court does not deny the possibility of calculating the amount of damages on the basis of the Methodology approved by the executive authority. The fate of this case depends on evidence that the pollution of the sea was caused by the sinking of the ship (barge). ■