COVID REPEATS 29: “THERE IS NO PRIMER FOR SCUTTLERS”: THE JUDGE’S ASSESSMENT OF EVIDENCE WHERE (HE FOUND) THAT A SHIP WAS SUNK DELIBERATELY
We are looking again at the judgment of Mr Justice Teare in Kairos Shipping Ltd -v- The Standard Club Europe Ltd  EWHC 2412 (Admlty) is a comprehensive lesson in thorough fact finding.
“There is no primer or guide to scuttling.”
After a detailed analysis of the facts the judge found that a ship had been deliberately scuttled.
The claimant shipowners brought an action seeking declaration that their liability to the defendant was limited. The claimant’s ship had sunk on a voyage and there was a limitation on liability unless it could be shown that the sinking was deliberate.
There was a very heavy burden on the defendant in seeking to show that the ship was sunk deliberately, tantamount to the criminal standard. Further the defendant had obvious evidential difficulties:
- The main piece of forensic evidence (the ship) is at the bottom of a very deep sea.
- The only witnesses as to fact were employed by the claimant. Some of these (indeed most of these) could well be honest witnesses.
THE APPROACH OF THE COURTS
The judge reviewed the issues relating to burden of proof and evidence.
“(4) if a defendant insurer is to succeed on an allegation that a vessel was deliberately cast away with the connivance of the owner, then the insurer must prove both aspects on a balance of probabilities. However as such allegations amount to an accusation of fraudulent and criminal conduct on the part of the owner, then the standard of proof that the insurer must attain to satisfy the Court that its allegations are proved must be commensurate with the seriousness of the charge laid. Effectively the standard will fall not far short of the rigorous criminal standard;
(5) although there is no “presumption of innocence” of the Owners, due weight must be given to the consideration that scuttling a ship would be fraudulent and criminal behaviour by the Owners;
(6) when deciding whether the allegation of scuttling with the connivance of the Owners is proved, the Court must consider all the relevant facts and take the story as a whole. By the very nature of these cases it is usually not possible for insurers to obtain any direct evidence that a vessel was wilfully cast away by her owners, so that the Court is entitled to consider all the relevant indirect or circumstantial evidence in reaching a decision;
(7) it is unlikely that all relevant facts will be uncovered in the course of investigations. Therefore it will not be fatal to the insurers’ case that “parts of the canvas remain unlighted or blank” (see Michalos and Sons v Prudential Insurance (The Zinovia)  2 Lloyd’s Rep 264 at p.273 per Bingham J.);
(8) ultimately the issue for the Court is whether the facts proved against the Owners are sufficiently unambiguous to conclude that they were complicit in the casting away of the vessel;
(9) in such circumstances the fact that an owner was previously of good reputation and respectable will not save him from an adverse judgment;
(10) the insurers do not have to prove a motive if the facts are sufficiently unambiguously against the Owners. But if there is a motive for dishonesty then it may assist in determining whether there has been dishonesty in fact.”
ASSESSMENT OF WITNESSES
Unsurprisingly the judgment contains a summary of the judge’s assessment of the credibility of the witnesses
“The owner, Mr.Agaoglu
He gave his evidence patiently and politely, notwithstanding that he appeared to regard parts of the cross-examination as unnecessarily repetitive, that he thought some of the questions should have been put to others and that he said he required the assistance of an accountant to answer some of the questions. He denied the serious allegations put to him “vehemently”.
First, reference was made to the accounts of the Owners which Mr. Agaoglu had approved. Thus the accounts recorded that Mr. Agaoglu had contributed US$3.5m to the share capital of the Owners. There was no documentary evidence that he had done so and the document provided by the Owners’ solicitors as evidence of such a contribution was in fact evidence that the Owners’ Netherlands based bank Credit Europe Bank (“CEB”) had lent $3.5 million to the Owners in 2011. In fact, a document (disclosed very shortly before the trial) recorded that Mr. Agaoglu had actually provided capital of only US$2,000. Also, the accounts recorded that the “cost” of the vessel was US$19.8m. when in fact it was US$15m. He referred in his third statement to a valuation of the vessel in the sum of US$18.5m. but that valuation is undated (and Captain Toran in his disclosure statement said that no vessel valuations had been obtained between 1 January 2010 and 31 December 2013) and is any event not in the figure of US$19.8m. There was no evidence from the company’s auditors as to the provenance of this figure. The fact that these two misrepresentations in the Owners’ audited accounts had been approved by Mr. Agaoglu suggested that he was prepared to make statements in important documents which were not true.
Second, in his witness statement he said that all the hull insurance proceeds of US$22m went directly to CEB and that neither he nor the Owners received any of the proceeds. He said that whilst there may have been some marginal reduction of the borrowings due from Capella (another company in the same group which owned the vessel ATLANTIK GLORY), the remainder of the fleet received no benefit. However, it appears from the analysis carried out by Mr. King of Moore Stephens LLP (which was not challenged by any accountant’s report commissioned by the Owners) that that was not so. In fact, whilst Kairos used the greater part of some US$20.29m. paid by the brokers Willis to discharge part of its indebtedness to CEB (and Capella used the US$1.6m. paid by the brokers Willis to discharge part of its indebtedness to CEB) some of the insurance proceeds, approximately US$4.56m., were transferred by Kairos to other companies within the group, including the owners of ATLANTIK GLORY, ATLANTIK MIRACLE and ATLANTIK PRIDE. Of that sum of US$4.56m. some US$1.5m. consisted of unidentified transfers. Mr. Agaoglu accepted that his witness statement was not accurate in this regard but he maintained that it was not a lie. However, I found it very difficult to accept that Mr. Agaoglu did not know that US$4.56m. of the proceeds had been used for the benefit of other owning companies within the Atlantik group when he made his statement.
Third, other aspects of his evidence did not suggest that he was a reliable witness. He was reluctant to accept that a loan from CEB of some $437,000 had been required to pay for the dry docking in January and February 2013 when he had said in his statement that the Owners had paid for the dry docking “with the full support of CEB” which, when asked, he accepted meant that the Bank had lent that sum of money. He also said that he was unaware that the loan agreement with CEB required an asset/loan ratio of 130%. It is improbable that he was unaware of that. His difficulty in accepting that if the market value of the vessel had been used in the company’s accounts the company would have been “balance sheet insolvent” suggested that he was unwilling to accept matters which were obvious. For example, the audited accounts showed that Kairos had net assets of US$2.38m. at the end of December 2012 whereas when the market value of ATLANTIK CONFIDENCE was taken into account Kairos had net liabilities of over US$9m.
Fourth, his repeated response to questions about the accounts was that if they were to be pursued he would wish to instruct an accountant to consider them or that the questions should be put to his accountant. These responses were, it seemed to me, hollow in circumstances where the Owners had had permission to adduce evidence from an accountant but had chosen not to adduce such evidence, thereby leaving the evidence of Cargo’s accountant effectively unchallenged on matters of accounting.
Captain Toran was also a witness of fact and his account in his witness statement of the circumstances in which the master vessel altered course in the Gulf of Aden prior to the sinking was incomplete and inconsistent with the contemporary documents. He stated that he had passed on to the master a piracy warning on 28 March 2013 and said that the route the master had decided to take was not unusual. He made no reference to the fact that the Owners had in fact instructed the master what route to take on 25 March 2013. Captain Toran’s account of the circumstances in which the master changed course appeared calculated to hide the role of the office in instructing the master to alter course.
Captain Toran’s unsatisfactory evidence regarding disclosure of the photographic metadata and the circumstances in which the master altered course does not mean that he cannot have been telling the truth when he denied being part of a conspiracy to scuttle the vessel but it does mean that I must treat his evidence, like Mr. Agaoglu’s evidence, with caution.
THE JUDGE’S FINDINGS OF FACT
It is difficult to summarise the detailed technical findings. However there are a number of key factors which were considered collectively:-
- There was no satisfactory explanation for the ship’s change of route into deep water.
- The chief engineer was unwilling to have others in the engine room at a time when assistance would normally have been unwelcomed.
- There was a delay in sending a distress signal.
- There was untruthful evidence from the master that the chief engineer did not visit him on the bridge prior to abandonment.
The judge considered an argument that no competent scuttler would have sought to sink the ship in the manner this vessel was sunk.
“Whilst some engineers might appreciate that a bulk carrier will not sink if her engine room and ballast tanks 4 and 5 on the portside are flooded it does not follow that all will. There is no primer or guide to scuttling.”
The judge went on to find that the owner had some involvement in the scuttling.
“he lied about the destination of the insurance proceeds. I consider that he did so in an attempt to mask the benefit he received from the loss of the vessel and to avoid suspicion falling on him. Those matters are sufficient to establish the involvement of Mr. Agaoglu. But in addition Mr. Agaoglu had a motive to arrange the sinking of the vessel. His companies were in real financial difficulty and it is likely that he was under pressure from his bank. He would alleviate both by his bank recovering the insurance proceeds of US$22m. There was no evidence as to when Mr. Agaoglu or those acting on his behalf asked the master and chief engineer to sink the vessel or why they agreed to do so but Mr. Agaoglu must have had the opportunity to make, or more likely arrange, such a request.”
CONSIDERING THE BURDEN OF PROOF
Before reaching these conclusions I have asked myself whether there is a real or substantial, as opposed to a remote or fanciful, possibility that the sinking of the vessel was accidental, which Cargo have been unable to exclude. I do not consider that there is. The expert technical evidence has suggested possible mechanisms by which the fire could have started accidentally and by which the vessel could have been lost accidentally but an accidental fire and loss are, in my judgment, remote and can be excluded by the weight of the considerations which suggest a deliberate fire and a deliberate loss. This is a case where, in the language of Stuart-Smith LJ in The Ikarian Reefer, “the balance tilts heavily and sufficiently far in favour of” a finding that the loss was deliberate. There may have been, albeit that it is unlikely, a hole in the ballast piping in hold no.5 which permitted ballast water to enter that hold from double bottom no.5 but if that is what happened the loss of the vessel was still caused by the deliberate actions of the master and chief engineer in flooding the engine room and the nos.4 and 5 double bottom tanks. Such actions were an effective cause of the loss of the vessel. I have asked myself whether, to use Colman J.s’ phrases in The Grecia Express, it is “highly improbable” that the vessel was lost accidentally such that I have “a high level of confidence” that the vessel was deliberately sunk and that the allegation made against Mr. Agaoglu is true. It is and I do. I have also asked myself whether, to use Aikens J.’s phrase in The Milasan the facts proved against Mr. Agaoglu are “sufficiently unambiguous” to establish that he was complicit in the casting away of his vessel. They are. Finally, I have asked myself, as The Popi M requires the court to do, whether this is a case where the court is left in doubt as to the cause of the loss of the vessel with the result that the court is unable to make a finding as to the cause. I am not left in doubt as to the cause of the loss.