JSC Sogaz (the claimant) brought a claim against LLC Femko-Management (the defendant) for RUB 847,875,574.12 in damages and RUB 306,942,572.57 in interest on the main debt. The defendant applied to limit its liability to RUB 214,245,258.20 in damages and RUB 86,784,003.91 in interest, and to establish a limitation fund under the LLMC 1976 by providing a bank guarantee for the relevant sum.

The Court of Primorskiy Region dismissed the defendant’s application. The Court of Appeal upheld this judgment. The defendant submitted a cassation appeal.

The claim arose from damage caused to a floating crane during its towage by the ship Ossoy from Qingdao, China, to the berth owned by LLC SSK Zvezda (the consignee) in the Primorskiy Region. The claimant insured the floating crane for the benefit of the consignee. The claimant paid insurance compensation to the consignee and was subrogated into the consignee's rights against the defendant.

The Federal Service for Supervision of Transport issued a report stating that the crane was damaged due to inadequate preparation for the voyage, possible hidden defects, and poor weather conditions during the voyage. The obligation to prepare the crane rested with the consignee and the shipbuilder in China, CSSC Quingdao Beihai Shipbuilding Co Ltd. The crane was prepared for the voyage without the defendant's involvement.

The Court of first instance, dismissing the application to limit liability, held that limiting liability before the defendant's liability is established in the proceedings on the merits would violate the claimant's right to full compensation for damages. The Court of first instance did not recognise the res judicata effect of the proceedings between the defendant and the consignee in relation to the same incident. In those proceedings, it was found that the damage was not due to the defendant's fault. The Court of Appeal, however, found that the floating crane was damaged due to the defendant's gross negligence, and therefore the defendant did not have the right to limit its liability.

Held: The cassation appeal is dismissed.

Conditions and procedures for limitation of liability are set out in the LLMC 1976 and are reflected in Ch XXI of the Merchant Shipping Code of Russia (the MSC RF). Under art 4 of the LLMC 1976, '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'. This provision was incorporated into Russian law in art 357 of the MSC RF, which provides that a person liable shall not be entitled to limit its liability if it is proved that the damage was caused by its personal act or omission committed with intention or gross negligence.

The provisions on contract liability in the Civil Code of Russia do not recognise recklessness or gross negligence as forms of fault. Therefore, the Court of Appeal derived the meaning of 'gross negligence' from the explanatory documents of the Supreme Court of Russia and the Supreme Commercial Court of Russia regarding insolvency, insurance and promissory notes cases, and from the position of the Constitutional Court of Russia in the road accident case. Accordingly, the Court of Appeal found that there is no unified definition of 'gross negligence' and therefore the Court should, at its own discretion, determine whether the person's actions meet the threshold, taking into account all the circumstances of the case.

The Court of Cassation confirmed the Court of Appeal's finding that the defendant, by signing the towage commencement certificate, accepted that the floating crane was ready for carriage. The defendant is a professional carrier and is therefore expected to render the services with utmost professionalism and in accordance with good marine practices. This includes active and responsible involvement, not only in the carriage itself, but also in preparing the cargo for carriage. In this regard, the defendant should have noticed possible issues with the inspection, inadequate preparation, and other circumstances that could create obstacles to carriage. The defendant failed to do so. According to the Court of Appeal finding that was confirmed by the Court of cassation, this amounted to gross negligence.

The defendant's argument that the LLMC 1976 provides for recklessness and not gross negligence as the form of fault that bars the right to limitation was rejected by the Court of Cassation. The Court of Cassation found that the provisions of art 357 of the MSC RF on gross negligence and the provisions of art 4 of the LLMC 1976 on recklessness do not contradict each other.