$76m claim lodged over liner sinking

The Marlborough Harbour Board faced a $76 million claim after the 1986 sinking of the Mikhail Lermontov in the outer Marlborough Sounds.

Details of a court settlement between the board, its insurers and the owners and operators of the cruise liner have been released by the Ombudsman after remaining secret for more than 10 years.

The board paid $2.2 million to the Baltic Shipping Company and the Charter Travel Company - half of the total settlement of $4.6 million - after reaching an agreement during a case held in the Supreme Court of New South Wales.

The board's liability insurers paid the other half of the settlement.

Board lawyer Peter Radich said the final settlement was seen as extremely satisfactory, given the size of the claim.

"It was a massive claim by any standards."

He said it was the first case he knew of where a New Zealand local authority had been taken to court in another country.

The long-awaited settlement details, held by the board's successor, the Marlborough District Council, were released this week.

The Marlborough Express newspaper, along with the author of a book on the sinking, had previously been refused them several times.

The Ombudsman said the case for keeping the details under wraps weakened with each request and was no longer valid, as all litigation stemming from the sinking had been determined.

The deed had been withheld from public scrutiny because of a confidentiality clause the signatories entered into.

The Mikhail Lermontov sank at Port Gore after hitting rocks off Cape Jackson when taking a shortcut ordered by the board's pilot and acting harbourmaster, Don Jamison.

One Russian crewman died.

Passengers subsequently sued the owners, Baltic, and the cruise company, CTC, which in turn sought costs from the board.

When filing the claim for $US45 million (about $76 million at the time), CTC and Baltic alleged the board was liable for the acts of Captain Jamison and was negligent for failing to issue certain instructions and failing to monitor and assess Capt Jamison's fitness.

The claim included the value of the $25 million ship, plus costs associated with the rescue and securing the wreck.

After settling on a much smaller amount during the course of a court case, $US2.75 million, the deed sought to absolve all parties from further accusations of blame and stated than none admitted wrongdoing.

The board eventually paid $2.5 million out of board coffers.

However, a tax rebate of $745,000 was received after a dispute with the Inland Revenue Department that almost landed the board's successor in another court.

A hearing in front of a taxation authority was averted after the department conceded at the last moment that the payment was deductible.

Port Marlborough paid back the tax deduction to ratepayers by way of a special dividend.

Mr Radich said the board and the insurance company each paid half of the settlement because of the way insurance works.

Because the claim was so large, the council was effectively well under-insured.

This meant the insurance company was liable for only a proportion of the payout.

Mr Radich said the board was fortunate that its insurers agreed to pay half, as the proportion the insurance company was liable for would have been smaller.

Despite suggestions in Tom O'Connor's book Death of a Cruise Liner, there was no evidence that the district council, which took over the board in 1991, paid some of the compensation.

The board's final accounts show an extraordinary payment of $2.5 million in 1989.

- NZPA