The sinking of the MMV Ostrea: fraud allegations and faults

Today the Sentinel can reveal it had a history of faults and a former Loughs Agency skipper, who was tasked with taking delivery of the boat after she was shipped from New Zealand to Sheerness in 2009, resigned after reporting he was “horrified with her condition.”

The same former employee subsequently made a number of fraud allegations concerning repair work carried out on the MMV Ostrea prior to its arrival in Europe. These allegations were later found to be totally unfounded but documents released to the Sentinel by the Inland Fisheries Division of the Irish Department of Communications, Energy and Natural Resources (DCENR) show they were taken sufficiently seriously to have been referred to the Comptroller and Auditor General in Dublin.

They also prompted an internal Department of Agriculture and Rural Development (DARD) audit, which more relevant perhaps for a boat that recently sank in Londonderry city centre also found that shortly after the boat arrived at Lisahally in 2009 an inspector from the Maritime and Coastguard Agency (MCA) issued “a six page report of faults to be addressed and suspended the inspection due to the number of issues identified.”

“The inspector expressed surprise that the vessel had a coding certificate and “MCA management later stated at interview that they would not have granted a Load Line Exemption even for one single journey due to the number and nature of the problems found,” the audit report states.

At this point it would be helpful to rewind ten years to March 2006 when the Agency decided it needed a new purpose-built vessel to scientifically monitor the oyster fisheries of Lough Foyle and Carlingford.

In 2007 an economic assessment was carried out, a letter of offer issued from the DARD Fisheries Grants Unit for £750,000, and the Loughs Agency placed a European-wide advertisement looking for a brand new boat.

It proved more difficult to find, however, than might have been imagined.

As the DARD audit report states: “Central Procurement Directorate, Department of Finance and Personnel (CPD) facilitated several unsuccessful procurement competitions for design, build and delivery of a new vessel between October 2007 and March 2008.”

The bids during the first procurement rounds either didn’t make the grade or came in over cost, so by March 2008 it was decided that getting a new boat for £750,000 was a non-runner and a new competition for a second hand vessel was needed. This time round the process was successful, although, the Agency couldn’t have looked farther afield to find what they were looking for. Following an internet trawl and global ring-around of brokers and agents, the Loughs Agency, managed to locate three potential matches, all in the antipodes.

According to a copy of a “procurement review” obtained by the Sentinel a 17.3m GRP AreoKat in Queensland, a 17.6m aluminum Catamaran in Napier, New Zealand, and a 20m aluminum Catamaran in Stuart Island, New Zealand, were shortlisted, with

the Australian boat later ruled out because the hull was unsuitable.

In the end the Agency plumped for the Napier-based boat, which was refitted by the Port Nelson-based Challenge Marine, and after some “significant delays...due to the economic downturn” and the consequent restrictions on shipping lanes, finally delivered into Sheerness in Kent on April 8, 2009.

At this point a Loughs Agency whistleblower called James Kelly claimed he noticed problems. The Sentinel has obtained a copy of very serious complaints made by the former Coxwain to both DARD and DCENR. So serious, an internal DCENR email on March 10, 2010, pointed out that “the reason we have to report this to the Comptroller and Auditor General (C&AG) is that in the third paragraph...and in his more detailed report an allegation of fraud is made.”

Mr Kelly’s letter states: “As you may be aware the above vessel recently purchased by the Loughs Agency has still to be delivered to Northern Ireland and is currenlty tied up in McDuff in Scotland where she has been since May this year [2009]. The vessel is now almost a year overdue and is subject to numerous faults, some of which are unlikely to be addressed by staff involved in the procurement procedure.

“As the delivery skipper responsible for accepting the vessel in Sheerness, I was horrified with her condition and prepared a report for the attention of the Loughs Agency senior managment team, a copy of which is attached.”

In the letter he makes further serious allegations and says he resigned in August 2009 as a result of his concerns not being addressed to his apparent satisfaction.

DCENR officials sent a report to the Irish Auditor on April 1, 2010. The confidential audit report, which has been obtained by this paper, says “it relates to the MMV Ostrea, which was recently purchased by the Loughs Agency in New Zealand, and refitted by Challenge Marine Ltd. of Port Nelson. It is alleged that no trained Scania engineer had completed any work to the vessel, despite the yard invoicing the Agency that Scania engineers had in fact attended the vessel and conducted repairs to the cooling system at a cost in excess of 20,000 New Zealand dollars.

“It is alleged that further investigations revealed that the yard had in fact done this work in-house using their own engineer, and that the invoice submitted was indeed false.”

Following all of this an investigation was set in train.

According to DARD’s internal audit: “The Head of Sea Fisheries Policy and Grants Branch (SFPGB) contacted the DARD Head of Internal Audit (HIA) on April 16, 2010 in relation to the procurement of the MMV Ostrea by the Loughs Agency. A former employee of the Agency had sent a report to senior management of the Agency about the delivery of the MMV Ostrea covering the period April 7, 2009 until April 30, 2009.

“He also later wrote to the Minister [Michelle Gildernew] asking her to look at the case and enclosed a further update about the removal of the vessel from a Scottish Boatyard and its passage to Londonderry between October 9, 2009 and October 11, 2009.

“The former employee’s concerns included: the seaworthiness of the vessel; its fitness for purpose; poor quality workmanship; defective features or components; features and components not provided as required by the tender; an apparent conflict of interest which may have had an impact on the delivery costs of the vessel; and fraud by the New Zealand - based company that refurbished the vessel.

“The Head of SFPGB wrote to the Agency on October 20, 2009 with relevant questions in relation to each of the concerns raised, the Agency response was dated March 5, 2010.”

The report, like an evaluation report completed by FPM Chartered Accountants in 2013, found that most of Mr Kelly’s claims were baseless.

“The Head of SFPGB concluded that most of the allegations were unfounded but had concerns over the procurement process in relation to the shipping of the vessel from New Zealand, primarily the relationship between the Agency’s contracted project manager and the transportation company and the use of differing exchange rates in the evaluation of quotations obtained,” the report states.

The report t acknowledges faults were found when the boat arrived in Kent.

“The crew identified some problems with the engines when starting the vessel and Company 1 engineers were called. The engineers reported numerous faults, many of which were disputed later in Scotland by various independent experts.

“The cost of these repairs amounted to over £5,000 with a further £6,000 for one engineer to accompany the vessel on the passage to Scotland. It also became apparent that the engine work in New Zealand had not been completed by Scania professionals in accordance with the agreed shipyard’s quotation and invoiced costs.

“The Agency sought a legal opinion on the potential (alleged) fraud, the solicitor advised that any legal action under the Fraud Act would be unlikely to be sustainable.The shipyard which was an approved Bosch agent used its own engineers for the engine work. On the passage to Scotland the crew experienced significant handling difficulties.

“This was later rectified by placing ballast in the stern of the vessel and electronic correction of the automatic pilot steering system.

“It would appear obvious that the nature of the structural refit work would impact on the balance and handling of the vessel.

“This should therefore have been identified at refit specification stage and addressed in New Zealand. No coding certificate was in place for the vessel’s passage from Sheerness to Scotland.

“The MCA was also not notified prior to the vessel’s departure from Sheerness.

“This in effect rendered the vessel’s passage illegal and would have probably invalidated any insurance cover should there have been any accidents or problems en route.”

It goes on to rule out any suggestion of fraud, however, stating: “We could find no evidence of fraudulent activity and the consensus of relevant expert opinion would suggest that the ‘finished’ vessel provides Value for Money in terms of the current insurance value of the vessel (£1.8 million) and its capacity for operational effectiveness.”

But perhaps most significantly for a boat that spent Christmas submerged in the briny Foyle, the audit acknowledged it did have concern “about some of the Health and Safety aspects of the vessel.”

“The vessel was moved from Sheerness to Scotland without a coding certificate and the subsequent inspection of the vessel in Northern Ireland by MCA identified a significant number of Health & Safety issues.

“While some of these issues are contended by Agency Management, MCA is however the statutory body with responsibility for implementing British and International maritime law and safety policy.”

On this point it’s clear there were issues with the boat, when it arrived in both England and Londonderry.

According to a skipper’s report when it was first lowered into the Medway on April 8: “The crew started the engines but noticed smoke coming from both along with a banging noise from the starboard engine.

“The vessel’s skipper informed the Contracted Project Manager of his intention to shut the engine down to prevent damage to the system. Prior to reaching the stop button the engine made three loud bangs and stopped of its own accord. He was then forced to leave the berth and proceed into the inner dock using only the port engine.”

And when an engineer examined it there was a litany of faults.

For the record: “Port engine bilge full of oil water and diesel and as a result starter motor badly corroded and shorting out; coolant leaking from the n/s turbo gasket; fuel leaks from almost every injector leak-off pipe as had wrong bolts; part numbers of injectors did not match up with their system; the injectors had not been reconditioned; pistons and liners require changing; exhaust had no lagging or heat shields; absence of engine room ventilation fans; endoscope found liner walls of injectors scratched and pistons damaged; both engines looked like they had not been worked on and could not have been repaired as reported and charged; starboard engine had a split in the coolant header tank; wiring in both engine rooms hanging down.”

Hardly shipshape.

According to the audit report Loughs Agency management disputed the fault list and suggested unqualified staff had caused some of the problems.

“It should be noted that unqualified crew on the vessel were involved in bleeding the engines and conducting their own investigations,” was management’s response, according to the DARD report.

The boat eventually sputtered up the North Sea but was forced to pull in to Grimsby due to further problems on the way.

It made it to the Scottish Boatyard in McDuff were it remained from April 30 to October 8, 2009, during which period Mr Kelly resigned.

According to the DARD audit Loughs Agency management explained the long delay, stating: “Unfortunately, there were delays in the Scottish Boatyard, a lot of it is down to the person making the allegations, the Scottish Boatyard were afraid to go near the boat.

“It was six months in the Scottish Boatyard, they didn’t want to be associated with it, they did minimal work.

“We had to get it back and get the work done here.”

The boat eventually arrived in Londonderry on October 15, 2009 and was inspected by the MCA.

Here’s what the MCA told the DARD auditors.

“The boat arrived in Derry and we received a subsequent written report by the whistleblower. We decided to inspect it.

“We do inspections regularly; these aren’t full surveys but samples.

“The information received was fairly detailed, we thought that an inspection was appropriate and an inspector was at the Foyle anyway.

“He inspected it on October 15, 2009 and produced a 6 page report - MSF1602. It gave us grave concern; I would suggest that it nowhere near met the code of practice standards.

“The inspector was surprised that it had a 5 year certificate; we wouldn’t have given it a load line exemption even for a single journey, not on that day.

“He had to suspend the inspection, he was finding so much wrong, this was an inspection not a full survey.”

The MCA re-inspected the boat on April 9, 2010 and allowed it to sail to Kilkeel for the installation of new gearboxes, the insulation of engine rooms and permanent ballast adjustments to be carried out.

A final survey was completed in July 2010 and a coding certificate issed.

The MCA did a final inspection and the boat became operational from October 6, 2010, until last December when it sank to the bottom of the Foyle.