Going back to my Navy days of OOD on the surface (Officer of the Deck on a Nuc submarine), I too wonder how this could have happened.
I haven't heard what the visibility was that night but since I am sitting on the Pacific coast right now (US coastline), the fog out here can be pretty thick. Therefore, maybe the visibility was such that the lookouts did NOT see the ship until seconds before the collusion.
With a typical junior officer OOD at night, maybe he called it (based on radar/AIS) that the merchant ship was going to pass on his (Navy) starboard side but actually they were on a collusion course. Maybe a watch stander disagreed but at 2 am, the OOD assured him that he had contact XYZ taken care of.
It seems just as likely that low visibility, lots of contacts and some confusion about who was who, they just plain blew it.
I feel confident that if my first CO had not been called by me with a close contact EVEN IF WE DIDN'T collide, it would have seemed just as bad for my career.
I do remember when we were on the surface transiting to a port visit in Scotland that some confusion happened where two surface contacts were confused. I was U/I (under instruction, before I was qualified) and one of the more senior Lieutenants made a major screw up. Fortunately, there are probably only two of us who might remember that night. But stuff happens, that was also on mid watch.
Depending on how long ago you served you may have even seen this during your training: "I Relieve You, Sir" about the Evans-Melbourne collision in 1969.
At 28:12 in: "Whenever a situation arises, according to the night orders or the standing orders requires a call to the Captain, the OOD should make the call immediately. If the OOD is in doubt whether the situation requires calling the Captain, that doubt alone is a signal to him to make the call..."
What you said is true. Not calling could do you just as much damage as calling...and if you don't call and something does, you are going to bring your Captain's career down with your own.