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Friday, 06 February 15
SHIP DAMAGED BY FIRE CAUSED BY PIRATES FOUND TO BE CONSTRUCTIVE TOTAL LOSS - TAYLOR WESSING
 KNOWLEDGE TO ELEVATE
The High Court was asked to determine a number of preliminary issues, including whether a vessel was a constructive total loss (“CTL”), whether the claimants had lost the right to claim for a CTL by selling the vessel, and whether the claimants were entitled to an indemnity for salvage, tug hire and port expenses under a war risks policy.
Background
The first claimant was the owner of the tanker Brillante Virtuoso (the “vessel”). The vessel was insured against war risks under a policy underwritten by the defendants. The second claimant was the mortgagee of the vessel and the co-assured under the policy. The value of the vessel under the hull and machinery section of the policy was US$55 million, and a further US$22 million under the increased value section of the policy.
In July 2011, whilst en route from the Ukraine to China, the vessel (carrying a cargo of fuel oil) stopped off in Aden in order for an unarmed security team to embark ahead of their journey through the Gulf of Aden and the Indian Ocean where there is a risk of pirate attacks. However, whilst the vessel was waiting, it was in fact boarded by armed pirates who detonated an explosive device causing a fire on board and destroying a substantial proportion of machinery and equipment. The vessel subsequently became a dead ship with no power.
The crew were rescued by the US navy and the owners engaged a salvage company the same day to extinguish the fire. The owners’ consultant surveyor inspected the ship and sought quotations from shipyards in the Middle East and China for the cleaning and repairs of the vessel. He formed the opinion that the cost of repair would exceed the insured value of US$55 million. Accordingly, the owners tendered a notice of abandonment (“NOA”) to the insurers declaring the vessel a CTL. The insurers rejected the NOA.
The owners instructed shipbrokers to sell the vessel to a suitable buyer for scrap, however, the shipbrokers struggled to find a purchaser, and only managed to secure an offer of US$700,000 for the vessel. The insurers did not object to the sale at the time (in spite of being given an opportunity to do so) and the vessel was subsequently sold.
The claimants’ case was that the vessel suffered loss and damage by reason of an insured peril or perils (i.e. the acts of pirates and/or persons acting maliciously, alternatively terrorists and/or persons acting from a political motive and/or the vessel suffered loss and damage by reason of piracy, vandalism, sabotage, violent theft and/or malicious mischief).
The claimants claimed an indemnity for:
(i) a CTL;
(ii) if the vessel was not a CTL for partial loss and loss of hire and
(iii) sue and labour expenses incurred.
The insurers’ defence was that the claimants were not entitled to cover under the policy because, by delaying transit through the Gulf of Aden and/or calling at a port or place within the Gulf, the owners were in breach of the Talbot Gulf of Aden warranty which prevented vessels calling at any port or place or delaying their passage when transiting and/or the owners were in breach of the warranty by failing to apply Best Management Practices to Deter Piracy. The claimants denied this allegation.
Issues examined by the Court
Was the vessel a Constructive Total Loss?
The Court analysed the law on CTL and, in particular, examined section 60(2)(ii) of the Marine Insurance Act 1906 which states that a vessel is a CTL “where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired.” Clause 19 of the Institute Time Clauses-Hulls also qualifies this further by stating:
“The measure of indemnity in respect of claims for unrepaired damage shall be the reasonable depreciation in the market value of the Vessel at the time this insurance terminates arising from such unrepaired damage, but not exceeding the reasonable cost of repairs…”
The Court held that in order to succeed in establishing that the vessel was a CTL, the claimants had to prove that the cost of repairing the vessel would have exceeded the insured value of US$55 million.
The Court held that in assessing the costs of repair to the vessel, the question to be asked is what a prudent uninsured shipowner in the position of the claimants would have done in deciding whether or not to repair the vessel, and where and how the repair should be carried out.
The Court acknowledged that in this case, it was not possible to determine with complete accuracy the actual extent of damage to the vessel. In cases such as this, where matters cannot be determined with precision, the Court has to apply a “large margin” to any repair estimate. The Court recognised that a margin of error has to be applied in relation to the extent of the damage where it was not possible to investigate fully and the assessment of the cost of repair has to take account of the fact that the items which were not opened up and tested might well have required replacement, so that a prudent uninsured owner would have replaced them.
Where should the repairs have been carried out?
The Court also held that whilst cost is an important factor in determining where the prudent uninsured owner would have carried out the repairs, it is not determinative. Accordingly, the Court considered that the prudent uninsured owner would consider all the other factors which might well make the closer (whilst more expensive) yard the proper and appropriate place for repair. Hence, the Court considered that the prudent uninsured owner would have favoured repair in these circumstances in Dubai rather than China, even though the quotations for repairs in China were much lower than in the Middle East. Accordingly, the Court found that the vessel was a CTL.
Had the owners lost the right to claim for CTL by selling the vessel?
The Court held that the owners had not lost the right to claim for a CTL by selling the vessel, as the insurers were well aware throughout that the owners were proposing to sell the vessel and did not object to it. By selling the vessel, the owners were acting in the interests of both themselves and the insurers.
Sue and labour costs
In considering whether an indemnity was payable to the claimants for expenditure in relation to the costs of salvage, tugs and agency fees, the Court disagreed with the insurers’ case that once the vessel had been redelivered by the salvors, any insured peril which had been operating (e.g. violent theft, piracy, vandalism, sabotage and malicious mischief) ceased to operate. The Court found that until the vessel was in a place of safety, the insured peril continued to operate, even after redelivery by the salvors. The Court also held that the cost of the standby tugs and the associated agency expenses were incurred not only for the benefit of the owners, but for the benefit of the insurers, so that they were recoverable as sue and labour expenses.
However, the Court agreed with the insurers that the entitlement to recover sue and labour expenses ceased once the claim form was issued. The Court applied the decision in Kuwait Airways v Kuwait Insurance2 that the issue of the claim form (or writ) crystallises the rights and obligations of the parties to the contract of insurance, so that the relations between the parties are thereafter governed by the Civil Procedure Rules, rather than the contract of insurance. Hence the duty of utmost good faith ceases once proceedings are issued and sue and labour expenses incurred in that period are not recoverable as they were incurred solely for the owner’s benefit.
Source: Taylor Wessing Hellenic Shipping
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Wednesday, 11 March 15
RICHARDS BAY COAL SWAPS DROP $ 3.65 - 4.0/T W-O-W
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 declined month over month and week on week.
The Q2 swap has fell US$ ...
Wednesday, 11 March 15
DRY BULK MARKET CLOSED OFF ON THE GREEN FOR A SECOND WEEK IN A ROW - INTERMODAL
COALspot.com: The Dry Bulk market closed off on the green for a second week in a row, while the performance of Capesizes hindered a more substantia ...
Wednesday, 11 March 15
MARKET INSIGHT : NEWBUILDINGS - PANOS TSILINGIRIS
From a cost-based, buy-low perspective, there is currently a buying opportunity in the second-hand dry bulk market. I am an anti-cyclical (buy-low) ...
Wednesday, 11 March 15
DRY BULK MARKET: ALL IS NOT LOST FOR A RECOVERY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The low cost of commodities across the board could trigger an increase of trade among many countries, which in turn could lead to a recovery of the ...
Wednesday, 11 March 15
U.S. ELECTRIC GENERATING COMPANIES TO ADD MORE THAN 20 GW OF GENERATING CAPACITY IN 2015; 16 GW OF GENERATING CAPACITY IS EXPECTED TO RETIRE IN 2015
COALspot.com: In 2015, electric generating companies in U.S. expect to add more than 20 gigawatts (GW) of utility-scale generating capacity to the ...
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- Borneo Indobara - Indonesia
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- Electricity Authority, New Zealand
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- Karbindo Abesyapradhi - Indoneisa
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- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
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- Minerals Council of Australia
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- White Energy Company Limited
- Bhoruka Overseas - Indonesia
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- The University of Queensland
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- Ministry of Transport, Egypt
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- Edison Trading Spa - Italy
- PNOC Exploration Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- Leighton Contractors Pty Ltd - Australia
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- Vedanta Resources Plc - India
- Medco Energi Mining Internasional
- SN Aboitiz Power Inc, Philippines
- Parliament of New Zealand
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- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- European Bulk Services B.V. - Netherlands
- Parry Sugars Refinery, India
- Romanian Commodities Exchange
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Ambuja Cements Ltd - India
- Gujarat Electricity Regulatory Commission - India
- South Luzon Thermal Energy Corporation
- Economic Council, Georgia
- Makarim & Taira - Indonesia
- GMR Energy Limited - India
- Sakthi Sugars Limited - India
- Gujarat Sidhee Cement - India
- Bharathi Cement Corporation - India
- Renaissance Capital - South Africa
- Bulk Trading Sa - Switzerland
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Metalloyd Limited - United Kingdom
- PowerSource Philippines DevCo
- IEA Clean Coal Centre - UK
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- Rio Tinto Coal - Australia
- Price Waterhouse Coopers - Russia
- CNBM International Corporation - China
- Samtan Co., Ltd - South Korea
- Sindya Power Generating Company Private Ltd
- Marubeni Corporation - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Kaltim Prima Coal - Indonesia
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- Indonesian Coal Mining Association
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- Global Business Power Corporation, Philippines
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- Indian Energy Exchange, India
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- Standard Chartered Bank - UAE
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- Coal and Oil Company - UAE
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- McConnell Dowell - Australia
- ASAPP Information Group - India
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- Africa Commodities Group - South Africa
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- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Merrill Lynch Commodities Europe
- Heidelberg Cement - Germany
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- Therma Luzon, Inc, Philippines
- VISA Power Limited - India
- Malabar Cements Ltd - India
- New Zealand Coal & Carbon
- Chamber of Mines of South Africa
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- Mercuria Energy - Indonesia
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- Tata Chemicals Ltd - India
- Energy Development Corp, Philippines
- Kohat Cement Company Ltd. - Pakistan
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- Straits Asia Resources Limited - Singapore
- Eastern Coal Council - USA
- Ministry of Mines - Canada
- Aditya Birla Group - India
- Bukit Baiduri Energy - Indonesia
- Power Finance Corporation Ltd., India
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- Coalindo Energy - Indonesia
- Siam City Cement PLC, Thailand
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- Pendopo Energi Batubara - Indonesia
- Thiess Contractors Indonesia
- IHS Mccloskey Coal Group - USA
- Sarangani Energy Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- The Treasury - Australian Government
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- Georgia Ports Authority, United States
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- Agrawal Coal Company - India
- Commonwealth Bank - Australia
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- Chettinad Cement Corporation Ltd - India
- Maheswari Brothers Coal Limited - India
- Semirara Mining and Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- Planning Commission, India
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- Port Waratah Coal Services - Australia
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- Dalmia Cement Bharat India
- Rashtriya Ispat Nigam Limited - India
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- Asia Pacific Energy Resources Ventures Inc, Philippines
- Videocon Industries ltd - India
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- Energy Link Ltd, New Zealand
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