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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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Thursday, 05 March 15
INDIA WILL BE THE LARGEST DRIVER OF GLOBAL SEABORNE COKING COAL DEMAND GROWTH IN 2015 - WOOD MACKENZIE
Global demand growth will remain weak because of China’s negative demand growth.
COALspot.com: At Coaltrans India, Wood Mackenzie says I ...
Thursday, 05 March 15
BUKIT ASAM BOOKED US$ 1 BILLION REVENUE IN 2014
COALspot.com: Indonesian publicly listed and state owned coal miner PT. Bukit Asam, has announced that, the revenue of the company for the period J ...
Wednesday, 04 March 15
AN AGENDA FOR CHANGE - FITCH INDONESIA CONFERENCE
Fitch Indonesia Conference - 5 March 2015
Fitch Ratings will host its annual Indonesia conference on 5 March 2015.
The theme of this year ...
Wednesday, 04 March 15
KEEP CALM AND INVEST IN DRY - THEODORE NTALAKOS
Keep Calm and Carry On was originally a motivational poster, intended to raise the morale of the British public, produced by the British government ...
Tuesday, 03 March 15
INDONESIAN COAL EXPORT VOLUME TO DECLINE 50% BY 2019
COALspot.com: The Indonesian government is planning to reduce coal export volume by 50% within the next five years while keeping its coal productio ...
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- Ambuja Cements Ltd - India
- Coal and Oil Company - UAE
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
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- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Mercator Lines Limited - India
- Star Paper Mills Limited - India
- Kideco Jaya Agung - Indonesia
- Global Green Power PLC Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Meenaskhi Energy Private Limited - India
- Agrawal Coal Company - India
- GN Power Mariveles Coal Plant, Philippines
- GMR Energy Limited - India
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Formosa Plastics Group - Taiwan
- Samtan Co., Ltd - South Korea
- Trasteel International SA, Italy
- Miang Besar Coal Terminal - Indonesia
- Central Java Power - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- Oldendorff Carriers - Singapore
- Vizag Seaport Private Limited - India
- Antam Resourcindo - Indonesia
- Chettinad Cement Corporation Ltd - India
- Uttam Galva Steels Limited - India
- London Commodity Brokers - England
- Kumho Petrochemical, South Korea
- Parliament of New Zealand
- Sojitz Corporation - Japan
- IEA Clean Coal Centre - UK
- Directorate Of Revenue Intelligence - India
- Chamber of Mines of South Africa
- Banpu Public Company Limited - Thailand
- Thiess Contractors Indonesia
- Rio Tinto Coal - Australia
- Holcim Trading Pte Ltd - Singapore
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Interocean Group of Companies - India
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Iligan Light & Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- Pendopo Energi Batubara - Indonesia
- Renaissance Capital - South Africa
- Timah Investasi Mineral - Indoneisa
- Bhoruka Overseas - Indonesia
- SMG Consultants - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Coastal Gujarat Power Limited - India
- Posco Energy - South Korea
- Rashtriya Ispat Nigam Limited - India
- Planning Commission, India
- Binh Thuan Hamico - Vietnam
- Essar Steel Hazira Ltd - India
- SMC Global Power, Philippines
- Heidelberg Cement - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kepco SPC Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- CNBM International Corporation - China
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
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- MS Steel International - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Carbofer General Trading SA - India
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- OPG Power Generation Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Barasentosa Lestari - Indonesia
- Bayan Resources Tbk. - Indonesia
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- Coalindo Energy - Indonesia
- New Zealand Coal & Carbon
- Karaikal Port Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Romanian Commodities Exchange
- Billiton Holdings Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- Medco Energi Mining Internasional
- PowerSource Philippines DevCo
- GAC Shipping (India) Pvt Ltd
- CIMB Investment Bank - Malaysia
- Eastern Coal Council - USA
- Africa Commodities Group - South Africa
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Singapore Mercantile Exchange
- Central Electricity Authority - India
- Sical Logistics Limited - India
- Kobexindo Tractors - Indoneisa
- Indian Energy Exchange, India
- Gujarat Electricity Regulatory Commission - India
- Price Waterhouse Coopers - Russia
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- Marubeni Corporation - India
- Altura Mining Limited, Indonesia
- Orica Australia Pty. Ltd.
- Semirara Mining Corp, Philippines
- Bangladesh Power Developement Board
- AsiaOL BioFuels Corp., Philippines
- Indian Oil Corporation Limited
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Sree Jayajothi Cements Limited - India
- Port Waratah Coal Services - Australia
- Bulk Trading Sa - Switzerland
- Globalindo Alam Lestari - Indonesia
- Xindia Steels Limited - India
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- Straits Asia Resources Limited - Singapore
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
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- India Bulls Power Limited - India
- The Treasury - Australian Government
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- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Gujarat Sidhee Cement - India
- Ceylon Electricity Board - Sri Lanka
- ICICI Bank Limited - India
- Krishnapatnam Port Company Ltd. - India
- Indo Tambangraya Megah - Indonesia
- Anglo American - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Videocon Industries ltd - India
- Salva Resources Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- European Bulk Services B.V. - Netherlands
- Independent Power Producers Association of India
- Economic Council, Georgia
- Kapuas Tunggal Persada - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Aditya Birla Group - India
- Ministry of Mines - Canada
- Simpson Spence & Young - Indonesia
- Kaltim Prima Coal - Indonesia
- Therma Luzon, Inc, Philippines
- Lanco Infratech Ltd - India
- Borneo Indobara - Indonesia
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Mineral Development Corp Ltd - India
- Mjunction Services Limited - India
- Savvy Resources Ltd - HongKong
- Siam City Cement PLC, Thailand
- Meralco Power Generation, Philippines
- Parry Sugars Refinery, India
- Bahari Cakrawala Sebuku - Indonesia
- Bhatia International Limited - India
- Power Finance Corporation Ltd., India
- Mintek Dendrill Indonesia
- Intertek Mineral Services - Indonesia
- McConnell Dowell - Australia
- Sakthi Sugars Limited - India
- PTC India Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Larsen & Toubro Limited - India
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- White Energy Company Limited
- Australian Coal Association
- The State Trading Corporation of India Ltd
- Thai Mozambique Logistica
- Electricity Generating Authority of Thailand
- Tamil Nadu electricity Board
- Standard Chartered Bank - UAE
- The University of Queensland
- Energy Development Corp, Philippines
- Mercuria Energy - Indonesia
- Electricity Authority, New Zealand
- Directorate General of MIneral and Coal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Tata Chemicals Ltd - India
- Baramulti Group, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- ASAPP Information Group - India
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