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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, 26 February 15
DRY BULK MARKET LOOKING FOR POSITIVE MOMENTUM, BUT PROSPECTS REMAIN DIM - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
As the Baltic Dry Index (BDI) inched a bit higher over the past couple of sessions and the Chinese are returning to the market after a week long hi ...
Wednesday, 25 February 15
PORT OF NEWCASTLE SHIPPED 13.16MT OF COAL IN JANUARY; DECLINED 16.70% FROM A MONTH AGO
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.15 billio ...
Wednesday, 25 February 15
BDI SLIPPING ONCE MORE TO FRESH HISTORICAL LOWS
COALspot.com: With the BDI slipping once more to fresh historical lows and the Chinese holidays underway, signs for a positive reversal in the Dry ...
Tuesday, 24 February 15
FOB INDONESIA COAL SWAP SET TO RALLY
COALspot.com: Indonesian coal swaps for delivery Q2' 2015 rose week over week and month on month.
The Q2 swap increased US$ 3.30 (+7.30%) ...
Tuesday, 24 February 15
Q3' FOB RICHARDS BAY COAL SWAP CLOSED $59.80 W/E 20 FEB
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q2' 2015 surge month over month and decline week on week.
The Q2 swap has soar ...
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- International Coal Ventures Pvt Ltd - India
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- IEA Clean Coal Centre - UK
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- GVK Power & Infra Limited - India
- Karaikal Port Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Georgia Ports Authority, United States
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- Indo Tambangraya Megah - Indonesia
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- GN Power Mariveles Coal Plant, Philippines
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- Medco Energi Mining Internasional
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- Deloitte Consulting - India
- White Energy Company Limited
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- Sree Jayajothi Cements Limited - India
- Siam City Cement - Thailand
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Siam City Cement PLC, Thailand
- Indian Oil Corporation Limited
- Leighton Contractors Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- Posco Energy - South Korea
- Wood Mackenzie - Singapore
- Therma Luzon, Inc, Philippines
- Planning Commission, India
- CNBM International Corporation - China
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- Manunggal Multi Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
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- PetroVietnam Power Coal Import and Supply Company
- Indonesian Coal Mining Association
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- Economic Council, Georgia
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- Vedanta Resources Plc - India
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- Marubeni Corporation - India
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- Global Business Power Corporation, Philippines
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- Petron Corporation, Philippines
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- Energy Development Corp, Philippines
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- Bukit Makmur.PT - Indonesia
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- Power Finance Corporation Ltd., India
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- Goldman Sachs - Singapore
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- MS Steel International - UAE
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- San Jose City I Power Corp, Philippines
- Renaissance Capital - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- Bhoruka Overseas - Indonesia
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- Riau Bara Harum - Indonesia
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- Electricity Authority, New Zealand
- Mercuria Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
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- Parliament of New Zealand
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- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- Bharathi Cement Corporation - India
- Samtan Co., Ltd - South Korea
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- Banpu Public Company Limited - Thailand
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- Kartika Selabumi Mining - Indonesia
- McConnell Dowell - Australia
- ICICI Bank Limited - India
- Thai Mozambique Logistica
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- Ministry of Transport, Egypt
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- Karbindo Abesyapradhi - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Binh Thuan Hamico - Vietnam
- SMG Consultants - Indonesia
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- Independent Power Producers Association of India
- Coal and Oil Company - UAE
- Orica Mining Services - Indonesia
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- New Zealand Coal & Carbon
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