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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, 12 February 15
DRY BULK OWNERS SCRAP MORE VESSELS, AS MARKET REACHES HISTORICAL LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
The dry bulk market has reached historical lows this week, with the Baltic Dry Index (BDI) now trading at levels below operating expense levels for ...
Thursday, 12 February 15
INDONESIAN COAL PRICE REFERENCE INCHED DOWN 1.44% IN FEBRUARY
COALspot.com - The Ministry of Energy & Mineral Resources of Indonesia revised down Indonesian coal bench mark price this month to US$ 62.92 pe ...
Thursday, 12 February 15
NEWBUILDING ORDERING ACTIVITY DRAGS ON, AS OWNERS ARE LOOKING FOR LOWER PRICES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING
Ship owners appear to be waiting for lower prices in their dealings with Asian shipyards, as the dry bulk market is at historical lows. According t ...
Wednesday, 11 February 15
DRY BULK MARKET REMAINED UNDER PRESSURE : STABILIZING CAPE MARKET HARDLY HELPED SENTIMENT
COALspot.com: The Dry Bulk market remained under pressure last week, while the stabilizing Cape market hardly helped sentiment.
Greece based s ...
Wednesday, 11 February 15
BDI HITTING THE ALL-TIME LOW; FFA MARKETS NOT SHOWING ANY POSITIVE SIGNS
With the BDI hitting the all-time low and with FFA markets not showing any positive signs for a possible recovery in the near future, pessimism is ...
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- TNB Fuel Sdn Bhd - Malaysia
- Sojitz Corporation - Japan
- Indonesian Coal Mining Association
- Banpu Public Company Limited - Thailand
- Electricity Authority, New Zealand
- Cement Manufacturers Association - India
- GAC Shipping (India) Pvt Ltd
- Anglo American - United Kingdom
- Timah Investasi Mineral - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Goldman Sachs - Singapore
- Tamil Nadu electricity Board
- Alfred C Toepfer International GmbH - Germany
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Interocean Group of Companies - India
- Economic Council, Georgia
- Kideco Jaya Agung - Indonesia
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- Global Coal Blending Company Limited - Australia
- San Jose City I Power Corp, Philippines
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Bhatia International Limited - India
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Eastern Coal Council - USA
- Energy Development Corp, Philippines
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Videocon Industries ltd - India
- VISA Power Limited - India
- Miang Besar Coal Terminal - Indonesia
- Mjunction Services Limited - India
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- The University of Queensland
- Latin American Coal - Colombia
- Kalimantan Lumbung Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Ambuja Cements Ltd - India
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Wood Mackenzie - Singapore
- Meenaskhi Energy Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- PTC India Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- Posco Energy - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Global Green Power PLC Corporation, Philippines
- Gujarat Sidhee Cement - India
- GVK Power & Infra Limited - India
- LBH Netherlands Bv - Netherlands
- Edison Trading Spa - Italy
- Ministry of Transport, Egypt
- Siam City Cement PLC, Thailand
- Tata Chemicals Ltd - India
- Sarangani Energy Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- CNBM International Corporation - China
- Indo Tambangraya Megah - Indonesia
- PowerSource Philippines DevCo
- Meralco Power Generation, Philippines
- Borneo Indobara - Indonesia
- Vizag Seaport Private Limited - India
- OPG Power Generation Pvt Ltd - India
- Wilmar Investment Holdings
- Standard Chartered Bank - UAE
- GMR Energy Limited - India
- Aditya Birla Group - India
- Metalloyd Limited - United Kingdom
- ASAPP Information Group - India
- Renaissance Capital - South Africa
- PetroVietnam Power Coal Import and Supply Company
- McConnell Dowell - Australia
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- Petrochimia International Co. Ltd.- Taiwan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Xindia Steels Limited - India
- International Coal Ventures Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Globalindo Alam Lestari - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- MS Steel International - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Kepco SPC Power Corporation, Philippines
- Malabar Cements Ltd - India
- Lanco Infratech Ltd - India
- Ministry of Finance - Indonesia
- Mintek Dendrill Indonesia
- TeaM Sual Corporation - Philippines
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- Medco Energi Mining Internasional
- European Bulk Services B.V. - Netherlands
- SMG Consultants - Indonesia
- Bukit Baiduri Energy - Indonesia
- Vedanta Resources Plc - India
- Power Finance Corporation Ltd., India
- Bahari Cakrawala Sebuku - Indonesia
- Simpson Spence & Young - Indonesia
- Trasteel International SA, Italy
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Independent Power Producers Association of India
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Chamber of Mines of South Africa
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Australian Commodity Traders Exchange
- White Energy Company Limited
- IEA Clean Coal Centre - UK
- Bank of Tokyo Mitsubishi UFJ Ltd
- Deloitte Consulting - India
- CIMB Investment Bank - Malaysia
- Central Java Power - Indonesia
- Altura Mining Limited, Indonesia
- Baramulti Group, Indonesia
- Indian Oil Corporation Limited
- Kartika Selabumi Mining - Indonesia
- Parliament of New Zealand
- Bhushan Steel Limited - India
- Minerals Council of Australia
- Cigading International Bulk Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Coal and Oil Company - UAE
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- Coastal Gujarat Power Limited - India
- Jindal Steel & Power Ltd - India
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Australian Coal Association
- Marubeni Corporation - India
- Samtan Co., Ltd - South Korea
- Planning Commission, India
- Siam City Cement - Thailand
- Straits Asia Resources Limited - Singapore
- Sical Logistics Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Larsen & Toubro Limited - India
- Kumho Petrochemical, South Korea
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Ministry of Mines - Canada
- Carbofer General Trading SA - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Attock Cement Pakistan Limited
- Asmin Koalindo Tuhup - Indonesia
- Romanian Commodities Exchange
- Bhoruka Overseas - Indonesia
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- Global Business Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Coalindo Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- India Bulls Power Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Rashtriya Ispat Nigam Limited - India
- ICICI Bank Limited - India
- Holcim Trading Pte Ltd - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Parry Sugars Refinery, India
- Commonwealth Bank - Australia
- Central Electricity Authority - India
- Indogreen Group - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Mercator Lines Limited - India
- Intertek Mineral Services - Indonesia
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Antam Resourcindo - Indonesia
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Star Paper Mills Limited - India
- Salva Resources Pvt Ltd - India
- Agrawal Coal Company - India
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