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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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Monday, 09 February 15
Q2' CFR SOUTH CHINA COAL SWAP DECLINED 3.28% TO $ 56.92 W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 1.93 (-3.28%) per MT month over month and US$ 0.10 (-0 ...
Sunday, 08 February 15
BDI FELL CONTINUOUSLY HIT A THREE DECADES LOW
COALspot.com: This week Baltic Exchange Dry Freight Index (BDI) fell continuously hit a three decades low.
The BDI continuously fell and was d ...
Friday, 06 February 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 1.1% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 20.1 million short tons (mmst) of coal ...
Thursday, 05 February 15
BDI HAS NOW FALLEN A LEVEL CLOSE TO THE INDEX'S HISTORIC LOW - INTERMODAL
They say a picture is worth a thousand words and in this instance just one look at the tables above is enough to understand the great pressure the ...
Thursday, 05 February 15
ULTRAMAX LEVELS FROM INDIA TO CHINA IN THE MID US$ 5000'S - FEARNLEYS AS
Handy
Despite the overall weak sentiment, there is a scent of optimism in the Atlantic market for ppt dates. Continent is still struggling with o ...
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- TNB Fuel Sdn Bhd - Malaysia
- Planning Commission, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Riau Bara Harum - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Coastal Gujarat Power Limited - India
- Savvy Resources Ltd - HongKong
- Thai Mozambique Logistica
- Indika Energy - Indonesia
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Bulk Trading Sa - Switzerland
- Karaikal Port Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Wilmar Investment Holdings
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- CNBM International Corporation - China
- Bangladesh Power Developement Board
- Asmin Koalindo Tuhup - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Medco Energi Mining Internasional
- Grasim Industreis Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Timah Investasi Mineral - Indoneisa
- Global Business Power Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- Tata Chemicals Ltd - India
- Star Paper Mills Limited - India
- Mercuria Energy - Indonesia
- Videocon Industries ltd - India
- Indian Oil Corporation Limited
- Kepco SPC Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Baramulti Group, Indonesia
- Energy Link Ltd, New Zealand
- Banpu Public Company Limited - Thailand
- Latin American Coal - Colombia
- PNOC Exploration Corporation - Philippines
- Australian Commodity Traders Exchange
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Essar Steel Hazira Ltd - India
- Manunggal Multi Energi - Indonesia
- Electricity Authority, New Zealand
- Australian Coal Association
- Mintek Dendrill Indonesia
- Bukit Baiduri Energy - Indonesia
- Thiess Contractors Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- McConnell Dowell - Australia
- Maheswari Brothers Coal Limited - India
- MS Steel International - UAE
- White Energy Company Limited
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Gujarat Sidhee Cement - India
- Simpson Spence & Young - Indonesia
- Coalindo Energy - Indonesia
- Xindia Steels Limited - India
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- PetroVietnam Power Coal Import and Supply Company
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- TeaM Sual Corporation - Philippines
- Power Finance Corporation Ltd., India
- Global Coal Blending Company Limited - Australia
- Ministry of Finance - Indonesia
- Directorate Of Revenue Intelligence - India
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Posco Energy - South Korea
- Vedanta Resources Plc - India
- Sree Jayajothi Cements Limited - India
- Kideco Jaya Agung - Indonesia
- Economic Council, Georgia
- Bahari Cakrawala Sebuku - Indonesia
- Georgia Ports Authority, United States
- Anglo American - United Kingdom
- Oldendorff Carriers - Singapore
- Iligan Light & Power Inc, Philippines
- Rio Tinto Coal - Australia
- Sarangani Energy Corporation, Philippines
- Trasteel International SA, Italy
- Sojitz Corporation - Japan
- Meralco Power Generation, Philippines
- Electricity Generating Authority of Thailand
- Ceylon Electricity Board - Sri Lanka
- Ministry of Mines - Canada
- Jorong Barutama Greston.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- SMC Global Power, Philippines
- Siam City Cement PLC, Thailand
- South Luzon Thermal Energy Corporation
- Dalmia Cement Bharat India
- Carbofer General Trading SA - India
- GVK Power & Infra Limited - India
- Kaltim Prima Coal - Indonesia
- Siam City Cement - Thailand
- Krishnapatnam Port Company Ltd. - India
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Mercator Lines Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Lanco Infratech Ltd - India
- Coal and Oil Company - UAE
- The University of Queensland
- Neyveli Lignite Corporation Ltd, - India
- Alfred C Toepfer International GmbH - Germany
- Toyota Tsusho Corporation, Japan
- Minerals Council of Australia
- Pendopo Energi Batubara - Indonesia
- India Bulls Power Limited - India
- Bukit Makmur.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- New Zealand Coal & Carbon
- Interocean Group of Companies - India
- Independent Power Producers Association of India
- Straits Asia Resources Limited - Singapore
- Orica Mining Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- LBH Netherlands Bv - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Formosa Plastics Group - Taiwan
- Larsen & Toubro Limited - India
- The Treasury - Australian Government
- Billiton Holdings Pty Ltd - Australia
- Commonwealth Bank - Australia
- Eastern Energy - Thailand
- SMG Consultants - Indonesia
- Indian Energy Exchange, India
- Pipit Mutiara Jaya. PT, Indonesia
- Global Green Power PLC Corporation, Philippines
- Borneo Indobara - Indonesia
- IEA Clean Coal Centre - UK
- Globalindo Alam Lestari - Indonesia
- Aboitiz Power Corporation - Philippines
- Indogreen Group - Indonesia
- Jaiprakash Power Ventures ltd
- Parry Sugars Refinery, India
- ICICI Bank Limited - India
- Meenaskhi Energy Private Limited - India
- Kobexindo Tractors - Indoneisa
- European Bulk Services B.V. - Netherlands
- CIMB Investment Bank - Malaysia
- Bukit Asam (Persero) Tbk - Indonesia
- San Jose City I Power Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- Central Electricity Authority - India
- Makarim & Taira - Indonesia
- Central Java Power - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- VISA Power Limited - India
- Bharathi Cement Corporation - India
- Tamil Nadu electricity Board
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Binh Thuan Hamico - Vietnam
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- Eastern Coal Council - USA
- Marubeni Corporation - India
- Bhushan Steel Limited - India
- Goldman Sachs - Singapore
- ASAPP Information Group - India
- Karbindo Abesyapradhi - Indoneisa
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- Kartika Selabumi Mining - Indonesia
- Bhatia International Limited - India
- Parliament of New Zealand
- PTC India Limited - India
- Kumho Petrochemical, South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhoruka Overseas - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Intertek Mineral Services - Indonesia
- GMR Energy Limited - India
- Bayan Resources Tbk. - Indonesia
- Uttam Galva Steels Limited - India
- Renaissance Capital - South Africa
- Barasentosa Lestari - Indonesia
- Petron Corporation, Philippines
- Port Waratah Coal Services - Australia
- Price Waterhouse Coopers - Russia
- Salva Resources Pvt Ltd - India
- Attock Cement Pakistan Limited
- PowerSource Philippines DevCo
- Ministry of Transport, Egypt
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Wood Mackenzie - Singapore
- London Commodity Brokers - England
- Mjunction Services Limited - India
- Samtan Co., Ltd - South Korea
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- Edison Trading Spa - Italy
- Singapore Mercantile Exchange
- Sinarmas Energy and Mining - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Miang Besar Coal Terminal - Indonesia
- Aditya Birla Group - India
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