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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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- Coastal Gujarat Power Limited - India
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Sinarmas Energy and Mining - Indonesia
- London Commodity Brokers - England
- Bangladesh Power Developement Board
- Miang Besar Coal Terminal - Indonesia
- Trasteel International SA, Italy
- Kapuas Tunggal Persada - Indonesia
- Economic Council, Georgia
- Bukit Baiduri Energy - Indonesia
- Bharathi Cement Corporation - India
- Georgia Ports Authority, United States
- Interocean Group of Companies - India
- Kohat Cement Company Ltd. - Pakistan
- Sakthi Sugars Limited - India
- Thiess Contractors Indonesia
- Bayan Resources Tbk. - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- MS Steel International - UAE
- Independent Power Producers Association of India
- Minerals Council of Australia
- Oldendorff Carriers - Singapore
- Meenaskhi Energy Private Limited - India
- Tamil Nadu electricity Board
- Timah Investasi Mineral - Indoneisa
- Chamber of Mines of South Africa
- Semirara Mining Corp, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- Grasim Industreis Ltd - India
- Africa Commodities Group - South Africa
- Thai Mozambique Logistica
- Sree Jayajothi Cements Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Siam City Cement - Thailand
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Deloitte Consulting - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Central Java Power - Indonesia
- Bulk Trading Sa - Switzerland
- Attock Cement Pakistan Limited
- Makarim & Taira - Indonesia
- Salva Resources Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Parliament of New Zealand
- Power Finance Corporation Ltd., India
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- OPG Power Generation Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Merrill Lynch Commodities Europe
- Kobexindo Tractors - Indoneisa
- Australian Commodity Traders Exchange
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Latin American Coal - Colombia
- Binh Thuan Hamico - Vietnam
- Directorate Of Revenue Intelligence - India
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- San Jose City I Power Corp, Philippines
- Vizag Seaport Private Limited - India
- Borneo Indobara - Indonesia
- India Bulls Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- ICICI Bank Limited - India
- European Bulk Services B.V. - Netherlands
- Bhoruka Overseas - Indonesia
- Chettinad Cement Corporation Ltd - India
- TeaM Sual Corporation - Philippines
- Kideco Jaya Agung - Indonesia
- Ministry of Transport, Egypt
- Electricity Generating Authority of Thailand
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- PowerSource Philippines DevCo
- Coalindo Energy - Indonesia
- CNBM International Corporation - China
- Central Electricity Authority - India
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- Orica Mining Services - Indonesia
- Ministry of Finance - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Romanian Commodities Exchange
- Energy Link Ltd, New Zealand
- The State Trading Corporation of India Ltd
- Rashtriya Ispat Nigam Limited - India
- Lanco Infratech Ltd - India
- Indonesian Coal Mining Association
- IEA Clean Coal Centre - UK
- Ambuja Cements Ltd - India
- Indo Tambangraya Megah - Indonesia
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- SMG Consultants - Indonesia
- CIMB Investment Bank - Malaysia
- TNB Fuel Sdn Bhd - Malaysia
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Cigading International Bulk Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Banpu Public Company Limited - Thailand
- Gujarat Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Vedanta Resources Plc - India
- Rio Tinto Coal - Australia
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Wilmar Investment Holdings
- Aboitiz Power Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Dalmia Cement Bharat India
- Malabar Cements Ltd - India
- Kumho Petrochemical, South Korea
- Iligan Light & Power Inc, Philippines
- Bhushan Steel Limited - India
- Mjunction Services Limited - India
- Global Business Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Agrawal Coal Company - India
- Simpson Spence & Young - Indonesia
- Indian Oil Corporation Limited
- Kepco SPC Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Anglo American - United Kingdom
- Australian Coal Association
- Alfred C Toepfer International GmbH - Germany
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Jindal Steel & Power Ltd - India
- ASAPP Information Group - India
- Siam City Cement PLC, Thailand
- Larsen & Toubro Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Essar Steel Hazira Ltd - India
- White Energy Company Limited
- Karaikal Port Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Krishnapatnam Port Company Ltd. - India
- Ministry of Mines - Canada
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Baramulti Group, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bhatia International Limited - India
- Indika Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
- Petron Corporation, Philippines
- Energy Development Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Gujarat Sidhee Cement - India
- Kartika Selabumi Mining - Indonesia
- Madhucon Powers Ltd - India
- Mercuria Energy - Indonesia
- Aditya Birla Group - India
- Manunggal Multi Energi - Indonesia
- Price Waterhouse Coopers - Russia
- Billiton Holdings Pty Ltd - Australia
- Antam Resourcindo - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Wood Mackenzie - Singapore
- GMR Energy Limited - India
- Planning Commission, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Green Power PLC Corporation, Philippines
- Medco Energi Mining Internasional
- Holcim Trading Pte Ltd - Singapore
- Indogreen Group - Indonesia
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- Marubeni Corporation - India
- Sical Logistics Limited - India
- Orica Australia Pty. Ltd.
- Straits Asia Resources Limited - Singapore
- Cement Manufacturers Association - India
- Gujarat Mineral Development Corp Ltd - India
- Altura Mining Limited, Indonesia
- PTC India Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Kaltim Prima Coal - Indonesia
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Mintek Dendrill Indonesia
- Parry Sugars Refinery, India
- Carbofer General Trading SA - India
- Electricity Authority, New Zealand
- Savvy Resources Ltd - HongKong
- Riau Bara Harum - Indonesia
- Metalloyd Limited - United Kingdom
- Standard Chartered Bank - UAE
- Singapore Mercantile Exchange
- Intertek Mineral Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- Heidelberg Cement - Germany
- Sarangani Energy Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- PetroVietnam Power Coal Import and Supply Company
- Pipit Mutiara Jaya. PT, Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Goldman Sachs - Singapore
- The University of Queensland
- LBH Netherlands Bv - Netherlands
- Eastern Coal Council - USA
- Leighton Contractors Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- Therma Luzon, Inc, Philippines
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