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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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Wednesday, 04 February 15
MARKET INSIGHT - LINOS KOGEVINAS
It has been just about over 2 months since, in a move that surprised many and caused widespread apprehension, OPEC decided to maintain its producti ...
Tuesday, 03 February 15
Q1'15 FOB INDONESIA COAL SWAP CLOSED $ 3.29 HIGHER COMPARED TO Q4'15 DELIVERY PRICE
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 rose week over week and month on month.
The Q1 swap up US$ 0.68 (+1.41%) month o ...
Tuesday, 03 February 15
FOB NEWCASTLE COAL SWAP FOR Q4 DELIVERY CLOSED 5.86% LOWER THAN Q1 PRICE
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2015 delivery rose US$ 0.26 per MT (+0.51%) week over week and declined US$ 0.02 (-0.04%) ...
Monday, 02 February 15
API 4 FOB RICHARDS BAY COAL SWAP ROSE WEEK OVER WEEK
COALspot.com: API 4 FOB Richards Bay Coal swap for delivery Q1' 2015 declined month over month and day on day.
The Q1 swap has decli ...
Monday, 02 February 15
INDONESIA'S ADARO ENERGY PRODUCED 56.21 MILLION TONNES OF COAL IN 2014; UP 8% Y-O-Y
COALspot.com: PT. Adaro Energy, Indonesia’s largest coal producer, has increased coal production by 8% to 56.21 million tonnes (Mt) from both ...
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- Interocean Group of Companies - India
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Siam City Cement PLC, Thailand
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- Sree Jayajothi Cements Limited - India
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Parry Sugars Refinery, India
- Indonesian Coal Mining Association
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indo Tambangraya Megah - Indonesia
- Global Green Power PLC Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Kideco Jaya Agung - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Xindia Steels Limited - India
- Bhatia International Limited - India
- Bangladesh Power Developement Board
- Riau Bara Harum - Indonesia
- Planning Commission, India
- Australian Commodity Traders Exchange
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- London Commodity Brokers - England
- SMG Consultants - Indonesia
- Samtan Co., Ltd - South Korea
- Kapuas Tunggal Persada - Indonesia
- Independent Power Producers Association of India
- Antam Resourcindo - Indonesia
- Price Waterhouse Coopers - Russia
- Central Java Power - Indonesia
- Edison Trading Spa - Italy
- Altura Mining Limited, Indonesia
- Orica Mining Services - Indonesia
- Barasentosa Lestari - Indonesia
- Heidelberg Cement - Germany
- Rashtriya Ispat Nigam Limited - India
- India Bulls Power Limited - India
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The Treasury - Australian Government
- OPG Power Generation Pvt Ltd - India
- Cement Manufacturers Association - India
- Wilmar Investment Holdings
- Asmin Koalindo Tuhup - Indonesia
- Sojitz Corporation - Japan
- Sinarmas Energy and Mining - Indonesia
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Thiess Contractors Indonesia
- Energy Link Ltd, New Zealand
- Indogreen Group - Indonesia
- Power Finance Corporation Ltd., India
- Renaissance Capital - South Africa
- Ministry of Transport, Egypt
- Sical Logistics Limited - India
- New Zealand Coal & Carbon
- McConnell Dowell - Australia
- Ministry of Mines - Canada
- Commonwealth Bank - Australia
- TeaM Sual Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Agrawal Coal Company - India
- VISA Power Limited - India
- Madhucon Powers Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Ind-Barath Power Infra Limited - India
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- Videocon Industries ltd - India
- Carbofer General Trading SA - India
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Jorong Barutama Greston.PT - Indonesia
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Coal and Oil Company - UAE
- ASAPP Information Group - India
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Jaiprakash Power Ventures ltd
- Eastern Coal Council - USA
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Trasteel International SA, Italy
- Latin American Coal - Colombia
- IEA Clean Coal Centre - UK
- Coastal Gujarat Power Limited - India
- Krishnapatnam Port Company Ltd. - India
- Medco Energi Mining Internasional
- Global Business Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Deloitte Consulting - India
- Directorate Of Revenue Intelligence - India
- Binh Thuan Hamico - Vietnam
- International Coal Ventures Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Coalindo Energy - Indonesia
- Kumho Petrochemical, South Korea
- Bhushan Steel Limited - India
- Ceylon Electricity Board - Sri Lanka
- The University of Queensland
- Globalindo Alam Lestari - Indonesia
- Romanian Commodities Exchange
- Bhoruka Overseas - Indonesia
- Attock Cement Pakistan Limited
- Electricity Generating Authority of Thailand
- Kartika Selabumi Mining - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Mercator Lines Limited - India
- Global Coal Blending Company Limited - Australia
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- Indian Energy Exchange, India
- GMR Energy Limited - India
- ICICI Bank Limited - India
- Sakthi Sugars Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Vizag Seaport Private Limited - India
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Georgia Ports Authority, United States
- Toyota Tsusho Corporation, Japan
- Bharathi Cement Corporation - India
- Neyveli Lignite Corporation Ltd, - India
- Rio Tinto Coal - Australia
- Wood Mackenzie - Singapore
- Singapore Mercantile Exchange
- Semirara Mining and Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Metalloyd Limited - United Kingdom
- Kaltim Prima Coal - Indonesia
- PNOC Exploration Corporation - Philippines
- Meralco Power Generation, Philippines
- Posco Energy - South Korea
- Gujarat Mineral Development Corp Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- Maheswari Brothers Coal Limited - India
- GAC Shipping (India) Pvt Ltd
- Electricity Authority, New Zealand
- CNBM International Corporation - China
- GN Power Mariveles Coal Plant, Philippines
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining Corp, Philippines
- Karaikal Port Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Oldendorff Carriers - Singapore
- Aditya Birla Group - India
- SMC Global Power, Philippines
- Merrill Lynch Commodities Europe
- Salva Resources Pvt Ltd - India
- Thai Mozambique Logistica
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Bayan Resources Tbk. - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Anglo American - United Kingdom
- Pendopo Energi Batubara - Indonesia
- Simpson Spence & Young - Indonesia
- South Luzon Thermal Energy Corporation
- Kobexindo Tractors - Indoneisa
- Straits Asia Resources Limited - Singapore
- Leighton Contractors Pty Ltd - Australia
- Port Waratah Coal Services - Australia
- Baramulti Group, Indonesia
- Bukit Makmur.PT - Indonesia
- The State Trading Corporation of India Ltd
- Lanco Infratech Ltd - India
- SN Aboitiz Power Inc, Philippines
- Essar Steel Hazira Ltd - India
- Energy Development Corp, Philippines
- Economic Council, Georgia
- Vedanta Resources Plc - India
- Aboitiz Power Corporation - Philippines
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Central Electricity Authority - India
- Parliament of New Zealand
- Timah Investasi Mineral - Indoneisa
- IHS Mccloskey Coal Group - USA
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Maharashtra Electricity Regulatory Commission - India
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Marubeni Corporation - India
- Makarim & Taira - Indonesia
- Minerals Council of Australia
- Siam City Cement - Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
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