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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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Friday, 30 January 15
CAN BULKER CONVERSIONS SPOIL THE TANKER MARKET'S PARTY? - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Oversupply of tonnage has always been in the back of the head of ship owners when it comes to taking advantage of favorable market conditions. As s ...
Thursday, 29 January 15
CHINA ENERGY DEMAND MUST BE REVIEWED DUE TO FUNDAMENTAL ECONOMIC CHANGES - WOOD MACKENZIE
New patterns emerging as energy demand growth decoupled significantly from GDP growth for the first time in 2014
Wood Mackenzie says 2014 was ...
Thursday, 29 January 15
CAPE MARKET IS STILL STRUGGLING WITH LOW DEMAND AND LOW COMMODITY PRICES
Handy
Supramax rates are heading south with slipping rates all across the block. USG activity is slow with mid-week levels in the mid 8.000s, Fea ...
Wednesday, 28 January 15
MARKET INSIGHT - STELIOS KOLLINTZAS
With most traders having returned to action from year end festivities, we have already seen signs of activity in the specialized product markets. L ...
Wednesday, 28 January 15
CAPES CONTINUED THEIR UPWARD MOVEMENT LAST WEEK - INTERMODAL
COALspot.com: The Dry Bulk market displayed a mirror performance of that of the week prior, with the Capesize market correcting further upwards and ...
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- Vedanta Resources Plc - India
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Tamil Nadu electricity Board
- Miang Besar Coal Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Petron Corporation, Philippines
- Anglo American - United Kingdom
- Coalindo Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Port Waratah Coal Services - Australia
- Ambuja Cements Ltd - India
- Ministry of Transport, Egypt
- Global Green Power PLC Corporation, Philippines
- ASAPP Information Group - India
- Orica Australia Pty. Ltd.
- Coastal Gujarat Power Limited - India
- Sakthi Sugars Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Deloitte Consulting - India
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- SMC Global Power, Philippines
- Ministry of Mines - Canada
- Kartika Selabumi Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Thiess Contractors Indonesia
- Kobexindo Tractors - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Energy Link Ltd, New Zealand
- Electricity Generating Authority of Thailand
- Maheswari Brothers Coal Limited - India
- Jindal Steel & Power Ltd - India
- Parliament of New Zealand
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- Baramulti Group, Indonesia
- Simpson Spence & Young - Indonesia
- Barasentosa Lestari - Indonesia
- Siam City Cement - Thailand
- Sindya Power Generating Company Private Ltd
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Gujarat Electricity Regulatory Commission - India
- Attock Cement Pakistan Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Australian Commodity Traders Exchange
- Kideco Jaya Agung - Indonesia
- Central Electricity Authority - India
- Bhatia International Limited - India
- McConnell Dowell - Australia
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Carbofer General Trading SA - India
- Goldman Sachs - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Medco Energi Mining Internasional
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Minerals Council of Australia
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Semirara Mining and Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- London Commodity Brokers - England
- Romanian Commodities Exchange
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- IHS Mccloskey Coal Group - USA
- Australian Coal Association
- Eastern Energy - Thailand
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Renaissance Capital - South Africa
- Meenaskhi Energy Private Limited - India
- Salva Resources Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Coal and Oil Company - UAE
- Oldendorff Carriers - Singapore
- Wilmar Investment Holdings
- Latin American Coal - Colombia
- ICICI Bank Limited - India
- Directorate Of Revenue Intelligence - India
- Lanco Infratech Ltd - India
- VISA Power Limited - India
- Rio Tinto Coal - Australia
- Indogreen Group - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Meralco Power Generation, Philippines
- PTC India Limited - India
- Bharathi Cement Corporation - India
- Bhushan Steel Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Videocon Industries ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- IEA Clean Coal Centre - UK
- Planning Commission, India
- Star Paper Mills Limited - India
- Straits Asia Resources Limited - Singapore
- Manunggal Multi Energi - Indonesia
- White Energy Company Limited
- Price Waterhouse Coopers - Russia
- Power Finance Corporation Ltd., India
- Africa Commodities Group - South Africa
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Ceylon Electricity Board - Sri Lanka
- Gujarat Sidhee Cement - India
- PNOC Exploration Corporation - Philippines
- Heidelberg Cement - Germany
- Toyota Tsusho Corporation, Japan
- Sinarmas Energy and Mining - Indonesia
- Global Coal Blending Company Limited - Australia
- The State Trading Corporation of India Ltd
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cement Manufacturers Association - India
- Edison Trading Spa - Italy
- SN Aboitiz Power Inc, Philippines
- Ind-Barath Power Infra Limited - India
- Asmin Koalindo Tuhup - Indonesia
- The University of Queensland
- Formosa Plastics Group - Taiwan
- Grasim Industreis Ltd - India
- Pendopo Energi Batubara - Indonesia
- Mintek Dendrill Indonesia
- Semirara Mining Corp, Philippines
- Mercator Lines Limited - India
- Bukit Baiduri Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Essar Steel Hazira Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kapuas Tunggal Persada - Indonesia
- Makarim & Taira - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GMR Energy Limited - India
- Chettinad Cement Corporation Ltd - India
- Electricity Authority, New Zealand
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Banpu Public Company Limited - Thailand
- Riau Bara Harum - Indonesia
- Parry Sugars Refinery, India
- Savvy Resources Ltd - HongKong
- Maharashtra Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Eastern Coal Council - USA
- South Luzon Thermal Energy Corporation
- Kepco SPC Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Georgia Ports Authority, United States
- Jorong Barutama Greston.PT - Indonesia
- Aboitiz Power Corporation - Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Madhucon Powers Ltd - India
- Bayan Resources Tbk. - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Indian Energy Exchange, India
- Kaltim Prima Coal - Indonesia
- Wood Mackenzie - Singapore
- Thai Mozambique Logistica
- Intertek Mineral Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Sree Jayajothi Cements Limited - India
- GAC Shipping (India) Pvt Ltd
- Krishnapatnam Port Company Ltd. - India
- Indian Oil Corporation Limited
- Borneo Indobara - Indonesia
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- International Coal Ventures Pvt Ltd - India
- Sojitz Corporation - Japan
- Bulk Trading Sa - Switzerland
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Leighton Contractors Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Xindia Steels Limited - India
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Economic Council, Georgia
- Kumho Petrochemical, South Korea
- Chamber of Mines of South Africa
- Aditya Birla Group - India
- Commonwealth Bank - Australia
- MS Steel International - UAE
- Agrawal Coal Company - India
- Interocean Group of Companies - India
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sical Logistics Limited - India
- Orica Mining Services - Indonesia
- GVK Power & Infra Limited - India
- Karaikal Port Pvt Ltd - India
- New Zealand Coal & Carbon
- San Jose City I Power Corp, Philippines
- India Bulls Power Limited - India
- Trasteel International SA, Italy
- Energy Development Corp, Philippines
- The Treasury - Australian Government
- CNBM International Corporation - China
- Therma Luzon, Inc, Philippines
- Bangladesh Power Developement Board
- Posco Energy - South Korea
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