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Thursday, 21 July 16
CONSTRUCTIVE TOTAL LOSS: WHAT GOES IN TO CALCULATING QUANTUM? - HILL DICKINSON
 KNOWLEDGE TO ELEVATE
The Commercial Court recently delivered its judgment in an important case (Connect Shipping Inc and Machrimar Management SA -v- Sveriges Anfgartygs Assurans Forening (The Swedish Club) and others) [2016] EWHC 1580 (Comm), interpreting the law around the obligations of insurers and the rights of owners in relation to the total loss of a vessel.
The case is authority for the proposition that a NOA tendered five-and-a-half months after the casualty is not necessarily late, considering the fact-sensitive nature of the legal right exercised by the shipowner of abandoning his vessel to his insurers. It confirmed that reasonable expenditure incurred before the issue of a Notice of Abandonment can be included in the calculation of quantum for a CTL, as well as the owners’ share of SCOPIC. Further, the Court followed the finding in another important recent decision – the “BRILLANTE VIRTUOSO” – that inevitable uncertainty about the cost of potential repairs should permit that calculation to include a significant contingency (10% in this case).
In the event, the Owners of the vessel the “RENOS”, represented by Hill Dickinson International, were successful in claiming of the Insurers their relevant proportions of the US$12 million under the hull policy (plus sue and labour costs), and triggering a further US$3 million Increased Value policy claim.
The High Court ruled that the vessel was a constructive total loss following a fire that broke out in the engine room whilst the Vessel was sailing in a laden condition of the Egyptian coast, in the Red Sea. It was common ground that the fire was an insured peril under the policies and that it caused extensive damage to the Vessel, resulting in her loss of main engine power and requiring tug assistance. The dispute concerned the measure of the indemnity to which the Owners were entitled.
The Insurers denied the Vessel was a constructive total loss as a matter of quantum, contending that the Owners were entitled to an indemnity on a partial loss basis. Owners therefore brought proceedings in the High Court against the Insurers under the hull and machinery policies. In his judgment handed down on 1 July 2016, Mr Justice Knowles ruled upon five main issues:
1. Was the notice of abandonment given too late?
The fire broke out on 23 August 2012. The NOA was given on 1 February 2013.
Mr Justice Knowles initially considered the meaning of the wording of section 62(3) of the Marine Insurance Act 1906 (MIA) which provides that the NOA ‘must be given with reasonable diligence after the receipt of reliable information of the loss, but where the information is of a doubtful character the assured is entitled to a reasonable time to make inquiry… ’.
The Court noted Roche J’s statement in George Cohen v Standard Marine Insurance (1925) 21 Lloyd’s Rep 30, that: “the assured cannot postpone his election, if all the facts are known, merely because opinions may fluctuate at all events as to the results or proper conclusion to be drawn from the facts.”
This was a case however in which in Mr Justice Knowles’ judgment, “the nature of the casualty was such that achieving reliable information of the loss would be a complex task and take time”. The Court placed particular emphasis on the fact that owners throughout the period from the casualty to the giving of NOA were in receipt of conflicting quotations from surveyors involved both on their behalf and that of the underwriters, but also from experienced shipyards on the estimated costs of repairs, including, importantly, yards consulted by the underwriters.
2. Should pre-NOA expenses count towards a CTL?
The issue of whether pre-NOA expenses should count towards a CTL has attracted a lot of attention from the legal and insurance market as existing case law has not explicitly dealt with it in detail.
The Court found no basis on the wording of clause 19 of the Institute Time Clauses for limiting the cost of recovery and repair to recovery and repair after NOA, differentiating a constructive total loss from the right to claim for a constructive total loss, which are two distinct concepts. It held, therefore, pursuant to a textual interpretation of Clause 9.2 and 19.2 of the Institute Time Clauses (1/10/83) and section 60 of the MIA, that pre-NOA expenses should be included in a CTL calculation, reiterating that a NOA is not an essential ingredient of a constructive total loss.
The Insurers denied liability based on two grounds. In arguing that pre-NOA expenses should not count towards a CTL, they proposed that what they termed a ‘protective NOA’ should be tendered prior to incurring the costs of recovery and repair in cases where it was possible that the vessel might become a CTL. The Court dismissed this out of hand observing that, under the clear provision of section 62(2) of the MIA, once a NOA is accepted ‘the abandonment is irrevocable.’
Secondly, the Insurers also argued that the phrase ‘future salvage operations’ in section 60(2)(ii) of the MIA suggests that costs already incurred should not be taken under consideration. Mr Justice Knowles disagreed, partly departing from two previous decisions, (Helmville Ltd -v- Yorkshire Insurance Company Lt [1965] 1 Lloyd’s Rep 361 (the “MEDINA PRINCESS”) and Hall -v- Hayman (1912) 17 Comm Cas 81), stating that the phrasing is not restrictive but instead the legislature’s intention was simply to (also) take into account the expenses of future salvage operations rather than exclude expenses already incurred prior to tendering the NOA.
3. Specifically amongst pre-NOA expenses, should SCOPIC remuneration (after Article 13 payments have been taken into account) count towards a CTL calculation?
The Court further considered whether SCOPIC liability is to be taken into account as a cost of recovery for the purposes of a CTL. Mr Justice Knowles considered the effect of Clause 15 of the SCOPIC and in accordance with ordinary principles of construction he held that that it is an indivisible part of the salvage operations arising from the casualty and as such must be included in the calculation of a CTL.
4. Were the costs for a standby tug reasonably incurred?
The Owners had employed the services of a standby tug for the period the Vessel remained in the Gulf of Suez, in the event, for about four months.
The Insurers argued that the size and rate of the tug was excessive as the casualty only required standby services which a smaller tug could perform.
The Court gave due consideration to the specific nature of the tug market, salvors’ requirement to deliver the vessel to a tug of sufficient capabilities on completion of the LOF, the condition of the Vessel and the purposes for which a tug was required and held, on the evidence, that it was reasonable and necessary to engage a tug of that size, although not for the entire period of four months, as owners should have explored other possibilities in the meantime, but for around half that time.
5. What margin of general contingency should be allowed?
Both parties accepted the need to allow a contingency but disagreed on the percentage to be applied. Mr Justice Knowles considered Flaux LJ’s observations in the recent case “BRILLANTE VIRTUOSO”, a case in which the Owners were also represented by Hill Dickinson, and applied a 10% contingency agreeing with Owners’ approach. The Court emphasized the necessity of allowance for uncertainty as a result of the nature of the casualty, the location of the Vessel and the range of estimates and quotations, which undermined the arithmetical test applied by the Insurers.
It is worth noting that, in the “BRILLANTE VIRTUOSO”, Flaux LJ held that, in calculating quantum for assessing if a vessel can be declared a CTL, there might well be uncertainty about the nature and extent of damage and that the Court would, therefore, allow a ‘large margin’ in assessing the cost of repair.
Thus, Mr Justice Knowles held that the NOA was effective and that the vessel, on the evidence, was a CTL. It is likely that the Insurers will seek leave to appeal on various grounds from the Court of Appeal after Mr Justice Knowles refused leave to appeal.
Source: Hill Dickinson
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Wednesday, 12 October 16
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Wednesday, 12 October 16
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Monday, 10 October 16
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THE FREIGHT MARKET FIRMS UP ON STRONG CAPE PERFORMANCE
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose again and ending in a positive note this past week. ...
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- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Coastal Gujarat Power Limited - India
- Minerals Council of Australia
- ASAPP Information Group - India
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- PTC India Limited - India
- Sakthi Sugars Limited - India
- Aboitiz Power Corporation - Philippines
- Gujarat Mineral Development Corp Ltd - India
- Posco Energy - South Korea
- Toyota Tsusho Corporation, Japan
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- International Coal Ventures Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- Deloitte Consulting - India
- White Energy Company Limited
- Parry Sugars Refinery, India
- Central Electricity Authority - India
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- Grasim Industreis Ltd - India
- Romanian Commodities Exchange
- Energy Link Ltd, New Zealand
- Wood Mackenzie - Singapore
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Orica Mining Services - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Economic Council, Georgia
- Meralco Power Generation, Philippines
- Merrill Lynch Commodities Europe
- Ind-Barath Power Infra Limited - India
- Cement Manufacturers Association - India
- Anglo American - United Kingdom
- Ambuja Cements Ltd - India
- Meenaskhi Energy Private Limited - India
- Mintek Dendrill Indonesia
- London Commodity Brokers - England
- Billiton Holdings Pty Ltd - Australia
- Bayan Resources Tbk. - Indonesia
- European Bulk Services B.V. - Netherlands
- SMC Global Power, Philippines
- Mjunction Services Limited - India
- Standard Chartered Bank - UAE
- Globalindo Alam Lestari - Indonesia
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sojitz Corporation - Japan
- Price Waterhouse Coopers - Russia
- Directorate General of MIneral and Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- GMR Energy Limited - India
- Indonesian Coal Mining Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sindya Power Generating Company Private Ltd
- Edison Trading Spa - Italy
- Trasteel International SA, Italy
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- SN Aboitiz Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Thiess Contractors Indonesia
- Chamber of Mines of South Africa
- Binh Thuan Hamico - Vietnam
- The Treasury - Australian Government
- Videocon Industries ltd - India
- Uttam Galva Steels Limited - India
- Karaikal Port Pvt Ltd - India
- Bangladesh Power Developement Board
- PNOC Exploration Corporation - Philippines
- Kideco Jaya Agung - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Heidelberg Cement - Germany
- Maharashtra Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- IHS Mccloskey Coal Group - USA
- Vijayanagar Sugar Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Ministry of Mines - Canada
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Mercator Lines Limited - India
- Electricity Authority, New Zealand
- Agrawal Coal Company - India
- Jaiprakash Power Ventures ltd
- Tata Chemicals Ltd - India
- Bhoruka Overseas - Indonesia
- Orica Australia Pty. Ltd.
- Iligan Light & Power Inc, Philippines
- Port Waratah Coal Services - Australia
- Star Paper Mills Limited - India
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Latin American Coal - Colombia
- Coal and Oil Company - UAE
- Lanco Infratech Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Makarim & Taira - Indonesia
- Kartika Selabumi Mining - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Eastern Energy - Thailand
- Samtan Co., Ltd - South Korea
- Dalmia Cement Bharat India
- Indika Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Sree Jayajothi Cements Limited - India
- The State Trading Corporation of India Ltd
- Barasentosa Lestari - Indonesia
- Metalloyd Limited - United Kingdom
- Siam City Cement - Thailand
- Salva Resources Pvt Ltd - India
- Commonwealth Bank - Australia
- GAC Shipping (India) Pvt Ltd
- Altura Mining Limited, Indonesia
- Parliament of New Zealand
- Ministry of Finance - Indonesia
- Formosa Plastics Group - Taiwan
- Renaissance Capital - South Africa
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Siam City Cement PLC, Thailand
- Xindia Steels Limited - India
- Bharathi Cement Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Sarangani Energy Corporation, Philippines
- Medco Energi Mining Internasional
- Antam Resourcindo - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Thai Mozambique Logistica
- Coalindo Energy - Indonesia
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- CNBM International Corporation - China
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Savvy Resources Ltd - HongKong
- OPG Power Generation Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Essar Steel Hazira Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- SMG Consultants - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Petron Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Riau Bara Harum - Indonesia
- India Bulls Power Limited - India
- Electricity Generating Authority of Thailand
- Kapuas Tunggal Persada - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Pendopo Energi Batubara - Indonesia
- Attock Cement Pakistan Limited
- Global Green Power PLC Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Bhushan Steel Limited - India
- Eastern Coal Council - USA
- Australian Commodity Traders Exchange
- Alfred C Toepfer International GmbH - Germany
- Holcim Trading Pte Ltd - Singapore
- IEA Clean Coal Centre - UK
- Tamil Nadu electricity Board
- Simpson Spence & Young - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Chettinad Cement Corporation Ltd - India
- Australian Coal Association
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Ministry of Transport, Egypt
- Global Coal Blending Company Limited - Australia
- GN Power Mariveles Coal Plant, Philippines
- Indogreen Group - Indonesia
- Bulk Trading Sa - Switzerland
- Directorate Of Revenue Intelligence - India
- Wilmar Investment Holdings
- Goldman Sachs - Singapore
- Central Java Power - Indonesia
- Semirara Mining Corp, Philippines
- ICICI Bank Limited - India
- Bhatia International Limited - India
- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
- Therma Luzon, Inc, Philippines
- Krishnapatnam Port Company Ltd. - India
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- Aditya Birla Group - India
- GVK Power & Infra Limited - India
- Cigading International Bulk Terminal - Indonesia
- Independent Power Producers Association of India
- Rio Tinto Coal - Australia
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- MS Steel International - UAE
- Singapore Mercantile Exchange
- The University of Queensland
- Borneo Indobara - Indonesia
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