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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, 05 October 16
SHIPPING MARKET INSIGHT
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Monday, 03 October 16
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COALspot.com: A rally in thermal coal prices over the past few months, after years of decline, is still continuing and it is expected to rally at l ...
Monday, 03 October 16
DRY-BULK SHIPPING FREIGHTS SLIDE IN SOFTENING SPOT MARKET
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities decline slightly and ending in a negative note this past ...
Friday, 30 September 16
U.S. WEEKLY COAL OUTPUT FELL 2.3% - EIA
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Friday, 30 September 16
OPEC CUT SUPPORTS SLOW OIL RECOVERY, NOT STRONG REBOUND - FITCH
OPEC's oil production target announced this week signals the potential for greater co-ordination among its members, but the target itself is la ...
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- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Thiess Contractors Indonesia
- Mercuria Energy - Indonesia
- Mintek Dendrill Indonesia
- New Zealand Coal & Carbon
- Ministry of Mines - Canada
- Vijayanagar Sugar Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- CNBM International Corporation - China
- Semirara Mining and Power Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- The Treasury - Australian Government
- Samtan Co., Ltd - South Korea
- GN Power Mariveles Coal Plant, Philippines
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Carbofer General Trading SA - India
- Merrill Lynch Commodities Europe
- Indo Tambangraya Megah - Indonesia
- Bangladesh Power Developement Board
- TNB Fuel Sdn Bhd - Malaysia
- Bhatia International Limited - India
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Madhucon Powers Ltd - India
- Medco Energi Mining Internasional
- Sree Jayajothi Cements Limited - India
- Posco Energy - South Korea
- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
- LBH Netherlands Bv - Netherlands
- Global Business Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Bhoruka Overseas - Indonesia
- Global Coal Blending Company Limited - Australia
- Sarangani Energy Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Indika Energy - Indonesia
- Energy Link Ltd, New Zealand
- Maharashtra Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Vedanta Resources Plc - India
- Ceylon Electricity Board - Sri Lanka
- Straits Asia Resources Limited - Singapore
- Central Java Power - Indonesia
- Barasentosa Lestari - Indonesia
- Simpson Spence & Young - Indonesia
- Oldendorff Carriers - Singapore
- GVK Power & Infra Limited - India
- Salva Resources Pvt Ltd - India
- Cement Manufacturers Association - India
- Savvy Resources Ltd - HongKong
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- Commonwealth Bank - Australia
- Kartika Selabumi Mining - Indonesia
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- ASAPP Information Group - India
- SMC Global Power, Philippines
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- Asmin Koalindo Tuhup - Indonesia
- White Energy Company Limited
- Metalloyd Limited - United Kingdom
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- Kobexindo Tractors - Indoneisa
- Price Waterhouse Coopers - Russia
- Globalindo Alam Lestari - Indonesia
- Xindia Steels Limited - India
- Semirara Mining Corp, Philippines
- Larsen & Toubro Limited - India
- Kideco Jaya Agung - Indonesia
- Trasteel International SA, Italy
- Deloitte Consulting - India
- Independent Power Producers Association of India
- TeaM Sual Corporation - Philippines
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Maheswari Brothers Coal Limited - India
- Bukit Baiduri Energy - Indonesia
- Coal and Oil Company - UAE
- McConnell Dowell - Australia
- Power Finance Corporation Ltd., India
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bharathi Cement Corporation - India
- Eastern Energy - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Dalmia Cement Bharat India
- Economic Council, Georgia
- Heidelberg Cement - Germany
- CIMB Investment Bank - Malaysia
- Romanian Commodities Exchange
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- Eastern Coal Council - USA
- Ministry of Finance - Indonesia
- Rio Tinto Coal - Australia
- Miang Besar Coal Terminal - Indonesia
- Tata Chemicals Ltd - India
- GAC Shipping (India) Pvt Ltd
- Rashtriya Ispat Nigam Limited - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Grasim Industreis Ltd - India
- Binh Thuan Hamico - Vietnam
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Petron Corporation, Philippines
- Bhushan Steel Limited - India
- Renaissance Capital - South Africa
- Timah Investasi Mineral - Indoneisa
- Toyota Tsusho Corporation, Japan
- Borneo Indobara - Indonesia
- Marubeni Corporation - India
- Ind-Barath Power Infra Limited - India
- Kapuas Tunggal Persada - Indonesia
- Therma Luzon, Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Attock Cement Pakistan Limited
- Leighton Contractors Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- PowerSource Philippines DevCo
- IHS Mccloskey Coal Group - USA
- Port Waratah Coal Services - Australia
- Riau Bara Harum - Indonesia
- Vizag Seaport Private Limited - India
- Meenaskhi Energy Private Limited - India
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- OPG Power Generation Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Electricity Authority, New Zealand
- Intertek Mineral Services - Indonesia
- Georgia Ports Authority, United States
- Anglo American - United Kingdom
- Iligan Light & Power Inc, Philippines
- Videocon Industries ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Gujarat Sidhee Cement - India
- Standard Chartered Bank - UAE
- Electricity Generating Authority of Thailand
- Singapore Mercantile Exchange
- Energy Development Corp, Philippines
- Kaltim Prima Coal - Indonesia
- London Commodity Brokers - England
- Aboitiz Power Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Antam Resourcindo - Indonesia
- MS Steel International - UAE
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Indonesian Coal Mining Association
- Sakthi Sugars Limited - India
- Wood Mackenzie - Singapore
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Uttam Galva Steels Limited - India
- SN Aboitiz Power Inc, Philippines
- Orica Mining Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Latin American Coal - Colombia
- Aditya Birla Group - India
- Karaikal Port Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- ICICI Bank Limited - India
- Edison Trading Spa - Italy
- Malabar Cements Ltd - India
- Ministry of Transport, Egypt
- Bahari Cakrawala Sebuku - Indonesia
- Baramulti Group, Indonesia
- Parry Sugars Refinery, India
- Coalindo Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bulk Trading Sa - Switzerland
- Coastal Gujarat Power Limited - India
- Sojitz Corporation - Japan
- Thai Mozambique Logistica
- Indian Energy Exchange, India
- PTC India Limited - India
- IEA Clean Coal Centre - UK
- SMG Consultants - Indonesia
- Parliament of New Zealand
- Indogreen Group - Indonesia
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Lanco Infratech Ltd - India
- VISA Power Limited - India
- Africa Commodities Group - South Africa
- GMR Energy Limited - India
- Banpu Public Company Limited - Thailand
- Central Electricity Authority - India
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