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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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Thursday, 29 September 16
FREIGHT RATES MIGHT CONTINUE TO SLIDE NEXT WEEK DUE TO HOLIDAYS IN CHINA
Supramax
Flat start to week followed by a slight gain in rates for Supramaxes, says Fearnleys in its latest weekly report.
According to Fear ...
Wednesday, 28 September 16
WITHOUT A DOUBT FREIGHT RATES HAVE MOVED UP A BIT TO HEALTHIER LEVELS - INTERMODAL
As we are approaching Q4, it is interesting to perform a review of the last nine months with respect to the second-hand prices of Supramax and Pana ...
Tuesday, 27 September 16
THE CAPESIZE RATE OF INCREASE HAS BEEN IMPRESSIVE, UP 39% W/W AND 123% MONTH TO DATE - ALLIED
The Dry bulk market has seen a rare shine in its performance as the capesize sector manages to rally at an unprecedented rate compared to its perfo ...
Monday, 26 September 16
COAL PRICES HAVE BEEN MOVING STEADILY HIGHER AFTER YEARS OF DECLINE
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, 26 September 16
THE FREIGHT MARKET WAS FIRM; ALL SEGMENTS WERE UP THIS PAST WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose and ending in a positive note this past week. The BD ...
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- Price Waterhouse Coopers - Russia
- Semirara Mining Corp, Philippines
- India Bulls Power Limited - India
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- Kapuas Tunggal Persada - Indonesia
- Sojitz Corporation - Japan
- Indo Tambangraya Megah - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- San Jose City I Power Corp, Philippines
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- VISA Power Limited - India
- Meralco Power Generation, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Banpu Public Company Limited - Thailand
- Xindia Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Dalmia Cement Bharat India
- Aboitiz Power Corporation - Philippines
- Salva Resources Pvt Ltd - India
- Central Java Power - Indonesia
- Planning Commission, India
- Latin American Coal - Colombia
- Chamber of Mines of South Africa
- Uttam Galva Steels Limited - India
- IHS Mccloskey Coal Group - USA
- Therma Luzon, Inc, Philippines
- Mjunction Services Limited - India
- GVK Power & Infra Limited - India
- Global Business Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Directorate Of Revenue Intelligence - India
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- The State Trading Corporation of India Ltd
- Samtan Co., Ltd - South Korea
- Holcim Trading Pte Ltd - Singapore
- Jaiprakash Power Ventures ltd
- Thiess Contractors Indonesia
- Energy Link Ltd, New Zealand
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- Eastern Energy - Thailand
- Parliament of New Zealand
- Marubeni Corporation - India
- Vizag Seaport Private Limited - India
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Cement Manufacturers Association - India
- Gujarat Sidhee Cement - India
- Indian Oil Corporation Limited
- Riau Bara Harum - Indonesia
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bayan Resources Tbk. - Indonesia
- GAC Shipping (India) Pvt Ltd
- Savvy Resources Ltd - HongKong
- Mercator Lines Limited - India
- Simpson Spence & Young - Indonesia
- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- Goldman Sachs - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Trasteel International SA, Italy
- Tamil Nadu electricity Board
- Kobexindo Tractors - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coalindo Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- ICICI Bank Limited - India
- Minerals Council of Australia
- Meenaskhi Energy Private Limited - India
- Ministry of Transport, Egypt
- Bukit Asam (Persero) Tbk - Indonesia
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Independent Power Producers Association of India
- Larsen & Toubro Limited - India
- Indogreen Group - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- PowerSource Philippines DevCo
- Heidelberg Cement - Germany
- The University of Queensland
- European Bulk Services B.V. - Netherlands
- Semirara Mining and Power Corporation, Philippines
- Agrawal Coal Company - India
- Timah Investasi Mineral - Indoneisa
- Jorong Barutama Greston.PT - Indonesia
- LBH Netherlands Bv - Netherlands
- Kideco Jaya Agung - Indonesia
- Ambuja Cements Ltd - India
- Economic Council, Georgia
- Bhoruka Overseas - Indonesia
- PNOC Exploration Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Oldendorff Carriers - Singapore
- Attock Cement Pakistan Limited
- Barasentosa Lestari - Indonesia
- Indika Energy - Indonesia
- London Commodity Brokers - England
- Power Finance Corporation Ltd., India
- Ministry of Mines - Canada
- Parry Sugars Refinery, India
- Orica Mining Services - Indonesia
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- CIMB Investment Bank - Malaysia
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sree Jayajothi Cements Limited - India
- GMR Energy Limited - India
- Electricity Authority, New Zealand
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Sical Logistics Limited - India
- International Coal Ventures Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Finance - Indonesia
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Straits Asia Resources Limited - Singapore
- Malabar Cements Ltd - India
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Ind-Barath Power Infra Limited - India
- Deloitte Consulting - India
- Borneo Indobara - Indonesia
- Posco Energy - South Korea
- Georgia Ports Authority, United States
- Wilmar Investment Holdings
- Videocon Industries ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Binh Thuan Hamico - Vietnam
- Merrill Lynch Commodities Europe
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Electricity Authority - India
- Indian Energy Exchange, India
- Tata Chemicals Ltd - India
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- AsiaOL BioFuels Corp., Philippines
- Kalimantan Lumbung Energi - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Coal Association
- Mintek Dendrill Indonesia
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Wood Mackenzie - Singapore
- Maharashtra Electricity Regulatory Commission - India
- Romanian Commodities Exchange
- Makarim & Taira - Indonesia
- Bharathi Cement Corporation - India
- Iligan Light & Power Inc, Philippines
- SMG Consultants - Indonesia
- Indonesian Coal Mining Association
- Star Paper Mills Limited - India
- Global Coal Blending Company Limited - Australia
- Alfred C Toepfer International GmbH - Germany
- SN Aboitiz Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Vedanta Resources Plc - India
- Karbindo Abesyapradhi - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Madhucon Powers Ltd - India
- Energy Development Corp, Philippines
- Singapore Mercantile Exchange
- Kohat Cement Company Ltd. - Pakistan
- Baramulti Group, Indonesia
- Essar Steel Hazira Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Bhushan Steel Limited - India
- Kaltim Prima Coal - Indonesia
- Coastal Gujarat Power Limited - India
- Grasim Industreis Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- PetroVietnam Power Coal Import and Supply Company
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- Orica Australia Pty. Ltd.
- White Energy Company Limited
- Commonwealth Bank - Australia
- PTC India Limited - India
- CNBM International Corporation - China
- Sinarmas Energy and Mining - Indonesia
- New Zealand Coal & Carbon
- Medco Energi Mining Internasional
- Bukit Makmur.PT - Indonesia
- Pendopo Energi Batubara - Indonesia
- Sindya Power Generating Company Private Ltd
- IEA Clean Coal Centre - UK
- Aditya Birla Group - India
- Leighton Contractors Pty Ltd - Australia
- Siam City Cement PLC, Thailand
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