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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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Friday, 23 September 16
"COLLATERAL LIES" DO NOT NECESSARILY UNDERMINE AN INSURANCE CLAIM
KNOWLEDGE TO ELEVATE
An insured was not precluded from recovering under an insurance policy even though it had made a false statement during t ...
Friday, 23 September 16
EIA SEES U.S. COAL WEEKLY OUTPUT INCREASE
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.1 million short ton ...
Thursday, 22 September 16
CHINA IS THE PRICE-SETTING COUNTRY FOR GLOBAL THERMAL COAL
COALspot.com: China has been the driver of global coal growth since 2009. When China became the largest coal importer in 2011, the country also has ...
Thursday, 22 September 16
SUPRAMAXES ARE ACHIEVING AROUND $7000 FOR A TRIP WITH SINGAPORE DELIVERY VIA INDONESIA TO CHINA
Supramax
A slow start to the week in the Supramax segment in the Atlantic with not much being reported.
In the Blacksea Supramaxes are getti ...
Wednesday, 21 September 16
THE CAPESIZE MARKET HAS BEEN ON A RALLYING TREND SINCE THE END OF AUGUST - GEORGE LAZARIDIS
The Capesize market has been on a rallying trend since the end of August, fuelled mainly by the chase by traders to pre-stock before the typical pi ...
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- Kobexindo Tractors - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Coal and Oil Company - UAE
- Electricity Generating Authority of Thailand
- Star Paper Mills Limited - India
- Pendopo Energi Batubara - Indonesia
- Petron Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Makarim & Taira - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Coastal Gujarat Power Limited - India
- Vizag Seaport Private Limited - India
- South Luzon Thermal Energy Corporation
- Jaiprakash Power Ventures ltd
- Lanco Infratech Ltd - India
- Energy Link Ltd, New Zealand
- Bhushan Steel Limited - India
- Bayan Resources Tbk. - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Tamil Nadu electricity Board
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Australian Coal Association
- Therma Luzon, Inc, Philippines
- New Zealand Coal & Carbon
- Merrill Lynch Commodities Europe
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Ceylon Electricity Board - Sri Lanka
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Indian Energy Exchange, India
- Salva Resources Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Australian Commodity Traders Exchange
- Sinarmas Energy and Mining - Indonesia
- Bhoruka Overseas - Indonesia
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Krishnapatnam Port Company Ltd. - India
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- Medco Energi Mining Internasional
- Videocon Industries ltd - India
- Siam City Cement - Thailand
- Gujarat Electricity Regulatory Commission - India
- SMC Global Power, Philippines
- Sical Logistics Limited - India
- Billiton Holdings Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- Rio Tinto Coal - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Mercator Lines Limited - India
- Bulk Trading Sa - Switzerland
- The State Trading Corporation of India Ltd
- Holcim Trading Pte Ltd - Singapore
- Ministry of Transport, Egypt
- International Coal Ventures Pvt Ltd - India
- Central Java Power - Indonesia
- Anglo American - United Kingdom
- Sree Jayajothi Cements Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Kumho Petrochemical, South Korea
- Directorate Of Revenue Intelligence - India
- Marubeni Corporation - India
- McConnell Dowell - Australia
- Thiess Contractors Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
- Grasim Industreis Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Borneo Indobara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Agrawal Coal Company - India
- Aditya Birla Group - India
- Mintek Dendrill Indonesia
- Karaikal Port Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Asmin Koalindo Tuhup - Indonesia
- IEA Clean Coal Centre - UK
- Kaltim Prima Coal - Indonesia
- White Energy Company Limited
- Aboitiz Power Corporation - Philippines
- Ministry of Finance - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Energy Development Corp, Philippines
- The University of Queensland
- Mjunction Services Limited - India
- ICICI Bank Limited - India
- Global Coal Blending Company Limited - Australia
- Central Electricity Authority - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Meenaskhi Energy Private Limited - India
- Standard Chartered Bank - UAE
- MS Steel International - UAE
- Formosa Plastics Group - Taiwan
- Planning Commission, India
- Cement Manufacturers Association - India
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Simpson Spence & Young - Indonesia
- Eastern Coal Council - USA
- Bukit Baiduri Energy - Indonesia
- Orica Australia Pty. Ltd.
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Chettinad Cement Corporation Ltd - India
- Manunggal Multi Energi - Indonesia
- GAC Shipping (India) Pvt Ltd
- Thai Mozambique Logistica
- Ind-Barath Power Infra Limited - India
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Power Finance Corporation Ltd., India
- Uttam Galva Steels Limited - India
- Vedanta Resources Plc - India
- Dalmia Cement Bharat India
- Bhatia International Limited - India
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- ASAPP Information Group - India
- Straits Asia Resources Limited - Singapore
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Indika Energy - Indonesia
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Larsen & Toubro Limited - India
- PTC India Limited - India
- Orica Mining Services - Indonesia
- Metalloyd Limited - United Kingdom
- Heidelberg Cement - Germany
- Eastern Energy - Thailand
- Maheswari Brothers Coal Limited - India
- Essar Steel Hazira Ltd - India
- Siam City Cement PLC, Thailand
- Deloitte Consulting - India
- Romanian Commodities Exchange
- Bangladesh Power Developement Board
- GN Power Mariveles Coal Plant, Philippines
- Independent Power Producers Association of India
- Carbofer General Trading SA - India
- Indo Tambangraya Megah - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meralco Power Generation, Philippines
- Binh Thuan Hamico - Vietnam
- Interocean Group of Companies - India
- Africa Commodities Group - South Africa
- Jindal Steel & Power Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- AsiaOL BioFuels Corp., Philippines
- Rashtriya Ispat Nigam Limited - India
- Trasteel International SA, Italy
- Port Waratah Coal Services - Australia
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- Gujarat Sidhee Cement - India
- Barasentosa Lestari - Indonesia
- Toyota Tsusho Corporation, Japan
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Wood Mackenzie - Singapore
- Coalindo Energy - Indonesia
- Edison Trading Spa - Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Altura Mining Limited, Indonesia
- Sojitz Corporation - Japan
- San Jose City I Power Corp, Philippines
- Latin American Coal - Colombia
- Maharashtra Electricity Regulatory Commission - India
- Minerals Council of Australia
- Ambuja Cements Ltd - India
- Timah Investasi Mineral - Indoneisa
- Georgia Ports Authority, United States
- London Commodity Brokers - England
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Attock Cement Pakistan Limited
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- India Bulls Power Limited - India
- CIMB Investment Bank - Malaysia
- Electricity Authority, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Indogreen Group - Indonesia
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- The Treasury - Australian Government
- LBH Netherlands Bv - Netherlands
- Price Waterhouse Coopers - Russia
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