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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, 15 September 16
INDONESIA MAY FACE A COAL CRISIS BY 2035!
COALspot.com: Indonesia is the world’s fourth-largest coal producer and the world’s largest thermal coal exporter may face a coal crisi ...
Thursday, 15 September 16
CAPESIZE: LAST WEEK ENDED ON A VERY STRONG NOTE MAINLY DRIVEN BY A ACTIVE BRAZIL MARKET - FEARNLYS
Supramax
With holidays in the eastern hemisphere beginning this week, the sentiment and activity level has been decreasing.
In the Pacific, ...
Wednesday, 14 September 16
THE DRY BULK MARKET REACHED LEVELS LAST SEEN BACK IN 2015 - INTERMODAL
In an earlier column we commented that we are undergoing “shipping’s new (ab)normal” with constrained financing, shift in demand ...
Wednesday, 14 September 16
THE PORT OF NEWCASTLE SHIPPED 12.48 MMT OF COAL IN AUGUST; AVERAGE SELLING PRICE WAS $AU 83.33
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $AU $1,040.4 ...
Tuesday, 13 September 16
CAPESIZE: BIG STRENGTH SEEN IN THE MARKET THIS WEEK - ALLIED
Capesize - Big strength seen in the market this week, with an upbeat in sentiment amongst owners helping pull up rates fairly quickly and many hold ...
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- Bukit Makmur.PT - Indonesia
- Videocon Industries ltd - India
- Krishnapatnam Port Company Ltd. - India
- Heidelberg Cement - Germany
- Bukit Baiduri Energy - Indonesia
- Wood Mackenzie - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Australian Commodity Traders Exchange
- Petron Corporation, Philippines
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- Makarim & Taira - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Standard Chartered Bank - UAE
- Central Java Power - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tamil Nadu electricity Board
- Meenaskhi Energy Private Limited - India
- Grasim Industreis Ltd - India
- Central Electricity Authority - India
- Kepco SPC Power Corporation, Philippines
- Independent Power Producers Association of India
- Minerals Council of Australia
- Parry Sugars Refinery, India
- IEA Clean Coal Centre - UK
- Agrawal Coal Company - India
- Savvy Resources Ltd - HongKong
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Pendopo Energi Batubara - Indonesia
- Interocean Group of Companies - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Chamber of Mines of South Africa
- IHS Mccloskey Coal Group - USA
- Coalindo Energy - Indonesia
- Georgia Ports Authority, United States
- Indian Oil Corporation Limited
- Carbofer General Trading SA - India
- Sakthi Sugars Limited - India
- PTC India Limited - India
- Holcim Trading Pte Ltd - Singapore
- Planning Commission, India
- SMG Consultants - Indonesia
- Energy Development Corp, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Cement Manufacturers Association - India
- Mercuria Energy - Indonesia
- Ministry of Finance - Indonesia
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- Mjunction Services Limited - India
- Manunggal Multi Energi - Indonesia
- Tata Chemicals Ltd - India
- Timah Investasi Mineral - Indoneisa
- Formosa Plastics Group - Taiwan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Global Coal Blending Company Limited - Australia
- Romanian Commodities Exchange
- Meralco Power Generation, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Oldendorff Carriers - Singapore
- Barasentosa Lestari - Indonesia
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Essar Steel Hazira Ltd - India
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Siam City Cement - Thailand
- Indonesian Coal Mining Association
- Bhushan Steel Limited - India
- Mintek Dendrill Indonesia
- Baramulti Group, Indonesia
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Salva Resources Pvt Ltd - India
- White Energy Company Limited
- Goldman Sachs - Singapore
- Dalmia Cement Bharat India
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Deloitte Consulting - India
- Karbindo Abesyapradhi - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Anglo American - United Kingdom
- Kaltim Prima Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Semirara Mining and Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Gujarat Electricity Regulatory Commission - India
- Vizag Seaport Private Limited - India
- Kumho Petrochemical, South Korea
- The University of Queensland
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- Electricity Generating Authority of Thailand
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- Eastern Coal Council - USA
- Mercator Lines Limited - India
- Coal and Oil Company - UAE
- Metalloyd Limited - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- VISA Power Limited - India
- LBH Netherlands Bv - Netherlands
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- Merrill Lynch Commodities Europe
- TeaM Sual Corporation - Philippines
- MS Steel International - UAE
- Latin American Coal - Colombia
- Samtan Co., Ltd - South Korea
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- GAC Shipping (India) Pvt Ltd
- Ambuja Cements Ltd - India
- Star Paper Mills Limited - India
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Sinarmas Energy and Mining - Indonesia
- The State Trading Corporation of India Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Sindya Power Generating Company Private Ltd
- Straits Asia Resources Limited - Singapore
- Maheswari Brothers Coal Limited - India
- Therma Luzon, Inc, Philippines
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- Indo Tambangraya Megah - Indonesia
- Semirara Mining Corp, Philippines
- Toyota Tsusho Corporation, Japan
- Madhucon Powers Ltd - India
- GVK Power & Infra Limited - India
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Lanco Infratech Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Globalindo Alam Lestari - Indonesia
- Thai Mozambique Logistica
- Energy Link Ltd, New Zealand
- Jaiprakash Power Ventures ltd
- Directorate General of MIneral and Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Chettinad Cement Corporation Ltd - India
- Iligan Light & Power Inc, Philippines
- Borneo Indobara - Indonesia
- Ministry of Mines - Canada
- PowerSource Philippines DevCo
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- Leighton Contractors Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Wilmar Investment Holdings
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- Cigading International Bulk Terminal - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Edison Trading Spa - Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Marubeni Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Jindal Steel & Power Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Sree Jayajothi Cements Limited - India
- Aditya Birla Group - India
- Bhatia International Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parliament of New Zealand
- India Bulls Power Limited - India
- Kartika Selabumi Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Larsen & Toubro Limited - India
- Trasteel International SA, Italy
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- Antam Resourcindo - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Posco Energy - South Korea
- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- Rio Tinto Coal - Australia
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- Uttam Galva Steels Limited - India
- Banpu Public Company Limited - Thailand
- Bhoruka Overseas - Indonesia
- Bangladesh Power Developement Board
- Aboitiz Power Corporation - Philippines
- Commonwealth Bank - Australia
- SN Aboitiz Power Inc, Philippines
- Electricity Authority, New Zealand
- Billiton Holdings Pty Ltd - Australia
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