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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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Monday, 12 September 16
THE CAPE MARKET HAS GAINS ON WEEK; THE CAPE INDEX SETTLING AT 1566 POINTS ON FRIDAY
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 ...
Friday, 09 September 16
U.S. WEEKLY COAL OUTPUT DECLINED SLIGHTLY TO 16.1 MMST, EIA SAYS
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 16.1 million short ton ...
Friday, 09 September 16
CAPESIZE: THE SENTIMENT IS SOLID, SAYS FEARNLEYS
Supramax
A quiet start with Labour Day celebrations in the United States leading to very little being reported from the Atlantic basin. Supramaxe ...
Thursday, 08 September 16
U.S. COAL EXPORTS IN JUNE 2016 UP 29% COMPARED TO MAY 2016, SAYS EIA
U.S. coal production in August was 71 million short tons (MMst), which is 6 MMst (9%) higher than in the previous month and 12 MMst (14%) lower tha ...
Wednesday, 07 September 16
WEEKLY MARKET (TANKER) REPORT - INTERMODAL
What goes around comes around! The Shipping industry is infamous for its seasonality and cyclicality and the tanker sector is no exception to these ...
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Showing 2291 to 2295 news of total 6871 |
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- Chamber of Mines of South Africa
- Billiton Holdings Pty Ltd - Australia
- IHS Mccloskey Coal Group - USA
- Kumho Petrochemical, South Korea
- Power Finance Corporation Ltd., India
- Kaltim Prima Coal - Indonesia
- Intertek Mineral Services - Indonesia
- Malabar Cements Ltd - India
- International Coal Ventures Pvt Ltd - India
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- Renaissance Capital - South Africa
- Parry Sugars Refinery, India
- Alfred C Toepfer International GmbH - Germany
- GN Power Mariveles Coal Plant, Philippines
- Aboitiz Power Corporation - Philippines
- Sinarmas Energy and Mining - Indonesia
- MS Steel International - UAE
- Asia Pacific Energy Resources Ventures Inc, Philippines
- VISA Power Limited - India
- IEA Clean Coal Centre - UK
- Offshore Bulk Terminal Pte Ltd, Singapore
- San Jose City I Power Corp, Philippines
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- Kepco SPC Power Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Indian Energy Exchange, India
- Madhucon Powers Ltd - India
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Edison Trading Spa - Italy
- Cement Manufacturers Association - India
- Kalimantan Lumbung Energi - Indonesia
- Karaikal Port Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Africa Commodities Group - South Africa
- ICICI Bank Limited - India
- SN Aboitiz Power Inc, Philippines
- Iligan Light & Power Inc, Philippines
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- Vedanta Resources Plc - India
- Economic Council, Georgia
- Meralco Power Generation, Philippines
- GMR Energy Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- McConnell Dowell - Australia
- Deloitte Consulting - India
- Latin American Coal - Colombia
- Pipit Mutiara Jaya. PT, Indonesia
- Sindya Power Generating Company Private Ltd
- Jaiprakash Power Ventures ltd
- Ceylon Electricity Board - Sri Lanka
- Globalindo Alam Lestari - Indonesia
- CNBM International Corporation - China
- Agrawal Coal Company - India
- Sakthi Sugars Limited - India
- Essar Steel Hazira Ltd - India
- Merrill Lynch Commodities Europe
- Independent Power Producers Association of India
- Indo Tambangraya Megah - Indonesia
- Simpson Spence & Young - Indonesia
- OPG Power Generation Pvt Ltd - India
- Central Electricity Authority - India
- Energy Link Ltd, New Zealand
- Orica Australia Pty. Ltd.
- Sarangani Energy Corporation, Philippines
- Global Green Power PLC Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- Kideco Jaya Agung - Indonesia
- Semirara Mining Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Thai Mozambique Logistica
- Ministry of Transport, Egypt
- Gujarat Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Minerals Council of Australia
- Parliament of New Zealand
- Orica Mining Services - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- London Commodity Brokers - England
- Electricity Generating Authority of Thailand
- Trasteel International SA, Italy
- Bukit Makmur.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Indian Oil Corporation Limited
- Australian Coal Association
- Bukit Baiduri Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Indika Energy - Indonesia
- Gujarat Sidhee Cement - India
- Straits Asia Resources Limited - Singapore
- SMG Consultants - Indonesia
- Mercuria Energy - Indonesia
- Australian Commodity Traders Exchange
- Cigading International Bulk Terminal - Indonesia
- Toyota Tsusho Corporation, Japan
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Port Waratah Coal Services - Australia
- Sojitz Corporation - Japan
- Heidelberg Cement - Germany
- Eastern Coal Council - USA
- LBH Netherlands Bv - Netherlands
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Formosa Plastics Group - Taiwan
- Barasentosa Lestari - Indonesia
- Singapore Mercantile Exchange
- Krishnapatnam Port Company Ltd. - India
- Videocon Industries ltd - India
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- Medco Energi Mining Internasional
- Savvy Resources Ltd - HongKong
- Meenaskhi Energy Private Limited - India
- Jindal Steel & Power Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Bangladesh Power Developement Board
- Baramulti Group, Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bhatia International Limited - India
- Wilmar Investment Holdings
- Therma Luzon, Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Tata Chemicals Ltd - India
- Coalindo Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Sical Logistics Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Samtan Co., Ltd - South Korea
- TeaM Sual Corporation - Philippines
- ASAPP Information Group - India
- The Treasury - Australian Government
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Mjunction Services Limited - India
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Coastal Gujarat Power Limited - India
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- Wood Mackenzie - Singapore
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bhushan Steel Limited - India
- Makarim & Taira - Indonesia
- White Energy Company Limited
- Commonwealth Bank - Australia
- Global Coal Blending Company Limited - Australia
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Xindia Steels Limited - India
- Ministry of Mines - Canada
- Tamil Nadu electricity Board
- Uttam Galva Steels Limited - India
- Altura Mining Limited, Indonesia
- Binh Thuan Hamico - Vietnam
- Siam City Cement PLC, Thailand
- Thiess Contractors Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Attock Cement Pakistan Limited
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- PNOC Exploration Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Maharashtra Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- Posco Energy - South Korea
- Maheswari Brothers Coal Limited - India
- Vizag Seaport Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Electricity Authority, New Zealand
- Marubeni Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- Ambuja Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Global Business Power Corporation, Philippines
- Bharathi Cement Corporation - India
- Energy Development Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Carbofer General Trading SA - India
- Central Java Power - Indonesia
- SMC Global Power, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Anglo American - United Kingdom
- CIMB Investment Bank - Malaysia
- Salva Resources Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GVK Power & Infra Limited - India
- Romanian Commodities Exchange
- Ind-Barath Power Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- The State Trading Corporation of India Ltd
- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- Grasim Industreis Ltd - India
- PowerSource Philippines DevCo
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
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