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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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Tuesday, 06 September 16
INDO GOVT. SETS SEPTEMBER COAL REFERENCE PRICE AT US$ 63.93 PER TON; JUMP 20.17% YTD
COALspot.com: The Indonesia coal benchmark price hits to its highest level since April 2015. The government declared benchmark prices f ...
Tuesday, 06 September 16
CAPESIZE: THE PACIFIC BASIN WAS THE MAIN REGION KEEPING UP WITH THE POSITIVE SUPPORT - ALLIED
Capesize
Despite some mixed feelings being seen early on in the week, we managed to see a positive week-on-week close on Friday with some positiv ...
Monday, 05 September 16
INDIA BECAME ADARO'S SECOND LARGEST MARKET IN 1H' 16
COALspot.com: The Wara Balangan blend product has been well received by customers in China and India - AI
In the second quarter of 2 ...
Monday, 05 September 16
POOR FREIGHT RATES DESPITE STRONG DEMAND GROWTH FROM CHINA - BIMCO
Demand
The dry bulk commodity imports into and exports out of China we have seen in the first half of 2016 are very positive – and nothing ...
Monday, 05 September 16
FREIGHT RATE FROM INDONESIA TO INDIA IS EXPECTED TO BE FLAT TO SOFT THIS WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose and ending in a positive note this past week except ...
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- TNB Fuel Sdn Bhd - Malaysia
- Power Finance Corporation Ltd., India
- Chettinad Cement Corporation Ltd - India
- Attock Cement Pakistan Limited
- Bharathi Cement Corporation - India
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- VISA Power Limited - India
- Economic Council, Georgia
- Baramulti Group, Indonesia
- Siam City Cement PLC, Thailand
- Gujarat Sidhee Cement - India
- Planning Commission, India
- PTC India Limited - India
- SMC Global Power, Philippines
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Sinarmas Energy and Mining - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Kartika Selabumi Mining - Indonesia
- Savvy Resources Ltd - HongKong
- Banpu Public Company Limited - Thailand
- Eastern Coal Council - USA
- Videocon Industries ltd - India
- Kumho Petrochemical, South Korea
- Coalindo Energy - Indonesia
- Barasentosa Lestari - Indonesia
- SMG Consultants - Indonesia
- Salva Resources Pvt Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Deloitte Consulting - India
- Bahari Cakrawala Sebuku - Indonesia
- Grasim Industreis Ltd - India
- Cement Manufacturers Association - India
- Commonwealth Bank - Australia
- Mercuria Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- Indogreen Group - Indonesia
- Timah Investasi Mineral - Indoneisa
- Karbindo Abesyapradhi - Indoneisa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Commodity Traders Exchange
- MS Steel International - UAE
- Georgia Ports Authority, United States
- Leighton Contractors Pty Ltd - Australia
- Kaltim Prima Coal - Indonesia
- Goldman Sachs - Singapore
- Mintek Dendrill Indonesia
- IHS Mccloskey Coal Group - USA
- Coal and Oil Company - UAE
- Bukit Baiduri Energy - Indonesia
- Lanco Infratech Ltd - India
- Riau Bara Harum - Indonesia
- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Tamil Nadu electricity Board
- Larsen & Toubro Limited - India
- Price Waterhouse Coopers - Russia
- GVK Power & Infra Limited - India
- European Bulk Services B.V. - Netherlands
- Indo Tambangraya Megah - Indonesia
- Formosa Plastics Group - Taiwan
- Energy Development Corp, Philippines
- Singapore Mercantile Exchange
- Central Electricity Authority - India
- Standard Chartered Bank - UAE
- Chamber of Mines of South Africa
- Toyota Tsusho Corporation, Japan
- Metalloyd Limited - United Kingdom
- Pendopo Energi Batubara - Indonesia
- Central Java Power - Indonesia
- Maheswari Brothers Coal Limited - India
- Global Business Power Corporation, Philippines
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- Bayan Resources Tbk. - Indonesia
- South Luzon Thermal Energy Corporation
- Iligan Light & Power Inc, Philippines
- Marubeni Corporation - India
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- The University of Queensland
- The State Trading Corporation of India Ltd
- Posco Energy - South Korea
- Trasteel International SA, Italy
- Malabar Cements Ltd - India
- Antam Resourcindo - Indonesia
- Wood Mackenzie - Singapore
- ICICI Bank Limited - India
- Manunggal Multi Energi - Indonesia
- San Jose City I Power Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Ministry of Transport, Egypt
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Makarim & Taira - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- Siam City Cement - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Eastern Energy - Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- New Zealand Coal & Carbon
- Parliament of New Zealand
- Uttam Galva Steels Limited - India
- Vedanta Resources Plc - India
- Electricity Authority, New Zealand
- Sindya Power Generating Company Private Ltd
- Oldendorff Carriers - Singapore
- Energy Link Ltd, New Zealand
- IEA Clean Coal Centre - UK
- Offshore Bulk Terminal Pte Ltd, Singapore
- Anglo American - United Kingdom
- Borneo Indobara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Orica Mining Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Australian Coal Association
- Simpson Spence & Young - Indonesia
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- LBH Netherlands Bv - Netherlands
- Sical Logistics Limited - India
- Latin American Coal - Colombia
- Indian Oil Corporation Limited
- Jindal Steel & Power Ltd - India
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- SN Aboitiz Power Inc, Philippines
- Tata Chemicals Ltd - India
- International Coal Ventures Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- Semirara Mining Corp, Philippines
- India Bulls Power Limited - India
- Parry Sugars Refinery, India
- Samtan Co., Ltd - South Korea
- Electricity Generating Authority of Thailand
- Renaissance Capital - South Africa
- White Energy Company Limited
- Minerals Council of Australia
- Vizag Seaport Private Limited - India
- The Treasury - Australian Government
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Thiess Contractors Indonesia
- Medco Energi Mining Internasional
- Directorate Of Revenue Intelligence - India
- Rashtriya Ispat Nigam Limited - India
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- Indika Energy - Indonesia
- Kideco Jaya Agung - Indonesia
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- Bukit Makmur.PT - Indonesia
- Xindia Steels Limited - India
- Ministry of Finance - Indonesia
- Port Waratah Coal Services - Australia
- Directorate General of MIneral and Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- AsiaOL BioFuels Corp., Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Bhushan Steel Limited - India
- Bhoruka Overseas - Indonesia
- Orica Australia Pty. Ltd.
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- Independent Power Producers Association of India
- Aditya Birla Group - India
- Romanian Commodities Exchange
- Ministry of Mines - Canada
- Binh Thuan Hamico - Vietnam
- Madhucon Powers Ltd - India
- Bangladesh Power Developement Board
- Indian Energy Exchange, India
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- Agrawal Coal Company - India
- Globalindo Alam Lestari - Indonesia
- Kobexindo Tractors - Indoneisa
- OPG Power Generation Pvt Ltd - India
- PNOC Exploration Corporation - Philippines
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Altura Mining Limited, Indonesia
- Carbofer General Trading SA - India
- Vijayanagar Sugar Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Meralco Power Generation, Philippines
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Heidelberg Cement - Germany
- Bukit Asam (Persero) Tbk - Indonesia
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- McConnell Dowell - Australia
- Kapuas Tunggal Persada - Indonesia
- Sojitz Corporation - Japan
- Aboitiz Power Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
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