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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, 15 August 16
THE SPOT FREIGHT MARKET STRENGTHEN OVER THIS WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose as Cape and Panamax segments ending in a positive no ...
Friday, 12 August 16
U.S. WEEKLY COAL OUTPUT ENDING AUGUST 6 FELL SLIGHTLY
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totalled an estimated 15.9 million short ton ...
Thursday, 11 August 16
CAPESIZE THE PACIFIC SIDE IS LOOKING MORE POSITIVE, DRIVEN BY AUSTRALIAN IRON ORE - FEARNLEYS
Supramax
Rates continue to be under pressure with index ending up with 639 points and average TC value at USD6,680, said Fearnleys. Fearnleys A/S ...
Thursday, 11 August 16
EIA ESTIMATES THE DELIVERED COAL PRICE TO U.S. ELECTRIC UTILITIES IN 2017 AVERAGED $2.24/MMBTU; $0.05/MMBTU HIGHER THAN 2016 ESTIMATES
Coal Supply
U.S. coal production in July was 65 million short tons (MMst), an 8 MMst (14%) increase from the previous month but 11 MMst (15%) low ...
Wednesday, 10 August 16
THE DRY BULK MARKET KEPT SOFTENING LAST WEEK; WE CAN SEE MUCH HEALTHIER NUMBERS STARTING SEPTEMBER
The Dry Bulk market kept softening last week as we have now started going through the traditionally quieter days of the summer season peak period, ...
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- Price Waterhouse Coopers - Russia
- Marubeni Corporation - India
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- Xindia Steels Limited - India
- Latin American Coal - Colombia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Generating Authority of Thailand
- Larsen & Toubro Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- ICICI Bank Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Indian Oil Corporation Limited
- Romanian Commodities Exchange
- IHS Mccloskey Coal Group - USA
- Medco Energi Mining Internasional
- Carbofer General Trading SA - India
- Africa Commodities Group - South Africa
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Banpu Public Company Limited - Thailand
- Standard Chartered Bank - UAE
- Meenaskhi Energy Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Agrawal Coal Company - India
- Eastern Coal Council - USA
- Thiess Contractors Indonesia
- Tamil Nadu electricity Board
- Merrill Lynch Commodities Europe
- Asmin Koalindo Tuhup - Indonesia
- Parliament of New Zealand
- Timah Investasi Mineral - Indoneisa
- Edison Trading Spa - Italy
- Thai Mozambique Logistica
- Singapore Mercantile Exchange
- Indika Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Siam City Cement PLC, Thailand
- Indonesian Coal Mining Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Karaikal Port Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- IEA Clean Coal Centre - UK
- Antam Resourcindo - Indonesia
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Renaissance Capital - South Africa
- Planning Commission, India
- Cement Manufacturers Association - India
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Altura Mining Limited, Indonesia
- Mjunction Services Limited - India
- Eastern Energy - Thailand
- Maharashtra Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
- Karbindo Abesyapradhi - Indoneisa
- Ambuja Cements Ltd - India
- Intertek Mineral Services - Indonesia
- Jaiprakash Power Ventures ltd
- MS Steel International - UAE
- Siam City Cement - Thailand
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- London Commodity Brokers - England
- GAC Shipping (India) Pvt Ltd
- Ceylon Electricity Board - Sri Lanka
- Heidelberg Cement - Germany
- Madhucon Powers Ltd - India
- ASAPP Information Group - India
- Maheswari Brothers Coal Limited - India
- Pendopo Energi Batubara - Indonesia
- Energy Development Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Deloitte Consulting - India
- Iligan Light & Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Formosa Plastics Group - Taiwan
- Coalindo Energy - Indonesia
- Ministry of Transport, Egypt
- Therma Luzon, Inc, Philippines
- Semirara Mining Corp, Philippines
- Indo Tambangraya Megah - Indonesia
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Energy Link Ltd, New Zealand
- Interocean Group of Companies - India
- San Jose City I Power Corp, Philippines
- Ministry of Finance - Indonesia
- Georgia Ports Authority, United States
- Rashtriya Ispat Nigam Limited - India
- Independent Power Producers Association of India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Videocon Industries ltd - India
- The University of Queensland
- Star Paper Mills Limited - India
- Indian Energy Exchange, India
- Bangladesh Power Developement Board
- PowerSource Philippines DevCo
- Offshore Bulk Terminal Pte Ltd, Singapore
- Goldman Sachs - Singapore
- Neyveli Lignite Corporation Ltd, - India
- LBH Netherlands Bv - Netherlands
- Bukit Baiduri Energy - Indonesia
- Global Green Power PLC Corporation, Philippines
- Ministry of Mines - Canada
- GN Power Mariveles Coal Plant, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Billiton Holdings Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Dalmia Cement Bharat India
- Simpson Spence & Young - Indonesia
- Global Coal Blending Company Limited - Australia
- Leighton Contractors Pty Ltd - Australia
- GMR Energy Limited - India
- Sinarmas Energy and Mining - Indonesia
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- PNOC Exploration Corporation - Philippines
- White Energy Company Limited
- Central Java Power - Indonesia
- Trasteel International SA, Italy
- Mintek Dendrill Indonesia
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- TeaM Sual Corporation - Philippines
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Anglo American - United Kingdom
- Malabar Cements Ltd - India
- Metalloyd Limited - United Kingdom
- Gujarat Sidhee Cement - India
- PetroVietnam Power Coal Import and Supply Company
- Vizag Seaport Private Limited - India
- European Bulk Services B.V. - Netherlands
- PTC India Limited - India
- Bhoruka Overseas - Indonesia
- SMC Global Power, Philippines
- International Coal Ventures Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Posco Energy - South Korea
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- The Treasury - Australian Government
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Australian Coal Association
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Mineral Development Corp Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Binh Thuan Hamico - Vietnam
- Australian Commodity Traders Exchange
- Aditya Birla Group - India
- Kumho Petrochemical, South Korea
- Commonwealth Bank - Australia
- Port Waratah Coal Services - Australia
- Bhushan Steel Limited - India
- Savvy Resources Ltd - HongKong
- Kideco Jaya Agung - Indonesia
- Baramulti Group, Indonesia
- India Bulls Power Limited - India
- Makarim & Taira - Indonesia
- Globalindo Alam Lestari - Indonesia
- Central Electricity Authority - India
- New Zealand Coal & Carbon
- McConnell Dowell - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- SMG Consultants - Indonesia
- The State Trading Corporation of India Ltd
- Mercator Lines Limited - India
- Bayan Resources Tbk. - Indonesia
- Kaltim Prima Coal - Indonesia
- Attock Cement Pakistan Limited
- Toyota Tsusho Corporation, Japan
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- Coal and Oil Company - UAE
- Orica Mining Services - Indonesia
- Kartika Selabumi Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Chamber of Mines of South Africa
- Oldendorff Carriers - Singapore
- South Luzon Thermal Energy Corporation
- Riau Bara Harum - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Economic Council, Georgia
- Vedanta Resources Plc - India
- Aboitiz Power Corporation - Philippines
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- Minerals Council of Australia
- OPG Power Generation Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- GVK Power & Infra Limited - India
- Sindya Power Generating Company Private Ltd
- Kapuas Tunggal Persada - Indonesia
- Jindal Steel & Power Ltd - India
- Orica Australia Pty. Ltd.
- Bulk Trading Sa - Switzerland
- Bharathi Cement Corporation - India
- Bukit Asam (Persero) Tbk - Indonesia
- Tata Chemicals Ltd - India
- CIMB Investment Bank - Malaysia
- Kepco SPC Power Corporation, Philippines
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- Ind-Barath Power Infra Limited - India
- Directorate Of Revenue Intelligence - India
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