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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, 08 August 16
THE TURKISH GOVERNMENT HAS IMPOSED A $15 A TON DUTY ON POWER PLANT COAL IMPORTS - MEDIA
COALspot.com: The Turkish government has imposed a US$15 per ton duty on thermal coal imports for use in its power sector.
According to media ...
Monday, 08 August 16
THE BALTIC EXCHANGE, TRACKING RATES FOR SHIPS CARRYING DRY BULK COMMODITIES SLIDE SLIGHTLY
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities slide slightly as Panamax and Supramax segments ending in ...
Monday, 08 August 16
ARE EXPENSES INCURRED DURING NEGOTIATION OF A PIRATE RANSOM RECOVERABLE IN GENERAL AVERAGE? - CLYDE&CO
KNOWLEDGE TO ELEVATE
Facts
The laden chemical tanker LONGCHAMP was transiting the Gulf of Aden on passage to Vietnam. The ship was subject t ...
Saturday, 06 August 16
DRY BULK SHIPPING CHARTER RATES TO RISE ON UNEXPECTED DEMAND GROWTH - DREWRY
Increasing trade and contracting supply will support a recovery in charter rates on major dry bulk shipping routes, with the prospect of China impo ...
Friday, 05 August 16
WEEKLY U.S. COAL OUTPUT TOTALED AN ESTIMATED 16.1 MMST IN THE WEEK ENDED JULY 30 - EIA
COALspot.com – U.S., the world’s second largest coal producers has produced approximately totalled an estimated 16.1 million short tons ...
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- SMC Global Power, Philippines
- Ind-Barath Power Infra Limited - India
- Indika Energy - Indonesia
- Romanian Commodities Exchange
- Malabar Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- SN Aboitiz Power Inc, Philippines
- Standard Chartered Bank - UAE
- Heidelberg Cement - Germany
- Vizag Seaport Private Limited - India
- Ministry of Mines - Canada
- Bukit Asam (Persero) Tbk - Indonesia
- LBH Netherlands Bv - Netherlands
- Medco Energi Mining Internasional
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- Banpu Public Company Limited - Thailand
- Samtan Co., Ltd - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining and Power Corporation, Philippines
- San Jose City I Power Corp, Philippines
- Deloitte Consulting - India
- Indian Energy Exchange, India
- CNBM International Corporation - China
- Tata Chemicals Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Georgia Ports Authority, United States
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Sical Logistics Limited - India
- Maheswari Brothers Coal Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Independent Power Producers Association of India
- Xindia Steels Limited - India
- Larsen & Toubro Limited - India
- Madhucon Powers Ltd - India
- Borneo Indobara - Indonesia
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tamil Nadu electricity Board
- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Central Electricity Authority - India
- OPG Power Generation Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Energy Development Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Mercator Lines Limited - India
- Sree Jayajothi Cements Limited - India
- Interocean Group of Companies - India
- Meralco Power Generation, Philippines
- Agrawal Coal Company - India
- Riau Bara Harum - Indonesia
- Savvy Resources Ltd - HongKong
- Coastal Gujarat Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Kalimantan Lumbung Energi - Indonesia
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- ASAPP Information Group - India
- Wilmar Investment Holdings
- Kaltim Prima Coal - Indonesia
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- Oldendorff Carriers - Singapore
- Lanco Infratech Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Indian Oil Corporation Limited
- Jaiprakash Power Ventures ltd
- IEA Clean Coal Centre - UK
- Makarim & Taira - Indonesia
- The State Trading Corporation of India Ltd
- Bukit Makmur.PT - Indonesia
- Aditya Birla Group - India
- Gujarat Mineral Development Corp Ltd - India
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- Asmin Koalindo Tuhup - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Simpson Spence & Young - Indonesia
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Indonesian Coal Mining Association
- Port Waratah Coal Services - Australia
- Merrill Lynch Commodities Europe
- Barasentosa Lestari - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Australian Coal Association
- Rio Tinto Coal - Australia
- Gujarat Sidhee Cement - India
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Miang Besar Coal Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Africa Commodities Group - South Africa
- Global Business Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Indo Tambangraya Megah - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Goldman Sachs - Singapore
- PowerSource Philippines DevCo
- Cement Manufacturers Association - India
- Ministry of Finance - Indonesia
- Meenaskhi Energy Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Minerals Council of Australia
- VISA Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Singapore Mercantile Exchange
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Karbindo Abesyapradhi - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Vedanta Resources Plc - India
- Marubeni Corporation - India
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Renaissance Capital - South Africa
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Gujarat Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- PNOC Exploration Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- Binh Thuan Hamico - Vietnam
- Central Java Power - Indonesia
- Antam Resourcindo - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Edison Trading Spa - Italy
- Wood Mackenzie - Singapore
- Directorate Of Revenue Intelligence - India
- Uttam Galva Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Carbofer General Trading SA - India
- Orica Mining Services - Indonesia
- Posco Energy - South Korea
- Chamber of Mines of South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Alfred C Toepfer International GmbH - Germany
- Global Green Power PLC Corporation, Philippines
- The University of Queensland
- Iligan Light & Power Inc, Philippines
- Indogreen Group - Indonesia
- Bhoruka Overseas - Indonesia
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- Altura Mining Limited, Indonesia
- Toyota Tsusho Corporation, Japan
- GVK Power & Infra Limited - India
- Kideco Jaya Agung - Indonesia
- Metalloyd Limited - United Kingdom
- Coalindo Energy - Indonesia
- Planning Commission, India
- Bhatia International Limited - India
- European Bulk Services B.V. - Netherlands
- Commonwealth Bank - Australia
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- Thai Mozambique Logistica
- PetroVietnam Power Coal Import and Supply Company
- TeaM Sual Corporation - Philippines
- Eastern Coal Council - USA
- London Commodity Brokers - England
- AsiaOL BioFuels Corp., Philippines
- Trasteel International SA, Italy
- Leighton Contractors Pty Ltd - Australia
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Ambuja Cements Ltd - India
- Mintek Dendrill Indonesia
- Parry Sugars Refinery, India
- Sarangani Energy Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- ICICI Bank Limited - India
- Semirara Mining Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Videocon Industries ltd - India
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Intertek Mineral Services - Indonesia
- Kepco SPC Power Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- TNB Fuel Sdn Bhd - Malaysia
- Anglo American - United Kingdom
- IHS Mccloskey Coal Group - USA
- Power Finance Corporation Ltd., India
- Parliament of New Zealand
- Sojitz Corporation - Japan
- Dalmia Cement Bharat India
- Electricity Authority, New Zealand
- Straits Asia Resources Limited - Singapore
- McConnell Dowell - Australia
- Therma Luzon, Inc, Philippines
- Jindal Steel & Power Ltd - India
- Price Waterhouse Coopers - Russia
- Sakthi Sugars Limited - India
- Baramulti Group, Indonesia
- Eastern Energy - Thailand
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- Attock Cement Pakistan Limited
- Economic Council, Georgia
- Australian Commodity Traders Exchange
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