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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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Wednesday, 03 August 16
SHIP TRADING AND ORDERING CLOSE TO A STALEMATE AS SUMMER LULL KICKS IN
With newbuilding activity already at a near standstill since the start of the year, most of 2016’s trading activity in shipping was evident i ...
Tuesday, 02 August 16
INDONESIAN CS COAL INDICES STAY POSITIVE
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.71% week over week to averaging $41.12 per ton this past week, shows CS (i) C ...
Monday, 01 August 16
4200 GAR INDONESIAN COAL PRICE MAY TOUCH $ 32/33 A TON LEVELS SOON
COALspot.com: Indonesian coal prices are likely surge further in 2016 as the recent price movement in Indonesian coal markets suggests that the mar ...
Monday, 01 August 16
BALTIC INDEX ENDED NEGATIVE NOTE THIS PAST WEEK ON WEAKER RATES ACROSS ALL LARGE VESSEL SEGMENTS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities slide slightly as Cape, Panamax and Supramax segments end ...
Friday, 29 July 16
U.S. COAL OUTPUT SLIPS SLIGHTLY WEEK OVER WEEK
COALspot.com – U.S., the world’s second largest coal producers has produced approximately totalled an estimated 15 million short tons ( ...
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- Georgia Ports Authority, United States
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
- Global Business Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Pendopo Energi Batubara - Indonesia
- Meenaskhi Energy Private Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Singapore Mercantile Exchange
- Banpu Public Company Limited - Thailand
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Australian Coal Association
- Heidelberg Cement - Germany
- Bank of Tokyo Mitsubishi UFJ Ltd
- Riau Bara Harum - Indonesia
- GMR Energy Limited - India
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- Commonwealth Bank - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- ASAPP Information Group - India
- Jindal Steel & Power Ltd - India
- Essar Steel Hazira Ltd - India
- Eastern Coal Council - USA
- White Energy Company Limited
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- SN Aboitiz Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Iligan Light & Power Inc, Philippines
- Cement Manufacturers Association - India
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Krishnapatnam Port Company Ltd. - India
- Trasteel International SA, Italy
- Straits Asia Resources Limited - Singapore
- Maheswari Brothers Coal Limited - India
- San Jose City I Power Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Thiess Contractors Indonesia
- Binh Thuan Hamico - Vietnam
- PNOC Exploration Corporation - Philippines
- PowerSource Philippines DevCo
- Price Waterhouse Coopers - Russia
- Jorong Barutama Greston.PT - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bulk Trading Sa - Switzerland
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- New Zealand Coal & Carbon
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Therma Luzon, Inc, Philippines
- Energy Development Corp, Philippines
- Malabar Cements Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Uttam Galva Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Deloitte Consulting - India
- Minerals Council of Australia
- Medco Energi Mining Internasional
- Miang Besar Coal Terminal - Indonesia
- Kumho Petrochemical, South Korea
- India Bulls Power Limited - India
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- The University of Queensland
- Mintek Dendrill Indonesia
- Electricity Authority, New Zealand
- Toyota Tsusho Corporation, Japan
- McConnell Dowell - Australia
- Meralco Power Generation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Sojitz Corporation - Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- Bukit Makmur.PT - Indonesia
- Indonesian Coal Mining Association
- Bharathi Cement Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Indian Oil Corporation Limited
- Coal and Oil Company - UAE
- Central Electricity Authority - India
- Videocon Industries ltd - India
- Bhoruka Overseas - Indonesia
- Samtan Co., Ltd - South Korea
- Kohat Cement Company Ltd. - Pakistan
- Kideco Jaya Agung - Indonesia
- Parry Sugars Refinery, India
- Indogreen Group - Indonesia
- Indo Tambangraya Megah - Indonesia
- Vedanta Resources Plc - India
- Chettinad Cement Corporation Ltd - India
- Borneo Indobara - Indonesia
- Latin American Coal - Colombia
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- Antam Resourcindo - Indonesia
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Australian Commodity Traders Exchange
- Planning Commission, India
- LBH Netherlands Bv - Netherlands
- TNB Fuel Sdn Bhd - Malaysia
- Bhushan Steel Limited - India
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Marubeni Corporation - India
- Kaltim Prima Coal - Indonesia
- SMG Consultants - Indonesia
- Africa Commodities Group - South Africa
- Semirara Mining Corp, Philippines
- OPG Power Generation Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Wood Mackenzie - Singapore
- Interocean Group of Companies - India
- Indian Energy Exchange, India
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Electricity Generating Authority of Thailand
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Oldendorff Carriers - Singapore
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- South Luzon Thermal Energy Corporation
- Sindya Power Generating Company Private Ltd
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Tamil Nadu electricity Board
- Sakthi Sugars Limited - India
- Gujarat Sidhee Cement - India
- ICICI Bank Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Chamber of Mines of South Africa
- Savvy Resources Ltd - HongKong
- Sree Jayajothi Cements Limited - India
- Siam City Cement - Thailand
- Metalloyd Limited - United Kingdom
- Economic Council, Georgia
- Indika Energy - Indonesia
- MS Steel International - UAE
- Renaissance Capital - South Africa
- Port Waratah Coal Services - Australia
- GN Power Mariveles Coal Plant, Philippines
- Makarim & Taira - Indonesia
- Vizag Seaport Private Limited - India
- International Coal Ventures Pvt Ltd - India
- PTC India Limited - India
- Wilmar Investment Holdings
- Ind-Barath Power Infra Limited - India
- The State Trading Corporation of India Ltd
- Merrill Lynch Commodities Europe
- Power Finance Corporation Ltd., India
- Billiton Holdings Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Aboitiz Power Corporation - Philippines
- Alfred C Toepfer International GmbH - Germany
- Carbofer General Trading SA - India
- Grasim Industreis Ltd - India
- Salva Resources Pvt Ltd - India
- Edison Trading Spa - Italy
- Globalindo Alam Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Jaiprakash Power Ventures ltd
- Xindia Steels Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Ceylon Electricity Board - Sri Lanka
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Orica Australia Pty. Ltd.
- Attock Cement Pakistan Limited
- Thai Mozambique Logistica
- Ministry of Finance - Indonesia
- London Commodity Brokers - England
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Posco Energy - South Korea
- CNBM International Corporation - China
- Ministry of Transport, Egypt
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Sical Logistics Limited - India
- Aditya Birla Group - India
- Agrawal Coal Company - India
- Energy Link Ltd, New Zealand
- Parliament of New Zealand
- Dalmia Cement Bharat India
- IEA Clean Coal Centre - UK
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Central Java Power - Indonesia
- Goldman Sachs - Singapore
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