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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, 25 July 16
STRONG BUYER DEMAND PUSHING UP INDONESIAN THERMAL COAL INDICES
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.73 percent week over week to averaging $40.83 per ton this past week, shows C ...
Monday, 25 July 16
THE BDI FELL ON WEAKER RATES FOR CAPESIZE & PANAMAX VESSELS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities slide slightly as Cape and Panamax segments ending in neg ...
Friday, 22 July 16
U.S COAL OUTPUT ROSE 17.2% WEEK OVER WEEK - EIA
COALspot.com – U.S, world’s second largest coal producers has produced approximately totalled an estimated 15.1 million short tons (mms ...
Thursday, 21 July 16
WHAT TO DO WHEN YOU DON'T GET PAID - SHIPOWNERS CLUB
Present market conditions have led to an increase in claims related to unpaid hire. To recover unpaid hire, Owners need to fully understand who the ...
Wednesday, 20 July 16
EDIBLE OIL MARKETS ACROSS THE GLOBE REMAIN UNDER PRESSURE - STELIOS KOLLINTZAS
The edible oil markets across the globe remain under pressure on the back of lackluster demand. Some of the main factors causing the low activity a ...
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- Bank of Tokyo Mitsubishi UFJ Ltd
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- GAC Shipping (India) Pvt Ltd
- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Electricity Authority, New Zealand
- GVK Power & Infra Limited - India
- Grasim Industreis Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Ministry of Mines - Canada
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Cement Manufacturers Association - India
- Australian Coal Association
- Georgia Ports Authority, United States
- Bhatia International Limited - India
- London Commodity Brokers - England
- Uttam Galva Steels Limited - India
- Medco Energi Mining Internasional
- Parliament of New Zealand
- SN Aboitiz Power Inc, Philippines
- Petron Corporation, Philippines
- Price Waterhouse Coopers - Russia
- ICICI Bank Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Gujarat Sidhee Cement - India
- Kideco Jaya Agung - Indonesia
- Straits Asia Resources Limited - Singapore
- Karbindo Abesyapradhi - Indoneisa
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Commonwealth Bank - Australia
- Latin American Coal - Colombia
- Sakthi Sugars Limited - India
- Iligan Light & Power Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- PNOC Exploration Corporation - Philippines
- Essar Steel Hazira Ltd - India
- Kumho Petrochemical, South Korea
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Riau Bara Harum - Indonesia
- Sree Jayajothi Cements Limited - India
- Chettinad Cement Corporation Ltd - India
- SMC Global Power, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Energy Link Ltd, New Zealand
- Romanian Commodities Exchange
- PowerSource Philippines DevCo
- Bangladesh Power Developement Board
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- Coal and Oil Company - UAE
- Directorate Of Revenue Intelligence - India
- CIMB Investment Bank - Malaysia
- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Rashtriya Ispat Nigam Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Tata Chemicals Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Formosa Plastics Group - Taiwan
- MS Steel International - UAE
- Altura Mining Limited, Indonesia
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tamil Nadu electricity Board
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Star Paper Mills Limited - India
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- Heidelberg Cement - Germany
- ASAPP Information Group - India
- Manunggal Multi Energi - Indonesia
- Planning Commission, India
- Jaiprakash Power Ventures ltd
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Mjunction Services Limited - India
- Banpu Public Company Limited - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Transport, Egypt
- Vedanta Resources Plc - India
- White Energy Company Limited
- Global Green Power PLC Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Jindal Steel & Power Ltd - India
- Siam City Cement - Thailand
- Renaissance Capital - South Africa
- New Zealand Coal & Carbon
- Kohat Cement Company Ltd. - Pakistan
- IEA Clean Coal Centre - UK
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- Global Coal Blending Company Limited - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Bhushan Steel Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Port Waratah Coal Services - Australia
- The State Trading Corporation of India Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Thai Mozambique Logistica
- Indian Energy Exchange, India
- CNBM International Corporation - China
- Meenaskhi Energy Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bayan Resources Tbk. - Indonesia
- Barasentosa Lestari - Indonesia
- Indika Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Kepco SPC Power Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Parry Sugars Refinery, India
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Makarim & Taira - Indonesia
- Posco Energy - South Korea
- Simpson Spence & Young - Indonesia
- Sarangani Energy Corporation, Philippines
- Chamber of Mines of South Africa
- Miang Besar Coal Terminal - Indonesia
- SMG Consultants - Indonesia
- Samtan Co., Ltd - South Korea
- Siam City Cement PLC, Thailand
- India Bulls Power Limited - India
- Edison Trading Spa - Italy
- Krishnapatnam Port Company Ltd. - India
- Pipit Mutiara Jaya. PT, Indonesia
- Indogreen Group - Indonesia
- Central Java Power - Indonesia
- The University of Queensland
- Vijayanagar Sugar Pvt Ltd - India
- Baramulti Group, Indonesia
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- AsiaOL BioFuels Corp., Philippines
- Eastern Coal Council - USA
- Oldendorff Carriers - Singapore
- Dalmia Cement Bharat India
- Rio Tinto Coal - Australia
- Xindia Steels Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Mercuria Energy - Indonesia
- Minerals Council of Australia
- South Luzon Thermal Energy Corporation
- Energy Development Corp, Philippines
- Agrawal Coal Company - India
- Bhoruka Overseas - Indonesia
- Bulk Trading Sa - Switzerland
- Attock Cement Pakistan Limited
- Sical Logistics Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Independent Power Producers Association of India
- Videocon Industries ltd - India
- Toyota Tsusho Corporation, Japan
- Global Business Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Ambuja Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Semirara Mining and Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- VISA Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bharathi Cement Corporation - India
- Standard Chartered Bank - UAE
- Trasteel International SA, Italy
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Marubeni Corporation - India
- Aditya Birla Group - India
- Neyveli Lignite Corporation Ltd, - India
- Orica Mining Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Orica Australia Pty. Ltd.
- Kartika Selabumi Mining - Indonesia
- Indonesian Coal Mining Association
- Aboitiz Power Corporation - Philippines
- Kalimantan Lumbung Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Borneo Indobara - Indonesia
- GMR Energy Limited - India
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Deloitte Consulting - India
- Thiess Contractors Indonesia
- Wilmar Investment Holdings
- Merrill Lynch Commodities Europe
- Intertek Mineral Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Central Electricity Authority - India
- Indo Tambangraya Megah - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Generating Authority of Thailand
- Economic Council, Georgia
- Goldman Sachs - Singapore
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
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