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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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- Latin American Coal - Colombia
- Indo Tambangraya Megah - Indonesia
- Binh Thuan Hamico - Vietnam
- Planning Commission, India
- Edison Trading Spa - Italy
- Antam Resourcindo - Indonesia
- Wood Mackenzie - Singapore
- SN Aboitiz Power Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Power Finance Corporation Ltd., India
- Electricity Generating Authority of Thailand
- Leighton Contractors Pty Ltd - Australia
- Indian Oil Corporation Limited
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Dalmia Cement Bharat India
- Energy Development Corp, Philippines
- Economic Council, Georgia
- Standard Chartered Bank - UAE
- VISA Power Limited - India
- Semirara Mining Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Eastern Energy - Thailand
- Videocon Industries ltd - India
- Singapore Mercantile Exchange
- CNBM International Corporation - China
- Ind-Barath Power Infra Limited - India
- Bukit Makmur.PT - Indonesia
- Vizag Seaport Private Limited - India
- Eastern Coal Council - USA
- Bhushan Steel Limited - India
- Minerals Council of Australia
- Malabar Cements Ltd - India
- Metalloyd Limited - United Kingdom
- Global Green Power PLC Corporation, Philippines
- ASAPP Information Group - India
- Bhoruka Overseas - Indonesia
- Coalindo Energy - Indonesia
- Makarim & Taira - Indonesia
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Sakthi Sugars Limited - India
- The University of Queensland
- IHS Mccloskey Coal Group - USA
- Indika Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Bhatia International Limited - India
- Medco Energi Mining Internasional
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- Gujarat Electricity Regulatory Commission - India
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Baiduri Energy - Indonesia
- Indonesian Coal Mining Association
- Ministry of Mines - Canada
- Semirara Mining and Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Bulk Trading Sa - Switzerland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Manunggal Multi Energi - Indonesia
- Port Waratah Coal Services - Australia
- PTC India Limited - India
- Bharathi Cement Corporation - India
- Mercator Lines Limited - India
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- The State Trading Corporation of India Ltd
- Kartika Selabumi Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Coastal Gujarat Power Limited - India
- Parry Sugars Refinery, India
- Cigading International Bulk Terminal - Indonesia
- Siam City Cement - Thailand
- Formosa Plastics Group - Taiwan
- Samtan Co., Ltd - South Korea
- Kideco Jaya Agung - Indonesia
- Borneo Indobara - Indonesia
- Renaissance Capital - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Billiton Holdings Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Trasteel International SA, Italy
- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- SMG Consultants - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Toyota Tsusho Corporation, Japan
- Timah Investasi Mineral - Indoneisa
- Iligan Light & Power Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Vedanta Resources Plc - India
- The Treasury - Australian Government
- Siam City Cement PLC, Thailand
- Straits Asia Resources Limited - Singapore
- Jaiprakash Power Ventures ltd
- MS Steel International - UAE
- GAC Shipping (India) Pvt Ltd
- Salva Resources Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Wilmar Investment Holdings
- Jindal Steel & Power Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Coal and Oil Company - UAE
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- ICICI Bank Limited - India
- Mintek Dendrill Indonesia
- Mjunction Services Limited - India
- Madhucon Powers Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Kobexindo Tractors - Indoneisa
- Bayan Resources Tbk. - Indonesia
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Independent Power Producers Association of India
- Thai Mozambique Logistica
- CIMB Investment Bank - Malaysia
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- PetroVietnam Power Coal Import and Supply Company
- Aditya Birla Group - India
- Chamber of Mines of South Africa
- Price Waterhouse Coopers - Russia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Rio Tinto Coal - Australia
- Kapuas Tunggal Persada - Indonesia
- Agrawal Coal Company - India
- Bangladesh Power Developement Board
- Sical Logistics Limited - India
- Barasentosa Lestari - Indonesia
- Indian Energy Exchange, India
- Cement Manufacturers Association - India
- White Energy Company Limited
- GMR Energy Limited - India
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Orica Mining Services - Indonesia
- Gujarat Sidhee Cement - India
- Carbofer General Trading SA - India
- New Zealand Coal & Carbon
- Aboitiz Power Corporation - Philippines
- Africa Commodities Group - South Africa
- Grasim Industreis Ltd - India
- Merrill Lynch Commodities Europe
- Meenaskhi Energy Private Limited - India
- Therma Luzon, Inc, Philippines
- McConnell Dowell - Australia
- Chettinad Cement Corporation Ltd - India
- London Commodity Brokers - England
- Indogreen Group - Indonesia
- PowerSource Philippines DevCo
- Anglo American - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Heidelberg Cement - Germany
- Romanian Commodities Exchange
- Miang Besar Coal Terminal - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Global Business Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- LBH Netherlands Bv - Netherlands
- Jorong Barutama Greston.PT - Indonesia
- Attock Cement Pakistan Limited
- Globalindo Alam Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Lanco Infratech Ltd - India
- Energy Link Ltd, New Zealand
- Central Java Power - Indonesia
- Georgia Ports Authority, United States
- Oldendorff Carriers - Singapore
- Posco Energy - South Korea
- Ceylon Electricity Board - Sri Lanka
- Karaikal Port Pvt Ltd - India
- Ministry of Transport, Egypt
- Australian Coal Association
- Thiess Contractors Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Marubeni Corporation - India
- Baramulti Group, Indonesia
- Petron Corporation, Philippines
- GVK Power & Infra Limited - India
- Orica Australia Pty. Ltd.
- SMC Global Power, Philippines
- Xindia Steels Limited - India
- Tamil Nadu electricity Board
- India Bulls Power Limited - India
- Mercuria Energy - Indonesia
- Goldman Sachs - Singapore
- Holcim Trading Pte Ltd - Singapore
- Ministry of Finance - Indonesia
- TeaM Sual Corporation - Philippines
- Banpu Public Company Limited - Thailand
- Meralco Power Generation, Philippines
- Australian Commodity Traders Exchange
- Riau Bara Harum - Indonesia
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- Tata Chemicals Ltd - India
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