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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, 13 July 16
EIA FORECASTS U.S. COAL EXPORTS TO DECLINE BY 15 MMST IN 2016 AND BY 4 MMST IN 2017
COALspot.com: U.S. coal production in June was 57 million short tons (MMst), a 6 MMst (13%) increase from May and 9 MMst (14%) lower than in June 2 ...
Wednesday, 13 July 16
2015 VS. 2016; THE DRY BULK DEMOLITION DERBY - JOHN N. COTZIAS
In the first half of the year 373 Bulkers and General Cargo ships were scrapped representing 23.8mil tons of dwt carrying capacity.
Comparing ...
Tuesday, 12 July 16
DUE TO LONG HOLIDAYS, CS COAL INDICES HELD AT THE SAME LEVEL OF THE PREVIOUS WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin was flat week over week to averaging $39.98 per ton this past week.
Due to the ...
Monday, 11 July 16
COAL MARKETS SAW IMPROVED PRICES IN H1 2016 - SGX'S COMMODITIES MID-YEAR REFLECTION
COALspot.com: Coal
Coal markets saw improved prices in H1 2016 with the benchmark coking coal and thermal coal spot prices rising 18% and 25%, re ...
Monday, 11 July 16
THE MAIN SEA FREIGHT INDEX, BDI ROSE FURTHER ON 8 JULY DUE TO STRONG DEMAND FOR PANAMAX SHIPS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose this past week. The BDI was up 3.84 percent from las ...
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- Indian Energy Exchange, India
- Sojitz Corporation - Japan
- SMC Global Power, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Kumho Petrochemical, South Korea
- Jaiprakash Power Ventures ltd
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Edison Trading Spa - Italy
- TeaM Sual Corporation - Philippines
- Directorate General of MIneral and Coal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Singapore Mercantile Exchange
- Price Waterhouse Coopers - Russia
- Kapuas Tunggal Persada - Indonesia
- Toyota Tsusho Corporation, Japan
- Antam Resourcindo - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dalmia Cement Bharat India
- Chettinad Cement Corporation Ltd - India
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Romanian Commodities Exchange
- PetroVietnam Power Coal Import and Supply Company
- The State Trading Corporation of India Ltd
- Rio Tinto Coal - Australia
- Coal and Oil Company - UAE
- Tata Chemicals Ltd - India
- Bukit Baiduri Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Attock Cement Pakistan Limited
- Vijayanagar Sugar Pvt Ltd - India
- SMG Consultants - Indonesia
- Parry Sugars Refinery, India
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Minerals Council of Australia
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- VISA Power Limited - India
- Bangladesh Power Developement Board
- Wilmar Investment Holdings
- Mercator Lines Limited - India
- LBH Netherlands Bv - Netherlands
- Indian Oil Corporation Limited
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Georgia Ports Authority, United States
- Agrawal Coal Company - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Larsen & Toubro Limited - India
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Vedanta Resources Plc - India
- Coalindo Energy - Indonesia
- Electricity Generating Authority of Thailand
- Krishnapatnam Port Company Ltd. - India
- PTC India Limited - India
- Tamil Nadu electricity Board
- Posco Energy - South Korea
- Directorate Of Revenue Intelligence - India
- Karaikal Port Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Savvy Resources Ltd - HongKong
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Bharathi Cement Corporation - India
- TNB Fuel Sdn Bhd - Malaysia
- Kepco SPC Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- MS Steel International - UAE
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Standard Chartered Bank - UAE
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Eastern Energy - Thailand
- London Commodity Brokers - England
- Global Green Power PLC Corporation, Philippines
- Ministry of Mines - Canada
- Kohat Cement Company Ltd. - Pakistan
- Electricity Authority, New Zealand
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Essar Steel Hazira Ltd - India
- Coastal Gujarat Power Limited - India
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- ICICI Bank Limited - India
- Siam City Cement PLC, Thailand
- Grasim Industreis Ltd - India
- Borneo Indobara - Indonesia
- Energy Development Corp, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- Vizag Seaport Private Limited - India
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- Indonesian Coal Mining Association
- Parliament of New Zealand
- Commonwealth Bank - Australia
- GVK Power & Infra Limited - India
- Mercuria Energy - Indonesia
- Mjunction Services Limited - India
- The Treasury - Australian Government
- Holcim Trading Pte Ltd - Singapore
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Energy Link Ltd, New Zealand
- Xindia Steels Limited - India
- Ambuja Cements Ltd - India
- Gujarat Sidhee Cement - India
- AsiaOL BioFuels Corp., Philippines
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Economic Council, Georgia
- Semirara Mining Corp, Philippines
- India Bulls Power Limited - India
- Bulk Trading Sa - Switzerland
- Bukit Makmur.PT - Indonesia
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Planning Commission, India
- Orica Australia Pty. Ltd.
- PNOC Exploration Corporation - Philippines
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- Wood Mackenzie - Singapore
- Marubeni Corporation - India
- Interocean Group of Companies - India
- Kaltim Prima Coal - Indonesia
- Power Finance Corporation Ltd., India
- Africa Commodities Group - South Africa
- CIMB Investment Bank - Malaysia
- Indogreen Group - Indonesia
- SN Aboitiz Power Inc, Philippines
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- GN Power Mariveles Coal Plant, Philippines
- Sarangani Energy Corporation, Philippines
- Oldendorff Carriers - Singapore
- PowerSource Philippines DevCo
- Kartika Selabumi Mining - Indonesia
- IHS Mccloskey Coal Group - USA
- Thiess Contractors Indonesia
- Global Coal Blending Company Limited - Australia
- Latin American Coal - Colombia
- Neyveli Lignite Corporation Ltd, - India
- Lanco Infratech Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- Riau Bara Harum - Indonesia
- Australian Coal Association
- International Coal Ventures Pvt Ltd - India
- Bhushan Steel Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Deloitte Consulting - India
- Metalloyd Limited - United Kingdom
- ASAPP Information Group - India
- South Luzon Thermal Energy Corporation
- Ministry of Transport, Egypt
- Ministry of Finance - Indonesia
- Makarim & Taira - Indonesia
- Madhucon Powers Ltd - India
- Chamber of Mines of South Africa
- Sical Logistics Limited - India
- Indika Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Merrill Lynch Commodities Europe
- Samtan Co., Ltd - South Korea
- Barasentosa Lestari - Indonesia
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Malabar Cements Ltd - India
- Goldman Sachs - Singapore
- Thai Mozambique Logistica
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhatia International Limited - India
- McConnell Dowell - Australia
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- Medco Energi Mining Internasional
- Pendopo Energi Batubara - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- Iligan Light & Power Inc, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Aboitiz Power Corporation - Philippines
- Formosa Plastics Group - Taiwan
- Rashtriya Ispat Nigam Limited - India
- Star Paper Mills Limited - India
- Port Waratah Coal Services - Australia
- Cigading International Bulk Terminal - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Eastern Coal Council - USA
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