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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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Tuesday, 28 June 16
WEEKLY CS COAL INDICES ROSE ON RENEWED DEMAND FROM CHINA
COALspot.com: Average 5000 GAR coal index of Indonesian origin was up by 0.66 percent week over week to averaging $39.65 per ton this past week, sh ...
Tuesday, 28 June 16
CHINA'S IRON ORE IMPORTS: HOW MUCH MORE WORK FOR CAPES? - CLARKSONS
Chinese iron ore imports account for around two thirds of global seaborne iron ore shipments, making it the key driver of Capesize employment. Whil ...
Monday, 27 June 16
LATEST NEWS ON BIMCO'S CONTRACTS AND CLAUSES
BIMCO is currently updating several of its most widely used charter parties including SUPPLYTIME and BARECON. New developments include the Standard ...
Monday, 27 June 16
BREXIT RESULT COULD SEE UK FACING AN EXODUS OF MARITIME TALENT - FASTSTREAM
The UK’s decision to leave the EU has the potential to drive many of its maritime employees away, according to the results of a survey issued ...
Monday, 27 June 16
THE BDI UP 3.75 PERCENT ; BCI FELL 1.51% WEEK OVER WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities rose this past week. The BDI was up 3.75 percent from las ...
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- Jorong Barutama Greston.PT - Indonesia
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- Aditya Birla Group - India
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- Eastern Energy - Thailand
- ICICI Bank Limited - India
- Australian Coal Association
- Sical Logistics Limited - India
- Larsen & Toubro Limited - India
- Ambuja Cements Ltd - India
- Uttam Galva Steels Limited - India
- Energy Link Ltd, New Zealand
- Kobexindo Tractors - Indoneisa
- Indonesian Coal Mining Association
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- Anglo American - United Kingdom
- Kalimantan Lumbung Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
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- Miang Besar Coal Terminal - Indonesia
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- White Energy Company Limited
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- Neyveli Lignite Corporation Ltd, - India
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Formosa Plastics Group - Taiwan
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- Merrill Lynch Commodities Europe
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- Central Electricity Authority - India
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- Alfred C Toepfer International GmbH - Germany
- ASAPP Information Group - India
- SMC Global Power, Philippines
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- Indian Energy Exchange, India
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- Orica Australia Pty. Ltd.
- Intertek Mineral Services - Indonesia
- Bulk Trading Sa - Switzerland
- Independent Power Producers Association of India
- Bhatia International Limited - India
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- MS Steel International - UAE
- AsiaOL BioFuels Corp., Philippines
- Kumho Petrochemical, South Korea
- Carbofer General Trading SA - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wilmar Investment Holdings
- Ministry of Transport, Egypt
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- Oldendorff Carriers - Singapore
- Attock Cement Pakistan Limited
- San Jose City I Power Corp, Philippines
- Essar Steel Hazira Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Tamil Nadu electricity Board
- Georgia Ports Authority, United States
- Kohat Cement Company Ltd. - Pakistan
- Economic Council, Georgia
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- Coalindo Energy - Indonesia
- Petron Corporation, Philippines
- Trasteel International SA, Italy
- IHS Mccloskey Coal Group - USA
- Cigading International Bulk Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Holcim Trading Pte Ltd - Singapore
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- Bayan Resources Tbk. - Indonesia
- CNBM International Corporation - China
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Goldman Sachs - Singapore
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
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- SMG Consultants - Indonesia
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Metalloyd Limited - United Kingdom
- Manunggal Multi Energi - Indonesia
- VISA Power Limited - India
- Siam City Cement - Thailand
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- New Zealand Coal & Carbon
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- Maharashtra Electricity Regulatory Commission - India
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- Barasentosa Lestari - Indonesia
- Port Waratah Coal Services - Australia
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- Directorate Of Revenue Intelligence - India
- Power Finance Corporation Ltd., India
- Sree Jayajothi Cements Limited - India
- Riau Bara Harum - Indonesia
- Global Green Power PLC Corporation, Philippines
- Romanian Commodities Exchange
- Makarim & Taira - Indonesia
- Electricity Authority, New Zealand
- Globalindo Alam Lestari - Indonesia
- Ministry of Finance - Indonesia
- Malabar Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- Mercator Lines Limited - India
- Meenaskhi Energy Private Limited - India
- LBH Netherlands Bv - Netherlands
- Straits Asia Resources Limited - Singapore
- Tata Chemicals Ltd - India
- Antam Resourcindo - Indonesia
- Ministry of Mines - Canada
- Krishnapatnam Port Company Ltd. - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
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- Rio Tinto Coal - Australia
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- Karaikal Port Pvt Ltd - India
- Mjunction Services Limited - India
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- Sinarmas Energy and Mining - Indonesia
- Singapore Mercantile Exchange
- CIMB Investment Bank - Malaysia
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- Bukit Asam (Persero) Tbk - Indonesia
- Parry Sugars Refinery, India
- Minerals Council of Australia
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- GVK Power & Infra Limited - India
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- Therma Luzon, Inc, Philippines
- Coastal Gujarat Power Limited - India
- Renaissance Capital - South Africa
- Baramulti Group, Indonesia
- Savvy Resources Ltd - HongKong
- PNOC Exploration Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- India Bulls Power Limited - India
- Electricity Generating Authority of Thailand
- Parliament of New Zealand
- Jaiprakash Power Ventures ltd
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
- Banpu Public Company Limited - Thailand
- Maheswari Brothers Coal Limited - India
- McConnell Dowell - Australia
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- TNB Fuel Sdn Bhd - Malaysia
- SN Aboitiz Power Inc, Philippines
- Africa Commodities Group - South Africa
- Heidelberg Cement - Germany
- The Treasury - Australian Government
- Rashtriya Ispat Nigam Limited - India
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