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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, 01 June 16
ZERO SUPPLY TO FUEL GROWTH IN THE DRY BULK MARKET SAYS BIMCO PRESIDENT
The dry bulk market could become profitable again in 2019 – but only if a series of extremely tough and sustained measures are taken by shipo ...
Wednesday, 01 June 16
MARKET INSIGHT - LINOS KOGEVINAS
In another page from this year’s oil drama, oil has, after a series of gains, rebounded to ~$50 / barrel and immediately stopped climbing. &n ...
Tuesday, 31 May 16
CS50 INDONESIA COAL INDEX UP 0.28% COMPARED WITH A WEEK AGO
COALspot.com: Average 5000 GAR coal index of Indonesian origin was up 0.28 percent week over week to averaging $39.01 per ton this past week, shows ...
Monday, 30 May 16
BORYEONG POWER PLANT TO IMPORT HALF A MILLION TONS OF BITUMINOUS COAL
COALspot.com: South Korea’s state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 500,000 Metric Tons of Bituminous Coal T ...
Monday, 30 May 16
BCI ENDING AT 830 POINTS, DOWN 4.6 PER CENT W/W
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities decline this week. The freight market was weak this past ...
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Showing 2411 to 2415 news of total 6871 |
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- Kartika Selabumi Mining - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Commonwealth Bank - Australia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Latin American Coal - Colombia
- Price Waterhouse Coopers - Russia
- AsiaOL BioFuels Corp., Philippines
- Pendopo Energi Batubara - Indonesia
- Metalloyd Limited - United Kingdom
- Standard Chartered Bank - UAE
- Baramulti Group, Indonesia
- Ministry of Finance - Indonesia
- Bharathi Cement Corporation - India
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- SMG Consultants - Indonesia
- IHS Mccloskey Coal Group - USA
- Posco Energy - South Korea
- Altura Mining Limited, Indonesia
- SMC Global Power, Philippines
- Australian Commodity Traders Exchange
- PTC India Limited - India
- Salva Resources Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- Samtan Co., Ltd - South Korea
- Cement Manufacturers Association - India
- Videocon Industries ltd - India
- Power Finance Corporation Ltd., India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Mines - Canada
- Mjunction Services Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Renaissance Capital - South Africa
- GMR Energy Limited - India
- Toyota Tsusho Corporation, Japan
- Indogreen Group - Indonesia
- Bangladesh Power Developement Board
- Chamber of Mines of South Africa
- Holcim Trading Pte Ltd - Singapore
- Minerals Council of Australia
- Deloitte Consulting - India
- Oldendorff Carriers - Singapore
- IEA Clean Coal Centre - UK
- Kobexindo Tractors - Indoneisa
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Energy Development Corp, Philippines
- Semirara Mining Corp, Philippines
- Semirara Mining and Power Corporation, Philippines
- Orica Australia Pty. Ltd.
- Anglo American - United Kingdom
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- VISA Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- London Commodity Brokers - England
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Merrill Lynch Commodities Europe
- Global Coal Blending Company Limited - Australia
- Edison Trading Spa - Italy
- Bhushan Steel Limited - India
- Bhatia International Limited - India
- Kideco Jaya Agung - Indonesia
- Manunggal Multi Energi - Indonesia
- Trasteel International SA, Italy
- Port Waratah Coal Services - Australia
- Borneo Indobara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Makarim & Taira - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- LBH Netherlands Bv - Netherlands
- India Bulls Power Limited - India
- Electricity Generating Authority of Thailand
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Central Electricity Authority - India
- Jorong Barutama Greston.PT - Indonesia
- Riau Bara Harum - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- Iligan Light & Power Inc, Philippines
- Central Java Power - Indonesia
- GAC Shipping (India) Pvt Ltd
- Georgia Ports Authority, United States
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- White Energy Company Limited
- Rio Tinto Coal - Australia
- Thiess Contractors Indonesia
- CNBM International Corporation - China
- Globalindo Alam Lestari - Indonesia
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Kumho Petrochemical, South Korea
- Coalindo Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Mercuria Energy - Indonesia
- Aditya Birla Group - India
- Bulk Trading Sa - Switzerland
- The Treasury - Australian Government
- Kapuas Tunggal Persada - Indonesia
- Tamil Nadu electricity Board
- Economic Council, Georgia
- Parry Sugars Refinery, India
- Timah Investasi Mineral - Indoneisa
- Planning Commission, India
- Thai Mozambique Logistica
- Marubeni Corporation - India
- Lanco Infratech Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Star Paper Mills Limited - India
- Sakthi Sugars Limited - India
- Carbofer General Trading SA - India
- Siam City Cement PLC, Thailand
- Uttam Galva Steels Limited - India
- Global Business Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- Essar Steel Hazira Ltd - India
- Indonesian Coal Mining Association
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- GN Power Mariveles Coal Plant, Philippines
- Attock Cement Pakistan Limited
- Eastern Energy - Thailand
- Maheswari Brothers Coal Limited - India
- Banpu Public Company Limited - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Malabar Cements Ltd - India
- Coal and Oil Company - UAE
- Indika Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- MS Steel International - UAE
- Petrochimia International Co. Ltd.- Taiwan
- SN Aboitiz Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- PetroVietnam Power Coal Import and Supply Company
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- Bayan Resources Tbk. - Indonesia
- Meenaskhi Energy Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- Gujarat Sidhee Cement - India
- Pipit Mutiara Jaya. PT, Indonesia
- Ministry of Transport, Egypt
- Cigading International Bulk Terminal - Indonesia
- Sarangani Energy Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- San Jose City I Power Corp, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Binh Thuan Hamico - Vietnam
- Global Green Power PLC Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Mercator Lines Limited - India
- Australian Coal Association
- Vedanta Resources Plc - India
- Medco Energi Mining Internasional
- Siam City Cement - Thailand
- Antam Resourcindo - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Savvy Resources Ltd - HongKong
- Larsen & Toubro Limited - India
- Sojitz Corporation - Japan
- Simpson Spence & Young - Indonesia
- Wilmar Investment Holdings
- Romanian Commodities Exchange
- Maharashtra Electricity Regulatory Commission - India
- Xindia Steels Limited - India
- Parliament of New Zealand
- Indian Oil Corporation Limited
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Energy Link Ltd, New Zealand
- The University of Queensland
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- GVK Power & Infra Limited - India
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Vizag Seaport Private Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- PowerSource Philippines DevCo
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- The State Trading Corporation of India Ltd
- Agrawal Coal Company - India
- Ambuja Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Independent Power Producers Association of India
- Miang Besar Coal Terminal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- OPG Power Generation Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Sinarmas Energy and Mining - Indonesia
- Chettinad Cement Corporation Ltd - India
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