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Saturday, 10 March 18
THE 'RENOS' - COURT OF APPEAL CLARIFIES CTL CALCULATION AND RIGHT OF ABANDONMENT - CLYDE & CO
 KNOWLEDGE TO ELEVATE
In the matter of the “RENOS”, Mr Justice Knowles addressed a number of issues, at first instance, regarding the calculation of total loss of the vessel and of an owner’s right to abandon the vessel in constructive total loss cases. Following the judgment, handed down on 1 July 2016, insurers appealed. In a recent ruling by Lord Justice Hamblen, the first instance decision was unanimously confirmed by the Court of Appeal, and the insurers’ appeal was dismissed.
Facts
The “RENOS”[1] was on a laden voyage in the Red Sea when a fire broke out in the engine room causing extensive damage. In August 2012, the owners signed a Lloyd’s Open Form salvage contract (LOF contract) to deliver the vessel to a place of safety. The LOF contract was signed with SCOPIC incorporated on 23 August 2012. Later that day, salvors invoked the Special Compensation Protection and Indemnity Clause. The vessel was towed to an anchorage off the Suez Canal which it reached early on 31 August. It was at this time that the owners had an opportunity to survey the vessel for the first time. By very early September, the owners’ surveyor had completed his initial work and calculated that repair costs would be in the region of US$8 million. At around the same time, the insurers’ surveyor valued the repair costs around US$5.527 million. It was common ground between the parties that, in order for the vessel to be a constructive total loss (CTL), repair costs needed to be in excess of US$8 million.
By late September, the vessel had been towed to the port of Adabiya, Egypt, and by early October it had been redelivered under the salvage contract. It was clear, at this stage, that the damage to the vessel was extensive and the owners, in conjunction with the insurers’ surveyors, drew up a repair specification. This was completed by the end of November and, by early December, the repair estimate was, according to the owners, around US$8 million. By late December, the owners had received a number of repair quotations; the final range was $2.8 million to $9 million. Discussions over the repairs continued throughout January 2013 and, on 30th January, insurers declared that it was ultimately a matter for owners to make a decision on repair. On 1 February 2013, owners issued a notice of abandonment.
Court of Appeal
Insurers stated that the owners had lost their right to abandon the vessel to them under section 62(3) of the Marine Insurance Act 1906 (the Act). This requires the owners to give notice of abandonment within a reasonable time after receipt of reliable information of the loss and a reasonable time for inquiry. Insurers contended in this case that the owners had taken more time than was reasonable, and provided a number of dates when, they stated, the owners should have exercised their option to abandon, and did not do so. The Judge concluded, at first instance, that due to the complexity of the repairs required in the circumstances, and the conflicting information from various surveyors and yard quotations, the owners were within section 62(3) of the Act, and had not lost their right to abandon the vessel to the underwriters. It was clear from the chronology that, at the time owners were considering their options, there was a vast amount of conflicting information. Hamblen LJ stated on appeal “a striking feature of the insurers’ case on reliable information is that it requires the owners to disregard or reject the Insurers’ own expert assessment at the time as to the scope of repairs, an assessment that the Insurers insist was correct”. Each of the dates the insurers submitted were rejected on the basis that, objectively, the Court could not conclude that the owners had reliable information on those dates, or even on the date they tended the notice of abandonment. Hamblen LJ went on to state “insurers chose at the time to carry out their own detailed surveys so as to produce their own repair specification and quotations for repair costs, which they relied upon to demonstrate that the vessel was not a CTL. They shared that information with owners, insisted on its correctness, and can hardly complain if it’s taken into account when considering whether there was reliable information of the loss.”
Insurers also argued that it was wrong to include the costs incurred prior to the date of the notice of abandonment as costs of repairs for the purposes of the CTL calculation. Section 60(2)(ii) of the Marine Insurance Act 1906 states that account is to be taken of any expense incurred in respect of future salvage operations and any future general average event. Insurers argued that only costs after the notice of abandonment for recovering the ship or for repair should be included in the constructive total loss calculation. This was rejected by both the Court at first instance and by the Court of Appeal, and this decision has cleared up an area of ambiguity that has existed in admiralty law for a number of years. Insurers had argued that their case was supported by the only two authorities[2] on this point, that it was a matter of logic and that section 60(2)(ii) of the Marine Insurance Act 1906 was clear. All three of these arguments were rejected by the Courts. The Court of Appeal was attracted to the commentary set out in Arnould[3] and extra judicial comments provided by Lord Donaldson in an address he gave as Chairman of the Association of Average Adjusters in 1982, which both suggest the relevant date for calculating the costs of repair for the purpose of constructive total loss was the date of the casualty. The Appeal Court confirmed that the reference to “future”[4] in s.60(2)(ii) was best explained by considering it is a word of inclusion rather than exclusion, making it clear that future costs should be taken into account alongside those already incurred.
The cost of the salvage operation was around US$1.2 million for the notional Article 13 salvage award and US$1.4 million in respect of SCOPIC paid over and above the Article 13 award. The insurers contended that the SCOPIC costs should not be costs within section 60(2)(ii) of the Marine Insurance Act 1906 or clauses 19.2 and 9.2 of the Institute Time clauses because the SCOPIC remuneration was conceptually different from the Article 13 award payable by the P&I Club. As SCOPIC was not payable under the hull and machinery (H&M) policy, they should not, it was argued, rank for the purposes of a CTL claim under the H&M policy as repair costs. The Court identified the difficulty with this construction in that, in order to recover the vessel (and put the owners in a position to repair or declare a CTL), the owners had to pay the entirety of the salvage remuneration. SCOPIC was an unavoidable part (or extension) of that salvage operation which led to the recovery of the vessel. The Court of Appeal concluded, therefore, that this must be an indivisible part of the cost of repair, confirming the first instance decision.
Comment
The decision appears to clarify a number of areas that had been considered to be ambiguous for total loss cases. It also demonstrates that insurers defending a constructive total loss claim have a high burden to meet to justify rejection under a policy. It is interesting that the proactive involvement of surveyors on behalf of the H&M insurers, and a positive/alternative case put forward on repair specifications, was detrimental to the case they brought before the Court in defence of their actions. Obtaining evidence which supported their contention that the vessel was not a constructive total loss allowed the owners additional time to make their decision as to whether to abandon. Had insurers not been so proactive (in arguing and seeking to gather evidence that the vessel was not a CTL), the owners may well have been required to declare the notice of abandonment earlier.
The Courts’ treatment of SCOPIC is also interesting. It is clear now that SCOPIC will be considered part of the overall salvage services and thus a benefit to the property, at least for constructive total loss claims. This seems to be in accordance with other areas of law. For example, SCOPIC claims sit alongside Article 13 claims for salvage in their priority as a maritime lien. The Court of Appeal concluded that benefit must have been conferred on the property by the SCOPIC services, and this could not readily be divorced from the benefit under Article 13. Ultimately, calculating a CTL is a purely arithmetical calculation regardless of who pays and under which policy of insurance. If, as in this case, it cost US$1.2m in salvage and US$1.4m in SCOPIC to get the vessel redelivered to the owners, it would make no sense to allow only the salvage element and not the rest; otherwise, had there been no SCOPIC element, the vessel would presumably have been declared economically unsalvageable and, therefore, a wreck.
[1] “The RENOS” – Sveriges Angfartygs Assurans Forening (The Swedish Club) & Ors v Connect Shipping Inc & Anor, Re Renos [2018] EWCA Civ 230 (19 February 2018)
[2] The Medina Princess [1965] 1 Lloyd’s Rep 361 and Hall v Hayman (1912) 17 Comm Cas 81
[3] Arnould’s Law of Marine Insurance and Average
[4] s.60(2)(ii) to “future salvage operations and of any future general average contributions to which the ship would be liable if repaired” (emphasis added)
Source: Clyde & Co LLP, By Martin Hall and David Handley
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Friday, 06 April 18
TOP MINER BHP QUITS WORLD COAL ASSOCIATION OVER CLIMATE CLASH - BLOOMBERG
BHP Billiton Ltd. has severed ties with the World Coal Association over a clash of views on how to combat climate change, with the mining giant say ...
Thursday, 05 April 18
INDONESIA TO POSTPONE NEW COAL, PALM OIL SHIPPING RULES TO 2020 - REUTERS
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Tuesday, 03 April 18
MARKET ANALYSIS - GEORGE LAZARIDIS
In the midst of a relatively quiet week for markets, with disruptions being caused by the Christian holidays, it seems as though we find ourselves ...
Monday, 02 April 18
THE FREIGHT RATES ARE EXPECTED TO BE FLAT TO SOFT, SAYS VISTAAR
The freight market softening to continue. Thursday, March 29, 2018, the Baltic Dry Index decreased by 42 points, reaching 1080 points.
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Monday, 02 April 18
THIESS TO DELIVER $150M SENAKIN CONTRACT EXTENSION
Thiess has secured a $150 million contract extension to provide mine services at Arutmin’s Senakin coal mine in South Kalimantan, Indonesia.
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- Trasteel International SA, Italy
- Latin American Coal - Colombia
- TNB Fuel Sdn Bhd - Malaysia
- Merrill Lynch Commodities Europe
- Chamber of Mines of South Africa
- Coalindo Energy - Indonesia
- Planning Commission, India
- Therma Luzon, Inc, Philippines
- Borneo Indobara - Indonesia
- Mercator Lines Limited - India
- San Jose City I Power Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Australian Commodity Traders Exchange
- Rashtriya Ispat Nigam Limited - India
- Bharathi Cement Corporation - India
- Intertek Mineral Services - Indonesia
- Interocean Group of Companies - India
- Electricity Generating Authority of Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sinarmas Energy and Mining - Indonesia
- Essar Steel Hazira Ltd - India
- White Energy Company Limited
- Rio Tinto Coal - Australia
- Medco Energi Mining Internasional
- Cigading International Bulk Terminal - Indonesia
- Posco Energy - South Korea
- Metalloyd Limited - United Kingdom
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Renaissance Capital - South Africa
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Wilmar Investment Holdings
- Bahari Cakrawala Sebuku - Indonesia
- Mjunction Services Limited - India
- VISA Power Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Mines - Canada
- Kartika Selabumi Mining - Indonesia
- PTC India Limited - India
- Ministry of Finance - Indonesia
- Minerals Council of Australia
- Binh Thuan Hamico - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- The State Trading Corporation of India Ltd
- Sical Logistics Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ambuja Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- Vedanta Resources Plc - India
- Indo Tambangraya Megah - Indonesia
- Siam City Cement PLC, Thailand
- Simpson Spence & Young - Indonesia
- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Star Paper Mills Limited - India
- Oldendorff Carriers - Singapore
- Singapore Mercantile Exchange
- IHS Mccloskey Coal Group - USA
- Africa Commodities Group - South Africa
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Riau Bara Harum - Indonesia
- SN Aboitiz Power Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Lanco Infratech Ltd - India
- Toyota Tsusho Corporation, Japan
- Commonwealth Bank - Australia
- Holcim Trading Pte Ltd - Singapore
- Sojitz Corporation - Japan
- Deloitte Consulting - India
- Salva Resources Pvt Ltd - India
- Aditya Birla Group - India
- Directorate Of Revenue Intelligence - India
- Petron Corporation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kobexindo Tractors - Indoneisa
- GAC Shipping (India) Pvt Ltd
- Anglo American - United Kingdom
- McConnell Dowell - Australia
- Makarim & Taira - Indonesia
- Pendopo Energi Batubara - Indonesia
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Bhatia International Limited - India
- Independent Power Producers Association of India
- Agrawal Coal Company - India
- Meenaskhi Energy Private Limited - India
- Mintek Dendrill Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- Aboitiz Power Corporation - Philippines
- New Zealand Coal & Carbon
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- Heidelberg Cement - Germany
- Global Coal Blending Company Limited - Australia
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Gujarat Sidhee Cement - India
- Carbofer General Trading SA - India
- GVK Power & Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Energy Development Corp, Philippines
- Baramulti Group, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Global Green Power PLC Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Miang Besar Coal Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Sarangani Energy Corporation, Philippines
- Cement Manufacturers Association - India
- Malabar Cements Ltd - India
- Wood Mackenzie - Singapore
- Banpu Public Company Limited - Thailand
- Coal and Oil Company - UAE
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Australian Coal Association
- SMG Consultants - Indonesia
- Siam City Cement - Thailand
- Kepco SPC Power Corporation, Philippines
- Indian Energy Exchange, India
- Parliament of New Zealand
- Central Electricity Authority - India
- Marubeni Corporation - India
- Kapuas Tunggal Persada - Indonesia
- Georgia Ports Authority, United States
- Chettinad Cement Corporation Ltd - India
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Orica Australia Pty. Ltd.
- The Treasury - Australian Government
- Gujarat Mineral Development Corp Ltd - India
- Jindal Steel & Power Ltd - India
- Savvy Resources Ltd - HongKong
- Thiess Contractors Indonesia
- Parry Sugars Refinery, India
- Dalmia Cement Bharat India
- Kaltim Prima Coal - Indonesia
- Port Waratah Coal Services - Australia
- Ind-Barath Power Infra Limited - India
- Global Business Power Corporation, Philippines
- Economic Council, Georgia
- India Bulls Power Limited - India
- European Bulk Services B.V. - Netherlands
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- GMR Energy Limited - India
- Ceylon Electricity Board - Sri Lanka
- Attock Cement Pakistan Limited
- Tamil Nadu electricity Board
- PNOC Exploration Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- ASAPP Information Group - India
- London Commodity Brokers - England
- MS Steel International - UAE
- Straits Asia Resources Limited - Singapore
- TeaM Sual Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Mercuria Energy - Indonesia
- CNBM International Corporation - China
- Romanian Commodities Exchange
- Thai Mozambique Logistica
- Kumho Petrochemical, South Korea
- Indika Energy - Indonesia
- Bhoruka Overseas - Indonesia
- The University of Queensland
- Sindya Power Generating Company Private Ltd
- Krishnapatnam Port Company Ltd. - India
- Antam Resourcindo - Indonesia
- Standard Chartered Bank - UAE
- Coastal Gujarat Power Limited - India
- Electricity Authority, New Zealand
- Indogreen Group - Indonesia
- ICICI Bank Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Larsen & Toubro Limited - India
- Alfred C Toepfer International GmbH - Germany
- Madhucon Powers Ltd - India
- Altura Mining Limited, Indonesia
- Xindia Steels Limited - India
- Bhushan Steel Limited - India
- Jaiprakash Power Ventures ltd
- Power Finance Corporation Ltd., India
- Vizag Seaport Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- Goldman Sachs - Singapore
- South Luzon Thermal Energy Corporation
- Videocon Industries ltd - India
- Ministry of Transport, Egypt
- IEA Clean Coal Centre - UK
- Billiton Holdings Pty Ltd - Australia
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