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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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Wednesday, 14 March 18
SHIPPING MARKET INSIGHT - VASILIS MOIRIS
Interest in second hand tonnage remains firm with buyers in the dry bulk sector looking to benefit from rising freight rates that are eventually ex ...
Monday, 12 March 18
DRY BULK MARKET: CAPESIZE MARKET FINDS ITS FOOTING - BALTIC BRIEFING
Capesize
Some relief for owners as the week closed out with the market finding a floor in the East. Rates on the key West Australia/China run loo ...
Monday, 12 March 18
COAL OUTPUT FROM PRIVATE MINERS UNLIKELY TO RISE IN MEDIUM TERM: ICRA
Coal output levels from private commercial miners are unlikely to go up considerably in the medium to short term, given the issues related to land ...
Saturday, 10 March 18
ENHANCED PRODUCTION BY COAL INDIA HELPS DECLINE IN COAL IMPORTS
As per the current import policy, coal is kept under Open General License (OGL) and consumers are free to import coal from the source of their choi ...
Friday, 09 March 18
THE WORLD CANNOT KEEP IGNORING THE ASIAN COAL STORY - BENJAMIN SPORTON
There were significant changes in the global energy system in 2017, including the growth in electric vehicles, the rise of renewables and the conti ...
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Showing 1776 to 1780 news of total 6871 |
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- Iligan Light & Power Inc, Philippines
- Interocean Group of Companies - India
- Dalmia Cement Bharat India
- Indian Oil Corporation Limited
- Romanian Commodities Exchange
- Parliament of New Zealand
- Simpson Spence & Young - Indonesia
- Altura Mining Limited, Indonesia
- Madhucon Powers Ltd - India
- Coastal Gujarat Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sinarmas Energy and Mining - Indonesia
- Wood Mackenzie - Singapore
- Latin American Coal - Colombia
- Bank of Tokyo Mitsubishi UFJ Ltd
- SN Aboitiz Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Edison Trading Spa - Italy
- Directorate Of Revenue Intelligence - India
- Standard Chartered Bank - UAE
- Ministry of Finance - Indonesia
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- Bukit Makmur.PT - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Global Business Power Corporation, Philippines
- Chamber of Mines of South Africa
- GVK Power & Infra Limited - India
- CNBM International Corporation - China
- Mercuria Energy - Indonesia
- Minerals Council of Australia
- Bulk Trading Sa - Switzerland
- Bharathi Cement Corporation - India
- Kohat Cement Company Ltd. - Pakistan
- MS Steel International - UAE
- IHS Mccloskey Coal Group - USA
- Billiton Holdings Pty Ltd - Australia
- Cement Manufacturers Association - India
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- Sarangani Energy Corporation, Philippines
- Sojitz Corporation - Japan
- Tamil Nadu electricity Board
- Kideco Jaya Agung - Indonesia
- Sindya Power Generating Company Private Ltd
- Savvy Resources Ltd - HongKong
- New Zealand Coal & Carbon
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Georgia Ports Authority, United States
- Kartika Selabumi Mining - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indogreen Group - Indonesia
- Attock Cement Pakistan Limited
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Anglo American - United Kingdom
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Indonesian Coal Mining Association
- Trasteel International SA, Italy
- Energy Link Ltd, New Zealand
- Sree Jayajothi Cements Limited - India
- Asmin Koalindo Tuhup - Indonesia
- The Treasury - Australian Government
- White Energy Company Limited
- Timah Investasi Mineral - Indoneisa
- Orica Australia Pty. Ltd.
- Kumho Petrochemical, South Korea
- Sakthi Sugars Limited - India
- The State Trading Corporation of India Ltd
- Ministry of Transport, Egypt
- PTC India Limited - India
- Posco Energy - South Korea
- Semirara Mining and Power Corporation, Philippines
- VISA Power Limited - India
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- Mercator Lines Limited - India
- TeaM Sual Corporation - Philippines
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Petron Corporation, Philippines
- Rio Tinto Coal - Australia
- Energy Development Corp, Philippines
- Banpu Public Company Limited - Thailand
- Australian Coal Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Gujarat Sidhee Cement - India
- Tata Chemicals Ltd - India
- Mintek Dendrill Indonesia
- Coalindo Energy - Indonesia
- Merrill Lynch Commodities Europe
- The University of Queensland
- Thiess Contractors Indonesia
- PNOC Exploration Corporation - Philippines
- Baramulti Group, Indonesia
- Samtan Co., Ltd - South Korea
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Essar Steel Hazira Ltd - India
- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Bayan Resources Tbk. - Indonesia
- Mjunction Services Limited - India
- Jindal Steel & Power Ltd - India
- Marubeni Corporation - India
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- London Commodity Brokers - England
- PetroVietnam Power Coal Import and Supply Company
- Directorate General of MIneral and Coal - Indonesia
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Coal and Oil Company - UAE
- Goldman Sachs - Singapore
- Alfred C Toepfer International GmbH - Germany
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- Medco Energi Mining Internasional
- Gujarat Mineral Development Corp Ltd - India
- Salva Resources Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Price Waterhouse Coopers - Russia
- Jorong Barutama Greston.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- Ind-Barath Power Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Bhatia International Limited - India
- Chettinad Cement Corporation Ltd - India
- LBH Netherlands Bv - Netherlands
- Siam City Cement - Thailand
- Africa Commodities Group - South Africa
- Maheswari Brothers Coal Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- IEA Clean Coal Centre - UK
- India Bulls Power Limited - India
- Barasentosa Lestari - Indonesia
- Central Java Power - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Rashtriya Ispat Nigam Limited - India
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Meralco Power Generation, Philippines
- Toyota Tsusho Corporation, Japan
- Kobexindo Tractors - Indoneisa
- Aboitiz Power Corporation - Philippines
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Siam City Cement PLC, Thailand
- Eastern Coal Council - USA
- Thai Mozambique Logistica
- OPG Power Generation Pvt Ltd - India
- Sical Logistics Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Krishnapatnam Port Company Ltd. - India
- Electricity Generating Authority of Thailand
- AsiaOL BioFuels Corp., Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- Neyveli Lignite Corporation Ltd, - India
- Indika Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Singapore Mercantile Exchange
- Star Paper Mills Limited - India
- Ambuja Cements Ltd - India
- Economic Council, Georgia
- Renaissance Capital - South Africa
- Meenaskhi Energy Private Limited - India
- GMR Energy Limited - India
- Miang Besar Coal Terminal - Indonesia
- Global Coal Blending Company Limited - Australia
- San Jose City I Power Corp, Philippines
- Grasim Industreis Ltd - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Oldendorff Carriers - Singapore
- Electricity Authority, New Zealand
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Wilmar Investment Holdings
- Bhoruka Overseas - Indonesia
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Karaikal Port Pvt Ltd - India
- Videocon Industries ltd - India
- Kaltim Prima Coal - Indonesia
- Borneo Indobara - Indonesia
- Intertek Mineral Services - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Vizag Seaport Private Limited - India
- SMC Global Power, Philippines
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Carbofer General Trading SA - India
- Power Finance Corporation Ltd., India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Straits Asia Resources Limited - Singapore
- Global Green Power PLC Corporation, Philippines
- Riau Bara Harum - Indonesia
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