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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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- Latin American Coal - Colombia
- Parliament of New Zealand
- Barasentosa Lestari - Indonesia
- The State Trading Corporation of India Ltd
- Therma Luzon, Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Baramulti Group, Indonesia
- IHS Mccloskey Coal Group - USA
- Jaiprakash Power Ventures ltd
- Vizag Seaport Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Larsen & Toubro Limited - India
- Iligan Light & Power Inc, Philippines
- Romanian Commodities Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- Sakthi Sugars Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Cement Manufacturers Association - India
- Rio Tinto Coal - Australia
- Africa Commodities Group - South Africa
- Bulk Trading Sa - Switzerland
- Meralco Power Generation, Philippines
- Vedanta Resources Plc - India
- White Energy Company Limited
- Energy Link Ltd, New Zealand
- GMR Energy Limited - India
- Simpson Spence & Young - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- European Bulk Services B.V. - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Indo Tambangraya Megah - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Australian Coal Association
- ICICI Bank Limited - India
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- South Luzon Thermal Energy Corporation
- Tamil Nadu electricity Board
- Karaikal Port Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Merrill Lynch Commodities Europe
- Bukit Makmur.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- Semirara Mining and Power Corporation, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Grasim Industreis Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Transport, Egypt
- Kumho Petrochemical, South Korea
- Commonwealth Bank - Australia
- Karbindo Abesyapradhi - Indoneisa
- Manunggal Multi Energi - Indonesia
- Malabar Cements Ltd - India
- McConnell Dowell - Australia
- Agrawal Coal Company - India
- Videocon Industries ltd - India
- Aboitiz Power Corporation - Philippines
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
- Indogreen Group - Indonesia
- Semirara Mining Corp, Philippines
- Heidelberg Cement - Germany
- Antam Resourcindo - Indonesia
- Siam City Cement - Thailand
- Global Coal Blending Company Limited - Australia
- Orica Mining Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- SMG Consultants - Indonesia
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- Kepco SPC Power Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Altura Mining Limited, Indonesia
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Savvy Resources Ltd - HongKong
- Mintek Dendrill Indonesia
- Orica Australia Pty. Ltd.
- Standard Chartered Bank - UAE
- Tata Chemicals Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Georgia Ports Authority, United States
- Sical Logistics Limited - India
- Madhucon Powers Ltd - India
- Carbofer General Trading SA - India
- Sree Jayajothi Cements Limited - India
- Chamber of Mines of South Africa
- Mjunction Services Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- London Commodity Brokers - England
- Interocean Group of Companies - India
- Sinarmas Energy and Mining - Indonesia
- Australian Commodity Traders Exchange
- Jorong Barutama Greston.PT - Indonesia
- Salva Resources Pvt Ltd - India
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Edison Trading Spa - Italy
- Minerals Council of Australia
- Gujarat Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Oldendorff Carriers - Singapore
- International Coal Ventures Pvt Ltd - India
- San Jose City I Power Corp, Philippines
- Maheswari Brothers Coal Limited - India
- Electricity Authority, New Zealand
- Economic Council, Georgia
- Directorate General of MIneral and Coal - Indonesia
- Anglo American - United Kingdom
- Directorate Of Revenue Intelligence - India
- Independent Power Producers Association of India
- Electricity Generating Authority of Thailand
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- Leighton Contractors Pty Ltd - Australia
- India Bulls Power Limited - India
- Riau Bara Harum - Indonesia
- SMC Global Power, Philippines
- Planning Commission, India
- Ministry of Finance - Indonesia
- Bayan Resources Tbk. - Indonesia
- Renaissance Capital - South Africa
- Alfred C Toepfer International GmbH - Germany
- Indian Energy Exchange, India
- GVK Power & Infra Limited - India
- Meenaskhi Energy Private Limited - India
- PNOC Exploration Corporation - Philippines
- Deloitte Consulting - India
- Bhushan Steel Limited - India
- New Zealand Coal & Carbon
- Indian Oil Corporation Limited
- Pendopo Energi Batubara - Indonesia
- Intertek Mineral Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wilmar Investment Holdings
- Timah Investasi Mineral - Indoneisa
- PetroVietnam Power Coal Import and Supply Company
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Mercator Lines Limited - India
- Bhatia International Limited - India
- PTC India Limited - India
- ASAPP Information Group - India
- Kartika Selabumi Mining - Indonesia
- The University of Queensland
- Holcim Trading Pte Ltd - Singapore
- Ceylon Electricity Board - Sri Lanka
- Billiton Holdings Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Bangladesh Power Developement Board
- Port Waratah Coal Services - Australia
- Petron Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- Makarim & Taira - Indonesia
- Bhoruka Overseas - Indonesia
- Aditya Birla Group - India
- Power Finance Corporation Ltd., India
- Thiess Contractors Indonesia
- LBH Netherlands Bv - Netherlands
- Uttam Galva Steels Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jindal Steel & Power Ltd - India
- Sarangani Energy Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Marubeni Corporation - India
- Central Java Power - Indonesia
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Kobexindo Tractors - Indoneisa
- Singapore Mercantile Exchange
- PowerSource Philippines DevCo
- Banpu Public Company Limited - Thailand
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement PLC, Thailand
- Coalindo Energy - Indonesia
- Mercuria Energy - Indonesia
- Ministry of Mines - Canada
- Lanco Infratech Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Indonesian Coal Mining Association
- CNBM International Corporation - China
- Posco Energy - South Korea
- Global Business Power Corporation, Philippines
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Coal and Oil Company - UAE
- Binh Thuan Hamico - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Metalloyd Limited - United Kingdom
- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CIMB Investment Bank - Malaysia
- VISA Power Limited - India
- Wood Mackenzie - Singapore
- Gujarat Sidhee Cement - India
- Ambuja Cements Ltd - India
- MS Steel International - UAE
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