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