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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, 07 March 18
WHEN AN IRRESISTIBLE FORCE MEETS AN IMMOVABLE OBJECT - GARD
KNOWLEDGE TO ELEVATE
Negotiable bills of lading are fundamental to trade. As documents of title, they are essential to the sale and carriage o ...
Wednesday, 07 March 18
SHIPPING MARKET INSIGHT - GIANNIS ANDRITSOPOULOS
The comparably small upside Handysize asset values have noted compared to other sizes since the historical lows of the dry bulk market in combinati ...
Tuesday, 06 March 18
FOREIGN INVESTORS ALLOWED TO BID FOR BIG MINING CONCESSIONS - THE JAKARTA POST
The government has allowed foreign investors to bid for mining concessions with a total area of more than 500 hectares, while smaller areas will be ...
Tuesday, 06 March 18
LNG VESSELS HAVE EMERGED AS THE FASTEST GROWING SEGMENT FOR THE WATERWAY - GERRY LATHROP
The day was July 25th 2016, a partly cloudy day on the Panama canal, and to most people a rather innocuous day without any real merit, however in s ...
Friday, 02 March 18
ANGLO AMERICAN COMPLETES SALE OF ESKOM-TIED THERMAL COAL OPERATIONS IN SOUTH AFRICA
Anglo American plc (“Anglo American”) confirms completion of the sale of its Eskom-tied domestic thermal coal operations in South Afric ...
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Showing 1786 to 1790 news of total 6871 |
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- Singapore Mercantile Exchange
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- Sojitz Corporation - Japan
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- Australian Coal Association
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- TNB Fuel Sdn Bhd - Malaysia
- GN Power Mariveles Coal Plant, Philippines
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- Global Coal Blending Company Limited - Australia
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- PTC India Limited - India
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- Latin American Coal - Colombia
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- Anglo American - United Kingdom
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- The Treasury - Australian Government
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- Heidelberg Cement - Germany
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Minerals Council of Australia
- Electricity Authority, New Zealand
- Kumho Petrochemical, South Korea
- AsiaOL BioFuels Corp., Philippines
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- Bulk Trading Sa - Switzerland
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- Carbofer General Trading SA - India
- Uttam Galva Steels Limited - India
- Agrawal Coal Company - India
- Globalindo Alam Lestari - Indonesia
- GMR Energy Limited - India
- CIMB Investment Bank - Malaysia
- LBH Netherlands Bv - Netherlands
- Pipit Mutiara Jaya. PT, Indonesia
- Makarim & Taira - Indonesia
- Kartika Selabumi Mining - Indonesia
- London Commodity Brokers - England
- Australian Commodity Traders Exchange
- South Luzon Thermal Energy Corporation
- Posco Energy - South Korea
- GAC Shipping (India) Pvt Ltd
- Karaikal Port Pvt Ltd - India
- Chamber of Mines of South Africa
- New Zealand Coal & Carbon
- Grasim Industreis Ltd - India
- Meralco Power Generation, Philippines
- Central Electricity Authority - India
- Commonwealth Bank - Australia
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- India Bulls Power Limited - India
- Jaiprakash Power Ventures ltd
- Samtan Co., Ltd - South Korea
- Bangladesh Power Developement Board
- Ind-Barath Power Infra Limited - India
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Rashtriya Ispat Nigam Limited - India
- ASAPP Information Group - India
- Siam City Cement PLC, Thailand
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- White Energy Company Limited
- The University of Queensland
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- Georgia Ports Authority, United States
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- Borneo Indobara - Indonesia
- GVK Power & Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Indika Energy - Indonesia
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- Africa Commodities Group - South Africa
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- Semirara Mining and Power Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Cigading International Bulk Terminal - Indonesia
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- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Price Waterhouse Coopers - Russia
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- SN Aboitiz Power Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- TeaM Sual Corporation - Philippines
- IHS Mccloskey Coal Group - USA
- Vedanta Resources Plc - India
- Riau Bara Harum - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Bank of Tokyo Mitsubishi UFJ Ltd
- CNBM International Corporation - China
- Bhushan Steel Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sree Jayajothi Cements Limited - India
- Barasentosa Lestari - Indonesia
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
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- Merrill Lynch Commodities Europe
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- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement - Thailand
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- ICICI Bank Limited - India
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Salva Resources Pvt Ltd - India
- MS Steel International - UAE
- Toyota Tsusho Corporation, Japan
- Aditya Birla Group - India
- Kalimantan Lumbung Energi - Indonesia
- Binh Thuan Hamico - Vietnam
- Planning Commission, India
- Altura Mining Limited, Indonesia
- Economic Council, Georgia
- Kohat Cement Company Ltd. - Pakistan
- Formosa Plastics Group - Taiwan
- PowerSource Philippines DevCo
- Indonesian Coal Mining Association
- Interocean Group of Companies - India
- European Bulk Services B.V. - Netherlands
- Chettinad Cement Corporation Ltd - India
- Thiess Contractors Indonesia
- Mjunction Services Limited - India
- Rio Tinto Coal - Australia
- Ministry of Mines - Canada
- Trasteel International SA, Italy
- Parry Sugars Refinery, India
- Star Paper Mills Limited - India
- Thai Mozambique Logistica
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- PetroVietnam Power Coal Import and Supply Company
- Electricity Generating Authority of Thailand
- Mercuria Energy - Indonesia
- Petron Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Global Green Power PLC Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Bayan Resources Tbk. - Indonesia
- Orica Mining Services - Indonesia
- Baramulti Group, Indonesia
- Port Waratah Coal Services - Australia
- Simpson Spence & Young - Indonesia
- Larsen & Toubro Limited - India
- Straits Asia Resources Limited - Singapore
- Ministry of Finance - Indonesia
- The State Trading Corporation of India Ltd
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- SMG Consultants - Indonesia
- Gujarat Mineral Development Corp Ltd - India
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