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Friday, 06 February 15
SHIP DAMAGED BY FIRE CAUSED BY PIRATES FOUND TO BE CONSTRUCTIVE TOTAL LOSS - TAYLOR WESSING
 KNOWLEDGE TO ELEVATE
The High Court was asked to determine a number of preliminary issues, including whether a vessel was a constructive total loss (“CTL”), whether the claimants had lost the right to claim for a CTL by selling the vessel, and whether the claimants were entitled to an indemnity for salvage, tug hire and port expenses under a war risks policy.
Background
The first claimant was the owner of the tanker Brillante Virtuoso (the “vessel”). The vessel was insured against war risks under a policy underwritten by the defendants. The second claimant was the mortgagee of the vessel and the co-assured under the policy. The value of the vessel under the hull and machinery section of the policy was US$55 million, and a further US$22 million under the increased value section of the policy.
In July 2011, whilst en route from the Ukraine to China, the vessel (carrying a cargo of fuel oil) stopped off in Aden in order for an unarmed security team to embark ahead of their journey through the Gulf of Aden and the Indian Ocean where there is a risk of pirate attacks. However, whilst the vessel was waiting, it was in fact boarded by armed pirates who detonated an explosive device causing a fire on board and destroying a substantial proportion of machinery and equipment. The vessel subsequently became a dead ship with no power.
The crew were rescued by the US navy and the owners engaged a salvage company the same day to extinguish the fire. The owners’ consultant surveyor inspected the ship and sought quotations from shipyards in the Middle East and China for the cleaning and repairs of the vessel. He formed the opinion that the cost of repair would exceed the insured value of US$55 million. Accordingly, the owners tendered a notice of abandonment (“NOA”) to the insurers declaring the vessel a CTL. The insurers rejected the NOA.
The owners instructed shipbrokers to sell the vessel to a suitable buyer for scrap, however, the shipbrokers struggled to find a purchaser, and only managed to secure an offer of US$700,000 for the vessel. The insurers did not object to the sale at the time (in spite of being given an opportunity to do so) and the vessel was subsequently sold.
The claimants’ case was that the vessel suffered loss and damage by reason of an insured peril or perils (i.e. the acts of pirates and/or persons acting maliciously, alternatively terrorists and/or persons acting from a political motive and/or the vessel suffered loss and damage by reason of piracy, vandalism, sabotage, violent theft and/or malicious mischief).
The claimants claimed an indemnity for:
(i) a CTL;
(ii) if the vessel was not a CTL for partial loss and loss of hire and
(iii) sue and labour expenses incurred.
The insurers’ defence was that the claimants were not entitled to cover under the policy because, by delaying transit through the Gulf of Aden and/or calling at a port or place within the Gulf, the owners were in breach of the Talbot Gulf of Aden warranty which prevented vessels calling at any port or place or delaying their passage when transiting and/or the owners were in breach of the warranty by failing to apply Best Management Practices to Deter Piracy. The claimants denied this allegation.
Issues examined by the Court
Was the vessel a Constructive Total Loss?
The Court analysed the law on CTL and, in particular, examined section 60(2)(ii) of the Marine Insurance Act 1906 which states that a vessel is a CTL “where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired.” Clause 19 of the Institute Time Clauses-Hulls also qualifies this further by stating:
“The measure of indemnity in respect of claims for unrepaired damage shall be the reasonable depreciation in the market value of the Vessel at the time this insurance terminates arising from such unrepaired damage, but not exceeding the reasonable cost of repairs…”
The Court held that in order to succeed in establishing that the vessel was a CTL, the claimants had to prove that the cost of repairing the vessel would have exceeded the insured value of US$55 million.
The Court held that in assessing the costs of repair to the vessel, the question to be asked is what a prudent uninsured shipowner in the position of the claimants would have done in deciding whether or not to repair the vessel, and where and how the repair should be carried out.
The Court acknowledged that in this case, it was not possible to determine with complete accuracy the actual extent of damage to the vessel. In cases such as this, where matters cannot be determined with precision, the Court has to apply a “large margin” to any repair estimate. The Court recognised that a margin of error has to be applied in relation to the extent of the damage where it was not possible to investigate fully and the assessment of the cost of repair has to take account of the fact that the items which were not opened up and tested might well have required replacement, so that a prudent uninsured owner would have replaced them.
Where should the repairs have been carried out?
The Court also held that whilst cost is an important factor in determining where the prudent uninsured owner would have carried out the repairs, it is not determinative. Accordingly, the Court considered that the prudent uninsured owner would consider all the other factors which might well make the closer (whilst more expensive) yard the proper and appropriate place for repair. Hence, the Court considered that the prudent uninsured owner would have favoured repair in these circumstances in Dubai rather than China, even though the quotations for repairs in China were much lower than in the Middle East. Accordingly, the Court found that the vessel was a CTL.
Had the owners lost the right to claim for CTL by selling the vessel?
The Court held that the owners had not lost the right to claim for a CTL by selling the vessel, as the insurers were well aware throughout that the owners were proposing to sell the vessel and did not object to it. By selling the vessel, the owners were acting in the interests of both themselves and the insurers.
Sue and labour costs
In considering whether an indemnity was payable to the claimants for expenditure in relation to the costs of salvage, tugs and agency fees, the Court disagreed with the insurers’ case that once the vessel had been redelivered by the salvors, any insured peril which had been operating (e.g. violent theft, piracy, vandalism, sabotage and malicious mischief) ceased to operate. The Court found that until the vessel was in a place of safety, the insured peril continued to operate, even after redelivery by the salvors. The Court also held that the cost of the standby tugs and the associated agency expenses were incurred not only for the benefit of the owners, but for the benefit of the insurers, so that they were recoverable as sue and labour expenses.
However, the Court agreed with the insurers that the entitlement to recover sue and labour expenses ceased once the claim form was issued. The Court applied the decision in Kuwait Airways v Kuwait Insurance2 that the issue of the claim form (or writ) crystallises the rights and obligations of the parties to the contract of insurance, so that the relations between the parties are thereafter governed by the Civil Procedure Rules, rather than the contract of insurance. Hence the duty of utmost good faith ceases once proceedings are issued and sue and labour expenses incurred in that period are not recoverable as they were incurred solely for the owner’s benefit.
Source: Taylor Wessing Hellenic Shipping
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Monday, 09 February 15
Q2' CFR SOUTH CHINA COAL SWAP DECLINED 3.28% TO $ 56.92 W-O-W
COALspot.com: API 8 CFR South China Coal swap for Q2’ 2015 delivery declined US$ 1.93 (-3.28%) per MT month over month and US$ 0.10 (-0 ...
Sunday, 08 February 15
BDI FELL CONTINUOUSLY HIT A THREE DECADES LOW
COALspot.com: This week Baltic Exchange Dry Freight Index (BDI) fell continuously hit a three decades low.
The BDI continuously fell and was d ...
Friday, 06 February 15
WEEKLY U.S. COAL PRODUCTION UP AN ESTIMATED 1.1% FROM LAST WEEK - EIA
COALspot.com – United States the world's one of the largest coal producers, produced approximately 20.1 million short tons (mmst) of coal ...
Thursday, 05 February 15
BDI HAS NOW FALLEN A LEVEL CLOSE TO THE INDEX'S HISTORIC LOW - INTERMODAL
They say a picture is worth a thousand words and in this instance just one look at the tables above is enough to understand the great pressure the ...
Thursday, 05 February 15
ULTRAMAX LEVELS FROM INDIA TO CHINA IN THE MID US$ 5000'S - FEARNLEYS AS
Handy
Despite the overall weak sentiment, there is a scent of optimism in the Atlantic market for ppt dates. Continent is still struggling with o ...
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- Indo Tambangraya Megah - Indonesia
- Thai Mozambique Logistica
- Kumho Petrochemical, South Korea
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- Alfred C Toepfer International GmbH - Germany
- Africa Commodities Group - South Africa
- Xindia Steels Limited - India
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- Eastern Coal Council - USA
- Sakthi Sugars Limited - India
- Planning Commission, India
- Mercuria Energy - Indonesia
- Kaltim Prima Coal - Indonesia
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- Petron Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Eastern Energy - Thailand
- Chettinad Cement Corporation Ltd - India
- Essar Steel Hazira Ltd - India
- Kartika Selabumi Mining - Indonesia
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- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Goldman Sachs - Singapore
- Indonesian Coal Mining Association
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- The State Trading Corporation of India Ltd
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- Bukit Asam (Persero) Tbk - Indonesia
- SMC Global Power, Philippines
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Salva Resources Pvt Ltd - India
- Edison Trading Spa - Italy
- Kohat Cement Company Ltd. - Pakistan
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- Central Java Power - Indonesia
- Coastal Gujarat Power Limited - India
- Directorate General of MIneral and Coal - Indonesia
- New Zealand Coal & Carbon
- ASAPP Information Group - India
- Electricity Generating Authority of Thailand
- Savvy Resources Ltd - HongKong
- Commonwealth Bank - Australia
- European Bulk Services B.V. - Netherlands
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- OPG Power Generation Pvt Ltd - India
- Therma Luzon, Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Sidhee Cement - India
- Ceylon Electricity Board - Sri Lanka
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- Iligan Light & Power Inc, Philippines
- PTC India Limited - India
- Deloitte Consulting - India
- Bulk Trading Sa - Switzerland
- Meenaskhi Energy Private Limited - India
- Wood Mackenzie - Singapore
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- Bangladesh Power Developement Board
- Dalmia Cement Bharat India
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- Bukit Baiduri Energy - Indonesia
- Economic Council, Georgia
- Kapuas Tunggal Persada - Indonesia
- Grasim Industreis Ltd - India
- Oldendorff Carriers - Singapore
- Bharathi Cement Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Singapore Mercantile Exchange
- Lanco Infratech Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Leighton Contractors Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bukit Makmur.PT - Indonesia
- Makarim & Taira - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Toyota Tsusho Corporation, Japan
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- CNBM International Corporation - China
- Posco Energy - South Korea
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Mjunction Services Limited - India
- Altura Mining Limited, Indonesia
- Samtan Co., Ltd - South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- The University of Queensland
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Kobexindo Tractors - Indoneisa
- Siam City Cement - Thailand
- Australian Commodity Traders Exchange
- Latin American Coal - Colombia
- McConnell Dowell - Australia
- The Treasury - Australian Government
- Renaissance Capital - South Africa
- White Energy Company Limited
- Globalindo Alam Lestari - Indonesia
- Carbofer General Trading SA - India
- Banpu Public Company Limited - Thailand
- Georgia Ports Authority, United States
- Ministry of Finance - Indonesia
- SMG Consultants - Indonesia
- Vizag Seaport Private Limited - India
- Aboitiz Power Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Tamil Nadu electricity Board
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- ICICI Bank Limited - India
- Cement Manufacturers Association - India
- Romanian Commodities Exchange
- Malabar Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Electricity Authority, New Zealand
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- Sojitz Corporation - Japan
- Baramulti Group, Indonesia
- Karaikal Port Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- Parliament of New Zealand
- Bayan Resources Tbk. - Indonesia
- Ministry of Mines - Canada
- Holcim Trading Pte Ltd - Singapore
- GVK Power & Infra Limited - India
- Indika Energy - Indonesia
- Thiess Contractors Indonesia
- Anglo American - United Kingdom
- Ind-Barath Power Infra Limited - India
- Energy Development Corp, Philippines
- Uttam Galva Steels Limited - India
- TeaM Sual Corporation - Philippines
- MS Steel International - UAE
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ambuja Cements Ltd - India
- Manunggal Multi Energi - Indonesia
- Sarangani Energy Corporation, Philippines
- Mercator Lines Limited - India
- PowerSource Philippines DevCo
- CIMB Investment Bank - Malaysia
- Agrawal Coal Company - India
- Asmin Koalindo Tuhup - Indonesia
- Indian Energy Exchange, India
- Straits Asia Resources Limited - Singapore
- Mintek Dendrill Indonesia
- Orica Mining Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Coal Blending Company Limited - Australia
- Directorate Of Revenue Intelligence - India
- Tata Chemicals Ltd - India
- Energy Link Ltd, New Zealand
- VISA Power Limited - India
- Maheswari Brothers Coal Limited - India
- Barasentosa Lestari - Indonesia
- Chamber of Mines of South Africa
- Global Business Power Corporation, Philippines
- Interocean Group of Companies - India
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Borneo Indobara - Indonesia
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- Medco Energi Mining Internasional
- Central Electricity Authority - India
- Intertek Mineral Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Global Green Power PLC Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Trasteel International SA, Italy
- Rio Tinto Coal - Australia
- Sical Logistics Limited - India
- Sree Jayajothi Cements Limited - India
- Binh Thuan Hamico - Vietnam
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Bhatia International Limited - India
- Coal and Oil Company - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Attock Cement Pakistan Limited
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
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- Indian Oil Corporation Limited
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- Metalloyd Limited - United Kingdom
- Karbindo Abesyapradhi - Indoneisa
- Kalimantan Lumbung Energi - Indonesia
- GMR Energy Limited - India
- Cigading International Bulk Terminal - Indonesia
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