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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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Wednesday, 07 January 15
2015 IS RIDDLED WITH CHALLENGES FOR THE SHIPPING SECTOR, MOST NOTABLY THE DRY BULK MARKET - HELLENIC SHIPPING NEWS
As the new year has now set foot for real, many are still looking to detect what’s in store for the various shipping markets, with the first ...
Tuesday, 06 January 15
SHIPPING MUST ADOPT CAN-DO ATTITUDE IN 2015 - MOORE STEPHENS
Shipping needs to adopt a can-do attitude in order to successfully meet the challenges which are likely to come its way in 2015.
Shipping part ...
Tuesday, 06 January 15
Q4' 15 FOB INDONESIA COAL SWAP CLOSED 1.81% HIGHER COMPARED TO Q1' 15 CLOSING
COALspot.com: Indonesian coal swaps for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 0.74 (-1.51%) m ...
Tuesday, 06 January 15
FOB RICHARDS BAY COAL SWAPS LOST W-O-W AND M-O-M, SGX DATA SHOWS
COALspot.com: API 4 FOB Richards Bay Coal for delivery Q1' 2015 lost month on month and week over week.
The Q1 swap has lost US$ 3.52 (-5. ...
Monday, 05 January 15
CFR SOUTH CHINA COAL SWAPS GAINED WEEK OVER WEEK, SGX DATA SHOWS
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2015 delivery has decreased by US$ 2.50 (-4.02%) month over month and gained US$ 0.20 ( ...
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- South Luzon Thermal Energy Corporation
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- Central Electricity Authority - India
- TeaM Sual Corporation - Philippines
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- Global Coal Blending Company Limited - Australia
- Marubeni Corporation - India
- Interocean Group of Companies - India
- Alfred C Toepfer International GmbH - Germany
- Metalloyd Limited - United Kingdom
- Kepco SPC Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Carbofer General Trading SA - India
- London Commodity Brokers - England
- Deloitte Consulting - India
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- GMR Energy Limited - India
- PowerSource Philippines DevCo
- Savvy Resources Ltd - HongKong
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- Uttam Galva Steels Limited - India
- Sical Logistics Limited - India
- Eastern Energy - Thailand
- Attock Cement Pakistan Limited
- Indian Oil Corporation Limited
- Singapore Mercantile Exchange
- CIMB Investment Bank - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Aditya Birla Group - India
- Minerals Council of Australia
- Essar Steel Hazira Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Australian Coal Association
- Directorate Of Revenue Intelligence - India
- White Energy Company Limited
- ASAPP Information Group - India
- Meenaskhi Energy Private Limited - India
- Bukit Baiduri Energy - Indonesia
- Grasim Industreis Ltd - India
- Heidelberg Cement - Germany
- Manunggal Multi Energi - Indonesia
- New Zealand Coal & Carbon
- Miang Besar Coal Terminal - Indonesia
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- SN Aboitiz Power Inc, Philippines
- Dalmia Cement Bharat India
- European Bulk Services B.V. - Netherlands
- Samtan Co., Ltd - South Korea
- MS Steel International - UAE
- Planning Commission, India
- San Jose City I Power Corp, Philippines
- Chamber of Mines of South Africa
- Romanian Commodities Exchange
- Intertek Mineral Services - Indonesia
- SMG Consultants - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Merrill Lynch Commodities Europe
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Tata Chemicals Ltd - India
- OPG Power Generation Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Independent Power Producers Association of India
- Wilmar Investment Holdings
- Rio Tinto Coal - Australia
- Indonesian Coal Mining Association
- Cigading International Bulk Terminal - Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement - Thailand
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- Ministry of Finance - Indonesia
- Thiess Contractors Indonesia
- Cement Manufacturers Association - India
- Indian Energy Exchange, India
- Semirara Mining and Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Holcim Trading Pte Ltd - Singapore
- Bhoruka Overseas - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Neyveli Lignite Corporation Ltd, - India
- CNBM International Corporation - China
- Maharashtra Electricity Regulatory Commission - India
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Jindal Steel & Power Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Goldman Sachs - Singapore
- Pendopo Energi Batubara - Indonesia
- Toyota Tsusho Corporation, Japan
- Ind-Barath Power Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Energy Link Ltd, New Zealand
- Petron Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- PTC India Limited - India
- Kobexindo Tractors - Indoneisa
- Tamil Nadu electricity Board
- Orica Australia Pty. Ltd.
- Latin American Coal - Colombia
- Gujarat Sidhee Cement - India
- Star Paper Mills Limited - India
- Bhatia International Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Sindya Power Generating Company Private Ltd
- Simpson Spence & Young - Indonesia
- Banpu Public Company Limited - Thailand
- Bhushan Steel Limited - India
- Mercator Lines Limited - India
- Parry Sugars Refinery, India
- Central Java Power - Indonesia
- Meralco Power Generation, Philippines
- Kohat Cement Company Ltd. - Pakistan
- Vijayanagar Sugar Pvt Ltd - India
- Commonwealth Bank - Australia
- SMC Global Power, Philippines
- Therma Luzon, Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- The University of Queensland
- Larsen & Toubro Limited - India
- GAC Shipping (India) Pvt Ltd
- Edison Trading Spa - Italy
- Madhucon Powers Ltd - India
- Jaiprakash Power Ventures ltd
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Antam Resourcindo - Indonesia
- The Treasury - Australian Government
- Standard Chartered Bank - UAE
- Electricity Authority, New Zealand
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Orica Mining Services - Indonesia
- Kartika Selabumi Mining - Indonesia
- Trasteel International SA, Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Medco Energi Mining Internasional
- McConnell Dowell - Australia
- Baramulti Group, Indonesia
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- Eastern Coal Council - USA
- Bangladesh Power Developement Board
- Straits Asia Resources Limited - Singapore
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Africa Commodities Group - South Africa
- India Bulls Power Limited - India
- Aboitiz Power Corporation - Philippines
- Port Waratah Coal Services - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mintek Dendrill Indonesia
- Coastal Gujarat Power Limited - India
- Oldendorff Carriers - Singapore
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Bharathi Cement Corporation - India
- Maheswari Brothers Coal Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Georgia Ports Authority, United States
- Energy Development Corp, Philippines
- Mercuria Energy - Indonesia
- Bukit Makmur.PT - Indonesia
- Ministry of Transport, Egypt
- Formosa Plastics Group - Taiwan
- Coal and Oil Company - UAE
- Borneo Indobara - Indonesia
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Gujarat Mineral Development Corp Ltd - India
- Coalindo Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- Sree Jayajothi Cements Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Thai Mozambique Logistica
- Krishnapatnam Port Company Ltd. - India
- International Coal Ventures Pvt Ltd - India
- Parliament of New Zealand
- Kumho Petrochemical, South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- IHS Mccloskey Coal Group - USA
- Australian Commodity Traders Exchange
- Leighton Contractors Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Semirara Mining Corp, Philippines
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Xindia Steels Limited - India
- VISA Power Limited - India
- Price Waterhouse Coopers - Russia
- Karbindo Abesyapradhi - Indoneisa
- GVK Power & Infra Limited - India
- Rashtriya Ispat Nigam Limited - India
- Bulk Trading Sa - Switzerland
- Petrochimia International Co. Ltd.- Taiwan
- Power Finance Corporation Ltd., India
- Ambuja Cements Ltd - India
- Sakthi Sugars Limited - India
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