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in Shipping Law News 20/07/2016

The Commercial Court recently delivered its judgment in an important

case (Connect Shipping Inc and Machrimar Management SA -v- Sveriges
Anfgartygs Assurans Forening (The Swedish Club) and others) [2016]
EWHC 1580 (Comm), interpreting the law around the obligations of
insurers and the rights of owners in relation to the total loss of a vessel.

The case is authority for the proposition that a NOA tendered ve-and-a-half months after the
casualty is not necessarily late, considering the fact sensitive nature of the legal right
exercised by the shipowner of abandoning his vessel to his insurers. It conrmed that
reasonable expenditure incurred before the issue of a Notice of Abandonment can be
included in the calculation of quantum for a CTL, as well as the owners share of SCOPIC.
Further, the Court followed the nding in another important recent decision the BRILLANTE
VIRTUOSO that inevitable uncertainty about the cost of potential repairs should permit that
calculation to include a signicant contingency (10% in this case).

In the event, the Owners of the vessel the RENOS, represented by Hill Dickinson International,
were successful in claiming of the Insurers their relevant proportions of the US$12 million
under the hull policy (plus sue and labour costs), and triggering a further US$3 million
Increased Value policy claim.
WEEKLY DRY
ESTIMATES
The High Court ruled that the vessel was a constructive total loss following a re that broke
out in the engine room whilst the Vessel was sailing in a laden condition of the Egyptian coast,
in the Red Sea. It was common ground that the re was an insured peril under the policies and
that it caused extensive damage to the Vessel, resulting in her loss of main engine power and
requiring tug assistance. The dispute concerned the measure of the indemnity to which the
Owners were entitled.

The Insurers denied the Vessel was a constructive total loss as a matter of quantum,
contending that the Owners were entitled to an indemnity on a partial loss basis. Owners
therefore brought proceedings in the High Court against the Insurers under the hull and
Read More
machinery policies. In his judgment handed down on 1 July 2016, Mr Justice Knowles ruled
upon ve main issues:
WEEKLY TAN
ESTIMATES
1. Was the notice of abandonment given too late?

The re broke out on 23 August 2012. The NOA was given on 1 February 2013.

Mr Justice Knowles initially considered the meaning of the wording of section 62(3) of the
Marine Insurance Act 1906 (MIA) which provides that the NOA must be given with reasonable
diligence after the receipt of reliable information of the loss, but where the information is of a
doubtful character the assured is entitled to a reasonable time to make inquiry .

The Court noted Roche Js statement in George Cohen v Standard Marine Insurance (1925) 21
Read More
Lloyds Rep 30, that: the assured cannot postpone his election, if all the facts are known,
merely because opinions may uctuate at all events as to the results or proper conclusion to
WEEKLY CON
be drawn from the facts.

This was a case however in which in Mr Justice Knowles judgment, the nature of the casualty
was such that achieving reliable information of the loss would be a complex task and take
time. The Court placed particular emphasis on the fact that owners throughout the period
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NOA were in receipt / ANALYSIS
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involved both on their behalf and that of the underwriters, but also from experienced shipyards
on the estimated costs of repairs, including, importantly, yards consulted by the underwriters.
NewConT
2. Should pre-NOA expenses count towards a CTL?

The issue of whether pre-NOA expenses should count towards a CTL has attracted a lot of
Type
attention from the legal and insurance market as existing case law has not explicitly dealt with date
1100

it in detail.
20.10.2016

The Court found no basis on the wording of clause 19 of the Institute Time Clauses for limiting 18.10.2016

the cost of recovery and repair to recovery and repair after NOA, dierentiating a constructive
13.10.2016
total loss from the right to claim for a constructive total loss, which are two distinct concepts. It
held, therefore, pursuant to a textual interpretation of Clause 9.2 and 19.2 of the Institute Time
Clauses (1/10/83) and section 60 of the MIA, that pre-NOA expenses should be included in a Read More
CTL calculation, reiterating that a NOA is not an essential ingredient of a constructive total loss.
FOLLOW US
The Insurers denied liability based on two grounds. In arguing that pre-NOA expenses should
not count towards a CTL, they proposed that what they termed a protective NOA should be

tendered prior to incurring the costs of recovery and repair in cases where it was possible that
the vessel might become a CTL. The Court dismissed this out of hand observing that, under
the clear provision of section 62(2) of the MIA, once a NOA is accepted the abandonment is
LIVE SHIPS TR
irrevocable.

Secondly, the Insurers also argued that the phrase future salvage operations in section 60(2)
(ii) of the MIA suggests that costs already incurred should not be taken under consideration. Mr
Justice Knowles disagreed, partly departing from two previous decisions, (Helmville Ltd -v-
Yorkshire Insurance Company Lt [1965] 1 Lloyds Rep 361 (the MEDINA PRINCESS) and Hall -
v- Hayman (1912) 17 Comm Cas 81), stating that the phrasing is not restrictive but instead the
legislatures intention was simply to (also) take into account the expenses of future salvage
operations rather than exclude expenses already incurred prior to tendering the NOA.
Read More

3. Speci cally amongst pre-NOA expenses, should SCOPIC remuneration (after Article 13 STOCK NEWS
payments have been taken into account) count towards a CTL calculation?

The Court further considered whether SCOPIC liability is to be taken into account as a cost of Forex Indices
recovery for the purposes of a CTL. Mr Justice Knowles considered the eect of Clause 15 of
the SCOPIC and in accordance with ordinary principles of construction he held that that it is an
indivisible part of the salvage operations arising from the casualty and as such must be
included in the calculation of a CTL.

4. Were the costs for a standby tug reasonably incurred?

Investing.com(GMT
The Owners had employed the services of a standby tug for the period the Vessel remained in
07:00 08:00
the Gulf of Suez, in the event, for about four months.

The Insurers argued that the size and rate of the tug was excessive as the casualty only EUR/USD

required standby services which a smaller tug could perform. GBP/USD

USD/JPY
The Court gave due consideration to the specic nature of the tug market, salvors EUR/GBP

requirement to deliver the vessel to a tug of sucient capabilities on completion of the LOF, EUR/JPY

USD/CNY
the condition of the Vessel and the purposes for which a tug was required and held, on the
AUD/USD
evidence, that it was reasonable and necessary to engage a tug of that size, although not for
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the entire period of four months, as owners should have explored other possibilities in the SPONSORS
meantime, but for around half that time.

5. What margin of general contingency should be allowed?

Both parties accepted the need to allow a contingency but disagreed on the percentage to be
applied. Mr Justice Knowles considered Flaux LJs observations in the recent case BRILLANTE
VIRTUOSO, a case in which the Owners were also represented by Hill Dickinson, and applied a
10% contingency agreeing with Owners approach. The Court emphasized the necessity of
allowance for uncertainty as a result of the nature of the casualty, the location of the Vessel
and the range of estimates and quotations, which undermined the arithmetical test applied by
the Insurers.

It is worth noting that, in the BRILLANTE VIRTUOSO, Flaux LJ held that, in calculating
quantum for assessing if a vessel can be declared a CTL, there might well be uncertainty
about the nature and extent of damage and that the Court would, therefore, allow a large
margin in assessing the cost of repair.

Thus, Mr Justice Knowles held that the NOA was eective and that the vessel, on the evidence,
was a CTL. It is likely that the Insurers will seek leave to appeal on various grounds from the
Court of Appeal after Mr Justice Knowles refused leave to appeal.
Source: Hill Dickinson

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