UK: The "RENOS" – High Court Clarifies Approach To CTL Calculations

Last Updated: 27 July 2016
Article by Simon Jackson, David Handley and Marie Sundell

A recent decision of the High Court has provided clarification on a question which had remained unanswered for many years – when assessing a constructive total loss (CTL) should the value of salvage services incurred prior to the issue of a Notice of Abandonment (NOA) be taken into account?

Facts

The "RENOS" was on a laden passage along the Egyptian coast when a fire broke out in the engine room. The vessel arrived at Suez on 31 August 2012 and, with remarkable speed, by 3 September the owners' independent surveyor indicated that the vessel could be a CTL. That was not, however, a view shared by two surveyors appointed by the insurers who considered that the damage to the vessel fell short of the level of damage required for a CTL. 

By 8 October 2012, the classification society issued their report on the repairs they considered necessary.  By 24 October 2012, within 2 months of the casualty, the owners provided a detailed repair specification which was sent to the insurers.  In November 2012, the insurers sent their surveyors' comments back to the owners and commissioned a further survey together with a detailed repair specification. By the end of December a number of varying quotations from shipyards had been received, some based on the owners' repair specifications suggesting the strong possibility that the vessel was a CTL, others based on the insurers' surveyors' specifications suggesting the vessel was not a CTL. Unable to resolve the impasse, the owners gave NOA on 1 February 2013, 6 months after the casualty. 

Timing of the NOA

The first issue that the Judge had to resolve was whether the Owners had lost the right to issue an NOA by 1 February 2013 given that section 62(3) of the Marine Insurance Act 1906  provides that a 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 judge, Knowles J, held that the NOA had been given in time when viewed in the context of a difficult and complex casualty and conflicting advice as to repair specifications: "Broadly speaking, it was not realistic to take one source in isolation; the presence of conflicting information from other sources threw the reliability of any one source into question. The assessment to be made was a major one for any person to make, if it was to be undertaken reasonably and responsibly. It is also important to keep in mind the difference between the calm of the courtroom some years later with the moving situation in Egypt at the time".

Interestingly, the insurers also argued that the owners could have given a "protective NOA" prior to incurring the costs of recovery and repair so that costs would fall after the NOA was provided, the implication being that there would be no difficulty in Owners issuing more than one NOA (each without prejudice to another) and/or subsequently deciding whether their original NOA was to be binding on them or not.  The Judge could not support this approach given that, by section 62(2) of the Marine Insurance Act 1906, an NOA must be irrevocable. If a "protective NOA" were to be given, it might be open to challenge as the owners might still not have formed the view to abandon the ship, or if accepted, it could bind the owners in circumstances where they might not yet have reached a final decision on whether to call for a CTL.  

Are pre-NOA costs to be included in a CTL calculation?

Having determined that NOA was valid, the Judge then had to consider whether its timing had any impact on the CTL calculation.  In particular, the insurers argued that any costs of recovery or repair incurred prior to the NOA should be excluded, consistent with the authorities (The Medina Princess [1965] 1 Lloyd's Rep 361 and Hall v Hayman (1912) 17 Comm Cas 81), albeit that the editors of Arnould's Law of Marine Insurance and Average (18th Edition) considered these authorities to be wrong.

Knowles J adopted the approach advocated by the editors of Arnould. The starting point was that the policies incorporated the Institute Time Clauses – Hulls (1/10/83) and the Institute Time Clauses – Hulls Disbursement and Increased Value Clauses (1/10/83) and neither contained any express language limiting the cost of recovery or repair to costs incurred after the NOA had been tendered.

There was also no reason in principle to exclude such costs.  Whilst section 60(2)(ii) of the Marine Insurance Act 1906 states that, in calculating a CTL, "future" salvage and general average costs are to be taken into account, it does not thereby exclude salvage and general average costs already accrued at the date of abandonment. Knowles J relied on an address of Donaldson LJ to the Average Adjusters Association in 1982 in which he made clear that the correct date for the purposes of assessment was the date of the casualty: to divide salvage costs by reference to the date of an NOA tendered at some date after the casualty would be artificial.  That this approach departed from The Medina Princess and Hall v Hayman did not cause Knowles J any difficulty as, in his judgment, they were wrongly decided.

Approach to calculation of a CTL generally

Having addressed the above points of principle, the Judge then had to go through the process of assessing various items of repair to determine whether the vessel was a CTL.  The Judge was able to do so with the benefit of a number of recent (and significant) cases on the issue and in particular the Irene EM (Venetico Marine SA v International General Insurance Company Limited and 19 others [2014] 1 Lloyd's Rep. 349) and The Brillante Virtuoso ((1) Suez Fortune Investments Ltd, (2) Piraeus Bank AE v Talbot Underwriting Ltd and others [2015] EWHC 42 (Comm) ). In these cases, owners had been able to establish CTLs against underwriters against the background of judicial endorsement of the concept of a "large margin" of contingency in Owners' favour.

 Of particular interest in this case, however, was the approach to SCOPIC liability, which insurers argued could not properly be described as a "cost of repair" because it constituted additional compensation to encourage salvors to minimise the environmental impact of a casualty. Also, it was the P&I insurers who paid this liability, not the H&M insurers, and so they argued that it could not be the correct approach to allow costs which were not indemnifiable under the H&M policy as part of the calculation.  The judge disagreed, holding that  SCOPIC remuneration was "an indivisible" part of an item that insurers accept as a cost of repair, as were the (reasonable) legal costs of salvage arbitration.

Comment

This decision continues the recent trend of success by owners  seeking to establish CTLs before the English courts, and builds upon those decisions by providing additional clarification that:

  1. salvage and general average costs incurred prior to the issue of a NOA may be included in any CTL calculation, thereby confirming the view of the editors of Arnould at the expense of existing case law; and
  2. SCOPIC is an integral part of necessary salvage operations, despite being paid for by different insurers, which confirms a view that many practitioners have taken over the years.  

The "RENOS" – High Court Clarifies Approach To CTL Calculations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions