Counting the costs for a constructive total loss. The Renos.


The Renos provides important guidance as to the costs that can be taken into account in determining whether a vessel is a CTL. The Court of Appeal, [2018] EWCA Civ 230, has upheld the first instance decision of Knowles J, [2016] EWHC 1580 (Comm), that the owners were entitled to be indemnified by their insurers on a constructive total loss (‘CTL’) basis.

On 23 August 2012 a fire broke out in the vessel’s engine while she was on a laden voyage and the owners appointed salvors under LOF 2011. The salvors invoked the SCOPIC clause. On 1 February 2013 the owners served notice of abandonment which the insurers promptly rejected on the grounds that it had been given too late and that owners could only claim on a partial loss basis. Knowles J held that owners did not have reliable information of the loss until 25 January 2013 and that the notice of abandonment (‘NOA’) had been given with reasonable diligence thereafter.

There then came the issue of which costs could be taken into account for the purposes of the CTL calculation. The insurers argued that two costs should be discounted from the CTL calculation. First, there were costs incurred prior to the date of the NOA. The insurers pointed to s.60(2)(ii) of the Marine Insurance Act which provides “In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired…” The insurers argued that the reference to future general average contributions and future salvage operations showed that shows that past salvage and general average costs did not count and there was no logical reason to treat other types of expenses any differently.

Second there were the SCOPIC costs incurred by owners. The insurers argued that these should not count towards the cost of repairs for the CTL calculation. They sought to rely on that para 15 of the SCOPIC clause by way of defence pursuant to the Third Parties (Rights against Insurers) Act 1999. Paragraph 15 provides that “no claim whether direct, indirect, by way of indemnity or recourse or otherwise relating to SCOPIC remuneration in excess of the Article 14 Award shall be made in General Average or under the vessel’s Hull and Machinery Policy by the owners of the vessel.”

Knowles J rejected both arguments. Section 60(2)(ii) of the Marine Insurance Act 1906 did not refer to the giving of NOA and did not distinguish between the time when a repair cost might be incurred. The reference to future general average contributions and future salvage operations were words of inclusion not exclusion. As regards SCOPIC no claim of any sort had been made relating to remuneration under the SCOPIC clause. SCOPIC remuneration was relevant only as part of the cost of repair to be taken account in deciding whether the vessels was a CTL.

The Court of Appeal have upheld the decision of Knowles J on all these points.


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Professor Simon Baughen

Professor Simon Baughen was appointed as Professor of Shipping Law in September 2013 (previously Reader at the University of Bristol Law School). Simon Baughen studied law at Oxford and practised in maritime law for several years before joining academia. His research interests lie mainly in the field of shipping law, but also include the law of trusts and the environmental law implications of the activities of multinational corporations in the developing world. Simon's book on Shipping Law, has run to seven editions (soon to be eight) and is already well-known to academics and students alike as by far the most learned and approachable work on the subject. Furthermore, he is now the author of the very well-established practitioner's work Summerskill on Laytime. He has an extensive list of publications to his name, including International Trade and the Protection of the Environment, and Human Rights and Corporate Wrongs - Closing the Governance Gap. He has also written and taught extensively on commercial law, trusts and environmental law. Simon is a member of the Institute of International Shipping and Trade Law, a University Research Centre within the School of Law, and he currently teaches at Swansea on the LLM in:Carriage of Goods by Sea, Land and Air; Charterparties Law and Practice; International Corporate Governance.

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