Kastor Navigation Company Ltd v AGF MAT (Kastor to)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix |
| Judgment Date | 10 March 2004 |
| Neutral Citation | [2004] EWCA Civ 277 |
| Docket Number | Case No: A3/2003/0063 & A3/2003/0712 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 March 2004 |
[2004] EWCA Civ 277
Lord Justice Tuckey
Lord Justice Rix and
Lord Justice Neuberger
Case No: A3/2003/0063 & A3/2003/0712
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Hon Mr Justice Tomlinson
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr Steven Berry QC & Miss Philippa Hopkins (instructed by Messrs Holman Fenwick & Willan) for the Appellants
Mr Bernard Eder QC and Mr Andrew W Baker (instructed by Messrs Bentley Stokes & Lowless) for the Respondents
This is the judgment of the court to which each member of the court has contributed.
On 9 March 2000 at about 1420 a fire began in the engine room of the vessel Kastor Too. Fifteen hours later at between 0500 and 0600 on 10 March she sank in deep water between the island of Socotra and the coast of Yemen. She had been on a voyage from Aqaba to Vizagapatnam with a cargo of phosphate. She was a steel-built four hold motor bulker of 17,665 tonnes deadweight, 148m in length, built in Japan in 1977.
Kastor Too had been insured under a contract of marine insurance contained in a slip policy on the MAR 1991 form for a period of 24 months at 30 December 1999. Her agreed value was US$3 million. The defendants, in this court the appellants, subscribed to 80 per cent of that risk. We shall call them the "insurers". The claimants, here the respondents, are respectively the owners and the mortgagees of the vessel. We shall call them the "owners". The insured perils included fire and perils of the sea. However, it is well known and has at all times been common ground that perils of the sea do not include the mere entry of seawater because of ordinary wear and tear and in the absence of some accident or fortuity.
The owners' case was that the fire had led in turn to explosions and to such effect on the vessel's structure as to cause her to sink. There was no separate case that the entry of the seawater had been caused by any other fortuity. It was the insurers' defence, however, that the fire had not caused the vessel to sink, and that the vessel had been lost because of entry of seawater from merely unexplained causes. They had no positive case of scuttling, but they were clearly suspicious and wished to put the owners to proof that the vessel's sinking had been caused by fire. They did not at first admit any fire, but, if a fire had occurred, they again had no positive case that it had been started deliberately. On the eve of trial, however, they did admit a fire and ultimately, by the end of the trial, they also accepted that it was accidental. But they always contended that the fire and the entry of seawater were independent, if coincident, events, and that only the seawater was causative of the vessel's loss. The logic of the dispute was thus as follows. If the vessel was lost because of the fire, there was cover under the policy, but if it was not, then the insurers were not liable. The insurers relied among other things upon the common ground between experts that a steel ship such as Kastor Too should not sink as a result of an engine room fire and that for her to have sunk within 15 hours or so of the outbreak of fire would be very remarkable.
When the owners began proceedings, on 1 November 2000, their only claim was that the vessel had become an actual total loss. Their claim was that the vessel's loss was caused by "(a) the fire and/or (b) the explosions and/or (c) the fortuitous ingress of seawater". In August 2001, however, they added an alternative case that the vessel had suffered a constructive total loss, because "prior to her sinking" she was so damaged by fire that the cost of repairing her would have exceeded her value when repaired. They estimated the cost of repairs to damage suffered by the time of sinking to be $7/8 million.
At trial Tomlinson J held that the alternative constructive total loss claim succeeded, but the actual total loss claim failed: [2002] EWHC 2601 (Comm), [2003] 1 All ER (Comm) 277, [2003] 1 Lloyd's Rep 296. He agreed with the insurers that the fire had not caused the sinking, which rather was due to an independent entry of water from some unexplained cause not shown to be fortuitous. However, he agreed with the owners that the fire had led to the constructive total loss of the vessel at some material time prior to her sinking. He therefore awarded the owners (the appropriate percentage of) the agreed value of the vessel plus interest, a total of $3.49 million. He gave the insurers permission to appeal. He reserved the question of costs.
At a subsequent hearing the judge heard detailed argument on costs. The owners had obtained judgment on their claim, but they had lost on the issue which had taken most time at trial and caused the greater part of the expense of litigation. In a second, reserved judgment he explained his reasons for ordering the insurers to pay only 15% of the costs of the action to the owners and for ordering the owners to pay 85% of the costs of the action to the insurers. In effect, on the assumption that the parties' costs were in the same amount, the owners, despite their overall success in the litigation, would have to pay the insurers 70% of their costs: [2003] EWHC 472 (Comm), 17 March 2003. Since the costs expended on both sides were very substantial, the owners obtained something of a Pyrrhic victory. The judge gave them permission to appeal on the issue of costs.
The owners by their respondents' notice on the (insurers') main appeal also sought to support the judge's order, in the alternative, on the ground that he had erred in rejecting their case of actual total loss. If the judge had stated in his order that it was made on the basis of a finding of constructive total loss, the owners would probably have had to seek permission for their cross-appeal on actual total loss (see Cie Noga d'Importation et d'Exportation SA v. Australia and New Zealand Banking Group Ltd [2002] EWCA 1142, [2003] 1 WLR 307). As it is, the owners having advanced their cross-appeal on the ground of actual total loss withdrew it shortly before the oral hearing. On the merits therefore only the insurers' appeal from the finding of constructive total loss remained for argument, and the owners' cross-appeal on the question of costs would be relevant only if the insurers' appeal failed. It is nevertheless relevant both to certain aspects of the insurers' substantive appeal and to the owners' costs appeal to set out the way in which the constructive total loss issue emerged in the course of the litigation.
The emergence of the constructive total loss issue in the course of the litigation
Members of the public are, we suspect, familiar with the concept of the writing-off of motor-cars which have suffered an accident causing damage that is not worth repairing. However, it is only marine insurance that formally recognises the concept of a constructive total loss. Outside marine insurance, the only total loss which is acknowledged is an actual total loss. Marine insurance, however, has two kinds of total loss, actual and constructive. Both are equally total losses. Constructive total loss can itself come in several forms, but the one claimed by the owners in this case is that mentioned in section 60(2)(ii) of the Marine Insurance Act 1906 (the "Act"), which applies when a vessel "is so damaged by a peril insured against, that the cost of repairing the damage would exceed the value of the ship when repaired".
Normally, a claim for a constructive total loss has to be notified to the insurers in the form of a "notice of abandonment". Section 62(1) of the Act says in terms that the assured "must give notice of abandonment" and that if he fails to do so "the loss can only be treated as a partial loss". This is so that the insurer who is on risk and is willing to pay can be put in a position to avail himself promptly of the rights and remedies which accompany his taking over the vessel. Exceptionally, however, a notice of abandonment is unnecessary, in particular where at the time the assured learns of the loss "there would be no possibility of benefit" to the underwriter from such a notice being given to him (section 62(7)). It is common ground that that can arise where, as in this case, an assured only learns of the constructive total loss after the vessel has also become an actual total loss.
The insurers' response to this alternative plea was to deny that there had been any constructive total loss. Initially, the defence went no further than to put the owners to proof of the essential ingredients of the constructive total loss relied upon. Thus there was no admission of the fire, or of its extent, or of its causing any damage or in particular of its causing damage extensive enough to make the ship not worth repairing. Similarly, it was not admitted that a notice of abandonment could be dispensed with.
By the time the trial had begun, however, a fire had been admitted (although its extent and course of development had not). Moreover, the parties' expert marine surveyors had agreed that "had the vessel not sunk, the cost of damage repairs would probably have substantially exceeded US$3,000,000". (The figure of $3 million was taken, rather than "the value…when repaired", because the policy provided by clause 19.2 of the Incorporated Institute clauses that no claim for constructive total lost based upon cost of repair would be recoverable unless such cost exceeded the agreed value.)
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