Suez Fortune Investments Ltd and Another v Talbot Underwriting Ltd and Others
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux |
| Judgment Date | 15 January 2015 |
| Neutral Citation | [2015] EWHC 42 (Comm) |
| Docket Number | Case No: 2012 FOLIO 198 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 15 January 2015 |
[2015] EWHC 42 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building
Fetter Lane, London, EC4A 1NL
The Honourable Mr Justice Flaux
Case No: 2012 FOLIO 198
Mr Peter Macdonald Eggers QC Mr Tim Jenns and Mr Richard Sarll (instructed by Hill Dickinson LLP for the First Claimant and by Reed Smith LLP for the Second Claimant) for the Claimants
Mr David Goldstone QC & Ms Nichola Warrender (instructed by Norton Rose Fulbright LLP) for the Defendants
Hearing dates:19th, 20th Nov, 24th to 27th Nov, 1st, 2nd, 4th,10th and 11th Dec 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
In early July 2011, the tanker Brillante Virtuoso ("the vessel") owned by the first claimant ("the owners") was en route from Kerch in Ukraine to Qingdao in China, carrying a cargo of 141,000 metric tons of fuel oil. The vessel was insured against war risks under a policy issued by the defendants ("the insurers"). The owners and the second claimant ("the bank"), which was the mortgagee of the vessel, were, on the claimants' case, co-assured under the policy. The claimants' case is that the bank was also the assignee and named loss payee under the policy. The status of the bank in relation to the insurance remains disputed by the insurers. The agreed value of the vessel under the hull and machinery section of the policy (Section A) was U.S. $55 million and a further U.S. $22 million under the increased value section (Section B).
Since the vessel was due to transit the Gulf of Aden and the Indian Ocean where there is a risk of pirate attacks, the owners had made arrangements for an unarmed security team to embark at Aden. The claimants' case is as follows. Whilst the vessel was waiting off Aden on 5 July 2011, armed uniformed men in a small boat approached describing themselves as the "port authorities" and were permitted to board, but they were in fact pirates. Once on board, they threatened the Master and ordered him to sail to Somalia. After the main engine stopped and could not be restarted, the armed men detonated an explosive device in the purifier room in the engine room. The insurers have put in issue the identity of the persons who boarded, what they threatened or demanded whilst on board, exactly what happened in the engine room and whether those persons detonated the explosive device in the purifier room, although it is common ground that an explosive device was detonated and that the explosion caused a fire which engulfed the engine room and accommodation and engine funnel casing. The vessel was a dead ship without power.
The crew raised the alarm in the early hours of 6th July 2011 (by which time the armed men had left the vessel) and were soon rescued by the U.S. navy vessel USS Philippine Seas. On the same day the owners entered into a LOF salvage contract with Five Oceans Salvage ("FOS"). Salvage operations were carried out between 6 July 2011 and 7 October 2011 which included ensuring that the fire on board was extinguished and dewatering the engine room, before towing the vessel to Khor Fakkan where a ship-to-ship ("STS") transfer of the cargo was undertaken. After the STS operation the salvors redelivered the vessel to the owners on 7 October 2011. The vessel remained a dead ship anchored in international waters and the owners hired two tugs to stand by the vessel from 7 October 2011 until 15 March 2012 when she was delivered to buyers to whom she was sold for scrap.
The vessel was inspected twice during the salvage operations by the owners' consultant surveyor Mr Paikopoulos of New York Ship Surveyors (on each occasion in company with a surveyor for the insurers and on the second occasion fire experts). After the redelivery of the vessel, Mr Paikopoulos inspected the vessel for a third time, prepared preliminary and final repair specifications and then sought repair quotations from various shipyards in the Middle East and China for the cleaning and repair of the vessel. He formed the opinion that the cost of repair would exceed the insured value of U.S. $55 million. Accordingly on 7 December 2011, the owners tendered notice of abandonment ("NOA") to the insurers declaring the vessel a constructive total loss ("CTL"). The insurers rejected the NOA the same day but agreed that the question whether the vessel was a CTL should be determined as of that date.
Thereafter, on 12 December 2011, the owners instructed shipbrokers, Allied Shipbroking to sell the vessel to a suitable buyer for scrap. However, a month later, Allied reported that, despite extensive efforts to find a buyer, they had not been able to generate any real interest because of the problems with the vessel.
On 8 February 2012 the claim form in these proceedings was issued. Thereafter, the UK Club, the vessel's P & I Club declined to renew the P&I cover with effect from 20 February 2012 on the basis that the vessel was "commercially lost". The owners were still incurring expenses and the sale of the vessel became imperative. On 20 February 2012, Allied procured an offer to purchase the vessel from Aryana Shipping Limited, a nominee of GMS, well-known middlemen for scrap sales, of U.S. $700,000 "as is where is". The owners' insurance brokers emailed the insurers informing them that the vessel would be sold for scrap unless the insurers objected by close of business that day with full and adequate reasons. No objections were received and accordingly, on 21 February 2012, a memorandum of agreement ("MOA") was signed by the owners and Aryana Shipping.
Until towards the end of the trial, the insurers were disputing whether that sale price of U.S. $700,000 represented the real value of the vessel in a damaged, uncleaned condition. They called as a factual witness a ship broker, Mr Phillip Hadfield, who said he had had an offer from a supposedly interested party for a much higher price which he passed to Arrow, ship brokers in London whom he understood acted for the owners, but I am quite satisfied that whatever else may have happened, that offer was never passed to the owners as it is inconceivable that if it had been, the owners would not have followed it up. The parties exchanged expert valuation evidence from ship brokers, but in the event it was not necessary to call that evidence, because it was agreed between the parties, for the purposes only of calculating the partial loss indemnity, that the damaged value of the vessel was U.S. $700,000 and the repaired sound value of the vessel was U.S. $10,200,000. In the circumstances, it is not necessary to refer in any more detail to the evidence of Mr Hadfield or the course of negotiations for the sale of the vessel.
The claimants' primary case is that the vessel suffered loss and damage by reason of a peril or perils insured against, namely 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 claim an indemnity for (i) a CTL, alternatively (ii) if the vessel is not a CTL for partial loss and loss of hire and (iii) sue and labour expenses incurred.
The insurers' primary defence is that the claimants are 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 provided: " When transiting, vessels/craft shall not call at any port or place or delay their passage in the transfer of cargo, stores, personnel or the like" and/or the owners were in breach of the warranty by failing to apply Best Management Practices to Deter Piracy. The claimants deny that any such defence is available, contending that the call off Aden to embark the security team was with the insurers' knowledge and consent and there was no failure by the owners, managers or Master to follow Best Management Practices to Deter Piracy.
The insurers dispute the extent of the damage to the vessel and the cost of repair, although by the end of the trial, the difference between the parties as to the extent of damage had narrowed considerably and the real dispute between the expert surveyors was as to what repairs were necessary and their cost. The insurers dispute that the vessel was a CTL and take issue with the claimants on their calculation of the alternative partial damage claim and as to their entitlement in that event to loss of hire cover. The insurers also dispute the amount and the period of the sue and labour expenses claimed.
At the case management conference on 8 November 2013, I ordered a split trial, with the issue as to whether the vessel was a CTL and the other quantum issues to be tried first, on the ground that it was agreed between the parties that this was a sensible course, since once the parameters of the recoverable amount of any successful claim were known, it was likely the parties would be able to resolve their differences.
The issues
At the outset of the trial, the issues to be determined at this stage were as follows:
i) Was the vessel a CTL?
ii) Have the claimants lost the right to...
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