Suez Fortune v Talbot Underwriting
Whether vessel was a constructive total loss/ prudent uninsured test in a marine context/ sue and labour expenses
http://www.bailii.org/ew/cases/EWHC/Comm/2015/42.html
The vessel in this case was insured against war risks by a policy issued by the defendant insurers. The vessel was sailing from Ukraine to China, and made arrangements for a security team to embark at Aden. Whilst waiting off Aden, a group of pirates boarded the vessel. They eventually set off an explosive in the engine room, causing a fire which rendered the vessel a dead ship without power. The crew was rescued, the cargo transferred to another vessel and the owners tendered notice of abandonment ("NOA"), declaring the vessel a constructive total loss ("CTL"). The insurers rejected the NOA. Proceedings in England were commenced by the owners in February 2012 and the vessel was sold a month later for scrap. A number of issues arise in the case and a split trial was ordered (with a breach of warranty defence to be heard at a later trial). Some of the points discussed in this decision are as follows:
(1) Was the vessel a CTL?
Under section 60(2)(ii) of the Marine Insurance Act 1906 ("MIA"), a vessel is a CTL "where she is so damaged...that the costs of repairing the damage would exceed the value of the ship when repaired". In this case, that provision was qualified by clause 19 of the Institute Time Clauses- Hulls 1/10/83 incorporated into the Policy which provides that "the insured value...shall be taken as the repaired value and nothing in respect of the damaged or break-up value of the vessel shall be taken into account" and that the costs of repair should exceed the insured value. There was no suggestion here of fraudulent over-valuation and so the relevant amount against which the repairs should be compared was the insured value of USD 55 million (even though the agreed repaired value of the vessel would have been only USD 10.2 million).
In assessing the costs of repair, the court asks what a prudent uninsured shipowner would do. Here, there were practical difficulties because the vessel was never in fact repaired (or even cleaned) before it was sold for scrap. Because of the state of the vessel after the fire, a proper inspection could not be carried out by the surveyors (and so no detailed and completely accurate repair specification could be drawn up).
In such circumstances, Flaux J said that that the court should apply to any repair estimate "a large margin". One issue here was where the prudent uninsured owner would have carried out repairs. The experts advised that there had been a choice between dockyards in China and Dubai. Flaux J held that, although it would have been some USD 11 million cheaper to have repaired the vessel in China, a prudent uninsured owner would still, on balance, have favoured repair in Dubai. This was because: (i) repair in China would have involved a lengthy tow, with a risk of further casualty; (ii) repair would have taken longer in China (and there can be issues with the quality of the workmanship there); and (iii) a delay would have had adverse financial consequences for the owners.
The judge then calculated the cost of repair in each country. One aspect of this involved the cost of insurance while the vessel was being towed to be repaired. Flaux J held that the prudent uninsured owner would only insure the vessel for the tow for her value in a damaged condition, and not for her previous insured value.
Taking into account the additional costs of salvage, the judge concluded that the cost of repair (in both China and Dubai) would have exceeded the insured value of the vessel, and hence it was a CTL.
(2) Had the owners lost the right to claim for a CTL?
The insurers had sought to argue that by selling the vessel, the owners had acted inconsistently with a continued intention to abandon the vessel to insurers and so had lost the right to claim for a CTL. That argument was rejected on the basis that the insurers had been aware that the owners had intended to sell the vessel and had not objected to the sale (and instead had only reserved their rights): "this is a case where in selling the vessel the owners were acting in the interests of both themselves and the insurers, so that no question of revocation of the notice of abandonment or of loss of the right to claim for a CTL could arise".
(3) The measure of indemnity recoverable for a partial loss
The judge considered this alternative case, even though not required to do so, since he had found a CTL. Section 69 of the MIA provides that where a ship is sold in a damaged state, the insured should be indemnified for "the reasonable depreciation arising from the unrepaired damage". There are three possible methods for calculating this: method A – insured value less damaged market value; method B – the proportion of the vessel's actual depreciation applied to the insured value; or method C – actual depreciation in market value.
It was agreed that the value of the vessel in a sound condition was USD 10.2 million but in a damaged condition was USD 700,000. Flaux J held that in this case the insurers were correct to argue that method C was the correct method. Section 69 of the MIA had been modified by Clause 18 of the Institute Hull Clauses, which provides that the measure of indemnity for a claim for unrepaired damage shall be "the reasonable depreciation in the market value of the vessel". Flaux J said: "In my judgment, the intention and effect of clause 18 is to define depreciation by reference to the market value of the vessel rather than by reference to terms prescribed by the provisions of the 1906 Act such as "the value fixed by the policy" or "the insurable value"". Hence the insured would have been entitled to USD 10.2 million less USD 700,000 ie USD 9,500,000 (methods A and B would have resulted in a recovery of USD 54.3 million and USD 52.2 million respectively).
(4) Sue and labour
The owners sought to recover expenditure incurred in order to avert or minimise the loss. Insurers raised two arguments:
(i) It could not be said that the expenditure was incurred whilst the peril covered by the war risks policy was still operating. Flaux J rejected that argument. When the vessel was a dead ship anchored in international waters, she was not in a place of safety and the original peril of piracy or malicious mischief continued to operate.
(ii) Sue and labour expenses were not recoverable after the NOA or once the claim form was issued. Flaux J referred to his recent decision in Atlasnavios v Navigators Insurance (see Weekly Update 46/14), which in turn referred to Rix J's decision in Kuwait Airways v Kuwait Insurance (1996). Rix J had held that the right to sue and labour ceases when a writ is issued but not when a NOA is tendered (there was no writ clause in this case and so the issue of whether the right to sue and labour ceases at that point did not arise here). In Atlasnavios, Flaux J said that Rix J "may well be right" that the right to sue and labour ceases when the writ is issued. In this case, he said that he did not think Rix J's view was wrong but that even if he thought otherwise, "comity suggests that I should follow and apply it and leave it to the Court of Appeal to determine if the analysis in that case is correct or not".
Impala Warehousing v Wanxiang Resources
Whether exclusive jurisdiction clause was incorporated by terms on a website/whether anti-suit injunction should be granted
http://www.bailii.org/ew/cases/EWHC/Comm/2015/25.html
A Chinese company and a Singaporean company entered into a warehousing agreement. Following a dispute, the Singaporean company commenced proceedings in China seeking delivery of certain goods of which it claimed to be owner. The Chinese company sought an anti-suit injunction from the English courts, on the basis that the parties had agreed that the English courts would have exclusive jurisdiction to hear any disputes between them. Various issues were considered by Teare J, including whether the exclusive jurisdiction clause had been incorporated.
The warehouse certificate issued by the Chinese company had provided that disputes would be subject to the terms and conditions of the company, and the latest version of those terms and conditions was said to be available on the company's official website. Teare J held that "in this day and age when standard terms are frequently to be found on web-sites, I consider that reference to the web-site is a sufficient incorporation of the warehousing terms to be found on the web-site".
However, he went on to dismiss the application for an anti-suit injunction on the basis that there is no reciprocal enforcement arrangement between England and China and hence any judgment of the English court would not be enforceable in China (so that if the Singaporean company was forced to litigate in England, it would be prejudiced). Relying on the earlier decision of The Eleftheria (1969), Teare J held that this was a strong reason for not giving effect to the exclusive jurisdiction clause.
Plaza BV v The Law Debenture Trust
Whether English proceedings should be stayed in favour of a non-EU country
http://www.bailii.org/ew/cases/EWHC/Ch/2015/43.html
The ECJ decision in Owusu v Jackson [2005] provided that, where a defendant is sued in the Member State where he is domiciled, the court of that Member State cannot stay its proceedings in favour of a non-Member State court on the ground that it would be more appropriate for the non-Member State court to hear the case. The issue in this case was whether a stay could be granted on other grounds though. That is an issue which the English courts have considered in earlier cases.
Here, the UK domiciled trust company wanted to stay the proceedings brought against it here on two grounds:
(1) The parties were bound by an exclusive jurisdiction clause in favour of the courts of Western Australia. Applying prior caselaw, Proudman J held that Owusu did not prevent the English court from staying its proceedings on this ground. Article 23 of Regulation 44/2001 provides that where one of the parties is domiciled in a Member State and the parties agree that a Member State's courts shall have jurisdiction, then that agreement will be upheld. The judge noted that Article 23 is a mandatory exception to the rule that a defendant should be sued in the Member State where he is domiciled and held that the same principle should be applied "reflexively" where the exclusive jurisdiction clause is in favour of a non-EU court.
(2) There were related proceedings already ongoing in Australia and those proceedings were so closely connected to the proceedings here that there was a risk of irreconcilable judgments. There is conflicting prior caselaw on this argument but Proudman J concluded that it is possible to stay the English proceedings on this basis. However, she chose to base her decision to stay the English proceedings on the exclusive jurisdiction clause point instead.
COMMENT: As has been previously reported, under the recast Regulation 1215/2012, English courts now have a discretion to stay their proceedings in favour of a non- EU court if the non-EU court was first seised (and the proceedings are related). The new Regulation did not apply here, though, as the English proceedings were commenced before 10 January 2015. However, it should be noted that the new Regulation does not deal with the issue of whether the English court could grant a stay based on an exclusive jurisdiction clause in favour of a non-EU country, and so the support for a stay in such circumstances from the court in this case goes some way to help to clarify the position in England (although the Court of Appeal has yet to rule on this issue and it might be argued that, since the new Regulation is silent on this point, the legislators did not intend that a stay would be permissible in these circumstances).
Dunbar Assets v BCP Premier
Whether master had erred in permitting service of claim form by an alternative method
http://www.lexisnexis.com/uk/legal/auth/checkbrowser.do?t=1421666314381&bhcp=1
The claimant faxed a copy of a sealed claim form, for information purposes only, to the defendant. There were delays in serving the claim form and eventually a consent order gave the claimant an extension of time to serve the claim form. The claim form was then emailed to the defendant's solicitors, who had agreed to accept service, but not service by email. When the time to comply with the consent order expired, the claimant (whose claim was arguably now time barred) applied to court for an order under CPR r6.15 (which provides that the court may make an order permitting service by an alternative method where there is a good reason to do so). Such an order was made by the Deputy Master and the defendant appealed.
John Baldwin QC has now allowed that appeal. He held that the Deputy Master had erred by failing to take into account that the claimant had offered no explanation for failing to serve the claim form properly. The claimant's counsel had suggested that the only plausible explanation was a simple mistake. The judge said that that was not good enough and also that it made no difference that the defendant had been aware of the proceedings. The absence of prejudice to the defendant was not usually a reason for granting an order. In any event it could be inferred on the evidence that the defendant would have been prejudiced if the claimant were able to pursue a claim for a huge sum of money against it.
High Commissioner for Pakistan v NatWest
Whether a notice of discontinuance should be set aside
http://www.bailii.org/ew/cases/EWHC/Ch/2015/55.html
The claimant unilaterally served a notice of discontinuance and the defendant applied to have the notice set aside (pursuant to CPR r38.4).
Under the old Rules of the Supreme Court ("RSC"), which preceded the CPR, there was no express provision enabling the court to set aside a notice of discontinuance but the House of Lords decided that it could be set aside if the discontinuance was an abuse of process (see Castanho v Brown & Root [1981]). An argument was raised in this case that the power conferred by the CPR went no further than this test. That was rejected by Henderson J. The CPR "formed an entirely new procedural code" and CPR r38.4 should be construed in accordance with the overriding objective of dealing with cases justly and at proportionate cost: "If the facts disclose an abuse of the court's process, that will no doubt continue to be a powerful factor in favour of granting the application; but it would in my view be wrong to treat abuse of process as either a necessary or an exclusive criterion which has to be satisfied if the application is to succeed".
In any event, the judge did find that there had been an abuse of process here (the claimant had intended to preserve the sovereign immunity which it had waived) and that he should exercise his discretion to set aside the notice of discontinuance.
COMMENT: CPR r.38.4 gives no guidance as to the circumstances when a court will set aside a notice of discontinuance and there have been few reported cases on this point. In Sheltam Rail v Mirambo Holdings (2008), it was held that a court may set aside a notice of discontinuance if it concludes that it is an abuse of the process of the court, but that may not be the only circumstance in which the court exercises its powers. This case therefore supports that conclusion.
Tartsinis v Navona Management
Judge considers whether the test for rectification is an objective one
http://www.bailii.org/ew/cases/EWHC/Comm/2015/57.html
The test for rectifying a contract is: (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention. The standard of proof required is the civil standard of balance of probability. However, sufficiently strong proof will in practice be needed to counteract the evidence of the parties' intention displayed by the contract itself.
In this case, Leggatt J opined that "an outward expression of accord" only meant that objectively manifested intentions are required and that a mere coincidence of uncommunicated subjective intentions would not suffice. However, in Chartbrook v Persimmon Homes (see Weekly Update 24/09) the House of Lords (albeit obiter) endorsed a more objective test - ie what would a reasonable observer have understood the terms of the contract to be. Leggatt J said that he had difficulty with that view: "It is one thing to say that a contract should not be rectified just because both parties privately intend it to bear a meaning different from its meaning objectively ascertained. It is quite another thing, however, to say that a contract should be rectified to conform to what a reasonable observer would have understood the parties previously to have agreed, irrespective of the parties' own understanding". However, despite his "real misgivings", Leggatt J said that, had he been required to decide the point (and, on the facts, he wasn't), he would have been bound to follow the approach endorsed in Chartbrook.
Other news
Upcoming changes to Part 36 offers:
New rules relating to Part 36 offers are due to come into force on 6 April 2015. Many of the new provisions reflect current caselaw, but there are some more substantive changes being introduced, namely:
(1) Time-limited offers. Although there is no express exclusion in Part 36, it is not currently possible to make a time-limited offer, ie an offer which expires automatically after a certain period and need not be formally withdrawn (although it did use to be possible to make such offers prior to April 2007). The courts have tried to be flexible on this issue though. For example, in C v D (see Weekly Update 20/11), the offer stated that it "will be open for 21 days from the date of this letter". The Court of Appeal found that the offer in question was not a time-limited offer. Reading the offer as a whole, Rix LJ said: "In the context of Part 36, it seems to me to be entirely feasible and reasonable to read the words "open for 21 days" as meaning that it will not be withdrawn within those 21 days." It also served as a warning that a withdrawal of the offer after 21 days was "on the cards".
Under the new rules, it will now be possible to make an offer which "may be automatically withdrawn in accordance with its terms" (new CPR r36.9(4)(b)), although it will also remain possible to continue to make offers which are not automatically withdrawn (in which case, a formal notice of withdrawal will still have to be sent).
(2) Split trials. CPR r36.13(2) currently provides that: "The fact that a Part 36 offer has been made must not be communicated to the trial judge or to the judge (if any) allocated in advance to conduct the trial until the case has been decided". There is conflicting caselaw on whether a judge can be told about a Part 36 offer at the end of a trial on liability, where there will be a trial on quantum at a later date. Henderson J in AB v CD & Ors (see Weekly Update 12/11) was not required to decide the issue but suggested that "it may be that in appropriate circumstances, the new wording [of the Part 36 rules in April 2007] should be construed as referring to the conclusion of the first part of a split trial". However, in Ted Baker & Ors v Axa & Ors (see Weekly Update 24/12), Eder J said that he thought Henderson J's "tentative" suggestion stretched the wording of CPR r36.13(2) "beyond its proper limit". In Beasley v Alexander (see Weekly Update 36/12), Jack J was required to decide the point and he concluded ("with regret") that: "It is clear that 'the case' is used in the sense of 'the action' or 'the proceedings'. The reference to 'the case' cannot be construed as referring to part of a case".
Under the new rules, CPR r36.16 will allow a judge to be told of the existence of, but not the terms, of a Part 36 offer where a case has not been decided but "any part of, or issue in, the case has been decided and the Part 36 offer relates only" to those parts or issues.
(3) Strategic offers. The court can take various factors into account when deciding whether it would be unjust to order the usual Part 36 costs consequences. A new factor will be added in April under 36.17(5)(e): "whether the offer was a genuine attempt to settle the proceedings". However, there is already caselaw to the effect that the court must be persuaded that the offer is a genuine attempt to settle and that some concession is being made. This caselaw will still be relevant in assessing whether this criterion has been met.
In AB v CD & Ors (see Weekly Update 12/11), the judge said it was clear that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an offer to settle within Part 36. In Huck v Robson (2002), the claimant was entitled to the costs consequences of Part 36 even though she had offered to accept 95% of her claim. However, the Court of Appeal commented that an offer to accept 99.9% would have been seen as a purely tactical step which could not trigger the Part 36 costs consequences. That might be contrasted with the case of Jolly v Harsco (see Weekly Update 40/12) - which was possibly a one-off - where the claimant offered to accept 99% of her claim and the judge was clearly prepared to accept that that was a valid Part 36 offer. In Uren v Corporate Leisure (see Weekly Update 14/13), though, the claimant offered to accept 90% of the damages he was seeking and that was said to be a true offer (because 10% of a large sum is itself a large sum). So, generally, only "extreme" offers are likely to fail.
(4) Failing to file a costs budget in time. As has been previously reported, if a party fails to file its costs budget in time, the court can order that only court fees will be recoverable by that party. Since the other side will therefore never face paying a large amount of costs in such circumstances, that can act as a disincentive for the other side to accept a Part 36 offer. Accordingly, the new rules will provide that the defaulting party's costs will be treated as 50% of its assessed costs which it would otherwise have been able to recover (but this only applies to costs incurred after the expiry of the relevant period).
It is worth noting that some other changes to Part 36 which have been mooted are not to be included in these new rules. For example, it had been suggested that it might be possible to make an offer on costs and that defendants would be given a greater financial incentive to make Part 36 offers.
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.
