Sveriges Angfartygs Assurans Forening (The Swedish Club) and Others (Appellants) V Connect Shipping Inc and Another (Respondents)
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Trinity Term [2019] UKSC 29 On appeal from: [2018] EWCA Civ 230 JUDGMENT Sveriges Angfartygs Assurans Forening (The Swedish Club) and others (Appellants) v Connect Shipping Inc and another (Respondents) before Lord Reed, Deputy President Lord Hodge Lord Lloyd-Jones Lord Kitchin Lord Sumption JUDGMENT GIVEN ON 12 June 2019 Heard on 10 and 11 April 2019 Appellants Respondents Michael Ashcroft QC Steven Berry QC Luke Pearce Neil Hart (Instructed by Thomas (Instructed by Hill Cooper LLP) Dickinson LLP) LORD SUMPTION: (with whom Lord Reed, Lord Hodge, Lord Lloyd-Jones and Lord Kitchin agree) 1. On 23 August 2012 the m v “RENOS” was seriously damaged by an engine room fire while on a laden voyage in the Red Sea. On the same day, the owners appointed salvors under Lloyd’s Open Form 2011 (No Cure - No Pay). The vessel was towed by the salvors to Adabiya, where her cargo was discharged, and then to Suez, where the salvage services came to an end. A tug was hired to stand by the vessel throughout the time when she was at Suez and to tow her to a place where she could be scrapped or repaired. These proceedings were brought in support of a claim against the hull underwriters for a constructive total loss. Notice of abandonment was served on the insurers on 1 February 2013, while the vessel was at Suez. 2. The “RENOS” was insured at an agreed value of US$12m under a hull and machinery policy subscribed by the appellants (among others) and incorporating the Institute Time Clauses Hulls (1/10/83). The lead hull and machinery insurer was the first appellant, the Swedish Club. In addition, the Swedish Club alone subscribed an Increased Value Policy against the same risks covering certain charges so far as they exceeded those recoverable under the hull and machinery policy, up to a maximum of US$3m. At the trial of the action before Knowles J, it was common ground that there had been a loss by an insured peril. The sole issue was the measure of indemnity. The insurers acknowledged liability for a partial loss but declined the notice of abandonment and denied that the vessel was a constructive total loss. 3. Knowles J held that there was a constructive total loss. The Court of Appeal agreed with both his conclusions and his reasons. The courts below addressed a number of issues, only two of which are before this court. Section 60(2)(ii) of the Marine Insurance Act 1906 provides that in the case of damage to a ship, there is a constructive total loss where “she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired”. As a matter of practice, the “cost of repair” has always been treated as including salvage charges, and that is put beyond question by clause 19.2 of the Institute Time Clauses Hulls (1/10/83), which requires account to be taken of the “cost of recovery and/or repair”. Both of the issues before this court relate to the expenditure to be taken into account in computing that cost. The first issue is whether it includes expenditure already incurred before the service of notice of abandonment. The insurers say that none of this expenditure is to be taken into account. If they are right about that, the whole of the salvors’ remuneration will be excluded, together with the greater part of the cost of the standby tug and some other miscellaneous costs incurred at Suez. On that footing, the judge found that the “cost of repairing the damage” would be Page 2 between US$9,079,533.05 and US$11,248,311.20, as against an insured value of US$12m. It is common ground that on these figures the insurers are liable for a partial loss only. The second issue is whether the relevant costs include charges payable to the salvors under the SCOPIC (Special Compensation, Protection and Indemnity) clause of Lloyd’s Open Form. The SCOPIC clause is a clause supplementary to the Form which entitles the salvors to additional remuneration for measures taken while performing the salvage services in order to prevent or minimise damage to the environment. The SCOPIC charges, like the rest of the salvors’ remuneration, were all incurred before the service of notice of abandonment, and will be disregarded if the insurers are right on the first issue. The judge found that if SCOPIC charges are excluded from the computation but other costs incurred before notice of abandonment are included, the “cost of repairing the vessel” ranged from US$11,820,260.05 to US$13,989,038.20 as against an insured value of US$12m. In that case, she may or may not have been a constructive total loss, depending on where in that range the true figure lay. Both issues were decided in the shipowner’s favour in the courts below. Costs incurred before notice of abandonment 4. The relevant rules are codified by sections 60-63 of the Marine Insurance Act. They are in the following terms: “60. Constructive total loss defined (1) Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. (2) In particular, there is a constructive total loss - (i) Where the assured is deprived of the possession of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or Page 3 (ii) In the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired. 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; … 61. Effect of constructive total loss Where there is a constructive total loss the assured may either treat the loss as a partial loss or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss. 62. Notice of abandonment (1) Subject to the provisions of this section, where the assured elects to abandon the subject-matter insured to the insurer, he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss. (2) Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly by word of mouth, and may be given in any terms which indicate the intention of the assured to abandon his insured interest in the subject-matter insured unconditionally to the insurer. (3) Notice of abandonment 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. Page 4 (4) Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment. (5) The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after notice is not an acceptance. (6) Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss and the sufficiency of the notice. (7) Notice of abandonment is unnecessary where, at the time when the assured receives information of the loss, there would be no possibility of benefit to the insurer if notice were given to him. (8) Notice of abandonment may be waived by the insurer. (9) Where an insurer has re-insured his risk, no notice of abandonment need be given by him. 63. Effect of abandonment (1) Where there is a valid abandonment the insurer is entitled to take over the interest of the assured in whatever may remain of the subject-matter insured, and all proprietary rights incidental thereto. (2) Upon the abandonment of a ship, the insurer thereof is entitled to any freight in course of being earned, and which is earned by her subsequent to the casualty causing the loss, less the expenses of earning it incurred after the casualty; and, where the ship is carrying the owner’s goods, the insurer is entitled to a reasonable remuneration for the carriage of them subsequent to the casualty causing the loss.” Page 5 5. These provisions substantially restate the previous common law. Their effect is that unless notice of abandonment is waived by the insurer or the circumstances are such that there would be “no possibility of benefit to the insurer if notice were given to him”, it is a condition precedent to the assured’s right to claim for a constructive total loss, that he should have given a valid notice of abandonment: see section 62(1).