Connect Shipping Inc & Anor v Sveriges Anfgartygs Assurans Forening (The Swedish Club) & Ors [2016] EWHC 1580 (Comm)

Case No CL-2013-001132[2016] EWHC 1580 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 01/07/2016
Before
MR JUSTICE KNOWLES CBE
Between
(1) CONNECT SHIPPING INCClaimants(2) MACHRIMAR MANAGEMENT SAClaimant(1) SVERIGES ANFGARTYGS ASSURANS FORENING (THEDefendantsSWEDISH CLUB)Defendant(2) REAAL SCHADEVERZEKERINGEN N.V.Defendant(3) THE PEOPLE’S INSURANCE COMPANY OF CHINA (PICC) PROPERTY & CASUALTY CO LTDDefendant(4) AXA CORPORATE SOLUTIONS ASSURANCEDefendant(5) HCC INTERNATIONAL INSURANCE COMPANY PLCDefendant(6) CERTAIN UNDERWRITERS AT LLOYD’S: SYNDICATE NO’S KLN 510, ARK 4020 & HDU 0382Defendant(7) WARTA S.A. INSURANCE AND REINSURANCE COMPANYDefendant“The MV RENOS”Defendant
Steven Berry QC and Rebecca Akushie (instructed by Hill Dickinson) for ClaimantsMichael Ashcroft QC and Luke Pearce (instructed by Thomas Cooper) for DefendantsHearing Hearing dates: 29 February, 1, 2, 3, 7, 8, 9, 10, 14, 16 and 17 March, and (on paper) 21 April 2016
Judgment

Introduction

[1]On 23 August 2012 a fire broke out in the engine room of the mv “Renos” (“the Vessel”). The Vessel was off the Egyptian coast in the Red Sea and was laden. The damage to the Vessel was significant.[2]The Claimants (“Owners”) were the owners and managers of the Vessel. The Defendants (“Insurers”) were insurers of the Vessel under hull and machinery policies. The insured value was U$12 million. Between them the Insurers took proportions totalling 85% of the risk. Another insurer (not a party to the proceedings) took the remaining 15%.[3]The first-named Defendant (“The Swedish Club”) was lead insurer. The Swedish Club also, alone, insured the Vessel under an increased value policy. The increased value under this policy was US$3 million.[4]It is common ground that the casualty was an insured peril under the policies and that the Owners are entitled to be indemnified in respect of their loss. The dispute concerns the measure of that indemnity. The Owners contend that they are entitled to be indemnified on a constructive total loss (CTL) basis. Notice of abandonment (NOA) was given by the Owners to the Insurers on 1 February 2013. The Insurers contend that the Owners are entitled to be indemnified on a partial loss basis. The financial difference is significant.[5]After factual and expert evidence and oral and written argument in February and March 2016, in April 2016 the parties provided in writing their respective final positions on individual items of repair.

Had the Owners elected not to abandon the Vessel to insurers?

[6]I propose to deal with this point shortly as it wholly lacks merit on the facts. Having heard the evidence at trial, and in particular Mr Magkanaris of The Swedish Club and Mr Christodoulakis of the Owners, it is apparent that throughout the period from the casualty to the giving of NOA the Owners said and did nothing that, in context, amounted to such an election. The Insurers well appreciated that.[7]The further suggestion from the Insurers that the passage of time amounted to an implied election has no substance in this case. The time between casualty and NOA was occupied as I describe later in this judgment. The Insurers realised at all times up to and including a refusal by The Swedish Club to meet with the Owners at the end of January 2013 that the Owners might claim a CTL. It had been a significant point, admitting of no misunderstanding, at a meeting on 27 September 2012. The Swedish Club were seeking throughout to achieve an outcome other than a CTL.

Was the NOA given too late?

[8]Section 62(3) of the Marine Insurance Act 1906 (“the Marine Insurance Act”) provides that NOA “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 …”.[9]I am satisfied that the Owners met these requirements, and thus that, on the particular facts of this case, the NOA when given on 1 February 2013 was not given too late.[10]The nature of the casualty was such that achieving reliable information of the loss would be a complex task and take time. Throughout the period from the casualty to the giving of NOA, the Owners were in receipt of conflicting information from experienced sources on the estimated cost of repairs.[11]Broadly speaking, it was not realistic to take one source in isolation; the presence of conflicting information from other sources threw the reliability of any one source into question. The assessment to be made was a major one for any person to make, if it was to be undertaken reasonably and responsibly. It is also important to keep in mind the difference between the calm of the courtroom some years later with the moving situation in Egypt at the time.[12]Thus, after arrival at Suez on 31 August 2012 the Vessel was surveyed. Mr Moraitis, an independent surveyor and marine engineer, provided a preliminary estimate to the Owners by 3 September 2012 that suggested the Vessel could be a CTL. However he emphasised that the engine room was still affected by smoke and there was no proper lighting. In these conditions he described what he had done in these terms:
“… from my experience from previous similar Damages I have put some numbers together that should be verified once a detailed specification has been compiled.”
[13]At the invitation of the Insurers, El Hamamsy and Braemar each provided an estimate at about the same time. Copies of both estimates were provided to the Owners and suggested the Vessel was well short of a CTL. An opinion of 14 September 2012 from Mr Souras, technical superintendent of the Vessel’s managers, and whom I assess having seen him in the witness box as a man of considerable relevant experience, estimated less than Mr Moraitis but more than Braemar and El Hamamsy.[14]From 25 to 27 September 2012 the Vessel was towed to Adabiya for the purpose of discharging the cargo. In a finalised report circulated on 28 September 2012 Braemar maintained an estimate that suggested the Vessel was well short of a CTL.[15]In these circumstances, by early October the Owners had embarked on drafting a repair specification. This was so that an accurate quotation might be obtained from shipyards, given existing differences of opinion. Indeed Mr Magkanaris, marine claims adjuster for The Swedish Club, stated on 5 and 6 October 2012 that the existing inspection by surveyors for the Insurers “is not considered sufficient to draft a detailed quotation for such extensive damage” and that “underwriters’ surveyors have instructions to carry out detailed inspection and this requires free access to the ship”.[16]The Vessel arrived back at Suez on 6 October 2012. In a report of 8 October BV set out its then findings as to the nature of the damage and recommended repairs. The Owners’ detailed repair specification was ready by 24 October 2012 and was sent to the Insurers. On 6 November 2012 The Swedish Club wrote to the Owners with initial comments from Braemar on the detailed repair specification and stating that a further visit to the Vessel was required “in order to provide more detailed analysis on the extent of the damage and the necessary repairs.” Braemar attended on board between 13 and 16 November 2012 and provided their own version of a detailed repair specification. The Insurers on 29 November 2012 asked the Owners for comments, which they provided on 4 December 2012. By this time Braemar’s estimate still did not suggest CTL.[17]There will be cases where repair quotations from shipyards will not be required in order to achieve reliable information of the loss, but this was not such a case given the conflicting estimates from experienced sources.[18]By the end of December 2012 the Owners had a number of quotations from shipyards. Some based on the Owners’ specification suggested a strong possibility that the Vessel was a CTL. But another based on Braemar’s specification suggested that the Vessel was not a CTL. One of two further quotations obtained by the Insurers on 11 January 2013 and based on the Braemar specification similarly suggested the Vessel was not a CTL.[19]Further exchanges and adjustments to quotations followed. The parties met to discuss repair quotations on 21 January 2013. Mr Costouros, an independent surveyor and marine engineer engaged by the Owners and tasked, as he put it realistically, to sort out “the huge apparent difference of views”, provided a final draft report on 25 January 2013. The Swedish Club declined a further meeting.[20]The Owners were entitled to time to consider this and take a decision. They did so by 1 February 2013 and gave NOA. Given the complexity and history of the matter I do not consider that too long in this particular case, measured against the standard of reasonable diligence set by the statute.[21]As I have said, the nature of the casualty was such that achieving reliable information of the loss would be a complex task and take time. As Lord Chelmsford put things in M.R. Currie & Co v Bombay Native Insurance Co (1869-71) LR 3 PC 72 at 79: “… the Underwriters cannot complain of a suspense of judgment fairly exercised on the part of the Assured, to enable him to determine whether the circumstances are such as to entitle him to abandon …”.[22]Mr Michael Ashcroft QC, who appeared with Mr Luke Pearce for the Insurers, argued that it was important to distinguish knowledge of facts from the conclusions to be drawn from them, and that the question whether the Owners had reliable information of the loss was to be judged objectively. He referred to the statement by Roche J in George Cohen v Standard Marine Insurance (1925) 21 Lloyd’s Rep 30 at 35 that “… the assured cannot postpone his election, if all the facts are known, merely because opinions may fluctuate at all events as to the results or proper conclusion to be drawn from the facts”. The distinction is important, but the work in the present case to try to ascertain what repairs were going to be required and what those repairs were going to cost are on the “fact” rather than the “conclusion” side of the distinction.[23]I should add that, in the event, the task was made more complex and slower because of the approach taken on behalf of the Insurers. The Insurers, through The Swedish Club and often assisted by Braemar, put forward figures that would not support a CTL, created a competing specification, and emphasised that there would be adverse financial consequences for the Owners if the Owners chose a yard for repairs that was not agreed.[24]The Insurers were entitled to do these things, but in the present case the effect was to make it harder not easier to get to a reliable picture of true costs of repair and to cause things to take longer. I would go further and say that, viewed overall, the approach, led by The Swedish Club and assisted by Braemar, was at times not cooperative and included stages that seemed designed simply to press the Owners into agreeing a partial loss figure.[25]The Insurers argued that the Owners were not entitled to wait for certainty. I accept that point, though the word “certain” properly features in the course of some descriptions of what the assured is entitled to have (see Brett LJ both in the opinion he provided to the House of Lords in Rankin v Potter (1873) LR 6 HL 83 at 105, and in the judgment he gave in the Court of Appeal in Kaltenbach v Mackenzie (1878) 3 CPD 467 at 472).[26]Mr Ashcroft QC was able to point to references where it did appear that the Owners wanted certainty as to the loss. However I confirm that certainty is not the reference point by which I have reached my decision on the matter. What matters is the receipt of reliable information of the loss. The Owners took no more than a reasonable time, using a reasonable process, to try to get that. Then, as Mr Steven Berry QC and Ms Rebecca Akushie for the Owners, accurately put it “when the information continued to be contradictory, they reasonably attempted to resolve the contradictions [and w]hen these inquiries ran their course they promptly gave NOA”.

Recovery and repair before NOA: principle

[27]There was an issue between the parties as to whether cost of recovery or repair before NOA was given should be included in the CTL calculation.[28]Section 60 of the Marine Insurance Act provides:
“(1) … (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 (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; or (iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.” (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 (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; or (iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.”
[29]The hull and machinery policies incorporated the Institute Time Clauses – Hulls (1/10/83) and the increased value policy incorporated the Institute Time Clauses – Hulls Disbursement and Increased Value (Total Loss only) Clauses (1/10/83).[30]Clause 19.2 and Clause 9.2 respectively of the two sets of Clauses provide:
“No claim for constructive total loss based upon the cost of recovery and/or repair of the Vessel shall be recoverable hereunder unless such cost would exceed the insured value …”
[31]I see no basis on the wording of the Clauses for limiting cost of recovery and repair to recovery and repair after NOA. Nor do I find any basis in principle. Under the Marine Insurance Act there are circumstances where the assured elects to abandon but there is no NOA: see section 62(7) and (8). Moreover, “… notice of abandonment is not an essential ingredient of a constructive total loss. [An argument that it is] confuses two different concepts, because it confuses constructive total loss with the right to claim for a constructive total loss.”: Robertson v Petros M Nomikos Limited [1939] AC 371 at 381 per Lord Wright. As Mr Berry QC points out, there is no mention of NOA in section 60(2).[32]In my judgment the Clauses contemplate simply that the cost of recovery and repair of the Vessel is to be compared with (in the case of the Institute Time Clauses, and here departing from section 60(2)(ii)) the insured value.[33]The Insurers argue that “the fundamental point [is] that, where a NOA is tendered, the question of CTL or no is to be assessed as at the time that NOA is tendered”. I do not, with respect, see that that bears on the question at issue, which is the question whether, in that assessment, costs of recovery and repair before NOA should be excluded.[34]The Insurers argued that the assured could give a “protective NOA” ahead of incurring costs of recovery and repair “in any case where there seems a possibility that they may in due course wish to call for a CTL”.[35]I do not, with respect, consider that this argument by Insurers by reference to giving a “protective NOA” is sound. A NOA is, by section 62(2) of the Marine Insurance Act, a notice of “intention of the assured to abandon his insured interest in the subject-matter insured unconditionally to the insurer”. By section 62(6) once a NOA is accepted “the abandonment is irrevocable”. Thus, in one case the entitlement of an assured to give a “protective NOA” before he has formed “the intention … to abandon his insured interest in the subject-matter insured unconditionally to the insurer” may be open to challenge. And in another case a “protective NOA” made before the assured has in fact reached a final decision on whether “to call for a CTL” may still bind the assured if the NOA is accepted by the insurer.[36]I would like to make clear that the approach suggested by the Insurers’ argument is not the same as where successive NOAs are given after the assured has reached his decision to elect to abandon the vessel but in light of changes over time to the factual situation relied upon as constituting a CTL.[37]The presence of the word “future” on two occasions in section 60(2)(ii) was highlighted in argument. I was shown extracts from successive versions of the Marine Insurance Bill that preceded the enactment of the statute and where that word is introduced between 1894 and 1895.[38]I do not consider that the statute requires any different conclusion from the one described above. This is for two reasons.[39]First, because the conclusion is supported by the opening part of the language of section 60(2)(ii); in particular because section 60(2)(ii) refers to the “cost of repairing the damage”, being the “damage to a ship” “by a peril insured against”, and not some part of that cost or that cost for a period commencing other than when the ship is damaged.[40]Second, because the part of section 60(2)(ii) that contains the word “future” simply provides that account is to be taken of the expense of salvage operations and of any general average contributions to which the ship would be liable where they are in the future. It does not exclude from the account the expense of such operations and contributions where they are not in the future. As Donaldson LJ said, extra-judicially, in an address to the 113th General Meeting of the Association of Average Adjusters in 1982: “All that section 60(2)(ii) is concerned with is whether the cost of repairing the damage would exceed a certain figure and we are bidden, in estimating the cost of those repairs, to take account of the expense of future salvage operations”.[41]In the course of his decision in Hall v Hayman, in the form reported in (1912) 17 Comm Cas 81, Bray J at 89-91 considered the expense (there incurred by underwriters) of a failed salvage operation after the stranding of a vessel and before NOA, and also an item for certain cable expenses and services. He did not allow the expense of the failed salvage operation, or the services before the NOA.[42]I do not consider the decision provides guidance on the point of principle. The claimant conceded that if the failed salvage operation “had been done by the shipowner, he could not have claimed that as part of the repairs, because they were not future salvage operations”. I do not consider that concession, albeit made by senior counsel, was correctly made. In the address to which I referred above, Donaldson LJ said this of the concession:
“.. it was conceded and assumed that the moment of categorising a salvage operation as “future” was when [NOA] was given. But this cannot be right because it ignores the distinction between the factual situation of a vessel being a constructive total loss and an election to treat her as a total loss for purposes of a claim on underwriters. The owner has to do his sums and take account of future salvage operations before he elects to treat the vessel as a constructive total loss. It is only after he elects that he gives [NOA]. In my view, which is shared by the learned editors of Arnould (16th edition, para 1203) the relevant date is the date of the casualty.”
[43]However Bray J did express the view, when dealing with the expense of the failed salvage operation that he could not “take into consideration anything that was done before [the NOA], which, as a matter of fact, neither improved the position nor worsened it” and when dealing with the services part of the item for cables and services that he had to “take off … all that took place before [the NOA]”.[44]Bray J’s reasoning is not developed. If he was in these parts of his decision holding that section 60(2)(ii) excludes all and any costs before a NOA from “the cost of repairing the damage” even though after the “damage to a ship” “by a peril insured against” then I must respectfully disagree, and decline to follow that holding because I am satisfied it is wrong. I do however rather doubt that he was so holding. The case is perhaps better known for other parts of the decision, not in point in the present case, including the parts reported in The Law Reports at [1912] 2 KB 5.[45]I must however accept that I am departing from part of the decision in the “Medina Princess” (Helmville Ltd v Yorkshire Insurance Company Ltd) [1965] 1 Lloyd’s Rep 361. Roskill J (as he then was) said this when dealing with a cost of £420 to make good a steering engine (part of item 25 in a list of items considered, in the course of a trial lasting 76 days), at page 429:
“[Mr Henry Brandon QC (as he then was) leading Mr Anthony Lloyd (as he then was) and Mr Kenneth Rokison (as he then was) and appearing for the insurers] rightly pointed out that this figure, even if allowed, is inadmissible … for the purposes of the [owner’s] claim for constructive total loss …. It is inadmissible for the purposes of the constructive total loss claim because the work was done before the date of [NOA] … I …allow £420 in respect of this part of the claim under item 25. But it must be borne in mind that that figure is not to be taken into account in calculating whether or not the ship was a constructive total loss on Sept. 17, 1962 [the date when NOA was given].”
[46]It can be observed that it does not appear the contrary was argued. However the expertise of those making the point and accepting it (and of the owners’ team that could have argued the contrary) was very considerable indeed. I must face the fact that I am declining to follow the decision. I do so with respect, but I am satisfied it was wrong on the point.[47]The Insurers argued that if the Owners were correct there could be double- counting. They instanced the position where in the period between the casualty and the giving of a NOA an insured counted costs towards a CTL calculation and claimed those same costs by way of an additional indemnity as sue and labour expenses. This argument masks the difference in nature between two different things: the CTL calculation is just that, a calculation to determine the cost of repairing the vessel, to be undertaken in accordance with given rules; the entitlement to additional indemnity as sue and labour expenses is a matter for the policy of insurance. Consistently, sometimes costs incurred by underwriters can count in the CTL calculation.

Pre-NOA costs: cost of salvage operation

[48]It is not in dispute that salvage operations were necessary. Salvors were engaged under Lloyd’s Open Form (LOF), with a Special Compensation Protection and Indemnity Clause (SCOPIC).[49]Salvors’ total remuneration under the LOF and including SCOPIC was US$4,721,823.97. As between the Vessel and cargo, the agreed proportion of the notional Article 13 Award, and for salvors’ reasonable legal costs was 37% to 63%. In relation to the notional Article 13 Award that 37% proportion was US$1,248,391.40. The remaining SCOPIC liability of owners was US$1,347,793.15 excluding interest, and the owners’ proportion of salvors’ legal costs, and owners’ own legal costs, of the salvage arbitration under the LOF total US$51,365.60.[50]The Insurers do not dispute that the Owners’ liability in the agreed proportion of the notional Article 13 Award is in principle a “cost of repair” for the purposes of section 60(2)(ii) of the Marine Insurance Act and is to be treated in the same way as pre-NOA expenses. There is however a dispute as to whether the remaining SCOPIC liability is to be taken into account as a cost of recovery or repair for the purposes of CTL.[51]The Insurers argue that the SCOPIC in effect gives salvors the right to additional compensation in order to encourage them to take steps to minimise the environmental damages following a casualty. In those circumstances, argue the Insurers, SCOPIC remuneration is not properly described as a “cost of repair” for the purposes of section 60(2)(ii). They say that this is reflected by the fact that the SCOPIC element of the payment to salvors is in practice payable by the Vessel’s P&I insurers and not hull insurers; it is a payment to protect owners from what might otherwise be a substantial liability in relation to environmental damage.[52]Paragraph 15 of the SCOPIC provides that:
“any liability to pay such SCOPIC remuneration shall be that of the Shipowner alone and no claim whether direct, indirect, by way of indemnity or recourse or otherwise relating to SCOPIC remuneration in excess of the Article 13 Award shall be made in General Average or under the vessel’s Hull and Machinery Policy by the owners of the vessel.”
The Insurers point out that this is wide wording. The benefit of it is available to them, they argue, under the Contracts (Rights of Third Parties) Act 1999.[53]Even accepting that the wording is wide, and having regard to the circumstances in which SCOPIC remuneration arises, in my judgment paragraph 15 does not assist the Insurers. SCOPIC remuneration is payable to salvors in respect of necessary salvage operations arising from the casualty. It is an indivisible part of an item the balance of which the Insurers accept is a “cost of repair”. Approaching the matter in accordance with ordinary principles of construction, its inclusion in the assessment of whether there is or is not a CTL does not amount to a “claim by way of indemnity or recourse or otherwise relating to SCOPIC remuneration; nor to a “claim … in General Average or under the vessel’s Hull and Machinery Policy by the owners of the vessel”.[54]The Insurers say “surely the intent of the parties to the insurance contract is that only [costs covered by the policy] can be ranked”. However that is not the principle in operation in section 60(2)(ii).[55]I include the (reasonable) legal costs: as the Owners submit, salvage arbitration is integral to LOF.

The use of the tug Pegasus II

[56]The Owners engaged the tug Pegasus II, a tug of 6000 bhp at a rate of US$15,000 per day. The appropriateness of engaging a tug is not materially in issue. However the Insurers do not accept that it was reasonable or necessary for the Owners to engage a tug of that size, at that rate or for as long as they did. A tug of 1000 bhp could have been used to standby the Vessel, say Insurers.[57]I was satisfied on the evidence that it was reasonable and necessary to engage a tug of a size that could do more than standby. Certainly a capability to tow away from Egypt was required, and also some capacity to be of some assistance in emergencies. Ms Ioannou of the Vessel’s P&I insurers pointed out that salvors would require a tug with sufficient capabilities for delivery, and this was a requirement for her. Mr Poulson of the P&I insurers, who as well as being a very straightforward witness had very considerable practical experience, said that what was needed was a tug that could accomplish anything that transpired next.[58]I am also satisfied that at the time there were few available options. The rate agreed for the Pegasus II was above market rate in normal circumstances, but these were not normal market circumstances. Among other things availability and location were at a premium. To adopt and adapt the language of Roskill J in the Medina Princess the Owners were “at mercy” and Mr Moraitis was not “altogether slow to take advantage of [the Owners’] predicament”. In any event as Mr Benzonana put it:
“It is not a straight market. It is not like the dry cargo market where you have so many dollars per tonne from A to B. The tug operations are different.”
I found his evidence of greater assistance than that of Mr Nicholson who accepted he did not have experience of tug broking.[59]Mr Christodoulakis tried to discuss a better rate but the rate stayed the same. From seeing Mr Moraitis in the witness box I am clear he would, and did, maximise his commercial advantage; “no-one gives a rate without consulting me”; “business is business” he said.[60]I am not however satisfied that it was reasonable or necessary to engage this tug at this rate for the entire four months the Owners did. As time passed it was open to the Owners to explore other arrangements, from a position at least of less urgency. In fact in the event the Owners did find and use an alternative tug to tow the Vessel for scrap, but I was not satisfied that was the earliest opportunity to find another tug. Having heard the evidence at trial, my view is the reasonable position would be the engagement of Pegasus II at the rate agreed for about half the period for which she was in the event engaged, with a renegotiation or an arrangement to bring in another tug (of size) by that point at the type of rate discussed by Mr Benzonana. There can be no precision but a just figure would be US$1,200,000 (including bunkers) and not the US$1,914,706.11 (including bunkers) incurred by the Owners.[61]It was suggested by the Insurers that the Pegasus II was not seaworthy and not tow-worthy. I was not persuaded by that suggestion, and in particular by what Mr Nicholson had to say on the point.

Reducing loss by earlier cleaning and preservation

[62]The Insurers argued that the Vessel could have been cleaned at Suez or Adabiya, at an early point after the fire, and that this would have preserved cables or other electrical equipment.[63]I find, having heard Mr Souras and Mr Levantis in particular, this was not a suggestion made by Insurers to the Owners at the time. I reject it now. To preserve cables in particular, cleaning would have had to have been undertaken very soon indeed after the fire. A forensic fire investigation ruled out cleaning before 22 September, and by then it was too late.[64]The local port authorities required the engine space be sealed during discharge operations between 27 September and 5 October 2012. In addition, there was no convincing evidence of the actual availability of sufficient or suitable cleaning and preservation capability at any of these times forward from the time of the fire. Mr Poulson described the task as “huge”, and I accept that and also that it could not have been accomplished at Suez at the time. Further, in any event asbestos would have to be treated and removed first.

Post-NOA costs

[65]The Insurers’ case is that the figure for post-NOA costs should be US$6,285,575.50, before any contingency.[66]In the paragraphs below I concentrate on five areas where the Owners and the Insurers were particularly apart and the figures are particularly large. There remains in addition the question of an appropriate contingency, which I consider separately.[67]Mr Levantis was involved for Braemar, and thus for the Insurers, throughout most of the events, and had been on the Vessel. At the trial he was also relied on by the Insurers for his expertise including in relation to post-NOA costs. It is with regret that I have to say that I found Mr Levantis’ evidence lacking in independence and objectivity, and I am largely unable to rely on it. My experience of him as a witness was that he was reluctant to say anything that would not be in the Insurers’ favour.[68]I was invited by the Insurers to assume that the Constanta quotation, used by the parties as a reference point for their differing detailed submissions, would reflect actual cost, and that a reference made by Constanta (and only partly explained) to a 30% discount was reliable. I do not feel able to assume either with confidence. I do however keep both possibilities in mind as I turn to the five areas of work below. a. Tank cleaning and engine room cleaning[69]The Owners’ figure is US$1,417,669 for tank cleaning and engine room cleaning. The Insurers’ figure is US$311,000.[70]I was satisfied by Mr Lillie’s reasoning for including cleaning and gas freeing of fuel tanks, including starboard tanks. His estimate of the surface area of the engine room when addressing cleaning of the engine room was perhaps high, but it was closer to the true position than was Mr Levantis’ estimate.[71]There is force in the Insurers’ point that some internal cables and light fixtures that were to be removed and destroyed would not require cleaning and drying before that. I was persuaded that contamination in the duct keel was casualty related and that the work in this area contended for by the Owners was required. I reject Mr Levantis’ evidence that the cleaning could have been carried out at Suez with costs savings the result. However I accept his evidence that the Owners’ figure for the amount of sludge for disposal was too high.[72]In my judgment a figure of US$1,100,000 for tank cleaning and engine room cleaning is appropriate, before a general contingency. This is less than the Owners figure but US$789,000 above the Owners’ figure. b. Steel renewals and access[73]The Owners’ figure is US$994,728 for steel renewals and access. The Insurers’ figure is US$393,000.[74]I have greater confidence in the evidence of Mr Lillie than that of Mr Levantis as to the quantity and pricing of steel to be replaced. This is even though Mr Levantis had been on board. I preferred the evidence of Mr Poulson, and others, to the effect that there was distortion of steel plating, but in addition I am prepared on balance to accept Mr Lillie’s evidence that even if distortion was not visible the shell plating would have been damaged in any event given the heat. I also accept that replacement of the diesel oil storage tank and (as Class confirmed) the area underneath was required.[75]In my judgment a figure of US$750,000 is appropriate for steel renewals and access, before a general contingency. This is less than the Owners’ figure but US$357,000 above the Insurers’ figure. c. Electrical cables, electric repairs and supplies[76]The Owners’ figure is US$2,208,147 for electrical cables, electric repairs and supplies. The Insurers’ figure is US$1,400,000.[77]Mr Levantis’ evidence was fairly described as “cherry picking” by Mr Berry QC. Mr Orritt plainly knew his area and how the business worked, although his approach of averaging quotations did not seem to me always to offer a depth of expert opinion. I am quite satisfied he was correct to warn of the likelihood and upwards impact of “extras” (including related labour) on quotations, included those from Constanta and Tuzla, quite apart from a general contingency.[78]In my judgment a figure of US$1,900,000 is appropriate for electrical cables, electric repairs and supplies, before a general contingency. This is less than the Owners’ figure but US$500,000 above the Insurers’ figure. d. Insulation[79]The Owners’ figure is US$518,144 for insulation. The Insurers’ figure is US$239,000.[80]I unhesitatingly reject Mr Levantis’ suggestion that the need to replace uptake lagging could have been avoided. I do however reduce Mr Lillie’s figure to what in my judgment is an appropriate figure before a general contingency.[81]In my judgment an appropriate figure for insulation is US$400,000 before a general contingency. This is less than the Owners’ figure but US$161,000 above the Insurers’ figure. e. Painting works[82]The Owners’ figure is US$570,000 for painting works. The Insurers’ figure is US$268,000.[83]Mr Lillie’s evidence, materially supported by Class recommendations, satisfied me that the Owners’ approach was correct. I reject as unrealistic and partisan Mr Levantis’ evidence that not all areas of the engine room would require repainting. I do however make some adjustment down from the Owners’ figure to take account of surface area measurement, area requiring power tooling and amount of paint required.[84]In my judgment a figure of US$400,000 is appropriate for painting, before a general contingency. This is less than the Owners’ figure but US$132,000 above the Insurers’ figure.

General contingency and “large margin”

[85]Both the Owners and the Insurers accept the need to allow a contingency in respect of post-NOA repairs. The difference between them is as to the amount of the contingency. The Owners contend for a contingency of 10%; the Insurers for a contingency of 5%.[86]The Owners emphasised the reference to a “large margin” made by Vaughan Williams LJ in Angel v Merchants Marine Insurance Co [1903] 1 KB 811 at 816-7, considered by Flaux J in Suez Fortune Investments Ltd and Another v Talbot Underwriting Ltd and Others (The “Brilliante Virtuoso”) [2015] 1 Lloyd’s Law Rep 651 at [89]-[92].[87]Vaughan Williams LJ observed that:
“Precise estimates are, of course, impossible, and it seems to me that … a large margin ought to be added to the figures of cost of repair to cover risks … which a ‘prudent uninsured owner’ would certainly take into consideration in determining whether he should repair or sell …”
. He went on to say that:
“The prudent uninsured owner test was, I think, adopted for the very purpose of covering considerations which cannot be embodied in the figures of an arithmetical calculation. … [I]t is said that … now the conveniences of modern times, telegraphic communication, the salvage associations, and Lloyd’s agents everywhere, throw on the master but rarely the old alternative ‘repair or sell’; and that in modern times the shipowner ought to guide his conduct as an insured owner desirous to have regard to the interests of all concerned, and that the damaged ship ought, whenever it is possible, to be taken to port where permanent repairs can be effected, and the arithmetical test applied with something like precision. Such a rule seems to me too favourable to the underwriter. I think that this contention is open to the criticism that the shipowner at the moment of election, when he has to exercise the option of giving [NOA], has really no precise data upon which to act, and that there must always be a quantity of items, especially the cost of the temporary repairs and the getting of the ship to the ports of temporary and permanent repair, as there were in this case, which do not admit of precision.”
[88]Adopting and applying this approach, Flaux J said:
“It seems to me that the effect of this approach is that, in relation to matters which cannot be determined with precision, such as the extent of damage to items of machinery and equipment which were not opened up and tested, the court has to apply to any repair estimate what Vaughan Williams LJ describes as a “large margin”
. That is … simply recognising that a margin of error has to be applied in relation to the extent of the damage where, as in the present case, it was not possible to investigate fully and the assessment of the cost of repair has to take account of the fact that the items which were not opened up and tested might well have required replacement, so that a prudent uninsured owner would have replaced them.”[89]At paragraphs [177], [186] and [253] of his judgment in the Brilliante Vertuoso, Flaux J appears to have been ready, faithful to the warnings of Vaughan Williams LJ around an arithmetical calculation, to allow the concept of “large margin” to go beyond a contingency of 10% added to the costs of repairs. It is not necessary to do that in the present case, but the passage reinforces my view that allowing a general contingency of the order of 10% is not in any degree too generous to the Owners. It is also not necessary for me in the present case to reach a conclusion on a point made by Mr Ashcroft QC in relation to paragraph [253] to the effect that the risks, on a long tow, of liabilities to third parties or of loss of income there referred to would not fall into account for the purposes of a CTL assessment.[90]The important, and sound, point that in my view comes from the decision of Flaux J is that whether one talks of contingency or margin, suitable allowance for uncertainty is properly to be made.[91]Mr Ashcroft QC refers to the judgment of Mathew LJ in Angel v Merchants Marine. Mathew LJ regarded the case in hand as one “where the actual costs of repairs have been ascertained and are not altogether a matter of estimate”. This was to be contrasted with the case where “a stranded vessel is immediately sold on the ground the salvage operations were difficult and the result uncertain”. I can appreciate the difference, but I do not consider that Mathew LJ was saying that where the costs of repairs contain uncertainties and include estimates a general contingency or margin should not be applied. Its size will be a matter of judgment in each case. It was in the same connection that Mr Poulson observed that contingencies depend on the accuracy and detail of the specification. Indeed, as I indicate, the Insurers admit a contingency, and the issue in the present case is the size.[92]I have no doubt at all that in the present case I should allow a general contingency of the order of 10%. The nature of the casualty, the location of the Vessel, the range of estimates and quotations all brought out that there were many “matters which [could not] be determined with precision”, or with anything like precision.[93]A contingency of the order of 10% adds in excess of US$800,000 to the post-NOA costs.

Sue and labour

[94]It was not in dispute that to the extent that costs were reasonably and properly incurred for the purposes of averting or minimising a loss which would have been recoverable under the hull and machinery policies, the Insurers are liable to indemnify in relation to such costs.[95]The claim against the Insurers is for their respective proportions of 85% of the costs incurred in respect of the attendance of the tug “Pegasus II” and for the costs of agents, preservation of machinery, surveyors and consultants in a further total sum of US$503,744.81.[96]I am satisfied that those (reduced) costs of attendance of a tug that I have identified above, in the total sum of US$1.2 million, were reasonably and properly incurred to avert or minimise loss which would have been recoverable under the policies.[97]As to what are described as agency costs the Insurers fairly say that the Owners have not fully explained what part of those costs were reasonably and properly incurred to that same end. Doing the best I can, on the sometimes limited information available to me, I consider the following items in the following sums, totalling US$240,970, are in the particular circumstances of the present case sufficiently evidenced and within the indemnity: watchmen (US$65,000), anchor, pilotage, shifting, securing, monitoring (US$150,000), preservation of machinery (US$25,970). Of these, 85% are the responsibility of the Insurers in their respective proportions.

Conclusion

[98]The Owners were entitled to give NOA when they did. The NOA they gave was effective. The findings I have made are sufficient to show that the Vessel was a CTL.[99]The precise form of order to result from this judgment can be discussed in due course. In summary the Insurers are obliged to meet their respective proportions of the insured value of US$12 million, The Swedish Club is obliged to meet the increased value of US$3 million, and sue and labour costs are payable in a total sum equal to 85% of US$1,440,970.[100]It has been a pleasure throughout this case to have had the assistance, on both sides, of Counsel and Solicitors of great experience and expertise in marine and marine insurance law.