Sveriges Angfartygs Assurans Forening (The Swedish Club) v. Connect Shipping Inc (MV Renos)  EWCA Civ 230
The MV RENOS was on a laden passage along the coast of Egypt when a fire broke out in her engine room on 23 August 2012. Owners appointed salvors on LOF terms and the salvors invoked SCOPIC. Surveyors were appointed by both Owners and their hull and machinery insurers (“the insurers”) to assess the costs of repairs. A preliminary estimate provided to Owners by 3 September suggested that the vessel could be a CTL. Owners started drafting a detailed repair specification for obtaining quotations from shipyards and this was sent to the insurers. The insurers’ surveyors then produced an estimate for the repairs which did not suggest that the vessel was a CTL. By the end of December a number of varying repair quotations had been received from shipyards, some suggesting the strong possibility that the vessel was a CTL, others suggesting the vessel was not a CTL. Unable to resolve matters, Owners served a notice of abandonment (“NOA”) on the insurers on 1 February 2013. The insurers rejected the NOA for being given “far too late”.
The main issues were:
The Judge at first instance decided the above issues in Owners’ favour and the insurers appealed. The appeal was dismissed.
In support of this conclusion, the Court of Appeal referred inter alia to commentary in Arnould, the position in the US, and to extra judicial comments provided by Lord Donaldson in an address he gave as Chairman of the Association of Average Adjusters in 1982.
The insurers also argued that SCOPIC liability is additional compensation payable by the P&I insurers to encourage salvors to minimise a casualty’s environmental impact, thus benefiting the P&I insurers. It is not payable by the H&M insurers and the costs are not, properly understood, a “cost of repair”. Furthermore, paragraph 15 of the SCOPIC clause precludes owners from making any claim (whether direct, indirect, by way of indemnity or recourse or otherwise) against hull and machinery insurers. The insurers claimed that it would be unjust to allow costs not indemnifiable under the H&M policy as part of the CTL calculation.
The judge at first instance did not agree with this line of argument and held that SCOPIC expenses paid to salvors can be counted towards the CTL clause, notwithstanding paragraph 15 of the SCOPIC clause. The Court of Appeal upheld the First Instance decision and agreed that SCOPIC remuneration was an indivisible part of an item that insurers accept as a cost of repair and were the reasonable legal costs of salvage arbitration.
The cost of the salvage operation was around US$1.2 million for the notional Article 13 salvage award and US$1.4 million in respect of SCOPIC paid over and above the Article 13 award. The insurers contended that the SCOPIC costs should not be costs within section 60(2)(ii) of the Marine Insurance Act 1906 or clauses 19.2 and 9.2 of the Institute Time clauses because the SCOPIC remuneration was conceptually different from the Article 13 award payable by the P&I Club. As SCOPIC was not payable under the hull and machinery (H&M) policy, they should not, it was argued, rank for the purposes of a CTL claim under the H&M policy as repair costs. The Court identified the difficulty with this construction in that, in order to recover the vessel (and put the owners in a position to repair or declare a CTL), Owners had to pay the entirety of the salvage remuneration. SCOPIC was an unavoidable part (or extension) of that salvage operation which led to the recovery of the vessel. The Court of Appeal concluded, therefore, that this must be an indivisible part of the cost of repair, confirming the first instance decision.
This decision has assisted in clarifying two points in relation to CTL claims;
While this decision has cleared up the above areas of ambiguity, the case raises concerns for hull underwriters that the use of LOF with SCOPIC may have a greater potential of leading to CTL claims. It is not unforeseeable therefore that hull underwriters might lobby to amend the standard market wordings expressly to exclude from any CTL calculations costs incurred prior to NOA and SCOPIC expenses.