RENOS: A Problem Solved Or Created?

The Supreme Court recently handed down the much anticipated judgment in the long saga of the total loss case RENOS.

Two issues were before the court to decide. The first issue concerned whether or not all costs incurred in salvage were to be considered as part of the total loss or simply those incurred after the notice of abandonment was served. The second issue was whether those costs incurred as part of SCOPIC correctly fell within salvage costs to be included in a CTL calculation.

In relation to the first issue, the insurers put forward an elaborate argument that the costs of salvage prior to the notice of abandonment being served were already "sunk" and that it was a matter for the assured to elect between abandoning the ship to the insurer or incurring future costs in conclusion of the salvage services. Under this hypothesis, should the ship be abandoned the salvage services incurred up to that point can have provided no benefit to the insurers as they have not prevented the insurers facing a loss. The insurers sought to rely upon a very narrow construction of s.60 of the Marine Insurance Act in support of this argument.

As expected by many commentators, the Court was unpersuaded by that argument. The Court helpfully set out at some length the limited authority on this issue which makes Lord Sumption's judgment (unsurprisingly) an interesting and informative read. Constructive Total Loss is not its own subset of loss, it is simply a partial loss which is financially equivalent to a total loss and may be treated as partial or total at the discretion of the assured.

As the Court stated:

"The costs of repairing the damage was in no way "adeemed" because part of it had already been incurred at the time when the notice of abandonment was given and action brought on the policy"

The second issue is one that has been of interest to many since the drafting of the SCOPIC (Special Compensation P&I Clause) following the difficulties which arose out of the introduction of environmental duties and compensation under the 1989 Salvage Convention. The Court was asked to determine whether those costs incurred as part of SCOPIC correctly fell within salvage costs to be included in a CTL calculation. When considering this issue it is important to understand the purpose of that clause: SCOPIC introduced a tariff based system of remuneration for salvage services where salvors had conferred a benefit on the environment but the result for property interests...