The 'RENOS' – High Court Clarifies Approach To CTL Calculations

A recent decision of the High Court has provided clarification on a question which had remained unanswered for many years - when assessing a constructive total loss (CTL) should the value of salvage services incurred prior to the issue of a Notice of Abandonment (NOA) be taken into account?

Facts

The "RENOS" was on a laden passage along the Egyptian coast when a fire broke out in the engine room. The vessel arrived at Suez on 31 August 2012 and, with remarkable speed, by 3 September the owners' independent surveyor indicated that the vessel could be a CTL. That was not, however, a view shared by two surveyors appointed by the insurers who considered that the damage to the vessel fell short of the level of damage required for a CTL.

By 8 October 2012, the classification society issued their report on the repairs they considered necessary. By 24 October 2012, within 2 months of the casualty, the owners provided a detailed repair specification which was sent to the insurers. In November 2012, the insurers sent their surveyors' comments back to the owners and commissioned a further survey together with a detailed repair specification. By the end of December a number of varying quotations from shipyards had been received, some based on the owners' repair specifications suggesting the strong possibility that the vessel was a CTL, others based on the insurers' surveyors' specifications suggesting the vessel was not a CTL. Unable to resolve the impasse, the owners gave NOA on 1 February 2013, 6 months after the casualty.

Timing of the NOA

The first issue that the Judge had to resolve was whether the Owners had lost the right to issue an NOA by 1 February 2013 given that section 62(3) of the Marine Insurance Act 1906 provides that a 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".

The judge, Knowles J, held that the NOA had been given in time when viewed in the context of a difficult and complex casualty and conflicting advice as to repair specifications: "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...