The “BRILLANTE VIRTUOSO” is one of many cases which have arisen from the phenomenon of piracy in the Indian Ocean, now of course much reduced by the combined impact of (amongst other things) ‘Best Management Practice’ (including piracy preparedness and vessel hardening procedures), a huge combined naval effort by multiple nations, and the employment of guards, including armed guards, on ships making transits through the affected waters. On 15 January 2015 Mr Justice Flaux gave judgment (quantum only) in favour of the owners (and co-claimant mortgagee bank) in this matter for sums slightly in excess of US$85 million. Liability is now to be determined in a trial on Stage 2 to be held during 2016.
Hill Dickinson lawyers in a team led by Rhys Clift are representing owners of the vessel “BRILLANTE VIRTUOSO”, and in this article, provide an update on proceedings.
In January 2011, “BRILLANTE VIRTUOSO” was insured on a policy of war risks insurance for US$55 million as to hull plus US$22 million in respect of IV. In June 2011 she was chartered to carry a full cargo of oil from Kerch in the Black Sea to Chinese ports via the Suez Canal. On 5 July 2011, en route the vessel called off Aden to embark unarmed guards. That night the vessel was boarded by pirates who seized the crew and directed the vessel to be taken to Somalia. The vessel’s main engine stopped on that voyage, following which the pirates detonated an explosive device in the engine room. The engine room, funnel and accommodation were gutted by fire. The crew abandoned ship and were rescued by a US military vessel. The vessel was salved and towed to the Gulf, where the cargo was discharged in an STS operation. LOF was terminated on 7 October 2011, and the vessel redelivered to owners. Surveys were effected and on 7 December 2011 Notice of Abandonment was tendered to war risks underwriters, which was declined. The vessel was held on standby tugs in the Gulf whilst the claimants corresponded with insurers. Proceedings were commenced on 7 February 2012 and the vessel sold and delivered to buyers for scrap on 15 March 2012 for US$700,000.
In the present proceedings the court ordered (at the instigation of underwriters) that quantum should be heard first (Stage 1) and that liability be heard thereafter (Stage 2). The war underwriters denied liability on the basis of breach of warranty and denied that the nature and extent of damage and the cost of repair rendered the vessel a constructive total loss (CTL) on figures. The owners and bank claimed a CTL, together with additional sums including the cost of stand-by tugs, as ‘sue and labour’ expense and an indemnity for the ship’s proportion of salvage.
The claimants claimed in the alternative a partial loss, plus loss of hire, notwithstanding that the vessel had not been repaired. The war underwriters took certain ancillary points as to the Notice of Abandonment and asserted that the assured had lost their right to a CTL by sale of the vessel for scrap.
Decision at Stage 1
At the trial in Stage 1 the court has determined that the vessel was indeed a CTL on figures and that the claimants should be entitled to the sums insured plus sue and labour and salvage; and further that if this had been a partial loss the assured would have been entitled to loss of hire (though not loss of hire if this were a CTL). The underwriters and the assured have appealed and crossappealed in relation to sue and labour, but there is no appeal on the finding that the vessel was a CTL.
Such cases all turn on their particular facts, but the judgment does contain some useful guidance for such claims, particularly in relation to cost and place of repair. In particular, that even where the cost or repair (as here) would have been substantially more expensive in the Gulf rather than in China, a prudent assured was entitled to take into account the risk to the vessel and to the environment of:
- a dead tow from the Gulf to China;
- the cost of such a tow;
- insurance for the tow;
- the reputation of respective repair yard (as to quality of workmanship, accuracy of estimates and risk of delay);
- loss of income in the repair period; and
- the location of yards relative to the vessel’s next source of employment once repairs completed.
Further, where (as here) there might be uncertainty about the nature and extent of damage (for example because parts had not been opened up) the court would allow a ‘large margin’ in assessing the cost of repair.
Underwriters contended that there should be no liability for standby-tugs from the point the vessel was redelivered under LOF (7 October 2011) on the basis that the original peril had ceased to operate (piracy, vandalism, malicious mischief etc.). The court held that the original peril continued to operate, that such expenses was incurred for the benefit of assured and underwriters; therefore that sue and labour expense should be recoverable until proceedings were commenced in February 2012 (but not until the vessel was ultimately delivered to scrap purchasers on 15 March 2012).
Proceedings in Stage 2 are now underway.