Court of Appeal holds that notice of abandonment of a vessel was given in time

Following a fire on board a vessel on 23rd August 2012, the owners contended that they were entitled to be indemnified on a constructive total loss ("CTL") basis. They gave notice of abandonment (NOA) on 1 February 2013. Insurers agreed that the owners were entitled to be indemnified but argued that the NOA had been given too late. 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". Knowles J held that the NOA had been given in time as achieving reliable information of the loss had been a complex task. The Court of Appeal has now dismissed the appeal from that decision.

The Court of Appeal held that no gloss should be put on section 62(3), which is a very fact-dependent test. There is no uniform approach in cost of repair cases: "There will be some cases, for example, where a ball-park figure for the cost of repairs will suffice, once the scope of repair is known. There will be others, such as the present case, where the vessel is close to the cusp of being a CTL and therefore greater detail and accuracy is likely to be needed for there to be reliable information of the scope and cost of repair. As to the meaning of "reliable", the statutory contrast is made with "doubtful" information. So long as the requisite information remains "doubtful" it will not be "reliable"".

The owners' initial repair estimate had been around USD 9 million, whereas the insurers' initial repair estimate had been around USD 5.5 million. The owners were therefore faced with "two apparently reliable but starkly conflicting repair specifications" and the Court of Appeal said that the judge had been entitled to conclude that "the Owners could properly take into account apparently reliable expert information from the Insurers' side contradicting CTL". Nor did it matter what the owners' subjective belief at the time was, since the issue of whether there is reliable information of loss is an objective question. The judge had been entitled to conclude that there could be no reliable information of the loss until shipyard quotations had been received, and that even after that time, there was still no reliable information given the conflict between the experts' views.

The Court of Appeal countered the insurers' argument that it will therefore be impossible to obtain "reliable information of the loss" whenever there is a bona fide dispute about whether a vessel is a CTL (and so the time for serving a NOA can be postponed indefinitely) by saying that "There are, however, unlikely to be many cases which involve such a stark and critical difference in expert opinion" and that electing to give a NOA cannot be postponed indefinitely because "Under section 62(3), in cases where information of loss remains doubtful, the Owners are only allowed a reasonable time for making inquiry before being required to make their election".

The Court of Appeal also held that the judge had been entitled to conclude that costs incurred before the NOA was given counted as "costs of repair" for the purposes of the CTL calculation (rather than just costs incurred after the NOA). The Court of Appeal held that the caselaw relied on by the insurers had little authoritative weight. It was held that "principle and logic" favoured the judge's conclusion.

Finally, it was also held that the judge had been entitled to count SCOPIC costs (incurred under the Special Compensation Protection and Indemnity Clause) as "costs of repairs" for the purposes of the CTL calculation (the purpose of SCOPIC remuneration is to protect P&I clubs from liability they might otherwise incur in relation to environmental damage caused by a casualty). In order to recover the vessel, the SCOPIC costs had to be paid, and the insurers accepted that costs of recovery are part of the cost of repair.