Dornoch Ltd & Ors v Westminster International BV & Ors, Court of Appeal - Admiralty Division, April 29, 2009, [2009] EWHC 889 (Admlty)

Resolution Date:April 29, 2009
Issuing Organization:Admiralty Division
Actores:Dornoch Ltd & Ors v Westminster International BV & Ors
 
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Neutral Citation Number: [2009] EWHC 889 (Admlty)

Case No: 2008 Folio 1277

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMIRALTY COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 29 April 2009

Before:

THE HON. MR JUSTICE TOMLINSON

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Between:

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Iain Milligan QC, Guy Blackwood and David Walsh

(instructed by Messrs Stephenson Harwood) for the Claimants

Tom Weitzman QC and Peter MacDonald Eggers

(instructed by Messrs Nabarro LLP) for the First to Third Defendants

Jonathan Gaisman QC, Philip Edey and Patricia Edwards

(instructed by Messrs Pinsent Masons) for the Fourth Defendants

Hearing dates: 12 & 13 February 2009

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JudgmentMr Justice Tomlinson :

  1. In Amin Rasheed Shipping Corporation v Kuwait Insurance Co. [1984] AC 50 at page 63, Lord Diplock said:

    ``The contract of marine insurance is highly idiosyncratic; it involves juristic concepts that are peculiar to itself such as sue and labour, subrogation, abandonment and constructive total loss; to give but a few examples. The general law of contract is able to throw but little light upon the rights and obligations under a policy of marine insurance in the multifarious contingencies that may occur while the contract is in force.''

    The parties to this litigation are, with the exception of the Fourth Defendants, parties to a contract of marine insurance and they have contrived to produce a contingency hitherto unprecedented so far as is known. In consequence the court has been asked to address itself to a series of challenging questions.

  2. The mega-size trailer hopper dredger, WD Fairway, to which I shall refer hereafter as `the vessel', became a constructive total loss (``CTL'') as a result of a collision off China in March 2007. The vessel was at the time owned by the First Defendant, one of the companies in the Boskalis Group.

  3. The vessel's hull and machinery cover was written in two layers. The primary layer of up to €5 million was underwritten by seven insurance companies of which six are incorporated in the Netherlands, Fortis Corporate Insurance NV, HDI-Gerling Verzekeringen NV, Aegon Schadeverzekering NV, Allianz Global Risks Nederland, Generali Schadeverzekering Maatschappij NV, Mutual Insurance Association `Munis' UA, whilst the seventh, BDM NV, Antwerp, is incorporated in Belgium. I shall call them ``the Primary Underwriters''. The policy to which these underwriters subscribed is governed by English law but contains a Dutch exclusive jurisdiction clause. The Primary Underwriters are not parties to this action although at one stage they were sought to be joined. They have however agreed to be bound by the outcome, at any rate as between themselves and the excess layer underwriters.

  4. The excess policy, €145 million in excess of €5 million, was written by the fifteen Claimants, predominantly but not exclusively London market underwriters. The excess policy is likewise governed by English law.

  5. The insured value for hull and machinery was €73.5 million. Outfit and/or Disbursements were insured in the maximum amount of €18.375 million.

  6. On 27 March 2007 the owners tendered notice of abandonment to the hull and machinery underwriters. The next day underwriters declined to accept notice of abandonment but agreed to place the assured in the same position as if a writ/claim form had been issued that day. This is time honoured and common if not universal practice.

  7. In August 2007 the wrecked vessel was towed to a naval dockyard in Thailand, where she remains.

  8. By 16 April 2008 all of the hull and machinery underwriters had each for their own proportion paid the insured the amount due in respect of the CTL of the vessel.

  9. In July 2008 all of the hull and machinery underwriters each for their own proportion paid US$19.5 million to Yantai Salvage in settlement of the salvage/wreck removal claim. Payment was made pursuant to the policies. Salvage is covered by the policies as an additional element.

  10. A dispute has arisen between the assured and the underwriters as to the realisation of the value of the wreck. I am told that it is unprecedented in the London market for such realisation to be dealt with on other than a consensual basis. The fact that this has here not so far proved possible has brought into question the precise nature of underwriters' rights in this regard and, in particular, whether they are such as to entitle underwriters to exercise control over the manner in which the residual value of the wreck is ascertained. It is common ground that underwriters, having paid for a CTL and settled the salvors' claim against the vessel, are entitled to the residual open market value of the wreck. However there is acute controversy between assured and underwriters as to what is that residual value.

  11. I am not asked at this stage of the dispute to find any facts. When claiming that the vessel was a CTL the assured asserted that the cost of repairs would be about €91 million. Underwriters say that the wreck was in 2008 worth about €75 million ``as is, where is''. The assured on the other hand say that the wrecked vessel was then worth of the order of €25 million, which sum they offered to underwriters in August 2008. Underwriters rejected this offer and were anxious that the vessel be put out to global tender with a view to effecting a sale or, at the least, ascertaining the open market value. However the assured have been unprepared to co-operate with this process. They say that permitting access to the vessel for inspection by their competitors would allow those third parties to ascertain confidential information. It is I think common ground that there are currently only two other vessels in the world of comparable size and capability, both of which are fully employed in a buoyant market. The underwriters say that in an open market sale the assured would be bound to be prepared to pay considerably more than €25 million in order to prevent the vessel passing into the hands of one of their competitors. The assured are plainly unwilling to see the wreck pass into the hands of a third party. However without there taking place an open market sale, or at any rate a global tender with concomitant rights of inspection for prospective bidders, it may be difficult or impossible to ascertain the true open market value of the vessel. By the end of 2008 the assured and underwriters had reached an impasse, apparently unprecedented in the experience of those working in the London market. In December 2008 all of the Claimants bar one and all of the Primary Underwriters bar two, representing, respectively, 85% and 77.5% of the market, expressly elected to take over the interest of the assured in what remained of the subject matter insured.

  12. It is against that background that the insured owners of the vessel, the First Defendant, took the equally unprecedented step of selling her, or attempting so to do, without reference to underwriters and, therefore, without their consent. On 9 January 2009 the First Defendant concluded with the Fourth Defendants a Memorandum of Agreement for the sale of the vessel and a Protocol of Delivery and Acceptance of the vessel was likewise executed by both parties. The First and Fourth Defendants are related companies, in the sense that it is conceded that the Fourth Defendant is in the majority ownership of companies in the Boskalis Group. The consideration for the sale was €1,000. The First Defendant admits, it could hardly sensibly deny, that the purpose of the sale was to prevent underwriters from themselves realising the open market value of the vessel. However the First Defendant contends that it was entitled so to do because not all of the underwriters had by the time of the sale exercised their right, under section 63(1) and/or section 79(1) of the Marine Insurance Act 1906, to take over the interest of the assured in the wreck. The First Defendant continues to acknowledge that it is liable to account to the underwriters for the open market value of the wreck but it contends that it is no longer within the power of the assured and the underwriters to bring about an open market sale.

  13. It is against that background that, at the first of two expedited hearings, the parties have sought the resolution of a series of issues upon the basis of an agreed Statement of Facts.

  14. The issues for determination at this stage have been called the Phase 1 Issues. They are:

    (1) As a matter of English law, did the Claimants by virtue of their paying a CTL in April 2008 acquire a proprietary interest in the Vessel in the form of an equitable lien?

    (2) Did the Claimants impliedly elect to take over the Vessel for the purposes of section 63(1) and/or 79(1) of the Marine Insurance Act 1906 by paying the salvage/wreck removal claim in July 2008?

    (3) As a matter of English law, did the Claimants by virtue of their paying the salvage/wreck removal claim in July 2008 acquire a proprietary interest in the Vessel in the form of an equitable lien?

    (4) When, in December 2008, 85% of the Claimants and 77.5% of the Primary Underwriters expressly elected to take over the Vessel, was that election effective for the purposes of section 63(1) and/or 79(1) of the Marine Insurance Act 1906?

    (5) As a matter of English law, did the Claimants by virtue of either an implied election as set out in (2) above or an express election as set out in (4) above acquire a proprietary interest in the Vessel in the form of either an equitable lien or a beneficial interest under a trust?

    (6) As a matter of English law, what is the effect (if any) of 100% of the Claimants expressly electing to take over the Vessel after the purported transfer of legal title to the Vessel to the Fourth Defendant on 9 January 2009?

    (7) Assuming that the Fourth Defendant has the legal...

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