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 1277IN THE HIGH COURT OF JUSTICEQUEEN'S BENCH DIVISIONADMIRALTY COURTRoyal Courts of JusticeStrand, London, WC2A 2LLDate: 29 April 2009Before:THE HON. MR JUSTICE TOMLINSON- - - - - - - - - - - - - - - - - - - - -Between:- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Iain Milligan QC, Guy Blackwood and David Walsh(instructed by Messrs Stephenson Harwood) for the ClaimantsTom Weitzman QC and Peter MacDonald Eggers (instructed by Messrs Nabarro LLP) for the First to Third DefendantsJonathan Gaisman QC, Philip Edey and Patricia Edwards (instructed by Messrs Pinsent Masons) for the Fourth DefendantsHearing dates: 12 & 13 February 2009- - - - - - - - - - - - - - - - - - - - -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 ownership of the Vessel but the Claimants have a proprietary interest in the form of an equitable lien or beneficial interest under a trust in the vessel, as a matter of English law what rights do the Claimants have to take possession of or dispose of the Vessel and, in particular, are the Claimants entitled to: (a) require the sale of the Vessel; and/or (b) dictate in principle the manner of such sale? (8) What is (or are) the relevant system (or systems) of law for determining the incidence of proprietary interests in the Vessel prior to, at the time of, and after the purported transfer of the Vessel to the Fourth Defendant? a) English law, as the law of the Excess Policy and of the Primary Policy or the lex fori?b) The lex situs? (9) If the answer to (8) includes the lex situs, what is or was the lex situs of the Vessel? a) Dutch law?b) Thai law?15. It is the contention of the Defendants that Issues numbers (1)-(7) are in fact of no practical relevance. That is because at the hearing it was common ground that the relevant system of law for determining the incidence of proprietary interests in the vessel prior to, at the time of, and after the purported transfer of the vessel to the Fourth Defendant is the lex situs. It is common ground that at all material times the lex situs was either Thai law or Dutch law, the latter being the law of the place where the ship was registered before transfer. It is a further unusual feature of the dealings with this vessel that shortly before her purported transfer to the Fourth Defendant her registration in the relevant Dutch Registry was apparently cancelled. The Memorandum of Agreement recites that the vessel is registered at Rotterdam and both that document and the Protocol of Delivery and Acceptance give the Dutch Register number. However, one of the facts on the basis of which I am asked to resolve the Phase 1 Issues is that ``at the time of the purported transfer, the vessel was not registered under any flag and remains unregistered'' - see Statement of Facts paragraph 14. 16. The Defendants say that as a matter of English law reference to the lex situs in this context does not include the conflict of laws or choice of law rules of the situs. They say therefore that English law will prove to be irrelevant to the efficacy of the transfer of title from the First to the Fourth Defendants. Even if they are wrong about that, English law would they say only become relevant if the choice of law rules of the lex situs so indicated, which it is said they will not, at any rate so far as Thai law is concerned. I am not sure if any party has as yet asserted a positive case so far as concerns the choice of law rules of the Netherlands, not least because it was only in the course of the hearing before me that the First to Third, but not the Fourth Defendants, expressed an unequivocal preference for the identification of Dutch law as the law of the situs in relation to that period prior to the removal of the vessel from the Dutch register. 17. For understandable reasons the Phase 1 Issues have been identified in something of a hurry, and by the time of the hearing not all of the parties had thought through the final stance which they might wish to adopt in the light of the resolution of the issues of law. Before me the Claimants said that they were prepared to accept that a court of first instance would be bound to hold that the lex situs is the relevant system of law for determining the incidence of proprietary interests in the vessel. They therefore reserved the right to argue before a higher court that the lex situs is not the relevant system of law. As I understood them, both the First to Third and the Fourth Defendants were inclined to accept that the law is correctly stated at Rule 124 of Dicey, Morris and Collins, The Conflict Of Laws, 14th Edition: ``The validity of a transfer of a tangible moveable and its effect on the proprietary rights of the parties thereto and of those claiming under them in respect thereof are governed by the law of the country where the moveable is at the time of the transfer (lex situs).''However after the conclusion of the hearing Mr Iain Milligan QC, for the Claimants, sought to resile from even this limited concession. He said that ``in the light of the indications of Millett J in Macmillan Inc v Bishopsgate Investment Trust plc and others (3) [1995] 1 WLR 978 at 994B-995F, it may be that the relevant system of law is the lex loci actus. The Claimants would not want to be shut out from advancing a case at the next stage of the trial that the relevant system of law is the lex loci actus, given the uncertainty as to the English conflict rule''.Mr Milligan did not identify what would for this purpose be the locus actus. The locus actus so far as concerns the sale and transfer may I suppose be the Netherlands, which is the place at which the Protocol of Delivery and Acceptance was purportedly made, and this is what is now asserted in the Claimants' proposed re-amended Particulars of Claim. However at paragraph 58 thereof the Claimants accept that, if valid, the proprietary effect of the sale and transfer must in an English court of first instance be regarded as governed by the lex situs, which the Claimants assert to be Thai law. Mr Milligan is possibly more concerned with the locus actus of the transactions which are said to have given rise to proprietary interests in the vessel short of legal ownership. The proposed re-amended Particulars of Claim assert that the locus actus of the relevant transactions was England, and that ``the Claimants reserve the right to contend that the accrual of proprietary rights in the Vessel was governed by the lex loci actus, English law''. The Macmillan case was not concerned with the priority of competing interests in tangible moveable property, in respect of which the lex situs rule appears well-established - see Dicey, Morris and Collins, Rule 124, above. Macmillan was concerned with the priority of competing interests in intangible moveable property, i.e. shares, or choses in action. In Macmillan Millett J thought that there might be good reason for the lex situs rule in the case of tangible moveables, but less in the case of intangibles, where the situs is somewhat artificial. In Macmillan the lex loci actus and the lex situs of the subject matter of each of the transactions in question were one and the same, which as Millett J observed ``is probably inevitable in the case of shares''. However when the case reached the Court of Appeal the relevance of the lex loci actus was specifically rejected by each member of the court: by Staughton LJ [1996] 1 WLR 387 at pp 399F-402E and 405D, by Auld LJ at pp 410B-413A and by Aldous LJ at pp 421B and 424F-425A. The Court of Appeal held that the lex situs was the applicable law, holding this to be the general rule for both tangible and intangible moveable property. In the light of this, reliance at the next stage of the trial upon the lex loci actus as governing the accrual of proprietary rights in the vessel seems unlikely to be fruitful. 18. After the conclusion of the hearing Mr Milligan also reminded me that, whatever might be the law relevant for determination of the incidence of proprietary interests in the vessel, as English law governs the relationship between the assured and the underwriters, so the effect of English law might in any event be relevant to the exercise by the court of its discretion under sections 423-425 of the Insolvency Act, 1986. The question whether the court enjoys a discretion under that section and, if so, should exercise it to order the Fourth Defendants (or any trustees) to transfer the vessel to the underwriters or to their nominee is to be decided at the second hearing in May. 19. There is at least one further reason which may potentially render irrelevant the answers which English law might supply to some or all of the questions posed. Before stating it I should first set out the agreed Statement of Facts, which is to some extent foreshadowed and to some extent supplemented in the introduction above. I should reiterate that in my introduction I intend to make no findings in respect of any fact which is controversial. The Statement of Facts agreed for this hearing reads as follows: (1) At all relevant times until 9 January 2009, the dredger WD Fairway (`the Vessel') was registered in the Netherlands. (2) The Vessel was insured under: a) A primary policy issued by the Primary Underwriters for the period from 1 January 2007 to 31 December 2008; andb) An Excess Policy issued by the Claimants for the period from 1 December 2006 to 31 December 2007. (3) During the policy periods, the First Defendant was the legal owner of the Vessel. (4) On 8 March 2007, the Vessel was struck amidships by the vessel MSC Joanna off the coast of China. As a result of that casualty, the Vessel was rendered a constructive total loss.(5) On 26 March 2007, Marsh on behalf of the assureds tendered a notice of abandonment to the Primary Underwriters. The Primary Underwriters declined the notice of abandonment on 27 March 2007.(6) On 27 March 2007, Marsh on behalf of the assureds tendered a notice of abandonment to the Claimants. The Claimants declined the notice of abandonment on 28 March 2007. (7) The Vessel was towed from China to a naval dockyard in the port of Sattahip, Thailand arriving in August 2007, where she remains. (8) During the latter part of 2007, the Primary Underwriters accepted that the Vessel was a constructive total loss and paid an indemnity under the Primary Policy in respect of the claim for a constructive total loss. (9) On 10 March 2008, the Claimants accepted that the Vessel was a constructive total loss. By 16 April 2008, the Claimants had paid an indemnity under the Excess Policy in respect of the claim for a constructive total loss. (10) In July 2008, the Primary Underwriters and the Claimants paid US$19.5 million to Yantai Salvage in respect of the salvage/wreck removal claim. (11) In December 2008, all of the Primary Underwriters and the Claimants, except for Generali Schadeverzekering Maatschappij NV (who subscribed a line of 7.5% to the Primary Policy) and the Fifteenth Claimant (who subscribed a line of 15% to both policies) expressly elected to take over the Vessel. (12) On 9 January 2009, the registration of the Vessel was deleted from the Dutch Registry. (13) On 9 January 2009, the First Defendant and the Fourth Defendant concluded a Memorandum of Agreement for the sale of the Vessel by the First Defendant to the Fourth Defendant and also executed a Protocol of Delivery and Acceptance of the Vessel. (14) At the time of the purported transfer, the Vessel was not registered under any flag and remains unregistered. (15) On 12 January 2009, Generali Schadeverzekering Maatschappij NV elected to take over the Vessel. (16) On 15 January 2009, the Fifteenth Claimant elected to take over the Vessel.20. There are ten appendices attached to the Statement of Facts by reference to which I can, non-controversially, supplement what is set out above as follows: (1) Both the primary and the Excess policies were subscribed as to 100%. (2) On 27 and 28 March 2007 all underwriters under both policies declined to accept Notice of Abandonment in the hallowed language which I have summarised in paragraph 6 above. Nothing is said to turn on whether underwriters ``declined notice of abandonment'' (excess layer) or ``declined to accept the proffered abandonment'' (primary layer). (3) On 10 March 2008 the excess layer underwriters endorsed the broker's claim settlement documents: ``Agree settle CTL claim on the basis that there are no circumstances known to the assured that may prejudice cover or may otherwise affect the claim, such payment is made without prejudice to this reservation. Net open market residual value of vessel to be accounted to insurers.''I do not know if the primary layer underwriters had earlier made a similar endorsement. 21. Mr Tom Weitzman QC, for the First to Third Defendants, indicated at the hearing before me that the assured may seek to argue hereafter that by the endorsement of 10 March 2008 set out above underwriters disclaimed their entitlement to take over the interest of the assured in the vessel. It is equally possible that on consideration of the correspondence exchanged between the parties before and after payment of the CTL further points of this nature may emerge. I do not intend in this judgment to anticipate or to foreclose any such argument, although again there is the possibility that the answers to some or all of the issues which I am asked to resolve may become redundant. 22. I was told, and readily understand, that resolution of the questions posed in the Phase 1 Issues is of importance to the London market. Since answers to these preliminary questions on the basis of agreed if incomplete facts may also assist the parties in resolving the present dispute, it is I think appropriate that I should attempt to answer the questions as best I can. In any event I should not I think decline to answer them simply on grounds of, as I perceive it, irrelevance since my own view as to relevance is itself susceptible to likely appeal. Furthermore, the effect of the dealings between owners and underwriters can only properly be understood in the context of an analysis of the rights of and available to owners and underwriters respectively in the circumstances which typically arise when a claim is made for a CTL.23. In order to place the issues into context, I will for completeness set out below the further issues which the Claimants have provisionally identified as falling for decision at the second hearing, currently scheduled for May 2009. These issues include: (10) Whether the jurisdiction of the court under sections 423-425 of the Insolvency Act 1986 depends on the Claimants establishing actual prejudice as opposed to prejudice being the purpose of the transfer? (11) If any of the underwriters' rights depend upon whether the vessel was unique, was she unique? (12) Was Nigerian Westminster a bona fide purchaser of the vessel without notice of the underwriters' rights? (13) If not, what remedy is appropriate? (14) Did Westminster International transfer the vessel to Nigerian Westminster for the purpose of putting the vessel beyond the reach of the underwriters or otherwise to prejudice the interests of the underwriters? (15) If so, should the court exercise its discretion to order Nigerian Westminster (or any trustees) to transfer the vessel to the underwriters or their nominee? The Phase I Issues24. Issues (1), (2) and (4) raise questions to which sections 63 and 79 of the Marine Insurance Act 1906 are relevant. It is convenient however to set out a little of the context in which those sections appear. The Marine Insurance Act 1906, hereinafter ``the Act'' provides as follows: ``LOSS AND ABANDONMENT...57. Actual total loss - (1) Where the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual total loss. (2) In the case of an actual total loss no notice of abandonment need be given....60. Constructive total loss defined - (1) Subject to any express provision in the policy, there is a constructive total loss where the subject-matter insured is reasonably abandoned on account of its actual total loss appearing to be unavoidable, or because it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. (2) In particular, there is a constructive total loss--(i) Where the assured is deprived of the possession of his ship or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered; or(ii) In the case of damage to a ship, where she is so damaged by a peril insured against, that the cost of repairing the damage would exceed the value of the ship when repaired. The policies here as is in my experience at any rate common if not almost universal provide that in ascertaining whether the vessel is a CTL the insured value in the policies on ship and machinery shall be taken as the repaired value and nothing in respect of the damaged or break-up value of the vessel or wreck shall be taken into account - here achieved by Clause 8 of C299T.L.O. Excess Time Clauses, which is I think so far as relevant identical to Clause 17 of the Institute Time Clauses (Hulls), 1.10.70. In estimating the cost of repairs, no deduction is to be made in respect of general average contributions to those repairs payable by other interests, but account is to be taken of the expense of future salvage operations and of any future general average contributions to which the ship would be liable if repaired; or(iii) In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival.61. Effect of constructive total loss - Where there is a constructive total loss the assured may either treat the loss as a partial loss, or abandon the subject-matter insured to the insurer and treat the loss as if it were an actual total loss.62. Notice of abandonment - (1) Subject to the provisions of this section, where the assured elects to abandon the subject-matter insured to the insurer he must give notice of abandonment. If he fails to do so the loss can only be treated as a partial loss. (2) Notice of abandonment may be given in writing, or by word of mouth, or partly in writing and partly by word of mouth, and may be given in any terms which indicate the intention of the assured to abandon his insured interest in the subject-matter insured unconditionally to the insurer. (3) Notice of abandonment 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 enquiry. (4) Where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment. (5) The acceptance of an abandonment may be either express or implied from the conduct of the insurer. The mere silence of the insurer after notice is not an acceptance. (6) Where notice of abandonment is accepted the abandonment is irrevocable. The acceptance of the notice conclusively admits liability for the loss and the sufficiency of the notice. (7) Notice of abandonment is unnecessary where at the time when the assured receives information of the loss there would be no possibility of benefit to the insurer if notice were given to him. (8) Notice of abandonment may be waived by the insurer. (9) Where an insurer has re-insured his risk, no notice of abandonment need be given by him. 63. Effect of abandonment - (1) Where there is a valid abandonment, the insurer is entitled to take over the interest of the assured in whatever may remain of the subject-matter insured, and all property rights incidental thereto.(2) Upon the abandonment of a ship the insurer thereof is entitled to any freight in course of being earned, and which is earned by her subsequent to the casualty causing the loss, less the expenses of earning it incurred after the casualty; and where the ship is carrying the owner's goods the insurer is entitled to a reasonable remuneration for the carriage of them subsequent to the casualty causing the loss. ...RIGHTS OF INSURER ON PAYMENT79. Right of subrogation - (1) Where the insurer pays for a total loss, either of the whole, or in the case of goods of any apportionable part, of the subject-matter insured, he thereupon becomes entitled to take over the interest of the assured in whatever may remain of the subject-matter so paid for, and he is thereby subrogated to all the rights and remedies of the assured in and in respect of that subject-matter as from the time of the casualty causing the loss. (2) Subject to the foregoing provisions, where the insurer pays for a partial loss, he acquires no title to the subject-matter insured, or such part of it as may remain, but he is thereupon subrogated to all rights and remedies of the assured in and in respect of the subject-matter insured as from the time of the casualty causing the loss, in so far as the assured has been indemnified, according to this Act, by such payment for the loss.''Abandonment, Notice of Abandonment and the scheme of the Act25. The word abandonment is used in the cases in at least two senses. Sometimes it is used to mean the cession to underwriters by the insured of their property and interest in the ship. Sometimes it is used to refer to the giving of notice of abandonment. See generally per Rix LJ, giving the judgment of the Court of Appeal in Kastor Navigation Co. Ltd v. AGF MAT ``The Kastor Too'' [2004] 2 Lloyd's Rep. 119 at page 131, paragraph 53. The court consisted also of Tuckey and Neuberger LJJ. For convenience I will hereafter and I hope without disrespect refer to the judgment simply as that of Rix LJ. It is important to distinguish between the two processes. The clearest definition of the concept of abandonment at common law is to be found in the advice of Baron Martin to the House of Lords in Rankin v. Potter [1873] LR 6 HL 83 at 144: ``... a cession or transfer of the ship to the underwriter, and of all his property and interest in it, with all the claims that may arise from its ownership, and all the profits that may arise from it, including the freight then being earned. Its operation is as effectually to transfer the property of the ship to the underwriter as a sale for valuable consideration, so that of necessity it vests in the underwriter a chattel of more or less value, as the case may be.''26. Before the Act there was authority to the effect that cession of interest in the sense just discussed was automatic upon payment by insurers for a total loss. As Scrutton LJ explains in Allgemeine Versicherungs-Gesellschaft Helvetia v. Administrator of German Property [1931] 1 KB 672 at 687, it used to be thought that the payment passed the property and rights incidental to it to the underwriter as benefit of salvage. Scrutton LJ continues: ``Lord Blackburn in 1877, before the Marine Insurance Act, in Simpson v. Thomson [1877] 3 App Cas 279 said, at page 292: `I do not doubt at all that where the owners of an insured ship have claimed or been paid as for a total loss, the property in what remains of the ship, and all rights incidental to the property, are transferred to the underwriters as from the time of the disaster in respect of which the total loss is claimed for and paid.' He distinguishes the case from subrogation to a right to recover damages against a third party in respect of the thing insured, which he says follows on payment for a total loss, but must be exercised in the name of the assured and in respect of his right.''Before the Act there was some, although not uniform, support for the view that a valid notice of abandonment of itself, without the need for its acceptance, had the same effect. In the Allgemeine case Scrutton LJ at page 687 said unequivocally that the giving of a notice of abandonment does not in itself pass any property or rights in the thing insured to the underwriter. However if either proposition correctly stated the law, the automatic effect of payment for a total loss or of service of a valid notice of abandonment in respect thereof produced what was for underwriters a most inconvenient result, for the wreck might be a ``damnosa hereditas'' and the underwriters thereby exposed to liability for wreck removal - see Arnould, Law of Marine Insurance and Average, 17th Edition, paragraphs 30-06 and 30-35. According to Scrutton LJ in the Allgemeine case at page 688, ``before the Marine Insurance Act was passed in 1906, circumstances arose which rendered it necessary to consider whether an underwriter, merely by paying, necessarily became the `owner' of the thing insured. For it might be a damnosa hereditas, whose ownership only imposed liabilities which the underwriter did not want.'' Scrutton LJ continues: ``... In 1894, in Arrow Shipping Co. v. Tyne Improvement Commissioners, [1894] AC 508, the question was raised whether underwriters who had paid a total loss were not `owners' liable for the expense of raising the wreck, and Lord Herschell declined to decide the question.''27. Scrutton LJ records that it was probably in consequence of this debate that section 63(1) of the Act provides that where there is a valid abandonment, the insurer is entitled (my emphasis) to take over the interest of the assured in whatever may remain of the subject-matter insured and all proprietary rights incidental thereto, ``thus apparently leaving it open to the underwriters not to take over the interest of the assured, though entitled to take it over''. Section 79(1) of the Act uses similar language with the same effect, although it should be noted that the later section does not include the reference to ``all proprietary rights incidental thereto''. Moreover section 79(1) draws a clear distinction between ``taking over the interest of the assured in whatever may remain of the subject-matter'' which is an entitlement of which the insurer may choose not to avail himself, and ``all the rights and remedies of the assured in and in respect of that subject matter as from the time of the casualty causing the loss'' to which, by payment for a total loss, ``he is thereby [my emphasis] subrogated''. 28. Sir Mackenzie Chalmers, the draftsman of the Act, reveals a little more of the legislative process in the first and second editions of his commentary on the Act. In the notes to section 63, there appears the following: ``All authorities agree that abandonment operates as a cession or transfer of whatever remains of the subject-matter insured, from the assured to the insurer. But is the transfer absolute or conditional? In the first place, a valid abandonment may be defeated by a subsequent change of circumstances before action brought, e.g., in the case of capture and recapture: see section 62 and notes. In the second place, can the insurer disclaim an onerous property which is properly abandoned to him? See that question discussed in the note to section 79, and see further, note D on abandonment, post page 166. An amendment made in the Commons Committee to subsection (1) strengthens the view that he can disclaim. The words `is entitled to whatever remains' were altered to `is entitled to take over, etc'.''The note to section 79 reads, in part: ``The authorities fully bear out the proposition that whatever remains of the subject-matter insured vests in the insurer when he settles for a total loss. `The assured', says Lord Cottenham, `must give up to the underwriters all the remains of the property recovered, together with all benefit and advantage belonging or incident to it, or rather such property vests in the underwriters.' (Stewart v. Greenock Marine Insurance Company [1848] 2 H.L.C. at page 183). But is the vesting absolute or conditional, that is to say, can the insurer disclaim the property if it is onerous? Suppose a ship is wrecked in harbour and the insurer pays for a total loss. There may be an obligation to remove the wreckage, the expense of which would exceed the value of the wreckage. The question has been discussed, but not decided, in England. The footnote in the text of Chalmers refers, inter alia, to the case of Arrow Shipping Co v. Tyne Improvement Commissioners to which I have referred above. In France, it seems, the insurer can disclaim. See Pothier, Traité d'Assurance, paragraph 136. In Committee the words `is entitled to take over' were substituted for the words `is entitled to', and this amendment strengthens the view that the insurer is not compelled to accept an onerous property.''29. Scrutton LJ's formulation of the effect of section 63(1) was tentative - ``...thus apparently leaving it open to the underwriter not to `take over' the interest of the assured, though `entitled to take it over','' and the notes to sections 63(1) and 79(1) in the current, 10th, Edition of Chalmers still reflect the cautious view expressed in the first and second edition, which is now expressed as ``...the result would appear to be that it is left open to the insurer not to `take over' the interest of the assured, though `entitled to take it over'.'' In the Allgemeine Versicherungs case itself it was held on its special facts that there had been an acceptance of abandonment which passed to the insurers whatever might remain of the subject-matter insured, and all proprietary rights incidental thereto. The insured property, diamonds, had been abandoned to the Swiss insurers by a notice of abandonment in these terms: ``We herewith declare that we abandon the registered letter... for which we claim compensation, and that we are ceding all our rights to the Helvetia...''That notice was accepted by the insurers who thereafter paid as for a total loss. Moreover on payment the assured signed and gave to the insurers a document stating that they ceded to the insurers all their rights against third parties, and the insurers kept this document, the claim having been paid ``against the transfer of rights attached to this claim''. Scrutton LJ expressed the view that payment by the insurers against a cession of the insured's interest, the document of cession being kept by the insurers and not repudiated, was ``an acceptance of abandonment which passed `whatever may remain of the subject-matter insured and all proprietary rights incidental thereto'.'' 30. It will be recalled that when agreeing to pay for a CTL in the present case insurers endorsed the claim settlement ``net open market residual value of vessel to be accounted to insurers''. It is as I understand it common ground that, having paid for the CTL, insurers are indeed entitled to that value, although no argument has yet been addressed to me on why that is so and what is the legal analysis which leads to that conclusion. Possibly the concession is made because it was on those terms that the insurers agreed to settle the CTL claim and on those terms that the insured accepted payment. I raise the point because on one view of the case underwriters only made an effective election to take over the interest of the assured in what remained of the subject-matter insured after the assured had sold the vessel. In Arnould at paragraph 30-35 it is suggested that an underwriter when paying for a CTL may indefinitely keep open his options so far as concerns taking over the interest of the assured in what remains of the subject matter insured. Arnould also points out, at paragraph 30-36, footnote 198, that the underwriter may pay the loss while declining to accept the abandonment. If he does so, it is suggested by the learned editors that he may be taken to have waived his right to salvage or to the proceeds of sale, or to be estopped from laying claim thereto - cf. White Star SS Co. v. North British and Mercantile Insurance Co. Ltd [1943] A.M.C. 399, an American case. Ignoring for the moment the complication introduced by multiple underwriters, if an insurer elects to take over the interest of the assured only after the assured has sold the vessel, there may be a question what interest remains to be taken over. Possibly the proceeds of sale represent ``the interest of the assured in whatever may remain of the subject-matter''. Possibly insurers in any event derive their entitlement to the sale proceeds from their rights of subrogation. Indeed Mr Weitzman suggested in argument that an assured who sells a vessel at an undervalue having been paid for a CTL might be vulnerable to a claim based on his having prejudiced insurers' rights of subrogation. He also asserts/concedes that the Claimants have an equitable lien on the €1,000 proceeds of the sale to the Fourth Defendants, on the basis, so it would seem, that this is a subrogated recovery and in reliance therefore on the decision of the House of Lords in Lord Napier and Ettrick v. Hunter [1993] AC 713. However this still leaves open the question why an insurer who has not exercised his election under either section 63(1) or 79(1) is entitled to the net open market residual value of an as yet unsold vessel. Mr Weitzman's concession in that regard may, as I have already recorded, be based on the endorsement to the claim settlement. It cannot be founded on any incident of what I might call ``completed abandonment'' because on Mr Weitzman's case underwriters did not exercise their entitlement under either 63(1) or section 79(1) prior to sale of the vessel. The election in December 2008 was he says ineffective because it was not participated in by 100% of subscribing underwriters. The express election by 100% of subscribing underwriters after the sale of the vessel to the Fourth Defendants was made at a time when the assured no longer had any interest in the subject-matter insured which the insurers could take over, other perhaps than the proceeds of sale. 31. It may therefore be important to determine whether a request to be paid ``net open market residual value'' amounts to an election, either to take over or conversely not to take over the interest of the assured in whatever remains of the subject-matter insured and, if so, whether such election is revocable or irrevocable. Amongst other things the answer to this question may be relevant to the question raised by Issue 7, whether insurers may require the sale of the vessel or dictate in principle the manner of such sale. 32. In the case of an actual total loss, no notice of abandonment need be given -section 57(2) of the Act. Where there is a CTL, the assured may either treat the loss as a partial loss or he may treat it as if it were an actual total loss -section 61 of the Act. However the right of the assured to treat a CTL as if it were an actual total loss is dependent on his abandoning the subject-matter insured to the insurer - section 61 of the Act. Where the assured elects to abandon the subject-matter to the insurer he must give notice of abandonment - section 62(1), subject only to the exception provided by section 62(7) where at the time the assured receives information of the loss there would be no possibility of benefit to the insurer if notice were given to him, in which case notice of abandonment is unnecessary. It is I think because abandonment of the subject-matter insured to the insurers is a condition of being entitled to treat a CTL as if it were an actual total loss that it is now well established that preservation of the right to treat a CTL as an actual total loss is dependent upon the assured continuing to be prepared to abandon the subject-matter insured to the insurer - see per Rix J in Royal Boskalis Westminster NV v. Mountain [1997] LRLR 523 at page 557 and per Rix LJ in The Kastor Too at page 137, paragraph 77 of the judgment. In the latter paragraph Rix LJ analysed the matter as follows: ``The notice of abandonment, however, is the normal means by which an election to abandon is notified, and we would suggest, made. ... That notice, however, does not effect abandonment, even if it is valid. It is essentially an offer to cede, a formal or even informal recognition that, if the insurer so elects, he will, upon payment, be entitled to a complete interest in the thing insured or what remains of it as from the time of the casualty. If that offer is accepted it becomes irrevocable. If it is rejected, like any offer, it can be withdrawn: Royal Boskalis at page 556. If it is neither accepted nor withdrawn, but nevertheless valid, then in due course a judgment of the Court will confirm its validity, with the consequences provided for under section 63.''Rix LJ went on to point out that if before payment by the insurer for a CTL the assured does some act inconsistent with a continued preparedness to abandon the subject-matter to the insurer then he will lose his right to treat the CTL as an actual total loss and will be relegated to his claim for partial loss. The paradigm case would be where the assured sells the wreck without reference to underwriters. It is thus clear that had the assured in the present case without reference to underwriters sold the wreck before receiving payment for a CTL then, subject to any argument as to underwriters having waived their rights, the assured would thereby have deprived themselves of their entitlement to recover for a CTL. 33. It is important to notice certain other features of the statutory scheme. Rejection of the offer to abandon constituted by the notice of abandonment does not destroy the offer. Section 62(4) provides that where notice of abandonment is properly given, the rights of the assured are not prejudiced by the fact that the insurer refuses to accept the abandonment. As Rix LJ pointed out in The Kastor Too, like any offer, it can at any stage be withdrawn - with the consequences already discussed. However the notice of abandonment need not I think be repeated, in the sense of given over again, indeed in the ordinary case an assured whose notice of abandonment is declined will be treated as continuing to make the offer constituted by the notice unless and until he does some act inconsistent therewith. Furthermore the proper analysis of underwriters declining or declining to accept notice of abandonment is I consider, in agreement with Mr Milligan, ordinarily that they thereby intimate that they do not at that stage accept that the notice is valid. The rejection of the assured's offer to abandon is not ordinarily without more irrevocable. Conversely however when notice of abandonment is accepted then section 62(6) provides that ``the abandonment is irrevocable''. More difficult to understand however is precisely what this means. 34. Both Mr Milligan and Mr Weitzman attempted to assist me on this point, for which I am grateful, although neither addressed what either they or I would regard as full argument on the point. Notice of abandonment was not here accepted when tendered. It is common ground that on payment for the CTL underwriters had the right, pursuant to section 79(1), to elect to take over the interest of the assured in whatever remained of the wreck, irrespective of the question whether a right under section 63(1) remained available to be exercised. Both counsel therefore approached the matter on the basis that I do not need to decide what would have been the effect of actions which did not take place. This is of course true. On the other hand what is under discussion in this case is the question whether by payment for a CTL the underwriters acquired some equitable interest in the wreck of a nature not dealt with by the Act. What is effectively suggested here by underwriters is that by or on payment for a CTL they acquired some form of security interest, the benefit of which they could enjoy whilst deciding whether or not to take over the interest of the assured in the wreck, the existence of which security interest (i) constrained the assured's freedom of action (ii) arguably impaired the assured's ability to give title to the vessel and (iii) would at the least affect a purchaser with notice thereof. This being the nature of the enquiry, it is I think relevant to the analysis to determine precisely what proprietary interests the Act contemplates as being available to insurers, even if in this case insurers did not avail themselves of some or all of the opportunities offered. Furthermore, since the interest for which insurers contend is one which confers benefits upon them but imposes no burden, it is relevant to enquire whether the existence of such a right is compatible with the scheme of the Act. Taking over the interest of the insured in the wreck involves the assumption of liabilities, as already discussed. It may be that the provision to underwriters by statute of a right which confers both benefits and burdens impliedly excludes the creation of a more limited right which is more favourable to underwriters. Mr Weitzman does indeed so contend. To my mind therefore it is relevant to enquire what would have been the position had underwriters accepted notice of abandonment before paying for a CTL. My conclusions on this point, even if necessarily tentative, are likely to inform my approach to the question whether by virtue of paying for a CTL underwriters acquired a proprietary interest in the vessel. 35. I return therefore to the question what is meant by section 62(6). It seems to me significant that the word used in the sub-section is ``irrevocable'' rather than ``complete'' or ``perfected'' or some other word signifying the crystallisation of the process of abandonment. This approach is consistent I think with the second sentence of the sub-section. That sentence should I consider be regarded as spelling out what is meant by the abandonment becoming irrevocable. By acceptance of notice of abandonment the insurer admits his liability to pay for a CTL and admits that the offer to cede given by the assured is validly made. If however acceptance of notice of abandonment without more achieved cession of interest from insured to insurer, it would hardly be necessary to provide expressly that acceptance of the notice admits its sufficiency. Furthermore it is to be noted that it is the immediately following section 63(1) which provides what it is that the insurer is entitled to take over where there is a valid abandonment. In the light of the logical sequence in which Sir Mackenzie Chalmers addressed the topic, this might be thought a pointer to the process described in section 62(6) not in itself amounting to the exercise of the right which is first described only in the next section. 36. Mr Milligan's preferred analysis is that by accepting notice of abandonment the insurer accepts that the notice is validly given and indeed accepts liability to pay for a CTL, but does not thereby elect to take over the wreck. That is a separate right which arises under section 63(1). Mr Milligan did not address the point whether an express or implied election to take over the wreck would, before payment by underwriters for a CTL, bring about cession to insurers of the insured's interest in the wreck. Arnould puts forward two inconsistent views on this point. At paragraph 30-09 it is stated that transfer of the assured's proprietary interest in the subject-matter insured takes place automatically on acceptance of the notice of abandonment. This would be a variant on some of the pre-Act thinking to the effect that a valid notice of abandonment of itself achieves the transfer, without the need for acceptance. Arnould's view expressed at paragraph 30-09 is supported by dicta of Lord Atkin in Attorney General v. Glen Line Limited [1930] 37 Ll L Rep. 55 although the case is not cited in Arnould in this connection. A British ship in port at Hamburg was seized by the German authorities on 4 August 1914 at the outbreak of war. Notice of abandonment was given in January 1915. Notice of abandonment was accepted as at 4 August 1914 and on 9 February 1915 underwriters paid for a CTL. After the war the vessel was recovered and sold and the owners accounted to insurers for the proceeds of sale, which as it happens exceeded the amount paid for the CTL by a factor of three. The Crown's claim to be entitled to participate in a subsequent recovery from the German Government made under the Treaty of Versailles to compensate the owners for their loss of profits consequent upon the seizure of the vessel was however resisted. It was apparently pursued only by reference to section 63 of the Act - see per Lord Atkin at page 61. After observing ``that confusion is often caused by not distinguishing the legal rights given by abandonment (section 63) from the rights of subrogation (section 79) Lord Atkin continued: ``No-one doubts that the underwriter on hull damaged by collision and abandoned as a constructive total loss is entitled to the benefit of the right of the assured to sue the wrongdoer for the damage to hull. But he derives his right from the provisions of section 79, whereby he is subrogated to `all rights and remedies of the assured in and in respect of the subject-matter', very different words from `all proprietary rights incidental thereto'. And it is to be noted that in respect of abandonment the rights exist on a valid abandonment, whereas in respect of subrogation they only arise on payment; and that subrogation will only give the insurer rights up to 20 shillings in the pound on what he has paid.''In the context Lord Atkin's reference to ``a valid abandonment'' must I think be to an accepted abandonment. He appears however clearly to envisage that the acquisition of proprietary rights under section 63 occurs independently of payment, payment being required only to generate rights of subrogation under section 79. Moreover, the proprietary rights thus acquired would be the insured's full interest in the ship. If formalities such as registration are required to perfect transfer of title the transfer would at least be effective to create an equitable interest in the property and would entitle the insurer to require its formal transfer, where possible - see again Arnould paragraph 30-09. Whilst any dicta of Lord Atkin are highly persuasive, I do not regard his analysis of when rights are acquired by acceptance of notice of abandonment as contributing to the ratio of the decision. The case turned on the nature of the claim to compensation, which was not a proprietary right incidental to the ship. The insurer could not rely on rights of subrogation since they had already, in the shape of the proceeds of sale, received more than they had paid out. 37. Mr Weitzman certainly wished to argue, if it was open to him, that an insurer who accepts a notice of abandonment acquires the full interest of the assured in the vessel pursuant to section 63(1), which is, as he put it, ``the best security which he can have. It is better than an equitable lien because he has the full interest''. He accepted that the title thus obtained would normally be an equitable title only, at least until steps are taken additionally to transfer the legal title to the insurer. 38. The reason why this approach might not be open to Mr Weitzman is that it does not accord with the analysis adopted by Rix LJ in his judgment in the Kastor Too. The relevant passage is at page 136, paragraph 76: ``... The word `abandonment' does not itself appear in section 61, which speaks rather of the choice available to the assured to `abandon the subject-matter insured to the insurer'. What is being chosen is therefore a legal concept rather than an act, physical or mental. The legal concept is the cession of the ship to the insurer (see the dictum of Martin B in Rankin v Potter cited above and now sections 63 and 79 of the Act). That cession occurs in both forms of total loss, actual as well as constructive (Kaltenbach v. Mackenzie [1878] 3 C.P.D. 467, see paragraph 58 above). The cession, however, only occurs upon payment, and only if the underwriter is willing to accept the cession: for even in the case of an actual total loss, where the cession...

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