Kastor Navigation v. AGF MAT

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Note: This decision has been affirmed on appeal by a judgment of the Court of Appeal dated 10 March 2004. For a note of the Court of Appeal judgment click here

DMC/INS/17/02
Kastor Navigation Co Ltd. and Atlantic Bank of New York v. AGF M.A.T & Others
Commercial Court: Tomlinson J.: 4 December 2002
Stephen Hofmeyr QC and Andrew Baker instructed by Ince & Co for the claimants. Steven Berry QC instructed by Holman Fenwick & Willan for the defendants.
SHIPPING: INSURANCE: CONSTRUCTIVE TOTAL LOSS: ACTUAL TOTAL LOSS: ACCIDENTAL FIRE IN ENGINE ROOM: VESSEL SUNK SHORTLY AFTERWARDS: FIRE NOT PROXIMATE CAUSE OF SINKING: SINKING CAUSED BY WATER ENTERING VESSEL IN UNKNOWN MANNER: NOTICE OF ABANDONMENT NOT SERVED: WHETHER SERVICE OF NOTICE A CONDITION PRECEDENT: NO CONCEIVABLE BENEFIT TO UNDERWRITERS: S.62(7) MARINE INSURANCE ACT 1906: TRANSFER BY OPERATION OF LAW
Summary
A constructive total loss could be claimed where an actual total loss had occurred shortly afterwards by operation of a peril other than the cause of the constructive total loss, even though no notice of abandonment had been served. In such circumstances, the assured could rely on s.62(7) of the Marine Insurance Act, 1906.

DMC Category Rating: Confirmed

Facts
In this case, the owners and mortgages of the ‘Kastor Too’ claimed against defendant underwriters in respect of the total loss of the ship. In March 2000, the ship was on a voyage from Aqaba to the Indian port of Vizagapatnam with a cargo of some 17,400 tonnes of rock phosphate. On March 9, a fire broke out in the engine room and, after some initial but unsuccessful efforts to contain it, the crew abandoned ship. The vessel sank within about 15 hours of the start of the fire. The vessel would not have sunk if the engine room alone had been flooded. For the ship to sink within that time scale, there must have been a substantial quantity of water on board forward of the engine-room bulkhead, most likely in hold no.4. The ship was insured for US$3 million and the insured perils included fire, explosion and perils of the sea. The claimants claimed for a constructive total loss ('CTL') alternatively, an actual total loss, caused by fire and/or explosions.

At the close of the trial, the underwriters accepted (to the surprise of the judge) that the fire was accidental, but denied that the insured could recover for a CTL. Although underwriters accepted that the cost of repairing the fire damage to the engine room would have exceeded the insured value of the ship, they contested the CTL claim on the basis that no notice of abandonment had been served and that such notice could not effectively be given once the vessel had become an actual total loss.

As to the actual total loss, the underwriters asserted that a fire in the engine room and consequent explosions would not have caused and did not cause the flooding of any space of the vessel, other than the engine room, or the sinking of the vessel. They had no positive case as to how seawater, at any rate in significant quantities, entered the engine room. They suggested only that water entering from an unknown cause both before and after abandoning was a proximate cause of the sinking. Unidentified ingress of water not being an excepted peril, the claimants suggested that they were entitled to succeed in their claim for an actual loss on the basis of concurrent causes: ingress of water into the engine room caused by the fire, together with water that had entered the ship by unidentified means forward of the engine room bulkhead.

Judgment
(1) Given that, had the vessel not sunk, the claimants could have recovered for a CTL, the case had to proceed upon the premise that the CTL claim was not maintainable because the vessel had sunk for reasons other than the fire – in other words, the fire and the sinking were unconnected coincidences.

(2) In the present case, cession or transfer of the ship to underwriters under a notice of abandonment whilst the vessel was and remained a CTL was both impossible and of no conceivable benefit to underwriters. Should recovery for a CTL be, therefore, contingent upon the assured having complied with a condition precedent (the giving of the notice of abandonment), the performance of which was impossible in a case like the present?

(3) The purpose of the notice of abandonment was described in Kaltenbach v Mackenzie (1878) 3 CPD 467. None of the reasons identified in that case as grounds for the parties to agree that notice of abandonment should be given as a condition precedent to recovery for a CTL, led to the conclusion that an insured in such circumstances ought not to be permitted to recover for a CTL - at any rate not simply on account of failure to serve notice of abandonment before the vessel became an actual total loss by operation of a peril other than that which had caused the CTL.

(4) In a case like the present, the proper analysis was that abandonment of the subject matter insured would take place by operation of law when the underwriters settled the claim. Section 61 of the Marine Insurance Act 1906 was thus satisfied. The insured had been deprived of his right of choice envisaged by s.61. He had no option but to treat the vessel as a total loss (rather than a partial loss). Section 62(7) of the Act said in terms that notice of abandonment was unnecessary where, when the insured received information of the loss, there would be no possibility of benefit to the insurer if notice were given to him. That was the case here. The claimants were therefore entitled to recover as for a CTL.

(5) The claim in respect of an actual total loss would have failed, had it still been in issue. On the basis of the evidence, there must have been water present when the crew abandoned ship, the quantity and location of which simply could not be regarded as the likely consequence of a fire that had started so soon before. The judge could not reach a principled conclusion that the fire was probably the proximate cause of the sinking or the probable cause of an ingress of water sufficient to sink the vessel within 15 hours.

(6) Nor could the fire be regarded as one of two equally effective concurrent causes. On the judge’s findings, the vessel would not have sunk when she did, without a large unexplained ingress of water. On that basis, the water contributed by the fire in the engine room could not itself be regarded as a proximate cause of the sinking.

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