Insurer’s appeal rejected in loss of hire dispute

March 2013

Commercial Court, 20 January 2012, Sealion Shipping Ltd and Toisa Horizon Inc v Valiant Insurance Company

The Court of Appeal in London recently dismissed an appeal by loss-of-hire insurers against a Commercial Court judgment in favour of shipowners, represented by Lax & Co, in a dispute over alleged material non-disclosure and / or misrepresentation.

The dispute had its origins in a claim made by the owners, Sealion Shipping Ltd and Toisa Horizon Inc, for 30 days of off-hire after the well-testing vessel Toisa Pisces suffered a breakdown of its port bow-thruster. In an attempt to rectify the situation, owners replaced the port motor with the starboard motor. But they suffered a second set-back roughly two weeks later when the starboard motor hydraulics failed during testing, requiring the vessel to proceed to drydock for repairs. Following repairs, a further two weeks later, the starboard motor suffered a failure necessitating further repair.

Owners' claim was for loss of hire spanning the thirty-day period of all three occurrences, on the basis that the losses all flowed from the original breakdown.

Commercial Court judgment

In the Commercial Court, Valiant sought to avoid the policy, on the basis that there had been material non-disclosure and / or misrepresentation at the time the policy was entered into. Among other things, it also argued in the alternative that the full amount of 30 days' hire claimed was not payable because there had been three breakdowns rather than one, so that the excess period of 21 days should be applied to each 'breakdown'.

At first instance, the court found that, in principle, the whole 30-day period counted for loss of hire. Noting that the critical path of the loss had not been affected by owners’ failed attempts to mitigate their loss, the court said, "The reality is that after the failure of the port motor… one thing led to another. The claimants had reasonably tried to deal with the problem by substituting the starboard motor. Had this succeeded, there would have been no claim for loss of hire at all. Unfortunately, the hydraulics failure frustrated that endeavour…"

The claim accordingly succeeded and owners were awarded 90% of their costs.

Court of Appeal decision

On appeal, Valiant argued, inter alia, that the hydraulics failure broke the chain of causation, so that loss of hire payable to owners should be limited to the amount flowing from such failure. The appeal court, however, accepted owners' submission that the "hydraulics failure was no more than a vicissitude", and that it was "axiomatic" to undertake owners' repairs when the vessel was in drydock.

The court rejected on all grounds Valiant's argument that the indemnity for loss of hire was only payable from the time of the hydraulic failure. The Lords Justices Pill, Gross and Tomlinson dismissed the appeal, with costs.

Issued by

Catriona Lewis
Lax & Co LLP
Dir: +44 (0) 20 7397 0542

December 18th, 2015

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