Sveriges Angfartygs Assurans Forening (The Swedish Club) & Ors v Connect Shipping Inc & Anor

Factual and Procedural Background

On 23 August 2012 a laden vessel (“The Vessel”) sustained severe engine-room fire damage while navigating in The Sea. Salvors were immediately engaged under Lloyd’s Open Form 2011 on a “No Cure – No Pay” basis. After discharge of cargo at The Port and completion of salvage services, a standby tug remained to safeguard the casualty and, if required, tow her to a repair or demolition site.

The owners insured the hull and machinery for an agreed value of US $12 million with a syndicate of insurers led by Company A and held an increased-value policy (limit US $3 million) also written by Company A. On 1 February 2013 the owners served notice of abandonment claiming a constructive total loss. The insurers (Appellants) conceded liability for a partial loss but rejected the notice. Judge Knowles found for the owners; the Court of Appeal affirmed. Only two issues reached the Supreme Court (“the Court”).

Legal Issues Presented

1. Whether, in assessing a constructive total loss under section 60(2)(ii) of the Marine Insurance Act 1906 and clause 19.2 of the Institute Time Clauses Hulls (1/10/83), the calculation must include salvage and other expenses incurred before service of notice of abandonment.
2. Whether SCOPIC charges—remuneration payable to salvors for preventing or minimising environmental damage—constitute part of the recoverable “cost of repairing the damage.”

Arguments of the Parties

Appellants’ Arguments

• The constructive-total-loss inquiry is “time-sensitive” and crystallises at the moment of notice of abandonment; only future costs can be counted, rendering all sunk costs irrelevant.
• SCOPIC remuneration does not relate to repair of the insured hull but to environmental liabilities; it therefore falls outside “cost of recovery and/or repair.”
• Earlier authorities (Hall v Hayman; The MEDINA PRINCESS) support exclusion of pre-notice expenditure.

Respondents’ Arguments

• Section 60 addresses the whole damage flowing from the casualty; consequently all recovery and repair costs, whenever incurred, must be included.
• Historic decisions routinely treated salvage charges—including those incurred pre-notice—as part of repair costs; SCOPIC forms an integral element of salvage remuneration.
• Excluding large portions of salvage expenditure would undermine indemnity principles and create arbitrary distinctions based solely on timing.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court reaffirmed that, in a policy of indemnity, the insurer’s breach arises at the casualty; quantification is merely evidential. A constructive total loss is a partial loss economically equivalent to a total loss, assessed by comparing the full cost of recovery/repair with the repaired value. Neither section 60 nor the Institute Clauses confine that comparison to costs incurred after notice of abandonment. Legislative references to “future” expenses merely recognise that some items are prospective.

Historical authorities that excluded pre-notice costs were either concessions or lacked reasoning, while numerous earlier cases (domestic and US) included such expenditure. Excluding sunk salvage costs would defeat indemnity principles and, practically, ignore the very costs necessary to discover whether repair is viable.

Regarding SCOPIC charges, the Court distinguished between expenses aimed at enabling repair (salvage, towage, temporary repairs) and those protecting separate interests (environmental liabilities). SCOPIC remuneration, by design, addresses the latter and is recoverable from Protection & Indemnity insurers, not hull underwriters. Its inclusion would blur the statutory comparison limited to repair-related expenditure. The “prudent uninsured owner” test could not expand that statutory boundary.

Holding and Implications

Held: (1) All reasonable salvage and related expenses incurred before notice of abandonment are includable when assessing a constructive total loss. (2) SCOPIC charges are not part of the repair-cost calculation. The appeal succeeds in part.

The orders of the lower courts are set aside. The case is remitted to Judge Knowles to recalculate whether The Vessel is a constructive total loss on the basis that pre-notice salvage costs are included but SCOPIC charges are excluded. The judgment clarifies the temporal scope of repair costs and draws a bright line between hull-related expenses and environmental-protection liabilities, providing authoritative guidance for future marine-insurance disputes.