Kastor Navigation Co Ltd & Anor v AXA Global Risks (UK) Ltd & Ors

A recoverable constructive total loss caused by an insured peril does not merge into a later actual total loss caused by an independent uninsured peril. Where notice of abandonment is excused, the assured need not make a separate mental election before the actual loss. The assured must not have treated the constructive total loss as a partial loss. An initial claim for actual total loss does not itself prevent an alternative constructive total loss claim.

Beating a claimant’s Part 36 offer affects the basis of assessment of costs awarded, rather than automatically determining their incidence. An issue-based costs order must reflect all the circumstances. The court must consider overall success, the parties’ conduct and settlement offers, and assess whether the resulting order is appropriate.

Kastor Navigation Co Ltd and the other claimant were respectively the owners and mortgagees of the vessel Kastor Too. AXA Global Risks (UK) Ltd and the other defendant insurers subscribed to 80% of a marine policy valuing the vessel at US$3 million. The vessel suffered an accidental engine-room fire and sank about fifteen hours later. Fire was insured, but the owners failed to establish that the independent ingress of seawater which caused the sinking resulted from an insured peril.

Tomlinson J rejected the owners’ actual total loss claim but upheld their alternative constructive total loss claim. He found that the fire had caused damage exceeding the relevant repair-cost threshold before the vessel was bound to sink. His merits judgment was reported at [2002] EWHC 2601 (Comm), [2003] 1 All ER (Comm) 277 and [2003] 1 Lloyd’s Rep 296. In a separate costs judgment, [2003] EWHC 472 (Comm), he awarded the owners 15% of their costs and the insurers 85% of theirs.

The insurers appealed against recovery for constructive total loss. The owners withdrew their challenge to the rejection of actual total loss but pursued their costs cross-appeal. The central questions were whether the later uninsured sinking defeated the earlier constructive total loss claim and whether the costs order properly reflected overall success, expenditure on the unsuccessful alternative case and an effective Part 36 offer.

1. The insurers’ appeal was dismissed. The owners’ costs cross-appeal was allowed, and the trial costs order was replaced by no order for costs. The court delivered one judgment to which all three members contributed.

2. The finding that the fire caused a constructive total loss at a material time before the vessel was bound to sink was supported by the evidence. The insurers’ limited admission concerning repair costs immediately before sinking did not restrict the owners’ broader pleaded case. The owners bore the burden of proving constructive total loss. The insurers bore the burden of their allegation that the vessel was already doomed to sink before that loss occurred.

3. The existence of constructive total loss under section 60 of the Marine Insurance Act 1906 was distinct from entitlement to claim a total-loss indemnity. Notice of abandonment was admittedly excused under section 62(7). Section 61 did not impose a separate requirement for a mental election before actual loss. Its concern was whether the assured had treated the constructive total loss as a partial loss.

4. Abandonment was the cession of the assured’s interest upon payment, rather than an immediate physical or mental act. It applied to actual and constructive total losses. The original actual total loss claim demonstrated willingness to abandon and did not constitute an irrevocable election against constructive total loss. There was also no reliance capable of founding an estoppel.

5. The merger rule concerned unrepaired partial loss, rather than a constructive total loss which the assured was entitled to claim as such. Livie v Janson, Woodside v Globe Marine Insurance Company Limited and British and Foreign Insurance Company Limited v Wilson Shipping Company Limited did not establish a wider rule. Clause 18.2 of the Institute Clauses likewise concerned partial loss. An established recoverable total loss exhausted the insurance, subject to any question of sue and labour; a later independent loss did not defeat it.

6. CPR 36.21 governed the assessment basis of costs awarded, rather than their basic incidence. Under CPR 44.3, success meant success in the litigation overall. Costs could nevertheless be allocated by issue without unreasonable or improper conduct. The judge erred by applying the mathematical result of that allocation without adequately considering the insurers’ contribution to an avoidable combined trial, the owners’ settlement offer and the alternative nature of their unsuccessful case. He should have asked whether the result was appropriate in all the circumstances, rather than whether it was perverse. Those considerations and the owners’ pursuit of an unsustainable causation case were evenly balanced.

The appended order required the insurers to pay 70% of the owners’ appeal costs and refused leave to appeal to the House of Lords.

• Court of Appeal (Civil Division): In [2004] EWCA Civ 277 , dismissed the insurers’ constructive total loss appeal and allowed the owners’ costs cross-appeal. Substituted no order for trial costs. The owners had withdrawn their challenge concerning actual total loss.
• High Court, Queen’s Bench Division, Commercial Court: Tomlinson J upheld constructive total loss and rejected actual total loss in [2002] EWHC 2601 (Comm), also reported at [2003] 1 All ER (Comm) 277 and [2003] 1 Lloyd’s Rep 296. In [2003] EWHC 472 (Comm) , he ordered the insurers to pay 15% of the owners’ costs and the owners to pay 85% of the insurers’ costs. He granted permission for the respective appeals.