384. Bunge SA v Kyla Shipping Co Limited (the “Kyla “) [2012] EWHC 3522 (Comm)

Frustration – time charter – owners’ obligation to maintain certain level of insurance cover – cost of repair exceeding sound value of vessel but less than the cover available – charterparty not frustrated

 The Facts

Clause 41 of an amended NYPE 1946 Form read:

“Clause 41 Insurance/P&I Cover

41.1 Owners             warrant that throughout the currency of this Charterparty the vessel shall be fully covered by leading insurance companies/International P&I Clubs acceptable to the Charterers against Hull and Machinery, War and Protection and Indemnity Risk. Cost of such cover to be at the sole expense of the Owners with the exception of extra insurance cost that may be incurred as per clause 35- Trading.

41.2 If required by the Charterers, prior to the commencement of the Charter or at any other time, the Owners shall procure that the Managers of the Hull and Machinery insurance and the Protection and Indemnity Association shall give the Charterers proper evidence that the vessel is fully covered by the Owners.

41.3 Insurance             full style and value

Hull and machinery: USD16,000,000 London, Norway and USA Markets War Risks: Hellenic Mutual War Risk Association Protection and Indemnity risks: UK P&I Club”

A few months into the charter (12-15 months in charterers’ option) the vessel was damaged.  The probable cost of repair was US$ 9 million and the estimated time of repair was 160 days.  The sound market value of the vessel was US$ 5 750 000.

Owners sold the vessel for scrap at US$ 3.3 million but recovered US$ 14 275 263 under the Hull and Machinery Policy.

The issue of frustration was referred to arbitration.

Findings

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