High Court Rules on Sue and Labour Claims and Vessel Abandonment in Ithaca Prospect LLC v Lloyd's Insurance Company SA

The dispute arose following the detention of the Ithaca Prospect, a Panamanian-registered bulk carrier, at the port of Mykolaiv, Ukraine. The vessel had arrived in February 2022 to load a cargo of muriate potash under a time charterparty. Following the invasion of Ukraine by Russian forces on 24 February 2022, Ukrainian authorities closed the port to commercial shipping and martial law was declared.

The vessel was covered by a war risks policy issued by the defendant insurers. On 17 February 2022, prior to the outbreak of widespread hostilities, insurers issued a notice of cancellation terminating cover for Ukrainian ports with effect from 2 March 2022.

To maintain coverage while trapped in the war zone, the vessel's owners and managers (the claimants) procured temporary replacement war risks insurance between 2 March and 12 May 2022 at a cost of $2,285,435.42. The replacement cover was subsequently allowed to lapse on financial grounds.

Constructive total loss and settlement agreement

Following a 12-month period of detention, the claimants served notices of abandonment (NOAs) between February and March 2023, declaring the vessel a constructive total loss (CTL) pursuant to Clause 3 of the Institute War Risks and Strikes Clauses - Hulls Time (1/10/83). The insurers initially rejected the NOAs for procedural reasons, reserving their statutory rights under the Marine Insurance Act 1906.

In May 2023, the parties executed a settlement agreement under which insurers paid the full insured value of $16,000,000 in respect of the CTL claim. Provision was made within the agreement to sell the vessel, with sale proceeds credited back to the underwriters.

The claimants subsequently brought two distinct claims in the Commercial Court:

1. A claim for $1,178,861.36 in sue and labour expenses incurred in keeping the vessel operational and ready for immediate departure.
2. A claim for $2,285,435.42 to recover the cost of the replacement war risks insurance.

Judicial findings on sue and labour expenses

Sitting as a Deputy Judge of the High Court, Peter MacDonald Eggers KC considered whether the operational expenses incurred while trapped constituted valid sue and labour costs under Clause 13 of the Institute Time Clauses - Hulls.

The court re-affirmed that sue and labour costs are recoverable only where incurred reasonably to avert or minimise a loss covered by the policy. The judge held that the decision to maintain a reduced crew on board to ensure readiness for departure was reasonable during the period when there was a realistic prospect of port unblocking or escape corridors. However, the entitlement to claim full operational costs was limited to measures directly aimed at mitigating the insured peril of detainment.

The replacement insurance claim and abandonment

Regarding the claim to recover the $2.28m replacement insurance premium, the claimants asserted that the May 2023 settlement agreement operated as an implied acceptance of abandonment by the insurers, transferring the proprietary burdens of ownership—including insurance costs—retroactively to the underwriters.

The court rejected this argument. The judge held that the insurers had not accepted abandonment, either expressly or by conduct. Reserving statutory rights to take over proprietary interests or credit residual sale values under Sections 63(1) and 79(1) of the Marine Insurance Act 1906 does not equate to an acceptance of abandonment or an assumption of ownership liabilities. Consequently, the cost of purchasing replacement insurance remained an expense of the shipowners and could not be transferred to the insurers.