The Real Effect of Declaration of Abandonment in Maritime Law in the UK and Russia

Keywords: abandonment, marine insurance, English law, indemnity, real effect of abandonment, total loss of a ship, grounds of title, liability for damage caused by sunken property, actual loss of a ship, constructive total loss.

The concept of an abandonment only appeared in Russian law in 1929 and, for obvious reasons, it was not widely used for a long time.¹ Practical and scientific interest in it appeared only in the early 2000s. However, so far there have been no Russian-language works containing any full analysis of the purpose of abandon in Russian maritime insurance and place it occupies in the system of Russian civil law.

In particular, the topic of abandon is of academic interest to Russian lawyers in the context of the extent to which the declaration of abandonment as a basis for transfer of ownership fits into the model of the acquisition of title set out in the Russian Civil Code.

The subject of this study is an examination of the real effect of abandonment. The English jurisdiction is chosen for the comparative analysis. Unlike Russia, in England the concept of abandonment has a long history. It is logically embedded, on the one hand, in the doctrine of indemnity which underlies English insurance law and, on the other hand, in concept of the transfer of ownership mechanism. The problem of the real effect of an abandon has been extensively developed in English doctrine and case law. Nevertheless, the current research shows that an declaration of abandonment has mainly an obligational effect, i.e. it entitles the policyholder to receive the full sum insured in respect of the property abandonned, whereas the real effect may be blocked by the insurer’s rejection to take the ownership of the property insured.

The purpose of this paper is to demonstrate that the prevailing view in Russia on the transfer of ownership based on a notice of abandonment without regard to the insurer’s will is not theoretically justified. A mechanism that allows ownership rights to pass from the policyholder to the insurer and vice versa solely at the will of the former or the latter, respectively, does not fit into the model of transfer of ownership provided by the Russian Civil Code.

As a result of the study, the author questions the appropriateness of maintaining the real effect of a notice of abandonment in Russian marine insurance, at least as a peremptory rule.

The concept of abandonment under English law

The historical roots of abandon

The insurance contract presumably was introduced at the end of the Middle Ages as a separate type of a contract from a maritime loan, or rather from the two surrogates resulted from its prohibition: a simulated loan and a simulated sale.²

In particular, under a quasi-sale contract, the seller (the insured) undertook to transfer the goods (vessel or cargo) to the buyer (the insurer) under the subsequent condition that the goods would not reach their destination, for example as a result of shipwreck or capture by pirates or a military adversary (a prototype of the insured event). Therefore, at the time of shipwreck or hijacking, the contract of sale was perfected and, accordingly, the seller-insured had the right to claim the purchase price (sum insured) and the buyer-insurer had the right to acquire the ownership of the goods. On the one hand, the provision under the sale-purchase contract implies the transfer of possession of the goods, on the other hand, the nature of the subsequent condition of the simulated sale is such that it almost entirely makes it impossible such a transfer. Thus, there was a need for a constructive transfer, which was recognised by the seller-insured’s notice of abandonment, by which it ostensibly transfered the possession to the insurer.³

By the early fifteenth century the practice described had developed as the lex mercatoria and then were implied into national law in one form or another, including English law.⁴ There it was further developed first in common law and then in the Marine Insurance Act 1906 (hereinafter – MIA). In English law, the doctrine of indemnity gradually developed in relation to the insurance contract. It implies the principle of subrogation whereby the insurer who paid the indemnity would take over the rights of the insured relating (1) to the insured event, in particular contractual and/or tort claims against a third party who was liable for the losses caused by the insured (subrogation in the narrow sense) and (2) to the property in respect of which full insurance sum was paid (abandonment).

The meaning of the term “abandonment”

The difficulties in understanding the concept of abandonment in marine insurance is related not least to the fact that the term “abandonment” / “to abandon” is used in English law in several senses.

Firstly, the term “abandonment” is defined as a voluntary relinquishment of possession which does not involve the transfer of the thing to another person by sale or gift and does not normally result in a waiver of ownership.⁵ For marine insurance we find such abandonment in Article 60 (1) of MIA, where the term “abandoned” refers to the abandonment by the master and crew of a vessel since its actual constructive total loss appears unavoidable or could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred. In this case it is the physical abandonment of the thing and the loss of possession, but not the waiver or transfer of ownership.

Secondly, along with the concept of abandonment of possession, there is the concept of relinquishment of ownership, sometimes referred to as “divesting abandonment”.⁶ In this sense, the term “to abandon” is used in Article 61 of the MIA, which refers to the relinquishment of the ownership in favour of the insurer.

Thirdly, common law and the MIA use the concept of a “notice of abandonment”, which should be distinguished from an abandonment of possession as well as an abandonment of title. A notice of abandonment is an extraordinary remedy granted in certain cases whereby the insured may claim the full sum insured against the transfer to the insurer of ownership of what remains of the insured property.⁷ This definition clearly suggests that the notice of abandonment has both an obligational and a real effect.

Fourthly and finally, the term “abandonment” is used to describe the doctrine of marine insurance, including the insured’s right to abandon, the legal consequences of exercising that right, the conditions for the validity of a notice of abandonment and the transfer of ownership of the insured property from the insured to the insurer.⁸

Constructive total loss

Originally, the insurance contract, which evolved from a simulated loan and a simulated sale contract, only provided for the payment of insurance compensation in the event of constructive total loss of property insured. However, what does “total loss” mean? The answer to this question gradually developed in common law and was formulated in the MIA.

Pursuant to Article 57 (1) MIA, actual constructive total loss occurs when, as a result of the peril insured, (1) the insured property is completely destroyed; (2) the insured property is damaged to such an extent that it ceases to be a thing of the kind insured; (3) the insured is irretrievably deprived of the property.⁹ In addition, the presumption of actual constructive total loss of the vessel applies in cases where the vessel is missing, and it has not been heard from for a certain period of time (section 58 MIA).

However, before the invention of modern means of communication, proving the actual loss of a vessel and/or cargo was extremely difficult. Moreover, even if there was reliable information on the current state of the vessel, it could be that the vessel was reefed or sunk in relatively shallow water, or captured by a military adversary. Does this mean actual constructive total loss? No, because in the first two cases, the vessel is damaged but not totally destroyed. Furthermore, under certain circumstances, the vessel may run aground due to tidal waves or storms or be washed ashore with all property onboard. In the third case the vessel may be returned by the hijacker on the basis of an amicable agreement. Therefore, irretrievable loss of possession cannot be established either. What is the insured to do in such a situation? Uncertainty on the condition and fate of the vessel and the cargo may last any long, but the insured needs the insurance indemnity immediately to maintain its financial stability.

For this case, firstly common law and then the MIA introduced the constructive total loss concept, i.e. a set of conditions under which the insured, at his discretion, could claim to the insurer either partial loss or total loss of the vessel and/or cargo.¹⁰ In other types of property insurance there was no such degree of uncertainty on the fate of the insured property as in marine insurance. For this reason, the doctrine of constructive total loss has long been considered as a feature of maritime law.¹¹

An exhaustive set of conditions for recognising a fictitious total loss¹² is contained in Article 60 of MIA and includes four separate elements: 1. If the insured property has been reasonably abandoned (in the sense that the owner has lost possession of it) since its actual total loss appearing to be unavoidable, or beacuse it could not be preserved from actual total loss without an expenditure which would exceed its value when the expenditure had been incurred (section 60 (1)).

2. If the insured is deprived of the possession of its vessel or goods by a peril insured against, and (a) it is unlikely that he can recover the ship or goods, as the case may be, or (b) the cost of recovering the ship or goods, as the case may be, would exceed their value when recovered (section 60 (2) (i)).

3. If the case of damage to a ship, where she is so damaged by a peril insured against that the cost of repairing the damage would exceed the value of the ship when repaired (section 60(2)(ii)).

4. In the case of damage to goods, where the cost of repairing the damage and forwarding the goods to their destination would exceed their value on arrival (Article 60(2)(iii)).¹³

In all cases, the existence of grounds for recognising a constructive total loss is determined at the date of the loss. However, as mentioned above, the situation may change at a later date. This raises the question: when does a constructive total loss ctystallise? For a long time, common law has taken the approach that this point is the acceptance of the notice of abandonment and, in cases where the insurer rejects the notice of abandonment, the moment of such rejection or the moment the insured files a claim.¹⁴

However, relatively recently this position has been overruled in The Kastor Too. As a result of a fire (peril insured), the insured’s property was damaged to such an extent that there were grounds for a notice of constructive total loss. But shortly after the fire, the vessel sank for an unknown reason (peril uninsured). The court held that there were grounds for payment of full indemnity based on a constructive total loss, even though the insured had not notified an abandonment before the sinking. It is important to note that had the court ruled otherwise and refused to recognise a constructive total loss, the insured would not have been able to claim for partial loss. This situation is related to the rule in English insurance law according to which partial loss cannot be recovered if there has been total loss of that property this partial loss would be repaired. The insured would not have had grounds for a claim of actual total loss because the vessel sank as a result of the peril uninsured. Therefore, it was held that the constructive total loss was fully crystallised at the time of the occurrence of the insured event. Accordingly, the insured is entitled to claim it regardless of what happens subsequently.¹⁵

The MIA stipulates that the insured may claim insurance indemnity for either constructive total loss or partial loss (section 56 (1) MIA).

Under the insurance contract, the insurer promise to prevent or hold the insured harmless against specified loss and expenses. The occurrence of an insured event is regarded as a breach of contract on the part of the insurer. Accordingly, a claim for payment under an insurance contract is nothing more than a claim for damages.¹⁶ This approach is applied when the insured claims partial loss.

The situation is fundamentally different in the case of a claim for total loss. Such a claim does not qualify as a claim for damages, but as a claim for payment of a debt or for liquidated damages. In practice, firstly, that means that the insured does not have to prove the extent of his or her losses since they are predetermined and correspond to the sum insured specified in the insurance policy. Secondly, the insured does not have to prove that all reasonable measures have been taken to mitigate the loss.¹⁷

Thus, in the event of constructive total loss, as opposed to partial loss, the insured does not have to prove the extent of their loss incurred in connection with the insured event but shall claim the sum insured as specified in the policy.

The difference between actual total loss and constructive total loss is that in the former case the insured has to claim total loss, whereas in the latter case the insured may decide whether to claim partial loss or total loss.

In case of the constructive total loss, it poses a serious threat to compliance with the compensation principle of insurance that the insured has the right to claim the full sum insured in respect of property of which it is not known whether or not it is actually lost or destroyed. It may result that the insured will receive the full insurance indemnity for the insured property lost and at the same time retain title to the property, which has the potential market value. In Castellian v Preston, it was noted that the doctrine of constructive total loss and the doctrine of notice of abandonment engrafted upon it were invented or promulgated for the purpose of making a policy of marine insurance a contract of indemnity in the fullest sense of the term.¹⁸

Obligational and real effects of a notice of abandonment in English insurance law

Obligational effect of a notice of abandonment

The use of the term “abandonment” obscures the legal nature of the transaction represented by the notice of abandonment in some extent since it shifts the emphasis to the real effect of such notice. However, by notifying abandonment, the insured seeks to obtain payment of the full sum insured under the insurance contract, as if the insured property had been actual total loss.¹⁹ That gives him the advantages described above, simplifying the procedure of proof. Waiver of title is not the purpose of a notice of abandonment. It is rather a “collateral effect” which is not based on the will of the insured but based on the law. As described above, it derives from the compensatory nature of marine insurance.

If the insured cannot prove an actual total loss, the notice of abandonment is necessary to get the full sum insured. The insured may only claim for compensation for partial losses without it. On the contrary, when the circumstances of the case show the occurrence of an actual total loss, a notice of abandonment is not required.

From a continental lawyer’s point of view, the notice of abandonment is a unilateral obligational transaction through the execution of which the insured exercises its secondary right to assert a claim for payment of the full sum insured on the basis of the constructive total loss. The insurer has the right to accept the notice of abandonment, and such acceptance is irrevocable, or to reject it.

In most cases in practice, the insurer uses the second option. However, the insurer’s rejection to accept the notice of abandonment does not affect the obligational consequence of the notice of abandonment (section 62 (4) MIA) since such a notice, as a unilateral transaction, does not require the insurer’s acceptance. The insurer’s obligation to pay the full sum insured arises from (1) the occurrence of the statutory conditions for claiming the constructive total loss, which must be proven by the insured, and (2) the notice of abandonment, i.e. the insured’s choice to claim compensation for the total loss of the insured property.

Before the insurer accepts a notice of abandonment, the insured has the right to withdraw the notice. This protects the insured’s right to choose whether to claim total loss or partial loss and to change their choice if the insurer does not accept the notice of abandonment. However, if the policyholder claims partial loss, it cannot subsequently change his mind, even if the circumstances justify the recognition of a total loss.²⁰

Real effect of the notice of abandonment

The real effect of a notice of abandonment is described in Article 63 MIA, according to which, if there is a valid abandonment the insurer is entitled to take over the interest of the assured in whatever may remain of the subject-matter insured, and all proprietary rights incidental thereto, including the right to profits.

The right to profits rule was formulated in Attorney General v Glen Line Ltd where the insurer was held to be entitled to retain all profits of sale notwithstanding that they exceeded the amount of the insurance indemnity paid. In Yorkshire Insurance Co v Nisbet Shipping Co Ltd it was noted that where an insured abandons ownership, the insurer is entitled, though not obliged, to acquire the property. If it does so, all the interest of the insured in the property transfers to it. This may seem to contradict to the compensation principle of insurance. However, the insurer receives not only the rights, but also the obligations associated with the acquired property. In this sense, bearing the burden and risks of maintaining such property can be seen as a consideration for the additional profits derived from the property.²¹

Section 79 (1) MIA indicates that the right to take over possession of the remains of the insured property arises after the insurance indemnity for total loss (total sum insured) has been paid.

When does ownership pass to the insurer: at the time of acceptance of the notice for abandonment or at the time of payment? The literature states that the insured’s right to equitable lien arises upon acceptance of a notice for abandonment, while the transfer of title occurs upon payment of the full sum insured.²² If the insurer rejects the notice for abandonment, no interest the insured property pass until the insurance indemnity is paid. However, if the full sum insured is paid, the insurer may enjoy the right to take over possession of the remains of the insured property.²³

Therefore, the acquisition of title to the insured property does not occur automatically by virtue of the insured’s notice of abandonment, but only after acceptance of this notice. In other words, the insurer has a choice to agree to acquire the title and thereby ensure the conditions necessary for its transfer, or to reject and thereby deprive the notice of abandonment of its potential real effect.

The full set of conditions for transfer of ownership by virtue of abandonment include (1) the marine insurance contract; (2) the occurrence of conditions for the notice of the constructive total loss; (3) the notice of abandonment by the insured; (4) acceptance of abandonment by the insurer and/or consent to take over possession of the insured property which is claimed totally lost; (5) payment of the full sum insured. At the same time, the title passes to the insurer with retroactive effect, from the moment the insured event occurs.²⁴

What happens if the insurer does not accept the abandonment and nevertheless pays the full sum insured for the damaged insured property? There are three possible answers to this question: (1) ownership automatically passes to the insurer after payment of the insurance indemnity; (2) the abandoned property becomes ownerless property (res nullis); (3) ownership remains with the insured. The first two approaches are not widely supported in English law. Therefore, it is generally accepted that a notice of abandonment does not terminate the rights and obligations of the owner-insured in relation to the insured property until the insurer acquires ownership.²⁵

Problems related to the real effect of a notice of abandonment

The double effect (obligational and real) of a notice of abandonment is related to the problem of the doubling of the will. The fact that there is no doctrine of transactions in England does not mean that the problem of unity of will is not familiar to English law. On the contrary, the notice of abandonment gives good example of the difficulties which are caused by trying to double the purpose of a single act.

From the point of view of the insured’s notice of abandonment, as noted above, the problem of doubling the purpose does not arise. The notice of abandonment has the sole purpose of obtaining the full sum insured. The transfer of ownership in insured property to the insurer takes place not through the will of the insured but by the law. This observation is consistent with the idea that ownership does not arise through the will of the holder of the right, but through a more complex system of phenomena.²⁶

The situation is more complicated when viewed from the insurer’s point of view. In English law, there is no certainty as to whether accepting a notice of abandonment would simultaneously mean consent to take over possession of the remains of the insured property.²⁷ It seems that the answer to this question should be in the negative, as the insurer may agree to acknowledge total loss, but not wish to take over the remains of that property.²⁸ If the law attributes two objectives to a single action (in this case the acceptance of a notice of abandonment), it thereby deprives the insurer of the opportunity to act in such a way as to achieve them in full. As a result, it is forced to choose the best of a bad bunch and reject abandon even though this contradicts to its will to make a total loss payment. Further evidence of the absurdity of the idea of a double purpose for the acceptance of an abandonment is the fact that in the event of actual total loss, when a notice of abandonment is not required, the insurer, who has paid the full sum insured, has the right to choose whether or not to take over the remains of the insured property. This clearly shows that taking possession of the abandoned property requires an independent expression of will separate from the acceptance of a notice of abandonment.

The real effect of abandonment in Russian law

Correlation of the real effect of abandon with the mechanism for the acquisition of property under the Civil Code

Russian marine insurance is also familiar with the doctrine of abandon. It is provided for in article 278 of the Russian Merchant Shipping Code (MSC). In Russian law, the term “abandon” has only one meaning – the insured waives of its interest in the insured property and notifies the insurer thereof. The Russian Civil Code does not use the term “abandon”.

The Russian MSC, unlike the MIA, provides that an insured wishing to receive the full sum insured must notify abandonment in the event of actual total loss as well.²⁹ The other conditions giving the insured the right to claim the full sum insured are generally similar to the conditions for recognising a constructive total loss in English law. Among these conditions is the constructive total loss of the vessel which refers to the economic inexpediency of restoring or repairing the vessel. It, obviously, should be distinguished from the concept of total loss in English law.

The Russian MSC states that if the insured reasonably notified abandonment (and subject to insurance for the full cost), “all rights to the insured property” will pass to the insurer which is apparently referred to the ownership.³⁰ However, both doctrine and court practice consistently take the view that this provision means that ownership of the insured property passes to the insurer by virtue of the notice of abandonment and at the time of such a notice.³¹

The justification for the transfer of ownership mechanism is given by the argument that abandonment is an integral element of the insurance contract by virtue of law,³² so the insurer expresses in advance its consent to take over possession of the abandoned property in case the insured notifies abandonment by entering into the insurance contract. Therefore, the notice of abandonment considered as a condition of the transfer of ownership. However, pursuant to para. 2 of Article 218 of the Russian Civil Code, automatic transfer of ownership, which does not require an additional declaration of will, is only possible on the basis of a dispositive transaction, such as the sale.³³ The insurance contract, despite its origins said above, is not a dispositive transaction, since its purpose is not to transfer the ownership, but to transfer the risk of accidental loss or damage to the property.

Another approach is that the “other dispositive transaction” which enables the transfer of ownership to the insurer refers to the notice of abandonment.³⁴ However, this assumption contradicts to para. 2 of Article 1 of the Russian Civil Code, according to which a right can only be acquired by one’s own will and in one’s own interest. A notice of abandonment is a unilateral transaction by the insured without regard to the insurer’s will. Consequently, it cannot be a basis for the insurer to acquire ownership of the remains of the insured property. Moreover, according to para. 1 of Article 223 of the Russian Civil Code, the title of the acquirer to movable property arises at the moment of transfer, unless otherwise provided for by law or the contract. Since the Russian MSC does not explicitly stipulate otherwise and the notice of abandonment is not a contract but a unilateral transaction, the transfer of possessing becomes a necessary element for transfer of the ownership.³⁵ Consequently, a notice of abandonment alone is not sufficient.

Finally, by virtue of para. 3 of Article 218 of the Russian Civil Code, a person may acquire title to a property that the owner has abandoned only in the cases and in the manner prescribed by the Russian Civil Code. Abandonment as a way of acquisition of the ownership is not stipulated either by the general part or by provisions on certain types of contracts of the Russian Civil Code. Additionally, it should be noted that all the grounds for acquisition of the ownerless property suppose the expression of will of the person to acquire the ownership.

Therefore, a notice of abandonment is not incorporated into the mechanism for the acquisition of property as set out in the Russian Civil Code. Russian civil law is usually referred to the continental family, within which there are legal systems which allow the transfer of ownership solely by the will of the parties to business transactions (the principle of simple agreement) and legal systems in which the will alone is not sufficient.³⁶ There the cumulative occurrence of a set of legal conditions is necessary. This set of conditions, in addition to the dispositive transaction (unilateral or bilateral), includes at least one more action, usually the delivery of a thing, which can be regarded as an independent real agreement (the separation principle) or as performance of the dispositive agreement. Pursuant to para. 2 of Article 218 and para. 1 of Article 223 of the Russian Civil Code, Russian civil law assumes that the transfer of ownership requires, first, an agreement between the parties on the disposition of the property, and second, the delivery of the thing or another act or event that the parties to the agreement will define.

The Russian model of title transfer, on the one hand, does not allow the insurer to acquire title to the abandonned property on the basis of an insurance contract since it is not a dispositive agreement. Accordingly, the notice of abandonment as an action alternative to the delivery of the thing cannot result in transfer of ownership because the set of conditions necessary for such a transfer under the Russian Civil Code in the absence of a disposition agreement appeared to be unfulfilled.

On the other hand, a notice of abandonment as a unilateral dispositive transaction also cannot constitute a basis for the transfer of ownership. Firstly, Russian law does not allow the transfer of ownership solely on the will of the parties to the transaction and requires an additional element (which by default is the delivery of the thing). As described above, in marine insurance the hand over of the remains of a sunken or damaged vessel is not possible in most cases and, therefore, no transfer of ownership based on a notice of abandon is possible, too. Secondly, the acquisition of title to property which the owner has abandoned is only allowed in cases expressly provided for in the Russian Civil Code and in the presence of the will of the person to acquire ownership in such property. The Russian Civil Code does not mention a notice of abandonment, so the transfer of ownership in the remains of the vessel, even more in the absence of the insurer’s will to acquire ownership in such remains, is impossible from the point of view of the Russian Civil Code.

This reasoning leads to the conclusion that from the point of view of the provisions of the Russian Civil Code and prevailing views in Russian legal doctrine on the domestic model of acquisition of ownership, the transfer to the insurer of ownership based on a notice of abandonment is impossible, regardless of whether we consider the notice of abandonment as an independent transaction or an element of a more complex set of legal conditions. Since the Russian Civil Code seems to have unconditional priority over the rules of special laws regulating marine insurance as regards the issue of the acquisition of ownership, the existence of the real effect of abandon in marine insurance and in other types of insurance is highly disputable.

Moment of transfer of ownership in abandonned property

In contrast to English law, according to which the transfer of ownership to the insurer takes place only after the full sum insured has been paid, but with retroactive effect, i.e. ownership in the vessel is considered to have arisen for the insurer from the moment of the insured event, Russian judicial practice has established the approach that the transfer of ownership in the insured property takes place immediately upon the notice of abandonment.³⁷

At the same time, vessels are classified as immovable things (Article 130 of the Russian Civil Code), which makes acquisition of ownership and other rights in rem in them subject to registration (Article 131(1) of the Russian Civil Code). Despite the fact that the special provisions of the Russian MSC on the registration of vessels and titles therein (Article 33 (3)) suppose a confirmatory rather than a constitutive nature of such registration,³⁸ judicial practice proceeds from the fact that a sunken ship loses its status as immovable property and can only be considered movable property only after it is removed from the relevant register of ships.³⁹ Therefore, automatic transfer of ownership in the remains of the insured property on the basis of an notice of abandonment can only take place if the vessel has already been removed from the register at that time.⁴⁰ Otherwise, registration of the transfer of ownership in the registry is required, which requires the consent of the insurer or, in its absence, a claim to the court for registration of the transfer of ownership.

The instant effect of a notice of abandonment implies that it is irrevocable. Therefore, while in England a notice of abandonment can be cancelled by the insured at any time before it is accepted by the insurer, in Russia that is not possible since as ownership is deemed to have passed at the time of the notice of abandonment.

Unlike in England, in Russia there is no concept of crystallisation of a constructive total loss. Therefore, there is no defined moment at which a change of factual circumstances ceases to affect the relationship between the insurer and the insured. Moreover, if the vessel is found to be not lost, the insurer has the right to demand from the insured to retain the property.⁴¹ This rule is open to two interpretations. On the one hand, it can be assumed that the notice of abandonment is a transaction under a condition subsequent. This condition may impose the right to a unilateral cancellation of the abandonment by the insurer if the ship proves to be not lost. In such a case, it would appear that the title to the insured property did not transfer and was belonged to the insured. On the other hand, it may be interpreted that ownership passes to the insurer after the notice of abandonment and to the insured after the cancellation of the abandonment.⁴² It seems that both these approaches are unsatisfactory since they create legal uncertainty as to who owns the insured property.

Transfer of ownership in abandoned property and liability for damage caused by sunken property

The main reason why insurers do not wish to accept ownership in the remains of insured property is the burden of maintaining such remains.⁴³ The most painful issue is the removal of hazardous wreck residues.

In England, the problem is still relevant. Under the Nairobi Convention on the Removal of Wrecks,⁴⁴ to which the UK is a party, the obligation to remove a dangerous wreck rests with the person who was the registered owner of the vessel at the time of the maritime accident (para. 8 of Art. 1 and para. 2 of Art. 9). As in England abandonment involves a transfer of ownership with retroactive effect, the insurer will be deemed to be the owner at the time of the accident.

However, it should be noted that the Nairobi Convention provides for compulsory shipowner’s liability insurance for the removal of a dangerous shipwreck or the provision of other financial security. Therefore, the burden of bearing the costs of removal of the wreck is, at least in part, shifted from the insurer of the ship and/or cargo taking over possession of the remains of the insured property to the insurer of the shipowner’s liability.

There is another situation in Russia. Due to the ratification of the Nairobi Convention, Chapter VII of the Russian MSC, which regulates relations connected with sunken property, has been amended.⁴⁵ In particular, according to the new wording of para. 5 of Art. 113 of the Russian MSC, a person who is the owner of sunken property on the date of wrecking shall be liable for the obligations arising from the sunken property before wrecking, for the obligations arising from wrecking of property and for the costs of its removal, regardless of the termination of the rights to the sunken property. Taking into account that in Russia the title to the abandoned property passes to the insurer at the time of the notice of abandonment and has no retroactive effect, it is obvious that a situation in which the insurer will be the owner of the sunken property as of the date of its wrecking is mostly impossible. Therefore, the above novelty of the Russian MSC appears to put an end to the debate as to who is obliged to remove wrecked property.

Conclusion

In England, the doctrine of abandonment is incorporated into the concept of indemnity and serves the purpose of providing a compensatory insurance function. After some hesitation, English law has developed the approach that ownership cannot pass to the insurer apart from the insurer’s will. However, the question whether the acceptance of a notice for abandonment is a sign of the insurer’s consent is to acquire title or it merely means its consent to the payment of the full sum insured and an additional declaration of will by the insurer is required for the transfer of title has not yet been settled. In practice, insurers are very rarely prepared to acquire title to the remains of insured property. Therefore, the real effect of abandonment is blocked. The main reason for this is that the remains of insured property constitute damnosa hereditas, or “burdensome acquisition”, and do not bring with them the receipt of some value, but rather additional costs which are not purported by the insurance contract.

In Russia, the prevailing view is that a notice of abandonment entails the transfer of ownership to the insurer regardless of the insurer’s will. However, in the author’s view, abandonment does not fit into the model of transfer of ownership provided for by the Russian Civil Code. In addition, taking into account the amendments made to the Russian MSC, a notice of abandonment would normally not serve the purpose which is referred to in justification of the automatic transfer of ownership in the remains of the insured property to the insurer, namely, to relieve the insured of the burden of bearing the costs of removing the wrecked property. The new wording of Article 113 of the Russian MSC imposes this burden on the person who was the owner of the insured property at the time of the accident, irrespective of the further transfer of ownership.

Therefore, the need to preserve the real effect of abandon in Russian maritime law, at least as a peremptory rule, is highly disputable. ■