motion and reaffirms that denial since we are required to examine all relevant evidence pertaining to the ship's value.
The Queeny interests have submitted the deposition of Robert J. Pierot for proof of a number of sales on an open market of a similar vessel. In his deposition, Mr. Pierot states that there were at least three American flag tankers the size of the Queeny available for sale in the range of 37,000 deadweight tons in February 1975. They were the turbine tankers THETIS, SISTER KATINGO and ACHILLES. Of those, only the SISTER KATINGO and the THETIS were sold. The SISTER KATINGO was sold for $4.25 million and the THETIS was sold for $4.8 million. He did not testify to the dates on which they were sold.
Karl Richard Kurz, vice-president of Keystone Shipping Company, also was deposed. He is in charge of the function of traffic and chartering for Keystone. His department charters space on the Queeny. It was his testimony that, besides the above-named available ships, the EAGLE LEADER, a sistership of the Queeny, and the ERNA ELIZABETH were available at the relevant time. It was his opinion that the THETIS could have been converted to a product carrier for a cost of approximately $7 million and that the SISTER KATINGO could have been converted for $7 million as well. He stated that the EAGLE LEADER was available for sale for around $7 million and would have cost $4 million to convert. The conversion would have included the installation of deepwell pumps, double bottoms in the center tanks and conversion of the tanks themselves. Mr. Kurz did not testify that the EAGLE LEADER had, in fact, been sold at that time for that price.
Mr. Kurz testified that it would take approximately three years to build a new ship but only about five and one half months to convert the THETIS to a ship similar to the Queeny. He further testified that it would have cost more than twice as much to build a new ship than to purchase and convert an existing ship.
J. D. Van Rynbach, a consulting naval architect, marine engineer and marine surveyor, was also deposed. He was asked by the attorneys for Bankers Trust Company to prepare an estimate for the cost of converting a tanker to a chemical carrier. It was his opinion that such a conversion would have cost $7.9 million in 1975. The conversion was based on the THETIS whose purchase price in 1975 was $4.8 million. The Queeny interests argue that the THETIS, then, was available in February 1975 at the total cost of $12.7 million and that this court could conclude that the market value of the Queeny at the relevant time was $12.7 million.
The Queeny interests have also offered the deposition of Walter J. Neal, Jr., an employee of Keystone Shipping Company. He is a manager of special projects in the engineering department of Keystone where his primary work has been in new construction, conversion and modification of ships with high concentration in the area of the cargo systems and containments in tankers. He categorized the Queeny as a special products carrier. Since 1975 Keystone has done a single "jumbolized conversion." This means utilizing the stern section of an existing ship and rebuilding the entire hull and cargo systems and all other features making up the forward part of the ship. This type of conversion was performed on the special products chemical carrier the CHILBAR.
Mr. Neal testified that a jumbolized conversion is not the same type of construction project as a conversion as described by Mr. Van Rynbach because the former is a "new construction-type product and the latter is the converting of an existing ship. It was his opinion that the conversion proposed by Mr. Van Rynbach was feasible, i.e. to convert an existing tanker to a cargo carrier equivalent to the Queeny. He was also of the opinion that the price estimate was high.
BP/SOHIO took a different approach to evidence supporting its view of valuing the Queeny. It is their premise, as stated earlier, that because there were no contemporaneous sales of like vessels, reference to the used vessel market is not possible. They have offered the testimony of Dr. Kenneth Fisher, President of Fisher Maritime Transportation Counselors, Inc. His career has been directed to ship construction, pricing and design. His 1972 doctoral thesis dealt with the application of engineering economics to ship design including what he terms "optimization concepts." Dr. Fisher was asked to report to BP/SOHIO's attorneys on the cost of replacing the Queeny both if the ship were delivered January 1975 but ordered three years earlier and if the ship were ordered January 1975 and delivered three years later. His detailed analysis led him to the conclusion that a ship delivered in January 1975 would have cost $28.2 million plus or minus $3.4 million and that a ship ordered in January 1975 and delivered three years later would have cost $37.4 million plus or minus about $3.7 million.
Because the Queeny was five years old at the time of the accident, he then testified to allowance for depreciation. He noted that depreciation in this sense means the cost of bringing the five-year old Queeny up to the point where it would have the same expected useful life as a brand new ship. This would cost no more than $.75 million.
In explaining his preference for looking at a replacement ship as though it were ordered in 1975 and delivered three years later, what he terms "late replacement," he felt he had addressed the possibility that had the Queeny been a total loss, the owners would have had to go out and order another ship. He recognized that during the time the ship was being built, the owners would have encountered many additional costs to continue to serve the market. Considering all of these factors together, Dr. Fisher was of the opinion that the "late replacement" cost represents a minimum value to the owners.
Although Dr. Fisher's testimony and report appear thorough and of high quality, the court is reluctant to rely on the evidence of the cost of reconstructing a new ship for the purpose of determining the Queeny's "sound value." It is obvious to this court, and probably to all the parties to this action, that "value" is difficult to determine. Another court faced with the problem of valuing a vessel had this to say:
There are few words in our language oftener used and more often misused than the word 'value.' Our minds and thoughts are so dominated by commercialism that value commonly means, as it necessarily sometimes must mean, commercial value, or a ratio of exchange, or the relation which the thing to be valued bears to other things in the marts of exchange. Price is such value expressed in terms of money. In other words, for how many dollars can the thing be exchanged? If there is a market, as before stated, in which like things are bought and sold, this supplies the answer to the question. This is based upon the presumption, resting upon reasonable expectation, that the person who is damaged by the loss of property can go into the market to replace what he has lost, if he is given the market price. What was the market price or market 'value' of this vessel as of the date of the damage suffered by the libelant?
The Natrona, 25 F.2d 507, 508 (E.D.Pa.1928). "Where . . . reconstruction cost is out of all proportion to market value, it is quite proper to disregard [reconstruction cost] evidence entirely." The Steel Inventor, 36 F.2d 399, 400 (S.D.N.Y.1929). Of course, this formulation does not solve the initial inquiry of what is market value.
This court finds that had the shipowners been faced with the immediate loss of the Queeny in February 1975, the most practical solution and most likely response, would have been to immediately purchase a tanker of similar specifications and convert it to a chemical carrier. The total cost will be this court's finding of market value. The court will therefore turn to the evidence produced by BP/SOHIO with regard to the cost of taking that step. It is this court's determination that such a step essentially indicates the "sound value" of the Queeny.
Both parties agree that the THETIS was available at the relevant time. Although it was later sold for $4.8 million, this court finds that the shipowner would have paid the $7 million asking price due to the urgent need involved. The 16 year old vessel would then have gone through fairly significant changes to bring it up to the level of usefulness of the 5 year old Queeny. As stated earlier, the Queeny interests have offered testimony that the conversion would have cost $7.9 million. BP/SOHIO contest this figure as severely underestimated and have offered the testimony of Joseph E. Manna, a marine engineer-consultant who reviewed Mr. Van Rynbach's report.
In Mr. Manna's view, in order to achieve a value similar to that of the Queeny, far more work would have been required of the THETIS than suggested by Mr. Van Rynbach. Mr. Van Rynbach had failed to include the cost of upgrading the hull and machinery. In sum, Mr. Manna concluded that the cost of converting the THETIS would be approximately $16.4 million which is $8.5 million more than the Van Rynbach estimate. If this court were to adopt that report in full, the total price for the THETIS would have been $23.4 million.
In a later deposition Dr. Fisher testified that the Van Rynbach/Neal approach and the Manna approach do not go far enough considering the need for reliability when the owner is planning to carry chemicals. In his opinion it would cost $2 million more than suggested by Mr. Manna to make the conversion more realistic and more up to the standards required of a chemical carrier. This would mean a total cost of $25.4 million.
The difficulty of the court's task is aggravated by the conflicting testimony even as given by BP/SOHIO's own witnesses. As we have repeated too many times already, the court is attempting to determine the value of the vessel. Testimony of cost, whether in terms of replacement, like-kind purchases, and/or conversions, merely evidence value. Somewhere among the totals presented to the court is the value of the Queeny. While the court finds that the figure of $12.7 million is too low because it fails to account for significant modifications necessary to turn a vessel like the THETIS into one with sufficient tank integrity, it is also the finding of this court that the proposed conversion cost totalling $25.4 million overestimates what the shipowners would have viewed necessary to convert the ship. Based on this finding, the court further finds that the value of the Queeny was less than $25.4 million. The court finds that the value of the Queeny at the time of the collision was $19.05 million. This represents an average of the high and low estimates of the parties. It is supported by the $20 million insurance value placed on the Queeny before the casualty. The sum of $19,050,000 will be reduced by the amount of repairs of $1,305,804. This figure of $17,744,196 will have added to it the pending freight of $269,501.
It is the finding of this court that the limitation fund is $18,013,697 based on the foregoing determinations of the value of the Queeny at the time of the collision and the proper adjustments to the value.
All that remains for decision is the percent of interest to be placed on the limitation fund. By order of this court, on February 7, 1980 a bond was posted for the value of the Queeny plus pending freight in the amount of $11,269,501. It is the Queeny interests' argument that this court is bound by Supplemental Rule F(1) of the Federal Rules of Civil Procedure to apply 6% annual interest to the fund. BP/SOHIO argues that interest on the fund should be accrued at market rates. They argue that equity requires accrual at market rate. They also argue that Supplemental Rule F(1) is not in accord with the Limitation of Liability Act, 46 U.S.C. §§ 183 et seq., which again is an argument on the basis of equity.
Rule F(1) provides:
Rule F. Limitation of Liability
(1) Time for Filing complaint; Security . . . . The owner (a) shall deposit with the court, for the benefit of claimants, a sum equal to the amount or value of his interest in the vessel and pending freight, or approved security therefor, and in addition such sums, or approved security therefor, as the court may from time to time fix as necessary to carry out the provisions of the statutes as amended . . . The plaintiff shall also give security for costs and, if he elects to give security, for interest at the rate of 6 per cent per annum from the date of the security.