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Monday, 29 February 16
LOSS OF EARNINGS IN THE WAKE OF A COLLISION - GARD
 KNOWLEDGE TO ELEVATE
A shipowner’s loss of earnings can form a significant part of a collision claim. Awareness of the ways of calculating loss of earnings claims can be useful in both presenting and challenging this type of claim. This Gard Insight looks at some general principles and methods applied by the courts.
A recent Gard example
A product tanker was hit by a bulker while at berth. Although the extent of the physical repairs – and therefore the repair costs – were relatively limited, the damaged tanks required stainless steel plates which had to be specially ordered. Long lead times led to a significant loss of earnings. As owners were able to document this loss with care and precision, leaving little room for doubt, the case against the owners of the bulker was settled quickly and amicably.
Basic principles
A claimant not only has the burden of proving that it has lost earnings as a result of the collision but also that it has suffered an actual loss. The fact that a ship has been unable to trade due to repairs being carried out is generally not enough, though it raises an obvious presumption that the shipowner has indeed suffered some sort of loss.
In the majority of jurisdictions, the principle of restitutio in integrum governs the measure of damages. This means that a shipowner who suffers a loss of earnings due to the negligence of another party will be put back into the position it would have been but for the negligence. Therefore, the shipowner must prove what the ship would have earned had the collision not occurred. This means that if the repairs are performed during a pre-arranged dry-docking period for example – there will be no loss.
The methods used to prove the loss depend on the facts of each case and one approach is not necessarily better than another. The optimal way is largely dependent on the trade patterns of the ship at the relevant time.
Ships on time charter
If a ship is damaged in a collision it will usually go off-hire until it has been repaired and able to function again under the terms of the charterparty. The shipowner can rely on specific off-hire statements and invoices from charterers. The loss will consist of:
- a fixed amount per day for the total time the ship is off-hire
- the bunkers consumed during the off-hire period, and
- any additional charges the time charterer may have incurred.
If the time charter has been justifiably cancelled as a result of the unavailability of the ship, the loss of earnings from that point onwards will be the difference between what the ship would have earned under the cancelled charter and what was actually earned during the same period.
Ships trading on the spot market
For a ship trading on the spot market, the approach is more flexible to calculate its loss of earnings. The starting point will be the total number of days the ship is unable to trade due to repairs, including removal time to the shipyard. However, losses may extend beyond the actual repair period, especially when the market has fallen in the meantime. If a shipowner can prove that it lost an actual fixture on the spot market due to a collision and necessary repairs, the potential net income from that fixture will be compared with the ship’s actual net income until the date the lost fixture would have ended. This is known in some jurisdictions as the time equalisation method, most recently approved in the English case of THE ASTIPALAIA [2014] EWHC 120.
For situations where a ship trading on the spot market is not fixed for her next voyage, the way to calculate the loss will depend on whether the ship was operating in an established or specialist trade.
For established trades such as the VLCC trade, fixture data is readily available throughout the year. It is a relatively simple exercise for a broker to work out what a VLCC would have earned at the relevant World Scale rates for a given period. Provided the ship would have obtained employment with a reasonable degree of certainty, the estimated charter earnings will be compared with the ship’s actual earnings for the period using the time equalisation method.
For specialised trades and trading patterns with little continuity, market data will be less readily available and reliable, so the loss of earnings calculation in each case will be more fact specific. In these cases, the best approach may be to present the average time charter equivalent earnings of the ship for a limited period around the time of collision, e.g. the casualty voyage and the voyages preceding and following the casualty. For some trades, it may be relevant to present income statements for even longer periods, however, the more remote the evidence, the more difficult it will be to prove that the figures are a true representation of the loss.
In the Norwegian collision case of Rana Frakt v ROBAS (LG-2013-173128) one party based its loss of earnings on two annual audited income statements, however the Court of Appeal made a discretionary reduction of about 33 per cent due to the lack of evidence relating to tangible fixtures the ship would have been engaged in during the period of repairs. That said, the mere fact that the loss of earnings cannot be quantified exactly will not be fatal to a claim.
FFO claims
Loss of earnings claims can arise in other contexts, e.g. where a ship damages a quay or shore based crane and renders part of a terminal unusable. The underlying assumptions and calculations involved can be complex and the appointment of a forensic accountant with knowledge of the local accountancy rules and tax law may very well be necessary in order to properly defend a shipowner’s position.
Checklist
Whether claiming or challenging loss of earnings claims, the following should be submitted:
Evidence of the total period claimed for, such as:
– Master’s statement of facts
– copies of the deck log
– the off-hire statements from charterers.
A summary of the daily net loss of earnings for the total period and the underlying documentation relied upon, such as:
– the charterparty and recap
– the off-hire invoice
– a statement from a broker of potential earnings or income statements where a time charter equivalent rate per day is arrived at.
Evidence of any mitigation, e.g. that the claimant:
– has chosen the quickest and most reasonable repair option, or
– has used other ships in its fleet to perform the contractual obligations of the damaged ship.
Evidence of the average utilisation of the ship. For ships actively trading only 80 per cent of the time, it is clearly unreasonable to claim a loss equating to 100 per cent utilisation during the period of repairs.
Final note
It is well worth spending time and effort in presenting loss of earnings claims in a clear and unambiguous manner, so that both parties understand the figures presented and the assumptions behind them. This can help achieve a quick settlement in a collision dispute.
Source: GARD
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Friday, 15 April 16
U.S WEEKLY COAL OUTPUT FALLS ACROSS ALL BASINS - EIA
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 10.2 million short tons (mm ...
Thursday, 14 April 16
AUSTRALIAN MINING SERVICES SECTOR SQUEEZED BY MINERS' COST CUTS - FITCH RATINGS
Fitch Ratings says mining services companies' revenues and margins will remain under pressure as miners continue to focus on reducing costs ami ...
Thursday, 14 April 16
DRY BULKERS' PRICES COULD BE HEADING UPWARDS AS BUYERS' APPETITE INCREASES - HELLENIC SHIPPING NEWS
Investment sentiment is beginning to trend upwards in the market for second hand dry bulk carriers. According to the latest weekly report from ship ...
Wednesday, 13 April 16
U.S COAL PRODUCTION IS EXPECTED TO DECREASE BY 16 PER CENT IN 2016; THE LARGEST ANNUAL PERCENTAGE DECLINE SINCE 1958 - EIA
EIA estimates that U.S. coal production in March 2016 was 52 million short tons (MMst), a 2 MMst (4%) decrease from the previous month and 29 MMst ...
Tuesday, 12 April 16
INDONESIA COAL BENCHMARK PRICE INCREASES FOR SECOND STRAIGHT MONTH
COALspot.com: The Indonesia Coal Benchmark Price Increases For Second Straight Month in April 2016.
The Director General of Mine ...
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- Petron Corporation, Philippines
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- Heidelberg Cement - Germany
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- Australian Commodity Traders Exchange
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- Kideco Jaya Agung - Indonesia
- White Energy Company Limited
- Energy Link Ltd, New Zealand
- Renaissance Capital - South Africa
- CNBM International Corporation - China
- TeaM Sual Corporation - Philippines
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- Central Electricity Authority - India
- Coalindo Energy - Indonesia
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- Indogreen Group - Indonesia
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
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- Therma Luzon, Inc, Philippines
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- Directorate Of Revenue Intelligence - India
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- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
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- Sindya Power Generating Company Private Ltd
- Agrawal Coal Company - India
- Planning Commission, India
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- Indika Energy - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kumho Petrochemical, South Korea
- Trasteel International SA, Italy
- Vedanta Resources Plc - India
- Bangladesh Power Developement Board
- South Luzon Thermal Energy Corporation
- Wood Mackenzie - Singapore
- Oldendorff Carriers - Singapore
- Interocean Group of Companies - India
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- SN Aboitiz Power Inc, Philippines
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- Australian Coal Association
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- Simpson Spence & Young - Indonesia
- Marubeni Corporation - India
- Metalloyd Limited - United Kingdom
- Binh Thuan Hamico - Vietnam
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- The Treasury - Australian Government
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- Attock Cement Pakistan Limited
- Energy Development Corp, Philippines
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Mintek Dendrill Indonesia
- Gujarat Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- Coal and Oil Company - UAE
- Romanian Commodities Exchange
- Semirara Mining Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kalimantan Lumbung Energi - Indonesia
- Electricity Generating Authority of Thailand
- Port Waratah Coal Services - Australia
- GAC Shipping (India) Pvt Ltd
- Sojitz Corporation - Japan
- GN Power Mariveles Coal Plant, Philippines
- Vizag Seaport Private Limited - India
- Holcim Trading Pte Ltd - Singapore
- Bharathi Cement Corporation - India
- Barasentosa Lestari - Indonesia
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Kepco SPC Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- Bukit Baiduri Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Videocon Industries ltd - India
- Siam City Cement PLC, Thailand
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- Merrill Lynch Commodities Europe
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- Sinarmas Energy and Mining - Indonesia
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- London Commodity Brokers - England
- Edison Trading Spa - Italy
- Larsen & Toubro Limited - India
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- Semirara Mining and Power Corporation, Philippines
- Rio Tinto Coal - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Aditya Birla Group - India
- Deloitte Consulting - India
- Intertek Mineral Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- International Coal Ventures Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Eastern Coal Council - USA
- Price Waterhouse Coopers - Russia
- Essar Steel Hazira Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Maharashtra Electricity Regulatory Commission - India
- Medco Energi Mining Internasional
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- Karbindo Abesyapradhi - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- Parliament of New Zealand
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- Coastal Gujarat Power Limited - India
- Globalindo Alam Lestari - Indonesia
- ICICI Bank Limited - India
- GMR Energy Limited - India
- Tata Chemicals Ltd - India
- Formosa Plastics Group - Taiwan
- Central Java Power - Indonesia
- MS Steel International - UAE
- Wilmar Investment Holdings
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- Bayan Resources Tbk. - Indonesia
- Aboitiz Power Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Thiess Contractors Indonesia
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- Riau Bara Harum - Indonesia
- New Zealand Coal & Carbon
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
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- Billiton Holdings Pty Ltd - Australia
- VISA Power Limited - India
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- Minerals Council of Australia
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Banpu Public Company Limited - Thailand
- Thai Mozambique Logistica
- Gujarat Mineral Development Corp Ltd - India
- Bhushan Steel Limited - India
- Indian Energy Exchange, India
- Bukit Makmur.PT - Indonesia
- Samtan Co., Ltd - South Korea
- Singapore Mercantile Exchange
- Grasim Industreis Ltd - India
- Kaltim Prima Coal - Indonesia
- Madhucon Powers Ltd - India
- Power Finance Corporation Ltd., India
- SMG Consultants - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- ASAPP Information Group - India
- Eastern Energy - Thailand
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Sarangani Energy Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Sical Logistics Limited - India
- Malabar Cements Ltd - India
- PTC India Limited - India
- Mjunction Services Limited - India
- Posco Energy - South Korea
- Ind-Barath Power Infra Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Star Paper Mills Limited - India
- PetroVietnam Power Coal Import and Supply Company
- San Jose City I Power Corp, Philippines
- Bulk Trading Sa - Switzerland
- Meenaskhi Energy Private Limited - India
- GVK Power & Infra Limited - India
- Orica Mining Services - Indonesia
- Salva Resources Pvt Ltd - India
- Indonesian Coal Mining Association
- European Bulk Services B.V. - Netherlands
- Economic Council, Georgia
- Africa Commodities Group - South Africa
- Parry Sugars Refinery, India
- SMC Global Power, Philippines
- Latin American Coal - Colombia
- The University of Queensland
- Chamber of Mines of South Africa
- Sree Jayajothi Cements Limited - India
- Electricity Authority, New Zealand
- The State Trading Corporation of India Ltd
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