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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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- Directorate General of MIneral and Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- SMC Global Power, Philippines
- Rashtriya Ispat Nigam Limited - India
- Africa Commodities Group - South Africa
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Indika Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- The State Trading Corporation of India Ltd
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Goldman Sachs - Singapore
- Chamber of Mines of South Africa
- London Commodity Brokers - England
- Renaissance Capital - South Africa
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- Trasteel International SA, Italy
- Grasim Industreis Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- Tamil Nadu electricity Board
- Videocon Industries ltd - India
- Antam Resourcindo - Indonesia
- Manunggal Multi Energi - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Economic Council, Georgia
- GAC Shipping (India) Pvt Ltd
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Marubeni Corporation - India
- Krishnapatnam Port Company Ltd. - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- IHS Mccloskey Coal Group - USA
- Commonwealth Bank - Australia
- Wilmar Investment Holdings
- Coastal Gujarat Power Limited - India
- Orica Australia Pty. Ltd.
- Kohat Cement Company Ltd. - Pakistan
- Edison Trading Spa - Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Samtan Co., Ltd - South Korea
- Therma Luzon, Inc, Philippines
- Indian Energy Exchange, India
- Jindal Steel & Power Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Sindya Power Generating Company Private Ltd
- CIMB Investment Bank - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Mercator Lines Limited - India
- Metalloyd Limited - United Kingdom
- Anglo American - United Kingdom
- ASAPP Information Group - India
- Kaltim Prima Coal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Australian Commodity Traders Exchange
- Neyveli Lignite Corporation Ltd, - India
- Bayan Resources Tbk. - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Orica Mining Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Indian Oil Corporation Limited
- Ambuja Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- Independent Power Producers Association of India
- Electricity Generating Authority of Thailand
- Price Waterhouse Coopers - Russia
- Attock Cement Pakistan Limited
- South Luzon Thermal Energy Corporation
- Coalindo Energy - Indonesia
- Eastern Energy - Thailand
- Banpu Public Company Limited - Thailand
- San Jose City I Power Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Bhatia International Limited - India
- PTC India Limited - India
- MS Steel International - UAE
- Deloitte Consulting - India
- Gujarat Electricity Regulatory Commission - India
- Indo Tambangraya Megah - Indonesia
- Ministry of Finance - Indonesia
- Vedanta Resources Plc - India
- Billiton Holdings Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- VISA Power Limited - India
- Mercuria Energy - Indonesia
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Bank of Tokyo Mitsubishi UFJ Ltd
- Holcim Trading Pte Ltd - Singapore
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bukit Makmur.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Madhucon Powers Ltd - India
- Ministry of Mines - Canada
- Sree Jayajothi Cements Limited - India
- Formosa Plastics Group - Taiwan
- Toyota Tsusho Corporation, Japan
- Kumho Petrochemical, South Korea
- Sarangani Energy Corporation, Philippines
- Kartika Selabumi Mining - Indonesia
- Rio Tinto Coal - Australia
- Ceylon Electricity Board - Sri Lanka
- Kobexindo Tractors - Indoneisa
- Karaikal Port Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Star Paper Mills Limited - India
- Sojitz Corporation - Japan
- Georgia Ports Authority, United States
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- Xindia Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Salva Resources Pvt Ltd - India
- CNBM International Corporation - China
- The Treasury - Australian Government
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Semirara Mining Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Lanco Infratech Ltd - India
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Parliament of New Zealand
- The University of Queensland
- Sical Logistics Limited - India
- Power Finance Corporation Ltd., India
- PNOC Exploration Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- Globalindo Alam Lestari - Indonesia
- GMR Energy Limited - India
- Bharathi Cement Corporation - India
- Petron Corporation, Philippines
- Larsen & Toubro Limited - India
- Meenaskhi Energy Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Bhushan Steel Limited - India
- Vizag Seaport Private Limited - India
- ICICI Bank Limited - India
- Central Electricity Authority - India
- Energy Development Corp, Philippines
- Planning Commission, India
- Asmin Koalindo Tuhup - Indonesia
- Thai Mozambique Logistica
- Indonesian Coal Mining Association
- Romanian Commodities Exchange
- Singapore Mercantile Exchange
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- Heidelberg Cement - Germany
- India Bulls Power Limited - India
- Latin American Coal - Colombia
- SMG Consultants - Indonesia
- Kideco Jaya Agung - Indonesia
- Central Java Power - Indonesia
- Indogreen Group - Indonesia
- Aditya Birla Group - India
- Tata Chemicals Ltd - India
- Directorate Of Revenue Intelligence - India
- Carbofer General Trading SA - India
- Oldendorff Carriers - Singapore
- Iligan Light & Power Inc, Philippines
- Gujarat Sidhee Cement - India
- Posco Energy - South Korea
- Parry Sugars Refinery, India
- Bukit Asam (Persero) Tbk - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Interocean Group of Companies - India
- Global Coal Blending Company Limited - Australia
- Bukit Baiduri Energy - Indonesia
- GVK Power & Infra Limited - India
- Bulk Trading Sa - Switzerland
- Essar Steel Hazira Ltd - India
- Electricity Authority, New Zealand
- Australian Coal Association
- Baramulti Group, Indonesia
- Malabar Cements Ltd - India
- Uttam Galva Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- Riau Bara Harum - Indonesia
- Energy Link Ltd, New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Mintek Dendrill Indonesia
- TeaM Sual Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Maharashtra Electricity Regulatory Commission - India
- Altura Mining Limited, Indonesia
- Maheswari Brothers Coal Limited - India
- Kepco SPC Power Corporation, Philippines
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