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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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Thursday, 07 April 16
PANAMAX RATES ARE FIRMING IN BOTH HEMISHEPHERES - FEARNLEYS
Capesize
With a great volume our of west Australia, rates were finally moving to upper 3's. and stabilizing towards the middle of the week in ...
Thursday, 07 April 16
BIMCO AND GIIGNL PUBLISH A GROUNDBREAKING VOYAGE CHARTER PARTY FOR LNG TRADE
BIMCO and the International Group of Liquefied Natural Gas Importers (GIIGNL) have today jointly issued the first definitive voyage charter party & ...
Wednesday, 06 April 16
HOW LONG SHIPPING CRISIS WILL BE; WHEN SHOULD OWNERS EXPECT THE BULK CARRIERS TO BECOME PROFITABLE? - INTERMODAL
It is the consensus that dry bulk shipping has been in a crisis for quite some time now. Bulk carrier values are at historical low levels, therefor ...
Tuesday, 05 April 16
DRY BULK REVISITS 1980S LOWS AND FACES UNCERTAIN LONGER TERM OUTLOOK - MSI | HELLENIC SHIPPING NEWS
With the market near bottom, attention is turning to the length of the downturn, the effect on asset values and the impact of broader demand side c ...
Monday, 04 April 16
THE LOADING, AND SUBSEQUENT DISCHARGE, OF UNSAFE NICKEL ORE - ALL TIME TO 'COUNT' - THE STANDARD CLUB
KNOWLEDGE TO ELEVATE
In a recent, published, London arbitration award the English tribunal has held that all time lost as a result of loading, ...
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- Eastern Coal Council - USA
- Renaissance Capital - South Africa
- Deloitte Consulting - India
- Vijayanagar Sugar Pvt Ltd - India
- Electricity Authority, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Krishnapatnam Port Company Ltd. - India
- Timah Investasi Mineral - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Maheswari Brothers Coal Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Madhucon Powers Ltd - India
- PNOC Exploration Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- GN Power Mariveles Coal Plant, Philippines
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Standard Chartered Bank - UAE
- Indogreen Group - Indonesia
- Africa Commodities Group - South Africa
- Mintek Dendrill Indonesia
- Port Waratah Coal Services - Australia
- Orica Australia Pty. Ltd.
- GMR Energy Limited - India
- Semirara Mining and Power Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Karaikal Port Pvt Ltd - India
- Chamber of Mines of South Africa
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Merrill Lynch Commodities Europe
- Intertek Mineral Services - Indonesia
- Savvy Resources Ltd - HongKong
- Marubeni Corporation - India
- CNBM International Corporation - China
- The University of Queensland
- Binh Thuan Hamico - Vietnam
- Ceylon Electricity Board - Sri Lanka
- GAC Shipping (India) Pvt Ltd
- Tamil Nadu electricity Board
- Jorong Barutama Greston.PT - Indonesia
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Siam City Cement - Thailand
- Mercator Lines Limited - India
- Leighton Contractors Pty Ltd - Australia
- PTC India Limited - India
- Metalloyd Limited - United Kingdom
- Meralco Power Generation, Philippines
- Central Java Power - Indonesia
- Coalindo Energy - Indonesia
- Power Finance Corporation Ltd., India
- Gujarat Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Cement Manufacturers Association - India
- Global Coal Blending Company Limited - Australia
- Sical Logistics Limited - India
- Kartika Selabumi Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Malabar Cements Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Price Waterhouse Coopers - Russia
- Borneo Indobara - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Coal and Oil Company - UAE
- Bharathi Cement Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Jindal Steel & Power Ltd - India
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sojitz Corporation - Japan
- Chettinad Cement Corporation Ltd - India
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- SMC Global Power, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Toyota Tsusho Corporation, Japan
- Ind-Barath Power Infra Limited - India
- Samtan Co., Ltd - South Korea
- Star Paper Mills Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sree Jayajothi Cements Limited - India
- IEA Clean Coal Centre - UK
- Bhushan Steel Limited - India
- The Treasury - Australian Government
- Global Green Power PLC Corporation, Philippines
- Ambuja Cements Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- GVK Power & Infra Limited - India
- Independent Power Producers Association of India
- Miang Besar Coal Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Energy Link Ltd, New Zealand
- LBH Netherlands Bv - Netherlands
- Ministry of Transport, Egypt
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- Meenaskhi Energy Private Limited - India
- Ministry of Mines - Canada
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Indian Energy Exchange, India
- Kohat Cement Company Ltd. - Pakistan
- PetroVietnam Power Coal Import and Supply Company
- San Jose City I Power Corp, Philippines
- Anglo American - United Kingdom
- Planning Commission, India
- Vedanta Resources Plc - India
- Bangladesh Power Developement Board
- Minerals Council of Australia
- ICICI Bank Limited - India
- Dalmia Cement Bharat India
- Singapore Mercantile Exchange
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Altura Mining Limited, Indonesia
- Parliament of New Zealand
- Tata Chemicals Ltd - India
- McConnell Dowell - Australia
- The State Trading Corporation of India Ltd
- Grasim Industreis Ltd - India
- Commonwealth Bank - Australia
- Essar Steel Hazira Ltd - India
- Heidelberg Cement - Germany
- Indonesian Coal Mining Association
- Orica Mining Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Parry Sugars Refinery, India
- Rio Tinto Coal - Australia
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Interocean Group of Companies - India
- Barasentosa Lestari - Indonesia
- Georgia Ports Authority, United States
- IHS Mccloskey Coal Group - USA
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Carbofer General Trading SA - India
- Australian Commodity Traders Exchange
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Finance - Indonesia
- Kideco Jaya Agung - Indonesia
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Thai Mozambique Logistica
- Simpson Spence & Young - Indonesia
- Attock Cement Pakistan Limited
- Latin American Coal - Colombia
- Posco Energy - South Korea
- Oldendorff Carriers - Singapore
- Banpu Public Company Limited - Thailand
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- Kapuas Tunggal Persada - Indonesia
- White Energy Company Limited
- Wood Mackenzie - Singapore
- Aditya Birla Group - India
- Australian Coal Association
- Indika Energy - Indonesia
- Antam Resourcindo - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bhatia International Limited - India
- Petron Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Jaiprakash Power Ventures ltd
- Central Electricity Authority - India
- Coastal Gujarat Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Salva Resources Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Baramulti Group, Indonesia
- TeaM Sual Corporation - Philippines
- London Commodity Brokers - England
- Economic Council, Georgia
- Sindya Power Generating Company Private Ltd
- Asia Pacific Energy Resources Ventures Inc, Philippines
- India Bulls Power Limited - India
- PowerSource Philippines DevCo
- Vizag Seaport Private Limited - India
- Xindia Steels Limited - India
- Formosa Plastics Group - Taiwan
- OPG Power Generation Pvt Ltd - India
- Mjunction Services Limited - India
- Wilmar Investment Holdings
- Energy Development Corp, Philippines
- South Luzon Thermal Energy Corporation
- Romanian Commodities Exchange
- Videocon Industries ltd - India
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
- MS Steel International - UAE
- VISA Power Limited - India
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- New Zealand Coal & Carbon
- SMG Consultants - Indonesia
- Riau Bara Harum - Indonesia
- Bukit Makmur.PT - Indonesia
- Uttam Galva Steels Limited - India
- Globalindo Alam Lestari - Indonesia
- Edison Trading Spa - Italy
- Bhoruka Overseas - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Kepco SPC Power Corporation, Philippines
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