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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, 31 March 16
CAPE: ANOTHER UNEVENTFUL WEEK WITH FIXTURES CONCLUDED AT LAST DONE LEVELS - FEARNLEYS
Cape
Another uneventful week with fixtures concluded at last done levels, CS levels remain around the USD 3 mark, whilst C3 is still just short o ...
Wednesday, 30 March 16
MINISTRY OF ENERGY AND MINERAL RESOURCES OF INDONESIA TO REVISE METHODOLOGY TO DETERMINE THE SELLING PRICE OF COAL TO MINE-MOUTH POWER PLANTS
COALspot.com: Ministry of Energy and Mineral Resources (ESDM) of Indonesia to review to revise methodology to determine the selling price of co ...
Wednesday, 30 March 16
VALEMAXES: THE BIGGEST NIGHTMARE OF TODAY'S DRY BULK MARKET - INTERMODAL
At a time that Europe is still dealing with the aftermath of the terrorist attacks in Brussels our society is daily bombarded with news of terroris ...
Tuesday, 29 March 16
BULK CARRIER VENTILATION - CAPTAIN PAUL R. WALTON
KNOWLEDGE TO ELEVATE
Moisture damage is a source of many cargo claims. Claimants allege that it is brought about by the ship’s failure t ...
Monday, 28 March 16
INDONESIAN WEEKLY CS50 COAL INDEX CLOSED SLIGHTLY FIRM; CS 57 INDEX CLOSED WEAK
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.03 percent week over week to averaging $38.91 per ton on this past Thursday, ...
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- Parliament of New Zealand
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Eastern Energy - Thailand
- Bukit Baiduri Energy - Indonesia
- Tamil Nadu electricity Board
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Coal and Oil Company - UAE
- Cigading International Bulk Terminal - Indonesia
- Lanco Infratech Ltd - India
- GAC Shipping (India) Pvt Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Electricity Regulatory Commission - India
- Ministry of Finance - Indonesia
- Cement Manufacturers Association - India
- Simpson Spence & Young - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petrochimia International Co. Ltd.- Taiwan
- SN Aboitiz Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- Vijayanagar Sugar Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- South Luzon Thermal Energy Corporation
- Kaltim Prima Coal - Indonesia
- India Bulls Power Limited - India
- Meralco Power Generation, Philippines
- Sarangani Energy Corporation, Philippines
- Trasteel International SA, Italy
- Electricity Generating Authority of Thailand
- Australian Coal Association
- VISA Power Limited - India
- Semirara Mining Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- GVK Power & Infra Limited - India
- Sakthi Sugars Limited - India
- Mercuria Energy - Indonesia
- PTC India Limited - India
- Samtan Co., Ltd - South Korea
- Price Waterhouse Coopers - Russia
- Neyveli Lignite Corporation Ltd, - India
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- IHS Mccloskey Coal Group - USA
- Kalimantan Lumbung Energi - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Uttam Galva Steels Limited - India
- Standard Chartered Bank - UAE
- Energy Development Corp, Philippines
- Bukit Makmur.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Deloitte Consulting - India
- CNBM International Corporation - China
- AsiaOL BioFuels Corp., Philippines
- Port Waratah Coal Services - Australia
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Videocon Industries ltd - India
- Iligan Light & Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- Altura Mining Limited, Indonesia
- PowerSource Philippines DevCo
- Dalmia Cement Bharat India
- London Commodity Brokers - England
- GN Power Mariveles Coal Plant, Philippines
- Anglo American - United Kingdom
- Savvy Resources Ltd - HongKong
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Mines - Canada
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- SMC Global Power, Philippines
- Rio Tinto Coal - Australia
- Central Java Power - Indonesia
- Ambuja Cements Ltd - India
- OPG Power Generation Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Timah Investasi Mineral - Indoneisa
- Indian Energy Exchange, India
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Indonesian Coal Mining Association
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Coastal Gujarat Power Limited - India
- White Energy Company Limited
- Larsen & Toubro Limited - India
- San Jose City I Power Corp, Philippines
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Alfred C Toepfer International GmbH - Germany
- Mjunction Services Limited - India
- Oldendorff Carriers - Singapore
- Africa Commodities Group - South Africa
- Posco Energy - South Korea
- Wilmar Investment Holdings
- Orica Mining Services - Indonesia
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Mintek Dendrill Indonesia
- International Coal Ventures Pvt Ltd - India
- Latin American Coal - Colombia
- Orica Australia Pty. Ltd.
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- Salva Resources Pvt Ltd - India
- Edison Trading Spa - Italy
- Singapore Mercantile Exchange
- Intertek Mineral Services - Indonesia
- Tata Chemicals Ltd - India
- Interocean Group of Companies - India
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- ICICI Bank Limited - India
- Carbofer General Trading SA - India
- Bharathi Cement Corporation - India
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- Sindya Power Generating Company Private Ltd
- Sinarmas Energy and Mining - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Minerals Council of Australia
- Wood Mackenzie - Singapore
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- PetroVietnam Power Coal Import and Supply Company
- Indogreen Group - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Coal Council - USA
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- Global Green Power PLC Corporation, Philippines
- Heidelberg Cement - Germany
- IEA Clean Coal Centre - UK
- European Bulk Services B.V. - Netherlands
- Kartika Selabumi Mining - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Ministry of Transport, Egypt
- Therma Luzon, Inc, Philippines
- Mercator Lines Limited - India
- ASAPP Information Group - India
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Star Paper Mills Limited - India
- Jindal Steel & Power Ltd - India
- Directorate Of Revenue Intelligence - India
- CIMB Investment Bank - Malaysia
- Kepco SPC Power Corporation, Philippines
- Goldman Sachs - Singapore
- The Treasury - Australian Government
- Essar Steel Hazira Ltd - India
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- Global Coal Blending Company Limited - Australia
- Attock Cement Pakistan Limited
- Malabar Cements Ltd - India
- Kobexindo Tractors - Indoneisa
- Barasentosa Lestari - Indonesia
- Independent Power Producers Association of India
- Agrawal Coal Company - India
- Bulk Trading Sa - Switzerland
- Antam Resourcindo - Indonesia
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- Jaiprakash Power Ventures ltd
- Kohat Cement Company Ltd. - Pakistan
- Kumho Petrochemical, South Korea
- Directorate General of MIneral and Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bhoruka Overseas - Indonesia
- New Zealand Coal & Carbon
- Central Electricity Authority - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Commonwealth Bank - Australia
- Aditya Birla Group - India
- Gujarat Sidhee Cement - India
- Sojitz Corporation - Japan
- Vizag Seaport Private Limited - India
- LBH Netherlands Bv - Netherlands
- Kideco Jaya Agung - Indonesia
- Riau Bara Harum - Indonesia
- Power Finance Corporation Ltd., India
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- The University of Queensland
- Economic Council, Georgia
- Bhatia International Limited - India
- Marubeni Corporation - India
- Borneo Indobara - Indonesia
- Australian Commodity Traders Exchange
- Ceylon Electricity Board - Sri Lanka
- Makarim & Taira - Indonesia
- Aboitiz Power Corporation - Philippines
- Indika Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Global Business Power Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Maheswari Brothers Coal Limited - India
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Siam City Cement PLC, Thailand
- Renaissance Capital - South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- Electricity Authority, New Zealand
- Petron Corporation, Philippines
- MS Steel International - UAE
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
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