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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, 24 March 16
NEWBUILDINGS' PRICES HAVE STARTED TO COME DOWN - ALLIED | HELLENIC SHIPPING NEWS
Newbuildings’ prices have started to come down, as demand has remained subdued for quite some time now. In its latest weekly report, shipbrok ...
Wednesday, 23 March 16
THE PANAMA CANAL - WILL THE MELTING OF POLAR ICE CAPS CREATE RIVAL NAVIGATIONAL WATERWAYS THROUGH THE ARCTIC? - INTERMODAL
The Panama Canal, 102 years after its initial opening, is now about to have its expansion completed with a cost of USD5.25 Billion. It is a project ...
Tuesday, 22 March 16
FOUR NEW MARKET MEMBERS HAVE JOINED GLOBALCOAL
globalCOAL® announced yesterday that four new Market Members have joined its international trading community.
Ferrocadia DMCC is an intern ...
Monday, 21 March 16
INDONESIAN 4200 GAR COAL INDEX ROSE $0.12 OR, 0.44% WEEK OVER WEEK; INDEX CLOASED AT $27.19 A TON
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.21 percent week over week to averaging $38.90 per ton on this past Friday, ac ...
Monday, 21 March 16
THE BALTIC DRY INDEX ROSE SLIGHTLY WEEK OVER WEEK; BCI UP 11.93%
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued rose this week helped by higher rates for Cape ...
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- Medco Energi Mining Internasional
- Mercuria Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Holcim Trading Pte Ltd - Singapore
- Eastern Coal Council - USA
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Australian Commodity Traders Exchange
- Barasentosa Lestari - Indonesia
- IEA Clean Coal Centre - UK
- European Bulk Services B.V. - Netherlands
- Essar Steel Hazira Ltd - India
- Singapore Mercantile Exchange
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- IHS Mccloskey Coal Group - USA
- Ministry of Mines - Canada
- Bukit Makmur.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Heidelberg Cement - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Georgia Ports Authority, United States
- Miang Besar Coal Terminal - Indonesia
- Altura Mining Limited, Indonesia
- Binh Thuan Hamico - Vietnam
- Minerals Council of Australia
- CNBM International Corporation - China
- Karbindo Abesyapradhi - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Dalmia Cement Bharat India
- Trasteel International SA, Italy
- Metalloyd Limited - United Kingdom
- Kobexindo Tractors - Indoneisa
- South Luzon Thermal Energy Corporation
- White Energy Company Limited
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Indika Energy - Indonesia
- Agrawal Coal Company - India
- Energy Link Ltd, New Zealand
- Lanco Infratech Ltd - India
- Manunggal Multi Energi - Indonesia
- Grasim Industreis Ltd - India
- Wood Mackenzie - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Aboitiz Power Corporation - Philippines
- Mintek Dendrill Indonesia
- Kideco Jaya Agung - Indonesia
- Global Business Power Corporation, Philippines
- Rio Tinto Coal - Australia
- Latin American Coal - Colombia
- Directorate Of Revenue Intelligence - India
- Power Finance Corporation Ltd., India
- Salva Resources Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- AsiaOL BioFuels Corp., Philippines
- Samtan Co., Ltd - South Korea
- Global Green Power PLC Corporation, Philippines
- Coastal Gujarat Power Limited - India
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- Bhatia International Limited - India
- Indian Energy Exchange, India
- Star Paper Mills Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Global Coal Blending Company Limited - Australia
- Bayan Resources Tbk. - Indonesia
- Coal and Oil Company - UAE
- VISA Power Limited - India
- Billiton Holdings Pty Ltd - Australia
- Carbofer General Trading SA - India
- Tamil Nadu electricity Board
- Uttam Galva Steels Limited - India
- GN Power Mariveles Coal Plant, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- Cement Manufacturers Association - India
- Kalimantan Lumbung Energi - Indonesia
- PowerSource Philippines DevCo
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- Aditya Birla Group - India
- Thiess Contractors Indonesia
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Goldman Sachs - Singapore
- Energy Development Corp, Philippines
- Intertek Mineral Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The Treasury - Australian Government
- Siam City Cement PLC, Thailand
- Bulk Trading Sa - Switzerland
- GMR Energy Limited - India
- Simpson Spence & Young - Indonesia
- Central Electricity Authority - India
- Bahari Cakrawala Sebuku - Indonesia
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- Meralco Power Generation, Philippines
- OPG Power Generation Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- Ceylon Electricity Board - Sri Lanka
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Kartika Selabumi Mining - Indonesia
- Indogreen Group - Indonesia
- Vedanta Resources Plc - India
- Coalindo Energy - Indonesia
- Planning Commission, India
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- New Zealand Coal & Carbon
- Petrochimia International Co. Ltd.- Taiwan
- Sree Jayajothi Cements Limited - India
- Videocon Industries ltd - India
- Xindia Steels Limited - India
- Eastern Energy - Thailand
- Bukit Asam (Persero) Tbk - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Mjunction Services Limited - India
- Australian Coal Association
- Cigading International Bulk Terminal - Indonesia
- Merrill Lynch Commodities Europe
- Indonesian Coal Mining Association
- SN Aboitiz Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Independent Power Producers Association of India
- Parliament of New Zealand
- Bukit Baiduri Energy - Indonesia
- Indian Oil Corporation Limited
- Riau Bara Harum - Indonesia
- Iligan Light & Power Inc, Philippines
- Leighton Contractors Pty Ltd - Australia
- Bhushan Steel Limited - India
- Kumho Petrochemical, South Korea
- PetroVietnam Power Coal Import and Supply Company
- Renaissance Capital - South Africa
- TNB Fuel Sdn Bhd - Malaysia
- Posco Energy - South Korea
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Kaltim Prima Coal - Indonesia
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- Romanian Commodities Exchange
- Commonwealth Bank - Australia
- Sakthi Sugars Limited - India
- Ministry of Finance - Indonesia
- The State Trading Corporation of India Ltd
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Wilmar Investment Holdings
- Larsen & Toubro Limited - India
- Madhucon Powers Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Anglo American - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Baramulti Group, Indonesia
- International Coal Ventures Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Indo Tambangraya Megah - Indonesia
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- TeaM Sual Corporation - Philippines
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
- India Bulls Power Limited - India
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Alfred C Toepfer International GmbH - Germany
- Orica Mining Services - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Gujarat Sidhee Cement - India
- Makarim & Taira - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Borneo Indobara - Indonesia
- Sical Logistics Limited - India
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- ASAPP Information Group - India
- Marubeni Corporation - India
- MS Steel International - UAE
- Tata Chemicals Ltd - India
- Economic Council, Georgia
- GVK Power & Infra Limited - India
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Electricity Generating Authority of Thailand
- Edison Trading Spa - Italy
- Gujarat Mineral Development Corp Ltd - India
- San Jose City I Power Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Ambuja Cements Ltd - India
- The University of Queensland
- Vizag Seaport Private Limited - India
- Siam City Cement - Thailand
- Semirara Mining Corp, Philippines
- Kepco SPC Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bangladesh Power Developement Board
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
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