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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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Tuesday, 15 March 16
PORT OF NEWCASTLE SHIPPED 12.78 MMT OF COAL IN FEBRUARY 2016
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped AU$1,110.5 mi ...
Tuesday, 15 March 16
ADARO ENERGY LOWERED ITS COAL CASH COST BY 16% TO US$ 27.98 PER TONE IN 2015
Difficult Coal Market Condition Persists in 2015, Adaro Lowers Costs, Reduces Capital Spending and Maintains Solid Liquidity.
PT Adaro E ...
Monday, 14 March 16
THE CS 50 INDEX ROSE $0.16 OR, 0.41% TO $38.82 A TON
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.41 percent week over week to averaging $38.82 per ton on this past Friday, ac ...
Monday, 14 March 16
THE BALTIC EXCHANGE CONTINUED TO ROSE THIS PAST WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued to rise this week helped by higher rates for pa ...
Saturday, 12 March 16
PLN, COAL COMPANIES IN TALKS ABOUT PRICES - THE JAKARTA POST
Following a study that predicted that Indonesia would struggle to provide coal for its power stations in the near future, the government will facil ...
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- Offshore Bulk Terminal Pte Ltd, Singapore
- Star Paper Mills Limited - India
- White Energy Company Limited
- Africa Commodities Group - South Africa
- Iligan Light & Power Inc, Philippines
- Goldman Sachs - Singapore
- Salva Resources Pvt Ltd - India
- Planning Commission, India
- Neyveli Lignite Corporation Ltd, - India
- Kepco SPC Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Uttam Galva Steels Limited - India
- LBH Netherlands Bv - Netherlands
- Romanian Commodities Exchange
- MS Steel International - UAE
- Antam Resourcindo - Indonesia
- Ministry of Mines - Canada
- Orica Mining Services - Indonesia
- Xindia Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Interocean Group of Companies - India
- Port Waratah Coal Services - Australia
- Tata Chemicals Ltd - India
- Trasteel International SA, Italy
- Bukit Asam (Persero) Tbk - Indonesia
- Larsen & Toubro Limited - India
- Merrill Lynch Commodities Europe
- Aboitiz Power Corporation - Philippines
- Sojitz Corporation - Japan
- TeaM Sual Corporation - Philippines
- Dalmia Cement Bharat India
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- Indian Energy Exchange, India
- Cement Manufacturers Association - India
- Ambuja Cements Ltd - India
- Thai Mozambique Logistica
- South Luzon Thermal Energy Corporation
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- San Jose City I Power Corp, Philippines
- Ministry of Finance - Indonesia
- Energy Link Ltd, New Zealand
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Metalloyd Limited - United Kingdom
- PNOC Exploration Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Toyota Tsusho Corporation, Japan
- Meralco Power Generation, Philippines
- Meenaskhi Energy Private Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- Power Finance Corporation Ltd., India
- Siam City Cement - Thailand
- Indian Oil Corporation Limited
- Anglo American - United Kingdom
- Straits Asia Resources Limited - Singapore
- SMC Global Power, Philippines
- Krishnapatnam Port Company Ltd. - India
- Siam City Cement PLC, Thailand
- Gujarat Mineral Development Corp Ltd - India
- Standard Chartered Bank - UAE
- Miang Besar Coal Terminal - Indonesia
- Riau Bara Harum - Indonesia
- The University of Queensland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- McConnell Dowell - Australia
- Bayan Resources Tbk. - Indonesia
- Kumho Petrochemical, South Korea
- The Treasury - Australian Government
- Mjunction Services Limited - India
- Borneo Indobara - Indonesia
- Kobexindo Tractors - Indoneisa
- Ministry of Transport, Egypt
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Australian Coal Association
- Eastern Energy - Thailand
- ICICI Bank Limited - India
- Bhatia International Limited - India
- Directorate Of Revenue Intelligence - India
- Holcim Trading Pte Ltd - Singapore
- IHS Mccloskey Coal Group - USA
- GVK Power & Infra Limited - India
- Economic Council, Georgia
- New Zealand Coal & Carbon
- Madhucon Powers Ltd - India
- Jindal Steel & Power Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indogreen Group - Indonesia
- Barasentosa Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Pipit Mutiara Jaya. PT, Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Attock Cement Pakistan Limited
- Mintek Dendrill Indonesia
- Heidelberg Cement - Germany
- Kideco Jaya Agung - Indonesia
- Ceylon Electricity Board - Sri Lanka
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Grasim Industreis Ltd - India
- Jaiprakash Power Ventures ltd
- Savvy Resources Ltd - HongKong
- Thiess Contractors Indonesia
- Eastern Coal Council - USA
- Maheswari Brothers Coal Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bhushan Steel Limited - India
- Timah Investasi Mineral - Indoneisa
- Georgia Ports Authority, United States
- Bhoruka Overseas - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Therma Luzon, Inc, Philippines
- Kohat Cement Company Ltd. - Pakistan
- CNBM International Corporation - China
- Pendopo Energi Batubara - Indonesia
- Posco Energy - South Korea
- Altura Mining Limited, Indonesia
- Deloitte Consulting - India
- Parliament of New Zealand
- Videocon Industries ltd - India
- Vizag Seaport Private Limited - India
- Oldendorff Carriers - Singapore
- Central Electricity Authority - India
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- Tamil Nadu electricity Board
- Sarangani Energy Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- Agrawal Coal Company - India
- Kapuas Tunggal Persada - Indonesia
- Sakthi Sugars Limited - India
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- VISA Power Limited - India
- Coastal Gujarat Power Limited - India
- GAC Shipping (India) Pvt Ltd
- Malabar Cements Ltd - India
- Rio Tinto Coal - Australia
- Formosa Plastics Group - Taiwan
- Cigading International Bulk Terminal - Indonesia
- Energy Development Corp, Philippines
- Samtan Co., Ltd - South Korea
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- Semirara Mining Corp, Philippines
- SN Aboitiz Power Inc, Philippines
- Latin American Coal - Colombia
- Coal and Oil Company - UAE
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Baramulti Group, Indonesia
- Bharathi Cement Corporation - India
- Electricity Authority, New Zealand
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Bukit Makmur.PT - Indonesia
- Minerals Council of Australia
- Independent Power Producers Association of India
- SMG Consultants - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Sical Logistics Limited - India
- Ind-Barath Power Infra Limited - India
- Price Waterhouse Coopers - Russia
- Bank of Tokyo Mitsubishi UFJ Ltd
- GMR Energy Limited - India
- Lanco Infratech Ltd - India
- CIMB Investment Bank - Malaysia
- Aditya Birla Group - India
- ASAPP Information Group - India
- Indo Tambangraya Megah - Indonesia
- Electricity Generating Authority of Thailand
- India Bulls Power Limited - India
- Wood Mackenzie - Singapore
- Coalindo Energy - Indonesia
- Medco Energi Mining Internasional
- Kaltim Prima Coal - Indonesia
- Mercator Lines Limited - India
- Intertek Mineral Services - Indonesia
- IEA Clean Coal Centre - UK
- Chamber of Mines of South Africa
- Carbofer General Trading SA - India
- Central Java Power - Indonesia
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Orica Australia Pty. Ltd.
- Gujarat Sidhee Cement - India
- Rashtriya Ispat Nigam Limited - India
- Petron Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Commonwealth Bank - Australia
- GN Power Mariveles Coal Plant, Philippines
- The State Trading Corporation of India Ltd
- Bulk Trading Sa - Switzerland
- Banpu Public Company Limited - Thailand
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Parry Sugars Refinery, India
- Global Business Power Corporation, Philippines
- PowerSource Philippines DevCo
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