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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, 10 March 16
IT FEELS SAFE TO SAY THAT THE MARKET IS SLOWLY AND PAINFULLY REGAINING ITS BALANCE
With the BDI marking its third consecutive positive weekly closing, it feels safe to say that the market is regaining its balance; slowly and painf ...
Wednesday, 09 March 16
U.S. COAL EXPORTS DECLINED 24% (74 MMST) IN 2015; COAL PRODUCTION IS EXPECTED TO DECREASE BY 111 MMST IN 2016 - EIA
U.S. Coal Supply
EIA estimates that U.S. coal production for February 2016 was 54 million short tons (MMst), a 4 MMst (7%) decrease from the prev ...
Wednesday, 09 March 16
RI MAY HAVE TO IMPORT COAL FOR FUTURE POWER PLANTS: STUDY - THE JAKARTA POST
With coal prices continuing to decline, Indonesia will struggle to provide the coal needed to fire up its power stations in the near future, a stud ...
Tuesday, 08 March 16
INDONESIA HIKES COAL BENCHMARK PRICE FOR THE FIRST TIME IN 12 MONTHS
COALspot.com: Low coal demand and excess supplies sent Indonesian benchmark coal price further deep in February 2016, but up slightly in Mar ...
Tuesday, 08 March 16
THE DRY CARGO MARKET ENDURED ONE OF ITS MOST DIFFICULT YEARS IN 2015, EXPERIENCING LOWS NOT SEEN SINCE THE MID 1980S - CLARKSONS
Whilst shipping and offshore markets have seen some good opportunities during 2015, overall there have been unprecedented challenges, so we are ver ...
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- Eastern Coal Council - USA
- Ind-Barath Power Infra Limited - India
- Karaikal Port Pvt Ltd - India
- Wilmar Investment Holdings
- India Bulls Power Limited - India
- Minerals Council of Australia
- Banpu Public Company Limited - Thailand
- Riau Bara Harum - Indonesia
- SMG Consultants - Indonesia
- Global Green Power PLC Corporation, Philippines
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Power Finance Corporation Ltd., India
- Eastern Energy - Thailand
- Essar Steel Hazira Ltd - India
- Medco Energi Mining Internasional
- Ministry of Transport, Egypt
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jindal Steel & Power Ltd - India
- Maheswari Brothers Coal Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Bayan Resources Tbk. - Indonesia
- Commonwealth Bank - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kartika Selabumi Mining - Indonesia
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- Mintek Dendrill Indonesia
- ASAPP Information Group - India
- Straits Asia Resources Limited - Singapore
- Makarim & Taira - Indonesia
- Siam City Cement - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- White Energy Company Limited
- Semirara Mining and Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Maharashtra Electricity Regulatory Commission - India
- Karbindo Abesyapradhi - Indoneisa
- Videocon Industries ltd - India
- GMR Energy Limited - India
- Barasentosa Lestari - Indonesia
- Indo Tambangraya Megah - Indonesia
- Marubeni Corporation - India
- Coal and Oil Company - UAE
- Central Electricity Authority - India
- Global Coal Blending Company Limited - Australia
- Salva Resources Pvt Ltd - India
- Singapore Mercantile Exchange
- Billiton Holdings Pty Ltd - Australia
- Thiess Contractors Indonesia
- Electricity Authority, New Zealand
- Standard Chartered Bank - UAE
- Lanco Infratech Ltd - India
- GAC Shipping (India) Pvt Ltd
- International Coal Ventures Pvt Ltd - India
- Deloitte Consulting - India
- VISA Power Limited - India
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- TeaM Sual Corporation - Philippines
- Edison Trading Spa - Italy
- Parry Sugars Refinery, India
- Directorate General of MIneral and Coal - Indonesia
- London Commodity Brokers - England
- Ministry of Mines - Canada
- Price Waterhouse Coopers - Russia
- Bhoruka Overseas - Indonesia
- McConnell Dowell - Australia
- Global Business Power Corporation, Philippines
- Star Paper Mills Limited - India
- Miang Besar Coal Terminal - Indonesia
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- Rashtriya Ispat Nigam Limited - India
- Borneo Indobara - Indonesia
- Metalloyd Limited - United Kingdom
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- Mercator Lines Limited - India
- Interocean Group of Companies - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- PowerSource Philippines DevCo
- Bhushan Steel Limited - India
- Planning Commission, India
- Merrill Lynch Commodities Europe
- Orica Australia Pty. Ltd.
- Holcim Trading Pte Ltd - Singapore
- Gujarat Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- Port Waratah Coal Services - Australia
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Simpson Spence & Young - Indonesia
- Renaissance Capital - South Africa
- Kideco Jaya Agung - Indonesia
- Bukit Baiduri Energy - Indonesia
- Central Java Power - Indonesia
- Kepco SPC Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Cement Manufacturers Association - India
- Xindia Steels Limited - India
- SMC Global Power, Philippines
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Kumho Petrochemical, South Korea
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- The Treasury - Australian Government
- Neyveli Lignite Corporation Ltd, - India
- Gujarat Mineral Development Corp Ltd - India
- CNBM International Corporation - China
- Tamil Nadu electricity Board
- Indika Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Australian Commodity Traders Exchange
- Georgia Ports Authority, United States
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Malabar Cements Ltd - India
- Sindya Power Generating Company Private Ltd
- Thai Mozambique Logistica
- Samtan Co., Ltd - South Korea
- IEA Clean Coal Centre - UK
- Petrochimia International Co. Ltd.- Taiwan
- Grasim Industreis Ltd - India
- Australian Coal Association
- Iligan Light & Power Inc, Philippines
- Vedanta Resources Plc - India
- Rio Tinto Coal - Australia
- Directorate Of Revenue Intelligence - India
- Tata Chemicals Ltd - India
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- The University of Queensland
- ICICI Bank Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Baramulti Group, Indonesia
- Romanian Commodities Exchange
- Sojitz Corporation - Japan
- Aditya Birla Group - India
- CIMB Investment Bank - Malaysia
- AsiaOL BioFuels Corp., Philippines
- PNOC Exploration Corporation - Philippines
- Pendopo Energi Batubara - Indonesia
- Meralco Power Generation, Philippines
- Coastal Gujarat Power Limited - India
- Chettinad Cement Corporation Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Antam Resourcindo - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Bangladesh Power Developement Board
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Sarangani Energy Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Leighton Contractors Pty Ltd - Australia
- Madhucon Powers Ltd - India
- MS Steel International - UAE
- Latin American Coal - Colombia
- GVK Power & Infra Limited - India
- Heidelberg Cement - Germany
- Bhatia International Limited - India
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- Posco Energy - South Korea
- South Luzon Thermal Energy Corporation
- Orica Mining Services - Indonesia
- Formosa Plastics Group - Taiwan
- Goldman Sachs - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Carbofer General Trading SA - India
- Vizag Seaport Private Limited - India
- Savvy Resources Ltd - HongKong
- Energy Development Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Dalmia Cement Bharat India
- Bharathi Cement Corporation - India
- Jaiprakash Power Ventures ltd
- Bulk Trading Sa - Switzerland
- Larsen & Toubro Limited - India
- Ministry of Finance - Indonesia
- Anglo American - United Kingdom
- Meenaskhi Energy Private Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Globalindo Alam Lestari - Indonesia
- Coalindo Energy - Indonesia
- Energy Link Ltd, New Zealand
- Agrawal Coal Company - India
- Trasteel International SA, Italy
- Binh Thuan Hamico - Vietnam
- Kobexindo Tractors - Indoneisa
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Kapuas Tunggal Persada - Indonesia
- Uttam Galva Steels Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Mercuria Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Mjunction Services Limited - India
- Gujarat Sidhee Cement - India
- Africa Commodities Group - South Africa
- Krishnapatnam Port Company Ltd. - India
- Independent Power Producers Association of India
- Asmin Koalindo Tuhup - Indonesia
- IHS Mccloskey Coal Group - USA
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