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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, 01 March 16
CAN BULKCARRIER SUPPLY CUTS RESTORE SOME BALANCE? - CLARKSONS
The easing in bulkcarrier deliveries and the accelerated pace of demolition in recent years has seen bulkcarrier fleet growth slow from a rapid 17% ...
Monday, 29 February 16
BALTIC INDEX INCHES UP THIS PAST WEEK AS SMALLER VESSELS LEND SUPPORT
COALspot.com: The freight markets rose slightly this past week.
The Baltic Dry Index (BDI) of dry-bulk shipping freights, a measure of global ...
Friday, 26 February 16
U.S WEEKLY COAL PRODUCTION UP SLIGHTLY
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 13.4 million shor ...
Thursday, 25 February 16
DRY BULKERS ARE SCRAPPED AT RECORD PACE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The newbuilding market is at a lull these days, as ship owners are focusing on two fronts, getting rid of excess dry bulk tonnage and snapping up b ...
Wednesday, 24 February 16
HOW IS THE FUEL MIX FOR U.S. ELECTRICITY GENERATION CHANGING? - EIA
In recent years, there have been changes in the mix of fuels used to generate electricity in the United States. Natural gas and renewable energy so ...
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- Posco Energy - South Korea
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- Latin American Coal - Colombia
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- Makarim & Taira - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Baiduri Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Romanian Commodities Exchange
- Kobexindo Tractors - Indoneisa
- IEA Clean Coal Centre - UK
- Jorong Barutama Greston.PT - Indonesia
- Mjunction Services Limited - India
- San Jose City I Power Corp, Philippines
- PowerSource Philippines DevCo
- Uttam Galva Steels Limited - India
- Grasim Industreis Ltd - India
- London Commodity Brokers - England
- The Treasury - Australian Government
- Sinarmas Energy and Mining - Indonesia
- Edison Trading Spa - Italy
- Global Business Power Corporation, Philippines
- Videocon Industries ltd - India
- GN Power Mariveles Coal Plant, Philippines
- MS Steel International - UAE
- Bharathi Cement Corporation - India
- Straits Asia Resources Limited - Singapore
- Savvy Resources Ltd - HongKong
- Ind-Barath Power Infra Limited - India
- Sojitz Corporation - Japan
- McConnell Dowell - Australia
- Energy Link Ltd, New Zealand
- Thai Mozambique Logistica
- Aditya Birla Group - India
- Karaikal Port Pvt Ltd - India
- Star Paper Mills Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Eastern Energy - Thailand
- LBH Netherlands Bv - Netherlands
- Gujarat Sidhee Cement - India
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- GMR Energy Limited - India
- Sical Logistics Limited - India
- Larsen & Toubro Limited - India
- Heidelberg Cement - Germany
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Commonwealth Bank - Australia
- Directorate Of Revenue Intelligence - India
- Wood Mackenzie - Singapore
- India Bulls Power Limited - India
- Coal and Oil Company - UAE
- Rio Tinto Coal - Australia
- Rashtriya Ispat Nigam Limited - India
- Electricity Authority, New Zealand
- Kaltim Prima Coal - Indonesia
- GVK Power & Infra Limited - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Kepco SPC Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Parliament of New Zealand
- Africa Commodities Group - South Africa
- Bhoruka Overseas - Indonesia
- Ambuja Cements Ltd - India
- White Energy Company Limited
- Cigading International Bulk Terminal - Indonesia
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Australian Commodity Traders Exchange
- Thiess Contractors Indonesia
- Marubeni Corporation - India
- SMC Global Power, Philippines
- Banpu Public Company Limited - Thailand
- Toyota Tsusho Corporation, Japan
- Price Waterhouse Coopers - Russia
- Leighton Contractors Pty Ltd - Australia
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Mercuria Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Independent Power Producers Association of India
- TNB Fuel Sdn Bhd - Malaysia
- Indo Tambangraya Megah - Indonesia
- Therma Luzon, Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Siam City Cement - Thailand
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- Anglo American - United Kingdom
- ASAPP Information Group - India
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Carbofer General Trading SA - India
- Timah Investasi Mineral - Indoneisa
- New Zealand Coal & Carbon
- Iligan Light & Power Inc, Philippines
- CNBM International Corporation - China
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
- Oldendorff Carriers - Singapore
- Economic Council, Georgia
- AsiaOL BioFuels Corp., Philippines
- Global Coal Blending Company Limited - Australia
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Borneo Indobara - Indonesia
- Formosa Plastics Group - Taiwan
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- Malabar Cements Ltd - India
- Attock Cement Pakistan Limited
- Maheswari Brothers Coal Limited - India
- Renaissance Capital - South Africa
- Minerals Council of Australia
- Aboitiz Power Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Port Waratah Coal Services - Australia
- Intertek Mineral Services - Indonesia
- CIMB Investment Bank - Malaysia
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
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- Indian Oil Corporation Limited
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Eastern Coal Council - USA
- Jaiprakash Power Ventures ltd
- Siam City Cement PLC, Thailand
- Billiton Holdings Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Mercator Lines Limited - India
- VISA Power Limited - India
- Holcim Trading Pte Ltd - Singapore
- Chettinad Cement Corporation Ltd - India
- European Bulk Services B.V. - Netherlands
- Vedanta Resources Plc - India
- Ceylon Electricity Board - Sri Lanka
- Energy Development Corp, Philippines
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- Sree Jayajothi Cements Limited - India
- Mintek Dendrill Indonesia
- Singapore Mercantile Exchange
- GAC Shipping (India) Pvt Ltd
- The State Trading Corporation of India Ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Interocean Group of Companies - India
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Merrill Lynch Commodities Europe
- Riau Bara Harum - Indonesia
- Bhushan Steel Limited - India
- Antam Resourcindo - Indonesia
- Wilmar Investment Holdings
- Ministry of Mines - Canada
- Asmin Koalindo Tuhup - Indonesia
- Kapuas Tunggal Persada - Indonesia
- TeaM Sual Corporation - Philippines
- Electricity Generating Authority of Thailand
- Chamber of Mines of South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Planning Commission, India
- Maharashtra Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Semirara Mining Corp, Philippines
- Indonesian Coal Mining Association
- Coalindo Energy - Indonesia
- Orica Australia Pty. Ltd.
- Samtan Co., Ltd - South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Miang Besar Coal Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- PNOC Exploration Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Salva Resources Pvt Ltd - India
- Baramulti Group, Indonesia
- Deloitte Consulting - India
- Indika Energy - Indonesia
- Indogreen Group - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- South Luzon Thermal Energy Corporation
- Australian Coal Association
- Bulk Trading Sa - Switzerland
- PTC India Limited - India
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Trasteel International SA, Italy
- Power Finance Corporation Ltd., India
- ICICI Bank Limited - India
- International Coal Ventures Pvt Ltd - India
- Madhucon Powers Ltd - India
- Essar Steel Hazira Ltd - India
- Sindya Power Generating Company Private Ltd
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