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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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Wednesday, 03 February 16
DRY BULK MARKET CONTINUES TO BE UNDER PRESSURE - INTERMODAL
The Dry Bulk market continues to be under pressure, with the BDI remaining in search of even the slightest support, which seems to be delaying more ...
Tuesday, 02 February 16
RECORD EXPORTS THROUGH SOUTH AFRICA'S RICHARDS BAY COAL TERMINAL MADE AT EXPENSE OF SMALLER RIVALS, IHS SAYS
Five percent increase in coal exports through South Africa’s dominant Richards Bay Coal Terminal in 2015 unlikely to accelerate country&rsquo ...
Tuesday, 02 February 16
SETTING ASIDE, STRIKING OUT AND APPEALS TO THE COURT OF APPEAL IN SHIP ARRESTS - RAJAH & TANN ASIA LLP
KNOWLEDGE TO ELEVATE
The Singapore Court of Appeal once again has had to grapple with ship arrest, setting aside and appeals to the Court unde ...
Monday, 01 February 16
DRY BULK SUFFERS FROM POSEIDON'S POTENT PRONGS - CLARKSONS
It has been a grim start to 2016 for the bulkcarrier market, with the Baltic Dry Index sliding to new record lows on almost every day of the year s ...
Monday, 01 February 16
INDONESIA'S SECOND LARGEST COAL MINER ADARO ENERGY HAS PRODUCED 51.46 MT IN 2015; 8% LOWER COMPARED TO FY14
COALspot.com: Adaro Energy, the Indonesia’s second largest coal producer by volume has produced 51.46 Mt in 2015, 8% lower compared to ...
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- Global Business Power Corporation, Philippines
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- Merrill Lynch Commodities Europe
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- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Mines - Canada
- GN Power Mariveles Coal Plant, Philippines
- AsiaOL BioFuels Corp., Philippines
- Central Electricity Authority - India
- Bangladesh Power Developement Board
- Trasteel International SA, Italy
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- Kaltim Prima Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
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- Ministry of Finance - Indonesia
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- Larsen & Toubro Limited - India
- Australian Commodity Traders Exchange
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- Power Finance Corporation Ltd., India
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- Parry Sugars Refinery, India
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- Meenaskhi Energy Private Limited - India
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- Standard Chartered Bank - UAE
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- SMG Consultants - Indonesia
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- Semirara Mining and Power Corporation, Philippines
- Coalindo Energy - Indonesia
- Interocean Group of Companies - India
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- Medco Energi Mining Internasional
- PowerSource Philippines DevCo
- PNOC Exploration Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Africa Commodities Group - South Africa
- Madhucon Powers Ltd - India
- Jaiprakash Power Ventures ltd
- Eastern Coal Council - USA
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- Maharashtra Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Singapore Mercantile Exchange
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- Sojitz Corporation - Japan
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Commonwealth Bank - Australia
- Directorate General of MIneral and Coal - Indonesia
- Bhushan Steel Limited - India
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- Goldman Sachs - Singapore
- Globalindo Alam Lestari - Indonesia
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- Tamil Nadu electricity Board
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
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- Petrochimia International Co. Ltd.- Taiwan
- Energy Link Ltd, New Zealand
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- Formosa Plastics Group - Taiwan
- Bahari Cakrawala Sebuku - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Global Coal Blending Company Limited - Australia
- Bukit Baiduri Energy - Indonesia
- SN Aboitiz Power Inc, Philippines
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- ASAPP Information Group - India
- Electricity Authority, New Zealand
- Australian Coal Association
- India Bulls Power Limited - India
- Thiess Contractors Indonesia
- Siam City Cement - Thailand
- IHS Mccloskey Coal Group - USA
- Chamber of Mines of South Africa
- Sarangani Energy Corporation, Philippines
- Sakthi Sugars Limited - India
- Barasentosa Lestari - Indonesia
- Deloitte Consulting - India
- Thai Mozambique Logistica
- Kalimantan Lumbung Energi - Indonesia
- Carbofer General Trading SA - India
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Samtan Co., Ltd - South Korea
- Cement Manufacturers Association - India
- Simpson Spence & Young - Indonesia
- Karaikal Port Pvt Ltd - India
- Edison Trading Spa - Italy
- Ceylon Electricity Board - Sri Lanka
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- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SMC Global Power, Philippines
- Energy Development Corp, Philippines
- Indogreen Group - Indonesia
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Mjunction Services Limited - India
- Port Waratah Coal Services - Australia
- Indian Oil Corporation Limited
- Bharathi Cement Corporation - India
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- Savvy Resources Ltd - HongKong
- Parliament of New Zealand
- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
- Rashtriya Ispat Nigam Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Petron Corporation, Philippines
- Electricity Generating Authority of Thailand
- Gujarat Sidhee Cement - India
- Minerals Council of Australia
- LBH Netherlands Bv - Netherlands
- The Treasury - Australian Government
- Antam Resourcindo - Indonesia
- South Luzon Thermal Energy Corporation
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- Mercuria Energy - Indonesia
- Anglo American - United Kingdom
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- Iligan Light & Power Inc, Philippines
- Chettinad Cement Corporation Ltd - India
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- Sree Jayajothi Cements Limited - India
- Krishnapatnam Port Company Ltd. - India
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