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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, 19 January 16
HAPPY NEW YEAR, COAL PRODUCERS! OR MAYBE NOT - ANDY ROBERTS
To coal producers, 2015 must have seemed far longer than 365 days. From their perspective, as bad as markets were at the beginning of the year, and ...
Tuesday, 19 January 16
COALTRANS ASIA IS RETURNING TO BALI
22nd Coaltrans Asia
Coaltrans Asia is returning to Bali to bring together over 1000 industry decision makers and thought leaders for three day ...
Monday, 18 January 16
INDONESIAN 5700 GAR COAL INDEX ROSE 0.60% WEEK OVER WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin decline slightly week over week to averaging $39.93 per ton on this past Friday, acc ...
Monday, 18 January 16
BALTIC DRY SHIPPING INDEX DROPS TO 373 POINTS; DECLINE 13% WEEK OVER WEEK
COALspot.com: The freight market dropped this week as the BDI declined further 13 percent to 373 points week over week. The Cape index ...
Monday, 18 January 16
Q1'16 CFR SOUTH CHINA COAL SWAP CLOSED AT $ 42.50 PER TON; UP 1% MONTH OVER MONTH
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery rose US$ 0.43 (1.02%) per ton month over month.
A commodity swap is ...
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- Alfred C Toepfer International GmbH - Germany
- CIMB Investment Bank - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Aboitiz Power Corporation - Philippines
- Indian Oil Corporation Limited
- Salva Resources Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Independent Power Producers Association of India
- Interocean Group of Companies - India
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Orica Australia Pty. Ltd.
- Karaikal Port Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- Australian Commodity Traders Exchange
- GAC Shipping (India) Pvt Ltd
- Riau Bara Harum - Indonesia
- Standard Chartered Bank - UAE
- Global Green Power PLC Corporation, Philippines
- Madhucon Powers Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Kaltim Prima Coal - Indonesia
- Gujarat Sidhee Cement - India
- Marubeni Corporation - India
- Maheswari Brothers Coal Limited - India
- International Coal Ventures Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Wood Mackenzie - Singapore
- Xindia Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Kartika Selabumi Mining - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- White Energy Company Limited
- Mercator Lines Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Samtan Co., Ltd - South Korea
- Latin American Coal - Colombia
- Therma Luzon, Inc, Philippines
- Intertek Mineral Services - Indonesia
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Kumho Petrochemical, South Korea
- Asmin Koalindo Tuhup - Indonesia
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Electricity Authority, New Zealand
- MS Steel International - UAE
- Global Business Power Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Makarim & Taira - Indonesia
- Power Finance Corporation Ltd., India
- Essar Steel Hazira Ltd - India
- London Commodity Brokers - England
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Posco Energy - South Korea
- Vizag Seaport Private Limited - India
- Videocon Industries ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Makmur.PT - Indonesia
- Rio Tinto Coal - Australia
- Globalindo Alam Lestari - Indonesia
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
- Africa Commodities Group - South Africa
- OPG Power Generation Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Attock Cement Pakistan Limited
- CNBM International Corporation - China
- Metalloyd Limited - United Kingdom
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Kideco Jaya Agung - Indonesia
- GMR Energy Limited - India
- Bhatia International Limited - India
- ICICI Bank Limited - India
- Gujarat Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- Dalmia Cement Bharat India
- Bahari Cakrawala Sebuku - Indonesia
- Medco Energi Mining Internasional
- Barasentosa Lestari - Indonesia
- Wilmar Investment Holdings
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- VISA Power Limited - India
- Ministry of Transport, Egypt
- Timah Investasi Mineral - Indoneisa
- TeaM Sual Corporation - Philippines
- Sarangani Energy Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Directorate General of MIneral and Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Grasim Industreis Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Eastern Energy - Thailand
- Anglo American - United Kingdom
- Merrill Lynch Commodities Europe
- India Bulls Power Limited - India
- Leighton Contractors Pty Ltd - Australia
- New Zealand Coal & Carbon
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Global Coal Blending Company Limited - Australia
- Bulk Trading Sa - Switzerland
- Kobexindo Tractors - Indoneisa
- Thai Mozambique Logistica
- Meralco Power Generation, Philippines
- ASAPP Information Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Georgia Ports Authority, United States
- Mintek Dendrill Indonesia
- Energy Development Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Edison Trading Spa - Italy
- Tata Chemicals Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Indian Energy Exchange, India
- Electricity Generating Authority of Thailand
- Chamber of Mines of South Africa
- Krishnapatnam Port Company Ltd. - India
- Bukit Baiduri Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Borneo Indobara - Indonesia
- Mercuria Energy - Indonesia
- Eastern Coal Council - USA
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- IHS Mccloskey Coal Group - USA
- Planning Commission, India
- Bhushan Steel Limited - India
- Straits Asia Resources Limited - Singapore
- Semirara Mining and Power Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Vedanta Resources Plc - India
- Jorong Barutama Greston.PT - Indonesia
- Uttam Galva Steels Limited - India
- Sinarmas Energy and Mining - Indonesia
- Goldman Sachs - Singapore
- Maharashtra Electricity Regulatory Commission - India
- SN Aboitiz Power Inc, Philippines
- Sojitz Corporation - Japan
- Romanian Commodities Exchange
- PNOC Exploration Corporation - Philippines
- Indogreen Group - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- PowerSource Philippines DevCo
- Bharathi Cement Corporation - India
- Manunggal Multi Energi - Indonesia
- Banpu Public Company Limited - Thailand
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Central Electricity Authority - India
- PTC India Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bhoruka Overseas - Indonesia
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- The University of Queensland
- SMG Consultants - Indonesia
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- Parliament of New Zealand
- Coalindo Energy - Indonesia
- Trasteel International SA, Italy
- Central Java Power - Indonesia
- San Jose City I Power Corp, Philippines
- Sakthi Sugars Limited - India
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petron Corporation, Philippines
- Carbofer General Trading SA - India
- Savvy Resources Ltd - HongKong
- Siam City Cement PLC, Thailand
- Oldendorff Carriers - Singapore
- Lanco Infratech Ltd - India
- Deloitte Consulting - India
- Bayan Resources Tbk. - Indonesia
- Chettinad Cement Corporation Ltd - India
- The State Trading Corporation of India Ltd
- Ambuja Cements Ltd - India
- Mjunction Services Limited - India
- Australian Coal Association
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Coal and Oil Company - UAE
- Cigading International Bulk Terminal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Baramulti Group, Indonesia
- Aditya Birla Group - India
- Coastal Gujarat Power Limited - India
- Cement Manufacturers Association - India
- Sindya Power Generating Company Private Ltd
- The Treasury - Australian Government
- Orica Mining Services - Indonesia
- Economic Council, Georgia
- McConnell Dowell - Australia
- Minerals Council of Australia
- Energy Link Ltd, New Zealand
- Thiess Contractors Indonesia
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