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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, 13 January 16
SHIPPING MARKET INSIGHT - GEORGE ILIOPOULOS
Going through the second week of 2016 we could easily argue that at this point there are no visible signs of an imminent recovery in the Dry Bulk m ...
Wednesday, 13 January 16
IRON ORE IMPASSE - A FAILED CLAIM FOR CONVERSION - CLYDE & CO
KNOWLEDGE TO ELEVATE
In the recent case of the “Bao Yue”, the English High Court found that the bill of lading holder was liable t ...
Tuesday, 12 January 16
5700 GAR COAL FOR DELIVERY WITHIN Q1 FELL 0.91% WEEK OVER WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin moved South direction week over week to averaging $39.96 per ton on last Friday, acc ...
Monday, 11 January 16
PORT OF NEWCASTLE SHIPPED 20% MORE COAL IN DECEMBER 2015; AVERAGE SELLING PRICE DECLINE 3.43%
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port has shipped $1.129 billio ...
Sunday, 10 January 16
LNG BUNKERING IN ASIA: FUELING A PROMISING FUTURE? - REED SMITH
The requirement of a mandatory reduction of sulphur content in bunker fuel proposed by the International Maritime Organisation (IMO) poses a challe ...
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- Riau Bara Harum - Indonesia
- Minerals Council of Australia
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- Commonwealth Bank - Australia
- Jaiprakash Power Ventures ltd
- Kobexindo Tractors - Indoneisa
- Petrochimia International Co. Ltd.- Taiwan
- SMC Global Power, Philippines
- Alfred C Toepfer International GmbH - Germany
- ICICI Bank Limited - India
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- Star Paper Mills Limited - India
- ASAPP Information Group - India
- Bahari Cakrawala Sebuku - Indonesia
- The University of Queensland
- GVK Power & Infra Limited - India
- Price Waterhouse Coopers - Russia
- New Zealand Coal & Carbon
- Vijayanagar Sugar Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Central Java Power - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Mercator Lines Limited - India
- Edison Trading Spa - Italy
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Miang Besar Coal Terminal - Indonesia
- Petron Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Mjunction Services Limited - India
- Goldman Sachs - Singapore
- Kalimantan Lumbung Energi - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Port Waratah Coal Services - Australia
- Australian Commodity Traders Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Chettinad Cement Corporation Ltd - India
- Kepco SPC Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Makarim & Taira - Indonesia
- Aditya Birla Group - India
- Barasentosa Lestari - Indonesia
- Thai Mozambique Logistica
- Directorate Of Revenue Intelligence - India
- Malabar Cements Ltd - India
- The State Trading Corporation of India Ltd
- Larsen & Toubro Limited - India
- CIMB Investment Bank - Malaysia
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- White Energy Company Limited
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Bhushan Steel Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CNBM International Corporation - China
- VISA Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Xindia Steels Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Sojitz Corporation - Japan
- Mintek Dendrill Indonesia
- Ceylon Electricity Board - Sri Lanka
- Ministry of Finance - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- Ambuja Cements Ltd - India
- Africa Commodities Group - South Africa
- Australian Coal Association
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- Romanian Commodities Exchange
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Coal and Oil Company - UAE
- Eastern Coal Council - USA
- Iligan Light & Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Parliament of New Zealand
- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Indian Energy Exchange, India
- London Commodity Brokers - England
- Meenaskhi Energy Private Limited - India
- Straits Asia Resources Limited - Singapore
- GMR Energy Limited - India
- Formosa Plastics Group - Taiwan
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- Aboitiz Power Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Kartika Selabumi Mining - Indonesia
- Gujarat Sidhee Cement - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Merrill Lynch Commodities Europe
- Anglo American - United Kingdom
- GAC Shipping (India) Pvt Ltd
- Siam City Cement PLC, Thailand
- Energy Link Ltd, New Zealand
- Ministry of Mines - Canada
- Asmin Koalindo Tuhup - Indonesia
- Sree Jayajothi Cements Limited - India
- Uttam Galva Steels Limited - India
- Meralco Power Generation, Philippines
- MS Steel International - UAE
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- Bhatia International Limited - India
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Business Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Manunggal Multi Energi - Indonesia
- Georgia Ports Authority, United States
- Antam Resourcindo - Indonesia
- Maheswari Brothers Coal Limited - India
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Binh Thuan Hamico - Vietnam
- Simpson Spence & Young - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indonesian Coal Mining Association
- Salva Resources Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Marubeni Corporation - India
- Indogreen Group - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- Neyveli Lignite Corporation Ltd, - India
- Indo Tambangraya Megah - Indonesia
- Coalindo Energy - Indonesia
- Baramulti Group, Indonesia
- Electricity Generating Authority of Thailand
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Chamber of Mines of South Africa
- Vizag Seaport Private Limited - India
- Interocean Group of Companies - India
- Latin American Coal - Colombia
- Borneo Indobara - Indonesia
- Trasteel International SA, Italy
- McConnell Dowell - Australia
- OPG Power Generation Pvt Ltd - India
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Ministry of Transport, Egypt
- Wood Mackenzie - Singapore
- LBH Netherlands Bv - Netherlands
- Lanco Infratech Ltd - India
- Independent Power Producers Association of India
- India Bulls Power Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Parry Sugars Refinery, India
- Cement Manufacturers Association - India
- Rashtriya Ispat Nigam Limited - India
- Vedanta Resources Plc - India
- Sakthi Sugars Limited - India
- Dalmia Cement Bharat India
- SMG Consultants - Indonesia
- Global Coal Blending Company Limited - Australia
- Directorate General of MIneral and Coal - Indonesia
- San Jose City I Power Corp, Philippines
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- The Treasury - Australian Government
- Bulk Trading Sa - Switzerland
- Billiton Holdings Pty Ltd - Australia
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- PowerSource Philippines DevCo
- Orica Mining Services - Indonesia
- Madhucon Powers Ltd - India
- IHS Mccloskey Coal Group - USA
- Ind-Barath Power Infra Limited - India
- Metalloyd Limited - United Kingdom
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Attock Cement Pakistan Limited
- Therma Luzon, Inc, Philippines
- Tamil Nadu electricity Board
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Krishnapatnam Port Company Ltd. - India
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Bharathi Cement Corporation - India
- Economic Council, Georgia
- Heidelberg Cement - Germany
- Planning Commission, India
- Posco Energy - South Korea
- Bukit Baiduri Energy - Indonesia
- Power Finance Corporation Ltd., India
- Kideco Jaya Agung - Indonesia
- Standard Chartered Bank - UAE
- PTC India Limited - India
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