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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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Saturday, 09 January 16
BALTIC DRY INDEX SINKS 10% WEEK OVER WEEK TO AN ALL-TIME LOW OF 429 POINTS
COALspot.com: The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry bulk commodities, decline around 10% we ...
Friday, 08 January 16
FOB INDONESIA COAL SWAP FOR DELIVERY H1'16 REMAIN FLAT AS DEMAND DROPS OFF
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Friday, 08 January 16
FOB RICHARDS BAY COAL SWAP FOR Q2'16 DELIVERY CLOSED UP $0.13 AT $45.50 PER TON
COALspot.com: Q1’ 2016 API4 FOB Richards Bay Coal swap decline month over month and slightly up week over week.
The Q1’ 2016 FOB R ...
Friday, 08 January 16
WEEKLY US COAL PRODUCTION DECLINES 1.6% TO 11.7 MMST, SAYS EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 11.7million short ...
Friday, 08 January 16
DRY BULK MARKET'S CRISIS DEEPENS AS RATES ARE DROPPING TO NEW RECORD LOWS BY THE DAY - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
Just when you would think that the dry bulk market is reaching its bottom, even as it has long surpassed all-time lows, each day that passes by at ...
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- Maharashtra Electricity Regulatory Commission - India
- Madhucon Powers Ltd - India
- Georgia Ports Authority, United States
- Directorate Of Revenue Intelligence - India
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- PTC India Limited - India
- GAC Shipping (India) Pvt Ltd
- Rashtriya Ispat Nigam Limited - India
- Mercuria Energy - Indonesia
- Siam City Cement PLC, Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Therma Luzon, Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Minerals Council of Australia
- Barasentosa Lestari - Indonesia
- Grasim Industreis Ltd - India
- India Bulls Power Limited - India
- Carbofer General Trading SA - India
- Energy Link Ltd, New Zealand
- Australian Coal Association
- Planning Commission, India
- Bangladesh Power Developement Board
- Kaltim Prima Coal - Indonesia
- Petron Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Indogreen Group - Indonesia
- Tata Chemicals Ltd - India
- ASAPP Information Group - India
- Altura Mining Limited, Indonesia
- PNOC Exploration Corporation - Philippines
- The University of Queensland
- Pendopo Energi Batubara - Indonesia
- Star Paper Mills Limited - India
- Mintek Dendrill Indonesia
- CNBM International Corporation - China
- Meenaskhi Energy Private Limited - India
- Ministry of Mines - Canada
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Sindya Power Generating Company Private Ltd
- Indian Energy Exchange, India
- Jorong Barutama Greston.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- Global Coal Blending Company Limited - Australia
- Makarim & Taira - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Chettinad Cement Corporation Ltd - India
- Sarangani Energy Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Lanco Infratech Ltd - India
- Parry Sugars Refinery, India
- Singapore Mercantile Exchange
- Offshore Bulk Terminal Pte Ltd, Singapore
- Krishnapatnam Port Company Ltd. - India
- MS Steel International - UAE
- The Treasury - Australian Government
- Orica Australia Pty. Ltd.
- Energy Development Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Iligan Light & Power Inc, Philippines
- Orica Mining Services - Indonesia
- IEA Clean Coal Centre - UK
- Alfred C Toepfer International GmbH - Germany
- Medco Energi Mining Internasional
- Asmin Koalindo Tuhup - Indonesia
- Bhoruka Overseas - Indonesia
- Electricity Authority, New Zealand
- Chamber of Mines of South Africa
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Commonwealth Bank - Australia
- Goldman Sachs - Singapore
- VISA Power Limited - India
- Toyota Tsusho Corporation, Japan
- Central Electricity Authority - India
- Semirara Mining and Power Corporation, Philippines
- South Luzon Thermal Energy Corporation
- Gujarat Sidhee Cement - India
- Meralco Power Generation, Philippines
- Semirara Mining Corp, Philippines
- White Energy Company Limited
- Simpson Spence & Young - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Heidelberg Cement - Germany
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Samtan Co., Ltd - South Korea
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Manunggal Multi Energi - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Malabar Cements Ltd - India
- Karaikal Port Pvt Ltd - India
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- SMC Global Power, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- San Jose City I Power Corp, Philippines
- GMR Energy Limited - India
- Bukit Makmur.PT - Indonesia
- Ind-Barath Power Infra Limited - India
- Renaissance Capital - South Africa
- Banpu Public Company Limited - Thailand
- Global Green Power PLC Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Australian Commodity Traders Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
- Maheswari Brothers Coal Limited - India
- Central Java Power - Indonesia
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- Rio Tinto Coal - Australia
- Bharathi Cement Corporation - India
- Anglo American - United Kingdom
- Deloitte Consulting - India
- SMG Consultants - Indonesia
- Salva Resources Pvt Ltd - India
- Edison Trading Spa - Italy
- Jaiprakash Power Ventures ltd
- Intertek Mineral Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Bhatia International Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Kideco Jaya Agung - Indonesia
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- Dalmia Cement Bharat India
- OPG Power Generation Pvt Ltd - India
- Independent Power Producers Association of India
- Standard Chartered Bank - UAE
- CIMB Investment Bank - Malaysia
- GVK Power & Infra Limited - India
- Bayan Resources Tbk. - Indonesia
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Larsen & Toubro Limited - India
- Africa Commodities Group - South Africa
- Savvy Resources Ltd - HongKong
- Merrill Lynch Commodities Europe
- Sojitz Corporation - Japan
- Coastal Gujarat Power Limited - India
- TeaM Sual Corporation - Philippines
- Sakthi Sugars Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Antam Resourcindo - Indonesia
- Kepco SPC Power Corporation, Philippines
- New Zealand Coal & Carbon
- Economic Council, Georgia
- Indo Tambangraya Megah - Indonesia
- Vizag Seaport Private Limited - India
- Ministry of Transport, Egypt
- Thiess Contractors Indonesia
- Parliament of New Zealand
- Sinarmas Energy and Mining - Indonesia
- Agrawal Coal Company - India
- Jindal Steel & Power Ltd - India
- Indian Oil Corporation Limited
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- The State Trading Corporation of India Ltd
- Coalindo Energy - Indonesia
- Xindia Steels Limited - India
- Kartika Selabumi Mining - Indonesia
- Posco Energy - South Korea
- Ministry of Finance - Indonesia
- Latin American Coal - Colombia
- Thai Mozambique Logistica
- Tamil Nadu electricity Board
- Cement Manufacturers Association - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sree Jayajothi Cements Limited - India
- Uttam Galva Steels Limited - India
- Leighton Contractors Pty Ltd - Australia
- Mercator Lines Limited - India
- International Coal Ventures Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Indika Energy - Indonesia
- Aboitiz Power Corporation - Philippines
- Metalloyd Limited - United Kingdom
- Siam City Cement - Thailand
- Interocean Group of Companies - India
- Aditya Birla Group - India
- Baramulti Group, Indonesia
- Electricity Generating Authority of Thailand
- PetroVietnam Power Coal Import and Supply Company
- ICICI Bank Limited - India
- IHS Mccloskey Coal Group - USA
- Marubeni Corporation - India
- Pipit Mutiara Jaya. PT, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Borneo Indobara - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Global Business Power Corporation, Philippines
- Trasteel International SA, Italy
- Bhushan Steel Limited - India
- Bulk Trading Sa - Switzerland
- Vedanta Resources Plc - India
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
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