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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, 23 December 15
FOB NEWCASTLE COAL SWAP CLOSES FIRM
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery up $0.45 per ton (1.22%) month over month to US$ 37.20 per ton. The swap wa ...
Tuesday, 22 December 15
3800 GAR INDEX CLOSED AT US$ 22.03 PER TON; DOWN 0.15% W-O-W
COALspot.com: The 5000 GAR CS (i) coal index decline US$ 0.03 per ton (-0.07 %) week over week.
According to the CS (i) coal (system generated ...
Monday, 21 December 15
Q3' 2016 CFR SOUTH CHINA COAL SWAP CLOSED SLIGHTLY LOWER COMPARE TO Q1'16 CLOSING PRICE
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery up US$ 0.20 (0.48%) per ton month over month.
A commodity swap is a ...
Sunday, 20 December 15
THE FREIGHT RATES FROM INDONESIA TO INDIA IS EXPECTED TO BE SOFT NEXT WEEK
COALspot.com: The BDI facing all time low's this week. The bulk dry index closed at 477 points on 18 December 2015.
The cape index was als ...
Friday, 18 December 15
WHEN IS A MASTER ENTITLED TO REFUSE DAMAGED CARGO? A REMINDER - THE STANDARD CLUB
KNOWLEDGE TO ELEVATE
A master’s authority to clause bills of lading issued by or on his behalf can sometimes become the cause of disagreeme ...
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- White Energy Company Limited
- Petron Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- PNOC Exploration Corporation - Philippines
- San Jose City I Power Corp, Philippines
- Sree Jayajothi Cements Limited - India
- Central Java Power - Indonesia
- The Treasury - Australian Government
- Star Paper Mills Limited - India
- TeaM Sual Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Vijayanagar Sugar Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Posco Energy - South Korea
- ICICI Bank Limited - India
- Power Finance Corporation Ltd., India
- Global Business Power Corporation, Philippines
- Formosa Plastics Group - Taiwan
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Price Waterhouse Coopers - Russia
- Renaissance Capital - South Africa
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Jindal Steel & Power Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Savvy Resources Ltd - HongKong
- Jorong Barutama Greston.PT - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Malabar Cements Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Xindia Steels Limited - India
- Sarangani Energy Corporation, Philippines
- Indogreen Group - Indonesia
- Tamil Nadu electricity Board
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- Parliament of New Zealand
- Riau Bara Harum - Indonesia
- Meralco Power Generation, Philippines
- Ind-Barath Power Infra Limited - India
- Metalloyd Limited - United Kingdom
- Minerals Council of Australia
- Tata Chemicals Ltd - India
- Energy Development Corp, Philippines
- Salva Resources Pvt Ltd - India
- Deloitte Consulting - India
- Mintek Dendrill Indonesia
- Aboitiz Power Corporation - Philippines
- Mercator Lines Limited - India
- Kepco SPC Power Corporation, Philippines
- Edison Trading Spa - Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- Semirara Mining Corp, Philippines
- Aditya Birla Group - India
- ASAPP Information Group - India
- Straits Asia Resources Limited - Singapore
- Ambuja Cements Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Chettinad Cement Corporation Ltd - India
- Marubeni Corporation - India
- Miang Besar Coal Terminal - Indonesia
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Attock Cement Pakistan Limited
- Barasentosa Lestari - Indonesia
- Australian Commodity Traders Exchange
- Kartika Selabumi Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- IEA Clean Coal Centre - UK
- Anglo American - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Indika Energy - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- Directorate General of MIneral and Coal - Indonesia
- Wilmar Investment Holdings
- Commonwealth Bank - Australia
- International Coal Ventures Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Georgia Ports Authority, United States
- Therma Luzon, Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Makarim & Taira - Indonesia
- Coalindo Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Baramulti Group, Indonesia
- South Luzon Thermal Energy Corporation
- Ceylon Electricity Board - Sri Lanka
- The University of Queensland
- Interocean Group of Companies - India
- Kobexindo Tractors - Indoneisa
- Orica Australia Pty. Ltd.
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- India Bulls Power Limited - India
- Siam City Cement - Thailand
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- MS Steel International - UAE
- Siam City Cement PLC, Thailand
- SMG Consultants - Indonesia
- New Zealand Coal & Carbon
- Africa Commodities Group - South Africa
- Latin American Coal - Colombia
- TNB Fuel Sdn Bhd - Malaysia
- Essar Steel Hazira Ltd - India
- Bukit Makmur.PT - Indonesia
- Vedanta Resources Plc - India
- Borneo Indobara - Indonesia
- Independent Power Producers Association of India
- Meenaskhi Energy Private Limited - India
- Directorate Of Revenue Intelligence - India
- Kaltim Prima Coal - Indonesia
- GVK Power & Infra Limited - India
- Coastal Gujarat Power Limited - India
- Ministry of Transport, Egypt
- Economic Council, Georgia
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Kalimantan Lumbung Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Central Electricity Authority - India
- Indonesian Coal Mining Association
- Port Waratah Coal Services - Australia
- SMC Global Power, Philippines
- McConnell Dowell - Australia
- Oldendorff Carriers - Singapore
- Bulk Trading Sa - Switzerland
- Carbofer General Trading SA - India
- Romanian Commodities Exchange
- Lanco Infratech Ltd - India
- Thiess Contractors Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- LBH Netherlands Bv - Netherlands
- OPG Power Generation Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Trasteel International SA, Italy
- Sical Logistics Limited - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- Mercuria Energy - Indonesia
- Grasim Industreis Ltd - India
- Banpu Public Company Limited - Thailand
- Larsen & Toubro Limited - India
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- Wood Mackenzie - Singapore
- Planning Commission, India
- Kumho Petrochemical, South Korea
- Bhoruka Overseas - Indonesia
- Thai Mozambique Logistica
- Australian Coal Association
- Parry Sugars Refinery, India
- PowerSource Philippines DevCo
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- Sakthi Sugars Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Rio Tinto Coal - Australia
- Agrawal Coal Company - India
- Holcim Trading Pte Ltd - Singapore
- Orica Mining Services - Indonesia
- Uttam Galva Steels Limited - India
- Intertek Mineral Services - Indonesia
- Madhucon Powers Ltd - India
- Antam Resourcindo - Indonesia
- Iligan Light & Power Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Vizag Seaport Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- Bangladesh Power Developement Board
- Chamber of Mines of South Africa
- Cement Manufacturers Association - India
- CNBM International Corporation - China
- GMR Energy Limited - India
- Electricity Generating Authority of Thailand
- Toyota Tsusho Corporation, Japan
- Globalindo Alam Lestari - Indonesia
- Eastern Energy - Thailand
- Electricity Authority, New Zealand
- VISA Power Limited - India
- Ministry of Mines - Canada
- Global Coal Blending Company Limited - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Billiton Holdings Pty Ltd - Australia
- Dalmia Cement Bharat India
- Bhushan Steel Limited - India
- IHS Mccloskey Coal Group - USA
- Pendopo Energi Batubara - Indonesia
- Sojitz Corporation - Japan
- Timah Investasi Mineral - Indoneisa
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- Simpson Spence & Young - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Heidelberg Cement - Germany
- Standard Chartered Bank - UAE
- Bhatia International Limited - India
- Goldman Sachs - Singapore
- Indian Oil Corporation Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Karaikal Port Pvt Ltd - India
- London Commodity Brokers - England
- Bukit Asam (Persero) Tbk - Indonesia
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