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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, 08 December 15
HOW TO MITIGATE LEGAL RISKS WHEN PURCHASING BUNKERS - LESSONS LEARNED FROM THE OW BUNKER COLLAPSE - THE SWEDISH CLUB
KNOWLEDGE TO ELEVATE
About a year has passed since OW Bunker & Trading A/S filed for bankruptcy. The collapse shows that there are signifi ...
Monday, 07 December 15
5000 GAR CS (I) COAL INDEX REMAIN THE SAME OVER LAST WEEK
COALspot.com: The 5000 GAR CS (i) coal index remain the same over last week.
According to the CS (i) coal (system generated) index, the CS 50 ...
Monday, 07 December 15
COAL DEMAND IN 2016 FAILS TO SUPPORT PRICES; CFR SOUTH CHINA COAL SWAPS SEEN AT $US 42 A TON
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 1.70 (3.88%) per ton month over month.
A commodity swap ...
Sunday, 06 December 15
THE BDI DECLINED BY 3.09 PERCENT TO 563 POINTS ON 4 DECEMBER
COALspot.com: The BDI declined by 3.09 percent to 563 points on 4 December 2015.
The Cape index was also declined by 10.01 percent to 890 poin ...
Sunday, 06 December 15
DRY BULK MARKET ON REVERSE MODE, SET TO BREAK NEW ALL-TIME LOWS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has been the negative “star” of the shipping industry for quite some time. In fact if it wasn’t for the boomi ...
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- Kideco Jaya Agung - Indonesia
- Indika Energy - Indonesia
- Kumho Petrochemical, South Korea
- Bangladesh Power Developement Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Electricity Authority, New Zealand
- Siam City Cement PLC, Thailand
- Savvy Resources Ltd - HongKong
- Baramulti Group, Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Timah Investasi Mineral - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- ICICI Bank Limited - India
- Intertek Mineral Services - Indonesia
- Goldman Sachs - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ceylon Electricity Board - Sri Lanka
- Minerals Council of Australia
- Agrawal Coal Company - India
- Karaikal Port Pvt Ltd - India
- PTC India Limited - India
- Xindia Steels Limited - India
- Price Waterhouse Coopers - Russia
- Coastal Gujarat Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Lanco Infratech Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Madhucon Powers Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- GVK Power & Infra Limited - India
- Bhatia International Limited - India
- Attock Cement Pakistan Limited
- Grasim Industreis Ltd - India
- Australian Commodity Traders Exchange
- Bulk Trading Sa - Switzerland
- MS Steel International - UAE
- Central Java Power - Indonesia
- Malabar Cements Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- VISA Power Limited - India
- Marubeni Corporation - India
- SN Aboitiz Power Inc, Philippines
- Jaiprakash Power Ventures ltd
- CNBM International Corporation - China
- Salva Resources Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Holcim Trading Pte Ltd - Singapore
- Maheswari Brothers Coal Limited - India
- New Zealand Coal & Carbon
- Orica Australia Pty. Ltd.
- ASAPP Information Group - India
- Chettinad Cement Corporation Ltd - India
- Meenaskhi Energy Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Sakthi Sugars Limited - India
- Bhoruka Overseas - Indonesia
- Deloitte Consulting - India
- Petrochimia International Co. Ltd.- Taiwan
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Tamil Nadu electricity Board
- Rio Tinto Coal - Australia
- Central Electricity Authority - India
- Independent Power Producers Association of India
- Altura Mining Limited, Indonesia
- Global Coal Blending Company Limited - Australia
- Banpu Public Company Limited - Thailand
- AsiaOL BioFuels Corp., Philippines
- Posco Energy - South Korea
- Parry Sugars Refinery, India
- Larsen & Toubro Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Formosa Plastics Group - Taiwan
- Sinarmas Energy and Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- South Luzon Thermal Energy Corporation
- Energy Link Ltd, New Zealand
- Mintek Dendrill Indonesia
- PetroVietnam Power Coal Import and Supply Company
- LBH Netherlands Bv - Netherlands
- Kartika Selabumi Mining - Indonesia
- Coal and Oil Company - UAE
- Standard Chartered Bank - UAE
- Rashtriya Ispat Nigam Limited - India
- Manunggal Multi Energi - Indonesia
- Gujarat Sidhee Cement - India
- Kapuas Tunggal Persada - Indonesia
- Essar Steel Hazira Ltd - India
- Metalloyd Limited - United Kingdom
- Vedanta Resources Plc - India
- Samtan Co., Ltd - South Korea
- Billiton Holdings Pty Ltd - Australia
- Power Finance Corporation Ltd., India
- Economic Council, Georgia
- Thai Mozambique Logistica
- Bukit Makmur.PT - Indonesia
- Electricity Generating Authority of Thailand
- IEA Clean Coal Centre - UK
- Indian Oil Corporation Limited
- Wilmar Investment Holdings
- International Coal Ventures Pvt Ltd - India
- Ministry of Transport, Egypt
- Asmin Koalindo Tuhup - Indonesia
- Ind-Barath Power Infra Limited - India
- CIMB Investment Bank - Malaysia
- Indogreen Group - Indonesia
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate General of MIneral and Coal - Indonesia
- Barasentosa Lestari - Indonesia
- Heidelberg Cement - Germany
- Makarim & Taira - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Pendopo Energi Batubara - Indonesia
- Singapore Mercantile Exchange
- Global Green Power PLC Corporation, Philippines
- Oldendorff Carriers - Singapore
- Ministry of Finance - Indonesia
- OPG Power Generation Pvt Ltd - India
- London Commodity Brokers - England
- Ambuja Cements Ltd - India
- Directorate Of Revenue Intelligence - India
- Africa Commodities Group - South Africa
- Therma Luzon, Inc, Philippines
- Antam Resourcindo - Indonesia
- Straits Asia Resources Limited - Singapore
- Dalmia Cement Bharat India
- Chamber of Mines of South Africa
- Globalindo Alam Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Eastern Coal Council - USA
- Commonwealth Bank - Australia
- Alfred C Toepfer International GmbH - Germany
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Aditya Birla Group - India
- GAC Shipping (India) Pvt Ltd
- Aboitiz Power Corporation - Philippines
- European Bulk Services B.V. - Netherlands
- Borneo Indobara - Indonesia
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Sical Logistics Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- Kaltim Prima Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Parliament of New Zealand
- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Energy Development Corp, Philippines
- The University of Queensland
- Cement Manufacturers Association - India
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Australian Coal Association
- Simpson Spence & Young - Indonesia
- SMC Global Power, Philippines
- Toyota Tsusho Corporation, Japan
- PowerSource Philippines DevCo
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Coalindo Energy - Indonesia
- Medco Energi Mining Internasional
- Romanian Commodities Exchange
- Planning Commission, India
- Merrill Lynch Commodities Europe
- Bharathi Cement Corporation - India
- Interocean Group of Companies - India
- White Energy Company Limited
- Indo Tambangraya Megah - Indonesia
- India Bulls Power Limited - India
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Bayan Resources Tbk. - Indonesia
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- Bhushan Steel Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Semirara Mining Corp, Philippines
- Siam City Cement - Thailand
- Ministry of Mines - Canada
- The State Trading Corporation of India Ltd
- Wood Mackenzie - Singapore
- Videocon Industries ltd - India
- Anglo American - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Petron Corporation, Philippines
- TeaM Sual Corporation - Philippines
- The Treasury - Australian Government
- Kepco SPC Power Corporation, Philippines
- Carbofer General Trading SA - India
- Edison Trading Spa - Italy
- Tata Chemicals Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Georgia Ports Authority, United States
- Indian Energy Exchange, India
- Eastern Energy - Thailand
- Mercuria Energy - Indonesia
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