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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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Thursday, 03 December 15
PANAMAX BUSINESS REMAINED UNDER PRESSURE LAST WEEK
COALspot.com: Following the new record lows the Dry Bulk market witnessed the week prior, the BDI took a much needed breath during the past days.
...
Wednesday, 02 December 15
Q3' 16 FOB RICHARDS BAY COAL SWAP SLIGHTLY UP FOR THE THIRD STRAIGHT WEEK
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q1’ 2016 up month over month and fell week over week.
The Q1’ 2016 &nbs ...
Wednesday, 02 December 15
MARKET INSIGHT - VASSILIS LOGOTHETIS
Boom and bust cycles in commodity prices are not something rare, yet they have important implications both for the world economy in general and for ...
Tuesday, 01 December 15
FOB NEWCASTLE COAL SWAP UP THIS PAST WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q1’ 2016 delivery slid $3.75 per ton (9.26%) month over month to US$ 36.75 per ton. The swap ...
Tuesday, 01 December 15
TANKERS VERSUS BULKERS - JUST PLAYING CATCH UP? - CLARKSONS
It’s now more than a year since the tanker market took off. In mid-2014 tanker earnings picked up and since then have been in the $30-$40,000 ...
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- Sojitz Corporation - Japan
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Rashtriya Ispat Nigam Limited - India
- Eastern Coal Council - USA
- Parliament of New Zealand
- ASAPP Information Group - India
- Coalindo Energy - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Lanco Infratech Ltd - India
- Orica Mining Services - Indonesia
- Romanian Commodities Exchange
- Gujarat Mineral Development Corp Ltd - India
- Kepco SPC Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- Anglo American - United Kingdom
- Deloitte Consulting - India
- Kartika Selabumi Mining - Indonesia
- Siam City Cement PLC, Thailand
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- CNBM International Corporation - China
- Samtan Co., Ltd - South Korea
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- Cement Manufacturers Association - India
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Pendopo Energi Batubara - Indonesia
- Global Business Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Ministry of Transport, Egypt
- Savvy Resources Ltd - HongKong
- Dalmia Cement Bharat India
- Neyveli Lignite Corporation Ltd, - India
- Vizag Seaport Private Limited - India
- Alfred C Toepfer International GmbH - Germany
- Planning Commission, India
- Mercator Lines Limited - India
- Africa Commodities Group - South Africa
- Carbofer General Trading SA - India
- Attock Cement Pakistan Limited
- McConnell Dowell - Australia
- AsiaOL BioFuels Corp., Philippines
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Georgia Ports Authority, United States
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parry Sugars Refinery, India
- GMR Energy Limited - India
- Thiess Contractors Indonesia
- India Bulls Power Limited - India
- Marubeni Corporation - India
- Kapuas Tunggal Persada - Indonesia
- Commonwealth Bank - Australia
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- Jorong Barutama Greston.PT - Indonesia
- Indonesian Coal Mining Association
- IHS Mccloskey Coal Group - USA
- Karbindo Abesyapradhi - Indoneisa
- PowerSource Philippines DevCo
- Rio Tinto Coal - Australia
- Directorate General of MIneral and Coal - Indonesia
- Bharathi Cement Corporation - India
- Port Waratah Coal Services - Australia
- Price Waterhouse Coopers - Russia
- Kohat Cement Company Ltd. - Pakistan
- Interocean Group of Companies - India
- Riau Bara Harum - Indonesia
- Coastal Gujarat Power Limited - India
- Metalloyd Limited - United Kingdom
- Central Electricity Authority - India
- TeaM Sual Corporation - Philippines
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Banpu Public Company Limited - Thailand
- Manunggal Multi Energi - Indonesia
- Wood Mackenzie - Singapore
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Formosa Plastics Group - Taiwan
- Tata Chemicals Ltd - India
- Bukit Baiduri Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Petron Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- TNB Fuel Sdn Bhd - Malaysia
- Orica Australia Pty. Ltd.
- Antam Resourcindo - Indonesia
- Central Java Power - Indonesia
- Sakthi Sugars Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Minerals Council of Australia
- Therma Luzon, Inc, Philippines
- Makarim & Taira - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- VISA Power Limited - India
- Kobexindo Tractors - Indoneisa
- Star Paper Mills Limited - India
- Bhoruka Overseas - Indonesia
- Borneo Indobara - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Kideco Jaya Agung - Indonesia
- Grasim Industreis Ltd - India
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- IEA Clean Coal Centre - UK
- Xindia Steels Limited - India
- Bukit Makmur.PT - Indonesia
- Altura Mining Limited, Indonesia
- New Zealand Coal & Carbon
- Uttam Galva Steels Limited - India
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- Oldendorff Carriers - Singapore
- Independent Power Producers Association of India
- Electricity Generating Authority of Thailand
- Globalindo Alam Lestari - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Chettinad Cement Corporation Ltd - India
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Gujarat Sidhee Cement - India
- Billiton Holdings Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Kalimantan Lumbung Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Meralco Power Generation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Bulk Trading Sa - Switzerland
- Merrill Lynch Commodities Europe
- Ministry of Mines - Canada
- PTC India Limited - India
- Semirara Mining and Power Corporation, Philippines
- Power Finance Corporation Ltd., India
- Standard Chartered Bank - UAE
- Sree Jayajothi Cements Limited - India
- Medco Energi Mining Internasional
- Electricity Authority, New Zealand
- Cigading International Bulk Terminal - Indonesia
- Global Green Power PLC Corporation, Philippines
- Mjunction Services Limited - India
- Indian Oil Corporation Limited
- Bukit Asam (Persero) Tbk - Indonesia
- Malabar Cements Ltd - India
- Binh Thuan Hamico - Vietnam
- SMG Consultants - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- GN Power Mariveles Coal Plant, Philippines
- Directorate Of Revenue Intelligence - India
- Ambuja Cements Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Salva Resources Pvt Ltd - India
- Coal and Oil Company - UAE
- The Treasury - Australian Government
- Miang Besar Coal Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- CIMB Investment Bank - Malaysia
- London Commodity Brokers - England
- Barasentosa Lestari - Indonesia
- Kaltim Prima Coal - Indonesia
- Mintek Dendrill Indonesia
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- Aditya Birla Group - India
- Gujarat Electricity Regulatory Commission - India
- OPG Power Generation Pvt Ltd - India
- Mercuria Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Aboitiz Power Corporation - Philippines
- Chamber of Mines of South Africa
- The State Trading Corporation of India Ltd
- Australian Coal Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Larsen & Toubro Limited - India
- Indian Energy Exchange, India
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Intertek Mineral Services - Indonesia
- Ministry of Finance - Indonesia
- Bhatia International Limited - India
- Goldman Sachs - Singapore
- Maheswari Brothers Coal Limited - India
- Trasteel International SA, Italy
- Bangladesh Power Developement Board
- The University of Queensland
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhushan Steel Limited - India
- Energy Development Corp, Philippines
- Meenaskhi Energy Private Limited - India
- Indika Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Sindya Power Generating Company Private Ltd
- SN Aboitiz Power Inc, Philippines
- Indogreen Group - Indonesia
- Latin American Coal - Colombia
- Energy Link Ltd, New Zealand
- Indo Tambangraya Megah - Indonesia
- White Energy Company Limited
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