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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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Monday, 28 March 16
THE SUPRAMAX INDEX WAS UP TWENTY-FOUR POINTS TO 473 POINTS
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued to rose this week.
The freight market was ...
Friday, 25 March 16
DRY BULK SHIPPING FLEET WILL GROW BY 1.3% DURING 2016 - BIMCO | HELLENIC SHIPPING NEWS
The dry bulk market will keep on suffering, at least until the start of 2017 and possibly well after that, should the current balance of supply and ...
Friday, 25 March 16
U.S COAL PRODUCTION DECLINED 9.1% W/W - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 11.3 million shor ...
Thursday, 24 March 16
PERSISTENT OVERCAPACITY TO PROLONG CHINA'S COAL SECTOR DOWNTURN - FITCH
China's coal sector is likely to remain under pressure in the short to medium term as structural weaknesses in demand and overcapacity persist, ...
Thursday, 24 March 16
SEABORNE TRADE: CHECKING UP ON THE TRENDS - CLARKSON RESEARCH
Following a decline in 2009, seaborne trade grew on average by 4.9% p.a. in 2010-13, reflecting booming import demand in a number of key importing ...
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- Salva Resources Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Renaissance Capital - South Africa
- Interocean Group of Companies - India
- The Treasury - Australian Government
- Global Green Power PLC Corporation, Philippines
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- CNBM International Corporation - China
- Maharashtra Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- Savvy Resources Ltd - HongKong
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- IHS Mccloskey Coal Group - USA
- Coastal Gujarat Power Limited - India
- Georgia Ports Authority, United States
- Pendopo Energi Batubara - Indonesia
- Samtan Co., Ltd - South Korea
- ICICI Bank Limited - India
- Independent Power Producers Association of India
- White Energy Company Limited
- Asmin Koalindo Tuhup - Indonesia
- Bhoruka Overseas - Indonesia
- Kaltim Prima Coal - Indonesia
- Electricity Generating Authority of Thailand
- Vedanta Resources Plc - India
- Malabar Cements Ltd - India
- Heidelberg Cement - Germany
- Bhatia International Limited - India
- Ind-Barath Power Infra Limited - India
- Latin American Coal - Colombia
- Gujarat Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- SMC Global Power, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Petron Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Bukit Baiduri Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Medco Energi Mining Internasional
- Marubeni Corporation - India
- Indonesian Coal Mining Association
- Pipit Mutiara Jaya. PT, Indonesia
- GAC Shipping (India) Pvt Ltd
- Bhushan Steel Limited - India
- SMG Consultants - Indonesia
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- AsiaOL BioFuels Corp., Philippines
- OPG Power Generation Pvt Ltd - India
- Goldman Sachs - Singapore
- Power Finance Corporation Ltd., India
- Sojitz Corporation - Japan
- Mercator Lines Limited - India
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- Aboitiz Power Corporation - Philippines
- Simpson Spence & Young - Indonesia
- Sindya Power Generating Company Private Ltd
- Karbindo Abesyapradhi - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Siam City Cement PLC, Thailand
- International Coal Ventures Pvt Ltd - India
- PTC India Limited - India
- Bulk Trading Sa - Switzerland
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Africa Commodities Group - South Africa
- Chettinad Cement Corporation Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Parry Sugars Refinery, India
- GMR Energy Limited - India
- London Commodity Brokers - England
- Ministry of Transport, Egypt
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Central Java Power - Indonesia
- Star Paper Mills Limited - India
- Xindia Steels Limited - India
- Romanian Commodities Exchange
- Coal and Oil Company - UAE
- Grasim Industreis Ltd - India
- Directorate Of Revenue Intelligence - India
- South Luzon Thermal Energy Corporation
- Alfred C Toepfer International GmbH - Germany
- Indogreen Group - Indonesia
- Global Business Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Planning Commission, India
- MS Steel International - UAE
- Lanco Infratech Ltd - India
- Siam City Cement - Thailand
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- Deloitte Consulting - India
- Energy Link Ltd, New Zealand
- Australian Coal Association
- Semirara Mining Corp, Philippines
- Trasteel International SA, Italy
- Manunggal Multi Energi - Indonesia
- Indian Energy Exchange, India
- Australian Commodity Traders Exchange
- Thai Mozambique Logistica
- Formosa Plastics Group - Taiwan
- GVK Power & Infra Limited - India
- Agrawal Coal Company - India
- Antam Resourcindo - Indonesia
- Bayan Resources Tbk. - Indonesia
- Barasentosa Lestari - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Eastern Energy - Thailand
- Indo Tambangraya Megah - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Singapore Mercantile Exchange
- Kumho Petrochemical, South Korea
- Wilmar Investment Holdings
- McConnell Dowell - Australia
- Price Waterhouse Coopers - Russia
- Coalindo Energy - Indonesia
- Ministry of Mines - Canada
- ASAPP Information Group - India
- TeaM Sual Corporation - Philippines
- Iligan Light & Power Inc, Philippines
- Attock Cement Pakistan Limited
- India Bulls Power Limited - India
- Semirara Mining and Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Maheswari Brothers Coal Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Meenaskhi Energy Private Limited - India
- Cement Manufacturers Association - India
- Standard Chartered Bank - UAE
- VISA Power Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Development Corp, Philippines
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- Minerals Council of Australia
- Sinarmas Energy and Mining - Indonesia
- CIMB Investment Bank - Malaysia
- Indika Energy - Indonesia
- Dalmia Cement Bharat India
- Thiess Contractors Indonesia
- Aditya Birla Group - India
- Borneo Indobara - Indonesia
- Mercuria Energy - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Sical Logistics Limited - India
- Essar Steel Hazira Ltd - India
- Orica Mining Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Miang Besar Coal Terminal - Indonesia
- Wood Mackenzie - Singapore
- Kartika Selabumi Mining - Indonesia
- Gujarat Sidhee Cement - India
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Vizag Seaport Private Limited - India
- Merrill Lynch Commodities Europe
- Jorong Barutama Greston.PT - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Tamil Nadu electricity Board
- SN Aboitiz Power Inc, Philippines
- Makarim & Taira - Indonesia
- Videocon Industries ltd - India
- The University of Queensland
- Posco Energy - South Korea
- PowerSource Philippines DevCo
- Riau Bara Harum - Indonesia
- Meralco Power Generation, Philippines
- Bangladesh Power Developement Board
- Sarangani Energy Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Timah Investasi Mineral - Indoneisa
- Port Waratah Coal Services - Australia
- Economic Council, Georgia
- Commonwealth Bank - Australia
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- Bukit Makmur.PT - Indonesia
- Toyota Tsusho Corporation, Japan
- The State Trading Corporation of India Ltd
- Sakthi Sugars Limited - India
- Larsen & Toubro Limited - India
- Karaikal Port Pvt Ltd - India
- Bharathi Cement Corporation - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PNOC Exploration Corporation - Philippines
- Edison Trading Spa - Italy
- Kobexindo Tractors - Indoneisa
- San Jose City I Power Corp, Philippines
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Altura Mining Limited, Indonesia
- Kepco SPC Power Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Tata Chemicals Ltd - India
- Carbofer General Trading SA - India
- Petrochimia International Co. Ltd.- Taiwan
- Jaiprakash Power Ventures ltd
- Eastern Coal Council - USA
- Baramulti Group, Indonesia
- Mjunction Services Limited - India
- Ceylon Electricity Board - Sri Lanka
- Anglo American - United Kingdom
- Sree Jayajothi Cements Limited - India
- Uttam Galva Steels Limited - India
- IEA Clean Coal Centre - UK
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