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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, 24 March 16
NEWBUILDINGS' PRICES HAVE STARTED TO COME DOWN - ALLIED | HELLENIC SHIPPING NEWS
Newbuildings’ prices have started to come down, as demand has remained subdued for quite some time now. In its latest weekly report, shipbrok ...
Wednesday, 23 March 16
THE PANAMA CANAL - WILL THE MELTING OF POLAR ICE CAPS CREATE RIVAL NAVIGATIONAL WATERWAYS THROUGH THE ARCTIC? - INTERMODAL
The Panama Canal, 102 years after its initial opening, is now about to have its expansion completed with a cost of USD5.25 Billion. It is a project ...
Tuesday, 22 March 16
FOUR NEW MARKET MEMBERS HAVE JOINED GLOBALCOAL
globalCOAL® announced yesterday that four new Market Members have joined its international trading community.
Ferrocadia DMCC is an intern ...
Monday, 21 March 16
INDONESIAN 4200 GAR COAL INDEX ROSE $0.12 OR, 0.44% WEEK OVER WEEK; INDEX CLOASED AT $27.19 A TON
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.21 percent week over week to averaging $38.90 per ton on this past Friday, ac ...
Monday, 21 March 16
THE BALTIC DRY INDEX ROSE SLIGHTLY WEEK OVER WEEK; BCI UP 11.93%
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued rose this week helped by higher rates for Cape ...
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- Australian Coal Association
- Bhushan Steel Limited - India
- Borneo Indobara - Indonesia
- Minerals Council of Australia
- Electricity Authority, New Zealand
- Mintek Dendrill Indonesia
- San Jose City I Power Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Ministry of Mines - Canada
- Bangladesh Power Developement Board
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Cigading International Bulk Terminal - Indonesia
- Riau Bara Harum - Indonesia
- Central Java Power - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Rio Tinto Coal - Australia
- Makarim & Taira - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- White Energy Company Limited
- McConnell Dowell - Australia
- Indonesian Coal Mining Association
- Globalindo Alam Lestari - Indonesia
- SN Aboitiz Power Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Deloitte Consulting - India
- Standard Chartered Bank - UAE
- Gujarat Mineral Development Corp Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Karaikal Port Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Bayan Resources Tbk. - Indonesia
- SMC Global Power, Philippines
- Malabar Cements Ltd - India
- Formosa Plastics Group - Taiwan
- Orica Australia Pty. Ltd.
- Aditya Birla Group - India
- Salva Resources Pvt Ltd - India
- Star Paper Mills Limited - India
- Baramulti Group, Indonesia
- Wilmar Investment Holdings
- Global Coal Blending Company Limited - Australia
- TeaM Sual Corporation - Philippines
- Parry Sugars Refinery, India
- Georgia Ports Authority, United States
- Latin American Coal - Colombia
- CNBM International Corporation - China
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Goldman Sachs - Singapore
- Attock Cement Pakistan Limited
- Wood Mackenzie - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Thai Mozambique Logistica
- GMR Energy Limited - India
- Antam Resourcindo - Indonesia
- ICICI Bank Limited - India
- Kobexindo Tractors - Indoneisa
- Madhucon Powers Ltd - India
- Eastern Coal Council - USA
- Power Finance Corporation Ltd., India
- Gujarat Sidhee Cement - India
- CIMB Investment Bank - Malaysia
- Energy Link Ltd, New Zealand
- Bulk Trading Sa - Switzerland
- Tata Chemicals Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- VISA Power Limited - India
- Semirara Mining Corp, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Central Electricity Authority - India
- Parliament of New Zealand
- Therma Luzon, Inc, Philippines
- Banpu Public Company Limited - Thailand
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- Edison Trading Spa - Italy
- Posco Energy - South Korea
- Mjunction Services Limited - India
- Kartika Selabumi Mining - Indonesia
- Mercator Lines Limited - India
- Independent Power Producers Association of India
- Oldendorff Carriers - Singapore
- Electricity Generating Authority of Thailand
- Africa Commodities Group - South Africa
- Metalloyd Limited - United Kingdom
- Marubeni Corporation - India
- International Coal Ventures Pvt Ltd - India
- Bhatia International Limited - India
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- Planning Commission, India
- Videocon Industries ltd - India
- Siam City Cement - Thailand
- Aboitiz Power Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Kohat Cement Company Ltd. - Pakistan
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- Petron Corporation, Philippines
- Eastern Energy - Thailand
- Ceylon Electricity Board - Sri Lanka
- OPG Power Generation Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ambuja Cements Ltd - India
- SMG Consultants - Indonesia
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Vizag Seaport Private Limited - India
- Dalmia Cement Bharat India
- TNB Fuel Sdn Bhd - Malaysia
- Coastal Gujarat Power Limited - India
- Sojitz Corporation - Japan
- Romanian Commodities Exchange
- Heidelberg Cement - Germany
- GAC Shipping (India) Pvt Ltd
- Pendopo Energi Batubara - Indonesia
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Jorong Barutama Greston.PT - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Chamber of Mines of South Africa
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Uttam Galva Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Economic Council, Georgia
- Orica Mining Services - Indonesia
- Coalindo Energy - Indonesia
- MS Steel International - UAE
- Sical Logistics Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Holcim Trading Pte Ltd - Singapore
- South Luzon Thermal Energy Corporation
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
- Asmin Koalindo Tuhup - Indonesia
- Straits Asia Resources Limited - Singapore
- Commonwealth Bank - Australia
- Merrill Lynch Commodities Europe
- Vedanta Resources Plc - India
- Kepco SPC Power Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Simpson Spence & Young - Indonesia
- Indian Energy Exchange, India
- Ind-Barath Power Infra Limited - India
- PowerSource Philippines DevCo
- ASAPP Information Group - India
- Altura Mining Limited, Indonesia
- PNOC Exploration Corporation - Philippines
- Jindal Steel & Power Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Sarangani Energy Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Australian Commodity Traders Exchange
- Kideco Jaya Agung - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Essar Steel Hazira Ltd - India
- Cement Manufacturers Association - India
- Maheswari Brothers Coal Limited - India
- Trasteel International SA, Italy
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- Iligan Light & Power Inc, Philippines
- Kaltim Prima Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Medco Energi Mining Internasional
- London Commodity Brokers - England
- Mercuria Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- IEA Clean Coal Centre - UK
- New Zealand Coal & Carbon
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Grasim Industreis Ltd - India
- Savvy Resources Ltd - HongKong
- Indian Oil Corporation Limited
- Bharathi Cement Corporation - India
- Meralco Power Generation, Philippines
- Timah Investasi Mineral - Indoneisa
- Toyota Tsusho Corporation, Japan
- Larsen & Toubro Limited - India
- Anglo American - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Barasentosa Lestari - Indonesia
- The University of Queensland
- Miang Besar Coal Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- LBH Netherlands Bv - Netherlands
- Ministry of Finance - Indonesia
- Indogreen Group - Indonesia
- The Treasury - Australian Government
- European Bulk Services B.V. - Netherlands
- IHS Mccloskey Coal Group - USA
- Kumho Petrochemical, South Korea
- Tamil Nadu electricity Board
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Carbofer General Trading SA - India
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- The State Trading Corporation of India Ltd
- Bukit Makmur.PT - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- PTC India Limited - India
- Siam City Cement PLC, Thailand
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