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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 March 16
BDI FURTHER STRENGTHENING; THE INCREASE IN RATES WAS NOT SUBSTANTIAL
COALspot.com: The BDI closed off on a positive note for a second week in a row, further strengthening the belief that the market might be bottoming ...
Thursday, 03 March 16
RIO TINTO COMPLETES SALE OF INTEREST IN BENGALLA JOINT VENTURE FOR US$616.7 MILLION
COALspot.com: Rio Tinto has completed the sale of its 40 per cent interest in the Bengalla coal Joint Venture in Australia to New Hope Corporation ...
Wednesday, 02 March 16
RE-EVALUATION OF MINING LICENSES CLEAN AND CLEAR STATUS IN INDONESIA
COALspot.com: In connection with the transfer of mining authority from Regents/Mayors to Governors1 and from Regents/Mayors and Governors to t ...
Wednesday, 02 March 16
OIL MY GOD.....!!!!
OIL my GOD….!!!!
The oil price “crash” that started in 2014 was caused by a glut of practically unwanted oil. Producers had be ...
Tuesday, 01 March 16
CS 42 (4200 GAR) COAL INDEX CLOSED AT US$ 27.11 A TON ON 26 FEBRUARY
COALspot.com: Average 5000 GAR coal index of Indonesian origin decline 0.31 percent week over week to averaging $38.77 per ton on this past Friday, ...
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- Kartika Selabumi Mining - Indonesia
- Sree Jayajothi Cements Limited - India
- Larsen & Toubro Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Chettinad Cement Corporation Ltd - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- Economic Council, Georgia
- GVK Power & Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
- Posco Energy - South Korea
- McConnell Dowell - Australia
- GAC Shipping (India) Pvt Ltd
- CIMB Investment Bank - Malaysia
- Straits Asia Resources Limited - Singapore
- LBH Netherlands Bv - Netherlands
- Bayan Resources Tbk. - Indonesia
- Dalmia Cement Bharat India
- TeaM Sual Corporation - Philippines
- Coalindo Energy - Indonesia
- Grasim Industreis Ltd - India
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Thiess Contractors Indonesia
- Holcim Trading Pte Ltd - Singapore
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- Bukit Asam (Persero) Tbk - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Independent Power Producers Association of India
- Edison Trading Spa - Italy
- Indika Energy - Indonesia
- Central Java Power - Indonesia
- VISA Power Limited - India
- Bhushan Steel Limited - India
- Timah Investasi Mineral - Indoneisa
- Chamber of Mines of South Africa
- Standard Chartered Bank - UAE
- Xindia Steels Limited - India
- Sakthi Sugars Limited - India
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Mercator Lines Limited - India
- London Commodity Brokers - England
- Ind-Barath Power Infra Limited - India
- Savvy Resources Ltd - HongKong
- Formosa Plastics Group - Taiwan
- Port Waratah Coal Services - Australia
- Altura Mining Limited, Indonesia
- Bhatia International Limited - India
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- Wilmar Investment Holdings
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Mjunction Services Limited - India
- IHS Mccloskey Coal Group - USA
- Asmin Koalindo Tuhup - Indonesia
- Semirara Mining and Power Corporation, Philippines
- India Bulls Power Limited - India
- Central Electricity Authority - India
- Kepco SPC Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Aditya Birla Group - India
- Cement Manufacturers Association - India
- Samtan Co., Ltd - South Korea
- The Treasury - Australian Government
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- Kumho Petrochemical, South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Coal and Oil Company - UAE
- Uttam Galva Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Intertek Mineral Services - Indonesia
- Madhucon Powers Ltd - India
- Rio Tinto Coal - Australia
- OPG Power Generation Pvt Ltd - India
- International Coal Ventures Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- ICICI Bank Limited - India
- Planning Commission, India
- Merrill Lynch Commodities Europe
- Bank of Tokyo Mitsubishi UFJ Ltd
- Directorate Of Revenue Intelligence - India
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Metalloyd Limited - United Kingdom
- Indo Tambangraya Megah - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jindal Steel & Power Ltd - India
- Karaikal Port Pvt Ltd - India
- Ceylon Electricity Board - Sri Lanka
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- CNBM International Corporation - China
- The State Trading Corporation of India Ltd
- Sical Logistics Limited - India
- Parry Sugars Refinery, India
- MS Steel International - UAE
- Leighton Contractors Pty Ltd - Australia
- Bulk Trading Sa - Switzerland
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Star Paper Mills Limited - India
- Africa Commodities Group - South Africa
- Thai Mozambique Logistica
- Energy Development Corp, Philippines
- Jaiprakash Power Ventures ltd
- Renaissance Capital - South Africa
- Carbofer General Trading SA - India
- The University of Queensland
- Medco Energi Mining Internasional
- Indogreen Group - Indonesia
- PowerSource Philippines DevCo
- New Zealand Coal & Carbon
- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- Meralco Power Generation, Philippines
- White Energy Company Limited
- Ministry of Mines - Canada
- SMG Consultants - Indonesia
- Oldendorff Carriers - Singapore
- South Luzon Thermal Energy Corporation
- SMC Global Power, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Lanco Infratech Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Videocon Industries ltd - India
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Agrawal Coal Company - India
- Baramulti Group, Indonesia
- Wood Mackenzie - Singapore
- Jorong Barutama Greston.PT - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Ministry of Transport, Egypt
- Australian Commodity Traders Exchange
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Barasentosa Lestari - Indonesia
- Global Business Power Corporation, Philippines
- Georgia Ports Authority, United States
- Sindya Power Generating Company Private Ltd
- Indian Oil Corporation Limited
- PetroVietnam Power Coal Import and Supply Company
- Minerals Council of Australia
- Tamil Nadu electricity Board
- Marubeni Corporation - India
- Ambuja Cements Ltd - India
- Petron Corporation, Philippines
- ASAPP Information Group - India
- Heidelberg Cement - Germany
- Bangladesh Power Developement Board
- Malabar Cements Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Parliament of New Zealand
- Latin American Coal - Colombia
- GMR Energy Limited - India
- Sarangani Energy Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Manunggal Multi Energi - Indonesia
- Australian Coal Association
- Kideco Jaya Agung - Indonesia
- Coastal Gujarat Power Limited - India
- European Bulk Services B.V. - Netherlands
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Gujarat Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Iligan Light & Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Makarim & Taira - Indonesia
- Borneo Indobara - Indonesia
- Siam City Cement PLC, Thailand
- Miang Besar Coal Terminal - Indonesia
- Eastern Energy - Thailand
- Electricity Generating Authority of Thailand
- Kohat Cement Company Ltd. - Pakistan
- Neyveli Lignite Corporation Ltd, - India
- Kapuas Tunggal Persada - Indonesia
- Romanian Commodities Exchange
- Energy Link Ltd, New Zealand
- Trasteel International SA, Italy
- Tata Chemicals Ltd - India
- Vizag Seaport Private Limited - India
- Ministry of Finance - Indonesia
- Therma Luzon, Inc, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bharathi Cement Corporation - India
- Essar Steel Hazira Ltd - India
- Goldman Sachs - Singapore
- Attock Cement Pakistan Limited
- Mintek Dendrill Indonesia
- PTC India Limited - India
- Semirara Mining Corp, Philippines
- Price Waterhouse Coopers - Russia
- Orica Mining Services - Indonesia
- Deloitte Consulting - India
- Kobexindo Tractors - Indoneisa
- Kaltim Prima Coal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
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