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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, 01 March 16
CAN BULKCARRIER SUPPLY CUTS RESTORE SOME BALANCE? - CLARKSONS
The easing in bulkcarrier deliveries and the accelerated pace of demolition in recent years has seen bulkcarrier fleet growth slow from a rapid 17% ...
Monday, 29 February 16
BALTIC INDEX INCHES UP THIS PAST WEEK AS SMALLER VESSELS LEND SUPPORT
COALspot.com: The freight markets rose slightly this past week.
The Baltic Dry Index (BDI) of dry-bulk shipping freights, a measure of global ...
Friday, 26 February 16
U.S WEEKLY COAL PRODUCTION UP SLIGHTLY
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 13.4 million shor ...
Thursday, 25 February 16
DRY BULKERS ARE SCRAPPED AT RECORD PACE - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The newbuilding market is at a lull these days, as ship owners are focusing on two fronts, getting rid of excess dry bulk tonnage and snapping up b ...
Wednesday, 24 February 16
HOW IS THE FUEL MIX FOR U.S. ELECTRICITY GENERATION CHANGING? - EIA
In recent years, there have been changes in the mix of fuels used to generate electricity in the United States. Natural gas and renewable energy so ...
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- Chamber of Mines of South Africa
- Global Business Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Antam Resourcindo - Indonesia
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- Indian Energy Exchange, India
- Metalloyd Limited - United Kingdom
- Therma Luzon, Inc, Philippines
- Parliament of New Zealand
- South Luzon Thermal Energy Corporation
- Banpu Public Company Limited - Thailand
- TeaM Sual Corporation - Philippines
- Goldman Sachs - Singapore
- Georgia Ports Authority, United States
- Bhushan Steel Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- Kartika Selabumi Mining - Indonesia
- Coalindo Energy - Indonesia
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- Directorate Of Revenue Intelligence - India
- Gujarat Sidhee Cement - India
- OPG Power Generation Pvt Ltd - India
- Edison Trading Spa - Italy
- Marubeni Corporation - India
- Energy Development Corp, Philippines
- Aboitiz Power Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Power Finance Corporation Ltd., India
- Merrill Lynch Commodities Europe
- Mjunction Services Limited - India
- Global Green Power PLC Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Ministry of Transport, Egypt
- Semirara Mining Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- San Jose City I Power Corp, Philippines
- PNOC Exploration Corporation - Philippines
- Madhucon Powers Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Malabar Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Electricity Generating Authority of Thailand
- Gujarat Electricity Regulatory Commission - India
- Australian Commodity Traders Exchange
- Lanco Infratech Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- New Zealand Coal & Carbon
- Indo Tambangraya Megah - Indonesia
- Kaltim Prima Coal - Indonesia
- Romanian Commodities Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- The Treasury - Australian Government
- ICICI Bank Limited - India
- Independent Power Producers Association of India
- Tamil Nadu electricity Board
- SMG Consultants - Indonesia
- SMC Global Power, Philippines
- Globalindo Alam Lestari - Indonesia
- Karaikal Port Pvt Ltd - India
- Bukit Baiduri Energy - Indonesia
- Posco Energy - South Korea
- Thiess Contractors Indonesia
- Siam City Cement - Thailand
- London Commodity Brokers - England
- Wood Mackenzie - Singapore
- Sree Jayajothi Cements Limited - India
- Pendopo Energi Batubara - Indonesia
- Siam City Cement PLC, Thailand
- Meenaskhi Energy Private Limited - India
- Attock Cement Pakistan Limited
- Grasim Industreis Ltd - India
- Kepco SPC Power Corporation, Philippines
- Mercuria Energy - Indonesia
- VISA Power Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- PetroVietnam Power Coal Import and Supply Company
- Savvy Resources Ltd - HongKong
- Kohat Cement Company Ltd. - Pakistan
- Economic Council, Georgia
- Barasentosa Lestari - Indonesia
- Central Electricity Authority - India
- Thai Mozambique Logistica
- Indogreen Group - Indonesia
- Larsen & Toubro Limited - India
- Aditya Birla Group - India
- McConnell Dowell - Australia
- Indian Oil Corporation Limited
- Straits Asia Resources Limited - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kideco Jaya Agung - Indonesia
- Singapore Mercantile Exchange
- Sindya Power Generating Company Private Ltd
- Vedanta Resources Plc - India
- Manunggal Multi Energi - Indonesia
- Port Waratah Coal Services - Australia
- Tata Chemicals Ltd - India
- Billiton Holdings Pty Ltd - Australia
- ASAPP Information Group - India
- CNBM International Corporation - China
- TNB Fuel Sdn Bhd - Malaysia
- Samtan Co., Ltd - South Korea
- Planning Commission, India
- Latin American Coal - Colombia
- Toyota Tsusho Corporation, Japan
- Ambuja Cements Ltd - India
- White Energy Company Limited
- Maharashtra Electricity Regulatory Commission - India
- GVK Power & Infra Limited - India
- PowerSource Philippines DevCo
- Miang Besar Coal Terminal - Indonesia
- Cement Manufacturers Association - India
- MS Steel International - UAE
- Ceylon Electricity Board - Sri Lanka
- Directorate General of MIneral and Coal - Indonesia
- European Bulk Services B.V. - Netherlands
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- Sical Logistics Limited - India
- GMR Energy Limited - India
- Eastern Coal Council - USA
- Petron Corporation, Philippines
- LBH Netherlands Bv - Netherlands
- Medco Energi Mining Internasional
- Bukit Asam (Persero) Tbk - Indonesia
- Riau Bara Harum - Indonesia
- Sarangani Energy Corporation, Philippines
- Trasteel International SA, Italy
- Agrawal Coal Company - India
- Kapuas Tunggal Persada - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Borneo Indobara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Mercator Lines Limited - India
- Carbofer General Trading SA - India
- Coastal Gujarat Power Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bukit Makmur.PT - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Alfred C Toepfer International GmbH - Germany
- The State Trading Corporation of India Ltd
- Heidelberg Cement - Germany
- Australian Coal Association
- Energy Link Ltd, New Zealand
- Wilmar Investment Holdings
- Timah Investasi Mineral - Indoneisa
- Rio Tinto Coal - Australia
- IEA Clean Coal Centre - UK
- Star Paper Mills Limited - India
- Indonesian Coal Mining Association
- Dalmia Cement Bharat India
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Kumho Petrochemical, South Korea
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- Ministry of Finance - Indonesia
- Vizag Seaport Private Limited - India
- Electricity Authority, New Zealand
- Videocon Industries ltd - India
- Renaissance Capital - South Africa
- Rashtriya Ispat Nigam Limited - India
- The University of Queensland
- India Bulls Power Limited - India
- Meralco Power Generation, Philippines
- Jindal Steel & Power Ltd - India
- Mintek Dendrill Indonesia
- Interocean Group of Companies - India
- Deloitte Consulting - India
- PTC India Limited - India
- Holcim Trading Pte Ltd - Singapore
- Minerals Council of Australia
- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- SN Aboitiz Power Inc, Philippines
- CIMB Investment Bank - Malaysia
- Price Waterhouse Coopers - Russia
- Orica Australia Pty. Ltd.
- Gujarat Mineral Development Corp Ltd - India
- Bhoruka Overseas - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Ministry of Mines - Canada
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Uttam Galva Steels Limited - India
- Essar Steel Hazira Ltd - India
- Oldendorff Carriers - Singapore
- Makarim & Taira - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jaiprakash Power Ventures ltd
- Petrochimia International Co. Ltd.- Taiwan
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Intertek Mineral Services - Indonesia
- Bulk Trading Sa - Switzerland
- GAC Shipping (India) Pvt Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Parry Sugars Refinery, India
- Baramulti Group, Indonesia
- Iligan Light & Power Inc, Philippines
- Bharathi Cement Corporation - India
- Eastern Energy - Thailand
- Altura Mining Limited, Indonesia
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