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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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Friday, 19 February 16
U.S. WEEKLY COAL PRODUCTION ROSE 2.6% FROM LAST WEEK - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 13.2 million shor ...
Thursday, 18 February 16
INDIA NEEDS INTERNATIONAL SUPPORT ON HIGH EFFICIENCY COAL - WORLD COAL ASSOCIATION
Speaking at a conference in New Delhi today, World Coal Association Chief Executive Benjamin Sporton said the critical role of coal in driving econ ...
Thursday, 18 February 16
CHINA COAL SECTOR - 2015 RESULTS BLEAK, 2016 UNLIKELY TO BE ANY BETTER - FITCH
COALspot.com: China Coal Sector’s Financial Woes to Worsen in 2016.
Fitch Ratings says that the 2015 full-year result previews issued by ...
Thursday, 18 February 16
PANAMAX RATES OUT OF ECSA WERE STILL GAINING A PREMIUM OVER THE REST OF THE MARKET - INTERMODAL
The BDI moved further down last week, fact that hardly took anyone by surprise as the lunar year holidays in Asia on top of the already depre ...
Wednesday, 17 February 16
TAP ON OPPORTUNITIES IN GROWING ELECTRICITY DEMAND AND NEW COAL POWER PROJECT DEVELOPMENTS IN THE PHILIPPINES - IBC
Tap on Opportunities in Growing Electricity Demand and New Coal Power Project Developments in the Philippines
Coal Power Generation 2016
19- ...
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- GAC Shipping (India) Pvt Ltd
- Minerals Council of Australia
- Karaikal Port Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CNBM International Corporation - China
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Electricity Authority, New Zealand
- Star Paper Mills Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Electricity Generating Authority of Thailand
- Mercuria Energy - Indonesia
- Edison Trading Spa - Italy
- Samtan Co., Ltd - South Korea
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- Sinarmas Energy and Mining - Indonesia
- Semirara Mining Corp, Philippines
- Indian Energy Exchange, India
- Energy Link Ltd, New Zealand
- Banpu Public Company Limited - Thailand
- International Coal Ventures Pvt Ltd - India
- Sarangani Energy Corporation, Philippines
- Lanco Infratech Ltd - India
- SMG Consultants - Indonesia
- PTC India Limited - India
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- New Zealand Coal & Carbon
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Siam City Cement - Thailand
- Indo Tambangraya Megah - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- Ministry of Transport, Egypt
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Marubeni Corporation - India
- Videocon Industries ltd - India
- Sindya Power Generating Company Private Ltd
- LBH Netherlands Bv - Netherlands
- Ministry of Mines - Canada
- Uttam Galva Steels Limited - India
- GVK Power & Infra Limited - India
- Standard Chartered Bank - UAE
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Salva Resources Pvt Ltd - India
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Mintek Dendrill Indonesia
- European Bulk Services B.V. - Netherlands
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Merrill Lynch Commodities Europe
- Dalmia Cement Bharat India
- SN Aboitiz Power Inc, Philippines
- Mercator Lines Limited - India
- Karbindo Abesyapradhi - Indoneisa
- The State Trading Corporation of India Ltd
- Neyveli Lignite Corporation Ltd, - India
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- Sakthi Sugars Limited - India
- Holcim Trading Pte Ltd - Singapore
- Miang Besar Coal Terminal - Indonesia
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- McConnell Dowell - Australia
- Vedanta Resources Plc - India
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Coastal Gujarat Power Limited - India
- Interocean Group of Companies - India
- Petrochimia International Co. Ltd.- Taiwan
- Thiess Contractors Indonesia
- Manunggal Multi Energi - Indonesia
- Therma Luzon, Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Parliament of New Zealand
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- IHS Mccloskey Coal Group - USA
- Chettinad Cement Corporation Ltd - India
- Binh Thuan Hamico - Vietnam
- Metalloyd Limited - United Kingdom
- Economic Council, Georgia
- Bank of Tokyo Mitsubishi UFJ Ltd
- White Energy Company Limited
- Bukit Makmur.PT - Indonesia
- Medco Energi Mining Internasional
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Formosa Plastics Group - Taiwan
- PNOC Exploration Corporation - Philippines
- Goldman Sachs - Singapore
- Power Finance Corporation Ltd., India
- Bhushan Steel Limited - India
- Billiton Holdings Pty Ltd - Australia
- Cement Manufacturers Association - India
- Indogreen Group - Indonesia
- Riau Bara Harum - Indonesia
- Rashtriya Ispat Nigam Limited - India
- PowerSource Philippines DevCo
- Directorate General of MIneral and Coal - Indonesia
- Kepco SPC Power Corporation, Philippines
- Xindia Steels Limited - India
- Savvy Resources Ltd - HongKong
- Kapuas Tunggal Persada - Indonesia
- Bayan Resources Tbk. - Indonesia
- Posco Energy - South Korea
- Oldendorff Carriers - Singapore
- Energy Development Corp, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Kartika Selabumi Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Thai Mozambique Logistica
- Bulk Trading Sa - Switzerland
- Intertek Mineral Services - Indonesia
- Toyota Tsusho Corporation, Japan
- Kaltim Prima Coal - Indonesia
- Jindal Steel & Power Ltd - India
- Coalindo Energy - Indonesia
- Altura Mining Limited, Indonesia
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Ministry of Finance - Indonesia
- Deloitte Consulting - India
- Africa Commodities Group - South Africa
- Makarim & Taira - Indonesia
- Iligan Light & Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Port Waratah Coal Services - Australia
- Eastern Coal Council - USA
- Independent Power Producers Association of India
- Australian Coal Association
- Madhucon Powers Ltd - India
- SMC Global Power, Philippines
- Central Electricity Authority - India
- Baramulti Group, Indonesia
- Attock Cement Pakistan Limited
- Central Java Power - Indonesia
- Essar Steel Hazira Ltd - India
- Carbofer General Trading SA - India
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- OPG Power Generation Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Georgia Ports Authority, United States
- Bukit Baiduri Energy - Indonesia
- Aditya Birla Group - India
- Grasim Industreis Ltd - India
- Commonwealth Bank - Australia
- Barasentosa Lestari - Indonesia
- MS Steel International - UAE
- Indika Energy - Indonesia
- South Luzon Thermal Energy Corporation
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- Vizag Seaport Private Limited - India
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Heidelberg Cement - Germany
- Krishnapatnam Port Company Ltd. - India
- Directorate Of Revenue Intelligence - India
- Kideco Jaya Agung - Indonesia
- Planning Commission, India
- Eastern Energy - Thailand
- Ind-Barath Power Infra Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Price Waterhouse Coopers - Russia
- CIMB Investment Bank - Malaysia
- Latin American Coal - Colombia
- Bhoruka Overseas - Indonesia
- Romanian Commodities Exchange
- Asmin Koalindo Tuhup - Indonesia
- Sree Jayajothi Cements Limited - India
- GN Power Mariveles Coal Plant, Philippines
- VISA Power Limited - India
- Ceylon Electricity Board - Sri Lanka
- Bharathi Cement Corporation - India
- Chamber of Mines of South Africa
- Bhatia International Limited - India
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- Australian Commodity Traders Exchange
- GMR Energy Limited - India
- Global Green Power PLC Corporation, Philippines
- Indonesian Coal Mining Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- ASAPP Information Group - India
- Orica Mining Services - Indonesia
- Petron Corporation, Philippines
- Agrawal Coal Company - India
- The Treasury - Australian Government
- Kobexindo Tractors - Indoneisa
- Aboitiz Power Corporation - Philippines
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