In the recent case of Owners of the ship “ASTIPALAIA” v Owners and/or demise charterers of the ship “HANJIN SHENZHEN” , the Admiralty Court provided guidance on how a vessel’s loss of earnings are to be calculated following a collision.
On 26 March 2008, the VLCC tanker “ASTIPALAIA” collided with the containership “HANJIN SHENZHEN” as she entered Singapore to unload her full cargo. As a result of the collision, repairs were needed (although she was able to unload her cargo), and the vessel’s Oil Major Approvals were temporarily placed on “technical hold” by the majors, pending investigation into the collision. Although, prior to the collision, the vessel had been trading in the busy VLCC spot market, the period of suspension meant that the vessel could not be chartered by the various oil majors, it could not operate at oil terminals run by the majors, and it would be unable to lift cargoes from shippers who were majors. At the time of the collision, the vessel was unfixed for her next employment but owners maintained that they were in negotiations and would have fixed the vessel on charter to the Indian Oil Corporation (IOC) had it not been for the casualty.
After discharging her cargo, “ASTIPALAIA” was temporarily repaired in Singapore before undertaking a voyage to Dubai for permanent repairs. The voyage took 10 days and the repairs a further 12 days. However, despite completion of the repairs, the Oil Major Approvals were still to be reinstated, which meant that the “ASTIPALAIA” could not resume her usual pattern of trading in the VLCC spot market. For this reason, the vessel’s owners accepted a fixture for the vessel to be used as a floating storage tanker off Kharg Island, Iran, for two months while the Approvals were reinstated.
As liability was agreed between the parties, the Court only had to decide the quantum of the owners’ claim for loss of earnings. Owners claimed damages for detention in respect of the entire 3-month period during which the vessel was unable to resume her usual employment, although the repairs themselves took only 12 days. Thus, the main issues which the Court had to determine were:
- The relevant period during which owners could claim loss of earnings
- The relevant rate to apply to calculate the vessel’s loss of earnings
As regards the first issue, the Court did not accept that the vessel would have been fixed to the IOC. The Court found that it was probable that, after discharging her cargo in Singapore, the vessel would have been employed in the trade from the Arabian Gulf, in the absence of any definite fixture. Therefore, the voyage from Singapore to Dubai could not count towards the period of detention as the vessel would have made that voyage in ballast in any event. The period of detention therefore comprised a delay of 12 hours in Singapore and the period from the start of the repair work to the end of the floating storage fixture. The fact that the vessel could not perform her usual trading patterns until the Oil Major Approvals were reinstated was to be taken into account for calculating the detention period.
Regarding the second issue, it was unclear what the vessel would have earned during the detention period as she traded on the spot market. At the time of the collision, owners were in the middle of negotiating a fixture with the IOC but no fixture was ever concluded. The Court held that there was no set method for calculating loss of profit, although it was important to adopt a flexible and common sense approach, and decisions in previous cases could be relied upon depending on the facts.
The judge reasoned that an actual fixture would have provided the best evidence of the owners’ financial loss; in the absence of this, it was necessary to consider whether it was probable that the IOC fixture would have been concluded but for the collision. The owners failed to prove this on the basis of the evidence adduced.
Thus, the judge had to assess damages on the basis of the vessel’s other alternative employment opportunities in order to ascertain a reasonable daily rate for a ship of this type in the ordinary course of her trade. The daily rate would be multiplied by the number of days of detention to calculate the owners’ loss of revenue. In this particular case, the expert evidence adduced by both the claimant and the defendant provided estimates of the vessel’s net earnings during the period of detention based on a detailed comparison of the voyages undertaken by other vessels trading at that time in the VLCC spot market between the Arabian Gulf and the Far East. As both experts had, however, compared similar periods of time, and their opinions were based on similar comparables, the judge considered it fair to take the mean of these and then deduct the amount which the vessel had earned while employed as a floating storage tanker. On the basis of the Court’s decision, owners were awarded the sum of USD 4.96 million in respect of loss of earnings, which included the mitigating period during which the vessel was employed on period charter as a floating storage tanker.
This case highlights the uncertainty surrounding the calculation of damages in loss of earnings cases, as the vessel’s hypothetical employment will always be hard to prove. There is no specific one-fits-all methodology for calculating loss of profit, each methodology needing to be adapted to meet the specific circumstances of individual cases. The “ASTIPALAIA”, at least, confirmed that owners may recover damages for the period where a vessel is unable to resume her usual trading activities, following a collision and subsequent repairs, and is restricted to less lucrative engagements.