VALUATION OF SECURITY IN LIMITATION ACTIONS
VALUATION OF SECURITY IN LIMITATION ACTIONS
Ergon-St. James, Inc. v. Privocean
(E.D. La August 21, 2015)
Case 2:15-cv-01121-JCZ-DEK
Written By: Alex Lauricella
Edited By: Andrew Lifsey
In a limitation action, the parties disputed the amount of security to be provided by the plaintiff in limitation. The M/V PRIVOCEAN, owned by plaintiff in limitation, was moored with the assistance of two tugboats, the M/V NED FERRY and the M/V TEXAS, owned by Crescent Towing and Salvage Co., Inc. (hereinafter “Crescent”). The M/V BRAVO was secured by two other Crescent tugs at the Ergon-St. James dock (hereinafter “Ergon”). On April 6, 2015, the PRIVOCEAN came loose with the TEXAS still attached and collided with the BRAVO, pushing the BRAVO into the Ergon dock. This collision purportedly damaged the BRAVO, all four of Crescent’s tugs, and the Ergon dock. Ergon, Bravo, and Crescent (hereinafter “claimants”) all brought suit against Privocean, which subsequently filed its complaint for limitation. In their opposition to Privocean’s motion to lift vessel arrest, the claimants asked the court to increase the amount of security posted by Privocean from $19,000,000 to $27,028,548. The court noted that in a limitation action, the security provided should equal the “fair market value of the vessel and any pending freight at the end of the voyage.”The court first addressed the fair market value of the PRIVOCEAN – a 2013 Panamax Bulk Carrier built in South Korea. The court noted that when evidence of comparable and contemporaneous sales are inadequate, the court may consider all other relevant factors. In an attempt to provide the court with evidence of comparable and contemporaneous sales, Privocean’s expert, Anthony Charles English, reported that Panamax vessels built in 2010, 2011, and 2012 were sold in 2015 for (in order of the date of sale): $16,500,000; $18,400,000; $17,500,000; $17,200,000; and $17,700,000. English testified that in light of a 5% depreciation rate accounting for the PRIVOCEAN’s age difference, and the declining market for Panamax charters, the valuation of $19,000,000 was accurate. The court found that the sales were not sufficiently comparable because none of the listed vessels was built in 2013; consequently, the court considered other factors – including the declining market for Panamax charters.To arrive at their proposed value ($27,028,548), the claimants reduced the 2013 sales price of the PRIVOCEAN ($28,500,000) by considering the vessel’s 35-year useful life expectancy, and subtracting the $250,000 of repairs that resulted from the incident. Further, the claimants asserted that the PRIVOCEAN was insured for about $30,000,000. The court found these figures persuasive, but also considered the declining market for Panamax charters. Accordingly, the court found that the vessel was worth $23,000,000 – the average of the two proposed values.Next, the court addressed the value of the PRIVOCEAN’s pending freight. The parties agreed that the charter rate was $7700 per day, and that the PRIVOCEAN’s voyage was scheduled to end on May 19, 2015. The only dispute was when the charter rate began. Privocean maintained that as the charter hire was paid up to April 19, this prepaid amount was not pending freight. The court, however, found that the pending freight included the entire 40-day voyage (April 1, 2015 to May 19, 2015) because “pending freight is the total earnings for the voyage, both prepaid and uncollected.” Thus, at the rate of $7700 per day, the pending freight was valued at $308,000.Therefore, the court ordered that the limitation fund be increased to $23,308,000 – the sum of the PRIVOCEAN’s fair market value and its pending freight.
