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Ozanic v. United States. Petar.

January 9, 1948


Author: Chase

Before CHASE, CLARK, and FRANK, Circuit Judges.

CHASE, Circuit Judge.

In a collision between the United States tanker "Kennebec" and the Yugoslavian steamship "Petar" in the Caribbean Sea on March 8, 1942, the "Petar" was cut in two and, with her entire cargo of bauxite, became a total loss. Only seven of her officers and crew survived. The "Kennebec," which was also damaged, stood by, rescued the survivors, and landed them at Recife, Brazil.

Three suits were brought in the District Court for the Southern District of New York to recover damages resulting from the collision and they were consolidated for trial. An interlocutory decree, entered by consent, disposed of some of the issues and provided for the reference to a commissioner for hearing and report on those still in controversy. Because the issues were thus narrowed, the consolidated action may, for present purposes, by treated as a suit in which Ozanic, the master of the "Petar," who will now be called the libellant, sued the United States, which will be called the respondent, as owner of the "Kennebec," and the United States filed a cross-libel to recover the damages its ship sustained. The fault of both vessels was conceded by the parties and it was agreed that the damages should be apportioned, with the United States bearing two-thirds of them.

The commissioner heard the parties and filed his report to which they both excepted. The trial court overruled all the exceptions and entered the final decree from which both parties have appealed. The issues which are now in dispute are (1) the value of the "Petar" on the date of loss; (2) the liability of the United States to share the payment of the expenses of repatriating certain members of her crew, as well as their wages from the time of the sinking until the time of their repatriation; and (3) the liability of the United States to share the "Petar's" loss of profits which would have been, under a time charter, earned on the voyage or in the alternative, during the remaining period of the charter, had she not been lost. The commissioner found the value of the "Petar" to be $170,000. Recovery for the other items of loss was denied.

Value of the "Petar."

As the value of the "Petar" on the critical date is a question of fact, the commissioner's finding, confirmed by the district judge, should be upheld unless clearly erroneous. The questions which must be resolved are whether all the relevant factors which the law requires to be given effect were duly considered and, if so, whether the evidence adequately supports the finding.

The "Petar" was a single screw steamship with an over-all length of 265 feet. Measured by her peacetime Plimsoll marks she was of 2787 deadweight tons which, measured by her wartime marks, were increased to 2850. According to the testimony of her master, she had a triple expansion reciprocating engine which gave her about 750 horsepower at normal pressure and enabled her to make an average speed of 8.84 knots. She had Lloyd's highest classification of plus A-1. She had been built in 1910 in Holland at a cost of about $171,000; had been sold in 1932 for $16,262, which was approximately her then salvage value; and had been purchased by her last owners in 1936 for $33,269. She was fitted for trans-Atlantic service but when lost was engaged in the bauxite trade between Georgetown, British Guiana, and St. Thomas, Virgin Islands. She then carried war risk insurance of $156,200, the maximum amount she could obtain.

She had been requisitioned by the Yugoslavian Government and could not be sold, transferred, or used in any other service without the consent of both Yugoslavia and Great Britain. In addition in order to obtain whatever ship warrants would be needed in ports of the United Nations, she had to comply with certain conditions imposed as to charter hire and rates of pay.

It is well settled that the valuation of a ship lost in a collision should be upon the principle of restitutio in integrum. The owner of a ship totally lost is entitled to recover the gross sum which could have been obtained just before the collision in a sale resulting from negotiations between a willing seller and a willing buyer who gave fair and reasonable consideration to all relevant facts. Standard Oil Co. v. Southern Pacific Co., 268 U.S. 146, 45 S. Ct. 465, 69 L. Ed. 890. There is no one fixed basis which is decisive where a free and open maket for such ships does not exist to establish fair market value. Rather, the basis of valuation is a composite one which gives an end result in each instance approximating actual value as closely as possible. The Hisko, 2 Cir., 54 F.2d 540.

An inspection of the record shows that the commissioner's finding that no market existed in March, 1942, which would establish a fair market value for ships of the size and type of the "Petar" was not clearly erroneous, and this point is not seriously argued on appeal. Such an inspection also shows that the factors which are relevant in the absence of an open market were considered and evaluated in this instance. One of those was properly reconstruction costs less depreciation, a method of valuation which though not the "measure or sole guide"*fn1 is one that nevertheless "may be deemed a reliable indication of the minimum value."*fn2 The main controversy on appeal relates to the rate of depreciation*fn3 used.

As is usual in such cases, both parties relied upon the testimony of expert witnesses and, as is also usual, their evidence was conflicting. One of libellant's experts, Haight, took the reproduction cost in this country on a multiple ship basis of a vessel of the size and type of the "Petar" which he testified was about $508,000 and then depreciated it at the rate of 2 1/2%. Thus he set the "Petar's" value at $225,000 with her deadweight tonnage figured at 2787 and at $232,000 with it figured at 2850.Libellant's expert Bagger set the "Petar's" reproduction cost on a multiple ship basis at $470,000 and at 25 to 30% more on a single ship basis. He also applied a depreciation rate of 2 1/2% and thus valued the "Petar" at $210,000.

The respondent's experts Hodges and Sturm also based their valuations upon reproduction cost less depreciation. Hodges set the single ship reproduction cost in the United States, which he thought the same as the multiple ship reproduction cost, at about $500,000 and took off depreciation at 5%, which resulted in a valuation of from $95,000 to $100,000. Sturm estimated the American reproduction cost at $581,000 on a single ship basis and by depreciating that at 5% arrived at $113,000 as the value. He also considered the foreign reproduction cost to be one half of the American, and applied to it a 4% depreciation rate, thus estimating the value of the "Petar" to be about $78,000. The foreign single ship reproduction cost was stipulated, however, to be $343,400, so that, depreciating it at Sturm's rate of 4%, the value arrived at is about $93,000. Another expert for the respondent, Stanley, differed greatly. He took as his basis the original cost of the ship at $171,000 and first deducted a yearly age differential of 5%, which was offset to some extent by adding a yearly age differential of 5% to the value during the periods of the two World Wars, and reached the conclusion that the value of the "Petar" was $73,233 on the critical date.

The commissioner's report shows that he considered not only the conflicts but also the accords of this expert testimony and did that in connection with the evidence of the original cost of the "Petar," her repair and conversion cost, earnings, physical condition and availability for use in view of the restrictions upon her when sunk. He took reproduction cost on the multiple ship basis in the United States as one of the factors for the computation since the only ships being built here in 1942 were built on that basis, and since if sold anywhere the "Petar" would have been sold here.*fn4 Cf. The Hisko, supra, 54 F.2d at 541. As the experts were in general agreement that this cost was about $500,000, he accepted that figure.He considered in view of all the circumstances shown that the relationship of age to selling price in March, 1942 varied as the judgment of sellers and buyers was influenced by the various relevant market factors, such as the extent of demand compared to supply, the restrictions to which ships were subject, their earning power, and the amount of war risk insurance obtainable. He decided that the fair depreciation rate was between the 2 1/2% taken by the libellant's experts and the 5% applied by the two ...

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