The casualty of M/S Ever Given – some legal consequences – Docent Lauri Railas

On 23–29 March 2021 MS Ever Given was stuck abeam between the banks of the Suez Canal thereby blocking almost 400 other vessels´ navigation northbound or southbound. After a salvage operation including 11 tug boats and two dredgers and some 800 Egyptian workers, the vessel could resume her voyage but not far. The vessel found herself in the Great Bitter Lake in the middle of the Suez Canal and was arrested by the Egyptian authorities, as the Suez Canal Authority (SCA) placed a claim of allegedly USD 916 million against the shipowners, Shoe Kishen Kaisha.

 

The amount of the claim is gigantic as it is estimated to exceed the aggregate value of the ship and cargo. The breakdown of the claimed amount includes salvage charges that consist of direct costs as well as a substantial salvage bonus and liability for loss of reputation. Egyptian courts were seized for arrest actions. The shipowner and the charterer Evergreen Shipping Ltd. have filed for jurisdiction in English courts. The shipowner has filed a limitation of liability claim before the English Admiralty Court on the basis of the 1996 Protocol of the 1976 Convention on Limitation of Liability for Maritime Claims. It has been estimated that the amount of the limitation fund would be USD 114 million.

 

The shipowner has declared general average. Salvage may be included in general average but may be a system in its own right. In both general average and salvage the cargo interests (=those bearing the risk for the loss of or damage to the goods according to Incoterms® 2020) must contribute to costs involved. Therefore the claim may be partly paid by the cargo insurers and partly by the hull and machinery (H & M) insurers of the vessel to the extent salvage is concerned. To the extent shipowner´s liability is concerned, the P & I insurer that is the UK P & I Club shall pay on behalf of the shipowners. There is a problem, however, as P & I clubs are like other liability insurers that they would not pay in excess of the legal liability of the policyholder. Negotiations are still underway and innovative suggestions such as invoking piracy to allow the cargo interests to contribute to the claims, as ransom to pirates is allowed under general average according to English law, which is applicable.

 

The latest information is that on 23 June the shipowners had in principle reached agreement with the SCA on the release of the ship. The parties were ”working to finalize a signed settlement agreement as soon as possible”, which would lead the release of the vessel. No timeline has so far been established for the release of the ship. The SCA claimed USD 916 million before the economic appellate court of Ismailia, the amount including costs of freeing the ship and a salvage bonus stipulated in maritime law, material and reputational damage, and the diversion of some shipping away from the Canal.  It was reported by press that in settlement negotiations running in parallel between the SCA and the Owners and their insurers, the SCA would have accepted a lower sum of around USD 550 million out of which USD 200 million should be paid upfront, whereas the owners and the UK P & I Club have offered USD 150 million.

The Owners have in turn blamed the Canal authorities for allowing the vessel to enter the Canal in adverse weather conditions and have placed claims or have indicated their intention to do so. These allegations have been rejected by the SCA. It is not rare that shipowners place claims against authorities maintaining the shipping infrastructure, but this also looks like an attempt to obtain a bargaining chip to offset part of the SCA claims. In any case, the SCA is said to consider widening the Canal in the place of the casualty.

 

Although the ship could eventually resume her voyage to the scheduled ports of call Rotterdam, Antwerp and Hamburg, the cargo interests may not receive their goods before they, or most usually, their cargo insurers, will put up a security with a view to contributing, for the part of the cargo insured by them, to the general average expenditures and sacrifices allowed and salvage. As the ship´s insurers will so far have paid (or guaranteed) the sums to the SCA, there may arise disputes as to the legitimacy of the expenditures, but this should normally not be a concern for the cargo interests, who are usually the consignees or shippers of the cargo, depending on the the trade term referred to in the sales contract, based mostly on Incoterms® 2020.

 

In the end, it is the cargo interests and especially those not strong and powerful to suffer from the situation. Also consignees and shippers of goods on board the vessels, which MS Ever Given blocked from passing the Suez Canal, have suffered from delays. The liability of the carriers is limited and it may be difficult to establish liability for delay as no time commitments are usually made by carriers. Cargo insurance does not usually cover damage attributable to delay. Moreover, cargo interests may be affected by claims for demurrage or detention for occupying containers for too long. Neither this is as a rule not covered by any insurance. Business interruption policies, where applicable may however protect the cargo interests.

 

The incident inevitably calls for traders to recognize that on top of loss of or damage to the goods, which are addressed both in the United Nations Convention on Contracts for the International Sale of goods (CISG) and in Incoterms® 2020, there exists the risk of delay. This risk has already been recognized in case law on the CISG. Risk should be distinguished from liability. Risk means bearing the adverse (usually) economic consequences of an incident. Liability means compensating the loss someone else suffers.

Updated 28 June 2021

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