08th Apr 2021
It is rare for shipping to hit the headlines, as recently occurred with the “EVER GIVEN”, the containership which blocked the Suez Canal between 23 and 29 March 2021. Yet it is undoubtedly an extraordinary casualty. Given that it is now over a week since the ship was refloated by salvors, yet she remains in the locality, many are curious as to why the vessel has not yet continued on her voyage. As a shipping lawyer who is not involved in the litigation, these are the musings of an armchair pundit.
What is so far known is that on 1 April 2021 a limitation claim was issued in the Admiralty Court, seeking a general decree of limitation. On the same day, general average was declared by the shipowners. What are the implications of this?
It has been reported by the Maritime Executive website that the defendants to the limitation claim include “Evergreen, the Suez Canal Authority and all other parties who may later file a claim in connection with the incident”. According to their website, Clyde & Co have calculated that, the limitation fund, once constituted, will be in the amount of about USD 114,000,000 based on the Vessel’s gross registered tonnage. Neither the service of a limitation claim form nor the constitution of a limitation fund should pose any difficulty. Evergreen could pose as a friendly defendant, as a limitation decree will work to its advantage.
Upon a limitation fund being constituted, the shipowner will be afforded the important protection for which Article 13, LLMC 1996 provides, namely that there will be a bar to limitable claims commenced otherwise than against the limitation fund, and the shipowners’ vessels will be protected from arrest. This will not only be the result in England; all the courts of contracting states to the Contention must stay limitable claims. This relief will also be available automatically to other entities described in Article 1 of the Convention (including the charterer, Evergreen) even though they did not themselves constitute the fund.
As for what claims are limitable, Article 2 LLMC 1996 provides that claims in respect of damage to property are subject to limitation of liability. This will include damage to cargo which has deteriorated or experienced a loss of market due to the delay. In addition, LLMC 1996 provides that claims for damage to “waterways” are limitable, as well as the consequential losses arising therefrom.
This may explain why, according to the Maritime Executive website, the SCA is an intended defendant to the limitation claim. Perhaps the shipowners’ lawyers hold out some hope that the Egyptian courts will take the view that claims made by the SCA will have to be directed against the limitation fund. Or perhaps it is simply part of their negotiating position.
In these regards, it is of interest that the shipowners (and the UK P&I Club who stand behind them) thought to commence limitation proceedings in England, rather than in Egypt, notwithstanding that the limits are understood to be lower there. Perhaps the strategy is to present a tempting “carrot”, enticing the SCA to claim against the fund in England and allow the vessel to continue on her way.
There is, however, presently no indication that the SCA will take the bait. According to TradeWinds website, the SCA’s managing director has said that the authority is “seeking around $1 billion in compensation for the grounding”.
Cover is available under the UK P&I Club’s Rules for “liability to pay damages or compensation for any loss of or damage to any property (including infringement of rights) whether on land or water and whether fixed or moveable”. This provision could well be of sufficient breadth to cover many of the SCA’s claims. It is understood to have been applied in equivalent situations where vessels have blocked the navigable channel of inland rivers. But there would probably still need to be a legal liability.
Besides, the sum being sought by the SCA is vastly in excess of the limits applicable under the LLMC 96, which in effect sets the ceiling for the letters of undertaking which a P&I Club is capable of offering – coverage being premised on the ability to apply tonnage limitation to liability claims, except in isolated cases mostly concerned with pollution.
What if the SCA should maintain its demands for such an exorbitant sum? In other situations, a shipowner might in extremis abandon its ship. But that option poses problems given that Evergreen will, as a shipping line, require regular use of the Canal. This raises the spectre of the SCA arresting other ships if its demands are not met. It is not a situation which any shipowner or line will wish to face.
What other solutions exist? One idea that might seem tempting is to treat the payment to the SCA in exchange for the release of the vessel as akin to the satisfaction of a ransom demand in a case of piratical seizure – something which is routinely treated as a general average expense. Supposing the expense could be allowed in general average, it would fall upon all the parties to the maritime adventure to contribute to it, including the cargo. But average adjusters are likely to take the view that, unlike at a pirate’s lair, ship and cargo are here in a state of safety; that any claim for loss of revenue would flow from the original grounding (PA) rather than the refloating (GA); and that it would in any case be excluded by Rule C, York Antwerp Rules which keeps loss of profit out of GA.
At present, the “EVER GIVEN” is stuck again. It remains to be seen when and how she will be “refloated”.
Richard Sarll is a shipping barrister; a co-author of Carver on Charterparties; and co-editor of Lowndes & Rudolf on General Average and York-Antwerp Rules.