Article first published by The Maritime Executive and republished with the author, Philip Teoh’s permission.
The containership Ever Given ran aground while transiting the Suez Canal on March 23, 2021, lodging herself against both banks of the waterway. The blockage caused vessels backed up in the Mediterranean to the north and the Red Sea to the south. It is estimated that the costs to global trade was about $400 million per hour based on the approximate value of goods that are moved through the Suez every day, according to shipping data and news company Lloyd’s List.
For six days, the world watched as a multi-national team of salvors, tug operators and the Suez Canal Authority (SCA) coordinated a race against time to free the ship and unclog the canal.
Detention by Suez Canal Authority
The Ever Given is now being held by the Suez Canal Authority, which demands it must be paid $916 million for salvage costs and damages. An Egyptian court has ruled that the SCA has a right to arrest the vessel until it is paid. The SCA says that sum helps cover the revenue lost during the canal blockage, the cost of the rescue mission and a fee for the damage sustained by the canal’s embankments when the ship became lodged in them.
UK P&I Club, the liability insurer of the Ever Given has filed an appeal in an Egyptian court over the detention of the vessel. “The appeal against the arrest was made on several grounds, including the validity of the arrest obtained in respect of the cargo and the lack of supporting evidence for the SCA very significant claim,” it said.
UK P&I Club said last week the SCA’s claim included $300 million for a “salvage bonus” and $300 million for “loss of reputation.” A hearing on the appeal will be held on May 4, it said.
General average – what cargo owners should know
The owners of the Ever Given had declared General Average. The most often cited legal definition of “general average” is “all loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo losses within general average, and must be borne proportionately by all who are interested.”
This means that the costs of refloating and salvage of the ship is passed on the cargo owners on board on rateable proportion depending of the value of each cargo owner’s cargo. Until the contribution for general average is settled, the cargo owners cannot take delivery of their cargo, even if it is delivered at the destination. The shipowner can exercise a right to detain the cargo under a general average lien until the cargo owners commit to pay the individual general average contribution.
In practice, the cargo owners will not need to pay before they collect their cargoes. They need to provide a general average bond from their cargo insurers, or if they do not have any insurance, a bank guarantee to cover their contribution.
The cargo insurance of these container cargo on board is covered by the Marine Insurance Cover using the English Forms, as is common internationally. Thus the cargo owners will rely on their cargo insurers to settle the general contribution for them. Clause 2 of the common Institute Cargo Clauses is as follows:
2. This insurance covers general average and salvage charges, adjusted or determined according to the contract of carriage and/or the governing law and practice, incurred to avoid or in connection with the avoidance of loss from any cause except those excluded in Clauses 4, 5, 6 and 7 below.
The general average contribution will be adjusted later by general average adjusters. There is room to dispute or contest but this is rarely done.
The general average aspects are not in play yet, as both the cargo and the ship are still under detention and an Egyptian court has blocked the discharge of Ever Given’s cargo. Even if the insurers can successfully appeal that ruling and secure the release of the cargo, the unloading of ultra-large container ships is typically carried out in ports with equipment that can reach vessels of this size and height. Thus the logistics of transferring the cargo to other vessels would be challenging. For the cargo owners, their cargoes are still very much stuck on board.
The interplay of factors which caused the ship to lodge itself against both banks of the canal are still the subject of investigations. Some reports suggest that the strong winds which are encountered along the canal pushed against the sizeable height of the ship. There are also reports of the pilot’s contribution. In cases where the engagement of pilots are necessary (i.e. compulsory pilotage), the pilot acts as the agent of the ship, so any imputation of fault will reflect back on the shipowner.
For the cargo owners, any claim against the Ever Given will be met by the defense of negligent navigation and management of the vessel, which is a defense under the Hague Rules. This is clearly applicable for containers loaded at the last port, Tanjung Pelepas in Johor Malaysia, as the Hague Rules apply through the Malaysian Carriage of Goods by Sea.
Cargo on other vessels
Delays arose for the hundreds of ships that decided to wait for the canal to clear. Vessels that decided to divert from their planned voyage to take the longer route around the Cape of Good Hope traversed longer routes and arrived later than the planned schedule. The delays may have caused some of the cargoes on board the vessels to deteriorate, and for project cargoes, delays may affect deadlines.
The availability of recourse against marine cargo insurance policies is also not a given, as most marine cargo insurance do not cover losses due to delays. Cls 4.5 of the Institute Cargo Clauses excludes losses due to delay:
4.5 loss damage or expense caused by delay, even though the delay be caused by a risk insured against
While the Ever Given has been freed from its blocking the banks of the Suez Canal, its owners are finding that they are still very much lodged in quagmire of legal and insurance issues. For Ever Given, the transit through the canal is not yet over, in more than one sense.
About the author
Philip Teoh has been in legal practice in Singapore and Malaysia for the past 31 years handling both contentious and non-contentious areas. He is the partner heading the Shipping, International Trade, Insurance Practice in Azmi & Associates Malaysia. He is an SCMA Arbitrator and also works with the key International Arbitration Centres of LMAA, EMAC, ICC, LCIA, AIAC and KCAB, among others.
Azmi & Associates has long-standing experience in all facets of contentious and non-contentious shipping and maritime matters including marine insurance. It assists its clients are areas such as ship arrests, collisions, cargo and P&I claims and arbitrations. Practice head Philip Teoh has some decades of experience in shipping, logistics and international trade matters.