The Ever Given grounding incident on 23^rd March 2021 has caused a stir in the industry. Following its refloatation on 29^th, the Suez Canal is open again, but the impact remains with a myriad of legal issues and cases waiting to be cleared. There has not been any official conclusion on the cause of the incident, not excluding the master’s fault in ship handling. According to media reports and information provided by Egypt correspondents Middle East Survey & Control Office, El Hamamsy Marine Services LTD and Eldib Pandi, this article is prepared to give a general analysis on the Owner’s losses, liabilities, defence as well as entitled limitation of liabilities.

I. Losses to the Owner and Potential Claims

Damages and losses will be analysed from the perspective of shipowners, cargo owners, the Suez Canal Authority (SCA) and other tailback vessels.

1. Cost of repairs

Costs to repair the Ever Given hull damage will be inevitable.

2. Loss of earnings for the Owner

The Owner will have to bear the losses of earnings for Ever Given’s suspension of service or off-hire under time charters while it is arrested for investigation or being repaired.

3. Salvage award

According to the media, the SCA has coordinated the successful salvage operations with the internationally reputed SMIT and Nippon Salvage also engaged under Lloyds Open Form (LOF). The International Convention on Salvage, 1989 provided that the master shall have the authority to conclude contracts for salvage operations on behalf of the owner of the vessel. Based on the “no cure no pay” principle, payment to the salvor shall be made by all vessel and other property interests in proportion to respective salved values if the salvage operations have had a useful result. The award, normally below 20%, stood at an average of 11.9% of the value of property saved according to Lloyds data in 2018. SCOPIC clause is also incorporated in the LOF as an option.

4. SCOPIC remuneration

Whether SCOPIC clause is applicable here is yet uncertain, and if applicable, remuneration which is introduced as special compensation under Article 14 of the Salvage Convention shall be paid by the owner. To give a general idea, if the SCOPIC clause is invoked and the remuneration is greater than the traditional salvage award, a bonus shall be paid by the owner for the sum over and above the award. Should the award exceed the SCOPIC remuneration, the award shall be discounted by 25% of the difference between the award and the amount of SCOPIC remuneration.

5. General average contribution

The Owner has allegedly declared General Average on April 1^st and engaged Richards Hogg Lindley as the Average Adjusters to seek security from cargo interests, which is without doubt an arduous work. Essentially, the cost of GA is not borne by any single party but split among all stakeholders. Pursuant to York Antwerp Rules 1994, salvage award (excluding SCOPIC remuneration), costs and damages incurred for deloading, expenses for diverting to a port of refuge, expenses to discharge of cargoes and costs of temporary repairs would fall for consideration under GA. Calculation of GA contributions is based on the actual net value of property at the end of the voyage. Owners may hold the cargo under lien until GA guarantee or cash deposit is collected. The liability and financial burden of the owner include its own share of GA contributions, which is calculated based on the value of the vessel proportionately to the total value, and GA contributions unrecoverable from the cargo owner.

6. Damage to cargoes and delays

Cargoes on board are likely to be damaged or delayed for delivery when the ship is under arrest, awaiting investigation and repair.

7. SCA repair costs

The incident has caused physical damage to the Suez Canal. Dredging the channel to refloat the vessel would also incur costs of repair.

8. SCA loss of earnings

The blockage of the canal over the week has caused great loss in revenue for SCA. There were approximately 18,829 transits in 2020 with a daily average at 51.5. Costs payable to the SCA were around 5.61 billion dollars with a daily income of 15.37 million dollars and charges for each ship at 300 thousand dollars.

9. SCA fines

Fines may be imposed by SCA on the owner and crew of the Ever Given.

10. Loss of earnings for affected ships

It is said that over 400 ships were affected by the incident, including those trapped in the canal and those diverted via the Cape of Good Hope. These ships may claim against the Ever Given for not only loss of earnings but also liabilities for delays and damages of the goods in the execution of the carriage.

Fortunately, no personal injury or pollution was caused.

II. Ever Given Owner Liabilities

Is it true that the owner of Ever Given may be liable for billions, or even tens of billions worth of damages?

1. Liabilities for delays and damages of goods

Pursuant to the Hague-Visby Rules, to which most bills of lading are applicable, the carrier is liable only to the loss and damage to the goods with exceptions established in article 4 when such loss or damage arises from act, neglect or default of the master, mariner, pilot, or the servants of the carrier in the navigation or management of the ship. However, the Hamburg Rules provide otherwise. The carrier is liable for delay occurs when the goods have not been delivered within the time expressly agreed in the contract of carriage. A liability regime for presumed fault is contained and it is presumed that the carrier is liable except in the case of fire on board. Either way, in the event the carrier is also the owner of the ship, the carrier would be in principle entitled to the benefit of a limitation of liability.

2. Liabilities for SCA loss of earnings

The SCA has allegedly demanded US$1 billion in compensation to cover lost revenue and salvage efforts. To get a hang of the reasonable amount of the claims, we may multiply the daily revenue of US$15.37 million by the duration of the blockage, which is the seven days between March 23-29, and the result is around US$0.1 billion. Although the canal is not navigable for only a week, a considerable number of ships were trapped. If we take into account previous statistics of 51.5 daily transits, there should have been 618 ships transiting through the canal in the 12 days between March 23 to April 3 and there were only about 400 ships. Therefore, the loss in charges on these ships is around US$30-60 million, suggesting the actual loss sustained by SCA may be limited.

3. Liabilities for affected ships

The incident has set off a chain of reactions like a stone thrown into a pond. A great number of ships were affected, and the problem is whether the owner of the Ever Given should be liable for tort? Before consulting local lawyers on the applicable tort law in Egypt, this article focuses mainly on discussing whether loss of earnings of these ships can be recovered in the context of other legal systems. Basically, loss of revenue for ships that have not entered the canal and cargo liabilities for trapped ships are too remote a consequence and causation between the incident and the result can hardly be established.

For ships that have entered the canal or have paid for the transit at the time of the incident, it is personally held that the loss of profits incurred should be deemed as pure economic loss. A typical case in this regard would be the Spartan Steel and Alloys Ltd. v. Martin and Co. Ltd where the defendant severed the power supply when digging up a road resulting in a loss of power to the plaintiff’s factory. The court held that it is a public policy not to recover pure economic loss and appeal was rejected. Similar practices were also seen in other countries including German. According to one of the cases made public by the Shanghai Maritime Court last year, the claim for loss resulted from delays was also rejected when the plaintiff got delayed for entering and departing from the port because containers carried by the defendant’s ship fell overboard into the sea.

III. Limitation of Liability for Maritime Claims

The incident took place in Egypt, which is a State Party to the Convention on Limitation of Liability for Maritime Claims (LLMC 1976). However, according to article 4 of the SCA Rules of Navigation, the Ever Given owner would not be able to limit liability for direct and indirect losses suffered by SCA, and the vessel waives the right to claim on the SCA for any damages caused by third party. In the case of the Ever Given, trapped vessels would not be able to claim on the SCA for their loss caused by the incident (information provided by correspondent of the Association and further advice from local lawyers should be sought).

An analysis on claims subject to limitation and claims not subject to limitation is made considering article 4 of Rules of Navigation and article 2 and 3 of LLMC 1976:

• Claims not subject to limitation include: a) costs to repair the canal, b) SCA loss of revenue, c) salvage award, d) SCOPIC remuneration, e) GA contributions.
• Claims subject to limitation include: a) loss of earnings for affected ships, b) delay in delivery or liability for cargo damage if the Hamburg Rules apply.

Article 6 of LLMC 1976 provides that the maximum sums for claims other than loss of life or personal injury claims would amount to SDR 22,345,296 which equals approximately US$31,733,851.03.

IV. An Estimate of Total Losses

The table below offers a summary of analysis on the liabilities and losses of the owner.

 V. Conclusions

According to previous analysis, most of the loss suffered by the owner would come from the owner’s share of GA contribution and claims by the SCA for loss of revenue.  Even in worst scenario, the owner would be liable for cargo damages and loss of revenue for affected ships, both of which are subject to the limitation of US$ 31.73 million. All these add up to around US$ 100 million, far less than the figure described in some news reports. That being so, it is of utmost importance for owners to arrange reasonable insurance to have the risks covered and to properly address problems once there are any.

The above is only a general analysis of the case based on current information for Members’ reference only and does not represent any view of the Association. For more information, please contact Managers of the Association.