Ever Given grounding– the impact on sellers and buyers

Clyde & Co’s Eurof Lloyd-Lewis, Partner, and Benjamin Bryant, Associate, have written on the impact on buyers and sellers of the grounding of the Ever Given in the Suez Canal between March 23rd and March 29th. The writers discussed a number of practical considerations, principally for sellers and buyers in the grain and other trades, who may have experienced issues following the incident.

Contractual and other issues

a. Insurance

Traders may face difficulties attempting to recover from their cargo insurers any losses caused by delay owing to the Grounding. For example, GAFTA 72 stipulates that where the parties have agreed cover in accordance with Cargo Clauses (All Risks) or Cargo Clauses (WA) they do not extend to loss damage or expense proximately caused by delay. This exclusion also applies to Institute Cargo Clauses (A). Clyde therefore advised traders to review carefully the wording of their cargo insurance policies to determine whether such losses would be recoverable.

b. Voyage charterparty

The contractual remedies available to CIF Sellers and FOB Buyers as charterers against owners whose vessels have been delayed by the Grounding, appeared to be limited, said Clyde.

Subject to market freight rates, Charterers may elect to exercise their right to cancel if a vessel misses its laycan. Further or alternatively, Charterers may look to the terms of their charterparty to determine whether any claim for damages lies against the shipowner for failure to proceed to the load port with reasonable dispatch and/or for breach of “estimated ready to load” or “estimated time of arrival” statements. 

There was a likelihood of increased congestion at load and discharge ports. Charterers were advised to check the precise wording of their charterparty (for example, if a berth charterparty, whether their contract contains a “WIBON” clause), including any exception clauses applicable to laytime and demurrage, to determine when the vessel would be deemed to be an arrived ship for the purposes of triggering the running of laytime. Claims for demurrage would in the first instance be borne by Charterers who would in turn try to pass them on to their counter-party. Whether they can do so or not would depend upon the terms of the sale contract, Clyde said.

The firm advised that it might be “difficult” to pursue a claim in deviation against an owner who opted to take the longer route around the Cape of Good Hope during a laden voyage, rather than queue for the duration of the Grounding.

Clyde advised that charterers considering exercising their cancellation rights under a voyage charterparty in anticipation of the above issues should seek legal advice before doing so, to ensure that they do not commit a repudiatory breach of contract, by cancelling before contractually permitted under the charter.

c. Sale contract

FOB and C&F/CIF buyers were reminded that the contract goods were shipped at their risk and this included transit delays.

Where a nominated vessel’s arrival was delayed at loading then FOB buyers and C&F/CIF sellers might wish to consider whether they would be able to claim an extension of the shipment period.

If the parties have agreed to incorporate the standard form GAFTA “Prevention of Delivery” clause or a clause in similar terms into their sale contract, then a buyer would not be able to assert force majeure.

d. Remedies against the Owners of the Ever Given

Clyde said that whether or not the owners of the Ever Given owed a non-contractual duty of care to third parties whose goods were carried aboard other vessels, and whose contracts had been affected by the grounding was likely to be determined in accordance with Egyptian law. Therefore an affected party would need to obtain legal advice from locally qualified lawyers. The owner (Shoei Kisen) could also be sued in Japan, where it is based or possibly in alternative jurisdictions, depending on individual circumstances.

Clyde observed that, until a full investigation had been carried out as to the cause of the grounding, it was unclear whether cargo interests with cargo on board the Ever Given would have a right to claim in respect of any loss or damage to cargo that might have occurred and/or a defence to a claim for General Average.

The owners in any event would seek to rely upon The Hague, Hague-Visby or equivalent Rules to defend such claims. Shoei Kisen have now filed a limitation action before the English Admiralty Court to limit their exposure to claims for loss or damage to property.

e. Contributions to General Average

Since the Owners of the Ever Given declared GA on April 1st, some observers have commented that this grounding might develop into the most complex GA claim ever. Clyde said that cargo interests with cargo aboard the Ever Given should be aware that GA security will be required to be provided to the owner to obtain the release of cargo, and should look to their cargo insurance policies in the first instance to determine whether or not this liability was covered.

If it is, the cargo insurers should post the required GA security, opening the way for the release of the cargo. If not, then security in an acceptable form would need to be provided. Where security was not provided or not offered in  a form acceptable, the Owner would be entitled to sell the cargo to cover the cargo interests’ contribution to GA.

A version of this article was first published in Gaftaworld, Issue 249, April 2021