London chamber 7KBW looks at possible legal fall-out from Ever Given accident

Richard Sarll, a shipping barrister; a co-author of Carver on Charterparties; and co-editor of Lowndes & Rudolf on General Average and York-Antwerp Rules, has written a fascinating “armchair pundit’s musings” on the legal ramifications of the six-day blockage of the Suez Canal by ULCV Ever Given.

What was known so far was that on April 1st 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.

Legal firm Clyde has calculated that, the limitation fund, once constituted, will total about $114m, based on the Vessel’s gross tonnage.

Sarll observed that 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”, he wrote.

Once the limitation fund is constituted the shipowner would be afforded the important protection for which Article 13, LLMC 1996 provides, namely that there would be a bar to limitable claims commenced otherwise than against the limitation fund, and the shipowners’ vessels would be protected from arrest. This would not only be the result in England; all the courts of contracting states to the Contention would have to stay limitable claims.

This relief would also be available automatically to other entities described in Article 1 of the Convention (including the charterer, Evergreen).

Article 2 LLMC 1996 provides that claims in respect of damage to property are subject to limitation of liability. This would include damage to cargo which had deteriorated or experienced a loss of market due to the delay.

LLMC 1996 also provides that claims for damage to “waterways” are limitable, as well as the consequential losses arising therefrom.

“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”, wrote Sarll.

He said that it was of interest that the shipowners (and the UK P&I Club, which stands 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”, he wrote.

At the moment there was no indication that the SCA would take the bait, with the latest information being that the SCA is looking for $916m in compensation from Ever Given owner, Japan-based Shoei Kisen, as a result of 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”. Sarll said that this provision could well be of sufficient breadth to cover many of the SCA’s claims. He noted that it was 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”, he wrote.

In addition, the sum being sought by the SCA was 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.

This brings the reader into the hypothetical arena of what would happen if the SCA decided to maintain its demands for such an exorbitant sum. “In other situations, a shipowner might in extremis abandon its ship”, he said.

As Sarll observed, that option posed problems. Both the owner and the charterer would, one assumes, be unwilling to abandon the Suez Canal as a future client for the foreseeable future.

This raised the spectre of the SCA arresting other ships if its demands were not met. Sarll observed that this was “not a situation which any shipowner or line will wish to face”.

Pondering potential solutions, Sarll said that one idea that might seem tempting would be 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 was 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”, said Sarll.

However, Sarll said that average adjusters were likely to take the view that, unlike at a pirate’s lair, ship and cargo were 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.

It should also be noted that, subsequent to Sarll writing the article, the charterer Evergreen issued a statement that included the statement that it was “investigating the scope of (the court order granting an application to arrest the vessel) and studying the possibility of the vessel and the cargo on board being treated separately”,