Suez Blockage: Legal Repercussions and General Average
The Suez Canal has now been fully cleared after nearly a week of challenges, but the aftermath of the Ever Given incident has left behind a complex web of legal and financial implications. The incident, which involved a container ship grounding, has raised questions about the validity of a general average (GA) declaration and the potential legal repercussions faced by various parties involved.
The Ever Given Incident and General Average Declaration
On March 23, 2021, the Ever Given, a Panama-flagged MV named after Taiwan-based Evergreen Marine Corporation, ran aground in the Suez Canal. This event, which caused significant disruption to global shipping, has now seen the Evergreen Marine Corporation declare a general average (GA) for the operation and repairs to the ship.
According to the Bareboat Charter Party clauses, the Evergreen operator has the right to declare GA. However, legal experts and industry insiders question the validity of this declaration, as Evergreen may not be entirely qualified under maritime law to do so.
Legal Repercussions: Cargo Owners and Ship Owners
The legal repercussions are looming, with cargo owners and shippers potentially suing the Ever Given operator, Evergreen, for declaring GA. Furthermore, the Japanese owner of the ship, Shoei Kisen Kaisha, has already filed a lawsuit against the Taiwanese Evergreen in London's High Court. These legal issues promise to create complications for all parties involved, with the best course of action being for all the participants to make settlements themselves.
Understanding General Average and Its Application
General average is a legal principle in maritime law that involves the sharing of losses and expenses resulting from extraordinary sacrifices or extraordinary expenditure made to save lives, property, or the ship or cargo from perils of the sea. Traditionally, this principle was put in force in the 1890s by the York-Antwerp Rules.
Under certain conditions, the shipowner or operator can declare GA. These conditions include extraordinary sacrifices made to prevent the sinking or foundering of the ship and cargo, and financial losses incurred due to such actions. However, the Ever Given incident seems to not meet these criteria as the grounding was not voluntary or intentional by the crew.
The Role of Insurance in General Average
Incidents such as these often involve the participation of protection and indemnity (PI) clubs, which provide insurance coverage for damage caused to cargo during carriage, war risks, environmental damage, and hull and machinery (HM) damages. The Ever Given is insured by the UK PI Club, and after the declaration of GA, an appraiser named Richard Hogg Lindley has been appointed to assess the GA and salvage costs.
However, with a complex mix of cargo owners, differing values of cargo, and multinational corporations involved, the process of determining the GA and salvage costs can be lengthy. There is also the issue of uninsured cargo owners who refuse to pay GA and salvage costs, which can result in the shipowner retaining the cargo until such payments are made.
Financial and Operational Impacts
The cost of the Ever Given, estimated at $3.5 billion, underscores the financial gravity of the situation. The incident has resulted in significant financial losses, especially for the governments of Egypt, where the canal is a major source of revenue, and for other shipowners whose ships were delayed. The Evergreen Marine Corporation is faced with the challenge of proving the necessity of declaring GA and justifying the extraordinary expenditures incurred.
Potential Legal Battles
With multiple lawsuits imminent, the various parties involved, including the shipowner, cargo owners, and insurance companies, will face legal battles. These disputes can significantly impact both the shipowner and cargo owner. For the shipowner, keeping the vessel in operation is crucial to earning revenues in the current high-demand market for container freight.
The Egyptian authorities have confirmed that the vessel will remain anchored until compensation is paid and the investigation is completed. This could potentially take months, causing further delays and impacting shipping operations worldwide.
Conclusion
The Ever Given incident has highlighted some grey areas in maritime law and has raised questions about liability and responsibility. While the shipowner and operator, Evergreen, have attempted to spread the financial responsibility, legal experts argue that the declaration of GA and the related actions may not be justified. As negotiations and investigations continue, the international shipping community waits to see how this complex issue will be resolved.