Newsworthy events are rare in the shipping sector. We hardly hear of any shipping-related happenings – partly because significant events are few and far between and partly because it is not engaging enough for the general public or the publishers. However, the incident with the Ever Given ship in the Suez Canal grabbed eyes and news space around the world.
The Incident
On March 23, 2021, a 400 meter-long ship – one of the largest in the world and approximately the length of the Empire State Building – became wedged at either end of the Suez Canal. This was a consequence of hot, dry, sand-filled, and strong winds which are popularly known as Khamaseen winds in Egypt. These winds cause “disruption in maritime navigation” due to poor visibility and spikes in temperature. The Suez Canal authorities had a tremendous job ahead of them as freeing the ship would be no easy task. Weighing over 2,00,000 tonnes, the release of the ship would require a fleet of powerful tugboats and dredging vessels which would need to uproot mud and sand from the edges of the Canal in an effort to free the ship. The canal authorities were finally able to re-float the Ever Given after round-the-clock salvage work for six days.
It is important to understand that the Suez Canal is an extremely thin passageway. It is also one of the most vital passageways. If the Suez Canal is not used, then ships would have to travel across the large continent of Africa to reach the East. When Ever Given blocked the Canal, it created history in multiple ways. This incident marked the longest number of days that the Canal was shut for since the Six-Day War in 1967. Since the Ever Given completely blocked the narrow Canal, a massive traffic jam was formed with approximately 400 ships waiting behind it. The only other option for these ships to make a transit to the East was to turn around and make a trip around the Cape of Good Hope in Africa. This would add ten days to a ship’s journey and contribute to the severe delay of the cargo onboard the respective ship. The Suez Canal accounts for the facilitation of an enormous 12% of global trade, one million barrels of oil, and 8% of LNG sources per day. As a result, it is estimated that $9.6 billion worth of cargo between the West and the East each day the blockade continued. This amounts to a total of $57.6 billion. Additionally, Egypt lost $12 to $15 million in revenue per day as the Canal was closed. Since 2% of Egypt’s GDP is a contribution to the works of the Suez Canal, these losses are significant. The losses caused by this blockage of the Suez Canal were not only damaging to the shipping industry and the Egyptian economy but to businesses – large and small – across the world whose cargo was stuck on the Ever Given or the ships rallied behind it.
After the ship was re-floated, the Suez Canal authorities did not allow for its continuation to the East. Instead, the ship was seized and stationed by the authorities who have demanded that $900 million should be paid to them as compensation. This compensation was to cover income lost through transit fee as a backlog of ships was created by Ever Given, the damage that was caused to the Canal as a result of salvage efforts, and labor and equipment costs to re-float the Ever Given. An investigation has been launched into the freak incident and the matter is also before relevant legal authorities in Egypt (Ismailia Economic Court). The question now is – who should be held liable for this incident and to pay the associated damages?
Legal Liability
After the Suez Canal Authorities pursued a $916.5 million dollar claim against the Japanese owner of the Ever Give, Shoei Kisen, and seized the ship, the decision was appealed by him at the Ismailia Economic Court seeking an end to the ship’s detention as well as the compensation claim. Lawyers arguing on behalf of Kisen believed that the liability for the incident should be pinned on the Canal authorities as they should have never let the Ever Given pass through the narrow waterway when bad weather was predicted. Moreover, the authorities had failed to prove how the ship was liable in any case. Recordings were reproduced where disagreements were heard within the authorities on whether the Ever Given should be allowed to pass in such tumultuous conditions. The lawyers also argued that the Ever Given should have been accompanied by tugboats due to the dangerous weather conditions, but the Canal authorities did not ensure this either. Due to the reasons stated, the shipowner has claimed an initial compensation amount of $100,000 for losses as a consequence of the ship’s seizure and its non-operation. However, the Court never received the opportunity to consider these arguments as it said that it lacks jurisdiction to deal with the matter. The case was referred to a lower court by the appeals chamber of the Ismailia Economic Court to decide on the matter of the seizure and pronounce a decision on its legality.
Another important consideration for understanding the legal liability of the incident is the declaration of General Average (‘GA’) by the owner of the Ever Given. GA is a legal principle in maritime law under which all cargo owners whose cargo may be on a vessel are required to contribute to any damages that the vessel may have to pay, regardless of whether the cargo was damaged or caused the damage. This principle is founded on equity and has a rich history that can be traced back to Rhodian law and customs. GA applies in cases of “extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo losses”. Since GA has been declared, the owner of the Ever Given will not be solely responsible for any damages, even if the liability is imposed on the ship.
Without proper investigation, it is impossible to determine legal liability as a range of complex legal issues are at play. The cargos onboard the Ever Given are not of one type. They range from oil barrels to consumer goods. They also include a host of perishable food items. Given this, the full extent of damages may not be immediately perceivable and, in fact, may take a long time to appraise. This is because while it may be assumed that perishable items have been completely destroyed in cargo, even consumer goods may have suffered damages in the tumultuous period. This incident may trigger a series of legal actions – owners of cargo onboard the Ever Given may seek compensation for losses from insurance companies and insurance companies, in turn, may seek compensation from the owners of the Ever Given. These owners, themselves, will be looking to their insurance agents for protection. Therefore, a full circle of legal actions looms over the incident.
The Ever Given may have been re-floated after the blockage. However, it still remains stuck in the Suez Canal, embroiled in legal matters for the considerable future till an impartial investigation reveals the true culprits.
Date
July 10, 2021