The EVER GIVEN – was there a concluded contract? The Admiralty Court says no.
6th April 2023
The grounding of the 20,400 teu “EVER GIVEN” in the Suez Canal is well-known, but much less is understood about what was going on behind the scenes as the parties negotiated for her refloating. It has proven controversial. A recent Admiralty Court judgement has now thrown light upon exactly what happened.
At about 07.40hrs LT on 23 March 2021 the 400 m long vessel grounded in the Suez Canal in one of the narrowest sections, blocking the canal to all traffic and making headlines around the World. The vessel was subsequently refloated on 29 March 2021 in a combined operation of SMIT Salvage and Suez Canal Authority, under the intense spotlight of the media.
The Suez Canal Authority has brought its own claim. The terms under which SMIT, a leading salvage company based in Rotterdam, were involved were referred to in the Admiralty Court in London. The issue for determination was whether there had been a binding contract concluded between the salvage company and the owners of the “EVER GIVEN”, Luster Maritime S.A. and Higaki Sangyo Kaisha Limited, through the latters’ representatives in London.
As SMIT mobilised their team pursuant to the owners’ initial request, negotiations commenced on the terms and remuneration under which they were to operate. SMIT offered Lloyd’s Open Form (LOF) but that was declined.
The terms under discussion were based around SCOPIC rates plus an uplift and a refloating bonus, with the services to be performed under an amended Wreckhire 2010 contract.
SMIT’s position was that at the time of refloating, which coincided with a spring tide in the canal offering potentially critical buoyancy to the operation, no binding contract had been concluded. As such, they were entitled to bring a common law salvage claim under the International Convention on Salvage, 1989.
Owners’ position, in contrast, was that a contract on the above terms was concluded, precluding any claim in salvage, as SMIT were not volunteers.
There have been numerous cases in the past in which one party to a negotiation asserts there was a binding contract and, in this case, there was no material dispute about the principles regarding the formation of a contract.
Briefly summarised, there must be an offer and an acceptance of that offer. With no contract being signed, the particular issue in this case was whether the parties had communicated sufficiently whether they intended to be bound by the terms discussed in correspondence before or at the time of refloating.
This required a close examination of the exchanges, and the key players involved were cross-examined in court on their evidence, some giving a better impression than others.
Owners’ position was that the contract was concluded by an exchange of emails in which SMIT and the owners had reached a consensus as to the basis of remuneration, which was essentially SCOPIC plus 15% and a refloating bonus after which the parties then continued to negotiate further terms. Owners argued that the main terms had been agreed and thus sufficient to result in formation of a contract even if other terms remained open.
SMIT’s position was that no contract was concluded because the terms of the Wreckhire they had submitted had been subject to substantial amendments and which related not only to risk and liability but also other important points. Those amendments were unacceptable to SMIT. The parties continued to go back and forth regarding the terms but on the 29 March 2021 without any satisfactory conclusion they proceeded to refloat without a contract.
One issue owners raised to support their position was that none of the correspondence had been marked ‘subject to contract’ or ‘subject to detail’. The judge made the point that using such terms would make it clear to the other side that the parties do not intend to be bound until such time as the details have been finalised or there is a full contract executed.
The judge concluded, in the absence of an unambiguous offer and acceptance, that the effect of what was said in the correspondence was that SMIT did not intend to be bound at that point in time. Accordingly, the way is clear for them to bring a common law salvage claim which will be determined in London.
This is a useful reminder of the basics of contract law and the caution that needs to be taken around concluding a contract. If a party unambiguously communicates to the other side that they intend to be bound by the terms negotiated, a binding contract may be (perhaps unintentionally) formed unless the exchanges are clearly qualified by words such as “subject to contract/details”.
Following the recent publication of Mr Hugh Shaw’s report (on instruction from the International Group of P&I Clubs) regarding delays in the conclusion of salvage services, this case seems to be quite apt and is a good example of what can occur when parties seek to negotiate complex contractual terms during a crisis.
With the World watching, the Suez Canal being blocked, and millions of dollars being lost in trade, to a layperson it must seem incredible that the owners were arguing about specific clauses to alter their risk and liability. Whilst there was no immediate threat to life or the environment it does pose the question as to whether LOF, as a well-known balanced contract which is designed to be signed without negotiation, would have been more appropriate. Moreover it is clear from the parties’ correspondence that the attraction of LOF became increasingly apparent to owners, but they were unable to take the firm and decisive step necessary to resolve the impasse. The arbitration procedure for a claim under LOF is certainly a simple one and relatively swift. It is much less expensive and cumbersome than the proceedings in court now facing the parties in this case.
5th April 2023
Paul Haworth is a Master Mariner with command experience. Coming ashore he qualified as a solicitor in 2009. He is a member of the TugAdvise team, a specialist legal service dedicated to the tug and towage industry, part of the award winning shipping law firm Tatham & Co.