Cargo owners will shoulder Ever Given salvage payments

It has been more than two months since salvors unblocked the Suez Canal by refloating 20,000-TEU container ship Ever Given and yet the vessel remains in Egypt awaiting compensation payments and its release.

If discussions do not result in a compromise, it is the receivers of cargo on board Ever Given that will continue to bear the brunt of the vessel’s detention in Egypt.

The Egyptian arrest proceedings have now been adjourned to give the parties a further opportunity to reach a settlement.

This covers the demand of the Suez Canal Authority (SCA) for salvage – reported as a ’salvage bonus’ under Egyptian law – fines and compensation. These are now moderated, following a reassessment of the cargo’s value from US$915M to US$550M, to be met by a cash contribution of US$200M with security for the balance.

Owners also moved swiftly, establishing early in April 2021 a limitation fund of US$114M in London pursuant to the 1996 Protocol to the Limitation of Liability Convention (LLMC) of 1976.

By invoking the protection of the LLMC, claims are to be brought solely against the limitation fund and other proceedings in signatory jurisdictions for security or arrest are to be stayed.

However, although Egypt is a signatory to the 1976 LLMC, it is not a signatory to the 1996 Protocol and it does not follow that the Egyptian proceedings will be stayed, and in any event claims for salvage and fines fall outside of the convention.

The fund will therefore mainly afford protection from third-party claimants, first and foremost perhaps the cargo and charterers. It is difficult to see how third parties, however inconvenienced, can bring valid claims, but they might try their luck in Egypt.

Under English law, a claim for financial loss is dependent upon there being actual physical damage resulting from the owner’s negligence.

According to the Egyptian press, SCA has suggested that owners had offered US$150M which, if correct, might approximate to the value of the vessel.

While owners might, in other circumstances, consider it better to abandon their vessel than pay a much greater sum, to do so would leave the cargo abandoned, which commercially cannot be an option.

In any event, the owners have declared General Average and would seek to recover eligible categories of their expenditure by way of a contribution from cargo.

With cargo values being a multiple of that of the ship, cargo may potentially be paying the lion’s share provided the grounding did not result from a failure of the vessel owners to exercise due diligence in and about the planning of the voyage.

In that respect, we can expect cargo interests to be challenging Ever Given owners as to the procedures they had in place to enable a proper assessment of the risk of proceeding in bad weather along a narrow waterway.

They could also question what relevant training was provided to the master and why he did not call for tugs.

Such a vulnerably high-sided vessel must always maintain steerage, but why was Ever Given reportedly making 22 knots at the time?

As to Ever Given’s refloating, there were several contributing factors that might go towards a traditional assessment of a salvage claim.

Dredging of around 30,000 tonnes of gravel will have helped the bows to pivot. More than 12 tugs organised by the SCA assisting on the north side and the technical expertise brought by professional salvors together with their two enormous tugs on the south side connected to the stern all played their part, while nature contributed a high spring tide and strong tidal flow on the day.

However, some commentators have suggested that although the SCA played a part in the operation, which they will have overseen pursuant to their mandate under the SCA Rules of Navigation, they were not volunteers.

The argument would go that such mandate amounts to a pre-existing duty upon the SCA to intervene to assist vessels in distress, barring them from bringing a salvage claim. I can see nothing in SCA Rules supporting that, indeed Article 59 makes it reasonably clear that such a claim may be made.

The main danger from which the vessel and its cargo were preserved would be characterised as ’immobilisation’, ie remaining indefinitely aground in the absence of assistance.

It cannot get much worse, surely, than being immobilised across the world’s busiest and arguably most important shipping canal. While that risk is principally a physical one, the fact that being aground for barely 10 days has given rise to a claim for US$550M speaks.