The Suez Canal blockage highlighted supply vulnerabilities. ©Getty Images
The Suez Canal blockage highlighted supply vulnerabilities. ©Getty Images

A legal jam for Ever Given

27 August 2021

Months after stricken container ship Ever Given was freed in the Suez Canal, the lawsuit arising from the blockage finally closed. Cameron Boyd, associate at Clyde & Co, explains the situation 

Ever Given grounded on 23 March while transiting the Suez Canal with cargo on board valued at around $700m. It took six days for the vessel to be refloated through the combined efforts of the Suez Canal Authority (SCA) and the contractors Smit Salvage and Boskalis. After the termination of salvage services, the vessel remained under arrest in Egyptian waters for three months.

Following the operation, the SCA began pursuing claims in salvage against the vessel’s owner, Japanese-based Shoei Kisen Kaisha Ltd, and also exercised a lien, or legal right, over the cargo. The claim was originally $916m but the SCA later reduced its demand to $550m in support of reaching an amicable settlement, and after the figure was deemed hugely inflated in respect of the services rendered and losses claimed, including by third-party insurer UK Club.

Salvaging the costs

It is worth noting that the SCA’s claim included $300m for “loss of reputation” and a “salvage bonus” also valued at $300m. We would normally expect the services provided by the SCA to be paid for according to its tariff which, if applied, would result in a far lower sum limited to only a few million dollars. The final settlement, reached on 4 July and signed on 7 July, has not been disclosed but we would expect it to be valued at a fraction of the amount claimed.

If a settlement had not been concluded, a hearing would have taken place, at which the SCA would have sought to have the arrest confirmed and to substantiate its claim. Should this have been successful and all avenues of appeal exhausted, the owners would have had little choice but to either pay the sum or abandon the vessel.

In such a circumstance, the SCA would have likely sought an order from the court permitting it to sell the vessel – and, potentially, the cargo – to satisfy the judgment.

Where is the cargo?

To avoid the ship owners using the goods as part-payment, a number of cargo interests we were representing were planning to challenge the SCA’s arrest independently. Now the SCA and owners have reached an agreement and the vessel has been released, still carrying its 18,300 containers, the owners may seek to recover their expenditure in general average (GA) from cargo interests, with their total expenditure being shared on a pro-rata basis.

The problem for cargo interests then will be two-fold: first, to secure the GA claim (hopefully with support from the cargo insurers) and, second, to establish a defence to the owner’s claim in GA. We have been advising more than $100m of cargo on this issue as well as any potential recovery for physical loss or damage to it should that arise.

In that respect, limitation proceedings are under way in London and a limitation fund against which claims can be lodged is expected to be constituted in the city’s Admiralty Court. Now, the vessel will sail to the Netherlands and on to the UK, where it will be unloaded and the cargo released for inspection.

The passage of time

While vessels have grounded in the Suez Canal before, a claim of this scale is uncharted waters for the maritime industry. As for the question of how to avoid a repetition of this scenario, unfortunately, cargo interests will have little say in the matter as long as vessels continue to use the Suez Canal.

Be aware: while there are plans to expand the banks, there is every chance that the SCA would adopt a similar stance in the event of a future casualty in the canal. Therefore, we must also consider the advantages of using the Suez Canal, which vary depending on the voyage route.

Some operators may consider the risk of transiting the Suez Canal to be too high and may favour alternatives if the cost/benefit equation of using the canal, minus passage fees, makes them attractive. And if this does play out and more companies find lower-risk ways of transporting their goods, then this result may have been caused, at least in part, by the SCA itself.

Note: Legal information in this article was correct at time of writing and has been updated to reflect the recent settlement. 

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