When the mega MV Ever Given ran aground at on 23 March and completely blocked the southern end of the Suez Canal for nearly seven days, considerable repercussions of the crisis were inevitable, commensurate with impeding the flow of international trade. The obstruction of the canal resulted in the delay of passage of more than 400 vessels.
As a result, many cargo ships had to take alternative routes, going around Africa before the world was taken aback by the Suez Canal Authority’s (SCA) management of the crisis in a record time. The mega ship was successfully towed after an enormous effort of dredging and routing to the Great Bitter Lake to undergo technical inspection. Following the resolution of the crisis, legal consequences related to compensation for damages, particularly material damages, started to unfold. The ruling of an Egyptian court ordering the seizure of the ultra-large Ever Given gave rise to a series of claims from the SCA against the ship owner on one hand and counter-claims against the SCA on the other.
Compensation claims and counter-claims
The SCA filed a compensation claim of $916 million against the ship’s Japanese owner, Shoei Kisen Kaisha Ltd., knowing that Taiwan’s Evergreen Marine Corp. is the charterer of the ship. The SCA indicated that the compensation is necessary to cover significant moral damage, losses of transit fees, damage to the waterway during dredging and rescue efforts, and cost of equipment and labor. Shoei Kisen Kaisha rejected the claim.
On 8 May, Osama Rabie, chief of the SCA, stated that no imminent settlement was looming. A day after the declaration, the SCA announced reducing the compensation amount by about 30 percent, to reach $600 million. Then, a further reduction of $50 million was made, bringing the total compensation amount to $550 million, part of which will need to be paid in advance while the rest to be paid according to a systematic plan. However, these successive facilitations haven’t dissuaded the ship owner dismissive of paying the compensation. Instead, he filed counter-claims against the SCA claiming the crisis was primarily the SCA fault, described the SCA arrest of the Ever Given vessel as illegal, and filed an appeal against the arrest and delay of the ship in the Great Bitter Lake halfway along the canal.
Regardless of the legal aspects relating to impounding of the vessel, a more complicated insurance-related issue seems to exist.
Behind the scenes of the insurance crisis
While the vessel’s salvage operations were still underway, the ship’s insurer, the U.K. P&I Club, announced it had insured the owner of Ever Given for certain third-party liabilities, including infrastructure damage and claims for obstruction caused by the accident indicating that the ship itself and its cargo will be insured separately. However, following seizure of the ship, a compensation of $300 million was claimed for rescue operations and $300 million for damage to the canal’s reputation.
Later, the UK Club declared that the ship’s owners and their insurance companies were negotiating in good faith with the Securities and Commodities Authority, adding that on 12 April, a generous well-considered offer (in the words of the insurance company) has been made to the SCA to settle its claim but the SCA subsequent decision to seize the ship was disappointing which prompted Evergreen to submit an appeal before an Egyptian court against the arrest, claiming lack of evidence for the SCA’s claims, which the court rejected early May 2021.
Similar incidents to the Ever Given one leading to blockage of one of world’s most important trade arteries by only one cargo ship causing this wide international disruption have never been heard of. Historically, in some international maritime traffic accidents and disputes, the ship owner could have provided an agreed security that would allow the ship and crew to proceed their journey till the court make a final decision at a later time. However, the Ever Given incident presented a different case; the seriousness of the accident, its importance, and potentially high cost prompted the SCA to arrest of the ship until a settlement is reached.
The impact of the general average law on the crisis
On 1 April, Shoei Kisen Kaisha Ltd. declared the General Average Act, a principle of the maritime law whereby all stakeholders proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. For instance, if the crew jettison some cargo overboard to lighten the ship in a storm, the loss would be shared pro rata by both the carrier and the cargo-owners. Owners’ recourse to this principle will add further complications to the settlement process because in this case all onboard cargo-owners will be required to share the expenses incurred by the vessel owner, which means litigation may involve 20,000 containers and up to 20 shipping agencies per container.
If this principle is to be applied, each shipment will be evaluated separately to determine the share or percentage of contribution required from each cargo owner. Owners who have their cargo insured will need to submit declaration of insurance to receive their cargo while owners who have their cargo uninsured will need to be informed of a fixed price to deposit in addition to covering the full costs before their cargo is released. This process could take weeks or even months. There is already a great deal of speculation about the proportion of uninsured cargo on Ever Given. Prognoses indicate that 35-40 percent of cargo is uninsured at all. If true, these prognoses mean the full settlement will be further complicated in case of recourse to the general average principle.
The declaration of the general average principle is a rare occurrence these days. The year 2018 witnessed the latest incident the average principle was applied to following a disastrous fire onboard the Maersk Honam where the claims adjuster fixed the salvage security at 42.5 percent of the cargo value and 11.5 percent as a general average deposit. So, for a shipment that is worth $100,000, a payment of $54,000 was needed to be stumped up for its release. Under general average, vessel owners can detain the cargo and sell it if the shippers don’t pay their share.
The Suez Canal parallel plans
The SCA’s fast response to the crisis helped return navigation to the Suez Canal in a record time. Moreover, the SCA announced its current expansion and development plans included widening and deepening the southern part of the Suez Canal where the Ever Given vessel had been stuck. These projects include a 30 km extension of the Canal between the city of Suez and the Great Bitter Lake by 40 meters to the east in addition to deepening this part by two meters. In addition, an estimated 10 km extension to the southern side of the Great Bitter Lake is planned to supplement the New Suez Canal project opened in 2015 to allow for two-way traffic. This will bring an increase in the total length of the project to 82 km.
These plans will not prevent the SCA from completing Evergreen-related negotiation and litigation processes, the results of which will set a precedent that will guide international maritime compensation and insurance issues.