The impact of the March 2021 incident of the container ship M.V. Ever Given with around 18,300 containers onboard running aground in the Suez Canal has generated international attention and its consequences are showing and will continue to unravel for years to come.
Owned by a Panamanian subsidiary of Shoei Kisen Kaisha of Japan and operated by a Taiwanese transport company, Evergreen Marine, its blockage of the Suez Canal, which is the route for shipments between Europe and Asia and to America, contributed to the rising freight and container rates that had already soared during the COVID-19 pandemic. As the vessel finally arrived in Europe and the UK, for traders who had been adversely affected by the incident, it is time to consider how to deal with their claims for loss of and damage to their cargo and other losses caused by delays in the delivery of the cargo.
Limitation of liability of the shipowner
Many people would think that owners of the vessel should be responsible for these claims. Of relevance, in this case, is the International Convention on Limitation of Liability for Maritime Claims 1976 (The Limitation Convention). The Limitation Convention enables ship owners, in certain circumstances, to limit their overall liability (based on the tonnage of the vessel) by applying to constitute a limitation fund and protecting other vessels in their own or associated ownership from arrest by claimants against the ship.
The Owners of M.V. Ever Given commenced limitation proceedings before the Admiralty Court in London on 1 April 2021 and the Admiralty Court has made an Order on 13 July 2021 to allow the constitution of the limitation fund. Under the Order, any claims of a type that fall within the 1976 Limitation Convention must be made in this Action before the English court on or before 20 September 2021. Claims resulting from the loss of or damage to property or loss resulting from the delay in the carriage of goods by sea are subject to the limitation of liability.
The process of filing claims against the limitation fund is a long and protracted one. At the end of the process, the dividends from the limitation fund for eligible claims may be very limited or close to nothing depending on the nature and value of the claim. For small claims, it may not be worthwhile to incur legal costs to participate in this process.
Release of the cargo in exchange of General Average security
When applying for the limitation, the owners of M.V. Ever Given also declared ‘‘General Average’’ by which the owners of the cargo in the containers will be liable to share all of the costs of re-floating the vessel according to the value their cargo bears in proportion to other cargo on board. The process of making this assessment is conducted by average adjusters who will be appointed to assess the value of each shipment on board and apply a formula that determines the amount to be contributed by each owner. The bills of lading will provide evidence of the contents of the containers held onboard and will help in informing an assessment of the value of the cargo.
For cargo owners, a General Average Security by way of a General Average Guarantee from cargo insurers will need to be provided in order for shipowners to release the cargo. However, where no insurance arrangements are in place, cargo owners would need to post a General Average Bond in order to secure the release of the cargo. There is no limit on the amount of the contribution which may be sought from cargo owners. It may be inevitable that some cargo owners will abandon their cargo to avoid making such contributions as they think fit after weighing the gains and losses.
Cargo insurance coverage and claims
For cargo owners, the real prospect of potential recovery could well lie with cargo insurance. They should have invariably purchased cargo insurance for their goods on board the vessel. In international trade, cargo insurance is most often procured under the Institute Cargo Clauses (I.C.C.) widely used in the international marine insurance market. There are three variants of these Clauses:
- ICC (A) – covering all risks unless specifically excluded
- ICC (B) – being a rarely used cover between extended and restrictive clauses
- ICC (C) – being only applied in listed perils when something happens to the means of transport such as the sinking of the ship or derailment of a land conveyance.
It is advisable that Cargo owners review their insurance policies to check what type of cargo insurance they have purchased and whether the loss of or damage to the cargo is covered by the insurance. If the cover is triggered, cargo owners should notify the claim against their insurers as soon as possible.
In many cases, the loss resulting from the M.V Ever Given incident relates to the prolonged delay in the delivery of the goods. Cargo insurance based on the Institute Clauses does not cover damage attributable to delay in any manner. It should be expected that the prospect of making successful claims for losses resulting from delays against cargo insurers may well be very slim indeed.
Moreover, cargo interests may be affected by claims for demurrage or detention for occupying containers for too long. This is not covered by any insurance. However, business interruption policies, where applicable, may protect the cargo interests to some extent subject to the terms of the policy.
A wake-up call to new risks for traders
The M.V Ever Given incident is a wake-up call for traders to recognize that on top of the risks of loss of or damage to the goods, which are addressed both in the United Nations Convention on Contracts for the International Sale of Goods (CISG) and in Incoterms® 2020, there exists the risk of delay. The FCA, FAS and FOB Incoterms® 2020 recognize the possibility for the seller and buyer to agree that the seller contracts for carriage at the risk and expense of the buyer. However, this risk means something else to that of loss or damage to the goods or, for that matter, the risk of delay. It means the risk of availability of transport facilities and the ensuing price increase caused by shortages. Within the ongoing shortage of container liner slots and the increase of ocean freights, traders need to cater for these risks in their sales contracts with extra care to best protect their positions. It is unchartered water in the present prevailing trading conditions.