Written by Eurof Lloyd-Lewis, Partner, and Benjamin Bryant, Associate.
This article discusses a number of practical considerations principally for sellers and buyers in the grain and other trades who may have experienced issues following the six-day grounding of the container ship “EVER GIVEN” in the Suez Canal between 23 and 29 March 2021 (the “Grounding”) such as the consequences of delay.
Contractual and other issues
a. Insurance
Traders may face difficulties attempting to recover from their cargo insurers any losses caused by delay owing to the Grounding. For example, GAFTA 72 stipulates that where the parties have agreed cover in accordance with Cargo Clauses (All Risks) or Cargo Clauses (WA) they do not extend to loss damage or expense proximately caused by delay. This exclusion also applies to Institute Cargo Clauses (A). Traders should therefore carefully review the wording of their cargo insurance policies to determine whether such losses are recoverable.
b. Voyage charterparty
The contractual remedies available to CIF Sellers and FOB Buyers as charterers (“Charterers”), against owners whose vessels have been delayed by the Grounding, appear limited:
- Subject to market freight rates, Charterers may elect to exercise their right to cancel if a vessel misses its laycan. Further or alternatively, Charterers may look to the terms of their charterparty to determine whether any claim for damages lies against the shipowner for failure to proceed to the load port with reasonable dispatch and/or for breach of “estimated ready to load” or “estimated time of arrival” statements.
- There is the likelihood of increased congestion at load and discharge ports. Charterers should check the precise wording of their charterparty (for example, if a berth charterparty, whether their contract contains a “WIBON” clause), including any exception clauses applicable to laytime and demurrage, to determine when the vessel is deemed to be an arrived ship for the purposes of triggering the running of laytime. Claims for demurrage will in the first instance be borne by Charterers who will in turn try to pass them on to their counter-party. Whether they can do so or not will depend upon the terms of the sale contract.
- It may be difficult to pursue a claim in deviation against an owner who opted to take the longer route around the Cape of Good Hope during a laden voyage, rather than queue for the duration of the Grounding.
Charterers considering exercising their cancellation rights under a voyage charterparty in anticipation of the above issues should seek legal advice before doing so, to ensure that they do not commit a repudiatory breach of contract, by cancelling before contractually permitted under the charter.
c. Sale contract
FOB and C&F/CIF buyers are reminded that the contract goods are shipped at their risk and this includes transit delays.
Where a nominated vessel’s arrival is delayed at loading then FOB buyers and C&F/CIF sellers may wish to consider whether they are able to claim an extension of the shipment period.
If the parties have agreed to incorporate the standard form GAFTA “Prevention of Delivery” clause or a clause in similar terms into their sale contract, then a buyer will not be able to assert force majeure.
d. Remedies against the Owners of the “EVER GIVEN”
Whether the Owners of the “EVER GIVEN” owe a non-contractual duty of care to third parties whose goods were carried aboard other vessels, and whose contracts have been affected by the Grounding is likely to be determined in accordance with Egyptian law so an affected party will need to obtain legal advice from locally qualified lawyers. The Owners could also be sued in Japan where they are based or possibly in alternative jurisdictions depending on individual circumstances.
Until a full investigation has been carried out as to the cause of the Grounding, it is unclear whether cargo interests with cargo on board the “EVER GIVEN” will have a right to claim in respect of any loss or damage to cargo that may have occurred and/or a defence to a claim for General Average (“GA”). Owners will in any event seek to rely upon The Hague, Hague-Visby or equivalent Rules to defend such claims. For example, Article IV (2) of the Hague-Visby Rules expressly protects the carrier and ship from loss or damage arising or resulting from: (a) Act, neglect, or default of the master, mariner, pilot or servants of the carrier in the navigation or in the management of the ship; … (c) Perils, dangers and accidents of the sea or other navigable waters; and … (q) any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier (although the burden of proof will rest with the person claiming the benefit of this exception to prove this).
The Owners of the “EVER GIVEN” have now filed a limitation action before the English Admiralty Court to limit their exposure to claims for loss or damage to property.
e. Contributions to General Average
Since the Owners of the “EVER GIVEN” declared GA on 1 April, some observers have commented that this grounding may potentially develop into the most complex GA claim ever. Cargo interests with cargo aboard the “EVER GIVEN” should be aware that GA security will be required to be provided to Owners to obtain the release of cargo, and should look to their cargo insurance policies in the first instance to determine whether or not this liability is covered. If it is, the cargo insurers should post the required GA security, opening the way for the release of the cargo. If not, then security in a form acceptable will need to be provided, e.g. bank guarantee or cash. Where security is not provided or not offered in a form acceptable, the Owners will be entitled to sell the cargo to cover cargo interests’ contribution to GA.
If you require clarification or assistance on any of the points discussed in this article, at Clyde & Co, we have extensive experience in advising Charterers, Cargo Interests, Sellers, and Buyers and will be happy to assist.
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