Abstract

In the past few months, major maritime disasters have occurred that pave the path for jurisprudential growth in the maritime sector, such as the Ever Green Suez Canal incident, X-Press Legal Sri Lankan Sea Incident, and the Seacor Power Lift Boat Accident. Thus, in this blog post, we shall analyse the liabilities that arise out of the vessels involved in these incidents alongside scrutinising the applicability of various International Maritime Laws and related Conventions. In the end, the author shall suggest maritime arbitration and negotiation as the way forward for maritime disasters.

Introduction

In the maritime sector, we comprehend that the owners of vessels are subjected to enormous amounts of risks and liabilities. The maritime activities are classified into two: wet and dry. Wet activities are those activities that relate to the vessels, whereas dry activities are those activities that relate to the cargo and charter party claims. The liabilities for wet activities generally arise due to — collision, salvage, General Average, towage, wreck removals, and other incidents. Due to these liabilities and incidents, various factors come into play, such as the intermingling of International Maritime Conventions and Laws, insurance and reinsurance, arbitration, and other related factors. Further, it is noteworthy to mention that when a maritime disaster takes place, not only do the liabilities and legal implications arise, but there is also a substantial impact on maritime trade, economy, and business since maritime transport is the “backbone” of global trade and economy. [1] Thus, in this regard, we shall discuss the applicability and existence of various liabilities and laws through recent maritime disasters.

Recent Instances of Liabilities Arising from Vessels in regard to Damages

1. Ever Green Container Ship and Blockage of the Suez Canal

In March 2021, the 400-meter long (1,312 feet) Taiwanese container ship, Ever Green, blocked the Suez Canal (in Egypt) for multiple days. It was assumed that Ever Green ran aground due to strong winds and heavy storms. [2] Considering that the Suez Canal accounts for approximately 12% of the global trade and that this blockage was causing the international oil prices to rise rapidly alongside drastically affecting the global trade and economy, [3] it is imperative for us to analyse the maritime legal implications of the same. This need is aggravated as maritime trade operations of multiple other ships in the Suez Canal was also affected as their path was blocked for numerous days. Under the following heads, the liabilities that arise in regard to Maritime Claims will be discussed. 

A. Issue of Salvage 

When a ship suffers marine casualty and needs aid to be freed from such conundrum, the shipowner can engage a “salvor” who, in turn, shall be responsible for assisting in recovering the ship and its properties (including re-floating). 

In the Ever Green case, we saw that the efforts to re-float Ever Green through excavators and local tugs had failed, due to which professional salvors were employed. [4] In general practice, salvors can be employed under Lloyd’s Open Form of Salvage contract (LOF) or Baltic and International Maritime Council (BIMCO) contracts. In the Ever Green case, it was reported that salvors were engaged through LOF contracts, though the owners of Ever Green denied the same for unknown reasons. [5] However, on April 23, 2021, Llyod’s declared that it is actively considering closing its Salvage Branch, which, in turn, means that the legal support for LOF contracts would be lost. [6] If the same happens, then the implications on the Ever Green case would be substantial because of the looming uncertainty as to what would replace the LOF and the Salvage Branch and who would hear the salvage claims. Finally, a settlement regarding salvage claims seems unlikely because the settlement amount would be lesser than the amount the Parties may get in arbitration. 

B. Issue of General Average 

General Average is a concept wherein “financial consequences” of the marine casualty are shared between the Parties who have financial interests in seeing the “marine adventure” completed. They bear the expenses in proportion to the value of their respective interest to see the marine adventure completed. General Average is usually incorporated in charter parties and contracts of carriage, which are governed by the York-Antwerp Rules. [7] This is problematic because the cargo ownership changes from time to time during transit which, in turn, makes it difficult to ascertain who was the cargo owner at the concerned time. This conundrum is aggravated by the number of containers and individual parcels that are existing within each container. To resolve this difficulty, the shipowners usually resort to a “hull and machinery insurance policy” wherein the insurers pay the General Average bill to a specific limit. However, in the Ever Green case, this limit is likely to be exhausted after which, the cargo owners and their insurers will become liable to pay. This brings us back to square one, wherein this difficulty is furthered in case a relatively smaller company owns the cargo in a “jurisdiction” wherein it is cumbersome for the cargo company to “secure payment” for General Average. This difficulty in securing a payment would, in turn, make it arduous for the release of cargo from Ever Green. 

C. Issue of Exclusion of Arbitral Forums Jurisdiction under Bill of Lading Clauses 

The mass contracts which would be affected by the Ever Green marine casualty are the Contracts of Carriage and Charter Parties, which are usually Bills of Lading. These contracts are generally between the ship’s owner or between the shipper of the container ship and the shipping line. Thus, due to the marine casualty in the Ever Green case, we comprehend that multiple claims would arise, out of which the primary ones would be for General Average and Salvage. These claims would also include claims for cargo damage by cargo owners. The conundrum that arises is that Ever Green’s general Bill of Lading clauses contain a Court jurisdiction clause that excludes arbitral and other forums. [8] This is problematic because, firstly, these clauses go against the “general practice” of Bill of Lading clauses to include model arbitration clauses commonly based on BIMCO law. Secondly, it deprives the Parties of the rightful benefit of maritime arbitration under the rules of the London Maritime Arbitrators’ Association (LMAA) and the New York Society of Maritime Arbitrators (NYSMA). Thus, this lack of arbitration clause creates a conundrum of maritime litigation which can be highly time and resources draining, due to which the Ever Green controversy may never see an end. 

D. Stress on P&I Club and No Insurance Cover for Loss or Damage due to Delays 

In disputes like that of the Ever Green case, the ship usually has a “hull and machinery cover” (that provides insurance for physical risks and damages alongside providing cover for salvage and General Average), Protection and Indemnity Insurance cover (P&I) (that insures against liabilities), freight defence and demurrage (that insures against legal expenses) and loss of “hire cover.” The first conundrum that arises is that, although the cargo is usually insured against General Average and salvage, it is not insured for consequences caused due to “delay”. This position is aggravated because Evergreen Marine Corporation recently stated that they are not responsible for any loss or damage caused due to delay as the agreements with clients do not provide coverage resulting from delays.[9] The second conundrum that arises is that the insurance claims — for the Ever Green fiasco — are estimated to be in nine figures.[10] This is significantly problematic for the P&I club (in the present case, the U.K. P&I Club) as they can only cover claims up to a specific limit. When these claims’ limit exceeds, then reinsurance would arise. Thus, considering that the limit is likely to be exceeded, the reinsurance market will be drastically stressed with significant liabilities from the Ever Green mishap.

2. X-Press Pearl and the Environmental Disaster in the Sri Lankan Sea

In May 2021, a Singaporean vessel that was reportedly carrying dangerous chemicals to Colombo caught fire in the Sri Lankan Sea. [12] As a result, major environmental disasters ensued as there were reported oil spills with no sign of the situation getting any better despite all the help from “salvors, Indian Coastal Guard, and Sri Lankan firefighters.” [13] Thus, considering that liabilities similar to that of the Ever Green case are likely to arise, it is also imperative for us to analyse the liabilities related to the environmental disaster that X-Press Pearl has caused. 

A. Similar Liabilities from Ever Green — Hull and Machinery Cover, P&I Cover, General Average, and Salvage 

Firstly, considering that X-Press Pearl has been significantly physically damaged, it will be covered under the Hull and Machinery insurance. Secondly, the P&I cover (in the present case, the London P&I Club) would definitively come into the picture as significant oil spills have resulted in a massive environmental disaster. X-Press Pearl shipowners would also be liable for “salvors award” if the Special Compensation P&I Club Clause (SCOPIC Clause) has been included in the P&I cover. Thirdly, if the dangerous chemicals were loaded onto the ship without the shipowner’s knowledge, they could proceed against the shipper under the Hague Visby and Hamburg Rules. However, if the shipowner had knowledge of the same, the financially interested Parties can share the expenses proportionately by contributing to the General Average. Considering that majority of the cargo goods were physically damaged and/or lost due to fire or explosion, they are likely to be covered under the Institute of Cargo Clauses (ICC) A, B, and C. Further, if these clauses contain a mandatory compliance requirement with the International Marine Dangerous Goods Code (IMDG Code), the possibility of the cargo insurers to slither out of liabilities exorbitantly rises as there exists a definite possibility of either the shipowner or the shipper or both to not have complied with the IMDG Code in the X-Press Pearl case. 

B. Environment and Flag State’s Liability 

The cargo goods carried by X-Press Pearl were “dangerous goods” as they reportedly consisted of chemicals, nitrates, and other dangerous goods.[i] Due to this, liability under the IMDG Code is attracted as this Code essentially classifies the cargo based on its danger alongside prescribing minimum standards for “handling, stowing, labelling, packaging, and notifying the vessel of the nature of the cargo.” [14] If the dangerous cargo goods are mis-declared or misrepresented, such err can be a significant threat to the vessel and the sea. In case the Code is breached, which, in the present case, is probable, criminal and commercial liability arises. Thus, in the X-Press Pearl case, it is imperative to ascertain whether the dangerous goods were loaded with or without the knowledge of the carrier and whether international standards were duly complied with. 

Regarding International Standards, the question of the flag State’s liability arises. In such a scenario, it is imperative to note that the vessel is bound by the laws and regulations of the flag State. Under Article 94 of the United Nations Convention for the Law of the Sea, 1982 (UNCLOS), the flag State is required to “…ensure the safety of ships through their construction, equipment, and seaworthiness, as well as conducting an inquiry into incidents such as those that cause ‘serious damage’ to the marine environment.” [15] As a result of this, although the Maritime and Port Authority of Singapore is communicating with the Sri Lankan authorities to ameliorate the environmental disaster, [16] the flag State is not liable for accidents like X-Press Pearl because the liability arises for the shipowners and the crew members. Their civil liability for the cargo losses and environmental damage depends upon the forensic reports regarding the cause of the fire and the requisite course of action taken by them. However, considering that various aspects of insurance are already applicable, the liability of X-Press Pearl’s shipowners reduces to a substantial extent. Thus, even though the shipowners in the X-Press Pearl case are immune, it is pertinent to note that their immunity is not absolute considering the long-lasting impact of the environmental disaster that X-Press Pearl has created, which can cause acid rains, increased water pollution, and climate change. [17]

3. Seacor Power Lift Boat Accident in the Gulf of Mexico 

In April 2021, a Seacor Power Lift Boat capsized in the Gulf of Mexico with nineteen crew members, out of which only a few were found alive. [18] It is reported that the reason behind this capsizing was high-speed winds, “limited visibility, and sudden high seas.” [19] Further, the weather forecasts also predicted that winds and high waves of tropical storm intensity would occur. Despite these factors, the decision to leave the port and commence work was taken; the responsibility and liability behind such a decision would be revealed only after the investigation is concluded by the National Transportation Safety Board (NTSB), which can take years to complete. Until then, it is imperative for us to analyse the liabilities that may arise. 

A. Invocation of U.S.’s Limitation of Liability Act and Death on the High Seas Act 

In Seacor Boat-type accidents, multiple parties can be held liable. However, considering that this accident pertains to presumed deaths, unlike the Ever Green case and the X-Press Pearl case, we shall analyse Seacor’s liability from a different perspective. Firstly, U.S.’s Death on the High Seas Act, 1920, is applicable in the current scenario because: “When a seaman dies aboard a ship because it is unseaworthy or there was negligence on the part of the employer, family members can file a maritime lawsuit under the provisions of the Death on the High Seas Act (DOHSA).’ [20] DOHSA states that civil action can be brought by the family members of the deceased crew members against the person or vessel responsible for the death. Two wives of presumed-dead crew members have already invoked this Act in a $25 million lawsuit against Seacor Liftboats, Talos Energy, and Seacor Marine (together “Seacor”). [21] In this lawsuit, Seacor has been alleged of gross negligence and violation of the federal maritime laws on multiple counts. And secondly, Seacor has a solid defence in the form of the U.S.’s Limitation of Liability Act, 1851. This Act essentially limits the liability of the vessel’s company, due to which the opportunity of the families receiving compensation is reduced to the most minimal. Further, the Company (in the present case, Seacor) would be liable to only pay to the extent of the total value of the boat, which would, in turn, be insufficient for the families. In that regard, Seacor has already filed a lawsuit to limit its liability wherein it claims that the loss of the vessel was not due to any fault, or negligence and all care and precautions were taken. [22] Thus, these conflicting stances mean that the future course of the Seacor accident is significantly dependent on NTSB’s investigation and the Courts’ verdict.

Conclusion: Need for Maritime Arbitration and Negotiation?

From the arguments mentioned above, it is lucidly evident that Maritime liabilities and actions are highly complex and technical, due to which maritime litigation cannot be the first choice of the Parties. Alternatively, Maritime Arbitration seems like the most viable choice, especially with the advent of preferred institutional rules like SCMA, LMAA, and NYSMA, etc. However, the need for Amicable Settlement of disputes, i.e., through Maritime negotiation, arises, considering the recent case of Ever Green ship that was arrested by the Suez Canal Authority who demanded compensation worth $916 million and later lowered it to $550 million through an Egyptian Court’s order, which is now going to be released by the Suez Canal Authority (SCA) due to an out of court settlement. [23] On July 07, 2021 (Wednesday), Ever Green was released by SCA, wherein the settlement amount was agreed between Ever Green’s Japanese owner, Shoei Kisen Kaisha Ltd., and SCA. [24] The amount is said to include costs of stalled canal traffic, salvage claims, and lost transit fees. [25] From this instance and other historical maritime precedents, we comprehend that the out of court settlement mechanisms in maritime disputes is gaining traction because of its ability to secure reasonable compensation and save the detrimental impact on the Parties and global trade and economy. However, at the same time, although this is relieving news for Ever Green shipowners, the looming question of exorbitant P&I and General Average costs remain unanswered.

On the other hand, when we consider Sri Lanka and Seacor Boat accident, it is imperative for us to keep in mind that the outcome is not dependent on mutual talks but on the evidence from the investigation to pinpoint the liable Parties accurately as these instances essentially highlight that out of court settlements, maritime negotiation, and arbitration cannot be opted as they involve elements of Criminal Liability.

Thus, it can be said that out of the court settlements and maritime negotiation and arbitration can be used selectively, and when criminal liability is existent, maritime litigation can be simultaneously initiated in the competent Courts. At the end of the day, it is imperative for the Parties to opt for the most viable choice of dispute settlement mechanism because a vessel earns when it sails and hence, it is imperative that the maritime dispute be resolved expeditiously to avoid heavy impact on the global business and economy. Therefore, saving costs, time, and resources while securing adequate and reasonable compensation must be one of the primary objectives of the Parties while selecting a dispute settlement mechanism in maritime disputes.

About the Author

Nalini Mishra is an Associate Partner at Singhania & Co. LLP. She was assisted by Legal Intern Pushpit Singh, Symbiosis Law School, Hyderabad in writing this blog-post.

Editorial Team

Managing Editor: Naman Anand

Editors-in-Chief: Aakaansha Arya and Akanksha Goel

Senior Editor: Aakaansha Arya

Associate Editor: Hamna Viriyam

Junior Editor: Adarsh Kumar

Preferred Method of Citation 

Nalini Mishra, “Liabilities Arising from Vessels: An In-Depth Analysis amid Recent Maritime Disasters” (IJPIEL, 15 July 2021)

<https://ijpiel.com/index.php/2021/07/15/liabilities-arising-from-vessels-an-in-depth-analysis-amid-recent-maritime-disasters/>

Endnotes

[1] Maritime Transport Is ‘Backbone of Global Trade and the Global Economy’, Says Secretary-General in Message for International Day, United Nations (Sept. 22, 2016), https://www.un.org/press/en/2016/sgsm18129.doc.htm.

[2] Egypt’s Suez Canal blocked by huge container ship, BBC News (Mar. 24, 2021),https://www.bbc.com/news/world-middle-east-56505413.

[3] Id.

[4] Id.

[5] James Michael Turner & Nichola Warrender, Shipping Casualties and Arbitration: Reflections on the “EVER GIVEN”, Kluwer Arbitration Blog (Jun. 10, 2021),http://arbitrationblog.kluwerarbitration.com/2021/06/10/shipping-casualties-and-arbitration-reflections-on-the-ever-given/.

[6] James Baker, Suez Canal remains blocked despite efforts to re-float grounded ‘Ever Given’, Lloyd’s Loading List (Mar. 24, 2021), https://www.lloydsloadinglist.com/freight-directory/news/Suez-Canal-remains-blocked-despite-efforts-to-re-float-grounded-%E2%80%98Ever-Given%E2%80%99/78733.htm#.YOTIwxMzZQI.

[7] Mark Llyod & Craige Boyle-Smith, Is Lloyd’s Open Form on borrowed time?, Kennedys (May 7, 2021), https://kennedyslaw.com/thought-leadership/article/is-lloyds-open-form-on-borrowed-time/.

[8] Fordeco Sdn Bhd v. PK Fertilizers Sdn Bhd, [2019] MLJU 596.

[9] Ever Green. Clause 29, https://www.evergreen-line.com/static/html/EGLV_BLClause2021.pdf.

[10] Cindy Wang, Evergreen, Which Chartered Ever Given, Says It’s Not Responsible for Cargo Delays, Bloomberg Quint (Apr. 01, 2021), https://www.bloombergquint.com/onweb/charterer-says-it-s-not-responsible-for-ever-given-cargo-delays.

[11] David Osler, After Ever Given, what now for marine insurance and ship finance?, Llyod’s List (Mar. 30, 2021), https://lloydslist.maritimeintelligence.informa.com/LL1136306/After-Ever-Given-what-now-for-marine-insurance-and-ship-finance; see also Great Lakes Towing Co. v. Mill Transportation Co., (I907, C. C. A. 6th) 155 Fed. II and the Julia Luckenbach, (1916, C. C. A. 2d) 235 Fed. 388., where the shipowners were unsuccessful in limiting their liabilities.

[12] X-Press Pearl sinks 9.5 miles off Sri Lanka, Insurance Marine News (Jun. 03, 2021), https://insurancemarinenews.com/insurance-marine-news/x-press-pearl-sinks-9-5-miles-off-sri-lanka/; see also Sandali Handagama, Sri Lanka’s worst ever maritime disaster reveals the true cost of our identity crisis, The Guardian, https://www.theguardian.com/environment/2021/jun/11/sri-lankas-worst-ever-maritime-disaster-reveals-the-true-cost-of-our-identity-crisis.

[13] Tim Fernholz, The shipwreck’s owner said no oil spilled. Satellites disagree, Quartz (Jul. 01, 2021), https://qz.com/2028044/satellites-spot-oil-leak-from-x-press-pearl-wreck-near-sri-lanka/.

[14] supra note 11.

[15] IMDG Code, https://www.bifa.org/media/4544564/bp-3-the-international-maritime-dangerous-goods-imdg-code.pdf.

[16] Zhaki Abdullah, Where do liabilities lie in maritime incidents and do flag states matter?, Channel News Asia (Jun. 10, 2021), https://www.channelnewsasia.com/news/singapore/sri-lanka-ship-singapore-registered-x-press-pearl-liabilities-14971608.

[17] Id.

[18] Ranvir Nayar, Better regulation needed to prevent marine disasters – Maritime pollution: No longer a drop in the ocean, Media India Group (Jun. 29, 2021), https://mediaindia.eu/environment/better-regulation-needed-to-prevent-marine-disasters/.

[19] Jed Cain, Who Is at Fault for the Seacor Power Lift Boat Accident?, New Orleans Injury Law News (Apr. 28, 2021), https://neworleans.legalexaminer.com/transportation/who-is-at-fault-for-the-seacor-power-lift-boat-accident/.

[20] Id.

[21] Death on the High Seas Act (DOSHA), Maritime Injury Guide, https://www.maritimeinjuryguide.org/maritime-rights-compensation/death-high-seas-act-dohsa/.

[22] Second lawsuit filed in Seacor Power tragedy blames energy, boat companies in fatal capsizing, KLFY.Com (Apr. 23, 2021), https://www.klfy.com/louisiana/25m-suit-blames-energy-boat-companies-in-fatal-capsizing/.

[23] In Re: Seacor, https://ewscripps.brightspotcdn.com/59/48/0d181d754f3da065a76943457659/6b378702-8d4f-4780-9af8-629073f578da.pdf.

[24] Settlement agreed to release ship that blocked Suez Canal, Reuters (Jul. 04, 2021), https://www.reuters.com/world/middle-east/egyptian-court-adjourns-suez-canal-ship-dispute-july-11-sources-2021-07-04/.

[25] Suez Canal releases hulking Ever Given vessel after settlement deal, PBS News Hour (Jul. 07, 2021), https://www.pbs.org/newshour/world/suez-canal-releases-hulking-ever-given-vessel-after-settlement-deal.