Christoph von Burgsdorff
Luther Rechtsanwaltsgesellschaft mbH, Hamburg
​​​​​​​christoph.von.burgsdorff@luther-lawfirm.com

On 23 March 2021, one of the largest container ships in the world, the Ever Given, got stuck in the Suez Canal, blocking all other cargo passage for six days. The incident had a huge impact not only on the goods transported by the Ever Given, but also on global trade itself, considering the Suez Canal is one of the most used waterways in the world. Around 400 ships were unable to pass, causing a traffic jam and, as no one knew when the Ever Given would be freed, some ships even went the long way around Africa, adding 10 days to their journeys.

After the salvage of the Ever Given, questions arose as to the costs not only of the salvage itself, but also the blockade and the loss of profit for the Suez Canal Authority.

Furthermore, as container ships like the Ever Given are in general not operated or owned by the same companies and the cargo on board is owned by thousands of parties, questions arise regarding liability.

This article takes the incident as an opportunity to examine the process of a salvage of this nature under the principle of general average and to consider the consequences for the owners of the shipped cargo.

Applicable rules

As shipping is predominantly an international business, it was the intention of governments and international organisations to standardise maritime law. However, different agreements and rules came into force: on the one hand, there are agreements and rules in form of treaties under international law (eg, the Hague Rules, the Hague-Visby Rules, and the Hamburg Rules) that have only partially been ratified. On the other, there are standardised provisions drafted by organisations that can be included in the respective contract.

A general average

The York Antwerp Rules are one of the most important legal bases for the settlement of a general average. They are a set of agreed rules for the allocation of costs between ship and cargo in the event of a general average.

In the York Antwerp Rules, a general average is defined as ‘any extraordinary sacrifice or expenditure [which] is intentionally and reasonably made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure’.

This means that there must be a common peril to the ship and to the cargo, which can only be the case if the cargo has been taken on board and until it is discharged. The extraordinary expenditure must be special in itself and cannot be part of the regular operation. The purpose of this expenditure must then be to save the ship or cargo from this danger.

The York Antwerp Rules are not treaties under international law but are drawn up by the Comité Maritime International, an international association of national maritime law societies. Thus, these rules are like general terms and conditions and can be incorporated into ship owners’ contracts. This means that the rules for general average, which exist in almost all legal systems, are waived by them.

The rules are updated on an ongoing basis, generally at intervals of 20 to 25 years. However, not every new form is used in practice. The most common version is the 2016 version, while the 2004 version has been skipped by most parties (who continue to use the 1994 version).

The rule versions differ on some points. In contrast to its previous iteration, the 1994 version introduced a rule that subjects the measures leading to damage to an adequacy check. In the 2004 rules, the costs of salvage are almost completely excluded from the general average. In this respect, the exact extent of a general average can only be ascertained on the basis of the specific contracts.

Salvage

A salvage, on the other hand, occurs when a vessel or cargo must be rescued from danger. If a ship or cargo is to be salvaged, the salvage company may take one of several possible legal positions. Normally, a salvage contract is concluded. Pre-formulated contracts exist for this purpose, in which only details such as the parties and objects are entered. One contract used frequently is the Lloyd's Standard Form of Salvage Agreement or Lloyd's Open Form (LOF).

However, there is also the possibility that no contract is concluded. In this case, the statutory provisions apply, depending on the applicable law. Often, the Salvage Convention may be relevant, which applies in Germany, for example, through the German Commercial Code.

In general, the ship or cargo must be salvaged before payment is due. No cure, no pay. The cost is not usually fixed beforehand (which is why the LOF is called Open) but is determined afterwards by an (arbitration) court. Only the cost for avoiding imminent environmental disaster can be independent, which is not only provided for by law, but is also an optional component of the LOF (Special Compensation P&I Clause, SCOPIC).

Are salvage costs part of a general average?

As the general average and the salvage are so similar in their requirements, it is easy to assume they are two sides of the same coin. But whether salvage costs are covered by general average – and therefore borne by all – depends on whether the York Antwerp Rules were agreed upon and, if so, which version. This is particularly important for owners of any cargo that has not been salvaged, as they will still have to participate in the costs of the salvage.

In the 2004 version, this is only possible under one special circumstance: when one party has paid the costs of another party. In the 2016 version, however, the salvage costs are part of the general average in the cases mentioned in Rule VI. The purpose of these rules is to eliminate the differences in the worth of the cargo depending on a salvage or a general average. For example, the costs of a salvage are allowed in a general average if ‘there is a subsequent accident or other circumstances resulting in loss or damage to property during the voyage that results in significant differences between salved and contributory values’. For now, it is the decision of the average adjuster whether the costs are part of the general average, as they are the one in charge of the claims settlement.

Insurance

In general, ships and their freight are insured by their owners, so the costs will in the main fall on insurance companies. Usually, several insurance providers are involved, for example protection and indemnity (P&I) insurance, liability insurance, and hull and machinery (H&M) insurance. The latter mainly serves to compensate for damage to the ship, while liability insurance is generally responsible for other damage not insured elsewhere.

Conclusion

Although there are national rules in place regarding international shipping, the legal relationships are mostly based on standardised rules that have not been implemented by countries. As there are usually thousands of different parties involved – for example, insurance companies and the owners of ship and cargo – the process of a settlement is complex and will likely take a long time. That means especially for the owners of the cargo, they may have to wait quite a while before they can retrieve their goods.