Jeffrey S. Moller
The timing of the Ever Given’s grounding in the Suez Canal could not have been better, at least as far as my admiralty law students at Drexel University and I were concerned. The incident occurred right after we covered the subject areas of casualties, cargo losses, and the potential liability of pilots. And just in time for me to add this extra-credit question to the final exam: “If the maritime law of the United States were applicable to the Ever Given incident, who would be liable for what, why, or why not?”
As readers will no doubt remember, Ever Given became hard aground by both its bow and stern across a single-lane portion of the Suez Canal in March. The pilots, who were employees of the Suez Canal Authority (“SCA”) lost control of the ship in a severe wind/sand storm, partly because of the enormous sail area created by the multi-tier deckload of containers.
While costly salvors worked to free the ship, one of the most important shipping shortcuts in the world was completely impassable. Hundreds of ships at each end had to either wait or take the long route around the Cape of Good Hope. These ships were loaded with livestock, agricultural products subject to spoiling, and parts inventories for the world’s “just in time” manufacturing economy. The SCA claims to have lost millions in passage fees. The ship was at least slightly damaged both bow and stern; owners of its cargo suffered delays and/or damage.
Once freed, Ever Given was effectively seized by an Egyptian court order, and the SCA demanded one billion dollars in security. The SCA alleged that the shipowners are obliged, by the terms of a tariff or other form of contract, to indemnify and hold the SCA harmless for all damage and claims. The SCA and the ship’s P&I Club and owners have recently reached a confidential settlement of some kind, at least as to the amount of the release bond sufficient to allow the Ever Given to go on its delayed way. Those owners have filed a petition in London seeking to consolidate all potential claims and limit their liability per international convention. The owners have also declared General Average, which may take years to complete. (General Average is a process by which the shipowners and cargo owners are allocated shares in the costs incurred when a ship and the voyage come to be at risk.)
Many Questions…Any Answers?
A situation like this is a law professor’s (and maritime lawyer’s) dream because it is chock full of thorny and interesting questions: Is the SCA, the putative employer of the pilot(s), potentially liable itself (under the doctrine of respondeat superior) to the ship for its damage? Do the pilots themselves have any personal liability exposure? Do the cargo owners have any claims for delays, consequential losses, or physical damage to their goods given that the grounding seems to have been caused either by an error in navigation or by an instance of extraordinarily bad weather? Do owners of ships that had to wait or divert have any claims given that their vessels did not suffer any physical harm? Is the tariff or contract upon which the SCA relies for indemnity enforceable? Was the ship’s master negligent for failing to assume control and allowing the pilot(s) to give inappropriate helm or engine orders? Do the shipowners bear any responsibility for having purchased such a huge and unwieldy vessel or for choosing to send it through the narrow confines of the Suez Canal? Are the owners entitled to limit their liability under any law and, if so, to what amount?
Assume that a similar grounding incident occurred in our Chesapeake and Delaware Canal. How would U.S. law answer these questions?
Briefly, an employer is liable under U.S. law for the negligence of its employees performing in the scope of their employment. But an association of river pilots is not an employer or even a partnership under longstanding Supreme Court precedent, so our local pilots’ association cannot be held liable for any alleged negligence of one of its members while piloting a ship. Individual pilots have liability exposure for damage resulting from their failure to exercise reasonable care and professional skill, but the extent of damages that could arise in a serious maritime calamity is as a practical matter uninsurable and out of all proportion to the fees charged for services. Moreover, the ship itself is liable for the negligence of a compulsory pilot, and coverage via the ship’s enrollment in one of the P&I Clubs is virtually unlimited.
The shipowner could be liable for the acts or errors of the master, but under U.S. law the duty of the master to relieve a pilot is limited to situations in which the pilot is obviously impaired or incompetent.
The rules for liability for harm to cargo are primarily found in the U.S. Carriage of Goods by Sea Act, which applies to all shipments to or from a U.S. port, but could be incorporated into a bill of lading to apply to any shipment. Considering the Ever Given situation, shipowners have two important defenses so long as they abide by their duty to provide a seaworthy vessel and take reasonable care of the goods in their charge: the “error in navigation and management of the vessel” rule and the so-called “heavy weather” defense. If cargo damage is caused by a collision or grounding arising from pilot or crewmember negligence in ship handling, the ship’s owner is not liable. And if damage to cargo is caused by heavy weather that is not reasonably foreseeable, the shipowner likewise has no liability.
For practical purposes, no claims for “consequential losses”—think lost business due to delays receiving microchips needed to build cars—are allowed. Moreover, the carrier’s liability for physical cargo damage under COGSA is most often limited to 500 dollars per package. Shipping containers are rarely, depending upon the terms of the bill of lading, considered to be “packages” per se, but a pallet or box of microchips inside might if damaged result in a loss well in excess of 500 hundred dollars.
The owners of ships delayed by marine casualties but not physically harmed cannot collect damages under U.S. law, per the well-known “economic loss” rule of the Robins Dry-dock case.
The terms of a private contract or tariff are not automatically or blindly enforced. In some instances, a statute passed by a legislature may bar the enforcement of an onerous term in a contract, such as one insulating a carrier from the consequences of its own negligence. Courts may find certain contract provisions unenforceable as “void as against public policy.” Indeed, a group of cases decided by the U.S. Supreme Court held that indemnity and hold harmless clauses in contracts involving pilotage or towing can be voided under certain circumstances.
As far as limitation of liability is concerned, the United States has an infamous statute that says that unless the owner of a cargo ship had “privity” and/or “knowledge” in the cause of an accident, its liability, if any, can be no more than the post-casualty value of the ship. Ever Given was not significantly damaged in the grounding, was built only three years ago, and has a purported value of $170 million. But are the owners truly without privity or knowledge in the occurrence of the incident? Wasn’t it they who decided to purchase such a ship and place it in a trade which practically required use of the narrow Suez Canal? Wasn’t the enormous overall length, breadth and sail area of the ship a contributing factor to the incident?
If U.S. law applied, those questions would lead to the spillage of much legal and judicial ink.
This article was first published in the Summer 2021 edition of The Beacon, a Maritime Exchange publication. Reprinted with permission.