Unraveling the Evergreen Ship legal conundrum

The recent crisis in the Suez Canal involving the Evergreen Vessel has raised concerns about it’s impact on global trade. The vessel that was sailing through the canal got stuck blocking passage through the canal. The Suez Canal Authority which is responsible for managing the Suez Canal stated that the vessel lost the ability to steer amid high winds and a dust storm. This has had an unprecedented effect on global trade due to delays. Mr. Jamil Sayeigh, a former Captain and maritime law specialist, with experience navigating the canal stated in The Guardian that the force generated by the wind would have unintentionally altered the heading of the vessel. He however did not rule out human error having been a factor since according him, ships traverse the canal in convoys and none of the vessels behind the Evergreen vessel had run into a similar situation. He equally stated that a delay of a vessel in the Suez Canal meant a 60,000 US Dollar per day loss to the ship owner. The crisis poses a number of legal questions regarding commercial obligations and liability of the different stakeholders to the crisis that include the following;

Doctrine of frustration

Under the doctrine of frustration , the uncertainty of when the Evergreen could be in position to continue it’s voyage raised concerns about frustration of existing contractual obligations between the ship owners and other parties plus those other parties due to the blockage of the Suez Canal. However for frustration to occur, there must be a circumstance or event which circumstance or event is beyond that party’s control that prevents a party from fulfilling a contractual obligation. In this circumstance however the ship owner and other parties cannot claim frustration because this incident did not prevent the Evergreen ship or other ships from continuing their voyage but just delayed them. This is fortified by the decision of the United Kingdom House of Lords in Tsakiroglou and Company Limited v Noble and Another [1962] AC 93, where the Court observed that there was no frustration of the contract due to the blockage of the Suez Canal by the Isreal invasion but a delay of the performance of the contract since there was an alternative route via the Cape of Good Hope.

Suez Canal Clause

The Suez Canal Clause is a result of the decision of the United Kingdom House of Lords in Tsakiroglou and Company Limited v Noble and Another. Carriers after the case was decided started inserting into their marine voyage contracts a clause that provided that where there was recourse to an alternative route other than the initial route, the carrier will be reimbursement for the additional expenses incurred as a result of using the alternative route. This clause came to be known as the Suez Canal Clause. Due to the blockage of the Suez Canal by the Evergreen vessel, many vessels that were initially meant to pass through the Suez Canal diverted course and took alternative routes. Carriers that are affected by this diversion to the alternative route and had Suez Canal Clauses in their contracts will be entitled to invoke the clause to cater for the extra expenses incurred as a result of the diversion to the alternative route  

Delivery of goods and compliance of documents

Under CIF and CF contracts , a carrier is required to deliver goods within the period specified in the contract. A seller is required to present documents that comply with the requirements of the credit facility. A late delivery by the carrier due to the ongoing Suez Canal crisis and the presentation of documents by the seller that have a different delivery date from that required in the credit facility due to the delay has legal implications. For the case of the late delivery by the carrier , a buyer is entilted to reject the goods for late delivery and revoke the contract. This was retaliated by the High Court of Uganda in Mogas (U) Limited v Benzina (U) Limited High Court Civil Suit Number 88 of 2013, where the defendant’s carrier delivered goods after the period specified in the contract and the Court held that the plaintiff was entitled to reject the goods and revoke the contract. For the case of the seller presenting documents that have a different delivery date from that required in the credit facility, the issuing bank will be entitled to not honour the credit facility on grounds that the date of delivery on the documents presented does not correspond with the date of delivery provided for in the credit facility. In Glencore International A.G. and Another v Bank of China [1996] 1 ChD 135, the UK Court of Appeal observed that the doctrine of strict compliance requires the bank to only honor payment of a credit facility if the documents presented by the seller conform to the requirements of the credit facility.

Inherent vice

Under inherent vice, an assured will only be entitled to indemnity by the insurer where the risk or peril that occurred was a result of an act of God and not as a result of an inherent vice or inner weakness of the subject matter of insurance. From what was stated by Mr. Jamil Sayeigh above, inorder for ship owners to be indemnified by it’s insurers, it must show that the incident occurred as result of high winds and a dust storm and not an inner weakness of the Evergreen. In Global Process Systems Inc v Syarikat Takaful Malaysia Bhd [2011] UKSC, the United Kingdom Supreme Court observed that a risk or peril is deemed to have been caused by an inherent vice or inner weakness of the subject matter of insurance, if this risk or peril occurred as a result of circumstances or conditions that emanate from the subject matter of insurance and not external circumstances or conditions. The Court concluded that the capsizing of oil rigs was as a result of strong winds at sea and not the fragility of the oil rigs and that the assured was entitled to indemnity.  

Conclusion

In sum, the ongoing crisis has set in motion litigation that will crisscross numerous jurisdictions for the next decade or two give and take. Only time will tell how the legal disputes emanating from the crisis will be resolved. Either way, what we should expect is an enrichment on our existing  jurisprudence.

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