Container vessels are getting ever larger and at times it appears that each year sees the previous maximum TEU capacity broken. Whilst there is no suggestion that there is anything inherently unsafe about these designs, when things go wrong they tend to go wrong spectacularly.
The recent events off Branscombe Beach in South Devon where the MSC “Napoli” was grounded have brought these into highlight. This article provides an overview of the issues which need to be considered when such an unfortunate incident takes place.
Container casualties can occur for a variety of reasons. They can of course be fortuitous with no fault or blame attached to any party; even the best run vessels can suffer the occasional engine failure and if this occurs at an inopportune moment or in bad weather, the results can be disastrous.
Container vessels do have the added potential for things to go wrong because of their high deck load; cargo can be mis-described, not necessarily deliberately and containers can weaken, all of which can lead to unknown factors affecting the ship’s stability. For those on board, to be able to take the right decisions, they must be in possession of the right information.
Let us consider a theoretical casualty where a container vessel has taken a dangerously severe list and owners have engaged salvors under an LOF to rescue their ship. This will automatically give rise to a number of potential disputes with a host of parties. There will be the salvage arbitration, off-hire issues with the time charterer, indemnity claims from slot charterers, cargo claims from owners’ own bills of lading, security and counter-security to be considered, local authority investigations and possible general average matters also to take into account. We consider each of these below:
The Salvage
Owners, by entering into the LOF, have handed over control of their vessel to the salvors who must continue to use their best endeavours to salve the vessel and the property on board of her. The LOF itself is simply a contract for salvage services, it recognises that the services being performed are salvage services and not contractual services and provides the mechanism by which the reward will be determined; namely arbitration under the auspices of Lloyd’s Salvage Arbitration Branch.
When the master signs the LOF, he does so not only on behalf of his owners, but also on behalf of the cargo on board. At common law, he would be able to bind cargo interests by being an “agent of necessity”, however this requires there to be some element of immediate danger which is not always apparent. Therefore, Article 6 of the Salvage Convention 1989 provides that an LOF signed by the master (or owners) binds cargo without more. However, it will be appreciated there may be difficulties in respect of non-LOF salvage in a non-Convention country.
The principles of salvage are well known; salvors will be entitled to a reward from the owners of property saved based upon certain factors such as danger, expense, skill and professionalism of the salvors as set out in Article 13 of the Salvage Convention. There are additional provisions concerned with Article 14 Anti-Pollution cases and SCOPIC (which are not dealt with in this article). Owners will have to pay salvors something (although this is recoverable from their hull underwriters under the hull policy) and the key to a successful arbitration is not to have one. If owners are able to obtain an accurate, early assessment of the likely level of salvage award, most salvages should be capable of settlement.
As the obligation under the LOF is to pay the salvors a reward, steps need to be taken to ensure that suitable security is available to be provided to salvors for when the vessel is redelivered and the service terminated. Salvors have the right to retain possession of the property until satisfactory security has been provided and without it, owners and cargo may not get access to their property until the security is in place. Again, there is a need to consider the likely award in order to understand whether the security request is reasonable. If there is doubt, then the security will generally still need to be provided (unless it has been seriously over-estimated) so long as it reflects salvors’ best arguable case. Nevertheless, it can be put up under protest as to amount.
Cargo interests will also need to provide security and this can cause significant administrative problems for salvors. Frequently the vessel owners will have little idea as to who the actual owners of the goods on board are. A single container may be stuffed with cargo for a number of different consignees. Each party will need to provide security. In turn this may cause commercial upset between the owners or slot charterers and their customers. As a result, it is possible for owners to provide security on behalf of cargo whilst still leaving salvors with the obligation to obtain security direct. The benefit is to give some comfort to salvors and also allows the cargo to be released in certain circumstances. Owners or slot charterers should consider whether this is something they would be interested in doing and, if so, take steps to ensure the security is in place promptly.
General Average
Salvage is generally considered to be a GA expenditure and further there may be additional GA costs (e.g. transhipment costs). However, as the salvage element will be met by the parties proportionately in any event, then, subject to differences in valuation, it is the additional expenses which should be the determining factor in deciding whether or not it is sensible to declare GA and, if so, which adjuster to appoint. It is to be remembered that the adjuster will require security before the cargo is released and that this security is in addition to the separate form of security provided to salvors.
Whether or not owners will be able to recover from cargo interests and general average, will depend upon whether owners will be liable for the losses under the contract of carriage (of which more below). However, the cover provided by a P&I club will normally extend to contributions by cargo to General Average which are not legally recoverable solely by reason of a breach of the contract of carriage.
The Time Charter
It is highly likely that the vessel will be placed off-hire (see for example NYPE Clause 15: delay due to average accident). If the charter contains that or similar wording, it represents a “no fault” clause and it matters not that the cause of the grounding is due to any action or inaction of owners.
Time charterers may also have a claim against owners for an indemnity if they have issued bills of lading of their own (cargo owners’ claims are discussed below). Whether owners would be liable to indemnify charterers will depend upon whether they are in breach of the time charter.
Furthermore, the time charter may incorporate the Inter-Club Agreement (“ICA”) which provides a method for settling such claims. If it applies, broadly issues of unseaworthiness would be 100% for owners unless the unseaworthiness was caused by the stowage of the cargo in which case charterers would be liable 100%. Owners will appreciate that where containerships are concerned, this can be a crucial issue and it is usually worth engaging a suitable naval architect expert to analyse the stowage early on in order to strategise effectively.
The charterers will be liable in salvage for their proportion (based upon the value of bunkers on board) and although this will generally be small, nevertheless it constitutes an additional claim against owners.
If charterers are responsible at law for the stowage (and this will depend upon the wording of the particular charter) and the negligent stow is the effective cause of the loss, Owners should be able to reclaim their losses and hire deducted from charterers. Those losses will include salvage paid and liability under bills of lading to cargo interests.
Charterers meanwhile will be endeavouring to show that the owners were responsible for the loss by proving that the vessel was unseaworthy when she delivered or that there had been some further breach of charter. If the charter contains a clause paramount, then owners can rely upon the defences contained within the Hague Rules providing they can show that they have exercised due diligence to make the vessel seaworthy. Inevitably this means an examination of owners’ ISM procedures. It is impossible to satisfactorily deal with any specific deficiencies giving rise to legal liability after a major incident has taken place; owners can only try to ensure that during the course of the vessel’s life, they pay attention to and prioritise ISM procedures.
Slot Charter
Similar issues arise as regards slot charters. These tend to be more bespoke and probably will not incorporate the ICA. However, often they contain a clause paramount and the arguments mentioned above regarding unseaworthiness and ISM will apply.
Bills of Lading
Bill of lading holders will have claims against the contractual carrier. The contractual carrier could be the head owner, time charterer or slot charterer. They will also have claims in bailment against the head owner. The claim would be either for damage, for example where the cargo has become waterlogged or shifted, or for reimbursement of salvage payments; or a combination of both; or a declaration of non-liability for general average. The jurisdiction will be that provided for in the bill of lading. Where slot or time charterers are the contractual carrier, the claims will come back up to owners through the contractual chain as described above. Where owners are the contractual carrier, the claim will be made direct.
Most bills will contain or be governed by the Hague/Hague-Visby or similar rules. Owners will be able to rely upon the defences provided they have exercised due diligence to make the vessel seaworthy at the outset of the voyage. Again, ISM procedures may come into play.
It is as well to remember that where time charterers are responsible for the stowage under the time charter, and if stowage is the cause of the loss, this will not protect owners as against cargo interests. Owners will need to bring their claim for indemnity under the time charter and liability will be determined as described above.
Security and Counter-Security
All of these claims mean one thing: security is necessary.
Owners will require security for their potential losses (salvage, direct cargo claims, loss of time) and charterers and cargo interests for theirs (salvage, damage and where appropriate, indemnity). P&I clubs are generally co-operative in providing suitable security. This security is in addition to the security to be provided to salvors by hull underwriters and to the average adjuster.
Nevertheless a potential area for dispute is in relation to the ability to limit one’s liability and whether such security should be set at the limit. As claims become larger and with potential liabilities to be taken into account in a P&I club’s accounting, the issue of size of security can become a relevant factor.
Limitation
Under the 76 Convention or 96 Protocol, owners will be able to limit their liability provided they have not been deliberate or reckless as to the cause of the loss with the intention that such loss would occur. This has generally been a difficult test to break, at least in English Law, but not impossible in certain jurisdictions. However, the 57 Convention with its easier to break test of privity or knowledge of the cause of loss is still applied in certain maritime states.
Furthermore, owners will need to consider whether to commence a limitation action to bring all claims under one umbrella. Depending upon where that action takes place and on constitution of the fund, securities are to be returned in any event.
The commencement of a limitation action may not be straightforward where there are competing jurisdictions, but often there are procedural advantages in doing so early, particularly if it is thought that there may be no viable defence to the cargo claims. That decision requires there to be a qualitative early assessment both practical and legal as to the cause of loss.
Investigations
The local authority will probably take an interest in the incident. This can result in a lengthy enquiry requiring the attendance of the master. Thought should be given to providing an additional master to run the ship whilst the casualty’s master deals with the authorities. On occasions, the enquiry may result in criminal charges against the master, as a number of negligence offences carry criminal penalties (e.g. breach of collision regulations).
Skilled media professionals should be used in support, particularly where there is pollution or damage to the shoreline.
Conclusion
A number of practical and legal investigations are required to be taken. Owners should appoint a suitable expert consultant at an early stage. They will need to be conversant with judicial procedures. Solicitors need to be appointed to investigate the facts and can also offer assistance on management of the incident. Owners need to take care to protect contemporaneous evidence and to instruct the master to record salvage efforts. Media consultants may need to be appointed.
The successful handling of the casualty and its commercial and legal aftermath is often determined in the very early stages of it occurring; strategies and advices need to be thought out with care and confidence. Trust in advisors can be crucial and an appreciation of how the claims will transpire is vital to manage the incident effectively.
With thanks to Richard Gunn of Reed Smith Richards Butler for preparing this article.
