Posted: 21/04/2023
It has been a little over two years since one of the world’s largest container ships blocked the narrowest section of the Suez Canal for six days, but the name Ever Given remains one of public renown. Commercial vessels seldom achieve such notoriety.
The spectacle was both tragic and ridiculous; a reminder of the fragility of the global supply chain we so easily take for granted. Diagonally lodged between opposite banks, the four hundred metre-long Ever Given caused a traffic jam of four hundred vessels and launched a thousand memes. The ship interrupted US$60 billion of trade and cost Egypt between US$70–90 million in lost revenues.
The successful salvors who re-floated the vessel, Boskalis and their subsidiary SMIT, went on to publish a book chronicling the effort. The Egyptian authorities arrested the ship for months and demanded almost US$1 billion compensation. When the Ever Given finally arrived at its intended discharge port of Rotterdam, the port authority sold tourist tickets for boat rides past the culprit vessel.
The status of the successful salvage efforts and the question of whether they qualify as genuine ‘no cure, no pay’ salvage, or were undertaken pursuant to an agreed contract for remunerated services, is the subject of a judgment of the English Admiralty Court handed down by Mr Justice Baker on 30 March 2023. It is, in essence, a judgment on the formation of contracts under English law.
The vessel owners contended that, prior to the successful re-floating, a contract was made with SMIT fixing its remuneration at a daily rate. If SMIT had provided its assistance pursuant to a contract, then that assistance would not have been given as a volunteer and would not therefore qualify as salvage under the International Salvage Convention 1989, or at common law. This would have denied the salvors any opportunity of claiming an award based on the Article 13 criteria of the Salvage Convention, including the dangers faced by the casualty, the nature of the salvage services, and value of the property rescued.
As the vessel was re-floated on 29 March 2021, a mere six days after becoming grounded, it is likely that remuneration calculated on a daily rate would have resulted in SMIT receiving a lesser return compared to a salvage award. SMIT had obtained security for its services in the sum of US$35 million to allow for remuneration on a pure salvage basis.
As is common in emergency situations, SMIT began giving technical assistance and mobilising personnel while it was still negotiating contractual terms with the vessel owners. The owners had not accepted the salvors’ initial proposal to contract on the ‘no cure, no pay’ terms of the Lloyds Open Form and were keen to engage SMIT on a daily hire scheme.
SMIT had sent commercial offer terms to the owners on 24 March 2021 based on a standard Wreckhire 2010 contract wording. The owners could have communicated a firm acceptance to this offer and thereby formed a binding contract, but did not do so. While SMIT was awaiting a response, the owners also asked SMIT to engage a further tug in the operations.
SMIT’s team arrived on board Ever Given at 10.00 UTC on 25 March 2021. Later that day, it became apparent that the owners wished to make amendments to SMIT’s proposal, and that the Wreckhire terms would also need to be negotiated. SMIT sent a revised commercial offer at 21.40 UTC that day with amended Wreckhire terms. Again, the owners could simply have communicated a firm acceptance and thereby formed a binding contract.
Instead, the owners stated they would revert on this proposal as soon as possible and in the meantime asked SMIT to engage two more tugs. The following morning, 26 March 2021, the owners responded to the revised proposal by accepting only the terms as to remuneration. SMIT was plainly keen to finalise all the terms of the contract and chased for a response. The owners replied reassuringly that ‘there was nothing remarkably major to amend’.
This was untrue, as the owners ultimately did propose significant changes two days later, leading the judge to observe that ‘the falseness of [the owners’] optimism emerged at 07:44 UTC on the Sunday, and the resulting significant gap between the parties as to contract terms was not resolved…’ Ever Given was re-floated at 13.05 UTC on Monday 29 March 2021 and SMIT stood down its operations.
It was the owners’ position before the court that a binding agreement had been achieved when the remuneration terms were agreed on 26 March 2021, even though the parties intended to go on to agree more detailed terms. The owners therefore alleged that SMIT was bound by a fixed remuneration scheme and was unable to claim a salvage award.
The owners contended that there would otherwise be ramifications for the salvage industry, as salvors could agree commercial ‘main terms’ and provide their services on the basis of those terms while delaying the conclusion of a detailed contract. Once the services were completed, the salvors could then, on a relative assessment of the level of remuneration, make a common law salvage claim on the basis that no contract was agreed.
Dealing with this matter as a preliminary issue, Mr Justice Baker found that no contract was formed. While it is possible for parties to enter into an agreement dealing with only the principal terms of a contract, with other more detailed provisions being left over for later, this still requires on both sides an intention to be bound. In the present case, the parties’ communications were equivocal, and the law is clear that if there is ambiguity of intention, then there is no contract.
The judge furthermore observed that a party’s willingness to be paid a certain scale of remuneration may be tied to other stipulations, such as the scope of the contract services or the liability regime. In other words, the remuneration package that formed part of SMIT’s revised offer was not made in a vacuum. It formed part of a complete contractual proposal, including a Wreckhire wording, which the owners had thereafter sought to significantly amend.
The exchanges were not marked ‘subject to contract’, but the absence of such wording does not automatically connote an intention to be bound. Rather, the judge considered whether such intention was intimated by the context and tenor of the parties’ exchanges.
Salvage contract negotiation is a speculative exercise, concerning the provision of an unforeseeable amount of services in the pursuit of an uncertain outcome: a dynamic to which the Lloyds Open Form is well-suited. The Ever Given owners might be accused of playing matters close in their negotiations, both delaying their counter-proposal while simultaneously encouraging SMIT to commit further resources. Any such strategy appears to have ultimately backfired, leaving SMIT free to claim a salvage award, the amount of which is yet to be quantified.
With the ever-ballooning size of modern containerships, a casualty as large as the Ever Given was not unforeseen, but it does appear to have had a silver lining. In response to the incident, the Egyptian authorities agreed to accelerate and update their plans to expand and modernise the canal. These works are still ongoing, but the Suez Canal is already experiencing unprecedented levels of revenue, with the current year’s figures looking likely to outstrip the record numbers of 2022 by as much as 40%. However, the wider industry concerns over the availability and adequacy of salvage equipment to deal with casualties of the scale of the Ever Given remain unresolved.
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