16 April 2024 (Lloyd's List) - THE declaration of general average following the allision of the 9,900 teu Dali (IMO: 9697428) with the Francis Key Scott Bridge in Baltimore sets off a chain of events that will keep lawyers and cargo interests tied up for several years.

Despite some of the wilder claims over what it could apply to, GA only covers the cost of the salvage of the vessel and is shared, among others, by the cargo owners.

“The essence of GA is that everybody that has a proprietary interest in the maritime adventure contributes to GA when there is a GA event or sacrifice,” Quadrant Chambers barrister James Turner KC told Lloyd’s List in an interview.

“This is an event requiring something to be done in order to save the maritime adventure from danger.”

It does not, however, relate to damage to the bridge or other costs that may arise out of the casualty.

Nevertheless, the salvage is likely to be complicated and expensive. It is not clear yet what figure the US government will seek to recover for the use of the Army Corps of Engineers’ work on stabilising the bridge, for example. The ship, which is badly damaged, will need to be stabilised before being moved to a dock for cargo discharge, then sent for repair.

None of this will come cheap, and the contributors to these costs will be the owners of the hull and, if different, the owners of any fuel on board, along with the cargo owners.

A complicated process

But sharing this cost itself will be a massive task, Turner said.

“In practice, this involves an enormous database of everybody who might be interested in the cargo on board,” he said.

“When an average adjuster has completed the adjustment — a period of several years in most cases — they work out the expenses that are properly attributed to GA, the values of the goods, then work out what the rateable share is for each cargo owner.”

Before then, cargo owners will be asked to put up a bond in order for their cargo to be released.

“Traditionally, the owner or whoever makes the sacrifice gets to exercise a lien over the cargo, so they can hold on to it until some sort of security is put up.”

One of the complicating factors is working out who exactly all the owners are so it is likely that a GA guarantee will be put up by cargo insurers, of which there will be far fewer.

Some of the cost will also be covered by GA absorption clauses.

“A lot of hull insurance policies now have GA absorption clauses that will cover what would otherwise be general average expenses up to a given amount,” Turner said.

“It will not generally be very high — generally less than $1m — but you then get discreet GA absorption policies that will cover the next layer. One would expect a carrier to have policies of that sort in place.”

There may well be clauses in the vessel sharing agreement requiring each carrier with a slot charter to either absorb or regulate the GA for the containers carried under their bills of lading. To that extent, different lines will get involved as they will want to insure those liabilities.

This is because carriers — in this case Maersk and VSA partner Mediterranean Shipping Co — are left in the awkward position of controlling the release of the cargo to the customers with whom they have a contractual relationship on behalf of the shipowner from whom Maersk chartered the vessel.

“The idea is that to avoid disruption and delay, and annoying customers, you insure cargo’s portion of GA,” Turner said.

“This would allow the carrier to release the cargo without having to pass that cost on to the cargo owner. If the purpose is to avoid annoying customers, the idea is that you simply let the cargo go and look to an insurance policy to cover the costs.”

But with a casualty of this magnitude, where the cost of salvage is likely to be very high, this would likely outstrip the value of any insurance cover in place. There will still be an amount of GA due from the cargo interests, for which the owners will be looking for security.

Cargo owners can pay up to 100% of the value of their goods, but no more than that.

“How much you will be made to pay depends on the arithmetic of x being the amount of the GA expenditure, multiplied by the cargo owner’s proportion that the value of the goods bear to the value of the marine adventure,” Turner said.

Given that Dali was on a backhaul voyage to Asia, where the value of goods on board is often significantly lower, this could see the shipowner’s portion of the claim being higher.

“If you have very valuable cargo on board, the owner’s contribution will go down if the overall expenditure remains the same, and vice versa,” Turner said.

“It is possible that if you were carrying a ship full of empties, you might not break the limits of your GA absorption. The value of the cargo would be correspondingly low.”

But with low-value goods, there is a risk that customers could just abandon the cargo to avoid paying GA.

“This would not increase the share other cargo owners would pay, but would leave the shipowner out of pocket to the extent that people who should be contributing don’t,” Turner said.

“In practical terms, the ship is badly damaged and the goods will have to be offloaded in Baltimore when the bridge is cleared. There will presumably be some dance around getting security and those that provide it will be on the next ship out.”

But for those that don’t put up guarantees, depending on the terms and conditions of carriage, there will eventually be an application to dispose of the goods. The carrier will want to do this quickly to avoid demurrage costs that it will have to pay.

The final general average call will not come quickly, however. The Ever Given (IMO: 9811000) casualty in 2021, for example, has faced a prolonged legal case over the nature of the salvage contract, so it is not known yet what the full salvage cost, and therefore the contributions, will be.

Legal challenges

There may, however, be challenges to the application of GA. As Lloyd’s List reported yesterday, the US Federal Bureau of Investigation has launched a criminal investigation into the casualty.

Should any wrongdoing or negligence be found on the part of the owner or operator, there would be significant impacts on both any general average claim, and the owner’s efforts to limit liability for damages.

Owner Grace Ocean and manager Synergy Marine have denied any responsibility for the casualty and have argued that if they are deemed liable under US law, their insurer’s exposure should then be limited to a provisional $43.7m under the Shipowner’s Limitation of Liability Act.

The claims the owner could seek to limit do not relate to the issue of salvage, but are wide-ranging, including damage to containers caused by the bridge collapsing on the vessel and damage to perishable goods that were delayed in delivery.

“There could also be claims made by the charterers and any partners to a vessel sharing agreement, and anyone else that thinks they have a claim in torts,” Turner said.

This could also extend to damages claimed by the families of those killed in the incident, as well as the bridge’s insurers.

“The difference in the US is that the limits are a lot lower, but it is also much easier to break the limit. If there has been a cock-up by the owners, you’ll generally manage to break the limit.”

Much would also depend on the judge and jury in the case, who could well be local.

Moreover, cargo owners could resist a claim for general average for the costs of the salvage operation.

“It is essentially because, assuming that the containers were carried on terms that contained the Hague rule or the US Carriage of Goods by Sea Act, if there is a failure on the part of the shipowner to exercise due diligence to make the ship seaworthy before the commencement of the voyage, then that can provide a defence against general average if the breach caused the events that led to the GA expenditure,” Turner said.