Stuck in the Suez Canal – What are the Legal Implications?

The following is a joint guest post by Elizabeth Boomer, an international law consultant, and George Sadek, a foreign law specialist, from the Global Legal Research Directorate of the Law Library of Congress.

On March 29, 2021, the engineers of the Suez Canal Authority were finally able to restore passage through the Suez Canal after a 1,300-foot, 220,000-ton container ship that blocked it for almost a week, causing great disturbance to maritime commercial routes worldwide, was finally moved. The Suez Canal acts as a link between maritime commercial routes between the Mediterranean Sea in the north and the Red Sea in the south. It is 120 miles from the city of Port Said on the Mediterranean in the north and the city of Suez on the Red Sea in the south.

Historical Background on the Construction and Development Projects of the Suez Canal

Construction of the Suez Canal began in 1859 and took 10 years to complete, with the passage of ships starting in 1869. The work was performed by an estimated 1.5 million workers and involved excavation and dredging of 97 million cubic yards of sediments. The original canal did not allow for two-way traffic—ships used to halt in a passing bay so that other ships coming from the opposite direction could pass. The canal went through various improvements to allow heavier ships to pass through.

In 1858, La Compagnie Universelle du Canal Maritime de Suez was established to operate it for 99 years. The Suez Maritime Canal Company had been incorporated as an Egyptian joint-stock company with its head office in Paris. In July 1956, Egypt nationalized the Suez Canal Company leading to the Suez Canal crisis in October 1956.

In 1960, the Egyptian government came up with the “Nasser Plan” to expand the width and depth of the Suez Canal. The main purpose of the plan was to make the canal into a multi-lane waterway. The project was carried out between 1961 through 1967. The project of development of the canal stopped in 1967 because the Six-Day War broke out with Israel. In 1975, after the war ended, the Egyptian government began another project to expand the Suez Canal. Other Suez Canal development projects took place during the 1980s. The most recent development project was in 2014. This project aimed to create a new canal, parallel to the existing one, to maximize the benefits from the present canal and its by-passes. One of the main goals of the project was to double the longest possible parts of the waterway to facilitate traffic in both directions and minimize the waiting time for transiting ships.

Domestic Egyptian Legislation and International Law Governing the Suez Canal

There are two domestic legal instruments concerning the Suez Canal: The Presidential Decree of the Nationalization of the Suez Canal of 1956 and Law No. 30 of 1975 on the Organization of the Suez Canal. These domestic legal instruments operate in the context of international law governing the Suez Canal and international organizations operating in the area abutting the Suez Canal.

1. The Presidential Decree of the Nationalization of the Canal of 1956

In July 1956, former Egyptian President Gamal Abdel Nasser issued a presidential decree to nationalize the Suez Maritime Canal Company. Under the Presidential Decree of 1956, the Suez Maritime Canal Company became an Egyptian government body. All money, rights, and obligations of the company were transferred to the Egyptian State.

The Presidential Decree of 1956 stipulates that the management of the Suez Canal Company lies with the Ministry of Commerce. Additionally, the annual budget and balance sheet of the company are issued in a decree of the president of the Republic of Egypt.

2. Law No. 30 of 1975 on the Organization of the Suez Canal Authority

Law No. 30 of 1975 replaced the Suez Canal Company with the Suez Canal Authority (the Authority). The Law does not affect the rights or the obligations of the Arab Republic of Egypt stemming from the Constantinople Convention of 1888.

Law No. 30 of 1975 provides that the Authority shall manage, use, maintain and improve the Canal. The president of the Republic has the authority to appoint and dismiss the managing directors and the general managers of the Authority. Additionally, the Authority has an independent budget. The Authority is in charge of enforcing all rules governing the rights of maritime passage in the Canal. It also supervises the maritime activities in the Canal. The Authority must impose and levy tolls on navigation and transit through the Canal. It administers pilotage, towage, and floating of ships in the Canal. The Authority has the power to own and possess land and real estate next to the Canal as well as to expropriate land and real estate for the public interest.

Finally, the Authority has no power to adopt any measure violating the free navigation in the Suez Canal, which is governed by the provisions of the Constantinople Convention of 1888. Furthermore, the Authority has no legal right to discriminate against some ships passing through the Canal in a favor of other ships.

Potential International Litigation Following the Ever Given’s Blockage of the Suez Canal

As mentioned above, the ship Ever Given blocked the Suez Canal for nearly a week, which had numerous consequences: delays in the shipment of goods, potential damage to goods or the ship itself, and damage to the canal during dredging. Furthermore, the blockage delayed hundreds of ships that could not navigate through the Canal during this period, some of which re-routed around the Horn of Africa (a decision which carries its own potential liabilities and delays, as well as diminished revenue for the Suez Canal Authority). With a litany of actors involved in operating, salvaging, and insuring the ship, litigation regarding the liability among those actors seems inevitable. Two potentially significant areas of litigation may be disputes over insurance and salvage, as explored below.

Insurance Litigation

As Lloyd’s List, a major maritime publication, notes, “shipping law firms have the prospect of extensive litigation on behalf of cargo interests, especially if general average is declared on the casualty.” General average is the process by which insurance adjusters average the contribution of each party who benefitted to make up for one party’s loss and is based on the York Antwerp Rules (YARs). The YARs are a set of model maritime rules promulgated by the Comité Maritime International (CMI) that are routinely integrated into shipping contracts (bills of lading, freight contracts, and marine insurance policies). The YARs provide:

There is a General Average act when, and only when, any extraordinary sacrifice or expenditure is intentionally made or incurred for the common safety for the purpose of preserving from peril the property involved in a common maritime adventure. (YARs, Rule A.)

The Japanese underwriters of hull coverage in the Ever Given case intend to share the costs of refloating the ship with the cargo owners, and predict that sorting out the average contribution among the thousands of companies who had cargo on the ship will take several years.

And the allotment regarding costs will not be without controversy.

Per Rule B.1 of the YARs, salvage operations are not a common maritime adventure (and thus general average rules are not applicable to them); therefore, different legal questions could arise regarding the rewards for the salvage operations that rescued the Ever Given.

International Salvage Law

Marine salvage is when commercial operators go to the aid of vessels in distress in the expectation of a reward for helping to save life and property. The public and private international law governing marine salvage may very well be critical in future litigation related to the blockage in the Suez Canal.

As potential litigation over these issues and others has not yet been reported publicly, the International Salvage Convention (1989 ISC) and the Lloyd’s Open Form salvage contract (LOF), may come into play, depending on the various contractual terms involved and the claims put forward.

The 1989 ISC has 74 contracting states and covers over 60% of world tonnage. The 1989 ISC is the successor to the original international agreement on salvage, the 1910 Convention on Assistance and Salvage at Sea, which only awarded the salvor if it successfully saved the ship or the cargo, under the so-called “no cure-no pay” principle. However, it was recognized under the 1910 Convention that the strict no cure-no pay principle could disincentivize the attempt to salvage ships when the risk of failure was great and/or the costs likely to be incurred were great. Thus, article 13 of the 1989 ISC provides a list of criteria that the reward should take into account, including the skill and efforts of the salvors in preventing or minimizing damage to the environment, as well as the salved value, the danger, the out of pocket expenses, the risk of liability, promptness, and the skill required to salvage the ship.

The 1989 ISC article 13 criteria could be important in future litigation or arbitration proceedings regarding the salvage of the Ever Given because LOFs are the most commonly used salvage contracts, which are governed by English law (LOF 2020 J), with London as the seat of arbitration (LOF 2020 I). The 1989 ISC is incorporated into UK law.

While the extent to which the private contracts concluded among the interested parties in the Ever Given case have used LOFs or followed the YARs remains to be seen, these international instruments could play a significant role in determining the legal implications of being stuck in the Suez Canal.