“Ever Given” – Court of Appeal upholds that no salvage contract was concluded

The “Ever Given”, a 400 meter long container ship with a capacity of 20 388 TEU, made headlines around the world when it ran aground at one of the narrowest places in the Suez Canal on 23 March 2021, blocking the canal for almost a week and causing significant disruptions to international trade.  

Contract or no contract – that’s the question

After the “Ever Given” was re-floated the salvors, led by SMIT, made a salvage claim under the Salvage Convention 1989 or alternatively at common law. The owners of the “Ever Given” rejected the claim, arguing that the services had been rendered pursuant to a pre-existing agreement whereby the salvors were to be remunerated on a day-rate basis, which would provide for a significantly lower remuneration than a salvage reward based on the salved values.

The Court of Appeal upheld the Admiralty Court’s judgment and found that the parties did not have an intention to be bound, irrespective of the fact that the salvors had mobilised and even started providing assistance while continuing to negotiate with the owners.

Key facts

The key facts can be summarised as follows:

• 23 March 2021: The owners contacted SMIT requesting technical advice and possible salvage assistance, and the parties opened initial discussions on remuneration. A first attempt to re-float the vessel by Suez Canal Authority (SCA) failed.
• 24 March 2021: SMIT sent a detailed commercial proposal to the owners which included the scope of services to be provided and the remuneration terms, and proposed that a contract should be concluded on the Wreckhire 2010 form. The proposal constituted an offer, but was never accepted by the owners.
• 25 March 2021: The owners requested SMIT to mobilise a tug if SCA allowed SMIT’s assistance. SMIT requested a ­formal response to the commercial proposal before further mobilisation. The owners replied requesting SMIT’s continuing assistance, however without accepting the commercial proposal or making a counter-offer. Same day, SMIT arrived at the site, and later SMIT sent a revised commercial proposal, now including a detailed Wreckhire 2010 wording. 
• 26 March 2021: SMIT informed that it would start demobilising if agreement on main terms was not reached. After several exchanges between the parties, agreement was reached on remuneration, and the owners promised to revert to discuss a contract wording. Also that day another failed re-floating attempt by SCA was carried out. 
• 27 March 2021: No further terms were agreed.
• 28 March 2021: The owners proposed significant changes to SMIT’s proposal of 25 March 2021, including to the scope of services, the standard of care, and the payment terms. Several exchanges followed, but no further progress was made on the contract terms. SMIT continued negotiations for tugs to be ready on site the next day.
• 29 March 2021: Tugs arrived at the site and took part in the successful re-floating. 

The Court of Appeal judgment

The owners’ case was that the parties on 26 March 2021 had entered into a binding contract since there had been agreement with respect to remuneration. It was not disputed that the parties had agreed on remuneration. However, the Court of Appeal highlighted that several issues had not been agreed, including “such basic matters as the nature of the services which SMIT would provide, the standard of care which it would be required to exercise, and the payment terms, and left it for future agreement a detailed contract on the Wreckhire 2010 form”. 

The question was therefore whether the initial agreement on remuneration was sufficient to establish a binding contract. The Court considered the communication between the parties leading up to the re-floating, including two e-mails from SMIT to the owners containing detailed commercial proposals and offers, and found that SMIT’s consistent position had been that it wanted a binding contract dealing comprehensively with all aspects of the services it would provide and that SMIT “had not ­suggested at any point that it would be content with a binding contract dealing only with its remuneration, leaving other matters for future agreement”.

In their submissions in the Court of Appeal, the owners had particularly relied on three “ultimatums” given by SMIT on 26 March 2021, where SMIT in various ways indicated that they would demobilise unless the parties agreed on main terms. Since SMIT did not demobilise after 26 March 2021, this demonstrated, according to the owners, that the parties had reached a binding contract. Also this argument was rejected by the Court, which found that the decreased urgency expressed by SMIT following the agreement on remuneration could also be explained by the fact that SMIT, following another failed re-floating attempt by the SCA the same day, was in a stronger commercial position. From that point on, it appeared increasingly likely that SMIT’s assistance would be needed for the “Ever Given” to be re-floated and that, consequently, SMIT would become entitled to salvage remuneration for their contribution even if no contract was concluded.   

Comments

There was no dispute as to the legal principles to be applied and the Court of Appeal reiterated established principles, including that a binding contract may be reached even if some terms are yet to be agreed upon, that the courts will determine whether the parties intended to be legally bound based on an objective appraisal of the communications and conduct by the parties, and that the burden of proof rests with the party alleging that a binding contract exists.

The decision therefore hinged on the Court of Appeal’s detailed analysis of the communications and conduct by the parties.

A key take-away is that whether agreement on remuneration terms is sufficient to create a binding contract depends on whether that is the intention of the parties or whether the intention is that there is no binding contract until certain other terms are also agreed. 

In many cases it will however be clear that the intention is, whether stated expressly or not, that the services shall be remunerated on certain agreed commercial terms even though the exact scope of services is not yet agreed.

“Kvitnos” – a Norwegian example

A dispute as to whether a salvage contract on commercial terms had been concluded was also considered by the Norwegian Court of Appeal in the “Kvitnos” case (ND-2018-5). The vessel had experienced a main engine breakdown and was drifting in good weather conditions at a relatively comfortable distance from shore.
The question was whether a salvage contract had been entered into by phone between the tug owner and the hull underwriters of the vessel. The hull underwriters had suggested using one of BIMCO’s standard form towage contracts, Towhire or Towcon. The tugowner agreed to assist, quoted the standard hourly rate for towage services, but did not say which of the contract forms he preferred and suggested to take care of the paperwork the next day. 

The Court of Appeal analysed the communications and conduct of the parties and found that the parties had reached a binding agreement since they had agreed on the “main terms”. They had fully agreed the scope of services to be provided, namely towage of the vessel with a certain tug and that the practicalities would be sorted out between the two captains. They had also agreed the time for rendering the services, the destination of the towage and that the tug would engage a pilot. The tug owners took no reservations, except as to the exact hourly rate. 

The Court of Appeal concluded that the hull underwriters had reason to believe that the tug owners intended to be bound by a towage agreement on an hourly rate. 

Conclusion

Both cases illustrate the importance of the parties making clear whether they intend to be bound and that, unless they express their intentions clearly, the courts will need to establish their intentions based on their communications and conduct.