At the moment, therefore, the key is to minimise the damage and salvage the ship as soon as possible. The question, however, is what role law plays in achieving this goal. As this blog will explain in more detail, there is a system of legal complexities that should regulate that the costs will eventually be divided neatly.

Assistance

As the situation with the Freemantle Highway makes clear, time is a crucial factor when it comes to relief work. Aid workers must be able to be on site as soon as possible to start the operation. Therefore, it is important that there is no lengthy legal wrangling over costs and whatnot first. Then the ship may already have sunk in the meantime and everyone loses.

What therefore often happens is that the captain and/or ship owner enter into a very minimal contract with an emergency service provider. In the case of the Freemantle Highway, for example, this was done on the basis of the Lloyd’s Open Forum model (LOF). This contract determines who will provide assistance and that the care provider will be entitled to assistance wages by providing assistance. The amount of this assistance wage is (often) not yet agreed upon: this could lead to discussion and therefore delays.

Once the ship has been rescued, the amount of the rescue fee is often determined in accordance with the rules of the London Rescue Treaty of 1989. This treaty functions on the basis of the no cure, no pay principle: the rescuer never receives more rescue wages than the value he actually saved. Furthermore, the amount of the assistance fee will depend on costs incurred, the degree of success, the risk the care provider ran, etc.

Now suppose that the Freemantle Highway and its cargo burn down completely, but the emergency services manage to prevent an environmental disaster on the Wadden Islands. Would the mere fact that there is nothing left of the Freemantle Highway stand in the way of relief payments? Fortunately, that is not the case. Both the 1989 Emergency Assistance Convention and Article 8:564 of the Civil Code provide for a special form of compensation for emergency responders if they ‘only’ manage to prevent environmental damage.

Damage control

Suppose that the shipowner of the Freemantle Highway in the Netherlands is sued for compensation for damage and payment of emergency wages. The shipowner can then limit his liability by opening a general compensation fund. The idea behind this fund is that in the event of maritime accidents, shipowners are not awarded liability that is so high that their shipping company immediately goes bankrupt. This could cause shipping to become so risky that maritime trade becomes uninsurable and therefore comes to a standstill.

The limit of the fund is determined by the standards in the 1976 Convention on Limitation of Liability for Maritime Claims (LLMC). This convention calculates the size of the fund based on the tonnage of the ship. For the Freemantle Highway this equates to roughly €39 million. However, this fund is intended to compensate the damage to the cargo, but also the damage caused by bunker oil escaping from the ship. If the fund is not sufficient for all claims, it will be distributed pro rata.

There is a separate fund for personal injury, which cannot be used by competing creditors and for the tonnage of the Freemantle Highway this would amount to roughly €78 million. By establishing a separate fund for individuals, the treaty ensures that the Indian crew of the Freemantle Highway do not have to fear that their damages will not be compensated.

The treaty also stipulates that certain costs fall outside the fund and must therefore be paid in full in any case. This applies, for example, to the assistance wages that must be paid to the rescuers, but also to claims by the crew based on their employment contracts and costs for the salvage of any wreck.

Cargo damage

Another way for the shipowner to limit its damage is to rely on the damage limits in the Hague-Visby Rules (HVR; assuming they apply). These limits limit the amount of damage the shipowner must compensate based on the weight of the cargo. Assuming an electric car weighs 2000 kg, the HVR determine that each car qualifies for approximately €2450. The cargo interested party will have to claim the rest from his insurer.

The 500 electric cars could therefore result in a liability of approximately €1.2 million, which does not even include the more than 3,000 other cars. The shipowner will therefore want to reject liability in its entirety. He can do this, for example, by pointing to Article IV(2)(b) HVR, in which fire damage is excluded from liability.

The cargo can in turn dismiss this ground for exclusion by demonstrating that the ship was not seaworthy and/or cargo-worthy. The cargo will then have to prove, for example, that the ship did not meet safety requirements or transported the cargo in a way that made the outbreak of fire more likely.

Average average

A final option for the shipowner to limit its damage would be to announce general average. This ancient measure is unique to maritime law. Roughly speaking, general average means that if costs are incurred to save the ship and its cargo in a dangerous situation, these costs must be borne by all who benefited from that rescue.

If the ship and (part of) the cargo survive this fire, there is a good chance that the wages of the emergency services as well as the water damage that some of the cars sustain as a result of the extinguishing work can be partly transferred to the cargo stakeholders of the rescued cars.

Conclusion

As set out in this blog, the financial and legal handling of the Freemantle Highway will have many pitfalls. The most important conclusion is that the maritime legal framework is aimed at ensuring that relief work and salvage can take place as quickly as possible. Payment of the assistance wage will be arranged afterwards and will take priority over other claims. The claims of the Indian crew also enjoy a high degree of priority, so that the shipowner cannot avoid its responsibilities towards its employees.

A separate fund will be set up for the other claims. This fund will be distributed among all unsecured creditors. Claims for cargo damage will also be subject to further limitations. Finally, if part of the ship and its cargo are saved, the shipowner may choose to declare general average. As a result, cargo stakeholders who have benefited from the rescue operation will be obliged to contribute to the relief wage.

For now we just have to wait and see and, above all, hope that the situation turns out as smoothly as possible. After all, that remains the best scenario for everyone involved!