The Pearl of the Indian Ocean

Sri Lanka is called ‘The Pearl of the Indian Ocean’ because of its location and shape. The very word Pearl has come to haunt the country in the form of the container ship MV X-Press Pearl which caught fire at the outer anchorage of Colombo port. An infant, this vessel is, barely 2-3 months old. The vessel which was going to Colombo from Hazira, India had 1486 containers on board and many of them were stuffed with dangerous chemicals as per IMDG Code, including around 25 MT of nitric acid. The vessel caught fire on 21st May 2021 & till the time of this post, the fire has not been brought under total control. News reports from various quarters say that the intensity has reduced. Sri Lankan firefighters, Indian Coast Guard & the salvors are making all efforts to douse the fire completely, salvage whatever is possible & most importantly, ensure that environmental damage & pollution is minimized. Indian Air Force aircraft are on stand-by in the south Indian airfields should an emergency arise.

There are differing versions of the incident. While some say that the nitric acid was stowed on the upper deck, fire emanated from one of the holds following a huge explosion. Wild guesses are flying around about the losses though nothing is clear as yet. General average has been declared by the Master of X-Press Pearl but looking at the severe damages to the hull and cargo, one wonders if the vessel would be able to continue and complete the adventure. Many containers have fallen overboard and although no oil spill is reported, the nearby beaches of Sri Lanka have been swamped by plastic granules, burnt oil and other materials from the containers lost overboard. Massive cleaning operations are underway but the long-term environmental impact on the region is not known at the moment.

Coming close on the heels of the MV Ever Given incident in the Suez and where the vessel is still held up and legal battles lie ahead, this incident involving MV X-Press Pearl is also likely to go the same way. Some reports say that the vessel could well be a constructive total loss. What about the cargo? Some of the containers could still be salvaged but a good number could be irretrievably lost/damaged. Environmental liability claims, clean-up costs, fire-fighting costs, salvaging costs, etc. could add up to a staggering figure. The insurers and P & I club who are likely to face these claims will, rest assured, fight tooth-and-nail on the legal front to palm off as much of their liabilities on to others.

Let us take a look at the various types of claims which can arise and why it is felt that there could be long-drawn legal battles. There will be claims on the Hull & Machinery insurers, P & I Club, Charterer’s Liability & of course the various cargo insurers. The interesting point on which all these claims will hinge on, is the findings in the forensic reports Remember, the cargo comprised mainly of ‘dangerous goods’ which will fall under the IMDG Code ( International Marine Dangerous Goods Code) and its various classifications. The IMDG Code classifies cargo on the basis of the levels of danger involved and prescribes minimum standards for packaging, labelling, stowing, handling and the most important of all, NOTIFYING THE VESSEL of the nature of the cargo. Mis-declaration of dangerous cargo is a major threat for containerized shipping and this could well decide the course, claims arising out of this incident could take.

Breach of the IMDG Code could result in criminal liability & commercial liability. The point to be considered is whether 1) The dangerous goods are carried with the knowledge of the carrier, in which case the responsibility for complying with the minimum standards of handling, stowage, etc. would rest on the carrier. 2) If the dangerous goods are carried without the knowledge of the carrier, then the shipper or charterer could be penalised for failure to ‘notify’. Physical loss or damage to the vessel carrying dangerous goods will be anyway paid for, by the Hull & Machinery insurers. However, they may under subrogation proceed against any third parties responsible for shipment of the dangerous goods. The P & I Club would come in if there are environmental damage claims put up in this case, but with no major oil spill seen so far, this may also see protracted litigation. Yes, they would be liable for salvors reward if the SCOPIC clause had been added in the coverage. If dangerous cargo had been loaded without the knowledge of the shipowner, he has a right of recourse against the shipper or the charterer under the Hague Visby Rules. Hague or Hamburg Rules. If loaded with the knowledge of the shipowner, his only way of making cargo interests ( saved cargo interests) contribute is by declaring General Average, which has already been done.

The Charterer’s Liability policy wordings need to be examined. If damage to hull caused due to carriage of dangerous goods is covered, the liability insurer may need to pay the shipowner or their H & M insurer under subrogation. There could be liabilities towards damage to other cargo caused by the incident ( a P & I component), which if covered would pay the claims. Finally what happens to all the cargo claims insured by different cargo insurers? At the moment, many of them would have given the Average & Salvage guarantees but a very large number of particular average claims will come up — both of dangerous goods & other goods on board. On the face of it, it may appear that if the cargo is covered under ICC-A, B or even C, Fire or explosion losses should be payable. However, if some of these policies carry warranties for compliance with IMDG Code provisions and the forensic reports throw up that the shipper ( insured) had not declared the cargo as dangerous or classified it wrongly, well, the cargo insurers may try and wriggle out of liability. Even without a warranty for IMDG Code compliance, such instances may well be interpreted as ‘wilful misconduct’ or possibly ‘insufficiency of packing’ or ‘inherent vice’ under the general exclusions.

As happened in the case of MV Maersk Honam,( another major fire involving dangerous goods) the forensic reports did not reveal any mis-declaration by the shippers. It can happen in the case of MV X-Press Pearl too. Only time will tell.