Last week the roll on-roll off car carrier M/V Felicity Ace, transporting luxury vehicles from Germany to Rhode Island, caught fire with an estimated $334,500,000 worth of cargo onboard. The fire spread, requiring the crew to abandon ship. The vessel is currently adrift approximately 90 nautical miles from the Azores islands with multiple salvage tugs engaged in firefighting and towing operations to salvage the vessel and cargo and tow her safely to a port of refuge. The total cost of the salvage operations alone is estimated to be $150,000,000. (News Article)
The burning question — who will pay for the damaged cargo?
The Carriage of Goods by Sea Act (“COGSA”), by its terms, is applicable “to all contracts for carriage of goods by sea to or from ports of the United States in foreign trade.” 46 U.S.C. § 30701 et seq. Because the vessel was transporting cars to a port in the United States, COGSA is applicable to this cargo and will provide the legal framework to determine liability. Among other things, COGSA provides the carrier and ship with seventeen (17) defenses for exoneration and limitation of liability for damages. Among those defenses, the “fire statute” found at 46 U.S.C. § 30504 will be the best defense for the vessel owners of M/V Felicity Ace, providing that “[t]he owner of a vessel is not liable for loss or damage to merchandise on the vessel caused by a fire on the vessel unless the fire resulted from the design or neglect of the owner.” Thus, absent a finding that the fire resulted from the design or neglect of the owner, this COGSA defense will likely exonerate the vessel interests from liability for the damages caused to the estimated $334,000,000 worth of vehicles.
But who will pay for the costs incurred in the salvage operation?
Upon arrival at the port of refuge where M/V Felicity Ace is towed, the vessel owner will likely declare the incident a “general average” event seeking contribution for the estimated $150,000,000 in salvage costs from the cargo .
“General average” is an equitable maritime principle with origins dating back to the Ancient Greek merchants sailing the Ã†gean Sea. In the ancient times of sail, the master of a vessel in peril would call upon the cargo merchants to jettison their cargo in order to lighten the vessel with the goal of protecting and saving the rest of the cargo, lives, and indeed the vessel in peril. Upon arrival at port, to more equitably share in the loss, those who made the voluntary sacrifice in the time of peril would be entitled to contribution from the parties who benefited from the loss.
The principle has developed over centuries to encompass “[a]ll loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo comes within general average, and must be borne proportionally by all who are interested.”
Today, to constitute a case for general average, three things must occur: (1) there must be a common danger or peril; (2) there must be an extraordinary sacrifice or expenditure for the purpose of avoiding the peril; and (3) the attempt must be successful.
Here, the fire aboard the vessel was perilous to the vessel and all cargo, the shipowner incurred an extraordinary sacrifice by employing salvage operations to attempt to fight the fire and tow the derelict vessel to a port of refuge, and assuming the vessel arrives — it will be considered a success.
Therefore, upon arriving to port and the vessel owner’s declaration that the incident was a general average event — the cargo interests will likely need to provide contribution so that the loss is proportionally borne by all who faced the peril.
If you have any questions cargo damage or other marine casualties, Vandeventer Black’s attorneys are available to assist you and your business.