Ship Salvage and General Average (GA)
In shipping business, maritime law was developed to reward people for rescuing cargoes and ships from peril at sea. Salvor is the person who rescue cargoes and/or ships. Maritime doctrine of salvage was developed to award a percentage of value of cargoes and/or ships saved to the persons providing such help. When you provide generous salvage awards that encourages people to invest in the necessary ships, equipment and training needed to rescue other ships from peril. On the other hand, over-generous awards would defeat the purpose of salvage by discouraging mariners from accepting such help.
Under maritime law, salvage is a traditional admiralty law doctrine in which mariners who voluntarily and successfully save another ship from peril are granted an award for their services. Award is stated as a percentage of the value of the ship as saved. Theory behind the law of salvage is to encourage ship owners and mariners to provide assistance to ships in danger. Person who performs an act of salvage under maritime law is called salvor.
Salvage Award is payable when the following criteria are met:
- Ship is in marine peril. Peril may be an immediate one like fire on the ship, flooding, storm or nearby rocks or peril could be something more remote like loss of power near land or before nightfall. The key is that the ship is at risk of damage or loss if the ship remains in the situation at issue.
- Action to save the ship is voluntary. Salvage is a reward, so the doctrine of salvage does not apply if the rescuer is acting under a duty like the crew of the ship in peril or a person acting under contract.
- Salvage action must be successful. Salvage award is only earned if the rescue efforts are successful. Rescue service is provided on a “No Cure, No Pay” basis. No matter how much effort salvor puts forth, if those efforts do not result in rescue of the ship, no reward is payable.
- Salvor must have clean hands. Salvor will not receive an award if the salvor was responsible for putting the ship in peril in the first place or if the salvor acts improperly during the rescue.
Salvage Convention 1989
In maritime law, court determines that an act of salvage satisfying the criteria above has been accomplished, court has wide discretion to grant salvage award and determine the amount of the award. Factors that the court would consider in determining the amount of the award are set out in the Salvage Convention 1989. Salvage Convention 1989 entered into force for the United States on 14 July 1996. Factors are consistent with prior general maritime law and include the following:
- Salved value of the ship and other property
- Skill and efforts of the salvors in preventing or minimizing damage to the environment
- Measure of success obtained by the salvor
- Nature and degree of the danger
- Skill and efforts of the salvors in salving the ship other property and life
- Time used and expenses and losses incurred by the salvors
- Risk of liability and other risks run by the salvors or their equipment
- Promptness of the services rendered
- Availability and use of ships or other equipment intended for salvage operations
- State of readiness and efficiency of the salvors’ equipment and value
In maritime law, salvor get an award or an increased award if salvor prevent pollution from ship. Traditionally, salvage awards were based solely on the value of the ship or maritime property saved by the salvor. Even if the salvor prevent a great amount of environmental harm, those good deeds would not factor into the compensation for the salvor. Salvage Convention changed that traditional approach and allow for Special Compensation. Special Compensation represents an additional payment covering a percentage of the salvor’s costs. Salvor must still successfully save the ship to get a salvage award. If the salvor prevents pollution, but does not save the ship, salvor may receive a payment of quantum meruit which is equitable compensation, but not a salvage award.
On the other hand, if salvor is negligent and fails to prevent or minimize harm to the environment, salvor could be denied Special Compensation. Court could view salvor’s negligence as a negative factor reflecting on the skill and success of the salvor, and reduce the salvage award. Salvor may get an award for saving lives, but only if ship or cargo is also saved.
Under maritime salvage law, salvage awards were based solely on the value of property, i.e. ship and/or cargo, saved. Hence, person who save lives, but not property, might get profound thanks from the rescued seafarers, but would not get a salvage award. Risks of that policy are obvious, rescuer coming on the scene of a maritime disaster could be financially rewarded for saving the ship, but not for pulling people out of the water. If two independent rescue ships arrive on the scene of a sinking ship, the one that keeps the ship afloat would win a salvage award, but the one that actually rescues the seafarers from the water would not. To remedy the obvious injustice of such a situation, courts would sometimes grant an equitable share in a salvage award to those who rescue persons in a salvage situation.
Salvage Convention codified that judicial trend by providing that a person who saves life in connection with a maritime accident giving rise to a salvage award is entitled to a fair share of the payment awarded to the salvor for salving the ship or other property or preventing or minimizing damage to the environment. The principle was further codified in United States law. However, Salvage Convention did not change the fundamental point that saving only lives does not itself give rise to a salvage award. Maritime law does not require persons to pay a salvage award for the rescue of their lives. That is why, without a ship or cargo saved, there is no property to pay for the saving of lives.
There are many types of salvage situations. Simplest salvage situation could involve small sailing boat running out of gas or running aground on a sandbar, being assisted by a local towboat company or even another yacht. Complex salvage situation could involve large bulk carrier catching fire and losing engines in the middle of the ocean or going aground in bad weather, requiring the services of salvage experts with very specialized and expensive equipment.
Ship Salvage Process:
Most salvage situations share common features. When ship master realize that ship is in marine peril, master gives distress call, communicate with ashore or Coast Guard for assistance. If able, master of the distressed ship will authorize the salvor to start the rescue. If master of the distressed ship is not able to authorize, salvor will begin salvage operation. If salvage effort is successful, ship is saved, salvor will communicate with ship owner, or insurance company, in order to negotiate a salvage award. If salvor and ship owner are able to agree on an award, matter ends there. If salvor and ship owner are not able to agree, then salvor will seek some security for the salvage claim and matter will be referred to court or arbitration. If salvor and ship owner do not agree on some other form of security, then salvor may assert a maritime lien against the ship for salvage and have the ship arrested to secure the lien.
The upmost crucial step in resolving the salvage dispute will be to figure out the total value of ship and/or cargo saved by the salvor. Figuring out the total value of ship and/or cargo might be easy in some cases. But, it could be challenging in the case of some commercial ships. Usually, salvor and ship owner agree to a joint valuation survey that will assess value of the ship, cargo carried and fuel on board. Survey results will serve as the basis for computing the actual amount of any salvage award. If salvage effort is not successful or salvor decides that the amount of effort required outweighs the potential salvage award, salvor may decide at some point to abandon the salvage effort. Then, ship owner must decide whether to try and engage another salvor or to enter into a guaranteed pay contract. Generally, seafarers of a ship cannot participate in a salvage award for the rescue of seafarers’ own ship, even if seafarers exert heroic efforts to save the ship. Seafarers have a pre-existing duty to exercise their best efforts to save and preserve the ship on which they serve and therefore the actions of seafarers are not truly voluntary as required for the efforts to constitute salvage.
When ship’s master gives the order to abandon ship or ship’s master actually abandons ship without an order, pre-existing duty of seafarers to continue to preserve the ship ends. If seafarers go back on board or refuses to abandon the ship and instead stays on board and contributes to saving the ship, then seafarer will be entitled to a share of the salvage award.
Standard Salvage Form: Lloyd’s Open Form (LOF)
When maritime peril occurs, managing salvor operation can be challenging for the ship’s master, ship owner, cargo interests and others involved. In order to facilitate rapid engagement of a salvor, maritime industry developed a simple form commonly known as Lloyd’s Open Form (LOF).
Lloyd’s Open Form (LOF) has become something of an industry standard for salvage efforts involving internationally trading commercial ships. In bold letters at the very start of the Lloyd’s Open Form is a declaration that it is a No Cure, No Pay agreement. If the salvor is not successful in the salvage, salvor gets nothing. On the other hand, heart of the Lloyd’s Open Form is an agreement that any dispute over the award payable in the event of a successful salvage will be referred to arbitration under English law under the Lloyd’s Standard Salvage and Arbitration Clauses and the Lloyd’s Procedural Rules.
In addition to the arbitration provisions, Lloyd’s Open Form (LOF) also states the agreement of the parties:
- Agreed place of safety where the ship is to be taken
- Whether the parties agree on standard Special Compensation for oil pollution compensation terms (SCOPIC Clause)
- Duties of the ship owners to allow the use of ship equipment
- Provide information to the salvor and to cooperate in the salvage
- Right of either party to terminate the agreement
Generally, commercial salvors have Standard Open Form Salvage Agreement which is similar to Lloyd’s Open Form. Commercial salvors’ form is tailored as appropriate to the location and type of salvage services provided.
Contract Salvage Vs Salvage Contract
Assistance provided under the terms of a contract at a fixed rate of pay is not salvage, because:
- Contractor assumes a contractual duty to provide assistance
- Contractor’s assistance is no longer voluntary
- Contractor’s service is no longer No Cure, No Pay
Assistance provided under the terms of a contract at a fixed rate of pay is called contract salvage. Because salvage contract may be negotiated at a time when the master of the damaged ship is under great stress and duress, contracts for the provision of salvage services can be susceptible to over-reaching by the marine towing and salvage provider. If the ship owner challenges the price set by a salvage contract, the court or arbitrator will typically look closely at the facts and circumstances of the contract formation and evaluate the price demanded by the salvage company by comparing it to the potential salvage award that would be payable in the absence of a contract. While a court could void a salvage contract if it finds that the assisting party overreached or acted inequitably, most courts apply a rebuttable presumption that a contract for assistance is valid. Court will evaluate the terms, including the price, on the basis of the situation at the time the contract was made, rather than the ultimate ease of the assistance. Sometimes, contrary to presumption, courts or arbitrators may find purported salvage contracts to be invalid, typically because the terms are not clear or because over-reaching on the part of the salvor is obvious.
Under traditional maritime law and Salvage Convention, cost of the salvage award is split among those parties who are benefited by salvage act, in proportion to the respective values of ship and cargo saved. If ship breaks down in storm and is towed to safe port by a salvage tug. Then, shipowner, charterer and shipper may bear some share of the cost of the salvage award. Total value of saved assets includes total value of the ship, value of the cargoes and value of bunkers that is purchased by the charterer. Afterwards, total value would be allocated by percentage to the three parties and that percentage would be applied to the costs of the salvage.
Salvage Claim Time Limit:
Civil action to recover salvage award must be brought within 2 (two) years of the date of the salvage or when assistance was provided.
General Average (GA) is allocating the costs of preventing or remedying a marine casualty among the parties benefitted by the efforts. General Average is based on the rule that when property of one interest is sacrificed to benefit all interests involved in a voyage, burden should be shared. Historical General Average example, during the age of sail might be when a merchant ship is fleeing pirates and throws some cargo overboard to lighten the ship and so able to escape.
Modern General Average (GA) example, when a ship is laboring in a storm and master decides to jettison a row of containers to improve stability and allow the ship to survive the storm. In both cases, owner of the cargo jettisoned should not have to bear the loss alone, but is entitled to compensation from the ship owner and owners of the other cargo, who were benefitted by the sacrifice of the cargo. In modern practice, principles of General Average (GA) are commonly applied to other loses, including:
- Contract salvage
- Emergency repairs to allow a ship to continue its voyage
- Ransom payments made to pirates for the release of a ship, cargo, and crew
Determination of General Average (GA) Share: York Antwerp Rules
General Average (GA) liability is typically determined according to agreed rules and most common is York Antwerp Rules. Usually, ship charter-party or a bill of lading will specify General Average rules and the port at which General Average contribution shares will be calculated.
General Average (GA) is typically based on the proportionate value of the property affected by the act. In the event of an incident resulting in salvage, emergency repair costs, towage, pirate ransom or similar costs, shipowner (or shipowner’s insurance company) will usually bear the costs at first or be required to post security. When shipowner decides that the matter should be shared under principles of general average, shipowner will declare the incident to be General Average Event. Later on, shipowner gives notice regarding values computed and costs divided among to all parties. Notice will also advise the parties of the proposed rules and port where general average allocation will be done. Furthermore, shipowner may require the other parties to post security to secure their potential obligations.
New Jason Clause and General Average (GA):
Generally, New Jason Clause is found in a bill of lading. New Jason Clause provides that shipowner (carrier) may collect General Average, even if the loss to be apportioned was caused by the ship’s negligence, as long as the loss was not caused by a breach of shipowner’s responsibility to provide a seaworthy ship.
New Jason Clause reads as follows: In the event of accident, danger, damage or disaster before or after commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, carrier is not responsible, by statute, contract or otherwise, goods, shippers, consignees or owners of the goods shall contribute with carrier in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the goods. If a salving ship is owned or operated by the carrier, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the carrier or his agents may deem sufficient to cover the estimated contribution of the goods and any salvage and special charges thereon shall, if required, be made by the goods, Shippers, Consignees or owners of the goods to the Carrier before delivery.
The name Jason Clause comes from a Supreme Court case titled after the name of the ship involved MV Jason. In Jason case, Supreme Court held that an agreement in a bill of lading allowing the shipowner to recover General Average (GA) contributions for losses is valid, even though caused by the negligent navigation of the ship.
What is General Average (GA)?
General Average (GA) refers to an extraordinary act of sacrifice or expenditure that is voluntarily and reasonably incurred during a time of danger, with the aim of safeguarding property that is endangered in a maritime venture. In the context of the General Average (GA), a shipowner may have the ability to transfer certain costs arising from the calamity to the owners of the cargo. These costs may include expenditures for loading and unloading cargo at a port of refuge, as well as expenses for provisional repairs and towing. Without the requirement of demonstrating liability in tort or contract, any losses can be equitably distributed among the parties involved in the maritime venture during which the loss took place.
General Average (GA) is predicated on the existence of a “General Average Act” within the legal definition, but, in practice, the declaration of General Average (GA) often occurs at the conclusion of the voyage
Contracts often contain a clause that includes the York-Antwerp Rules as the standard guidelines governing the process of adjusting the General Average (GA). This procedure is overseen by Average Adjusters, whose responsibility is to determine the allowable expenses under the general average, and the proportion of costs to be shared by each party. This can be an intricate process, especially in the instance of a general cargo carrier with hundreds of different cargo owners involved. The York-Antwerp Rules 1994 and the York-Antwerp Rules 2016 are currently the applicable regulations.
Please find a copy of the York-Antwerp Rules 2016 here: www.handybulk.com
There can be No General Average (GA) unless there is extraordinary sacrifice or expenditure; the peril must be common to the whole adventure.
In order to initiate a claim for General Average (GA) contribution:
1- The sacrifice or expenditure must be real and intentional. It should not be merely a matter of destroying and discarding what has already been lost and is therefore of no value. In the legal case of Robinson v Price, a ship developed a leak while at sea and was kept afloat solely through constant pumping, with the pumps powered by the donkey engine. The coal supply, which was enough for a typical voyage, ran out and the ship’s spars and coal cargo were utilized as bunker (fuel). This was deemed an exceptional sacrifice
2- There must be a common danger that must be real and not merely apprehended by the master. In the legal case of Nesbitt v Lushington (1792), a ship was marooned on the shores of Ireland and the locals coerced the ship’s captain into selling the wheat cargo at a price lower than its actual value. The court ruled that since the locals did not intend any harm to the ship, there was no common risk, and therefore it did not qualify as a General Average (GA) Loss.
3- The sacrifice must be voluntary. Even when ordered by the port authorities, a sacrifice is considered voluntary if it benefits the ship and its cargo, and the master consents to it. Any damage caused solely by smoke and heat would not warrant a contribution, as the fire that produced the smoke and heat was not intentional.
4- The sacrifice or expenditure must be necessary. The responsibility of determining the necessity of a sacrifice or expenditure lies with the ship’s master. The individual in control of the vessel must issue the order. In the legal case of Papayanni and Jeromia v Grampian Steamship Co Ltd (1896), a fire erupted onboard a ship and the master steered it towards the port. However, the fire grew worse, and the port captain instructed the ship to be intentionally sunk. As the master did not object, believing it to be in the best interest of the ship and cargo, the court deemed it a sanctioned act and required the loss to be adjusted as a General Average (GA) Sacrifice.
5- The common danger must not arise through any default for which the interest claiming a General Average (GA) Contribution is liable in law. General Average (GA) contributions cannot be claimed if the fault constitutes a legally actionable offense. A shipowner cannot demand contributions if they allowed a vessel to set sail with smoke in the holds or if the ship was unseaworthy at the time of departure. However, in the legal case of Greenshields Cowie & Co. v Stephens & Sons (1908), a cargo of coal caught fire due to spontaneous combustion. The shippers were found eligible for General Average (GA) Contributions from the shipowners to cover the damages incurred in extinguishing the fire. As there was no negligence on the part of the shippers and it was assumed that both parties were aware of the risk of coal’s spontaneous combustion
6- There must be a saving of the imperiled property through sacrifice. In the legal case of Pirie v Middle Dock Co. (1881), a ship and its cargo were at risk of complete destruction due to a fire ignited by the spontaneous combustion of coal loaded by the shippers. By discarding the cargo and dousing it with water, as well as unloading it at a safe port, the ship and a significant portion of the cargo were salvaged. Nevertheless, transporting the cargo to its intended destination was unfeasible, so it was sold off. The court ruled that the shipowners were eligible for a General Average (GA) Contribution from the cargo.
General Average (GA) Sacrifice
Sacrifices of Ship, Cargo, or Freight may give rise to a claim for General Average (GA) contribution.
General Average (GA) Contribution:
1- Ship: If ship machinery or tackle must be sacrificed for the greater safety of the entire voyage, and such loss is not incurred in the course of fulfilling the shipowner’s original agreement, then a General Average (GA) contribution must be made. The shipowner must bear all common losses sustained by the vessel. However, if the “ship’s tackle” is lost due to its employment for atypical purposes to ensure the ship’s security, then a General Average (GA) contribution is in order. For example, if the spars were utilized as fuel to maintain a pump’s operation, their value would be deemed subject to contribution because such utilization was not their intended purpose, and the ship would have perished without the maintenance of the pump. Moreover, if the vessel faces the prospect of sinking, and the master intentionally grounds her to safeguard the cargo and presumably the ship, any loss or impairment to the vessel likely qualifies as a General Average (GA) sacrifice. Presently, the phrase “ship’s tackle” may also encompass freight containers, which might either belong to the ship’s proprietors or be leased from a container leasing enterprise. In the latter scenario, the lessors of the containers will also be involved in the General Average (GA).
2- Cargo: The most frequent occurrence of a General Average (GA) event is the act of “cargo jettison”. However, the cargo that is jettisoned must have been stored in a suitable location, and not on the deck. In the absence of a particular agreement, the owner of the cargo on deck has no right to claim contribution if it is jettisoned. If the goods are placed on deck without the consent of the shipper and are jettisoned, the shipowner will be held accountable for such a jettison as it breaches their contract to safely transport the cargo.
3- Freight: If the shipowner sacrifices the freight in a way that preserves the cargo, then a General Average (GA) contribution against the cargo arises. An example of such a case is Pirie v Middle Dock Co. (1881). However, if the freight is payable in advance and does not rely on the safe delivery of the goods, then there is no basis for claiming a general average contribution in respect of the freight.
In addition to the aforementioned situations, “Extraordinary Expenditure” that is voluntarily incurred, or an extraordinary loss of time and labor that is voluntarily accepted, may also result in a General Average (GA) contribution, provided that such sacrifice is made for the common safety during a time of peril. The expenditure must be both extraordinary and incurred to prevent a mutual peril. The compensation for salvage services may or may not be categorized as a General Average (GA) Expenditure.
If the expense is incurred to rescue both the ship and cargo, it is deemed a General Average (GA) Expense. However, if the cargo has been safely unloaded and the subsequent operations are aimed at refloating the ship and towing it to port for repairs, the further expenses will be the responsibility of the shipowner alone.
If, due to an impending peril, it is no longer safe for ships and cargo to continue on their voyage, then the decision to deviate to a port of refuge is considered a General Average (GA) Act. However, if the deviation was made necessary by the unseaworthiness of the vessel, then any General Average (GA) contributions for the expenses incurred are not recoverable.
If a ship enters a port of refuge to repair the damage resulting from a General Average (GA) Sacrifice, then the cost of repairing the ship, along with any incidental expenses, is deemed to be subject to General Average (GA). Such incidental expenses might include warehousing and reloading of cargo if it had to be unloaded to effect repairs, as well as expenses incurred for pilotage. When a General Average (GA) Loss occurs during a voyage, the shipowner or ship master has the right to retain the cargo until they are paid or tendered the amount due for the General Average (GA). They must take all reasonable precautions to protect the interests of those entitled to a General Average (GA) Contribution, either by obtaining cash deposits or suitable General Average (GA) Bonds and Guarantees.
Who is responsible for the General Average (GA) Contribution?
The shipowner, cargo owner and persons entitled to freight can sue for General Average (GA) Contribution. The shipowner, charterer, cargo owner, and consignee of cargo are liable for General Average (GA) Contributions.
The amount to be contributed in General Average (GA) is determined at the end of the voyage, either by the delivery of the goods or through other means, and is subject to adjustment according to the law of the place of delivery. In the event that the shipowner incurs General Average (GA) Expenditure at a port of refuge and both the ship and cargo are lost during the completion of the voyage, the shipowner is not entitled to claim from the owners of the cargo.
What is Ship Salvage?
Salvage represents a legal obligation that arises from the act of rescuing property, wherein the proprietor of said property, having derived benefit from its salvation, is expected to offer recompense to those who have bestowed a said benefit upon him. The right to salvage may, or may not, derive from a formal agreement. The notion of “Salvage Contracts” is somewhat misleading, as it implies exclusive involvement within the realm of contract law. This is not entirely accurate, as the law of salvage truly concerns itself with salvage agreements. The reward does not arise from an explicit or implicit contractual duty, as many salvors may act as “volunteers”, outside of any contractual relationship with the proprietor of the rescued property.
Under English law, there is typically no legal obligation that mandates rewarding an individual who has saved the life of another or rescued property belonging to someone else. However, in the context of preserving lives and maritime property, such actions are of critical significance, and thus, they ought to be incentivized rather than dissuaded. Therefore, in the event of salvage occurring at sea, the salvor will be deemed to have a lawful entitlement to a reward.
Ship Salvage Procedure
Lord Stowell characterized a salvor in The Neptune (1824) as:
“One who, without any particular relation to the ship in distress, proffers useful service and gives it a volunteer adventurer without any pre-existing covenant that connected him with the duty of employing himself for the preservation of that ship”.
This definition of a salvor effectively comprises two of the core elements of appropriate maritime salvage, namely voluntariness and provision of useful service, that is to say, a level of achievement.
The briefest and most straightforward definition of salvage is most likely “the voluntary act of rescuing maritime property from danger at sea.” Therefore, it is accurate to state that the fundamental components of a Legitimate Salvage Service are:
1- A salvage service must be voluntary
2- A salvage service must be provided to a legally recognized entity eligible for salvage, such as vessels, their gear, cargo, goods, fuel, wrecks, and freight
3- The entity being salvaged must be in a state of peril
4- The salvage service must be successful. It is not necessarily required to be completely successful, but a level of success must be attained.
The Rene (1995) Case
In the case of The Rene (1995), a vessel responded to a request for help, but its endeavors were unproductive, and in fact, aggravated the situation, as the two ships collided due to the fault of the rescuing vessel. This led to Salvor’s claim being invalidated. However, if the fault had not arisen, the court acknowledged that the owners of the rescue vessel would have been eligible for a reward.
The term “Salvage Voluntariness” is a specific term concerning contract law, which refers to the absence of consideration provided by the promisee in response to the promisor’s offer. In essence, even if an individual has agreed to or accepted an offer made by another party, it is considered a “mere agreement” and, therefore, unenforceable in a court of law. The key distinguishing factor between a salvage agreement and any other type of agreement is that the former is legally binding, even in the absence of consideration. In fact, it is a prerequisite of salvage that the services are rendered voluntarily. Hence, if the “Salvage Service” has been performed in exchange for consideration, i.e., it was a contract for rescue, then although the rescuer will be entitled to their contractual compensation, it would not be strictly accurate to refer to it as a salvage operation.
The mandate that the service must be provided voluntarily does not prevent the salvor, i.e., the party who executes the service, from rendering the service under a voluntary agreement, and this is often the practice case. To invalidate a claim for salvage and circumvent the requirement of voluntariness, it must be irrefutably demonstrated that a duty to render the service wholly and completely existed and that this duty was owed to the proprietors of the saved property. For instance, the crew of the distressed vessel or a pilot aboard typically cannot assert a claim for salvage, unless the services rendered are beyond the scope and limitations of their contractual obligations.
The San Demetrio (1941) Case
In the case of The San Demetrio (1941), a tanker carrying a full load of petrol was severely damaged by gunfire from a German warship in the North Atlantic. The Master commanded the abandonment of the ship, and the entire crew left in three lifeboats. The tanker caught fire and continued to burn the next day. One of the lifeboats spotted the tanker still on fire and under the command of the Second Officer, the crew re-boarded the ship. With great skill and bravery, they navigated the vessel through hundreds of miles of inclement weather to safety on the Clyde. The crew claimed a “Salvage Award,” which was granted, as the vessel had been rightfully abandoned per the Master’s orders. Therefore, under the circumstances, the crew of the ship was eligible to claim salvage, since the services rendered went beyond any contractual obligations arising from their employment as crew members.
Ship Salvage Contract
The esteemed Lloyd’s standard form of salvage agreement has undergone various revisions since its inception, with the most recent iteration being LOF 2020 (Lloyd’s Open Form 2020). This form, signed by both the rescued party and the rescuer, serves to facilitate prompt payment of the reward following a successful salvage operation. It is worth noting that the signing of this form has no bearing on the nature of the rescue, nor does it imply the exchange of consideration. As mentioned earlier, a salvor’s compensation has traditionally been determined by the degree of success achieved in the salvage operation. In the event that the ship or cargo is not wholly or partially salvaged, the salvor will receive no remuneration, regardless of the significant expenses incurred in the provision of services. Hence, Lloyd’s Open Form is aptly referred to as “No Cure – No Pay”.
Lloyd’s Open Form (LOF) is a mechanism that outlines how salvors are to be remunerated for their services in rescuing property at sea and mitigating or preventing damage to the environment. This internationally renowned salvage agreement has its roots in the late 1800s and is widely considered to be one of the most commonly utilized of its kind in the world. The administration of the Lloyd’s Open Form (LOF) falls under the purview of the Lloyd’s Salvage Arbitration Branch, which plays a critical role in providing a credible and secure framework within which the arbitration process may be carried out. The Lloyd’s Open Form (LOF) is complemented by the Lloyd’s Salvage Arbitration Clauses (LSAC), which amalgamate the erstwhile LSSA Clauses and Procedural Rules.
We kindly suggest that you visit the web page of Lloyd’s to obtain the original Lloyd’s Open Form 2020 (LOF 2020). www.lloyds.com
There exists a single exception to the “No Cure – No Pay” principle. In 1980, Lloyds introduced an amended version of Lloyd’s Open Form, LOF 80, which deviated from this principle to some extent. This was done primarily in cases where salvage operations were carried out on tankers transporting oil cargo. The reason behind this was the realization that “No Cure – No Pay” was inadequate in meeting the environmental needs of the 20th century, particularly when dealing with oil spills. Salvors were disincentivized to undertake expensive and arduous salvage operations that involved a significant risk of environmental damage and where success was uncertain. Under Lloyd’s Open Form 80 (LOF 80), “Safety Net” remuneration was provided to salvors, covering their reasonable expenses plus an additional increment of up to 15% of those expenses. It is worth noting that this remuneration is only available if salvage services are contracted on Lloyd’s Open Form terms or if a laden tanker is involved; otherwise, the “No Cure – No Pay” principle remains in effect.
There was substantial pressure for the reformation of the law in order to:
1- To broaden the definition of salvage to encompass the prevention of harm to third parties, as well as the concept of “Liability Salvage”, and
2- To enhance the remuneration paid to salvors by considering their actions in preventing such harm.
The new Convention on Salvage has achieved this objective to a certain extent by surpassing Lloyd’s Open Form 80 (LOF 80) in replacing the conventional “No Cure – No Pay” principle.
Lloyd’s Open Form 90 (LOF 90) was introduced subsequent to the International Convention of Salvage 1989 and incorporated several modifications that were introduced by the 1989 Convention. The latter is now an integral part of U.K. law due to the Merchant Shipping (Salvage and Pollution) Act 1994, primarily with regard to the provision for special compensation. The purpose of Lloyd’s Open Form 90 (LOF 90) was to immediately implement the provisions of the 1989 Convention, which substantially broadened the “Safety Net” concept. The obligation on the part of the salvor under Lloyd’s Open Form 80 (LOF 80) to make every effort to prevent oil leakage has been broadened under Lloyd’s Open Form 90 (LOF 90) to include the prevention or minimization of environmental harm. With the exception of special compensation, it still adheres to the “No Cure – No Pay” principle.
Based on Clause 1 (a) (ii), the person undertaking the salvage operations (the contractor or salvor) was required to use their best efforts to prevent or minimize any environmental damage while carrying out the operations. The Lloyd’s Open Form 90 (LOF 90) was in line with the 1989 Convention, which permitted salvage operations in any waterways, including navigable waters. This made it possible to obtain a salvage award for operations carried out in non-tidal waters, unlike the situation that occurred in The Goring (1986) case.
The incorporation of Article 14 of the 1989 Convention into Lloyd’s Open Form 90 (LOF 90) was of immense significance.
Lloyd’s Open Form 90 (LOF 90) Article 14 (1)
If a salvor has performed salvage operations on a vessel that posed a threat of environmental damage due to its cargo or condition and has not received a reward under Article 13 that is equal to the special compensation that can be assessed according to that article, the salvor has the right to receive special compensation from the owner of the vessel. This compensation will be equal to the salvor’s expenses, as defined in the relevant provisions.
The right to special compensation is triggered if either the vessel or its cargo poses a threat of environmental damage. It’s important to note that there is a distinction between the vessel and its cargo. Article 14 applies regardless of the nature of the pollutant, including oil cargo, hazardous chemical cargoes, and other cargoes that can cause pollution, as well as bunkers and slops. It’s worth noting that pollution damage is also relevant to a normal “No Cure – No Pay” reward under Article 13, as long as damage to the environment is threatened. Under Article 14(1), the salvor can receive special compensation even if no actual services or benefits have been provided, and the compensation only covers expenses without any increment. The term “Threat of Damage” has a broader meaning than the common law requirement of “Danger of Damage” in salvage, as well as under Article 13. To determine whether a threat of damage to the environment exists, one approach is to assess whether there is a realistic possibility of such damage occurring. All circumstances and facts relating to the salvage operation should be taken into account, including the risk of pollution affecting the shoreline and the risk of an explosion causing damage that the salvage operation prevents. However, “Pure Economic Loss” to the local population should not be considered, nor should physical damage to an individual, unless such damage has the potential to harm the environment as a whole. The salvor must provide evidence that there is a real, rather than remote, risk of environmental damage.
Damage to the environment is defined in Article 1 (d) of the 1989 Convention as significant physical harm to human health or marine life or resources in coastal or inland waters or adjacent areas caused by pollution, contamination, fire, explosion, or other significant incidents. Article 1 (a) is also relevant because it defines a salvage operation as any action or activity carried out to assist a vessel or other property in danger in navigable or any other waters.
The International Salvage Convention of 1989 came into effect on 1st January 1995, and the Merchant Shipping (Salvage and Pollution) Act 1994 was enacted to align with the convention. As a result, Lloyd’s Open Form 90 (LOF 90) was updated and replaced with Lloyd’s Open Form 95 (LOF 95). However, the 1994 Act was later repealed by the Merchant Shipping Act 1995.
In 1997, the Lloyd’s Form Working Party, which included representatives from various parts of the industry, began working on a new version of Lloyd’s Open Form with the aim of creating a simpler and more concise document. The result was the development of Lloyd’s Open Form 2000 (LOF 2000), which only includes provisions related to the services provided and the rights and responsibilities of the parties involved. Provisions related to administrative and procedural matters are contained in a separate set of standard clauses that can be referenced in the contract. These changes are mostly cosmetic, and a final draft of the new contract, limited to a single sheet, double-sided document, was produced. The subordinate provisions are included in the Lloyds Standard Salvage and Arbitration (LSSA) Clauses and Lloyd’s Procedural Rules. The latest version is Lloyd’s Open Form 2020 (LOF 2020).
What is SCOPIC (Special Compensation P&I Club Clause)?
On 1st August 1999, SCOPIC, also known as the Special Compensation P&I Club Clause, was introduced to complement the usage of Lloyd’s Open Form of Salvage Agreement, specifically the “No Cure – No Pay” clause as per the Lloyd’s Open Form 95 (LOF 95). Article 14 of the 1989 Salvage Convention had laid down the provision for salvors (contractors) to receive Special Compensation, their expenses, and a fair rate for tugs and equipment employed in salvage operations, under certain circumstances where the salvaged fund was deemed insufficient to recover adequate remuneration as per Article 13 of the Salvage Convention 1989.
The SCOPIC (Special Compensation P&I Club Clause) Clause embraced the aforementioned idea but incorporated a tariff to determine the Contractor’s Special Compensation, coupled with a fixed uplift of 25%. Any conventional Article 13 Awards exceeding the SCOPIC (Special Compensation P&I Club Clause) remuneration would be discounted by 25% of the excess amount. Additionally, SCR (Special Casualty Representatives) and representatives for hull and cargo were introduced, along with enhanced accessibility for marine property underwriters to gather information about the rendered services.
The introduction of the SCOPIC (Special Compensation P&I Club Clause) was well-received by the maritime community. However, the practical usage of the clause revealed certain matters that required clarification to ensure adherence to its original purpose. Additionally, several gaps were identified in the language of SCOPIC, particularly in Appendix A (Tariff Rates). Consequently, the SCOPIC drafting sub-committee produced an updated version of SCOPIC, known as SCOPIC 200 (The SCOPIC (Special Compensation P&I Club Clause) 2000), which became effective on 1st September 2000.
Following the modifications made to the Lloyd’s Open Form (LOF) contract, it was decided to revise the SCOPIC clause, even though the 2-year trial period had not yet concluded. The primary reason for this was that the SCOPIC clause specifically referred to Lloyd’s Open Form 95 (LOF 95), and as such, required modifications to incorporate Lloyd’s Open Form 2000 (LOF 2000). Concurrently, the opportunity was taken to address criticisms regarding unclear aspects of the SCOPIC (Special Compensation P&I Club Clause) mechanism by introducing certain clarificatory changes.
Nagasaki Spirit (1997) Case
A significant legal case regarding Articles 13 and 14 of the International Salvage Convention, which was included in Lloyd’s Open Form 90 (LOF 90), was brought before the House of Lords in The Nagasaki Spirit (1997) case. The incident occurred on 19 September 1992 when the MT Nagasaki Spirit collided with the container ship MV Ocean Blessing in the northern region of the Malacca Straits. At the time of the collision, the MT Nagasaki Spirit was partially loaded with 40,154 tons of crude oil, and the impact caused approximately 12,000 tons of oil to spill into the sea and ignite. Both vessels were engulfed in flames, and tragically, all crew members aboard the MV Ocean Blessing perished, while only two crew members from the MT Nagasaki Spirit survived. Semco Salvage, the contractors, agreed to salvage the MT Nagasaki Spirit and its cargo on the terms of Lloyd’s Open Form 90 (LOF 90). The contractors deployed multiple tugs and were able to extinguish the fire on the MT Nagasaki Spirit by 22 September. However, the Malaysian police ordered the contractors to move the vessel away from the Malaysian coast, and as a result, the MT Nagasaki Spirit was anchored off Belawan, located in Indonesia. The Indonesian government authorized the transshipment of the cargo from the MT Nagasaki Spirit onto another tanker. Following the successful completion of these operations, the MT Nagasaki Spirit was subsequently redelivered to its owners in Singapore.
The Semco Salvage’s claim for salvage remuneration against the owners of the MT Nagasaki Spirit was submitted to arbitration, while their claim against the cargo owners has already been resolved.
The House of Lords ruled that:
The House of Lords concluded that the phrase “a fair rate for equipment and personnel actually and reasonably used in the salvage operation” as used in Article 14.3 of the International Salvage Convention did not incorporate any element of profit but merely pertained to a fair expenditure rate. This interpretation was derived from the context of the article and the definition of “salvors’ expenses” in Article 14.3, which required the fair rate to be added to the out-of-pocket expenses. The computation prescribed in Article 14.3 involved quantification that contained no element of profit. The determination of the fair rate had to be carried out with a reasonably broad perspective. Article 14.3 was not associated with remuneration but rather a limited basis of recovery. The term “rate” in the context of Article 14 referred to a calculation related to the equipment and personnel used. While examining the official records (Travaux Preparatoires) was not strictly necessary, it reinforced the interpretation arrived at through an analysis of the words in Article 14, read in their context.
International Convention on Salvage 1989
The International Convention on Salvage was adopted on 28th April 1989 during a Conference organized under the auspices of the IMO (International Maritime Organisation). The International Convention on Salvage became effective one year later after receiving the necessary consent from 15 states to be bound by it. The International Convention on Salvage 1989 covers various matters, but its main objectives are to enhance the laws governing the provision of salvage services, offer better environmental protection, and incentivize salvors to undertake salvage operations concerning vessels and other at-risk properties. Consequently, the International Convention on Salvage 1989 should be embraced by both the ecological and salvage industry stakeholders.
Article 12 of the International Convention on Salvage upheld the fundamental principle that, unless otherwise specified, no payment is payable to salvors in the event that the salvage operations have not yielded any beneficial outcome.
Article 13 of the International Convention on Salvage addresses the fundamental principles regarding the remuneration of a salvor, while Article 14 outlines provisions for special compensation concerning a salvage operation that prioritizes environmental protection.
Under the International Convention on Salvage, a salvor is eligible for “special compensation” if they have carried out salvage operations regarding a vessel that posed a threat of environmental damage and have not earned a reward under Article 13 equivalent to the assessable special compensation under this Article. The basic definition of special compensation is confined to the salvor’s reasonably incurred out-of-pocket expenses and a fair rate for equipment and personnel actually utilized. Article 13 specifies that the salvor’s reward should be established “to encourage salvage operations.” However, while the Convention acknowledges a salvor’s efforts in protecting the environment in determining their remuneration, this is still subject to the “No Cure – No Pay” principle stated in Article 12 and the provision in Article 13.3 that the reward should not surpass the salvaged value of the vessel and other assets. As a result, while the compensation ensures that the salvor does not incur a loss by undertaking the salvage operation in most cases, it still provides little incentive for them to initiate it. Article 14 (2) specifies that the special compensation can be increased by up to 30%, provided the salvage operation has prevented or minimized environmental damage. Additionally, the Article allows the Tribunal to increase the special compensation up to 100% of the expenses if it deems it “fair and just.” The uplift under the Convention contrasts with the 15% increment provided for in Lloyd’s Open Form 80 (LOF 80).
The International Convention on Salvage applies to judicial or arbitration proceedings concerning salvage that is initiated in a country that is a party to the Convention, as per Article 2. It is important to note that the salvage operation itself need not have been carried out in the country in question. The relevant salvage operation, according to Article 1 (a), covers activities conducted in “navigable waters or in any other waters whatsoever.” However, a ratifying State may choose not to apply the Convention’s provisions to salvage operations in inland waters if all vessels involved are of inland navigation or if no vessel is involved at all. It should be emphasized that the definition provided in Article 1 (a) altered the law in England, which previously excluded the principles of salvage from operations taking place in inland non-tidal rivers, as held in The Goring (1988) case by the House of Lords.
Life Salvage Vs Property Salvage at Sea
Salvaging human life independently of property is a rare occurrence, and there are few, if any, recently reported cases. Since it is impossible to quantify human life in terms of monetary value, life cannot be considered a distinct and separate subject of salvage within the traditional sense of the word. For this reason, Admiralty law does not recognize a claim for a salvage reward where the rescue of human life is the sole purpose. However, where, as is typically the case, both life and property are saved in a single operation, it is customary to award a greater remuneration than if property alone had been saved. The saving of human life itself does not entitle the salvor to a reward, except where the Merchant Shipping Act 1894 has specified such a provision. If there has been a saving of life during any point of the salvage operation, then the ship and/or cargo owners as owners of the salved properties may find themselves liable to pay life salvage. However, where only human life is saved, there is no legally binding obligation. Perhaps a secondary reason for the lack of legal obligation is that the saving of human life should not require a financial incentive. It should be inherent in all human beings to act in a reasonable manner.
As previously mentioned, the new Convention on salvage does not legally entitle salvors to remuneration for the saving of human life. However, the Convention does recognize and respect any national law that may hold a different stance on the matter (as stated in Article 3 (5) (1)). Ship Masters are still obligated to provide assistance to any person in danger of being lost at sea, as long as it does not put their own vessel and persons on board in danger, as preserved by Article 2 (3) of the International Convention on Salvage 1989.
How is a Successful Salvor Rewarded?
A successful salvor is rewarded based on the principles established in the International Convention on Salvage. According to Article 13 of the Convention, the salvor’s reward is calculated based on a percentage of the value of the property saved. The percentage varies depending on the degree of danger involved in the operation, the skill and efforts of the salvors, and other relevant factors. The reward is intended to encourage salvage operations and is typically paid by the owner of the salved property. In addition to the reward based on the property value saved, the salvor may also be entitled to special compensation under Article 14 of the Convention. This compensation is provided when the salvor has carried out an operation in which a vessel or its cargo threatened damage to the environment, and the salvor has not managed to earn a reward under Article 13 that is equivalent to the special compensation assessable in accordance with Article 14. The special compensation covers the salvor’s out-of-pocket expenses and a fair rate for equipment and personnel used in the operation and may be increased up to a maximum of 30% if the operation prevented or minimized damage to the environment.
Regardless of the nationality of the ship and/or shipowners, all salvage cases that are entered into under a Lloyd’s Open Form (LOF) are handled by an arbitration panel in London. This panel operates under Lloyd’s Standard Arbitration Clauses (LSSA Clauses) and Lloyd’s Procedural Rules. The arbitrators are responsible for determining the salvor’s remuneration or compensation in the event of an unsuccessful salvage where prevention and minimization of pollution have been undertaken. The panel operates independently and is responsible for reviewing all relevant evidence before reaching a decision. This ensures that the arbitration process is fair and impartial and that both parties receive a fair and just resolution to their dispute.
Apportionment Between Salvors
In cases where more than one salvor has been involved in a salvage operation, the International Convention on Salvage provides guidelines for the apportionment of the salvor’s reward. Under Article 13 of the Convention, the reward is to be divided among the salvors in proportion to the services they have rendered. This can be determined based on a variety of factors, including the degree of danger involved in the operation, the skill and efforts of each salvor, and the nature and value of the property saved.
If the salvors are unable to reach an agreement on the apportionment of the reward, the matter may be referred to arbitration under Lloyd’s Standard Salvage and Arbitration Clauses. The arbitrators will then determine the fair and equitable division of the reward among the salvors based on the evidence presented to them.
It should be noted that if one or more salvors have acted in a manner that has hindered the success of the salvage operation or caused damage to the salved property, their share of the reward may be reduced or forfeited entirely. The Convention also provides for the possibility of punitive damages to be awarded against a salvor who has acted recklessly or intentionally in causing damage to the environment.
General Principles of Salvage Apportionment:
1- In cases of salvage, priority is given to the initial salvors, provided that they did not contribute to the situation. They are generally granted more favorable treatment compared to those who arrived later.
2- If there is no issue regarding the mistreatment of the first salvors by any subsequent parties, and if the later parties have provided more commendable service, then they will be given more favorable treatment compared to the initial salvors.
Unless the removal of earlier salvors by subsequent ones was justified by “Reasonable Cause”, a claim based on wrongful displacement may succeed. If such a reasonable cause does not exist, it must at least be apparent. If a salvor is dismissed or replaced, they should not use force to resist, but instead, seek the aid of the court.
Who is responsible for contributing to the Salvage Award?
In general, all property owners who have benefited from a salvage award are required to contribute to it. However, there may be exceptions to this rule depending on the specific circumstances and the type of property involved. It is important to consult with legal professionals to determine any potential exceptions that may apply to a particular case. Exceptions to this rule in respect of the property are:
1- Personal effects of the Ship Master and Crew Members, and
2- Postal Packets (Crown) property
Lenders on a Bottomry Bond are also exempted from contributing. Pursuant to Admiralty regulations, it is mandatory to establish a corpus from the salved assets, from which the remuneration for salvage services can be disbursed.
Salvage Award and Pro Rata Rule
In the MT M. Vatan (1990) case, an Ultra Large Crude Carrier (ULCC) oil tanker was struck by a missile in July of 1985. The Ship Master agreed to engage salvors on Lloyd’s Open Form (LOF) terms while noting that “cargo owners are not authorizing us to give instructions regarding cargo salvage”. The arbitrator determined that the salved property was valued at US$ 77.29 million, which included nearly 400,000 tons of crude oil worth US$ 73.35 million, and that a reasonable reward for the salvage was US$ 4.75 million.
According to the long-established pro-rata rule, the shipowners would be responsible for paying only a proportion of the total salvage equivalent to the value of their property relative to the total value of all salved property. This amounted to a figure of around US$ 221,350. However, the arbitrator awarded US$ 850,000, given the exceptional circumstances of the case, and the unlikelihood that the salvors would receive substantial recovery from the owners of the oil.
The appeal arbitrator held that the salvors’ reward should have been US$ 7.7 million, and applying the Pro Rata Rule, the shipowners were liable to pay 4.66%, which amounted to approximately US$ 350,000. The judge upheld the appeal arbitrator’s award, stating that there was no basis for departing from the Pro Rata Rule.
It is worth noting that the salvors had contended that adhering to the usual rule was unjust in the exceptional circumstances of this case. The judge, however, did not believe that the shipowners should be penalized solely because the salvors had been unable to safeguard their position, and not due to the fact that the cargo owners had yet to compensate for the services provided to their property.
In the case of The Sava Star (1995), cargo owners asserted a salvage claim for the first time. The plaintiffs were the owners of 2951 tons of complex fertilizer NPK in bulk, which was being transported on board the MV Sava Star. The cargo was found to be decomposing while on board the ship, prompting the plaintiff to initiate a crisis plan that involved contacting the Humberside Fire Brigade, arranging for a helicopter overflight to inspect the situation, constructing fire lances, and providing chemists. The plaintiffs’ general manager also assisted the salvage contractors, which resulted in a successful salvage operation.
The contractors were engaged on Lloyd’s Open Form 90 (LOF 90) and were awarded a salvage reward by the salvage arbitrator. However, the plaintiffs brought a separate claim in the High Court for salvage.
Judgment: According to the authorities, a ship owner cannot claim salvage against himself if the ship and cargo are saved by a vessel under the same ownership as the salved ship. However, the master and crew of the salving ship are entitled to salvage against the owners of the salved ship and its cargo. In such a scenario, the ship owners are entitled to salvage against the owners of the cargo on the salved ship, unless the accident resulted from an actionable breach of contract on the part of the plaintiffs. In this case, subject to the potential impact of liability limitation, the claim will fail due to the circuity of action. The fact that the salving and the salved ships were under common ownership or common management is relevant to the amount of the salvage award. The court should promote, rather than discourage, sister-ship salvage in an appropriate case. If a ship owner is entitled to claim salvage against the owner of cargo carried in his ship, then a cargo owner should also be entitled to claim salvage against a ship carrying his cargo. The salvors include any volunteer who provides salvage services, and there are no rigid categories. There is no reason why cargo owners who personally provide salvage services cannot be included. The defendants’ argument that the cargo owners were not volunteers because they were obliged to assist the ship and cargo was dismissed. The limiting criterion cannot be sole that the person concerned must owe a duty to the particular owner of the salved vessel to be barred from claiming salvage. The reason why the master and crew cannot usually recover salvage is that they are performing services that are normally expected of them in their capacity as the master and crew.
The ability of a salvor to limit liability is now regulated by the 1976 Limitation Convention, which is legally binding under section 185 of the Merchant Shipping Act 1995.
“Ship Towage” is a contractual arrangement that involves one vessel providing a service to another vessel for a predetermined fee. This service is typically required when a vessel lacks its own means of propulsion for various reasons. For example, when a vessel emerges from a dockyard and its engines are not yet functional, or when a vessel needs to maneuver in a restricted area of water where its size may pose a hazard to other waterway traffic if it relies solely on its own means of propulsion.
Under the typical towage contract, the vessel being towed has control over the tug and is accountable for any damage caused by the tug.
Niobe (1888) Case
In the case of the “Niobe,” the vessel was being towed by the tug “Flying Serpent” under a towage contract when both vessels collided with the “Valetta.” The only damage caused to the “Valetta” was by the “Flying Serpent,” but the owners of the “Niobe” argued that they were not responsible for the negligence of the tug’s crew as they were independent contractors and not their servants. However, it was held that the owners of the “Niobe” were liable for the negligence of the “Flying Serpent” as the tow had control over the tug in the eyes of the law.
To avoid vicarious liability for the acts and defaults of the tug’s crew during a towage operation, it is common practice for the tug owner to incorporate terms into the Contract of Towage that set out the relationship between all parties involved. These terms typically state that the Master and crew of the tug are the servants of the tow or its owner, not the tug owner, during the towage service. This Admiralty concept of the tug and tow arrangement views the two vessels as one shipping unit, with the controlling mind being the tow and the motive power being the tug.
By incorporating these terms, the tug owner can effectively assign vicarious responsibility to the tow owner and escape liability for any damage or loss caused by their employees. The tug owner may also include a term in the contract that allows them to seek indemnity from the hirer if necessary.
This practice of contracting out of liability has been respected by English courts, as seen in the judgment of The “Niobe” case. The court found that it is essential for the safety of vessels being towed that there is no divided command, and the undivided authority should belong to the tow.
Standard Conditions for Ship Towage
In the towage industry, the terms and conditions of the contractual relationship are typically set out in a written agreement that includes a set of standard conditions and terms. The United Kingdom Standard Conditions for Towage and Other Services (revised 1983) are the standard conditions used in the UK. The 1983 Conditions more clearly define the scope of the period of the towage contract than the previous 1974 Conditions. This is due to the need for an unambiguous definition of the period of the contract, as many accidents resulting in damage have occurred before the towing line is made fast or after it is cast off.
Under the 1974 Conditions, the phrase ‘whilst towing’ referred to towage starting from the point when the tug or tender was in a position to receive orders directly from the tow. This was revised in the 1983 Conditions to include ‘pulling’ and ‘standing by.’ However, a remaining area of doubt concerns the determination of responsibility, as it can be unclear when exactly the ‘meeting of minds concerning the contract of towage’ occurred between the contracting parties.
The scope of towing services includes the allied services of escorting and guiding. The 1983 Conditions comply with the provisions of the Unfair Contract Terms Act 1977, which makes it impossible to exclude liability where one’s negligence causes death or personal injury.
The 1983 Conditions were revised again in 1986, with the aim of placing most of the liability on the tow. Clause 4 of the 1986 Standard Conditions relieves the hirer’s liability in cases where the tug owner or manager or anyone to whom they have delegated that duty is responsible, or when the accident happens when the tug is not in a position of proximity or risk to the vessel, unless the tug is carrying persons or property at the hirer’s request, and their presence contributes to the claim. Clause 4 has been drafted to satisfy the provisions of reasonableness under The Unfair Terms Act 1977, which requires the test of ‘reasonableness’ to be satisfied before any exclusion clause drafted in favor of a business contract can be deemed valid.
Tug Owner’s Right To Limit Liability
A contract for towage and a salvage operation cannot be carried out simultaneously. Either one must be completed before the other begins or one must supersede the other. The primary criterion for determining if a towing vessel has transformed into a salvaging vessel is if there have been intervening circumstances that would justify the abandonment of the contract to tow, not the abandonment of the tow itself.
In the case of The Homewood (1982), it was established that for a tug owner to rightfully consider themselves a salvor, the services provided must be of an extraordinary nature that could not have been reasonably anticipated by the parties to the initial towage contract. Additionally, the services rendered and the risks taken must not have been reasonably compensated by the contractual remuneration alone.
Merely experiencing difficulty in performing the towage does not automatically transform the contract of towage into a salvage operation. The burden of proof rests with the party seeking the salvage reward, who must demonstrate that the nature of the service changed from mere towage to salvage due to accidental or fortuitous circumstances beyond their control, and not due to any fault or lack of ability on their part.
Ship Towage Procedure
Towage is the process of moving a vessel or an object in water using another vessel, called a tugboat. Towage is commonly used for maneuvering large ships in confined spaces, such as ports or narrow waterways. To ensure safe and efficient towage operations, it is crucial to follow proper procedures. Here is a general outline of a ship towage procedure:
- Ship Pre-towage planning: a. Assess the towage requirements, including the size, weight, and type of the vessel being towed, as well as the destination and route. b. Select the appropriate tugboats based on the towing requirements, such as the tug’s bollard pull, maneuverability, and communication capabilities. c. Ensure that all required permits, licenses, and insurance are in place. d. Develop a detailed towage plan, including the towage route, communication protocols, and emergency procedures.
- Ship Pre-towage preparation: a. Ensure that the vessel being towed is properly prepared, including securing loose items, closing watertight doors, and disabling propulsion systems. b. Establish communication between the tugboat crew and the crew of the vessel being towed, using VHF radio or other appropriate communication methods. c. Conduct a risk assessment to identify any potential hazards and develop contingency plans.
- Ship Connection: a. Approach the vessel being towed with caution, using the tug’s fenders to prevent damage. b. Secure the towing line, either by using a heaving line to pass the towing line to the towed vessel’s crew or by the towed vessel’s crew physically securing the line on board. c. Connect the towing line to the towed vessel’s designated towing points, using proper shackles or other appropriate connections.
- Ship Towage Operation: a. Ensure that both the tugboat crew and the crew of the vessel being towed are aware of the towage plan, including the route and expected time of arrival. b. Monitor the towing line’s tension, ensuring that it remains within safe limits and adjusting the tug’s speed as necessary. c. Maintain clear communication between the tugboat and the towed vessel, using agreed-upon communication protocols. d. Ensure that the towed vessel remains within the designated route, making adjustments as necessary to avoid obstacles or hazards.
- Ship Disconnection: a. Slowly approach the destination, ensuring that both vessels are in a safe and controlled position. b. Gradually reduce the tension on the towing line and disconnect it from the towed vessel. c. Retrieve the towing line and equipment, ensuring that all connections are properly stowed.
- Ship Post-towage: a. Complete any required documentation, such as towage logs, incident reports, or billing documents. b. Review the towage operation to identify any areas for improvement or lessons learned.
By following these steps, a ship towage procedure can be conducted safely and effectively, minimizing risks and ensuring the successful delivery of the towed vessel to its destination.
What are the six requirements for General Average (GA) to be declared?
General Average (GA) is a principle of maritime law that allows for the apportioning of losses incurred during a maritime adventure among all parties involved. It aims to distribute the financial burden of extraordinary sacrifices or expenditures made to preserve the safety of the ship and cargo. For GA to be declared, there are six essential conditions that must be met:
- Common maritime adventure: There must be a common maritime adventure involving a vessel and the cargo on board. This means that the ship, cargo owners, and other interested parties share a mutual interest in the safety and success of the voyage.
- Extraordinary sacrifice or expenditure: An extraordinary sacrifice or expenditure must be made or incurred to preserve the safety of the ship and cargo. This could include jettisoning part of the cargo, cutting away a mast, or using expensive salvage services. It is essential that the sacrifice or expenditure is beyond the normal operating expenses of the voyage.
- Intentional and voluntary act: The extraordinary sacrifice or expenditure must be the result of a voluntary and intentional act by the ship’s master or crew. It cannot be due to negligence or an accident that occurred without the crew’s conscious decision.
- Imminent peril: The sacrifice or expenditure must be made in response to imminent peril, such as a storm, grounding, or fire. This means that there must be a real and substantial danger to the ship and cargo and not just a hypothetical or remote risk.
- Reasonable and prudent action: The extraordinary sacrifice or expenditure must be deemed reasonable and prudent under the circumstances. This means that the decision to take such action must be justifiable, considering the risks and benefits involved.
- Successful outcome: The extraordinary sacrifice or expenditure must result in a successful outcome, meaning that the ship and the remaining cargo are saved. If the ship and cargo are lost despite the sacrifice or expenditure, GA cannot be declared.
If these six conditions are met, a General Average can be declared, and the losses will be proportionately shared among all the parties involved in the maritime adventure. This principle is designed to ensure fairness and promote cooperation among the parties during a crisis at sea.
In what circumstance are Crew Wages admissible in General Average (GA)?
Crew wages can be admissible in General Average (GA) under specific circumstances. Generally, crew wages are considered part of the ship’s operating expenses and are not included in General Average (GA) claims. However, there are certain situations in which crew wages may be admissible in General Average (GA):
- Forced deviation: If a ship has to deviate from its intended route due to an extraordinary circumstance that leads to a General Average Act, such as seeking a port of refuge, the additional wages paid to the crew for the extra time spent on this deviation may be considered as General Average (GA) expenses. The deviation must be a direct consequence of the General Average (GA) Act and deemed necessary for the preservation of the ship and cargo.
- Ship and cargo preservation: If the crew is engaged in extraordinary efforts to preserve the ship and cargo during a General Average (GA) event, the wages paid to them for their time and effort involved in these extraordinary tasks may be admissible in GA. This could include efforts to extinguish a fire, re-floating a grounded vessel, or work with salvage teams.
- Waiting for salvage or repairs: If the ship requires salvage assistance or repairs due to a General Average (GA) event, the crew wages paid during the time the vessel is waiting for the salvage team to arrive or while the vessel is undergoing repairs may be admissible in General Average (GA). This is because the crew is still responsible for the safety and security of the ship and cargo during this period.
It is important to note that the admissibility of crew wages in General Average (GA) depends on the specific circumstances of each case and the applicable laws and General Average (GA) adjustment rules. In all cases, the wages must be directly related to the General Average (GA) event and the preservation of the ship and cargo, and not part of the ordinary expenses of the voyage.
When extinguishing a fire onboard a ship, what items are and what are not admissible in General Average (GA)?
When extinguishing a fire onboard a ship, certain expenses and damages can be considered admissible in General Average (GA), while others are not. Here is an overview of items that are typically admissible and not admissible in General Average (GA) during a fire-related incident:
Admissible in General Average (GA):
- Damage to the ship: Damage to the ship caused by the fire or the efforts to extinguish it, such as scorching, water damage, or structural damage, may be admissible in General Average (GA)if the actions taken were necessary for the safety of the ship and its cargo.
- Damage to cargo: Damage to the cargo caused directly by the fire or the firefighting efforts, such as water damage or exposure to heat, can be admissible in General Average (GA), provided the actions taken were reasonable and necessary to protect the ship and the remaining cargo.
- Firefighting expenses: The cost of firefighting equipment, materials, and supplies used to extinguish the fire, such as water, foam, or chemicals, can be considered admissible in the General Average (GA).
- Salvage charges: If professional salvage services are required to help extinguish the fire or to ensure the safety of the ship and cargo, the cost of these services may be admissible in the General Average (GA).
- Crew wages and maintenance: If the crew is engaged in extraordinary efforts to extinguish the fire and preserve the ship and cargo, the wages paid to them for their time and effort during these extraordinary tasks may be admissible in General Average (GA). Additionally, the cost of crew maintenance (food and accommodation) during this period may be considered as General Average (GA) expenses.
Not admissible in General Average:
- Regular crew wages and operating expenses: Ordinary crew wages and regular operating expenses of the ship, which would have been incurred regardless of the fire, are not admissible in General Average (GA).
- Pre-existing damage or losses: Any damage to the ship or cargo that existed before the fire or is unrelated to the fire and firefighting efforts is not admissible in General Average (GA).
- Negligence or misconduct: If the fire was caused by negligence or misconduct of the ship’s crew or owner, the resulting damages and expenses may not be admissible in General Average (GA).
- Consequential losses: Losses such as lost revenue or business interruption due to the fire are not admissible in General Average (GA), as they are considered indirect or consequential losses.
It is essential to note that the admissibility of items in General Average (GA)depends on the specific circumstances of each case and the applicable laws and General Average (GA) adjustment rules. The main criterion for admissibility is that the expenses or damages must be directly related to the extraordinary efforts or sacrifices made to preserve the ship and its cargo during the fire incident.
When does a need for ship towage arise and who assumes liability for damage caused in a towage operation?
A need for ship towage may arise under various circumstances, and liability for damage caused in a towage operation can depend on the contractual agreements, applicable laws, and the specifics of the situation. Here’s an overview:
Circumstances for ship towage:
- Restricted maneuverability: Towage may be required when a vessel has limited maneuverability in confined spaces, such as entering or leaving a port, navigating through a narrow channel, or docking and undocking.
- Distressed vessel: If a vessel is in distress due to mechanical failure, grounding, or adverse weather conditions, towage may be necessary to ensure the safety of the vessel, its crew, and the environment.
- Salvage operations: Towage may be employed as part of a salvage operation to save a vessel that has been damaged, grounded, or is at risk of sinking.
- Offshore operations: Tugboats may be used to tow offshore structures, such as drilling platforms or wind turbines, to their designated locations.
- Inoperable vessel: If a vessel is being moved for repair, scrapping, or repurposing and is not capable of self-propulsion, towage may be required.
Liability for damage in towage operations:
Liability for damage caused during towage operations depends on several factors, including the contractual agreements between the parties involved, applicable laws, and the specific circumstances of the incident.
- Towage contract: The towage contract generally governs the rights and obligations of the parties involved in the towage operation, including the tug owner, the vessel owner, and other interested parties. It may include clauses that allocate liability for damages or losses during the towage operation.
- Standard of care: Liability for damage may depend on whether the parties involved have exercised due care and skill in the towage operation. For instance, if the tugboat crew is found to have been negligent or failed to perform their duties competently, they may be held liable for the damage.
- Contributory negligence: If both the tugboat and the towed vessel share responsibility for the damage, liability may be apportioned based on their respective levels of fault, as determined by contributory negligence principles.
- Salvage operations: In salvage operations, liability for damage may be influenced by the nature of the salvage agreement, the circumstances of the salvage operation, and the relevant salvage laws and conventions.
Ultimately, the assignment of liability for damage caused in a towage operation depends on the specific facts of the case, the applicable laws and regulations, and the terms of the towage or salvage contract. It is crucial for the parties involved to have a clear understanding of their rights and obligations to minimize disputes and ensure a successful towage operation.
What circumstances change towage to salvage?
Towage and salvage are two distinct maritime services with different objectives and legal frameworks. Towage typically involves assisting a vessel with maneuvering, such as entering or leaving a port, docking, or navigating through confined spaces. Salvage, on the other hand, involves saving a vessel, its cargo, or the environment from imminent danger or damage. A towage operation can change into a salvage operation under certain circumstances:
- Imminent danger: If the towed vessel encounters a perilous situation during the towage operation, such as grounding, collision, or severe weather conditions, the operation may transition from towage to salvage. In these cases, the focus shifts from routine assistance to saving the vessel, cargo, or the environment from imminent danger.
- Distressed vessel: If the vessel being towed experiences a significant change in its condition, such as an onboard fire, flooding, or mechanical failure, the operation may change from towage to salvage. The primary objective becomes preventing further damage, rescuing the crew, or mitigating environmental hazards.
- Change in service scope: If the assistance provided by the tug goes beyond the original towage agreement and involves extraordinary efforts or services to save the vessel, cargo, or the environment, the operation may be considered salvage. For example, if the towage operation requires the use of specialized equipment or the assistance of additional tugs or salvage teams, it may be classified as salvage.
- Voluntary assistance: If a tug happens to be in the vicinity of a vessel in distress and voluntarily offers its assistance without any pre-existing towage agreement, the operation may be considered salvage from the outset, as the tug is engaging in efforts to save the distressed vessel, cargo, or the environment.
It is essential to recognize that the transition from towage to salvage can have significant legal and financial implications for the parties involved. Salvage operations are typically governed by different legal frameworks, such as the International Convention on Salvage 1989, and may involve a salvage reward based on the value of the property saved. To avoid disputes and misunderstandings, the parties involved should clearly define the scope of services in their towage or salvage agreements and be prepared to adapt to changing circumstances during the operation.
When does a contract for ship towage commence?
A contract for ship towage commences when the parties involved—typically the vessel owner (or their agent) and the tugboat owner—agree on the terms and conditions of the towage service. The commencement of the towage contract can be marked by various events or milestones, depending on the specific terms of the agreement. Some common points at which a towage contract may commence include:
- Contract signing: The towage contract may be considered to commence upon the signing of the towage agreement by both parties. This is the point at which the parties formally commit to their respective roles and responsibilities in the towage operation.
- Notice of readiness (NOR): In some cases, the towage contract may commence when the tugboat provides a Notice of Readiness to the vessel owner, indicating that it is ready, willing, and able to perform the towage service. The commencement may be subject to the acceptance of the NOR by the vessel owner or their agent.
- Tug’s arrival at the designated location: The towage contract may commence upon the arrival of the tugboat at the designated location for the towage service, such as the vessel’s berth or anchorage. In this case, the commencement of the contract is marked by the tug’s physical presence and readiness to perform the towage operation.
- Connection of the towing line: The towage contract may be considered to commence when the towing line is connected between the tugboat and the vessel being towed. At this point, the towage operation is ready to begin, and the parties are actively engaged in the process.
The specific commencement of a towage contract depends on the agreement between the parties involved and the terms and conditions outlined in the contract. It is essential for both the vessel owner and the tugboat owner to have a clear understanding of their respective rights and obligations, including the commencement and termination of the towage contract, to ensure a smooth and successful towage operation.
Explain the General Average (GA) Procedure from declaration to resolution
The General Average (GA) procedure involves multiple steps, from the declaration of a General Average (GA) event to the final resolution and settlement of the apportioned losses. Here is a general overview of the GA procedure:
- Declaration of General Average (GA): When a maritime event involving an extraordinary sacrifice or expenditure occurs, and the six essential conditions for General Average (GA) are met, the shipowner or master declares a General Average. This declaration alerts all parties involved in the maritime adventure (shipowner, cargo owners, charterers, and insurers) that a General Average (GA) event has occurred and that the losses will be proportionately shared.
- Collection of security: To ensure that all parties contribute to the GA adjustment, Average Adjusters are appointed to collect security from the cargo owners and other interested parties. This security is usually in the form of a General Average (GA) bond or guarantee, which serves as a promise to pay the party’s share of the General Average (GA) expenses once the adjustment is finalized.
- Documentation and information gathering: The Average Adjusters collect relevant information, documents, and evidence related to the General Average (GA) event, such as the ship’s log, invoices, bills of lading, and cargo manifests. This information is crucial for assessing the values of the ship, cargo, and other interests involved in the maritime adventure and determining each party’s proportional contribution to the General Average (GA) losses.
- General Average (GA) adjustment: The Average Adjusters analyze the collected data and determine the extent of the losses and expenses directly attributable to the General Average (GA) event. They prepare a detailed GA adjustment, which outlines the calculation of each party’s proportionate share of the General Average (GA) losses based on the values of their interests at the time of the event.
- Review and agreement: The General Average (GA) adjustment is shared with all interested parties, who may review it and raise any objections or disputes. If necessary, the parties may seek legal advice or arbitration to resolve any disagreements over the General Average (GA) adjustment.
- Payment and settlement: Once all parties have agreed to the General Average (GA) adjustment, the payments are made based on the security collected earlier in the process. Each party pays its proportionate share of the General Average (GA) losses, and the collected funds are used to reimburse the party or parties who made the extraordinary sacrifice or expenditure.
- Release of securities: After the General Average (GA) losses have been settled, the Average Adjusters release any remaining securities held against the parties who have fulfilled their General Average (GA) obligations.
- Subrogation and recoveries: After the settlement of the General Average (GA) losses, insurance companies that have paid out claims related to the General Average (GA) event may exercise their right of subrogation. This means that they can pursue recovery from any third parties who may be responsible for the General Average (GA) event, such as another vessel involved in a collision, or a party that supplied faulty equipment. The insurers may also seek reimbursement from their insureds for any deductibles or other amounts not covered by the insurance policy.
- Finalization and closure: Once all payments, recoveries, and reimbursements have been completed, the General Average (GA) procedure is considered finalized, and the case is closed. The Average Adjusters will issue a final report summarizing the General Average (GA) adjustment, payments, and recoveries, which serves as a record of the entire process.
The General Average (GA) procedure can be a complex and time-consuming process, requiring the cooperation and agreement of all parties involved in the maritime adventure. The goal of the General Average (GA) Procedure is to ensure a fair and equitable distribution of losses resulting from the extraordinary sacrifices or expenditures made to preserve the ship and cargo during a maritime emergency. It is essential to recognize that the General Average (GA) Procedure can be influenced by various factors, such as the specific circumstances of the General Average (GA) event, the applicable laws and adjustment rules, and the level of cooperation among the parties involved. Additionally, the General Average (GA) procedure can be lengthy, sometimes taking years to complete, depending on the complexity of the case and the need for legal or arbitration proceedings to resolve disputes. Throughout the General Average (GA) process, the primary objective is to ensure a fair and equitable distribution of losses among all parties involved in the maritime adventure, reflecting the underlying principle of the General Average (GA) system: “the common danger, the common loss.”
Explain the evolution of Lloyd’s Open Form (LOF) over the last four decades:
The Lloyd’s Open Form (LOF) is a widely used standard salvage contract that has evolved over the years to address various aspects of salvage, including environmental concerns. Over the last four decades, the LOF has undergone several revisions to better deal with environmental issues and adapt to the changing landscape of the shipping industry. Here is a summary of the key changes and developments in the LOF concerning environmental concerns:
- LOF 1980: This version of the LOF was introduced before environmental protection became a primary focus in salvage operations. However, it laid the groundwork for future LOF versions by establishing the principle of “no cure, no pay,” which meant that salvors were only compensated if the salvage operation was successful.
- LOF 1990: The LOF 1990 introduced the “Special Compensation” clause, which allowed salvors to claim additional compensation if they prevented or minimized damage to the environment, even if the salvage operation was not financially successful. This marked a significant shift in focus, acknowledging the importance of environmental protection in salvage operations.
- LOF 1995: The LOF 1995 further developed the concept of Special Compensation, replacing it with the “Special Compensation P&I Clause” (SCOPIC). This clause, incorporated by reference into the LOF, established a more detailed and transparent mechanism for compensating salvors for their efforts in protecting the environment. Under SCOPIC, salvors could receive additional remuneration based on a predetermined tariff, making it easier to calculate and agree on the compensation payable for environmental protection efforts.
- LOF 2000: The LOF 2000 revision clarified and streamlined the provisions relating to SCOPIC. Notably, it emphasized that SCOPIC compensation would be separate from the traditional salvage award and would only be payable if the salvor invoked the SCOPIC clause. This change aimed to reduce disputes and encourage salvors to focus on environmental protection during salvage operations.
- LOF 2011: The LOF 2011 edition maintained the SCOPIC provisions from the previous versions, with minor amendments to improve the clarity and efficiency of the contract. One significant change in the LOF 2011 was the introduction of a mandatory arbitration provision for SCOPIC disputes, which provided a more efficient and specialized dispute resolution mechanism for environmental compensation issues.
Throughout the evolution of the LOF, the focus on environmental protection has become increasingly prominent, with each revision incorporating new measures to encourage salvors to prioritize minimizing environmental damage during salvage operations. The introduction and refinement of the SCOPIC clause have been the most notable developments in this regard, providing a clear and transparent framework for compensating salvors for their environmental protection efforts
Lloyd’s Open Form (LOF) and the future: As the shipping industry continues to evolve and environmental concerns become even more significant, likely, future revisions of the Lloyd’s Open Form (LOF) will further refine and expand on the provisions related to environmental protection. This may involve updating the SCOPIC tariffs to reflect the increasing costs of specialized equipment and resources needed for environmental response or introducing new clauses that address emerging environmental threats, such as climate change and marine plastic pollution.
Moreover, as regulations surrounding environmental protection become more stringent, Lloyd’s Open Form (LOF) may need to adapt to ensure compliance with international and regional laws and guidelines. This could involve incorporating specific requirements for salvors to work closely with environmental response agencies or adopt best practices for minimizing the environmental impact of salvage operations.
Additionally, Lloyd’s Open Form (LOF) may also evolve to better address the increasing complexity of salvage operations due to the growth in vessel size, technological advancements, and the development of new shipping routes through environmentally sensitive areas. This could necessitate the inclusion of provisions that outline the roles and responsibilities of various stakeholders in coordinating environmental response efforts during salvage operations.
Finally, as public awareness of environmental issues grows, Lloyd’s Open Form (LOF) may need to emphasize the importance of transparency and communication in salvage operations. This could involve provisions requiring salvors to provide regular updates on their environmental protection efforts, or establishing guidelines for engaging with local communities, non-governmental organizations, and other stakeholders affected by the salvage operation.
In conclusion, the evolution of Lloyd’s Open Form over the last four decades has demonstrated a clear trend toward prioritizing environmental protection in salvage operations. As the shipping industry and environmental challenges continue to evolve, the LOF will likely adapt to further address these concerns and ensure that salvage operations are conducted in an environmentally responsible manner.
What is the latest version of Lloyd’s Open Form (LOF)?
Currently, Lloyd’s Open Form (LOF) latest version is 2020. We kindly suggest that you visit the web page of Lloyd’s to obtain the original Lloyd’s Open Form 2020 (LOF 2020). www.lloyds.com
What are the two criteria which define Ship Salvage?
Salvage is defined by two primary criteria:
- The existence of a “marine peril”: Salvage operations are initiated when a vessel, its cargo, or other maritime property is exposed to danger or distress in a marine environment. This can include situations such as grounding, collision, fire, sinking, or any other circumstances where the property is at risk of being lost or damaged. The marine peril must be real and imminent, requiring immediate intervention to prevent or mitigate the potential loss or damage.
- The successful preservation or recovery of the property at risk: Salvage operations aim to save the vessel, cargo, or other maritime property from marine peril. To be considered a salvage operation, the efforts of the salvors must result in the successful preservation or recovery of all or part of the property at risk. If the salvors’ efforts do not lead to a successful outcome, the operation may not be considered salvage, and they may not be entitled to a salvage award.
Ship Salvage is defined as the presence of a marine peril that puts the maritime property at risk and the successful preservation or recovery of that property by the salvors. The principle of “No Cure, No Pay” is often applied in salvage, meaning that salvors are only compensated for their efforts if they successfully save the property in danger.
What does the acronym SCOPIC stand for?
SCOPIC stands for Special Compensation P&I Club Clause. It is a clause incorporated by reference into the Lloyd’s Open Form (LOF) salvage contract, which provides a mechanism for compensating salvors for their efforts in preventing or minimizing damage to the environment during a salvage operation, even if the traditional “no cure, no pay” salvage award is insufficient or not applicable. The SCOPIC clause establishes a predetermined tariff for calculating the additional remuneration for salvors based on their equipment, personnel, and the duration of the salvage operation. This allows for a transparent and objective method of determining compensation for environmental protection efforts in salvage cases.
How is a Successful Salvor Rewarded?
A successful salvor is rewarded through a salvage award, which is a monetary compensation granted in recognition of their efforts in saving a vessel, cargo, or other maritime property from a marine peril. The salvage award is intended to encourage professional salvors to undertake risky and challenging operations to save property and protect the environment. The amount of the salvage award is determined based on several factors:
- The value of the salved property: The salvage award is calculated as a percentage of the total value of the property saved, which includes the vessel, cargo, and other maritime property involved in the salvage operation. The higher the value of the salved property, the higher the salvage award.
- The degree of danger or peril: The greater the risk and difficulty involved in the salvage operation, the higher the salvage award. This factor takes into account the nature of the marine peril, the prevailing weather and sea conditions, and any other hazards faced by the salvors during the operation.
- The skill and efforts of the salvors: The professional expertise, experience, and resourcefulness of the salvors in conducting the salvage operation are taken into account when determining the salvage award. The more skillful and effective the salvors are in saving the property, the higher the reward they may receive.
- The time and resources expended: The duration of the salvage operation and the resources utilized, such as equipment, personnel, and fuel, are also considered in the calculation of the salvage award. Salvors who commit more time and resources to the operation may be entitled to a higher reward.
- Environmental protection efforts: In cases where the salvor has made a significant effort to prevent or minimize damage to the environment during the salvage operation, they may be entitled to additional compensation under the Special Compensation P&I Club Clause (SCOPIC). This clause provides a predetermined tariff for calculating additional remuneration for salvors based on their environmental protection efforts.
The salvage award is usually determined through negotiation between the salvors and the property owners or their insurers. If the parties cannot reach an agreement, the matter may be referred to arbitration or court proceedings to determine the appropriate amount of the salvage award. The principle of “no cure, no pay” generally applies, meaning that salvors are only rewarded if they successfully save the property in danger.
What is Salvage Reward in Shipping?
Salvage reward in shipping refers to the monetary compensation granted to professional salvors for their successful efforts in saving a vessel, its cargo, or other maritime property from a marine peril. The purpose of the salvage reward is to encourage salvors to undertake challenging and risky operations to rescue endangered property and protect the marine environment.
The amount of the salvage reward is determined based on several factors, including the value of the salved property, the degree of danger or peril, the skill and efforts of the salvors, the time and resources expended, and the salvors’ efforts to prevent or minimize environmental damage.
The salvage reward is typically negotiated between the salvors and the property owners or their insurers. If an agreement cannot be reached, the matter may be referred to arbitration or court proceedings to determine the appropriate amount of the reward. The principle of “no cure, no pay” generally applies in salvage operations, meaning that salvors are only rewarded if they successfully save the property in danger.