Salvage - Answers to the common questions.

How good is your knowledge of salvage?

By way of introduction, Brice on Maritime Law of Salvage, 5th Ed., (one of the main salvage practitioner texts), states the following:

• In English law a right to salvage arises when a person, acting as a volunteer (that is without any pre-existing contractual or other duty so to act) preserves or contributes to preserving at sea any vessel, cargo, freight or other recognized object of salvage from danger.

I have been contacted by an average adjuster advising me that they need security from me in respect of general average and salvage before I can collect my cargo. What right do they have to do this?

We talked about the role of the average adjuster in collecting security here.

Before answering, it would probably assist to address the basis of your legal relationship with the salvor. England, along with many other jurisdictions, is a contracting party, (known as a State Party), to the International Convention on Salvage 1989, (the Convention), which is part of English domestic law. This is the basic law that governs your relationship with the salvors.

In addition, there is the well-known Lloyds Open Form (LOF) salvage agreement, (this article is based on the 2024 version), which is entered into between the master on behalf of the shipowner (and on behalf of the cargo) and the salvors. The Convention will still apply, but LOF effectively adds a further binding layer to the Convention, especially in the context of procedural matters. Critically, LOF is subject to English law and jurisdiction and provides for arbitration to be governed by the Lloyds Salvage Arbitration Clauses, effectively setting out the procedural rules to be followed.

The starting point is the fact that the salvor has a maritime lien over the salved property (this is long standing common law) and the cargo can be arrested by salvors, following a court order, to satisfy claims or obtain security.

However, pursuant to the Convention a property interest is required, upon the request of the salvor, to provide satisfactory security for the claim, including the salvor’s interest and costs.

Where LOF has been agreed, the mechanism for providing security is set out in greater detail.

Why do I have a “legal relationship” with the salvor? I’ve signed nothing and I never authorised anyone else, including the master, to sign anything on my behalf.

Again, we need to look at this in two parts. If the Master or shipowner has made no agreement such as an LOF, then your relationship with the salvor is governed by the Convention. Where there is a salvage operation, (any act or activity undertaken to assist a vessel or any other property), pursuant to the Convention the party providing that salvage operation, so long as it has a useful result, is entitled to a reward. So, no signed agreement, by you, or anyone else, is necessary.

However, to fully answer the question, the Convention also authorizes the master and shipowner to conclude reasonably necessary contracts for salvage operations on behalf of the property on the vessel, so that when they execute an LOF, they bind all the property on the vessel to that LOF.

The shipowner told me that a crewman took a line from one of the salvor’s tugs without the master’s permission, and that the ship was safely aground on a sandy seabed, so how can it be a salvage?

The Convention does not require the master to authorise salvage services, he could of course refuse assistance, but that would be a different matter.

The court has held that it is not necessary to show that a stranded vessel would not or might not have got away before a reasonably apprehended peril became an actual danger, it is sufficient that she would not have come free without the services provided.

So, if there is an LOF agreement, what are the requirements for security?

The starting point is that the security must be reasonable.

Then the rules provide two options. The first is for the salvors and property interests to agree security between them. Usually, a paper security from a first-class insurer subject to English law and jurisdiction, (High Court), and responding to a final unappealable award would suffice.

If the salvors and property interests cannot agree, then security needs to be provided to the Council of Lloyds, in a form approved by them, (there are sample wordings on the Forms and Documents page of the Lloyds Salvage Arbitration Branch web site), by persons, firms or corporations acceptable to the Council or acceptable to the Contractors. Quite a few hoops to jump through which is why generally the salvors and property interests agree this between themselves without troubling the Council.

Indeed, since the cargo insurers and salvors will frequently have dealt with each other previously, the provision of security and release of cargo can be quite rapid where there is mutual trust.

What rights do I have to change the security level if it isn’t reasonable?

You can ask the arbitrator to reduce the security amount. But bear in mind the salvors can also ask the arbitrator to increase it.

How do I appoint an arbitrator, and can I choose anyone I want?

You don’t get to appoint your own arbitrator. You make a written request to the Council of Lloyds who will appoint a single arbitrator from a panel of specialist arbitrators. You may have to provide security for fees. This can be done quite quickly if you need to make an emergency application on some point.

Though by way of caution, ensure that the arguments you want to make have merit, if the arbitrator rules against you, then you may be liable for the salvor’s legal costs in defending that application.

I have a close relationship with this shipowner, and I understand the salvors have departed and the ship is ready to sail. Why don’t I just ask the shipowner to take my cargo to another port and collect it?

Under the Convention the shipowner is required to use their best endeavours to ensure cargo isn’t released until security is provided and the ship cannot take the cargo to another port without the written agreement of the salvors. Breaches of these obligations could leave the shipowner liable in damages so the shipowner is unlikely to assist you in this.

Additionally, pursuant to LOF, salvors can arrest your property if they are not secured within 21 days of termination of services, or if they believe you are about to remove the property or try to do so without their written consent.

Given I am on the other side of the world to London, why don’t I just ignore the Lloyds Form arbitration proceedings, if I am not there to argue my case surely it can’t be just that an award is made against me? In addition the salvors can’t serve papers on thousands of cargo interests all over the world for a big container vessel.

Under LOF, if you want to adduce evidence in the hearing, you need to appoint an agent or representative to receive correspondence and notices. Service on that agent or representative is considered to be service on you. No one has to write formally requesting you do this, it is an automatic obligation, on you, once you become a party to an LOF.

So why don’t I just fail to appoint an agent or representative?

If you do that, under the LOF rules, you will be deemed to have renounced your right to be heard or adduce evidence and the reference will proceed without you.?

In addition, where say an insurer has put up security, if you don’t appoint an agent or representative, correspondences and notices can be sent to the party that provided security.

Is it possible to settle a salvor’s claim for salvage remuneration without the cost of an arbitration?

Yes, it is, and indeed most references will settle.

To understand why settlement is so common, we need took at the issue of legal costs. The general rule is that the successful party will be paid their recoverable legal costs. This means that if the reference goes through to an award the property interests will be liable for their own, and the salvor’s recoverable legal costs.

However, property interests can protect themselves from costs exposure by making a sealed offer. So, you can write to salvors and offer to pay a fixed sum.

If (a) salvors fail to accept a sealed offer within 21 days and (b) the arbitrator makes an award that is equal to or better than the sealed offer, (i.e. the arbitrator awards the salvor the same sum, or a lower sum than your offer), then from the expiry of that 21-day period, salvors will be liable for their own legal costs as well as the legal costs of the property interests that made the successful offer.

The strategy is to pitch an offer such that salvors are concerned that they may not be able to do better than that offer if the arbitrator was to determine the issue, leaving them at risk of paying their own recoverable costs as well as the costs of cargo. For this reason, it is necessary to identify a level between the cargo’s best case and the salvor's claim.

Lastly, given that if no offer is made, cargo will be liable for both salvors’ and their own costs, it makes sense to seek to protect those costs by making a sealed offer.

Since you say most references settled by negotiation, if I don’t take part in the negotiations with all the other cargo interests, and they settle without troubling the arbitrator, will it be worth the time of salvors to come after me for just a small proportion of the value of cargo?

There are two issues to consider here.

The first is that if salvors take it to the arbitrator after having settled with some property interests, those property interests that have not settled will be liable for all the salvor’s recoverable legal costs from the time of the settlement agreement onwards. These could be significant.

In addition, if 75% by value of the cargo have settled, salvors can ask the arbitrator to review that settlement agreement and if he finds it to be reasonable, use that as a basis for assessing a salvage award against unrepresented cargo. That award can then be enforced against the originally provided security in the High Court, including interest and costs.

What factors are considered in determining the salvage renumeration?

I have set that out here.

However, one-part bears repeating, and that is the fact that the Convention provides, “The reward shall be fixed with a view to encouraging salvage operations.”

In essence the reward shall be pegged at a level that makes the provision of salvage services, profitable. The court has said that:

• The salvor is of course entitled to an encouraging award. It must have regard to his general expertise, his investment, his readiness to respond, his unsuccessful ventures and so on. Equally he can pray in aid the value added by the specific service, the skill and work involved, the risks run and so on.

The “encouragement” element will therefore provide a financial uplift above what may be a reasonable commercial rate for the same services. As a matter of public policy, we require salvors to invest in equipment and be ready to assist at short notice, so the Convention recognises the need to provide funds that permit such investment.

So, what about salvor’s efforts in protecting the environment and the SCOPIC clause?

That would be an entire article on its own. Watch this space!

One last question, if there is an LOF, is the master still in command of the vessel, or do the salvors take over?

I can do no better than quote Todd Busch , a past president of the INTERNATIONAL SALVAGE UNION , the trade association for salvors, who said:

• Another misunderstanding is that the Master of the casualty gives up command of the vessel when LOF is agreed. That is not true. The Salvage Master assumes responsibility for the salvage operation, but the Master remains in command of his vessel – unless it is completely abandoned and then boarded by the salvors.

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Other Articles

• The legal threats that arise during casualty management: Do you/your Emergency Response Team know how to recognize and mitigate against those threats?
• Carriage - Is a certificate of competency sufficient to prove competence? (An introduction to carriage of goods by sea law and when negligence is a defence).
• In Class, STCW compliant, all certificates valid, yet still unseaworthy. Why?
• The master's statement of facts, what should be included, and more importantly, excluded.
• Accident Investigations - What is the purpose, who investigates, and must you answer questions?
• General average - Common questions
• The Ever Given - Why was there a dispute over salvage and what were the findings of the court.

The Legal Stuff

Please note that I am no longer a practicing solicitor, and the content here, which is in the context of English law, (except where otherwise highlighted), only provides a generic overview. Exceptions and conditions apply to the statements of law which given the space available are very generalized. You should always seek assistance and guidance from the vessel's P&I Club, or your legal advisor, based on the fact-specific issues before taking any action and not rely on this content.

Fair winds, calm seas and, as always, it is to be hoped that the above is only ever of academic interest.

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Litigation Risk Management Newsletter by Ian MacLean

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Ian MacLean

Singapore - 28 June 2024