‘Enhanced’ Salvage Award for Environmental Damage
—Adv. (Capt.) Ashwani Jhingan
In cases where there is a threat of damage to the environment, values of salvage award (Art 13 of Salvage Convention 1989) are often low and the expenses of salvage high. Casualties such as the Atlantic Empress, the Christos Bitas and the Amoco Cadiz resulted in governments, fearing pollution, refusing casualties a place of refuge for salvage work to be completed. Without a place of refuge, salvors had no alternative but to tow such ships far into the oceans to be sunk. As they were rewarded on a no cure basis, they failed to collect a salvage award or even recover their expenses. They were in effect being discouraged to assist the very ships the world wanted them to salve.
The ‘safety net’ provisions of Art. 14 allowed salvors ‘special compensation’ where no property is saved but efforts to protect the environment are undertaken. A minimum payment to the salvor. It is only payable to the extent that it exceeds the traditional Article 13 salvage reward.
Article 14 - Special Compensation
1. If the salvor has carried out salvage operations in respect of a vessel which by itself or its cargo threatened damage to the environment and has failed to earn a reward under Article 13 at least equivalent to the special compensation assessable in accordance with this article, he shall be entitled to special compensation from the owner of that vessel equivalent to his expenses as herein defined.
2. If, in the circumstances set out in paragraph 1, the salvor by his salvage operations has prevented or minimised damage to the environment, the special compensation payable by the owner to the salvor under paragraph 1 may be increased up to a maximum of 30% of the expenses incurred by the salvor. However, the tribunal, if it deems it fair and just to do so and bearing in mind the relevant criteria set out in Article 13, paragraph 1, may increase such special compensation further, but in no event shall the total increase be more than 100% of the expenses incurred by the salvor.
3. Salvor’s expenses for the purpose of paragraphs 1 and 2 means the out-of-pocket expenses reasonably incurred by the salvor in the salvage operation and a fair rate for equipment and personnel actually and reasonably used in the salvage operation, taking into consideration the criteria set out in Article 13, paragraph 1 (h), (i) and (j).
4. The total special compensation under this article shall be paid only if and to the extent that such compensation is greater than any reward recoverable by the salvor under Article 13.
5. If the salvor has been negligent and has thereby failed to prevent or minimise damage to the environment, he may be deprived of the whole or part of any special compensation due under this article.
6. Nothing in this article shall affect any right of recourse on the part of the owner of the vessel.
Most of the issues related to Articles 13 and 14 of the Convention, including ‘interpretation’ of the law, have been largely addressed in Salvage Convention 1989, as follows:
Art. 13.1 (b): Added as an additional 10th criterion - “the skill and effort of the salvor in preventing or minimising damage to the environment”.
Art. 14: Introduced new concept - Special Compensation, which was designed to ameliorate the harshness of the traditional ‘No Cure No Pay’ principle; now a salvor can at least recover his expenses whenever there is a threat of damage to the environment, a ‘safety net’.
The salvage market is highly competitive, with around 5 to 6 global salvage operators dominating the scene. ISU (International Salvage Union) is an association representing the interests of 60 major salvors worldwide who conduct over 90% of all salvage activity. Membership of the ISU is restricted to those companies with a record of successful salvage and pollution prevention. Members are required to have the high level of expertise expected of the professional salvor.
ISU promotes the use of Lloyds Open Form. About one-third of all of today’s salvage operations are undertaken under the standard form of salvage contract (LOF).
In 1978, the ISU commenced an Annual Statistical Survey. This data now spans a 37-year period and includes around 6,000 salvage operations (of which 50% carried out under LOF). The salvage award paid out to the salvor is often very generous. A salvage reward is based on the salved values and other criteria such as the skill and efforts of the salvor. Every year, whilst engaged on LOF contracts, ISU salvors recover property valued in excess of US$1 billion (US$1.65 billion in 2012).
Case Study: Bohn v Vanuatu Maritime Authority [2001] VUSC 127; Civil Case 115 of 2000 (9 September 2001); Bohn v Vanuatu Maritime Authority [2003] VUSC 137; Civil Case 115 of 2000 (28 April 2003):
Marine salvage - contract to salvage terminated when salvage operation almost complete; party contracted to salvage entitled to reasonable value of work done. The parties contracted for the salvage of 2 vessels that posed a safety threat to the harbour. The contract stipulated that the work was to be completed in 30 days. The plaintiff encountered many difficulties in the operation, particularly in finding equipment and competent personnel. After 37 days the plaintiff wrote to the defendant and requested an extension of the allowable time to complete the contract. The defendant failed to respond and the plaintiff continued with the salvage operation on an implicit understanding.
After 4 months on the job, the parties had a difficult relationship, frustrating the operation further. After nearly 8 months the salvage was completed and arrangements were made to scuttle the vessels. The defendants appeared to have encouraged the plaintiffs to complete the contract after the time period. However, the defendant refused to pay on the basis of a breach of the contract in that the plaintiff did not complete in time. The defendant claimed that work done by the plaintiff after the expiration of the contract was as a voluntary salvor, and the defendant challenged the competency of the work done. The plaintiff claimed ‘quantum meruit’ for the value of the work done under the contract.
Decision: For the Plaintiff.
Held: The defendant had the right to terminate the contract. However, when the contract was terminated, most of the work had been completed. The court found on the evidence that the work had been done competently. Therefore, the plaintiff was entitled to a reasonable value of the work done.
[Article compiled and contributed by Adv. (Capt.) Ashwani Jhingan, Director of Malaxar ShpgLogistix Law & Solutions Pvt. Ltd. He is an Advocate at Mumbai High Court and Member of Supreme Court Bar Association. Adv. (Capt.) Jhingan can be contacted at legal@malaxar.com. You can visit
www.malaxar.com . Views expressed are his own.]