M.L.A.A.N.Z. and A.I.M.S Seminar.

Newcastle 14 March 2008

“Salvage – How Surveyors are Involved”

(M.J. Bozier)

“Ship salvage is a science of vague assumptions based on debatable figures taken

from non-conclusive instruments, performed with equipment of problematic
accuracy, by persons of doubtful reliability and questionable mentality.”
-author unknown
Salvage at sea has been recognized by maritime law codes for many hundreds
of years. It is a concept that is unique to maritime adventures – there are no parallels
in air or land transport. The current legislation is the International Salvage Convention
1989 which came into force in July 1996. This is allied with Lloyd’s Open Form 2000
and the SCOPIC 2007 Clause. Salvage can apply to vessels, mobile drilling units and
any other property not permanently attached to the ‘shore line’.

Certain conditions must be in place before salvage is applicable. A vessel or

property must be in danger of total loss, or of physical or extensive damage from
which it could not be rescued without the salvors’ help. The danger must be actual
and not apparent and it must be a peril of the sea. A reward is paid if the vessel or
interest is capable of being saved and there is a useful result: ‘No Cure – No Pay’.
Salvage can also be carried out under a contract that is not an LOF. Compensation for
efforts and expenses to prevent environmental damage is included in a salvage award
unless the SCOPIC clause is invoked, when such compensation is covered by Article
14.
A salvage award is based on:
• the salved value of the vessel and other property
• the skill and efforts of the salvors in preventing or minimizing damage to
the environment
• the measure of success obtained by the salvor
• the nature and degree of the danger
• the skill and efforts of the salvors in salving the vessel other property and
life
• the time used and expenses and losses incurred by the salvors
• the risk of liability and other risks run by the salvors or their equipment
• the promptness of the services rendered
• the availability and use of vessels or other equipment intended for salvage
operations
• the state of readiness and efficiency of the salvor's equipment and the
value thereof.

The award is meant to be generous so as to encourage salvage efforts but it

cannot be more than the salved value of the vessel or property. A salvage act is
voluntary therefore nobody who has a duty to assist a vessel in distress, such as the
crew, passengers or perhaps shore based public servants such as firemen when a
vessel is at a wharf, are able to claim as a salvor. The parties who benefit from
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salvage, usually the shipowner, cargo owner and charterer, contribute to any award in
proportion to the salved values of their interests.

Course of Events.
When a salvage incident occurs events will, in general, follow a pattern.
• A casualty happens.
• The master informs the vessel’s owner or manager, i.e. the legal entity that is
responsible for the safe management of the vessel and its cargo.
• Owners/managers activate the appropriate SMS plan.
• Hull and machinery underwriters and P&I Club are informed.
• Time charterer, if applicable, and/or cargo interests are informed.
• Classification society is informed if any estimate of damage is known. Class
may be suspended.
• Ship’s emergency response service informed and put on stand-by.
• Salvors arrive on site as soon as possible to evaluate the position.
• If salvors consider that there is a valid chance of an economic return from a
salvage attempt they invite owner/manager to sign an LOF.
• After consultation between the owners of the interests that are at risk the terms
and conditions of the salvage contract are agreed.
• If there is insufficient time for this consultation, due to imminent danger, the
master is able to sign an LOF on behalf of the owner/manager.
• Salvors assume control of and responsibility for the casualty. The master
remains on board as the owner’s/manager’s representative, in the absence of
any other person appointed by the owner/manager. All crew remaining on
board must cooperate fully with the salvors.
• Salvors put the casualty into a safe, stable condition for the owner/manager to
resume control and responsibility.
• Salvors invoke the Scopic clause if appears that there will not be a salvage
award.
• Control and responsibility for vessel are returned to Owners/Managers
• Casualty is prepared for voyage to a repair port, if necessary.
• Cargo owners post salvage security in order to obtain their cargo.
• Costs of permanent repairs are calculated and applied to the estimated market
value of the casualty prior to the incident, to arrive at a residual value. The
residual value, freight bunker value and cargo value make up the salved value.
• Salvors make a salvage claim, based on the salved value and the other factors
listed above.
• If claim is not agreed by owner/manager then arbitration takes place, as per the
terms of the LOF.

SCOPIC Clause (Special Compensation P&I Clause)

Special Compensation was started under the 1989 Salvage Convention as a
way of encouraging the prevention or reduction of environmental damage. It came
into play if a vessel threatened environmental damage to humans, marine life or
resources, for example fish farms etc. It was open-ended in respect of expenses, actual
success and a bonus payment. After a couple of court disputes over interpretations of
the terms of the convention the salvage industry, shipowners and P&I Clubs agreed on
the Scopic clause.
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The Scopic clause can be invoked by a salvor at any time, whether or not there
is an environmental threat. There is an agreed tariff for the use of personnel, tugs and
equipment, success is not necessary and there is 25% uplift on expenses. When the
clause is invoked the vessel owners/managers must provide a payment of or a security
for US$3 million within two working days. This amount can be varied by consent
between the parties. The payment is made by the shipowner to the salvor when the
salved value of the interests may be too little for a normal salvage award. If a salvor
invokes the clause unnecessarily, i.e. there is a viable salvage award, a penalty of 25%
applies.

As a shipowner (or his P&I insurer) has an interest in the costs of any work to
reduce or prevent environmental damage it was agreed that they may appoint a
representative at the salvage site – the Shipowner’s Casualty Representative (“SCR”).
“The primary duty of the SCR shall be the same as the Contractor, namely to use his
best endeavours to assist in the salvage of the vessel and the property thereon and in
so doing to prevent and minimise damage to the environment. The SCR has a duty to
report, observe and consult with the Salvage Master and produce Dissenting Reports
(if necessary) and the Final Salvage Report” (Guidelines for SCR). The SCR may not
interfere with the salvage operation but may consult with the salvage master on how
work should proceed. He/she must be a member of the SCR Panel, comprising a
number of surveyors selected by an SCR committee, drawn from representatives of
the ISU, the P&I Clubs, the International Chamber of Shipping and the International
Union of Marine Insurers. There are currently 39 nominated SCRs, two of whom are
in Australia. A shipowner is primarily responsible for the payment of the SCR's fees
and expenses but SCOPIC provides also that the LOF arbitrator may apportion those
costs and that "in doing so shall have regard to the principles set out in any market
agreement in force from time to time". London property underwriters have agreed a
code of practice with the Clubs under which those underwriters will pay 50% of the
SCR's fees and expenses, in proportion to their respective salved values, in most
circumstances.

In addition to the SCR, hull and cargo underwriters involved with a casualty
may appoint one special representative each at their own expense, to monitor and
report on the salvage operation, if they think that separate representation by an
independent surveyor is required in the particular circumstances. Even if there are
many cargo underwriters only one special representative for cargo interests is
allowed. “The Special Representatives have the right to be informed of all material
facts concerning the salvage operation as the circumstances reasonably allow. A
Special Representative is on board solely to investigate, monitor, ascertain and report
on issues relevant to the Salvage operation and the assessment of the salvage award
to be made under Article 13 of the Salvage Convention 1989 or SCOPIC
remuneration. The SCR shall co-operate with the Special Representatives and he and
shipowners and salvors shall jointly permit the Special Representatives to have “full
access to the vessel to observe the salvage operation and to inspect such of the ship’s
documents as are relevant to the salvage operation”. The SCR is obliged to provide
any Special Representative with the Salvage Master’s Daily Salvage Reports and any
Dissenting Report as soon as possible after he receives or issues them or the Special
Representative is appointed, whichever is the later” (Guidelines for SCR).
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Representation by Surveyors.
In the event of salvage taking place surveyors could be asked to represent the
following parties:

Cargo interests/underwriters. No access to the casualty is normally possible,

Voyage charterers.
Time charterers.
Owners/Managers, P&I Club.
Classification Society.
Hull & Machinery underwriters
except by a Special Cargo Representative.
As for cargo interests.
Limited access to the casualty possible.
Reasonable access to the casualty.
Representative may be invited by salvors.
Limited access to the casualty possible.

If a surveyor is appointed on behalf of a party involved with a casualty he will

have to liaise with the salvors. The position of the salvors and their problems must be
appreciated, especially if an LOF has been signed. Salvors are not shrinking violets
but they are very professional. Watch what takes place, try to understand what is
being done or attempted and take notes and photographs. Try to find when ‘quiet’
times occur, when you can ask questions.

The representation of Owners/Managers and/or their P&I Club will give a

surveyor the greatest involvement with a casualty. The surveyor’s main role will be
the gathering of information, as material for the report to principals. It should also be
remembered that any information may become evidence if a salvage arbitration takes
place. The following points should be kept in mind:

• Be considerate of the Master, officers and crew. They may well be in trauma
in the period immediately after the occurrence of the casualty.
• Try to understand what actually caused or may have caused the casualty.
• Obtain copies of all documents – log books, check sheets, sounding records,
charts, recorder print outs, workbooks etc.
• Ensure that all sensitive documents are kept securely, out of ‘public’ view.
• Protect the Master/Owners. Do not pass information or documents to other
parties without the permission of your legal representative.

Salvage and General Average.

When a casualty occurs and salvage takes place General Average (“GA”) is
frequently declared, usually but not always, by the vessel’s Owners. The Marine
Insurance Act 1906 states:
“There is a General Average Act when any extra-ordinary sacrifice or expenditure is
voluntarily and reasonably made or incurred in time of peril for the purpose of
preserving the property imperilled in the common adventure”.
In simple terms, if any party in a maritime venture incurs a cost for any action that
benefits all the parties, then every party may be asked to contribute to that cost,
according to the value of their interests.

Shipowners are usually reluctant to declare a GA because of the complexities

and expenses that inevitably follow. When a GA is declared however it is normal for
the shipowner to appoint an Average Adjuster to handle the resulting claims. The
shipowner, on advice from the Adjuster and the vessel’s P&I Club, will appoint a GA
Surveyor, especially if a number of bills of lading have been issued.
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Cargo underwriters and/or cargo interests will appoint surveyors to represent

them if any damage has been caused to their consignments. The GA and cargo
surveyors should work together, jointly surveying any damage. Both want the same
information although they will put it to different uses. The GA surveyor compiles a
comprehensive report that covers each bill of lading. This report is the basis on which
the Average Adjuster assesses the contribution of each bill of lading holder to the GA
fund and also the loss occasioned to each, for which they seek recovery. The cargo
surveyor completes a report on each claim under an insurance policy, to allow
particular average (i.e. non-General Average) to be settled. The report will also show
the value of any GA ‘damage’ and will be used to determine GA Fund contribution
and settlement. It is customary for the cargo surveyors to submit copies of their
reports and all attached documents to the GA surveyor, for information and counter-
signing.

GA adjustment is governed by the York Antwerp Rules, the latest version

being 2004. Surveyors should be conversant with the Rules, in particular Rule C
which deals with delay and Rule III which deals with extinguishing fire on a ship.
Rule III states:

“RULE III. EXTINGUISHING FIRE ON SHIPBOARD

Damage done to a ship and cargo, or either of them, by water or otherwise, including
damage by beaching or scuttling a burning ship, in extinguishing a fire on board the
ship, shall be allowed as general average; except that no allowance shall be made for
damage by smoke however caused or by heat of the fire”

If a fire has led to the GA act the GA surveyor, in consultation with the Average
Adjuster, normally issues guidelines on the classification of cargo damage into
separate categories, depending on the specific cause of damage, similar to the
following:
1. Heat.
2. Smoke.
3 Water and/or other means of extinguishing the fire.
4 Heat and water, percentage of each.
5 Smoke and water, percentage of each.

If cargo has to be discharged and re-loaded the GA surveyor will normally be

required to monitor and report on all cargo that is handled, commenting on any
damage sustained by the cargo during those operations.

Communications and Records.

When a surveyor receives an appointment in relation to a marine casualty it is
axiomatic that the instructing principal will want a fast reaction. Before jumping
however make sure that lines of communication are in place. Once on site it should be
possible to contact the principal at any time so direct, office, mobile and after-hours
telephone numbers are essential, together with personal and office email addresses
and fax numbers.
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Obtain the maximum information possible about the casualty - the identity of
the company on whose behalf you have received instructions, the names of any other
companies involved, contractual arrangements such as charter party if available, any
information about the vessel concerned and any incident information. Vessel
information can be obtained from web-sites such as Equasis, Classification Societies
and Port/State MOUs.

The most important item of equipment is a new notebook that will fit into the
back pocket of a pair of overalls. Inside the front cover put your name, contact phone
numbers, address and a plea for the notebook to be returned to you if found! On the
following pages record all the contact names and phone numbers as you receive them.
It is recommend that a log is then started on the left side pages, entering events as they
happen or as soon as possible afterwards. On the right side pages record the results of
any meetings, discussions etc., giving names of those concerned, dates, times and
places. If it is not possible to do this contemporaneously then make records as soon as
possible after the meetings etc. occur. Notes should be factual, legible and in ink.
Always remember that such notebooks almost certainly are discoverable and may be
used as evidence.

Daily progress reports should be sent to the principal even if it is a ‘nil’ report.
There will be a chain of other people with an interest in what you are doing or
monitoring. If possible, type the reports and attach them to emails. This way it is
easier for the reports to be forwarded as necessary and you can keep them in a file for
future use. Keep the reports factual and do not express any opinions unless asked by
the principal.

Obtain copies of all documents, so far as you are able, even if they have no
immediate relevance. Take plenty of photographs with film copies of important things
as a back up. Try to use cameras that print the date on a picture – it is surprising how
useful this can be later when writing a final report.

Complete a final, overall report as soon as possible after the work has finished.
The interim reports should be a big help with this. Attach copies of all documents that
are relied on or are mentioned, as appendices. Do not include any opinions, especially
on liabilities, unless specifically requested to do so by the principal. Send a draft of
the report to the principal, to see if it covers all aspects in the detail needed.

Conclusion.
In 2007 there were approximately 100 reported salvage incidents world-wide
with LOF being signed in six. In contrast, during the period 1997 to 2006 there were
61 salvage incidents in the Australasian area of which 3 occurred in the period 2004 to
2006. Five of the 61 incidents involved Panamax or larger sized bulk carriers and 13
involved smaller bulk carriers, mostly around the Australian coast. 21 of the incidents
involved small fishing vessels, inter-island ferries and similar craft in PNG and the
western Pacific islands. Four vessels were container carriers but none included cargo
damage due to the incident. In only one incident were containers discharged from the
casualty to assist the salvage operation.

The Australian shipping routes that are subject to bad weather, the south-
western and southern coasts are not constrained by shallow water except in the
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approaches to ports. The shipping routes on the eastern and northern coasts that are
affected by coral reefs are subject only to occasional cyclones. This, combined with
strict Port State controls, has contributed to the relatively small number of salvage
incidents, especially in recent years. As a result, a lot of people in the maritime
service professions, such as solicitors, insurers and in particular marine surveyors,
have little experience in handling the large volumes of claims that can be engendered
by an incident such as the grounding of or fire on a large container vessel. When such
an incident does occur it will be interesting to see how H&M insurers, P&I Clubs and
marine cargo insurers handle the resultant claims.

Useful URLs
www.aimsurveyors.com.au
www.lexmercatoria.org (1989 Salvage Convention)
www.lloyds.com/Lloyds_Worldwide/Lloyds_Agents/Salvage_Arbitration_Branch
www.usaverageadjusters.org/YAR.htm (York Antwerp Rules)
www.ukpandi.com/ukpandi/Infopool.nsf/HTML/ClubCircular2299 (+ Circular 06/01)
(Scopic clause information)