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CERTIFICATE IN MARINE CLAIMS

2009
MODULE 3

Marine Claims The Wet Side


AUTHOR

Archie Bishop
Consultant
Holman, Fenwick and Willan
UK

Lloyd's and the Lloyd's crest are the registered trademarks of the society incorporated by the Lloyd's Act 1871 by the name of Lloyd's

CONTENTS

Page No
LEARNING OUTCOME

COLLISIONS

1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10

Claims That Can Arise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4


Forum Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Jurisdiction of the English Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Time in Which to Commence Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Collision Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Apportionment of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Principles of Apportionment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Quantum of Claims Or Assessment of Damages . . . . . . . . . . . . . . . . . . .11
Enforcement of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

LIMITATION OF LIABILITY

14

GENERAL AVERAGE

17

3.1
3.2
3.3
3.4

What is General Average? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17


Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
A Peculiarity of Maritime Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
The York-Antwerp Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

SALVAGE HISTORICAL OVERVIEW

25

SALVAGE CONVENTION 1989

29

5.1
5.2

Masters Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34


The LOF Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

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3-1

Contents

Module 3

THE SPECIAL COMPENSATION P&I CLUB CLAUSE

66

6.1

History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

POLLUTION

7.1
7.2
7.3
7.4
7.5

The CLC 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75


The Fund Convention 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Supplementary Fund 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
The HNS Convention 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
The Bunker Convention 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

74

APPENDICES
Appendix 1 International Collision Regulations Part B, Steering and
Sailing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Appendix 2 Numbered Rules (I to XXIII) of York Antwerp Rules 2004 . . . . . . . . .87
Appendix 3 Lloyds Open Form (LOF 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Appendix 4 Lloyds Procedural Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Appendix 5 Lloyds Arbitrators Guidelines for Fixed Cost
Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Appendix 6 The SCOPIC clause (SCOPIC 2007) with
Appendices A, B, and C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
Appendix 7 Code of Practice between the ISU and the Int. Group . . . . . . . . . . .149
Appendix 8 Code of Practice between Int. Group and Property
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

PLEASE NOTE
G

3-2

Self-Assessment Questions have been provided periodically


throughout this module. These questions are designed to help
you with your study. The questions are for your personal
study only; do not send in your answers to these questions as
they will not be assessed.

Content Copyright Archie Bishop, 2009. All rights reserved. Course structure and module format copyright Informa UK
Ltd 2008.
No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical,
including photocopying, scanning, recording or by any information storage or retrieval system, without the prior written
permission of Informa UK Limited.

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LEARNING OUTCOME

This module is but an introduction to the world of the wet practitioner and cannot
hope to be a substitute for his bibles such as Marsden on Collision, Brice on the
Law of Salvage, Lowndes and Rudolf on General Average and Griggs and
Williams on Limitation of Liability, but it will give the student a good overview of
the subject and better equip him or her to understand and play a part in the
resolution of problems arising from shipping casualties. Students are
encouraged to develop and expand their knowledge by referring to the above
mentioned tomes.

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1.

COLLISIONS

1.1

CLAIMS THAT CAN ARISE

3-001

A variety of claims can arise from a collision and it may be helpful to summarise
them:

3-002

3-4

Cost of repairing damage to the ships in collision and the loss of use
during repair.

Damage to the cargoes on each ship.

Personnel injury and loss of life.

Salvage of either ship and its cargo.

Wreck removal if one or both should sink.

Damage caused by pollution.

It will be appreciated from this list that there will also be a variety of potential
claimants, each with his own right of action against one or both ships. It is
important to appreciate that the right of action of each claimant could, may well
be, enforced in different jurisdictions.

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1.2

FORUM SHOPPING

3-003

After a collision there is often a wide choice of potential jurisdictions in which


to bring a claim against one or both of the colliding vessels. The trading
pattern of a ship may give opportunities to arrest her at ports at which she
calls, and in so doing establish the jurisdiction of the courts in that country.
That choice is much expanded by the Arrest Convention of 1952 which
permits the arrest of sister ships to secure a claim. Whilst there is a move to
standardise maritime law, there are still very important differences in the
laws of different states which can be to the advantage or disadvantage of the
ships in collision and the various claimants. As a result, forum shopping is a
major consideration in most collision cases. It is not practicable to deal with
such matters in this course for it would involve an analysis of the laws of too
many countries, however, it is a factor that should be kept in mind. In this
course we will deal solely with English law, which is followed by many
Commonwealth countries and still dominates the legal maritime world. It is,
in any event, a good starting point.

1.3

JURISDICTION OF THE ENGLISH COURTS

3-004

Collision and Limitation actions (to which we will later refer) are assigned to the
Queens Bench Division of the High Court and are heard by the Admiralty Court
(Section 62 of the Supreme Court Act 1981 and RSC Order 75 Rule 2). Certain
County Courts have Admiralty jurisdiction (Section 26 of the County Courts Act
1984) but are subject to a very low financial limit (5,000) which effectively
precludes their use.

3-005

The Admiralty jurisdiction of the High Court is defined in sections 20 to 24 of the


Supreme Court Act 1981. Section 20(2) of that Act lists the claims set out in the
Arrest Convention of 1952 (see paragraph 6295). They include all claims that
arise from a collision loss of life and personal injury, cargo claims, salvage,
towage and general average and also claims for ships to limit their liability.
Claims for damage include damage received by a ship (for instance damage
caused by an object such as a buoy or pier) as well as damage done by the ship
(for example, damage caused by oil pollution).

3-006

The Admiralty jurisdiction of the High Court can be exercised either by an action
in personam, that is, an action against a named plaintiff, or by an action in rem,
that is, an action directed against the ship itself. In collision cases actions are
generally brought in rem, for both a maritime and statutory lien attaches to a
ship that has been in collision which permits the arrest of that ship (or a sister
ship under Section 21(4)(ii) SCA 1981) to enforce the provision of security for
a claim.

3-007

The Admiralty Court will accept jurisdiction for collisions even if they took place
outside UK waters, though in such circumstances the local law may be relevant
as to liability. However, in appropriate cases it may stay an action pending the
outcome of another commenced in another country.

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1.4

TIME IN WHICH TO COMMENCE PROCEEDINGS

3-008

Under Section 190 of the MSA 1995, any proceedings to enforce any claim or lien
against a ship or her owners in respect of any loss of life or personal injury or
damage or loss caused by a collision, must be commenced within two years of the
date of the collision. The court has a discretion, on application, to extend this period
to such extent and on such conditions as it thinks fit and, if satisfied that in the
intervening period there has not been a reasonable opportunity for arresting the
defendants ship within the jurisdiction of the court or the territorial sea of the
country in which the plaintiff resides, it must extend the period for bringing
proceedings to the extent that is necessary to give a reasonable opportunity for
arresting the ship.

1.5

LIABILITY

3-009

The law of tort generally applies to claims arising from collisions at sea,
wherever they occur. There are a variety of torts but whilst claims can
sometimes gives rise to an action in nuisance or trespass claims are generally
based on negligence:
Where damage is done to persons or to property of any kind on land or
on water, owing to the negligent navigation or management of a vessel,
a cause of action arises against those who, by their own negligence or
the negligence of their servants or agents, cause such damage to be
done.
(Marsden 11th edition, p. 1)

1.5.1

Liability can Arise from Either the Negligence of the Ships Crew or that
of the Owners: Crew Negligent Navigation
It is the duty of seamen to take reasonable care and use reasonable skill
to prevent the ship from doing injury, and what is reasonable must be
tested by the circumstances of each case.
(Marsden 11th edition)

3-010

A prime and frequent example of negligence on the part of seamen is the failure
to comply with the International Collision Regulations 1972.

1.5.2

Owners Negligence Management

3-011

Examples of negligence in management include:

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the breakdown or inefficiency of steering gear or whistle;

the parting of a chain cable or moorings;

failure to provide a proper mast for carrying a light, or adequate fenders


or a proper trim such as not to render the vessel unmanageable and
dangerous;

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failure to employ a tug when necessary or the employment of an inefficient


tug may also render the owners liable for negligence.

The law casts upon the shipowner the duty of exercising reasonable care
to make sure that his ship is in a condition in which it may be navigated or
lie at anchor with safety to others. If a vessel is negligently allowed to be in
a defective or inefficient state as regards her hull or equipment, or to be
inadequately manned and a collision occurs, which probably would not
have occurred had it not been for her defective condition, the collision may
be held to have been caused by the negligence of her owners.
(Marsden 11th edition, p. 5)
1.6

COLLISION REGULATIONS

3-012

In the vast majority of cases, collisions are brought about by the failure of ships
to comply with the International Regulations for Preventing Collisions at Sea of
1972 (the Collision Regulations) which are given the force of law in the UK by
way of statutory instrument under the authority of Section 85(1) of the Merchant
Shipping Act 1995 (MSA 95).

3-013

The Collision Regulations are broken down into five parts:


Part
Part
Part
Part
Part

A
B
C
D
E

General (Application, Responsibility and General Definitions)


Steering and Sailing Rules
Lights and Shapes
Sound and Light Signals
Exemptions.

3-014

Those particularly relevant to liability for collision are, Part B Steering and
Sailing Rules, and Part D Sound and Light Signals. We will, therefore, discuss
each in a little more depth.

1.6.1

Part B Steering and Sailing Rules

3-015

In essence, this is the highway code of the seas. All ships navigating the oceans
and territorial seas of the world are required to follow them. A copy of the salient
provisions are in Appendix 1. The navigating seaman should know them by heart
and those who have occasion to deal with collisions should be familiar with them.
Students will find it useful to take the time to read them, if only to get a better
appreciation of what is expected of ships navigating the seas and a better
understanding of the liability which attaches to ships in breach of the regulations.
For the purposes of this module we will confine ourselves to a general overview.

3-016

As will be seen, Section 1 of Part B of the Regulations deals with the conduct of
vessels in any condition of visibility (ie whether it be clear or restricted visibility).
Particular attention is drawn to:
G

Rule 5 lookout;

Rule 6 safe speed;

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3-017

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Rule 7 ascertaining whether there may be a risk of collision;

Rule 8 action to avoid collision;

Rule 9 rules for navigating narrow channels; and

Rule 10 rules for navigating traffic separation schemes.

Section 2 of Part B of the Regulations deals with the conduct of vessels in sight
of one another. Particular attention is drawn to:
G

Rule 12 sailing vessels;

Rule 13 vessels overtaking;

Rule 14 vessels which are end on to one another;

Rule 15 vessels which are crossing;

Rule 16 action by the give-way vessel;

Rule 17 action by the stand-in vessel; and

Rule 18 responsibilities between the vessels.

3-018

Section 3 of Part B of the Regulations deals with conduct of vessels in restricted


visibility which are all contained in Rule 19.

1.6.2

Part D Sound and Light Signals

3-019

These can also be very relevant in collision actions for the part sets out the
signals to be sent in certain circumstances:
G

Rule 34 deals with manoeuvring and warning signals;

Rule 35 deals with sound signals in restricted visibility; and

Rule 36 with signals to attract attention.

1.7

APPORTIONMENT OF LIABILITY

3-020

It is quite common in collision cases for both ships to be in breach of the


Collision Regulations or to have committed some other negligent act. In such
circumstances, the liability between the vessels has to be apportioned.
Apportionment of liability in English law is governed by Section 187 of MSA 1995
which re-enacted and amended the Maritime Conventions Act of 1911.

3-021

Section 187(1) provides:


Where, by the fault of two or more ships, damage or loss is caused to one
or more of those ships, to their cargoes or freight, or to any property on

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board, the liability to make good the damage or loss shall be in proportion
to the degree in which each ship was at fault.
3-022

Section 187(2) of the MSA 1995 goes on to provide:


If, in any such case, having regard to all the circumstances, it is not
possible to establish different degrees of fault, the liability shall be
apportioned equally.

3-023

It will be noted from the above that if cargo or freight or any property on board
the colliding vessels suffers loss, they can only recover from each of those
vessels that proportion of their claim for which each vessel was at fault. In short,
the colliding vessels are not jointly and severally liable.

3-024

The position in relation to personal injury is different. Section 188(1) of the MSA
1995 provides:
Where loss of life or personal injuries are suffered by any person on board
a ship owing to the fault of that ship and of any other ship or ships, the
liability of the owners of the ships shall be joint and several.

3-025

Section 189 reserves the shipowners right of recourse against the other
colliding vessel in the event of it paying claims for personal injury in excess of
his proper proportion of fault.

1.8

PRINCIPLES OF APPORTIONMENT

1.8.1

Only Causative Faults are Taken into Consideration

3-026

It was emphasised by the House of Lords in Haugland v Karamea [1922] 1 AC 68


that in apportioning liability under the Act (then the Maritime Conventions Act
1911) only faults that contributed to the damage or loss should be taken into
account. Thus, if one ship was in breach of one of the Collision Regulations (say
failed to sound fog signals), and that breach was not causative of the collision
(perhaps because the other ship was aware of her presence on radar) no blame
should attach to the ship for that particular fault.

1.8.1.1

A Fault Is Causative If It Contributes to the Damage or Loss Concerned

3-027

For the purposes of almost all cases, a causative fault can be defined as a fault
that contributed to the collision. However, in an exceptional case a fault may
also be causative, although it did not contribute to the collision, if it contributed
to the damage or loss that arose out of it. As an example, take a case where a
collision occurs between ship A and ship B solely as a result of the faulty
navigation of ship B but the nature and extent of the damage to ship B arising
out of the collision is solely due to the fault of ship A in not having her anchor
properly housed or stowed away. In such a case, although the fault of ship A did
not contribute to the collision itself, it did contribute to the damage to ship B
arising out of the collision: The Margaret (1881) 6 PD 76. Liability for that
damage is, therefore, apportioned under the Act according to the degree of fault
of each ship.

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1.8.1.2

The Burden of Proof Is on the Party Relying on the Existence and


Causativeness of the Fault

3-028

It is a general principle of the common law of negligence, that it is for the plaintiff
to establish both that the defendant was negligent and that the negligence
caused the damage or loss sued for. This has been held by the House of Lords
to equally apply to Admiralty cases (Heranger v Diamond [1939] AC 94).

1.8.1.3

Questions of Contributory Negligence are to be Decided on a


Broad Common Sense Basis

3-029

There is no longer a last opportunity rule which once applied in Admiralty


cases. In most collisions both ships commit faults of navigation prior to the
collision between them. However, the fault of one ship may have been earlier
in time than that of the other. In such a case should the collision be regarded
as having been solely caused by the later fault or as having been contributed
to also by the earlier fault of the first ship? In The Volute [1922] 1 AC 129 it was
said:
Upon the whole I think that the question of contributory negligence must
be dealt with somewhat broadly and on common sense principles as a
jury would probably deal with it. And while no doubt, where a clear line
can be drawn, the subsequent negligence is the only one to look to, there
are cases in which the two acts come so closely together, and the
second act of negligence is so much mixed up with the state of things
brought about by the first act, that the party secondly negligent, while not
held free from blame, might on the other hand invoke the prior
negligence as being part of the cause of the collision so as to make it a
case for contribution.

1.8.1.4

Both the Culpability and Causative Potency of Faults have


to be Taken into Account

3-030

As previously stated, only causative faults are relevant in apportioning liability


but it is not a question of adding up the faults of each ship and then apportioning
liability according to their number. Each fault has to be weighed in the balance
and some may be more blameworthy than others.

3-031

The seriousness or weight of such faults can be looked at from two angles:
G

First, a fault can be looked at from the angle of its blameworthiness or


culpability, irrespective of the extent to which it contributed to the damage
or loss concerned.

Second, the fault can be looked at from the angle of the extent to which it
contributed to the damage or loss concerned, irrespective of its
blameworthiness or culpability.

3-032

These two aspects of any relevant fault have been labelled culpability and
causative potency, respectively. In apportioning liability the degree of culpability
and causative potency of all relevant faults must be taken into account (per Lord
Brandon, Tulane Law Review 1977).

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3-033

Each case is to be taken in the round and the faults of each ship weighed in the
balance before an apportionment is made.

1.8.1.5

Inevitable Accident

3-034

It sometimes happens that collisions come about without any fault on the part of
either ship. It is a comparatively rare event for there is nearly always some fault
of one of the two ships but occasionally a case arises where there is no fault. In
such circumstances where the collision is an inevitable accident, there is no
apportionment of blame, and each vessel bears its own loss.

1.9

QUANTUM OF CLAIMS OR ASSESSMENT OF DAMAGES

3-035

While liability for any collision is usually determined by the Admiralty judge of
the Admiralty Court, the quantum of each vessels damages is generally
referred to the Admiralty Registrar. I say generally, for in exceptional cases the
Admiralty judge may order that he should also determine the quantum of
damages. In any event, he would hear any appeal from the Admiralty
Registrars decision.

3-036

Further, generally speaking, the assessment of damages is carried out after


liability has been established though there is a modern trend for these two
aspects of a case to run together.

3-037

The damages of each party are assessed as if each claimant were an innocent
party. It is not until after the assessments have been made that the
apportionment of blame is applied and a balance between the two claims struck.

3-038

The objective of an award of damages arising out of the collision is to place the
owner of the lost or injured ship, as nearly as possible, in the same pecuniary
position as he would have been in but for the collision. This principle is called
restitutio in integrum (the right to a full and complete indemnity) and is the
measure or standard of damages which are recoverable by the owner of a ship
which has been injured in a collision by a wrongful act on the part of some other
person.

3-039

However, the principle of restitutio in integrum is qualified in the following


respects:
G

First, the owner of the wrongdoing ship may be entitled to limit his liability,
an aspect which we will deal with later.

Second, where two vessels in collision are both to blame but only one of
them has sustained damage, her owner can only recover that part of his
loss which is proportionate to the degree of blame of the other vessel
(Section 187 MSA 1995).

Third, the wrongdoing ship may be of insufficient value to answer the full
claim and if the action has been brought in rem and the shipowner has not
appeared to defend the action, the judgment of the court is against the
vessel alone and, therefore, limited to the value of the vessel.

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Fourth, where two ships are each at fault the innocent owner of cargo on
either ship can only recover from the other ship that proportion of his
damage that corresponds to the degree of fault of that ship.

1.9.1

Duty to Mitigate Damage

3-040

A person injured must ordinarily mitigate his damage if he can reasonably do so


(The Mediana (1899) P 127).

1.9.2

Currency of Award of Damages

3-041

Prior to 1975, the English courts only awarded damages in sterling. However,
since the decision of the House of Lords in Miliangos v George Frank (Textiles)
Limited [1976] AC 443 a judgment or arbitration award can be in a foreign
currency.

1.9.3

Items of Claim

3-042

A shipowner will be able to include in his claim all loss and damage reasonably
suffered as a result of the collision. This can include:
G

the damage to the ship (generally the cost of repair or value of the vessel
if lost);

loss of profit during the course of repairs;

sums paid in respect of any liability for death or personal injury;

any resultant salvage claims; and

any damages paid in respect of oil pollution.

3-043

Note that it will not include any liability to cargo as each ship is only liable to
cargo to the extent that it is to blame for the collision (Section 187 MSA
1995).

1.9.4

Interest in Addition to the Claim

3-044

An owner will be entitled to interest which will run from the date of his loss to the
date judgment is given or the claim settled.

1.10

ENFORCEMENT OF JUDGMENTS

3-045

As mentioned earlier, security for collision claims can be obtained by an arrest


or threat of an arrest of the other ship or a sister ship. It is commonly provided
by means of a guarantee of the vessels insurers, usually their P&I club. If
security has not been provided or if it is insufficient then any subsequent
judgment can be enforced through the courts against any asset of the owner of
the ship found liable.

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SELF-ASSESSMENT QUESTIONS
G

Is a ship necessarily liable for a collision arising out of a


breach of the Collision Regulations?

What are the two essential features to be weighed in the


balance when apportioning blame?

Can a claim for loss of life or personal injury share in the


damage limitation fund?

Within what period of time must a collision action be


started?

Does where the collision occurred matter to the English


Admiralty Court?

In what currency will judgment be given?

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2.

LIMITATION OF LIABILITY

3-046

It is perhaps a peculiarity of maritime law that in certain circumstances ships are


entitled to limit their liability in respect of damages for which they are responsible.
While there are similarities in company law there is no real counterpart in the
ordinary law of the land. The reason for a vessels right to limit its liability is long
standing and stems from the time when merchant venturers first began to use
ships to trade in foreign lands. On such voyages, many unforeseen eventualities
could occur and as a matter of public policy it was held appropriate to permit a
shipowner to limit his liability so he could more reasonably measure the risks he
was taking.

3-047

The extent of the limit of liability varies from country to country. Broadly
speaking, there are currently three systems in existence in the world today.
Limitation under the Brussels Convention of 1957, which is gradually being
replaced by many nations but which is still operable in a number of countries;
limitation under the 1976 Convention on Limitation of Liability for Maritime
Claims (as amended by the 1996 Protocol to that Convention) which has been
adopted by many nations and is gradually replacing the 1957 Convention; and
limitation by reference to the value of the limiting vessel, a system which
operates largely in North and South America.

3-048

The 1976 Limitation Convention has 85 participating States representing


67.09% of the worlds tonnage. However it has recently been amended by the
Protocol of 1996 which came into force in February 2004, which currently has
37 participating States representing 32.22% of the worlds tonnage. The main
purpose of the Protocol was mainly to increase the limitation funds fixed by the
76 Convention.

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Limitation of Liability

3-049

The UK is a signatory to the Protocol which was bought into force in the UK on
the 13th May 2004.

3-050

The 1976 Convention provides that a shipowner may limit his liability for any loss
of life or personal injury, loss of or damage to property, which arises in direct connection with the operation of ship and consequential loss resulting therefrom.

3-051

However, a shipowner loses that right to limit his liability if a claimant can prove (the
onus of proof is on the claimant) that the damage or loss resulted from the
shipowners personal act or omission, committed with the intent to cause such loss,
or recklessly and with knowledge that such loss will probably result (Article 4).

3-052

There are two limits of liability set out under Article 6:


G

the first is exclusively for claims for loss of life or personal injury; and

the second is in respect of all other claims, including claims for loss of life
and personal injury over and above the specific limit set for those claims.

3-053

The amount of each limit is calculated by a multiple of the ships gross tonnage
and units of account which are defined as the special drawing rights (SDR) as
defined by the International Monetary Fund.

3-054

The limit in respect of loss of life and personnel injury (as per the Protocol of
1996) is:

3-055

i.

2 million SDRs for all ships up to 2,000 tons gross plus;

ii.

800 SDRs for each ton between 2,001 and 30,000 plus;

iii.

600 SDRs for each ton between 3001 and 70,000 plus;

iv.

400 SDRs for each ton in excess of 70,000.

The limit in respect of any other claim is


i.

1 million SDRs for all ships up to 2,000 tons gross plus;

ii.

400 SDRs for each ton between 2,001 and 30,000 plus;

iii.

300 SDRs for each ton between 30,001 and 70,000 plus;

iv.

200 SDRs for each ton in excess of 70,000.

3-056

The precise limitation fund of each vessel will vary on a day-to-day basis with
the fluctuation of the basket of currencies which constitute SDRs. On the 1 April
2009 one SDR was equal to US$1.482719 (22.4.09).

3-057

All claims against a limitation fund are shared pro rata to the overall claim of
each claimant.

3-058

When two ships have been in collision and each has a claim against the other,
the ultimate amount due to one party or the other is calculated on a balance of

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Limitation of Liability

Module 3

claims after taking into account the apportionment of liability. Thus, one of the
two ships is ultimately liable to pay on balance a specified sum to the other ship.
If the limit of liability of that ship is involved, it is applied to the sum due under
this balance of claims.
3-059

Interest on a limitation fund is calculated as from the date of collision to the date
of payment into court or payment to the claimants.

3-060

Note that there are additional and separate limitation funds for damage caused
by oil pollution. Later in this module we will be dealing with pollution and claims
under the CLC 1992, the Fund Convention 1992 and Bunker Convention 2002.
The CLC Conventions impose strict liability on a tanker owner for any damage
caused by oil that leaks from a laden tanker. The HNS Convention of 1996 is not
yet in force but, when it comes into force, it will also impose a strict liability on a
shipowner for damage caused by hazardous and noxious substances. Liability
under these two conventions is additional and cannot form any part of a claim
under the 76 Limitation Convention. On the other hand the Bunker convention
does not have its own limitation fund and any claims under that Convention are
to be included with other claims under the 1976 Limitation Convention.

SELF-ASSESSMENT QUESTIONS

3-16

In what circumstances can an owner limit his liability under


the 1976 Convention?

How is the limit calculated?

When two ships in collision have claims against one


another, is limit applied before or after the balance of claim
is struck?

Can a claim for damage which is covered by the CLC 92 be


included in a claim under the 1976 Limitation Fund?

Can a claim which is covered by the Bunker Convention 2002


be included in a claim under the 1976 Limitation Fund ?

Certificate in Marine Claims 2009 (LW1072)

3.

GENERAL AVERAGE

3.1

WHAT IS GENERAL AVERAGE?

3-061

General average, like salvage, is a very ancient right one peculiar to maritime
law. Whilst probably a principle used by the Phoenicians, the first written
evidence of it appears in the Rhodian Maritime Code in the sixth century:
The Rhodian Law decrees that if in order to lighten a ship merchandise has to be thrown overboard, that which has been given for all
should be replaced by the contribution of all.

3-062

The law was a very pragmatic one. In those times, goods were transported on
small ships which were readily affected by bad weather. If a storm were to
develop a shipwreck could sometimes only be avoided by jettisoning part of the
cargo and the lightening of the ship. A measure, whilst beneficial to the owners
of properties saved, which could ruin the owner of the cargo jettisoned. At that
time the merchants or owners of the cargo were often themselves aboard the
ships and no doubt would have strong views as to which cargo to jettison. It was
in the interest of all that there should be no delay or hesitation on the part of the
master as to what should be jettisoned. The agreement of all to compensate the
one who made a sacrifice for the benefit of the others made the decision as to
which cargo should go that much easier.

3-063

The principle survived for centuries and the laws similar to the Rhodian law were
adopted by many ports and countries in Europe. They are clearly set out in the
Roles of Oleron in 1260 and many other sea codes of later years (the Pisan

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General Average

Module 3

Code 1298, the Genoeise Code 1341, the Statute of Anocona 1397, the
Ordinance of Louis XIV 1681, and the Ordinance of Rotterdam 1721).
3-064

Unlike most other nations, England had no written sea code but its general
maritime law clearly followed the principles, though not the fine detail, set out in the
Roles of Oleron as is evidenced by a case heard in the Kings Bench in 1285. Whilst
accepting the general principle that property saved should compensate property
sacrificed for the mutual benefit, the Court exempted from contribution the ship and
its apparel, the Captains ring, the seamens victuals, implements for making meals,
the jewellery of, and silver cup from which the ships Captain drinks, and the sailors
freightage of the wines and other goods which had been saved.

3-065

In 1402, following a petition by Parliament, Henry IV directed the Admirals, who


were responsible for the maritime law of England, to govern their decisions
exclusively by the laws of Oleron. Others, like Flanders, Catalonia, Genoa and
Holland followed suit. In succeeding years, the general maritime law of England
developed to where it is today.

3.2

DEFINITION

3-066

So how do we define general average. A widely accepted judicial definition was


given by Lawrence J in Birkley v Presgrave in 1801:
All loss which arises in consequence of extraordinary sacrifices made or
expenses incurred for the preservation of the ship and cargo comes within
General Average, and must be borne proportionally by all who are interested.

3-067

Whilst remaining part of the general maritime law general average has not been
codified into English statutory law but it is defined in Section 66 of the Marine
Insurance Act of 1906 as follows:
66-(1)

A general average loss is a loss caused by or directly


consequential on a general average act. It includes a general
average expenditure as well as a general average sacrifice.

66-(2)

There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or
incurred in time of peril for the purpose of preserving the
property imperilled in a common venture.

3-068

Whilst this definition is for the purposes of the Marine Insurance Act, there is
judicial authority for the proposition that it will prevail for all purposes. Although
the application of the Act is clearly confined to marine insurance it was intended
to codify the law and thus may be regarded as having wider application.
(Australian Coastal Shipping Commission v Green 1971 1KB 456 478).

3-069

Rule A of the York-Antwerp Rules 2004, defines general average as follows:


1.

3-18

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally or reasonably made or
incurred for the common safety for the purposes of preserving from
peril the property involved in the common maritime adventure.

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Module 3

General Average

3.3

A PECULIARITY OF MARITIME LAW

3-070

Like salvage, general average is a peculiarity of maritime law and has no place
in the ordinary law of the land. Thus, if there were a fire in a warehouse and otherwise sound goods were damaged by the fire-fighting effort in extinguishing the
fire, there is no suggestion that the property thereby saved should contribute to
the property damaged by the efforts made to save it. But if similar events were
to occur at sea, this would be a general average act and all the property saved
would contribute to the loss of the property damaged by the fire-fighting effort.

3.3.1

General Average Distinguished from Particular Average

3-071

General average must be distinguished from particular average. General average


is a voluntary sacrifice made for the benefit of all, whilst particular average is loss
caused by a marine peril an accident. The difference is important for in general
average the loss is shared and in particular average the loss lies where it falls.

3-072

Section 64 of the Marine Insurance Act 1906 provides:


1.

A Particular Average loss is a partial loss of the subject matter


insured, caused by a peril insured against, and which is not a
General Average loss.

3-073

So, cargo damaged by fire in a ship, would be the subject of particular average
a loss that would have to be borne by the owner or insurer of that cargo alone.
But cargo damaged by the efforts to extinguish the fire, would be the subject to
general average and a loss shared by all the property saved.

3.4

THE YORK-ANTWERP RULES

3-074

With ships trading between different countries and owners of ships and cargoes
being of different nationalities many differences in the application of the
principles of general average arose. It was obviously desirable to have an international set of rules common to all countries and an attempt to achieve this was
made by the Glasgow Resolution in 1860. But whilst rules were agreed, the
implementation of them through the legislative process suggested, failed.
Another attempt was made in the York conference in 1864 but again failed for
similar reasons. The problem was finally solved by the Antwerp conference in
1877 which agreed to proceed on the path of voluntary agreement rather than
one of legislation. The change of approach was successful and the result was
the York-Antwerp Rules 1877. Whilst some nations subsequently gave legislative
effect to these rules, in England they were given practical effect by incorporating
them into individual contracts of carriage. The position is the same today.

3-075

It is important to note that under English law the York-Antwerp Rules will have no
effect unless specifically incorporated into the contracts of carriage. If they are not
incorporated into the contract then in this country the general maritime law of
England as found by the courts will apply. Whilst the general maritime law of
England recognises the right to general average, there will be differences with
many of the provisions of the York-Antwerp Rules. As this module is just an introduction to General Average and the York-Antwerp Rules are generally
incorporated in most contracts of carriage, this module will only focus on the later.

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General Average

Module 3

3-076

Since 1887, the York-Antwerp Rules have been amended on six occasions,
1890, 1924, 1950, 1974, 1994 and most recently, 2004.

3-077

The York-Antwerp Rules of 2004 will come into effect in those countries which
give legislative effect to them, on the date directed by that legislation. In those
countries, such as the UK and the USA, where the rules have no force except
by contract, it will depend upon the agreement of the contracting parties. If a
charterparty were to state that the York-Antwerp Rules 2004 (or possibly even
just the York-Antwerp Rules) the 2004 rules will be applied, but if the contract
were to say the York-Antwerp Rules 1974 (or any other edition) then those Rules
will apply. It is therefore important to look carefully at the contracts of carriage to
see which particular version of the Rules is applicable.

3-078

The York-Antwerp Rules of 2004 are made up of 7 lettered rules (A to G) and 23


numbered rules (I to XXIII). They open with the:
Rule of Interpretation
In the adjustment of General Average the following rules shall apply
to the exclusion of any law and practice inconsistence therewith.
Except as provided by the rule paramount and the numbered rules,
general average shall be adjusted according to the lettered rules.

3-079

This rule was first introduced in the 1950 version to emphasise (and change the
effect of the judgment in The Makis 1929 1 KB 187) that the numbered rules
prevail over the lettered rules if there is any inconsistency between them. This is
well illustrated by the case of The Alpha (1991) 2 LLR 515 which was
considering the 1974 version which had the same Rule of Interpretation.

3-080

A small ore carrier grounded some 70 miles up the Zaire river in West Africa. Her
master with the intent to benefit all and knowing it might cause damage ran his
engine for some time despite a blockage in the cooling system causing some
$800,000 worth of damage to the ships machinery. The ship claimed a
contribution from the cargo in general average under Rule VII which provided:
Damage caused to any machinery and boilers of a ship which is ashore
and in a position of peril, in endeavouring to refloat, shall be allowed in general average when shown to have arisen from an actual intention to float the
ship for the common safety at the risk of such damage; but where . . . . .

3-081

It was contended by the cargo that the master had acted unreasonably in
running his engines for so long in such circumstances and that this was contrary
to Rule A which provides that the sacrifice or expenditure should be reasonably
made. The judge agreed that the masters action was both unskilful and unreasonable and, if that had been material, would have held it to be negligent, but
nevertheless found for the shipowner as there was no requirement of reasonableness that could be implied into Rule VII, and under the Rule of
Interpretation, the numbered rules prevail over the lettered rules.

3-082

It was as a result of this case that the new Rule Paramount was introduced in
the 1994 Rules. This rule provides as follows:

3-20

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General Average

Rule Paramount
In no case shall there be any allowance for sacrifice or expenditure
unless reasonably made or incurred.
3-083

After the Rule of Interpretation and the Rule Paramount, there then follow the 7
lettered rules which are set out hereunder without comment as they give a better appreciation of the concept of general average as applied within the shipping
industry.
Rule A
1.

There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or
incurred for the common safety for the purpose of preserving from
peril the property involved in a common maritime adventure.

2.

General average sacrifices and expenditures shall be borne by the


different contributing interests on the basis hereinafter provided.

Rule B
1.

There is a common maritime adventure when one or more vessels


are towing or pushing another vessel or vessels, provided that they
are all involved in commercial activities and not in a salvage
operation. When measures are taken to preserve the vessels and
their cargoes, if any, from a common peril, these Rules shall apply.

2.

A vessel is not in common peril with another vessel or vessels if


by simply disconnecting from the other vessel or vessels she is
in safety; but if the disconnection is itself a general average act
the common maritime adventure continues.

Rule C
1.

Only such losses, damages or expenses which are the direct


consequence of the general average act shall be allowed as
general average.

2.

In no case shall there be any allowance in general average for


losses, damages or expenses incurred in respect of damage to
the environment or in consequence of the escape or release of
pollutant substances from the property involved in the common
maritime adventure.

3.

Demurrage, loss of market, and any loss or damage sustained or


expense incurred by reason of delay, whether on the voyage or
subsequently, and any indirect loss whatsoever, shall not be
allowed as general average.

Rule D
Rights to contribution in general average shall not be affected, though
the event which gave rise to the sacrifice or expenditure may have

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General Average

Module 3

been due to the fault of one of the parties to the adventure, but this
shall not prejudice any remedies or defences which may be open
against or to that party in respect of such fault.
Rule E
1.

The onus of proof is upon the party claiming in general average


to show that the loss or expense claimed is properly allowable
as general average.

2.

All parties claiming in general average shall give notice in writing to the average adjuster of the loss or expense in respect of
which they claim contribution within 12 months of the date of
the termination of the common maritime adventure.

3.

Failing such notification, or if within 12 months of a request for


the same any of the parties shall fail to supply evidence in support of a notified claim, or particulars of value in respect of a contributory interest, the average adjuster shall be at liberty to estimate the extent of the allowance or the contributory value on the
basis of the information available to him, which estimate may be
challenged only on the ground that it is manifestly incorrect.

Rule F
Any additional expense incurred in place of another expense, which would
have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but
only up to the amount of the general average expense avoided.
Rule G

3-22

1.

General average shall be adjusted as regards both loss and contribution upon the basis of values at the time and place when
and where the adventure ends.

2.

This rule shall not affect the determination of the place at which
the average statement is to be made up.

3.

When a ship is at any port or place in circumstances which would


give rise to an allowance in general average under the provisions
of Rules X and XI, and the cargo or part thereof is forwarded to
destination by other means, rights and liabilities in general average shall, subject to cargo interests being notified if practicable,
remain as nearly as possible the same as they would have been
in the absence of such forwarding, as if the adventure had continued in the original ship for so long as justifiable under the contract of affreightment and the applicable law.

4.

The proportion attaching to cargo of the allowances made in general average by reason of applying the third paragraph of this rule
shall not exceed the cost which would have been borne by the
owners of cargo if the cargo had been forwarded at their expense.

Certificate in Marine Claims 2009 (LW1072)

Module 3

General Average

3-084

After the seven lettered rules there follow the numbered rules I to XXIII which as
mentioned above override the lettered rules. Save for Rule VI mentioned below,
they are not detailed for formal review in this module which only looks at the general principles of general average, but their text is annexed to the module for
ready reference should the student so desire.

3-085

The 2004 Rules are very similar to the 1994 version but important changes were
made to meet the concerns of the marine insurance industry and as they are
relatively new, attention is specifically drawn to them. The changes relate to
Rule VI which deals with salvage remuneration.

3-086

Salvage has long been recognised as a general average expenditure (see


Rule VI York-Antwerp Rules 1974 and 1994) and the subject of a general
average adjustment. This was so notwithstanding that, in most cases, salvage is
awarded and paid by individual salved interests that is, ship and cargo, in proportion to their value (Article 13.2 of the Salvage Convention 1989) and has
already, in effect, been apportioned between the contributing interests.

3-087

However, the basis of that apportionment has been different. Salvage awards
are based on the value of property at the end of the salvage services, whereas
general average is based on the value at the termination of a voyage. Often
there is little difference between the two but sometimes there is particularly
when there has been another event between the completion of the salvage
services and the end of the voyage. The underwriting market has long objected
to this readjustment of a salvage award, which they felt to be an unnecessary
expense, and for a number of years has sought to extinguish the rule. It was
finally successful in 2003 when it persuaded the CMI at its Vancouver conference to amend the earlier Rule VI when adopting the new York-Antwerp Rules
2004. The new rule VI (a) provides:
Salvage payments, including interest thereon and legal fees associated
with such payments, shall lie where they fall and shall not be allowed in general average, save only that if one party to the salvage shall have paid all or
any of the proportion of salvage (including interest and legal fees) due from
another party (calculated on the basis of salved values and not general average contributory values), the unpaid contribution to salvage due from that
other party shall be credited in the adjustment to the party that has paid it,
and debited to the party on whose behalf the payment was made.

3-088

The exception was to deal with the situation, which exists in a few countries
(such as Holland and Belgium), where the shipowner can be held liable to pay
the whole of any salvage award against ship and cargo.

3-089

As we shall later see in this module, when considering salvage and the assessment
of a salvage award under Article 13 of the Salvage Convention 1989, one of the
elements to be borne in mind in that assessment is the skill and effort of the salvor
in preventing or minimising damage to the environment (Article 13.1(b)). This
element in the assessment of a salvage award has never been separated from the
other nine elements but to make it abundantly clear that that element is included in
the exclusion of salvage from general average, Rule VI (b) provides:
Salvage payments referred to in paragraph (a) above shall include
any salvage remuneration in which the skill and efforts of the salvors

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in preventing or minimising damage to the environment such as is


referred to in Article 13 paragraph 1(b) of the International Convention
on Salvage 1989 have been taken into account.
3-090

Again, as we shall later see in this module, the Salvage Convention 1989
specifically provides that any special compensation awarded under Article 14 of
the Convention should be for the account of the shipowner alone and, in an
addendum to the Convention, specifically requests that the York-Antwerp Rules
be amended to ensure that special compensation under Article 14 was not
subject to general average. A provision to this effect was first included in the
1994 Rules. This has been amended in the 2004 rules so as to include the
SCOPIC clause (a successor to Special Compensation under Article 14 which
will be discussed later), and Rule VI (c) now reads:
Special compensation payable to a salvor by the shipowner under
Article 14 of the said Convention to the extent specified in paragraph 4
of that Article or under any other provision similar in substance (such as
SCOPIC) shall not be allowed in General Average and shall not be considered a salvage payment as referred to in Paragraph (a) of this Rule.

SELF-ASSESSMENT QUESTIONS
G

What is General Average?

Distinguish it from Particular Average.

When are the York-Antwerp rules applicable and which


version will be relevant?

If there is a conflict between the lettered and the numbered


rules which prevail?

Who contributes to GA and in what proportions?

A fire damages part of the cargo and the efforts to extinguish


damage another, which part is recoverable in GA?

Further reading for GA Lowndes & Rudolf General Average and York
Antwerp Rules 12th Edition (1997) Sweet & Maxwell.

3-24

Certificate in Marine Claims 2009 (LW1072)

4.

SALVAGE HISTORICAL OVERVIEW

3-091

Salvage is a very ancient right. One that can be traced to the laws of many old
trading countries, some over 3000 years ago. Until recently it has been based
entirely on the principle of no cure no pay. If you fail, you are entitled to nothing
but if you succeed you are rewarded generously.

3-092

At the beginning of the twentieth century, salvage law was internationally


codified by the Salvage Convention of 1910. While the UK was a signatory to
that Convention it did not actually pass an Act to endorse it as much of the
Convention was already part of English common law. Such additions as were
necessary, related to the time for commencement of proceedings and were
incorporated into Section 8 of the Maritime Conventions Act 1911.

3-093

The twentieth century also brought with it the worlds first international salvage
contract, Lloyds Open Form (LOF) which was first published for global use in
1908. We shall talk more of this contract later in this module.

3-094

In the latter part of the twentieth century, with the increasing public concern for
the environment, there was a move to amend and modernise the 1910
Convention. This gained momentum following the grounding of the Amoco
Cadiz in 1978 and resulted in the Salvage Convention 1989.

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Salvage Historical Overview

Module 3

3-095

At 09:45 on the 16 March 1978, the Amoco Cadiz, a VLCC laden with some
220,000 tonnes of crude oil and 7,000 tons of bunker fuel, experienced a
steering failure in storm force winds off the north-west coast of France. At 11:20,
following investigation and on finding repair impossible, she called for tug
assistance. The tug Pacific answered the call at 11:28, offered a LOF contract
and headed for the casualty off which she arrived at 12:20. It was difficult to
make fast a tow line in the prevailing sea conditions but one was established by
14:00 when the tug began to tow. There was a delay in agreeing to the LOF
contract whilst the Captain contacted his owners in Chicago but agreement to a
LOF contract was reached at 16:00. At 16:15 the tow line broke through force of
weather and despite best efforts could not be re-established until 20:55 that
evening. Meanwhile Amoco Cadiz drifted under the influence of storm force
winds towards the shore. She first touched bottom at 21:04 causing her engine
room to flood. She grounded again at 21:39 when her hull was breached in way
of her cargo tanks and pollution began. Pounded by the seas she broke in two
at 10:00 the following morning releasing the remains of her entire cargo and
bunkers into the sea giving rise to immense pollution which gradually spread in
the following weeks to over 320 kilometres of Brittanys rocky coastline causing
immense damage to tourism and fisheries.

3-096

That casualty, and the public furore that followed, led many to believe salvage law
was in need of radical review. The International Maritime Organization (IMO) asked
the Comit Maritime International (CMI) to review the 1910 Salvage Convention,
and to draft a new Convention, taking into account modern needs. The CMI agreed
a draft Convention at its Conference in Montreal in 1981. That draft was then
passed to the Legal Committee of IMO who after further work presented a final
draft to a Diplomatic Conference in 1989. The Convention, which came into force
on 14 July 1996, has since been ratified or acceded to by the following 57 nations
(Table 4.1). We shall deal with it in detail later in this module.

3-26

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Salvage Historical Overview

Albania

France

Latvia

Saudi Arabia

Australia

Georgia

Lithuania

Sierra Leone

Azerbaijan

Germany

Marshall Islands

Spain

Belgium

Greece

Mauritius

Switzerland

Canada

Guinea

Mexico

Syrian Arab
Republic

China

Guyana

Netherlands

Tonga

Congo

Iceland

New Zealand

Tunisia

Croatia

India

Nigeria

United Arab
Emirates

Denmark

Iran (Islamic
Republic of)

Norway

United Kingdom

Dominica

Ireland

Oman

United States

Ecuador

Italy

Poland

Vanuatu

Egypt

Jordan

Romania

Hong Kong, China


(Associate Member)

Estonia

Kenya

Russian
Federation

Macao, China

Saint Kitts
and Nevis

Faroe Islands

Finland

Kiribati

Table 4.1
The 57 Nations Who Have Ratified or Acceded to the Convention

3-097

Salvage, like General Average, is not only an ancient right but one peculiar to
maritime law. If I see my neighbours house on fire and voluntarily extinguish the
fire, I am not entitled to any remuneration for so doing. However, if a ship comes
across another vessel on fire and her crew extinguish that fire, or otherwise
save, or contribute in saving, the ship in distress and/or its cargo from danger,
the owners master and crew will be entitled to a salvage award. This right to
salvage is based on long-standing public policy. The seas can be a lonely place
and even today there are parts of the world where it is not easy to find
assistance. The entitlement to salvage encourages others to assist and by giving
that encouragement, discourages any temptation there might otherwise be to
engage in piracy.

3-098

These ancient reasons for the right to salvage hold good today, notwithstanding
the greater presence of ships on the sea and modern communications which
permit calls for assistance. However, yet another reason has been added by the

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Module 3

Salvage Convention of 1989 the protection of the environment. The preamble


to the Salvage Convention 1989 states:
NOTING that substantial developments, in particular the increased
concern for the protection of the environment, have demonstrated the
need to review . . .
CONSCIOUS of the major contribution which efficient and timely
salvage operations can make to the safety of vessels and other
property in danger and to the protection of the environment.
CONVINCED of the need to ensure that adequate incentives are
available to persons who undertake salvage operations in respect of
vessels and other property in danger.
3-099

To promote the new objective, the protection of the environment, the Convention
makes provision for a new system of remuneration in addition to the traditional
salvage award. As we shall later see, under Article 14, special compensation
can, in certain circumstances, now be given whenever there is a threat of
damage to the environment. Thus, the modern day salvor is not only encouraged
to go to the assistance of ships and property upon the sea but also, when
salving them, to prevent and minimise damage to the environment.

3-100

Salvage may be claimed by anyone who voluntarily goes to the assistance of a


ship or, with some exceptions with which we will later deal, other property at sea
which is in danger, and successfully saves, or contributes to saving, that property.

3-101

Most salvage today is carried out by professional salvors but it can also be
carried out by other merchant vessels or by private individuals. Such claims are
generally made under the terms of a specific salvage contract, such as Lloyds
Open Form, of which we will talk more of later, but in the absence of such a
contract it is still possible to make what is known as a common law claim for
salvage. Under English law and the laws of many other countries, a claim for
salvage will arise whenever a person, acting as a volunteer and without prior
duty, succeeds in or contributes to, the preservation of any vessel or other
property which is at sea and in danger.

SELF-ASSESSMENT QUESTIONS

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What is the age-old principle behind the making of a


salvage award?

Salvage is a right peculiar to maritime law. Why is this so?

What motivated the development of the Salvage


Convention of 1989?

Who can claim salvage?

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5.

SALVAGE CONVENTION 1989

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The Convention is broken down into five chapters. Each will be dealt with
separately.
CHAPTER I GENERAL PROVISIONS
Article 1 Definitions
For the purpose of this Convention:
(a)

Salvage operation means any act or activity undertaken to


assist a vessel or any other property in danger in navigable
waters or in any other waters whatsoever.

(b)

Vessel means any ship or craft, or any structure capable of


navigation.

(c)

Property means any property not permanently and intentionally


attached to the shoreline and includes freight at risk.

(d)

Damage to the environment means substantial physical damage


to human health or to marine life or resources in coastal or
inland waters or areas adjacent thereto, caused by pollution,
contamination, fire, explosion or similar major incidents.

(e)

Payment means any reward, remuneration or compensation due


under this Convention.

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(f)

Organization means the International Maritime Organization.

(g)

Secretary-General means the Secretary-General of the Organization.

Lets examine these definitions a little more closely.


Salvage operations

(a)

Salvage operation means any act or activity undertaken to


assist a vessel or any other property in danger in navigable
waters or in any other waters whatsoever.

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This definition substantially widens the subjects which were capable of being
salved under pre-Convention English common law. and, on the face it, the areas
in which salvage operations can take place. The widening of property capable of
salvage is more conveniently dealt with later under the definitions of Vessel and
Property but the area in which salvage can take place should be discussed here.

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Prior to the Convention, English law only recognised as salvage, a service which
took place in tidal waters. Any service in non-tidal waters could not be rewarded.
(The GORING [1988] AC 831 and The POSTANIEC WIELKOPOLOSKI [1989]
QB.279). On the face of it, this definition changes the common law position, but
not entirely.

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As we shall see under the provisions of Article 30 of the Convention, it is possible for adopting States to make reservations in respect of some elements and
the UK has chosen to do so in this particular case. Schedule 11 Part 2
Clause 2 of the Merchant Shipping Act 1995 provides:
Claims Excluded from the Convention

2. (1)

The provisions of the Convention do not apply

(2)

(a)

to a salvage operation which takes place in inland waters of


the United Kingdom and in which all the vessels involved are
of inland navigation; and

(b)

to a salvage operation which takes place in inland waters of


the United Kingdom and in which no vessel is involved.

In this paragraph inland waters does not include any waters


within the ebb and flow of the tide or ordinary spring tides or
the waters of any dock which may directly or (by means of one
or more other docks) indirectly connected with such waters.

Thus under English law, salvage is still not possible in non-tidal waters
unless it is carried out by a sea-going vessel or unless it is in a dock
connected to tidal waters.
Vessel

(b)

Vessel means any ship or craft, or any structure capable of navigation.

Whilst this definition would not seem to be as important as it was in the


past because, as we will later see, the definition of property is so

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all-embracing, it is still important for one of the main changes to


salvage law brought about by the Convention is the entitlement, in
certain circumstances, to special compensation under Article 14, which
only applies to salvage operations in respect of a vessel. The definition
of vessel is therefore still important insofar as liability for special
compensation is concerned.
Subject to that, this definition accords with the old English common law
definition as set out in The GAS FLOAT WHITTON NO. 2 [1897] AC. 337.
Property

(c)

Property means any property not permanently and intentionally


attached to the shoreline and includes freight at risk.

The definition of property considerably widens previous English law so that


virtually anything is now capable of salvage. Thus, whilst under the old English
common law a light vessel was not capable of being salved because it was not
a vessel (the GAS FLOAT WHITTON NO. 2 ) it clearly would now be salvable
because it is property which is not permanently and intentionally attached to
the shore line. The widened definition also changes another aspect of old
established salvage law. The personal effects and baggage of passengers,
master and crew have long been excluded by common law from claims for
salvage. The definition of property clearly changes that. This could give rise to
difficulty, particularly if a modern day cruise liner were to be salved. The
difficulty in enumerating and valuing each passengers goods and prosecuting
a claim for salvage against each passenger can well be imagined. It is for this
reason that LOF 2000 (see later) specifically excludes from a salvage claim the
personal effects or the baggage of passengers, master and crew.
Damage to the Environment

Damage to the environment means substantial physical damage to human


health or to marine life or resources in coastal or inland waters or areas
adjacent thereto, caused by pollution, contamination, fire, explosion, or
similar major incidents.
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The definition is of considerable importance when assessing whether a salvor is


entitled to Special Compensation under the provisions of Article 14 of the
Convention. The words substantial physical damage have given rise to much
legal argument in LOF arbitrations. What is substantial ? The arbitrators answer
is, it depends. It depends on the particular circumstances of each individual
case. A few barrels of oil in a sensitive place would be sufficient. On the other
hand a much larger quantity further out to sea would not. The case of the Castor
illustrates the uncertainty created by the definition. In that case despite seven
countries having refused to give the ship a place of refuge because of a perceived danger to their coastline, the then Lloyds appeal arbitrator found that
30,000 tons of petroleum and 100 tons of bunkers on a ship which may have
grounded off Cape Palos in Spain, may have given rise to a reasonably perceived threat of substantial damage to the environment for the purposes of
Article 14.1 (a point which he did not have to decide), but would not have given
rise to actual substantial damage for the purposes of entitlement to the uplift
under Article 14.2. He agreed that it would have given rise to some damage but
in his view the damage would not have been substantial.

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The remaining definitions in Article 1 are self-apparent and do not need


further explanation.
Article 2
Application of the Convention

This Convention shall apply whenever judicial or arbitral proceedings


relating to matters dealt with in this Convention are brought in a State
Party.
This Article makes the Convention applicable in any legal proceedings in
any contracting State even if the services took place outside the territorial
waters of that State or in the territorial waters of a non-contracting State.
However, it should be noted that under Article 6, it is possible to contract
out of many, but not all, provisions of the Convention.
Article 3
Platforms and Drilling Units

This Convention shall not apply to fixed or floating platforms or to mobile


offshore drilling units when such platforms or units are on location engaged
in the exploration, exploitation or production of sea bed mineral resources.
This provision was not in the original CMI Draft Convention and was
inserted by the Legal Committee during its debate on that draft
following representations made by the oil industry. Offshore fixed or
floating platforms when in operation can be extremely complicated and
the oil industry feared that if they were not excluded from the
Convention it would encourage volunteer salvors, without the necessary
knowledge and expertise, to attempt a salvage operation on a platform
in an emergency and result in more damage than harm. The oil industry
strongly felt such work should be carried out by professionals who had
skill and specific knowledge of the operation of such platforms. It was
for this reason that this sole exclusion from an otherwise substantially
widened definition of what property could be salved was made.
It will be noted that to be excluded platforms have to be on location and to
be actually engaged in exploration or exploitation or production. A selfpropelled rig underway or a rig under tow is, therefore, subject to the
Convention. The term engaged has still to be interpreted by the arbitrators
or the courts, but it is submitted that it would include a temporary shut down
of production for a short period if it was in the normal course of production.
Article 4
State-owned Vessels

1.

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Without prejudice to Article 5, this Convention shall not apply to warships


or other non-commercial vessels owned or operated by a state and

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entitled, at the time of salvage operations, to sovereign immunity under


generally recognised principles of international law unless that state
decides otherwise.
2.

Where a State Party decided to apply the Convention to its warships


or other vessels described in paragraph 1, it shall notify the
Secretary-General thereof specifying the terms and conditions of such
application.
Section 230(1) of the Merchant Shipping Act of 1995 provides that,
subject to Section 29 of the Crown Proceedings Act 1947 (exclusion of
proceedings in rem against the Crown) and so far as is consistent with
the Salvage Convention, the law relating to simple salvage, whether of
life or property, shall apply in relation to salvage services in assisting
any of Her Majestys ships, or in saving life therefrom, or in saving any
cargo or equipment belonging to Her Majesty in the right of her
Government in the United Kingdom, in the same manner as if the ship,
cargo or equipment belonged to a private person.
Section 230(2) of the 95 Act provides that where salvage services are
rendered by or on behalf of Her Majesty, whether in right of her
Government in the United Kingdom or otherwise, her Majesty shall be
entitled to claim salvage in respect of those services to the same extent
as any other salvor, and shall have the same right and remedies in
respect of those services as any other salvor.
It is convenient to note there that under Section 230 (3) of the 95 Act no
claim for salvage services by the Commander or crew or part of the
crew of any of Her Majestys ships shall be finally adjudicated upon,
without the consent of the Secretary of State to the prosecution of the
claim. Consent is generally given to the extent that the salvage service
has been purely personal and not in respect of a service rendered under
a public duty.
Article 5
Salvage Operations Controlled by Public Authorities

1. This Convention shall not affect any provisions of national law or any
international convention relating to salvage operations by or under
the control of public authorities.
2. Nevertheless, salvors carrying out such salvage operations shall be
entitled to avail themselves of the rights and remedies provided for
in this Convention in respect of salvage operations.
3. The extent to which a public authority under a duty to perform
salvage operations may avail itself of the rights and remedies
provided for in this Convention shall be determined by the law of the
State where such authority is situated.
Shipping casualties which threaten a coastline or coastal environment
often give rise to intervention by government or public authorities who

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can intervene and even take charge of a salvage operation in which


private salvors are involved. Their right to do so is recognised by Article
5 but to prevent this being used as an argument for depriving the
private salvor of his right to claim salvage it will be seen that Article 5.2
specifically reserves his position.
Article 6
Salvage Contracts

1.

This Convention shall apply to any salvage operations save to the


extent that a contract otherwise provides expressly or by implication.

2.

The master shall have the authority to conclude contracts for salvage
operations on behalf of the owner of the vessel. The master or the
owner of the vessel shall have the authority to conclude such
contracts on behalf of the owner of the property on board the vessel.

3.

Nothing in this article shall affect the application of article 7 nor


duties to prevent or minimize damage to the environment.

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It will be noted that it is possible under Article 6.1 to contract out of the provisions
of the Salvage Convention, subject to it not affecting the application of Article 7
and the duty to prevent or minimise damage to the environment. As we shall
later see, this freedom to contract has been used in the LOF 2000 contract, to
replace Article 14 with the SCOPIC clause.

5.1

MASTERS AUTHORITY

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A salvage contract such as Lloyds Open Form (LOF) is generally made on


behalf of the shipowner, the cargo owner and the owners of all property on board
and as we shall see under the Salvage Convention each and every owner is
liable for the ultimate salvage award in proportion to the value of his property
(Article 13.2). While the master clearly has authority to contract on behalf of the
shipowner there would not appear, at first sight, to be anyone with authority to
contract on behalf of the other property interests.

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Before the Salvage Convention, English law resolved the problem with the
doctrine of agent of necessity (see Choko Star (1990) 1 Lloyds Rep.525) but
with modern communications that doctrine came under strain. The problem has
now been completely resolved by Article 6.2 of the Salvage Convention which,
as seen above, provides:
The master shall have the authority to conclude contracts for salvage
operations on behalf of the owners of the vessel. The master or the
owner of the vessel shall have the authority to conclude such
contracts on behalf of the owner of the property on board the vessel.

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This provision is important for without it a master or owner may not have
authority to conclude salvage contracts on behalf of cargo and modern day

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salvage would be impossible. Just imagine a ships master seeking authority to


sign a salvage contract from the owners of all the cargo aboard a modern
container ship.
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It will be noted that this provision also specifically provides that the master shall
have authority to conclude salvage contracts on behalf of the owners of the vessel. In English law he has probably always had ostensible authority to contract
but in the light of the Amoco Cadiz experience where there was a delay whilst
the owners consent to contract was sought, this made it clear the master could
act without obtaining that consent.
Article 7
Annulment and Modification of Contracts

A Contract or any terms thereof may be annulled or modified if:

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(a)

the contract has been entered into under undue influence or the
influence of danger and its terms are inequitable; or

(b)

the payment under the contract is in an excessive degree too


large or too small for the services actually rendered.

The English courts have long-standing jurisdiction to set aside inequitable


contracts induced by undue influence which are in breach of common law
and this provision does no more than give legislative confirmation of that
position. As to what is undue influence this is a complicated aspect of contractual law and it is not appropriate to deal with if here but students should
be aware of the possibility. It is rarely relevant to two commercial contractual
parties.

SELF-ASSESSMENT QUESTIONS
G

What can be salved?

In what waters can salvage take place under the Convention?

Is it any different in the UK?

What does damage to the environment mean?

Can a naval ship claim salvage?

Can you contract out of the Salvage Convention?

Who has authority to sign a salvage contract?

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CHAPTER II PERFORMANCE OF SALVAGE OPERATIONS


Article 8
Duties of the Salvor and of the Owner and Master

1.

The Salvor Shall Owe a Duty to the Owner of the vessel or


other property in danger:
(a)

to carry out the salvage operations with due care;

(b)

in performing the duty specified in subparagraph (a),


to exercise due care to prevent or minimize damage to
the environment;

(c)

whenever circumstances reasonably require, to seek


assistance from other salvors; and

(d)

to accept the intervention of other salvors when reasonably


requested to do so by the owner or master of the vessel or
other property in danger; provided however, that the amount
of his reward shall not be prejudiced should it be found that
such a request was unreasonable.

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It will be noted that the salvor is required to carry out salvage operations with
due care. As we shall later see in Module 2, Clause A of LOF 2000 provides
the salvor shall use his best endeavors to salve the property. What is the difference? It is clear the requirement to use best endeavors in LOF 2000 is more
onerous. It includes the duty set out in Article 8 to exercise due care but also
imposes an obligation on the salvor to complete the salvage service and take
the ship to a place of safety. There is no such obligation under the Convention.

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It will be seen that Article 8.1(b) imposes a duty on the salvor to exercise due care to
prevent or minimise damage to the environment. This is a new duty reflecting the
increased concern for the protection of the environment. As we shall later see, the
quid pro quo for this additional duty on the salvor is that the skill and effort of the
salvor in preventing or minimising damage to the environment has been added to the
list of the criteria to be considered when assessing the amount of salvage reward
(Article 13.1(b)), and the creation of a possibility of being entitled to special compensation if there is a threat of damage to the environment (Article 14.1 and 14.2).

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The duty to accept the intervention of another salvor is new and instigated by the
Convention because it was felt important to ensure the best effort was always
made to salvage vessels which threatened damage to the environment. It will be
seen that if the salvors are unreasonably requested to accept the intervention of
others, they should not be prejudiced.

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The duties of the master and owners are covered by the second section of
Article 8 which provides:
2.

The owner and master of the vessel or the owner of other property in danger shall owe a duty to the salvor:
(a)

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to co-operate fully with him during the course of the


salvage operations;

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(b)

in so doing, to exercise due care to prevent or minimize


damage to the environment; and

(c)

when the vessel or other property has been brought to a


place of safety, to accept redelivery when reasonably
requested by the salvor to do so.

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The provision in 2(a) is important for whilst the salvor is responsible for the
salvage of the ship and the cargo, the owners master and crew, who have
greater knowledge of the ship, her machinery and equipment, can often be of
considerable assistance. As we shall see in Module 2, this duty is mirrored and
expanded in Clause F of LOF 2000.

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Article 8.2(b) mirrors the new obligation on the salvor imposed by Article 8.1(b).

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Whilst one would normally expect an owner to be willing to accept redelivery of


his vessel at the end of a salvage service this is not always so. In the past there
have been many instances where an owner has unreasonably refused so as to
avoid the expense of maintaining a damaged vessel whilst claims against his
insurers are established. It was to avoid this that Article 8.2 (c) was put in.
Article 9
Rights of Coastal States

Nothing in this Convention shall affect the right of the coastal State
concerned to take measures in accordance with generally recognized
principles of international law to protect its coastline or related interests
from pollution or the threat of pollution following upon a maritime
casualty or acts relating to such a casualty which may reasonably be
expected to result in major harmful consequences, including the right of
a coastal State to give directions in relation to salvage operations.
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Most provisions of the Convention are designed to be within the field of private
law rather than public law and this Article has been included in order to ensure
that nothing intrudes on the power of coastal States to take such steps as they
feel are necessary in the interests of their coastlines.
Article 10
Duty to Render Assistance

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1.

Every master is bound, so far as he can do so without serious


danger to his vessel and persons thereon, to render assistance
to any person in danger of being lost at sea.

2.

The States Parties shall adopt the measures necessary to


enforce the duty set out in paragraph 1.

3.

The owner of the vessel shall incur no liability for a breach of the
duty of the master under paragraph 1.

This Article reinforces the long-standing obligation of ships to go to the


assistance of any person in danger at sea. In the UK the obligation has been

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incorporated into Section 93 of the Merchant Shipping Act 1995. As we shall later
see when looking at Article 16, it is not possible to claim salvage from persons
who have been saved from danger but the saving of life can enhance a salvage
award against salved property (see Article 13.1(e)). To ensure the duty imposed
by Section 93 does not infringe the common law principle that every salvor must
be a volunteer, which would exclude anyone with a duty to salve, Section 93 (7)
specifically provides that the duty shall not affect the right to claim salvage.
Article 11
Co-operation

A State Party shall, whenever regulating or deciding upon matters relating


to salvage operations such as admittance to ports of vessels in distress
or the provision of facilities to salvors, take into account the need for cooperation between salvors, other interested parties and public authorities
in order to ensure the efficient and successful performance of salvage
operations for the purpose of saving life or property in danger as well as
preventing damage to the environment in general.
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This provision does no more than exhort States to take into account the need for
co-operation with the private interests in salvage operations. It has been cited
frequently in connection with the recent debate on Places of Refuge which
resulted in the IMO Guidelines for seeking and granting a Place of Refuge, but
unfortunately seems to have no real tangible legal effect.

SELF-ASSESSMENT QUESTIONS
G

What duty does the salvor have to the salved property?

To what extent is there a duty to protect the environment?

Does a master have a duty to render assistance to any


other person?

Does he have a duty to render assistance to another vessel?

Will such duties affect his right to claim salvage?

CHAPTER III RIGHTS OF SALVORS


Article 12
Conditions for Reward

1.

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Salvage operations which have had a useful result give right to


a reward.

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2.

Except as otherwise provided, no payment is due under this


Convention if the salvage operations have had no useful result.

3.

This chapter shall apply, notwithstanding that the salved vessel


and the vessel undertaking the salvage operations belong to the
same owner.

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As mentioned earlier, success is an essential common law ingredient to the right


to claim salvage. This Article does no more than codify that common law
principle. To succeed there must be a useful result. The words Except as otherwise provided . . . . in 12.2 are necessary in order to permit the payment of any
special compensation that may be due under Article 14.1 which will later be fully
discussed.

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In the absence of any special provision an owner of a ship would not be able to
claim salvage for saving a sister ship for one cannot claim salvage and sue oneself. This was felt undesirable, for assistance should always be encouraged and
in practice most ships are insured. Hence Article 12.3.
Article 13
Criteria for Fixing the Reward

1.

2.

The Reward shall be fixed with a view to encouraging salvage


operations, taking into account the following criteria without
regard to the order in which they are presented below:
(a)

the salved value of the vessel and other property;

(b)

the skill and efforts of the salvors in preventing or minimizing damage to the environment;

(c)

the measure of success obtained by the salvor;

(d)

the nature and degree of the danger;

(e)

the skill and efforts of the salvors in salving the vessel,


other property and life;

(f)

the time used and expenses and losses incurred by the


salvors;

(g)

the risk of liability and other risks run by the salvors or their
equipment;

(h)

the promptness of the services rendered;

(i)

the availability and use of vessels or other equipment


intended for salvage operations;

(j)

the state of readiness and efficiency of the salvors equipment and the value thereof.

Payment of a reward fixed according to paragraph 1 shall be


made by all of the vessel and other property interests in proportion to their respective salved values. However, a State Party may
in its national law provide that the payment of a reward has to be
made by one of these interests, subject to a right of recourse of

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this interest against the other interests for their respective


shares. Nothing in this article shall prevent any right of defence.
3.

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The rewards, exclusive of any interest and recoverable legal


costs that may be payable thereon, shall not exceed the salved
value of the vessel and other property.

The law of salvage has long been recognised as being in the public interest.
There is no reward for failure but, in the event of success, a salvor is to be
encouraged by a generous award, one that is assessed by weighing in the
balance a number of criteria. An early statement of the criteria to be applied and
the policy of encouragement can be found in the judgment of Sir John Nicholl in
The Industry (1835 3 Hag Adm 203):
The amount of remuneration must depend upon all the circumstances. It
is not a mere question of work and labour, not a mere calculation of hours,
though time is undoubtedly an ingredient; but there are various facts for
consideration the state of the weather, the degree of damage and danger
as to ship and cargo, the risk and peril of the salvors, the time employed,
the value of the property; and when all these things are considered, there
is still another principle to encourage enterprise, reward exertion, and to
be liberal in all that is due to the general interests of commerce, and the
general benefit of owners and underwriters, even though the reward may
fall upon an individual owner with some severity.

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This policy of encouragement continues today and is clearly set out in the opening paragraph of Article 13.1:
The reward shall be fixed with a view to encouraging salvage
operations, taking into account the following criteria without regard
to the order in which they are presented below.

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It will be noted that the reward shall be fixed with a view to encouraging salvage
operation. The whole emphasis of the Convention, as is confirmed by the preamble, is to encourage salvors. Article 13.1 continues with the criteria to be
taken into account:
(a)

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the salved value of the vessel and other property;

It should be noted that salved values are the market value (not the insured
value) at the place and date of termination of the services. This differs from general average where the values at the place and date of the termination of the
voyage are taken.
(b)

the skill and efforts of the salvors in preventing or minimising


damage to the environment;

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This is a new criterion imposed by the Salvage Convention and is the reward to
the salvor for increasing his duties under Article 8.1(b) to include a duty of care
to prevent and minimise damage to the environment. It is also consistent with
one of the prime aims of the Convention which is to salve ships which threaten
damage to the environment (see preamble).

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In The Nagasaki Spirit [1995] 2 Lloyds Rep 59, the Admiralty judge after
referring to this provision said:
Thus, where the efforts of the salvor prevent or minimise damage to the
environment and the salvage services are successful, he will obtain a larger
salvage award against ship and cargo than he would otherwise have done.
Moreover, there is no reason why an award should not be substantially
larger in appropriate cases.
(c)

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Success is the essential ingredient of a salvage service. There must be some


degree of success but clearly, a salvor will be entitled to more if he was responsible for the whole operation rather than just a participant amongst many. Was
he completely successful or only partially successful? Who else helped? Was
there an element of self-help?
(d)

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the nature and degree of danger;

Danger is another essential ingredient of a salvage service. However, the degree


of danger can be particularly important. Was the salved property plucked from
the jaws of death or was it in no immediate danger but simply immobilised and
therefore valueless until aided?
(e)

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the measure of success obtained by the salvor;

the skill and efforts of the salvors in salving the vessel, other
property and life;

Did the services of the salvor require any particular skill? Was any great ingenuity used? Was the service carried out easily or was enormous effort required?
All are relevant.
(f)

the time used and expenses and losses incurred by the salvors;

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Time is important. Clearly, a salvage operation which can be concluded in the


space of two hours does not justify an award as high as for one which reasonably takes 30 days. The expenses and losses incurred are equally important.

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In many salvage operations no out-of-pocket expenses (payments to third parties) are incurred but in many others they can total millions. In most cases, where
there is sufficient value to justify it, the salvor might reasonably expect to recover
his expenses, but that would be impossible where the expenses exceed the
salved value for as we shall see no award can exceed the value of the property
salved. Has the salvor incurred any losses? This is not an infrequent occurrence.
A tug can be manoeuvring in shallow water trying to refloat a ship and accidentally ground causing damage. The extent of the damage and consequential loss
are factors to be taken into account.
(g)

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the risk of liability and other risks run by the salvors or their equipment;

Salvors in rendering services to property in danger, often necessarily run risks


of incurring liability to themselves, their crew or their equipment. They have to
operate in many remote parts of the world and on some occasions in countries
whose laws do not accord with those you expect from any developed nation.
Tugs and equipment can be detained or held liable without any apparent breach

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of obligation or duty simply because they happen to be there. These risks, when
they arise, need to be taken into account in the overall picture.
(h)
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Clearly, a salvor who is ready to go and acts quickly should be rewarded to a


higher extent than one who is unprepared or slower off the mark. Speed of
action must be encouraged.
(i)

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the availability and use of vessels or other equipment intended for


salvage operations;

This provision is designed to encourage the professional salvor who may invest
men and equipment by having them ready for instant action. Tugs are sometimes
kept on salvage station ready to move as soon as a ship comes into danger.
Further, many professional salvors now keep and maintain substantial stores of
equipment ready for instant distribution to a casualty which may require them.
These are elements that need to be taken into account.
(j)

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the promptness of the services rendered;

the state of readiness and efficiency of the salvors equipment and


the value thereof.

This provision is again to encourage the professional salvor by showing that


account should be taken of the state of readiness and the efficiency of his
equipment and its value: in short, how much he has invested in being available
for salvage operations. All his equipment has to be borne in mind not just that
actually used in the operation if it is instantly ready and well maintained.
Clearly, the salvor should be encouraged to maintain that position.
Article 13.2 provides:
Payment of a reward fixed in accordance with paragraph 1 shall be
made by all of the vessel and other property interests in proportion to
their respective salved values. However, a State Party may in its
national law provide that the payment of a reward has to be made by
one of these interests, subject to a right of recourse of this interest
against the other interests for their respective shares. Nothing in this
article shall prevent any right of defence.

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Note that the award is payable by all salved property (ship and Cargo) pro rata
to value. In contrast, as we shall later see, special compensation (and SCOPIC)
is paid by ship alone.

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While the law in the majority of countries has long provided that any salvage
award shall be paid by all property interests in proportion to their respective
values there have been some countries, notably The Netherlands, Belgium and
France, whose national law has provided that a salvage award against all property interests may be recovered from the ship interests who then have a right of
recourse from the other property interests. This particular Article preserves this
right should a state so decide. It is understood that both The Netherlands and
Belgium, who have enacted the Convention, have continued to provide in their
national law that the shipowner is liable for the whole salvage award subject to
his right of recourse.

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It sometimes happens that there are different degrees of danger to ship and cargo.
There is old authority (Velox [1906] P 263) for saying that, in such circumstances,
ship and cargo should not contribute rateably. However, the validity of this was
doubted in a more recent case (M Vatan I [1990] Lloyds Rep 336) and seems now
to have been completely overridden by the first sentence of Article 13.2.
Article 13.3 provides:
The rewards, exclusive of any interest and recoverable legal costs
that may be payable thereon, shall not exceed the salved value of the
vessel and other property.

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This is the practical limit of any salvage reward, the value of the property salved.
It will be noted that it excludes any interest or recoverable legal costs. In practice, courts and arbitrators never make awards equivalent to the complete salved
fund. As a matter of principle something is always left to the owner otherwise he
would have no incentive to seek salvage assistance. A reward of a very high percentage of the value is comparatively rare and usually only occurs where the
salvors expenses are so high that, even with the reward, he is unlikely to make
a full recovery and is in an overall loss situation.
Special Compensation
Article 14.1 Special Compensation provides:
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.

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There is a lot to be digested from this particular provision.

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First, it will be noted that for this paragraph to bite the salvor does not have to
succeed in either salving property or protecting the environment, he simply has
to be involved in a salvage operation in which the casualty threatens damage to
the environment.

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Second, it will be seen that the salvor has to carry out salvage operations in
respect of a vessel which by itself or its cargo threatened damage to the environment. What do we mean by threatened? The LOF arbitrators have found
that a reasonably perceived threat, as opposed to an actual threat, is sufficient.

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Third, unlike a salvage award under Article 13 (which is ultimately paid by the
ship and cargo property insurers), it will be noted that special compensation is
payable by the shipowner alone (which is paid by their P&I insurer).

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There is a further and very important point to take into account. What is meant
by damage to the environment? This is defined in Article 1(d) as follows:
Damage to the environment means substantial physical damage to
human health or to marine life or resources in coastal or inland waters

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or areas adjacent thereto caused by pollution contamination, fire


explosion or similar major incidents.
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A lot of problems arise from this definition.

3-151

First, while the general meaning of the definition is clear, there is scope for
judicial development when interpreting the word substantial. What is substantial? In R v Monopolies and Mergers Commission ex parte South Yorkshire
Transport [1993] 1 WLR 23, Lord Mustill said:
. . . one of the purposes of the Convention, and in particular of the
introduction of the provisions for special compensation, was to reflect the
increased concern for the protection of the environment and to encourage
salvors to perform efficient and timely salvage operations to assist in
preventing or minimising damage to the environment. In that context to ask
whether the threatened damage was something worthy of consideration
for the purposes of the Convention may be a reasonable and sensible
approach to the meaning of the word substantial. That must plainly mean
something considerably more than not trifling but need not mean
something right at the upper end of the scale. To be worthy of note or
consideration damage does not have to be a major catastrophe or disaster
attracting international headlines . . . pollution does not need to be of
international or even national importance and a threat to an identifiable and
sensitive area will suffice . . .

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The LOF arbitrators have also had to consider the meaning of substantial. In
the early days they appeared to take a fairly relaxed view of the word, accepting
that a comparatively small quantity of oil could cause substantial damage if
leaked into a particularly sensitive area. But a lot depends on the sensitivity of
the area, as is illustrated by a recent case where a ship, laden with 30,000 tons
of petroleum and 100 tons of heavy fuel oil, was prevented from grounding near
Cabo de Palos on the Spanish coast. In that case the then LOF appeal arbitrator
(whose decisions influence those of all the other arbitrators), while embracing
the words of Lord Mustill and accepting that the ship gave rise to a (reasonably
perceived) threat of damage to the environment sufficient to trigger Article 14.1,
found that while a grounding and consequent leakage would have caused some
damage, it would not have been sufficient to trigger Article 14.2 (see later) as
the limited amount of damage that would have occurred would not have been
substantial damage. In reaching this conclusion, he said:
I have considered as carefully as I can whether the damage to the birds
and fish, which might have ensued from a grounding off Cabo de Palos,
can be described as substantial physical damage to marine life within
the meaning of the Convention. It seems to me that the bird reserve and
fish stocks in the vicinity of Cabo de Palos are identifiable sensitive
resources worthy of consideration having regard to the purposes of the
Convention.
However, the definition of damage to the environment in the sense of
substantial physical damage shows clearly that not all damage to marine
life qualifies as damage to the environment within the meaning of the
Convention. For the reasons which I have given earlier in these reasons,

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the scope for damage to birds, plankton and benthos and hence fish, in the
event of a grounding off Cabo de Palos in winter, appears to me to have
been very restricted indeed, notwithstanding the large volume of gasoline
that might have escaped. Whilst there might have been some fatalities
amongst birds and fish and some tainting of fish flesh, there was no
evidence that the fish stocks or bird population would be significantly
depleted by the limited damage which might have occurred. I have,
therefore, found it difficult to conclude that there was a risk of substantial
physical damage to marine life off Cabo de Palos.
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As to the bunkers, the appeal arbitrator continued as follows:


I have taken into account that there were also bunkers (fuel oil and some
diesel oil) on board the casualty. These would be more persistent than the
cargo and to that extent would increase the risk of environmental damage.
However, the arbitrator held that effect would only be marginally worse
having regard to the location of the fuel oil tanks in the casualty . . . I was
not persuaded that the arbitrators assessment was wrong. I do not
consider that that marginal effect is sufficient to drag the damage that
might have been caused to birds, plankton, benthos, and fish off Cabo de
Palos up to the level of substantial physical damage to marine life.

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Second, what are coastal or inland waters or areas adjacent thereto? They are
not defined by the Convention and the phrase has not been construed by the
courts. Most probably it means within 12 miles off the coast as set out in UNCLOS. However, there is a case for arguing that it could be the economic zone
(200 miles). How adjacent do areas adjacent thereto have to be? Again, it is
undecided but presumably so close that the pollutant might reasonably be
expected to enter or seriously threaten coastal waters. Should the assessment
of special compensation start before a casualty enters coastal waters? Probably
not, but the point is as yet undecided. Should it continue after the threat of damage has been removed? Yes, said the Admiralty Court in the Nagasaki Spirit.
Once triggered, the assessment of special compensation should continue until
the end of the salvage service. To do otherwise would discourage salvors from
removing the threat as soon as possible.
Article 14.2 provides:
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.

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This complex wording and apparent contradiction, deserve some explanation.


The original draft Convention prepared by the CMI and that later put forward
by the IMO Legal Committee to the full Diplomatic Conference, provided that
the uplift should be a maximum of 100% of the expenses recoverable under

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Article 14.1. During the course of the Diplomatic Conference some countries,
after noting that LOF 80 restricted the uplift to 15%, said they could not countenance a greater uplift than 30%. The conference quickly became split
between those delegates who wanted the maximum to be 30% and those who
wanted it to be 100%. There was a serious risk, after 10 years of work, of the
Convention falling to the ground because of the lack of agreement on what was
a particularly minor issue. At the end of the day the conference compromised
with the wording set out above leaving the courts of each country to interpret
it as they will.
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LOF arbitrators have taken the 30% to be the point at which one should pause
for thought and should not be exceeded except in the most serious of cases. To
date the 100% mark has never been reached despite some serious casualties.
The highest uplift recorded has been 65% (The Nagasaki Spirit). It is perhaps
right to say that an uplift of 100% is highly unlikely. No matter how serious the
casualty or threat of damage to the environment, one can always envisage
something worse for which the 100% mark should be reserved.

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There are other points which should be mentioned in relation to this particular
paragraph of Article 14. It will be noted that the uplift is only payable if the salvor
has prevented or minimised damage to the environment. A LOF appeal arbitrator has found that to benefit from this provision the salvor must prove he actually prevented or minimised damage to the environment. Unlike Article 14.1 it is
insufficient to prove that it was a reasonably perceived threat. The salvor has to
show, on the balance of probabilities, that but for the services, damage to the
environment would have occurred. The point is well illustrated by the facts of the
case which the appeal arbitrator was considering in making this decision.
A small ship ran aground on an outcrop of rocks in the northern part of Scotland.
As a result of the grounding, her fuel tanks were punctured and she lost about
30 tonnes of gas oil. Forty-five tonnes of gas oil remained on board and this was
successfully salved, though the vessel was lost. An Article 14 claim was made
and the appeal arbitrator awarded the salvors their expenses under Article 14.1
as there was a reasonably perceived threat of damage to the environment.
However, he did not award an increment under Article 14.2 because he was not
satisfied that the 45 tons of gas oil that had been salved, would have actually
caused damage to the environment. The 30 tons that had leaked when the ship
had grounded, despite every ones reasonable fears, had not in practice caused
any damage so it was unlikely a further 45 tons would do so either.

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Apart from having to show that but for the salvage services, damage would have
occurred, the reader is reminded it is also necessary to show substantial damage, as defined in the definition of damage to the environment, would result.
We have already discussed and cited an example of an LOF appeal arbitrators
interpretation of substantial. In that case, while there was a sufficient threat
(reasonably perceived threat rather than an actual threat) of damage to the environment to trigger Article 14.1 and while some damage would have resulted, the
actual (rather than reasonably perceived) damage that would have resulted
would not have been substantial enough to trigger Article 14.2.
Article 14.3 provides:
Salvors expenses for the purposes of paragraphs 1 and 2 mean the out
of pocket expenses reasonably incurred by the salvor in the salvage

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operation and a fair rate for the equipment and personnel actually and
reasonably used in the salvage operation taking into consideration the
criteria set out in Article 13 paragraph 1(h), 1(i) and 1(j).
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Out-of-pocket expenses are fairly easily ascertained. They are monies expended
by the salvor to enable them to carry out the salvage operation perhaps hire
of salvage equipment or fuel oil consumed. However, the assessment of a fair
rate for equipment and personnel actually and reasonably used has proved to
be a particularly difficult problem. It was considered in the House of Lords in The
Nagasaki Spirit [1997] 1 Lloyds Rep 323, where the salvors contended that a fair
rate included an element of profit and the owners contended that it merely meant
compensation for the overall expense to the salvor of the operation without any
element of profit. The House of Lords found in favour of the shipowners. In the
words of Lord Lloyd of Berwick:
. . . fair rate for equipment and personnel actually and reasonably used in
the salvage operation in Article 14.3 means a fair rate of expenditure, and
does not include any element of profit. This is clear from the context, and
in particular from the reference to expenses in Article 14.1 and 2, and the
definition of salvors expenses in Article 14.3. No doubt expenses could
have been defined so as to include an element of profit, if very clear
language to that effect had been used. But it was not. The profit element
is confined to the mark-up under Article 14.2 if damage to the environment
is minimised or prevented.

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As a result of the House of Lords decision in The Nagasaki Spirit and the final
wording of Article 14.3 namely . . . taking into consideration the criteria set out
in Article 13 paragraph 1(h), 1(i) and 1(j), it is necessary in every Article 14 case
to investigate the cost to the salvor of not only the craft and equipment used during the course of the salvage services, but also the availability and use of other
vessels or equipment intended for salvage operations and the value of that
equipment. For a large salvage company this is a major accounting exercise and
one in which many questions remain unanswered. For instance, for what period
should you look at the idle time of the salvage equipment? It is common to use
a one-year period but is this the correct period? There can be huge differences
if you stretch or reduce the period. Further, what about depreciation? Should
one adapt the accounting practices of the company which may differ from one
company to another? Whilst one of the law lords described it as just an
accounting exercise, it is a major exercise full of unanswered questions.
Article 14.4 provides:
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.

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Special compensation was always intended to be a safety net. A minimum


payment to the salvor. One which took away some of the risk endemic in a no
cure no pay situation. Consequently, it is only payable to the extent that it
exceeds the traditional Article 13 salvage reward. It will be noted that the amount
to be paid is that which such assessed compensation is greater than any reward
recoverable (not recovered) by a salvage reward under Article 13.

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Article 14.5 provides:


If the salvor has been negligent and has thereby failed to prevent or
minimize damage to the environment, he may be deprived of the
whole or part of any special compensation due under this article.
Article 14.6 provides:
Nothing in this article shall affect any right of recourse on the part of
the owner of the vessel.
Article 15
Apportionment between Salvors

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1.

The apportionment of a reward under article 13 between salvors


shall be made on the basis of the criteria contained in that article.

2.

The apportionment between the owner, master and other persons


in the service of each salving vessel shall be determined by the
law of the flag of that vessel. If the salvage has not been carried
out from a vessel, the apportionment shall be determined by the
law governing the contract between the salvor and his servants.

It is often the case that several salvors are involved in the salvage of a ship and
her cargo. In that event the split between them of the overall award is, as stated
in 15.1, dealt with in accordance with the criteria set out in Article 13. In most
countries the split between the owner, master and crew of the salving ship is
dealt with on a similar basis having regard to the input and responsibility of each
individual but the laws in some countries do set out how the overall award should
be divided. Article 15.2 preserves that right.
Article 16
Salvage of Persons

1.

No remuneration is due from persons whose lives are saved, but


nothing in this article shall affect the provisions of national law
on this subject.

2.

A salvor of human life, who has taken part in the services rendered on the occasion of the accident giving rise to salvage, is
entitled to a fair share of the payment awarded to the salvor for
salving the vessel or other property or preventing or minimizing
damage to the environment.

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As mentioned earlier when discussing Article 10, it has never been possible in
the UK, nor most other countries, to claim life salvage from anyone whose life
has been in danger but when life has been saved, a claim can be made against
any property that has also been salved. This principle is endorsed by Article 16.

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While Article 16.2 clearly confirms that the salvor of human life is entitled to a
fair share of the sum awarded for the salvage of the property, it does give rise to
a potential problem for it will be seen that he is entitled to . . . a fair share of the
payment awarded to the salvor for salving the vessel . . . . Prior to the
Convention such claims would have been made direct against the owners of the
property but as a result of language used in the Convention it would appear such
claims have now to be made against the salvor. This might give the property
salvor a problem if he was not involved in the life salvage, which is so often the
case. His salvage claim under Article 13 and claim for special compensation
under Article 14 would under normal circumstances be restricted to the work
that he carried out and the expense that he incurred, and not include the effort
of some third party over which he had no control. In view of the wording of Article
16.2, any property salvor would be wise to ensure any claim by a life salvor was
included either in his own claim under Articles 13 and 14 or in the same
proceedings.

3-165

It is convenient to mention here a related issue. Aside from Article 16 of the


Salvage Convention (which is enacted by Section 224(i) of the Merchant
Shipping Act 1995 the MSA 1995), a life salvor may be able to recover something under paragraph 5 of Part II of Schedule 11 to the Merchant Shipping Act
1995 which gives the Secretary of State discretionary power to make payments
when the services are rendered in UK waters in saving life, from a vessel of any
nationality or elsewhere if saving life from any UK ship, provided he has not
already been compensated by Article 16.2.
Article 17
Services Rendered under Existing Contracts

No payment is due under the provisions of this Convention unless the


services rendered exceed what can be reasonably considered as due
performance of a contract entered into before the danger arose.
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This Article reflects what has been a long-standing principle of the English
common law and an essential ingredient of salvage. You must be a volunteer. If
you have a contractual duty to do something you cannot be a volunteer. You cannot claim salvage for doing what you contracted to do. The problem is illustrated
by a towage contract. If for instance the tow line broke during the course of the
tow, you would expect the tug to secure a new tow line. She would normally have
a duty to do so under the towage contract and therefore could not claim salvage
for so doing. However, if the vessel ran aground before the towline could be reestablished, through no fault on the part of the tug, you would not expect the tug
to refloat the ship under the towage contract, and she could claim salvage for so
doing (The Minnehaha (1861) 15 Moo.PC 133).
Article 18
The Effect of Salvors Misconduct

A Salvor may be deprived of the whole or part of the payment due


under this Convention to the extent that the salvage operations have
become necessary or more difficult because of fault or neglect on his
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part or if the salvor has been guilty of fraud or other dishonest


conduct.
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A salvor has always owed a duty of care to the salved property and this is confirmed in the Convention by Article 8.2. It follows that he is responsible for any
negligence on his part. However, aside from that potential liability, Article 18 in
effect provides that he should also not benefit to the extent that the salvage
operations have become necessary or more difficult as a result of his fault or
neglect or fraud.

3-168

The potential liability of a salvor is no different from that of anyone who is in


breach of his duty of care but it should be noted that, like others, he is entitled
to limit his liability under the provisions of the 1976 Limitation Convention which
is given the force of English law under Section 185 of the Merchant Shipping
Act 1995.
Article 19
Prohibition of Salvage Operations

Services rendered notwithstanding the express and reasonable


prohibition of the owner or master of the vessel or the owner of any
other property in danger which is not and has not been on board the
vessel shall not give rise to payment under this Convention.
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There are several points to note from this article. First, note that it has to be an
express and reasonable prohibition. It does not apply if the prohibition is unreasonable. So if a master unreasonably refused assistance to the potential detriment of the owner, a salvor who continued, notwithstanding the refusal, might
well be still entitled to claim salvage.

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The test is whether a master or owner of reasonable prudence would have


refused the assistance of the salvors. If he acted reasonably the claim will be
rejected (The Pretoria (1920) Ll.LRep. 112) but if his refusal was unreasonable
the claim will be allowed (The Auguste Legembre [1902] P 123 and The Flore
(1929) 34 Ll.L rep 172).

3-171

Second, note that the refusal has to be by the master or owner of the vessel, not
for instance, the cargo owner or other property on board. This ties in with Article
6.2 which gives the master and owner of the vessel the power to contract on
behalf of all property on board. Think of the problems that would otherwise arise
if every property interest on board a vessel was permitted to contract or refuse
salvage services.

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Third, the owner of any other property can only refuse if that property has not
been aboard a vessel. This provision was necessary in view of the wide
definition given to property under Article 1. A vessel may no longer be involved,
perhaps the salved property is an oil rig or a light vessel. In that event the owner
of the property should be entitled to refuse salvage services.

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SELF-ASSESSMENT QUESTIONS
G

What are the conditions necessary for a salvor to be able


to claim a salvage reward?

How is a salvage award to be apportioned between


different salvors?

If a person is saved, is he liable to pay salvage?

Can the rescuer of a person in danger make any claim?

If the tow line between a tug and tow breaks, in what


circumstances can the tug claim salvage?

Can a master prohibit salvage services?

Can the cargo owner?

CHAPTER IV CLAIMS AND ACTIONS


Article 20
Maritime Lien

1.

Nothing in this Convention shall affect the salvors maritime lien


under any international convention or national law.

2.

The salvor may not enforce his maritime lien when satisfactory
security for his claim, including interest and costs, has been duly
tendered or provided.

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Under English law salvage gives rise to a maritime lien which entitles a salvor to
take proceedings in rem and arrest all salved property pending the determination of the case or the provision of security for the claim. Unlike a statutory lien,
a maritime lien will follow the ship even if there is a change of ownership.

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Salvage also gives rise to a statutory lien under the provisions of Section 21 of
the Supreme Court Act 1981 which gives the salvor the added benefit of being
able to pursue a claim against a sister ship.

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However, these liens do not cover claims for special compensation under Article
14 which are clearly severable from salvage claims, and do not currently give
rise to a maritime lien. It is doubtful, but arguable, whether such a claim even
gives rise to a statutory lien. That said, Article 1(c) of the Arrest Convention of
1999 will make it possible to arrest a ship for a claim for special compensation
under Article 14, when the Arrest Convention comes into force. At the time of
writing it is not in force as insufficient nations have so far ratified it.

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Article 21
Duty to Provide Security

1.

Upon the request of the salvor a person liable for a payment due
under this Convention shall provide satisfactory security for the
claim, including interest and costs of the salvor.

2.

Without prejudice to paragraph 1, the owner of the salved vessel shall use his best endeavours to ensure that the owners of
the cargo provide satisfactory security for the claims against
them including interest and costs before the cargo is released.

3.

The salved vessel and other property shall not, without the consent of the salvor, be removed from the port or place at which
they first arrive after the completion of the salvage operations
until satisfactory security has been put up for the salvors claim
against the relevant vessel or property.

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The first part of this article imposes a duty on the owners of salved property to
provide security in respect of the salvors claim, including costs and interest.
Further protection is given to the salvor by Article 21.2, which imposes a further
duty on the shipowner to use best endeavors to ensure that the owners of cargo
provide satisfactory security.

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The duties detailed above are supported by Article 21.3 which protects the
salvor by prohibiting the removal of the salved vessel and other property from
the port or place at which they first arrive after completion of the salvage services until satisfactory security has been put up for the salvors claim.
Article 22
Interim Payment

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1.

The tribunal having jurisdiction over the claim of the salvor may,
by interim decision, order that the salvor shall be paid on
account such amount as seems fair and just, and on such terms
including terms as to security where appropriate, as may be fair
and just according to the circumstances of the case.

2.

In the event of an interim payment under this article the security


provided under Article 21 shall be reduced accordingly.

This provision encourages interim payments on account which in keeping with


the whole tenor of the Convention, will encourage the salvor to salve again.
Article 23
Limitation of Actions

1.

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Any action relating to payment under this Convention shall be


time-barred if judicial or arbitral proceedings have not been instituted within a period of two years. The limitation period commences
on the day on which the salvage operations are terminated.
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2.

The person against whom a claim is made at any time during the
running of the limitation period may extend that period by a declaration to the claimant. This period may in the like manner be further extended.

3.

An action for indemnity by a person liable may be instituted even


after the expiration of the limitation period provided for in the
preceding paragraphs, if brought within the time allowed by the
law of the State where proceedings are instituted.

These provisions are self-evident and require no comment other than to say that
the limitation period commences on the day on which the salvage services are
terminated probably means the day on which the whole salvage operation terminated rather than when an individual piece of property was salved.
Article 24
Interest

The right of the salvor to interest on any payment due under this
Convention shall be determined according to the law of the State in
which the tribunal seized of the case is situated.
Article 25
State-Owned Cargoes

Unless the State owner consents, no provision of this Convention


shall be used as a basis for the seizure, arrest or detention by any
legal process of, nor for any proceedings in rem against, noncommercial cargoes owned by a State and entitled, at the time of the
salvage operations, to sovereign immunity under generally
recognized principles of international law.
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This Article should be compared with Article 4 which excludes the provisions of
the Convention to warships and non-commercial vessels owned by the State.
Unlike Article 4 this Article, which applies to state-owned non-commercial
cargoes, does not exclude all the provisions of the Convention, but simply the
basis for enforcing a claim. That would leave one with a problem that can only
be resolved under the laws of the particular State. In practice most States will
voluntarily accept and pay a salvage claim.
Article 26
Humanitarian Cargoes

No provision of this Convention shall be used as a basis for the


seizure, arrest or detention of humanitarian cargoes donated by a
State, if such State has agreed to pay for salvage services rendered in
respect of such humanitarian cargoes.

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This is an entirely new concept which is clearly brought about by the desire to
ensure humanitarian cargoes are not detained following salvage services but its
provision is limited by the necessity for a State to agree to pay for any sums due.
Article 27
Publication of Arbitral Awards

State parties shall encourage, as far as is possible and with the


consent of the parties, the publication of arbitral awards made in
salvage cases.
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The assessment of a salvage award is a skill that is honed by practice and


knowledge of other awards in similar circumstances. The Article is intended to
spread that knowledge and experience. However, most salvage cases these
days are carried out under contracts such as LOF, which provide for private
arbitration. As they are private, they cannot be published without the parties consent. This is often refused because of a desire not to highlight the case in the
public eye. Lloyds have tried to encourage agreement to publication by asking
the parties to specifically direct their minds to this issue but so far, this has had
little effect. That said, Lloyds do publish a Digest, which can be obtained by subscription, which summarises the interpretations of Lloyds Arbitrators to the varied provisions of the LOF contract and salvage law. It does not however, set out
the amounts awarded.

3-183

The remainder of the Convention deals with administrative matters.

SELF-ASSESSMENT QUESTIONS
G

Does a salvor have a lien for a claim for Special


Compensation?

What, if any, duty does the shipowner have with regard to


the provision of security on behalf of the cargo?

In what period of time must a claim for salvage be brought?

When does that time begin to run?

Can a claim for salvage be made against a state owned


cargo?

Can a claim be made against a humanitarian cargo?

3-184

We now pass to what is the most popular internationally used form of salvage
contract Lloyds Open Form (LOF).

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CHAPTER V LLOYDS OPEN FORM


History and Administration
3-185

Some background as to the history of LOF and explanation as to how it is


administered will be useful in understanding the contract fully.

3-186

The forerunner to Lloyds Open Form (LOF) was created in 1890 when the first
Lloyds salvage contract was made between Lloyds of London and local tug
owners in the Dardanelles. At that particular time there were a number of
problems resulting from salvage services rendered in the Dardanelles. Lloyds
underwriters felt the amounts demanded were often too high and that challenges
to the local courts were too uncertain. To resolve the problem they sent their
Secretary-General, Sir Henry Hosier, to Istanbul to negotiate an acceptable
solution. Sir Henry successfully negotiated a contract which provided that
Lloyds of London were the final arbiter. The contract was for a specific case, but
the result proved satisfactory to both sides and the contract quickly became the
standard form of salvage contract for the area. It was developed and fine tuned
internationally over the ensuing years and led to the first Lloyds Standard Form
of Salvage Agreement no cure no pay (LOF) being introduced in 1908.
Promoted by the London insurance market, it was intended for worldwide use by
all nationalities with a view to achieving the following objectives:
G

A standard form of contract easily understood and known to be


fair to salvors, shipowners, cargo owners and underwriters alike.

A contract which could be agreed without hesitation or


negotiation, thereby enabling necessary salvage work to start
without any delay.

The setting up of an administrative system under which the


assessment of a salvage award and all disputes could safely

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be left to be resolved after a successful operation had been


completed. One which incorporated an arbitration service of
experienced arbitrators who applied internationally
understood and accepted principles of salvage law.
G

A service that could be trusted to be consistent in its level


of awards and fair to all parties.

The setting up of a procedure to avoid the arrest of ships


and their consequent detention by ensuring security was
given promptly at the conclusion of the salvage service.

3-187

These objects have been achieved and the original concept has proved a
success story. LOF is known internationally by almost every seafarer, owner and
underwriter and there are comparatively few competing types of contract used
internationally. It follows internationally recognised law as set out in the Salvage
Convention of 1989.

3-188

Shipping casualties have reduced in recent years with the result that there are
fewer salvage cases than in the past, but there are still on average about 100
new LOF salvage cases each year and the resultant continual practice enables
the arbitrators to keep their finger on the pulse of the market place.

3-189

While Lloyds form has stood the test of time, this has largely been a result of it
being regularly reviewed and amended to take account of changing circumstances, both in the law and with the practice of the industry itself. The contract
is regularly reviewed by the Lloyds Salvage Group, a body set up by Lloyds to
monitor the working of the contract. The Salvage Group meets annually and is
made up of representatives of the insurance market (hull and cargo), the P&I
Clubs, the shipowners and the salvors. It is chaired by the appeal arbitrator. Its
purpose is to consider any problems which arise in the administration or legal
operation of LOF, and any relevant changes in commercial practice, international
treaty, municipal law and industrial practice, with a view to ensuring that any necessary changes to the LOF are made at an appropriate time in order to smooth
the path of its operation. There have been 10 revisions since 1908, the last being
effected in 2000, resulting in the form being known as LOF 2000.

3-190

While LOF is subject to English law, it has at times, under the guidance of the
Salvage Group, been prepared to move ahead of the law of salvage once
sufficient support for change has been established amongst the international
community and the shipping industry. An example of this is LOF 90 which incorporated many of the provisions of the 1989 London Salvage Convention before
that Convention was given the force of law in 1995, thereby permitting the shipping and salvage industries to reap many of its benefits at a much earlier stage.
Another example is LOF 2000 which made provision for the optional use of the
SCOPIC clause which, as we will later hear, was devised by industry to solve
problems being encountered with Article 14 of the Convention.

3-191

The general administration of LOF is run by The Salvage Arbitration Branch of


Lloyds Agency Department in London (www.lloydsagency.com). As soon as
they are notified of a case and the amount of security required by the salvor they,
through their worldwide contacts, will collect the security for the claim. This is
usually done by way of standard forms of guarantee from the appropriate under-

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writers of the property salved. The guarantees have to be given either by a


Lloyds underwriter; or a London underwriter recognised by Lloyds; or by and
English Bank; or by and other body acceptable to the salvor.
3-192

The collection of security can at times be a complicated and lengthy process


particularly when there are a substantial number of salved interests. Each
property interest has a separate liability so one can imagine the difficulty in
obtaining security from the individual cargo interests on a container ship. In
modern ships there can be thousands of owners. Salvors are naturally anxious
to obtain security before they release the ship following the service. They are
entitled to detain the vessel pending provision of that security but recognise the
commercial difficulty that this can sometimes place on the shipowner who may
well be anxious to resume the voyage. To help resolve these problems the
International Salvage Union (ISU) have devised their own forms of guarantee,
which do not follow the strict requirements of Lloyds and can be provided by an
institutions based outside England. With the agreement of the salvor in each
individual case, these forms of guarantee are often used in lieu of the guarantees to Lloyds. Of particular interest is the ISU 2 Guarantee in which the
shipowner provides security on behalf of the cargo interests, provided the salvor
continues his efforts to obtain security from that cargo, which when obtained,
replaces that given by the shipowner on the cargos behalf. Such a guarantee
enables the ship to continue her voyage leaving the salvor to obtain security
from cargo at the port of destination.

3-193

Apart from collecting security from the salved property, The Salvage Arbitration
Branch of Lloyds will appoint a single arbitrator from their panel to deal with the
case and ultimately make the salvage award. Currently there are four arbitrators
on the panel. Of the four, one always sits as an appeal arbitrator. All the arbitrators
are experienced members of the English Admiralty Bar with extensive experience
of salvage law and their regular practice and the single and consistent appeal
arbitrator, ensure uniformity of awards. They will basically handle all aspects of
the case, other than the provision of security and the payment of the award.

3-194

As will later be seen, Clause I of LOF 2000 incorporates the Lloyds Standard
Salvage Arbitration Clauses (LSSA clauses) and the Lloyds Procedural Rules.
The LSSA clauses set out the administrative rules affecting the provision of
security; the appointment of an arbitrator; the arbitration procedure and arbitrators powers; the representation of the parties; the entitlement to interest; how
currency fluctuations should be dealt with; the rules for appeals and cross
appeals; and provisions as to payment of awards.

3-195

The Procedural Rules set out in greater detail the arbitrators powers and the
manner in which the arbitration should be conducted. There are provisions that
deal with a preliminary meeting; the order for directions; the disclosure of
documents; expert evidence; mediation; the hearing of the arbitration; and the
appeal arbitration.

3-196

It is not appropriate in this course to deal in detail with either the LSSA clauses
or the Procedural Rules but they are included as an appendix to this module for
additional reading or reference if required. However, it should be mentioned that
they have been devised to ensure that the appointed arbitrator takes a
hands-on approach to all aspects of the case, in order to ensure that the

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process leads to a fair and efficient disposal of disputes between parties


whether amicably, by mediation, or by arbitration within a reasonable time and
at a reasonable cost.
3-197

Most LOF salvage arbitrations are dealt with on documents alone (though, whilst
discouraged, oral evidence can be given) and with all parties being represented
by counsel. However, it is recognised that this can be an expensive procedure in
smaller cases. In order to provide a less expensive process the arbitrators have
guidelines for a Fixed Arbitration Procedure on Documents Alone which it is
possible to use whenever the total security provided in a case is less than
$1 million. These guidelines are also included in the appendix.

3-198

Once an arbitrator has made his or her award, he/she will forward it to Lloyds
who then publish it to the parties and, if the award is not paid, enforce the security given at the beginning of the case. If either party wishes to appeal, they will
appoint an appeal arbitrator who will hear the case afresh.

3-199

Before moving on to the LOF contract itself, it may be useful to look at the
statistics. The number of LOF salvage cases now average about 100 per year. Of
these approximately 80% are settled between the parties amicably. The
remaining 20% of cases are arbitrated and of those, approximately 20% are
appealed.

SELF-ASSESSMENT QUESTIONS
G

What are the objectives of LOF?

Who reviews the contract and how often?

What law applies to the contract?

Who administers LOF and what do they do?

What are the LSSA clauses?

What are the Procedural Rules?

Is an arbitration in public or in private?

5.2

THE LOF CONTRACT

3-200

So much for history, let us now look at the current LOF, LOF 2000, a copy of
which is annexed to this module. You will see the contract itself is fairly short but
it is important to know it is backed up by the Lloyds Standard Salvage and
Arbitration clauses (LSSA clauses) which set out a number of essential but supplementary rules and The Procedural Rules which govern the way in which an
arbitration is conducted. They are lengthy and not annexed to this module but
can be found on the Lloyds website at www.lloydsagency.com.

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3-201

You will see that LOF 2000 is made up of nine BIMCO style boxes on the front
page, each requiring completion with appropriate detail when the contract is
concluded, and 12 clauses on the back page, lettered A to L, which set out the
essential terms of the contract.

3-202

Generally speaking, the nine boxes on the front page of the contract are to
record essential information necessary to identify the ship or casualty. Most are
self-explanatory but there are a few matters to which attention should be drawn.

5.2.1

Property to Be Salved

3-203

It will be seen in Box 2 that the salved property specifically excludes personal
effects or baggage of passengers, master or crew. Some explanation is
necessary.

3-204

It had always been the position under English law, in other countries and in LOF,
that personal effects and baggage were excluded from salvage. However, as
discussed earlier in this module, the Salvage Convention of 1989, defines salved
property (Article 1(c)) in such a broad way that it includes the personal effects
and baggage of crew and passengers. LOF is a commercial contract and it has
never been felt necessary to include claims against personal effects and baggage which are usually of a minor value compared with everything else. It was,
therefore, decided to maintain this exclusion, hence the provision.

3-205

Further, it was felt advisable to extend it by excluding the private motor vehicles
of accompanying passengers and their personal effects in those vehicles (see
LSSA Clause 3.2). This was deliberately done for very practical reasons. Their
individual value is not likely to be high in relation to other salved property and
the enforcement of a salvage claim against private vehicles on a car ferry would
in practice be virtually impossible. By specifically excluding this property from
the assessment of the award the contractors will be entitled to a complete award
from the balance of the value salved, that is, ship, bunkers and freight.

5.2.2

Currency of Award

3-206

It is possible to stipulate under the contract what currency is to be applied.


However, as will be seen from Box 4 (and LSSA Clause 6.6), unless there is a
specific agreement to a particular currency, any award under the contract is to
be made in US dollars.

5.2.3

The SCOPIC Clause

3-207

Box 7 is completely new to LOF and requires the parties to state whether the
SCOPIC Clause is incorporated into the agreement. We will be discussing the
SCOPIC clause in detail in this module. It will be noted from Clause C that
unless the word No in Box 7 has been deleted the LOF agreement will be
deemed to have been made on the basis that the SCOPIC Clause is not incorporated and forms no part of the agreement. It will also be noted from Clause C
that even if the word No is deleted in Box 7 this should not of itself be construed
as notice to invoke the SCOPIC Clause within the meaning of subclause 2 of
that clause. Two important reminders.

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3-208

It is perhaps convenient to point out here that Clause 3.9 of LSSA Clauses
provides that any reference to the SCOPIC Clause in LOF 2000 shall be
deemed to mean that version of SCOPIC which is current at the date the agreement is made. Thus, there is no need to identify the particular version of SCOPIC
for the up-to-date version to be applied. The latest version is SCOPIC 2007
which came into force with effect from 1 July 2007.

3-209

So much for the boxes. Over the page are 12 specific clauses lettered A to L.
Clause A

Contractors basic obligation: The contractors identified in Box 1 hereby


agree to use their best endeavours to salve the property specified in Box 2
and to take the property to the place stated in Box 3 or to such other place
as may hereafter be agreed. If no place is inserted in Box 3 and in the
absence of any subsequent agreement as to the place where the property
is to be taken the contractors shall take the property to a place of safety.
3-210

It will be noted that the contractors agree to use their best endeavours to salve the
property. This imposes an obligation on the contractor to complete the salvage
service, even if it is uneconomical for him to do so. However, this does not mean
he has to complete the job whatever the cost. He will probably be released from
the burden of this obligation if he can show his expenditure does not justify the
benefit likely to be conferred on the owner of the property salved if he continues.

3-211

Further, it probably does not mean that the contractor must proceed whatever
the circumstances. If after the contract has been agreed there is, without fault on
the part of the contractor, a major change in the circumstances of the casualty
(eg the casualty capsizes) so that the salvage services to be rendered thereafter
are fundamentally different from those envisaged at the beginning, the contract
may be frustrated and the obligation at an end.
Clause B

Environmental protection: While performing the salvage services the


contractors shall also use their best endeavours to prevent or
minimise damage to the environment.
3-212

This simply emphasises the new duty of salvor under Article 8.1(b) of the
Salvage Convention 1989.
Clause C

SCOPIC Clause: Unless the word No in Box 7 has been deleted this
agreement shall be deemed to have been made on the basis that the SCOPIC
Clause is not incorporated and forms no part of this agreement. If the word
No is deleted in Box 7 this shall not of itself be construed as a notice invoking
the SCOPIC Clause within the meaning of subclause 2 thereof.
3-213

This has been inserted to ensure there is no doubt as to whether the SCOPIC
clause has been incorporated into the agreement. Care should be taken to
resolve this issue if the LOF is verbally agreed and not actually signed until
some time later.

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Clause D

Effect of other remedies: Subject to the provisions of the


International Convention on Salvage 1989 as incorporated into
English law (the Convention) relating to special compensation and to
the SCOPIC Clause if incorporated the contractors services shall be
rendered and accepted as salvage services upon the principle of no
cure no pay and any salvage remuneration to which the contractors
become entitled shall not be diminished by reason of the exception to
the principle of no cure no pay in the form of special compensation
or remuneration payable to the contractors under a SCOPIC Clause.
3-214

The long-standing no cure no pay principle of salvage was always an


important factor to take into account when assessing a salvage award. The
salvor had to be encouraged by giving him a higher award for taking the risk of
receiving no payment at all regardless of the expense he incurred. Special compensation and SCOPIC remuneration eased this risk with the result that, but for
this clause, many modern salvage cases would have resulted in a lesser award
than what would have been made before the days of special compensation or
SCOPIC. This was not felt to be encouraging to the salvor so this particular
clause was introduced to prevent that effect.
Clause E

Prior services: Any salvage services rendered by the contractors to


the property before and up to the date of this agreement shall be
deemed to be covered by this agreement.
3-215

Despite the provision of Article 6.2 of the Salvage Convention which gives a
ships master the power to agree salvage contracts on behalf of all parties (see
paragraph 6085) ship masters frequently prefer to consult with their owners
before agreeing to a salvage agreement. In the interval the salvage contractors
are often willing to get on with the job in hand and begin the salvage operation.
To encourage such a prompt response this clause has long been included in
successive versions of LOF.
Clause F

Duties of property owners: Each of the owners of the property shall


co-operate fully with the contractors. In particular:
(i)

the contractors may make reasonable use of the vessels machinery


gear and equipment free of expense provided that the contractors shall
not unnecessarily damage abandon or sacrifice any property on board;

(ii)

the contractors shall be entitled to all such information as they


may reasonably require relating to the vessel or the remainder of
the property provided such information is relevant to the performance of the services and is capable of being provided without undue difficulty or delay;

(iii)

the owners of the property shall co-operate fully with the contractors in obtaining entry to the place of safety stated in Box 3
or agreed or determined in accordance with Clause A.

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These duties are in addition to those imposed on the owner and master by
Article 8.2 and Article 21 of the Salvage Convention. The duty to co-operate in
getting the vessel into a place of safety can be particularly important and can in
effect mean that the ship or cargo should provide any reasonable security
required by the port authorities before granting permission for the ship to enter.
Clause G

Rights of termination: When there is no longer any reasonable


prospect of a useful result leading to a salvage reward in accordance
with Convention Articles 12 and/or 13 either the owners of the vessel
or the contractors shall be entitled to terminate the services
hereunder by giving reasonable prior written notice to the other.
3-217

This clause was originally inserted at the request of the P & I interests when The
Salvage Convention was incorporated into LOF 90. They feared without it, an
unscrupulous salvor might be encouraged to keep a salvage service going just
to achieve the benefit of the special compensation that would be due. It was later
amended to include the contractor in LOF 90, simply on the basis that the clause
should be seen to be even handed.

3-218

It will be seen that the wording . . . a useful result leading to a salvage award in
accordance with Articles 12 and/or 13 . . . does not include special
compensation under Article 14. So, continued work simply to prevent damage to
the environment would not count as a useful result for the purposes of this
termination clause. Further, the removal of a wreck which has no value (whilst
useful from a practical point of view) would not be a useful result within the
meaning of this clause for it cannot lead to a salvage award as there is no value.
Thus a salvage service may be terminated (by either party) as soon as a
salvage award is no longer possible.

3-219

It is important to draw attention to the different termination provisions under


sub-clause 9 of SCOPIC which will apply, and override the above, if SCOPIC is
incorporated into the LOF. The differences are important and we will discuss
them when we deal with the SCOPIC clause.
Clause H Deemed Performance

3-220

While earlier editions of LOF provided that the salved property should be taken
to a place of safety, it was not specifically stated (though implied) that on redelivery the ship should be in a safe condition. Some were unhappy with that so it
was decided a change should be made in LOF 2000. Further, it was felt some
guidance should be given as to the meaning of safe condition.

3-221

As a result, Clause H provides:


The Contractors services shall be deemed to have been performed when
the property is in a safe condition in the place of safety stated in Box 3 or
agreed or determined in accordance with clause A. For the purpose of this
provision the property shall be regarded as in a safe condition
notwithstanding that the property (or part thereof) is damaged or in need of
maintenance if (i) the contractors are not obliged to remain in attendance to
satisfy the requirements of any port or harbour authority, governmental

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agency or similar authority and (ii) the continuation of skilled salvage services
from the contractors or other salvors is no longer necessary to avoid the
property becoming lost or significantly further damaged or delayed.
3-222

It is clear that a salvor is not expected to carry out any repair to the vessel but
simply put it in a condition that the owner can arrange for it to be looked after
without the need for skilled salvage assistance.
Clause I

Arbitration and the LSSA Clauses: The contractors remuneration


and/or special compensation shall be determined by arbitration in
London in the manner prescribed by Lloyds Standard Salvage and
Arbitration Clauses (the LSSA Clauses) and Lloyds Procedural Rules.
The provisions of the LSSA Clauses and Lloyds Procedural Rules are
deemed to be incorporated in this agreement and form an integral
part hereof. Any other difference arising out of this agreement or the
operations hereunder shall be referred to arbitration in the same way.
3-223

LOF 2000 was designed to be a simplified version of previous editions of LOF


which were felt to have become too lengthy and complex. As a consequence six
closely printed pages were reduced to two. To achieve this all the procedural
detail previously incorporated into the contract was taken out and inserted in a
new standard document entitled the Lloyds Standard Salvage and Arbitration
Clauses (the LSSA Clauses). Clause I incorporates the LSSA Clauses into the
contract without having to set them out in detail.
Clause J

Governing law: This agreement and any arbitration hereunder shall


be governed by English law.
3-224

As English law now incorporates the Salvage Convention, all the provisions of
the Convention apply to LOF 2000.
Clause K

Scope of authority: The master or other person signing this agreement


on behalf of the property identified in Box 2 enters into this agreement
as agent for the respective owners thereof and binds each (but not the
one for the other or himself personally) to the due performance thereof.
3-225

Note the words . . . but not the one for the other . . . . LOF is not a contract
between shipowners and cargo owners. It is an agreement between salvors, on
the one hand, and the respective owners of property on the other. Thus, as no
new contractual relationship is brought into existence between ship and cargo,
there is no scope for implying binding legal obligations between them under the
LOF contract. Any disputes between ship and cargo have to be resolved under
the Contracts of Carriage. Thus, a claim for damages suffered as a result of one
party delaying the provision of security must be dealt with under the Contracts
of Carriage rather than the LOF.

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Clause L

Inducements prohibited: No person signing this agreement or any


party on whose behalf it is signed shall at any time or in any manner
whatsoever offer provide make give or promise to provide or demand
or take any form of inducement for entering into this agreement.
3-226

A self-explanatory clause which was felt important enough to incorporate into


successive versions of LOF.

3227

The contract concludes with the following Important Notices:


1.

Salvage Security
As soon as possible the owners of the vessel should notify the
owners of other property on board that this agreement has been
made. If the contractors are successful the owners of such property
should note that it will become necessary to provide the contractors
with salvage security promptly in accordance with Clause 4 of the
LSSA Clauses referred to in Clause I. The provision of general
average security does not relieve the salved interests of their
separate obligation to provide salvage security to the contractors.

2.

Incorporated Provisions
Copies of the SCOPIC Clause; the LSSA Clauses and Lloyds
Procedural Rules may be obtained from:
(i)

the contractors; or

(ii)

the Salvage Arbitration Branch at Lloyds, One Lime Street,


London EC3M 7HA.

3-228

These notices are self-explanatory and require no particular comment.

5.2.4

The LSSA Clauses

3-229

As mentioned earlier, it was possible to simplify the LOF contract by removing


the old version administrative matters. These are now contained in the LSSA
Clauses. There are 15 clauses which for those interested can be found on the
Lloyds website (www.lloydsagency.com) They are largely self-explanatory and
require no further comment.

5.2.5

The Procedural Rules

3-230

Finally, mention must be made of the Procedural Rules which were designed to
expedite the assessment of salvage awards. Again they can be found on the
Lloyds website. It will be seen that the arbitrator has the power to take a very
hands-on approach which permits him to override any party who employs delaying tactics. Their purpose is to ensure a quick and economical disposal of any
disputes which arise under the Contract. Most arbitrations involve an oral hearing at which all parties are entitled to be represented. In small cases this can be
unnecessarily cumbersome and expensive so in 2005 Lloyds devised special
rules entitled Fixed Costs Arbitration Procedural Rules to cover such cases.
These can be found on the website.

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SELF-ASSESSMENT QUESTIONS
G

Does the contract have to be in writing?

If SCOPIC is included in the LOF contract, is any other


action required to invoke its provisions?

To what extent, under an LOF contract, can a claim be made


for the salvage of the personal effects of passengers?

How does this differ from English law?

What are the rights of either party to terminate the LOF


contract?

What is meant by the provision that the contractor should


use his best endeavours?

Recommended Reading:
Brice on Salvage Law
Kennedy and Rose on the Law of Salvage

Useful Websites:
www.marine-salvage.com
www.lof-at-isu.com
www.lloydsagency.com

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6.

THE SPECIAL COMPENSATION


P&I CLUB CLAUSE

6.1

HISTORY

3-231

The Salvage Convention of 1989 made a fundamental change to the


international law of salvage by creating a new concept Special
Compensation which was intended to encourage salvors to proceed to the
assistance of ships which threatened damage to the environment. We discussed
Special Compensation earlier in this paper which concluded with the comment
that whilst the concept was initially widely welcomed by all sides of the shipping
industry, practical experience proved its mechanics to be uncertain in outcome,
time-consuming, expensive, cumbersome to operate, and a disincentive rather
than an incentive to salvors. Quite the reverse to what had been intended.
A legal argument could be found in almost every case and litigation grew at the
expense of commercial need. Instead of being encouraged, salvors became
discouraged and the P&I Clubs, new to the world of salvage and the payers of
Special Compensation, became concerned at their lack of involvement.

3-232

To resolve the problem, industry got together and devised the SCOPIC Clause
which we are about to discuss. In considering the Clause it is important to
remember that it was designed to have the same intent as Article 14 to
encourage salvors to go to the assistance of ships that threaten damage to the
environment and to follow it as closely as possible but remove the problems that
were giving rise to so much difficulty. In describing SCOPIC it is therefore useful as
we go along, to look at the problems that arose from Article 14 and see how the
SCOPIC Clause set out to resolve them. This is not just of academic interest, for
with knowledge of what the parties were trying to achieve it is easier to understand
the contract and, where there is doubt or ambiguity, interpret it the way intended.

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The Special Compensation P&I Club Clause

To say the SCOPIC Clause is something of a misnomer would be an


understatement. Fifteen complicated subclauses, three lengthy appendices and
two supporting codes of conduct is not exactly what you would imagine to be a
clause. It is complicated as will be seen from the copy annexed to this module.
Rather than go through it sub clause by sub clause, a good way to understand
SCOPIC is to look at what I would call its Ten Essential Elements.
THE 10 ESSENTIAL ELEMENTS OF SCOPIC
1.

3-234

It will be recalled that Box 7 of the LOF 2000 requires the parties to record
whether SCOPIC is part of the contract. Further, Clause C of LOF 2000 provides
that if this box is not completed SCOPIC will not form part of the contract. (see
also Rule 3.9 of Lloyds Standard Salvage and Arbitration Clauses (LSSA
clauses) If SCOPIC is not incorporated into the contract then Article 14 (if
relevant) will apply.
2.

3-235

SCOPIC is designed to be an addendum to LOF and will only be included


as part of that contract if specifically agreed in writing (see subclause 1).

When incorporated into the contract, SCOPIC replaces Article 14 of


the Salvage Convention which thereafter will no longer be applicable.
(see subclause 1)

Thus, subject to point 4 below, if SCOPIC is incorporated into the contract but
not specifically invoked (see 3 below) or is later terminated (see 8 below) the
salvor will have neither the protection of Article 14 nor of SCOPIC.
3.

Even when SCOPIC is incorporated into the contract, its


remuneration provisions will not begin to bite until the Clause is
specifically invoked in writing by the salvor (subclause 2). Further, the
calculation of SCOPIC remuneration will not begin until that point.

3-236

One of the main problems with Article 14 is its trigger mechanism, a threat of
damage to the environment. It will be recalled that we discussed this earlier. It
caused enormous difficulty. What was a threat ? Did it have to be an actual threat
or was it sufficient for it to be a reasonably perceived threat ? What were coastal
waters or waters adjacent thereto? What was substantial ? How substantial did
it have to be ? In designing SCOPIC these were all problems we wished to avoid.
So what other trigger mechanism could we have? It was concluded that the
simplest and most unchallengeable trigger mechanism was to give the salvor the
sole and unfettered power, whatever the circumstances and at any time of his
choosing, to specifically invoke the clause in writing. Hence this provision.

3-237

To balance this trigger mechanism and to discourage salvors from invoking the
clause in every case, two counter-balancing provisions were made. The first was
to provide for a discount if the traditional salvage award should exceed the
assessed SCOPIC remuneration (see point 7 below). And the second was to
give the shipowner the right to withdraw from SCOPIC at any time, subject to five
days notice and the local authorities permitting it. (see point 8 below)
4.

Once SCOPIC has been invoked the shipowner must provide security
in the sum of $3 million (subclause 3).

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3-238

This provision was made for the salvors protection and on their insistence for
without it there is no effective means of enforcing payment. Whilst Article 21 of
the Salvage Convention provides that security should be provided for a salvors
claim, it is not due until the end of the salvage operations and, in the case of
security for Special Compensation, there was often no way of enforcing its
provision. Further, before the days of SCOPIC, there was a marked reluctance
to provide it. In a number of cases shipowners, guided by their P&I Club, refused
to provide security, fought a case for Special Compensation to appeal and then
negotiated on the final appeal award.

3-239

To avoid this happening subclause 3 of the SCOPIC clause specifically provides


security in the sum of $3 million must be provided within two days of the clause
being invoked and makes provision for it to be adjusted, up or down, at the
termination of the services. To assist further, the Clubs agree not to refuse to
give security because it could not be obtained in any other way (see Clause 4 of
the Code of Practice between the International Salvage Union (ISU) and The
International Group of P&I Clubs) and, to save unnecessary costs, the ISU
agreed to accept as security a letter of undertaking from the Club concerned in
an agreed form (see Clause 6 of the said Code of Practice). Generally this
provision has worked well with members of the International Group.

3-240

As further protection to the salvor it will be seen (subclause 4) that if security is


not provided the contractor has the option to withdraw from SCOPIC (rather than
pursue a claim for a breach of contract) which would reinstate the limited
protection afforded by Article 14. This is unlikely to be of benefit to the salvor for
if security is not given for SCOPIC it is unlikely to be given for Article 14, but the
provision was included in case there were some circumstances where that
option may be of an advantage.
5.

Once SCOPIC has been invoked SCOPIC remuneration will be assessed


in accordance with a tariff (subclause 5 (iv) and Appendix A) for men and
equipment reasonably engaged or used in the operation, plus a bonus.

3-241

It will be recalled that under Article 14.3, when assessing Special


Compensation, a fair rate for all the men and equipment has to be used. The
English courts decided in the Nagasaki Spirit, that the term fair rate was to be
interpreted as a rate of expense which did not include any element of profit but
did take into consideration the criteria set out in Article 13 (h), (i), and (j), which
are provisions to encourage a professional salvor to invest in equipment and
keep it on standby ready for use in case of need. This meant, whenever an
assessment had to be made as to a fair rate, consideration had to be given to
all of the salvors equipment, even that not used in the particular service. This
factor resulted in Special Compensation often being assessed at a figure that
was just as much, or sometimes more, than it would have been, if assessed on
a normal profit rate basis. However, the mechanism gave rise to unacceptable
complications. In each case the salvors accounts, for all their equipment
whether used or not, had to be examined and consideration given to a host of
new factors, in order to establish what was a fair rate in the particular
circumstances of a case. In many cases it proved to be a major accounting
exercise. This caused untold delay, expense and much uncertainty. When
drafting SCOPIC, it was determined this problem had to be avoided.

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3-242

The answer was to establish tariff rates and Appendix A of the SCOPIC Clause
was the result. In arriving at the Tariff rates for personnel, tugs, and equipment
a very broad-brush approach was needed. It was intended that the rates should
be profitable and encouraging to salvors but clearly it was going to be more
profitable in some parts of the world, where personnel, tugs and equipment were
cheap, than in others. Consideration was given to applying different rates to
each item for different areas but dismissed as being a further complication to
what was already a very complicated clause. SCOPIC was intended as a safety
net, a minimum payment, and a broad brush approach was sufficient. A single
tariff rate for personnel tugs and equipment, that operated worldwide, would do.
By applying tariff rates it became fairly simple to calculate SCOPIC
remuneration on a daily basis.

3-243

The next question was How do we replace the bonus element of Article 14.2 ?.
This had also given much trouble in its assessment. A salvor had to prove that
but for his services there would have been damage to the environment, and
satisfy the tribunal as to the extent of that damage, which clearly would affect the
percentage of uplift. In almost every case expert evidence was needed. It was
time-consuming and expensive operation and there was much uncertainty long
after the services were complete. It was not a commercially acceptable way to
assess the remuneration due.

3-244

The solution was again to take a very broad-brush approach. At that time the
average uplift under Article 14.2 in arbitrated cases, was 26%. It was decided
that a general and fixed uplift of 25% would compensate. Again it was
recognised this would be more generous in some cases than in others but this
was a safety net, a method of assessing a minimum payment, and it was
important to have simplicity and certainty.
6.

3-245

This mirrors Article 14.4 of the Salvage Convention which provides that Special
Compensation shall only be paid to the extent that its assessment exceeds the
traditional Article 13 salvage award. The position is the same under SCOPIC. So
if the traditional salvage award is say $1 million and the assessed SCOPIC
remuneration is $1.5 million, the salvor will receive $1 million from the ship and
cargo, pro rata to value, and $0.5 million from the shipowner in respect of
SCOPIC remuneration.
7.

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The assessed SCOPIC Remuneration is due from the shipowner


(Note not cargo or other property) or his P& I insurer, insofar as it
exceeds the traditional salvage award made against salved property
under Article 13 of the Salvage Convention (subclause 6).

If the traditional Article 13 salvage award exceeds the assessed


SCOPIC remuneration, the discount provision begins to bite
(subclause 7) and the Article 13 award will be reduced by the 25% of
the difference between it and the assessed SCOPIC remuneration.

As mentioned in 2 above, some check was needed to prevent salvors invoking


SCOPIC in every case. Without some check a salvor would have nothing to lose
and might as well invoke SCOPIC on day one in every case. That would take
away one of the main elements of traditional salvage law the element of no
cure no pay. So how do we get him to invoke it only when he felt it really

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necessary and what penalty should he pay for the protection and security
afforded when SCOPIC was invoked? The answer was twofold. To give the
owner power to terminate (see 8 later) and to build in a discount clause.
3-247

Subclause 7 provides that if the SCOPIC clause has been invoked and the Article
13 award is higher than the assessed SCOPIC remuneration, then the Article 13
award shall be discounted by 25% of the difference between it and the SCOPIC
assessment. So, if the salvage award was say $1.5 million and the assessed
SCOPIC remuneration $1 million no SCOPIC remuneration would be due and the
salvage award to be paid would be reduced by $125,000 (1.5 1  25%).

3-248

The ploy seems to be successful for statistics show that SCOPIC is only invoked
in 20% of cases.

3-249

Note that the discount benefits the property underwriters, who are liable to pay
the Article 13 award, by a reduction in that award, not the P&I Clubs who are
liable to pay the Article 14 or SCOPIC remuneration. This was a conscious
decision and intended as some recompense to the property underwriters for the
provision in Article 13.1 (b) (the skill and effort of the salvor in preventing
damage to the environment) which in effect enhances a salvage award payable
by the property underwriters.
8.

The owner is entitled to terminate SCOPIC (note not the LOF


contract) at any time, after giving five days written notice (subclause
9 (ii)), PROVIDED the appropriate authorities do not object
(subclause 9 (iii)), and the salvor can withdraw from the whole LOF
contract if it is no longer financially viable (subclause 9(i)).

3-250

The Termination provisions of SCOPIC (subclause 9), together with the Discount
provision (see 7 above), counterbalance the salvors right to invoke the clause
whatever the circumstances (see 3 above) and are intended to ensure the salvor
will only invoke the clause when there is a threat of damage to the environment
and he is in need of the protection of the clause. There are three termination
provisions. Each is designed to have an effect on the other with a view to
ensuring that overall, the principal aim of SCOPIC is achieved. Namely, that it be
used and enforced by the salvor only when there is a threat of damage to the
environment.

3-251

Under subclause 9(ii) the owner can withdraw from SCOPIC (note not the LOF)
on giving five days written notice, but he is prevented from doing so under
subclause 9(iii), if the appropriate authorities object. When drafting the subclause,
it was thought that if there was a threat of damage to the environment, the local
authorities would object thus preventing the owner from withdrawing when such
a threat existed. To back up this intention, the International Group of P&I Clubs in
cl. 8 of the Code of Practice between ISU and The International Group, agreed
to recommend the owners not to withdraw without reasonable cause.

3-252

If the owners were to withdraw from SCOPIC, the salvor would no longer have
the financial protection of either SCOPIC or Article 14, and could be stuck with
an unprofitable LOF contract which he is still obliged, under that contract, to
complete. This would be unfair if he had been induced by the prospect of the
protection of SCOPIC remuneration when agreeing to the LOF contract, and the

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owner later withdrew SCOPIC. So, to protect his position, he is given the right to
withdraw from the entire LOF contract if it is no longer financially viable.
(subclause 9(i)). This provision is much stronger and more easily applied than
the termination provisions of LOF itself and acts as an additional brake on an
owner terminating SCOPIC unreasonably.
9.

As soon as SCOPIC is invoked the owner may appoint a Special


Casualty Representative (SCR) (see subclause 12) to represent all
salved property (ship and cargo)

3-253

One of the most unsatisfactory aspects of many salvage cases, particularly


those that involved Special Compensation, was the lack of information that came
back to the insurers during the course of the services This was particularly so
from a P&I Club point of view. Indeed, because of the way it was devised, there
were many Special Compensation cases of which they knew nothing until
months after the services were complete. This was unsatisfactory and to ensure
they were kept well advised on a daily basis SCOPIC provides that in every
SCOPIC case they can appoint a Special Casualty Representative (SCR)
whose principal duty is to keep them informed on a daily basis. Once appointed
the SCR represents and reports to all salved interests.

3-254

The Salvage Master must keep the SCR informed of his plans and listen to any
comments the SCR may have but the final decision on any aspect of the salvage
service is always that of the Salvage Master. The SCR has no authority or power
to bind the salved property but clearly his voice is influential. He must either
endorse the salvage masters daily report or issue a dissenting report. All reports
and communications are to be sent to all salved property through Lloyds, with
copies to the salvor.

3-255

The duties of the SCR are set out in Appendix B and are further explained in the
Guidelines for SCRs, SCR Digest 1, and SCR Digest 2, all of which can be found
on the Lloyds website www.lloydsagency.com. His independence from any
party and impartiality is important to the smooth working of SCOPIC. To protect,
encourage, and instil trust in the independence of the SCR, it is agreed that the
SCR shall not give evidence in any litigation other than in the claim for salvage
(see final sentence of subclause 11 and Appendix B).

3-256

SCRs have played an important role in SCOPIC situations and with the benefit
of the tariff rates it is now possible for an owner and his insurers to be aware and
keep an eye on the minimum cost of any operation on a daily basis. An
enormous improvement on special compensation
10.

3-257

In addition to an SCR, the hull underwriters and the cargo


underwriters are each allowed to send a Special Representative to
observe and report (subclause 13 and Appendix C)

The SCR represents all salved interests. When SCOPIC was devised it was
thought property underwriters would like to be separately represented and so a
provision was made for the hull underwriters and the cargo underwriters to each
appoint a Special Representative, one for hull and one for cargo, as additional
watchdogs. In practice, the independence of the SCR and the unbiased manner
in which they have fulfilled their duties, has ensured that Special

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Representatives are seldom appointed. When they are appointed their duties
are governed by Appendix C of SCOPIC which largely restricts them to watching
and reporting on events as they occur.
3-258

So there we have it. SCOPIC in a nutshell. How has it worked? Lloyds


statistics on 3 March 2008 show that there have been 844 LOF cases since the
inception of SCOPIC in August 1999; that the clause had been incorporated in
the LOF contract on 256 occasions (30%); and invoked on 183 occasions (22%).
There have only been 5 SCOPIC-related arbitrations. The figures
indicate SCOPIC is working well.

3-259

It should be noted that the SCOPIC clause is a living contract. The rates and the
SCR panel are reviewed each year by the SCR Committee set up under
Appendix B, and considered annually by the Lloyds Working Group which has
overall responsibility for its provisions. After its first year of use some
amendments were made, largely to correct errors, which resulted in SCOPIC
2000. A further version, SCOPIC 2005, came into effect on 1 January 2005. The
changes were not large and mainly to correct further initial errors and take into
account currency fluctuations between the time of the termination of the
services, and the date of any set-off or date of final assessment. Last year some
further fine tuning was carried out and the tariff rates reviewed, resulting in
SCOPIC 2007.

3-260

Finally, it should be noted that SCOPIC is a negotiated contract which


represents a balance of interests between the negotiating parties. It is not a
perfect instrument. There are parts which are not completely fair and logical
which can result in anomalies. As an example, the discount clause
(subclause 7) provides that when calculating the discount one should assess
the SCOPIC remuneration on the assumption that the clause had been
invoked on day one, thereby not penalising the salvor for a late invocation of
the clause. This safeguard is not given in the termination provisions
(subclause 9). So, If the shipowner terminates the SCOPIC clause under 9
(ii) and the salvor has to continue with the services (because 9 (i) does not
bite) the discount increases with each day that the services continue
(because the calculation of SCOPIC remuneration has stopped)
notwithstanding that the salvor is no longer protected by either SCOPIC or
Article 14. To be even-handed, there should be a notional assessment of
SCOPIC remuneration until the end of the actual salvage service, before
assessing the amount of the discount. Attempts have been made to correct
this but they have been rebuffed on the ground that it is a negotiated contract
with pluses and minuses on all sides and this is a minus that salvors have to
live with. Despite such anomalies the clause represents what all sides of the
shipping industry can live with. It should be read in that light.

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SELF-ASSESSMENT QUESTIONS
G

Why was SCOPIC devised and what did it replace?

At what point does the calculation of SCOPIC remuneration


begin and why?

To what extent is the assessed SCOPIC remuneration paid?

Who pays

(i)

the SCOPIC remuneration

(ii)

the salvage award under Article 13

In what circumstances can a contractor terminate a LOF


contract
(i)

which does not include SCOPIC?

(ii)

which includes SCOPIC?

In what circumstances can an owner terminate


(i)

the LOF contract?

(ii)

the SCOPIC clause?

To whom does the SCR report?

Recommended Reading
Brice on Maritime Law of Salvage 4th Edition, edited by John Reeder
(Thomson Sweet and Maxwell)
Kennedy and Rose on The Law of Salvage (Sweet and Maxwell)
Lloyds Digest (available from Lloyds Agency department)
DVD. Lloyds Open Form Serving the Maritime Community (available from
Lloyds Agency Department)
Useful Websites
www.lloydsagency.com
www.marine-salvage.com
www.lof-at-isu.com

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7.

POLLUTION

3-261

On the morning of 18 March 1967 the Torrey Canyon, laden with 120,000 tons
of crude oil, struck Pollards Rock on the Seven Stones Reef between the Scilly
Isles and Lands End. During the subsequent salvage operation there was an
explosion in the engine room and the ship split in two. The salvage operation was
called off and on the orders of the Prime Minister, the Royal Air Force was
instructed to bomb the ship and set her cargo ablaze. The attempt to burn off the
oil succeeded in part, but a large quantity remained and in subsequent days
wind and tide carried it to the western coastline of England and covered its
beaches and harbours with a thick brown oily sludge. Severe environmental
damage was caused to both the tourist and fishing industries and there was a
sustained public outcry.

3-262

It was to be the first of many tanker casualties in environmentally sensitive areas


that were to occur in subsequent years and gave rise to a whole new chain of
regulation, laws and international conventions which materially affected the
maritime industry worldwide.

3-263

Since that time there have been a number of other major tanker casualties, the
Amoco Cadiz, the Exon Valdez, the Sea Empress, the Brier, the Erika, the
Nakhodka, the Prestige and the Castor. All in their way have contributed to the
tightening of the legislative and regulatory screw imposed on shipowners,
substantially increased their, and their insurers potential liabilities and the
trend continues. Civil liability for pollution has increased, extended from oil
cargoes to bunkers and hazardous and noxious substances, and criminal

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liability for pollution introduced. This module will focus on the shipowners civil
liability for pollution and is only intended to give an overview of what is a
complex subject.
3-264

The Civil Liability for Oil Pollution Convention of 1969 and the Fund Convention
of 1971 were the initial international reaction to the Torrey Canyon. Both
materially affected and increased the civil liability of tanker owners, their insurers
and oil importers. In subsequent years, after pressure created by other
casualties to tighten their provisions, and several failed attempts, both
conventions were amended and replaced by The International Convention on
Civil Liability for Oil Pollution Damage of 1992 (CLC 1992) and the International
Convention on the establishment of an International Fund for Compensation for
Oil Pollution Damage of 1992 (Fund Convention 1992). The cover afforded by
these two conventions was further extended by a Protocol that created the
International Oil Pollution Compensation Supplementary Fund of 2003
(Supplementary Fund Convention 2003). These three conventions now govern
the pollution liabilities of shipowners, their insurers and oil importers of cargoes
carried in tankers. However, two other international conventions for other
pollutants have been added, The Hazardous and Noxious Substances
Convention of 1996 (HNS Convention), which covers cargo pollutants other than
oil, and the Bunker Convention 2002 which covers the bunkers of all ships. This
module will deal with each Convention separately.

7.1

THE CLC 1992

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This Convention came into force on 30 May 1996 and as of 31 March 2009 was
applicable in 121 States representing 96.39% of the worlds tonnage.

3-266

The CLC 1992 applies to all ships that are carrying oil in bulk as a cargo
(Article I.1). It makes the owner liable, without fault, for loss or damage in the
territorial sea or economic zone (200 miles) of a contracting state, caused
outside a ship by contamination resulting from the escape of oil from a ship
wherever such escape or discharge may occur. (Article I.6) and for preventive
measures, wherever taken, to prevent or minimize such damage (see
Article I. 6 and Article II (a) and (b)).

3-267

Note: the definition of oil includes bunkers so the Convention covers bunkers of
a ship when she is carrying an oil cargo.

3-268

No liability will attach to an owner if he can prove the damage:


1.

resulted from an act of war or a natural phenomenon of exceptional,


inevitable and irresistible character, or

2.

was wholly caused by an act or omission done with intent to cause


damage by a third party, or

3.

was wholly caused by the negligence or other wrongful act of any


government or other authority responsible for the maintenance of lights or
other navigational aids in the exercise of that function. (Article III)

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No claim for pollution damage covered by the Convention can be made against
the owner other than in accordance with the Convention (Article III.4).

3-270

Subject to an owners right of recourse, no claim for compensation for pollution


damage may be made against:
1.

servants or agents of the owner including the crew;

2.

any pilot or other person performing services for the ship;

3.

any charterer, manager or operator;

4.

any person performing salvage operations with consent;

5.

any person taking preventive measures;

6.

all servants or agents of persons mentioned in 3, 4, and 5.

3-271

Unless it is proved the pollution damage resulted from the owners personal act
or omission, committed with intent to cause such damage, or recklessly with
knowledge that such damage would result, the owner is entitled to limit his
liability to 4.51 million SDRs (US$6.15 million as of 22.4.09) if the ship is of
5,000 gross tons or less, plus 631 SDRs (US$935.6) for each additional ton,
subject to the overall total not exceeding 89.77 million SDRs (US$133.1
million) (Article V).

3-272

The owner of a ship carrying more than 2000 tonnes of oil in bulk is required to
maintain insurance, or other financial security, up to the limit of liability of the
ship and retain on board the ship a certificate of that insurance (Article VII. 1
and 2). Direct action may be taken against the insurer for any liability of the
owner but the insurer can limit his liability to that of the ship and may avail
himself of any defence available to the owner (Article VII.8).

3-273

Claims under the Convention must be brought within three years from the date
the damage occurred (Article VIII) and may only be brought in the courts of the
state in where the incident occurred (Article IX).

7.2

THE FUND CONVENTION 1992

3-274

This Convention also came in force on 30 May 1996. Only States who are
parties to the CLC 92 can be parties to this Convention. As of 31 March 2009
the Convention was applicable in 103 States representing 94.12% of the worlds
tonnage.

3-275

The Convention set up a fund for the primarily purpose of providing additional
compensation when the CLC 1992 is inadequate to compensate all the
claimants. It is in effect a top-up fund but also covers claims where the owner is
unable to meet his financial obligations under the CLC 1992 and claims where
there is no liability on the owner under the CLC 1992 (Article 4.1).

3-276

The Fund is not liable if it proves the pollution damage resulted from war or was
from a war ship or other ship engaged on a non-commercial service or the

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claimant cannot prove that the pollution resulted from an incident involving one
or more ships (Article 4.2).
3-277

The maximum amount for which the fund is liable is the difference between the
actual sum paid under the CLC 92 and (as from 1 November 2003) 203 million
SDRs (US$300.99 million). It therefore substantially extends overall cover for
pollution.

3-278

Any right to compensation under the Fund is lost unless an action is brought
against the Fund, before a competent court provided for under the CLC 1992,
within three years of the date the damage occurred (Article 6).

3-279

The Fund is financed by contributions from any person who has received a total
quantity of oil exceeding 150,000 tons in a Contracting State. (Article 10.1) and
is managed by an Assembly formed of contracting member states and a
secretariat headed by a Director (Articles 16 and 17).

7.3

SUPPLEMENTARY FUND 2003

3-280

Driven by other tanker casualties such as the Nakhodka and Erika, a number
of States felt the limits of the CLC 1992 and Fund Convention 1992 were too
low and sought change. The limits of the Fund Convention 1992 were
increased to those mentioned above as from 1 November 2003, but they were
still not enough and pressure resulted in the creation of a new fund entitled
the Supplementary Fund for Compensation for Oil Pollution Damage 2003.
(Supplementary Fund). The Supplementary Fund is in effect a third tier of
compensation and increases the total amount of compensation available for
any one incident in participating States of all three conventions, to 750 million
SDRs (US$1,112.03 million).

3-281

The Supplementary Fund came into force on 3 March 2005. Only members of
the CLC 92 and Fund Convention 92 can be parties to it. As of 31 March 2008
there were 23 contracting States representing 19.84% of the worlds tonnage. It
covers pollution in the territorial seas and economic zones of contracting States.

7.4

THE HNS CONVENTION 1996

3-282

This Convention has not yet been adopted by sufficient States and is therefore
not yet in force. It requires the consent of at least 12 States who together import
more than 400 million tons of HNS cargo Thirteen have consented but they are
well short of the required tonnage. The difficulty relates to the method by which
importers contribute to the Fund. In an effort to break the current deadlock and
resolve the situation, a Protocol to the Convention has been prepared and
approved by the legal Committee of IMO and is likely to be put to a full
diplomatic conference in 2010. As the Convention forms an important part of
maritime environmental liability and completes the pollution liability circle, it
would be useful to outline in this module its provisions as to liability which are
not expected to be changed by any amending Convention.

3-283

The HNS Convention in effect is in two parts. One part deals with a shipowners
liability as the CLC 1992 does for oil pollution and the other part deals with the

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setting up of a fund as the Fund Convention 1992 does for oil pollution. It is really
like two conventions rolled into one.
3-284

3-285

The Convention provides that the owner shall be liable for damage caused by
any hazardous and noxious substances in connection with their carriage by sea
on board the ship in the Economic Zone. (Article 7.1) unless he proves that:
1.

the damage resulted from an act of war or a natural phenomenon of an


exceptional inevitable and irresistible character; or

2.

The damage was wholly caused by an act or omission done with intent to
cause damage by a third party; or

3.

The damage was caused wholly by the negligence of any Government or


authority responsible for the maintenance of lights or other navigational
aids; or

4.

The failure of the shipper to furnish information as to the nature of the


substances shipped has
i.

caused the damage, wholly or in part; or

ii.

led the owner not to insure in accordance with Article 12.

Apart from an owners right of recourse no claim for damage under the
Cconvention or otherwise may be made against:
i.

servants or agents of the owner including the crew;

ii.

any pilot or other person performing services for the ship;

iii.

any charterer, manager or operator;

iv.

any person performing salvage operations with consent;

v.

any person taking preventive measures;

vi.

all servants or agents of persons mentioned in 3,4, and 5.

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The owner of the ship is entitled to limit liability unless it is proved that the
damage resulted from the personal act or omission of the owner, committed with
the intent to cause such damage or recklessly and with knowledge that such
damage would probably result (Article 9.2).

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The limit of liability is an aggregate of

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i.

10 million SDRs for a ship up to 2,000 gross tons; and

ii.

1500 SDRs for each ton between 2001 and 50,000 gross tons; and

iii.

300 SDRs for each ton in excess of 50,000 gross tons.

Provided that the total amount does not exceed 100 million SDRs (Article 9.1).

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Module 3

Pollution

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Hazardous and Noxious substances are defined and listed in Article 1.5 and in
general terms include certain oils in bulk (not within the CLC 1992); listed
substances; dangerous liquids; dangerous materials; and liquefied gas.

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Damage means loss of life or personal injury, loss of or damage to property


outside the ship, loss or damage by contamination, and the cost of preventive
measure (Article 1.6).

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The second part of the Convention deals with the setting up of a fund which like
the Fund Convention 1992, will pay for claims not met by the owner because he
is unable to meet his financial obligations under the Convention; or he has no
liability; or because the damage exceeds his liability (Article 14.1). The Fund will
not have any liability if it proves the damage resulted from war or the claimant
cannot prove the damage resulted from an incident involving one or more ships
(Article 14.3).

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The maximum amount for which the Fund can be liable for any one incident is
the difference between the actual sum paid by the owner under the Convention
and 250 million SDRs (US$ 370.7 million) (Article 14.5).

7.5

THE BUNKER CONVENTION 2002

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This Convention will come into force on 21 November 2008. To date it has been
ratified by 38 Contracting States which represent 75.5% of the worlds tonnage.

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The Convention applies to any pollution caused in the territorial sea and
economic zone of a State party (Article 2). It imposes strict liability on a
shipowner for pollution damage caused by any bunker oil onboard or originating
from the ship unless he can prove:
1.

the damage resulted from an act of war or a natural phenomenon of an


exceptional inevitable and irresistible character; or

2.

The damage was wholly caused by an act or omission done with intent to
cause damage by a third party; or

3.

The damage was caused wholly by the negligence of any Government or


authority responsible for the maintenance of lights or other navigational
aids. (Article 3.3)

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No claim can be made for pollution damage covered by the Convention other
than in accordance with the Convention (Article 3.5). Pollution damage means
loss or damage caused outside the ship by contamination resulting from the
escape of bunker oil from the ship, wherever such escape or discharge may
occur (Article 1.9) and the cost of preventive measures.

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The Convention does not apply to pollution damage defined in the CLC 1992;
nor to warships or State-owned non-commercial ships unless that State
otherwise elects (Article 4).

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Article 6 provides that nothing in the Convention shall affect the right of the
shipowner to limit his liability under any applicable national or international

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Pollution

Module 3

regime such as the Convention on Limitation of Liability for Maritime Claims


1976 as amended (see p 3-048). Thus in the UK, claims arising from bunker
damage will not have their own exclusive limitation fund (as in the CLC and HNS
Convention) and must share with any other claimant to the limitation fund.
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Owners are required to maintain insurance for any liability under the Convention,
and keep a certificate of insurance on board the ship (Article 7.4 and 7.5). Any
claims for compensation under the Convention may be brought directly against
the insurer (Article 7.10).

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Claims for compensation under the Convention must be brought within three
years from the date when the damage occurred. (Article 8).

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Unlike the CLC 92 and HNS Convention, there is no protection from suite for
certain third parties such as rescuers or salvors. However, the diplomatic
conference did invite participating states to include a similar protection to that
given in those two earlier conventions if they so wished and some of the States,
such as the UK, have done so.

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That concludes the discussion on Pollution and this module.

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Certificate in Marine Claims 2009 (LW1072)

Module 3

Pollution

SELF-ASSESSMENT QUESTIONS
G

Who is liable for damage caused by pollution covered by


the CLC Convention?

Who is not liable?

If a laden tanker discharges bunkers into the sea, is the


damage covered by the CLC 92 or the Bunker Convention?

Who pays for claims made under the Fund Convention 92?

Is the HNS Convention in force?

What is the limit of liability under the Bunker Convention?

Useful Websites:
www.imo.org
www.iopc.org
www.itopf.com

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APPENDICES

APPENDIX 1
International Collision Regulations Part B, Steering and Sailing Rules.

APPENDIX 2
Numbered Rules (I to XXIII) of York Antwerp Rules 2004.

APPENDIX 3
Lloyds Open Form (LOF 2000)

APPENDIX 4
Lloyds Procedural Rules.

APPENDIX 5
Lloyds Arbitrators Guidelines for Fixed Cost Arbitration Procedure.

APPENDIX 6
The SCOPIC clause (SCOPIC 2007) with Appendices A, B, and C.

APPENDIX 7
Code of Practice between the ISU and the Int. Group

APPENDIX 8
Code of Practice between the Int. Group and Property Underwriters.

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Certificate in Marine Claims 2009 (LW1072)