Salvage
Including Lloyds open form and SCOPIC
Relevant documents and M-notices: Merchant Shipping Act 1995, IMO International Convention on Salvage, Lloyds website,
Unless you work on a dedicated salvage vessel, you are very unlikely to act as a salvor; it’s far more likely that at some point you will have to request salvage. The examiner wants to see that you have an understanding of the legal basis for salvage and the practical steps to take when this is required.
What is salvage?
The International Convention on Salvage 1989 entered into force in 1996 and was made into UK law by the Merchant Shipping (Salvage and Pollution) act 1994. This has since been repealed and superseded by the Merchant Shipping Act 1995, which covers salvage and salvage claims in section 224 to 230, with further details in Schedule 11.
Salvage is defined in the Convention:
‘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.’
Salvage is separate to and distinct from responding to a vessel in distress.
If a vessel is indicating distress then the Master of another vessel is obliged to act; salvage, by definition, is voluntary.
Responding to a distress is about saving life; salvage is about saving property
Salvage does not affect the Masters obligation to render assistance to a vessel in distress. This is clearly stated in other legislation, but it is re-iterated in Article 10 of the Convention:
‘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.’
When is salvage not salvage?
The following cases are excluded from the convention by Schedule 11, Part II (2):
When the salvage takes place in inland waters and all vessels are of inland navigation
The salvage takes place in inland waters and no vessel is involved
What about towage?
Towage is voluntary, but differs from salvage in that the property is in no danger whatsoever. With that said, there are circumstances in which a towage contract may give rise to a salvage claim. From Article 17 of the Convention:
‘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.’
The threshold for a towage contract to give rise to a salvage claim is higher than if no initial contract existed. For a better understanding of this distinction, see the ‘Homewood’ case of 1928.
There are four elements that must be in place for an act to count as salvage:
Property must be in peril.
It must be marine property; this includes cargo
It must be a voluntary act; you cannot force someone to act as a salvor
It must be partially or wholly successful
To quote from the Convention:
‘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.’
‘Property means any property not permanently and intentionally attached to the shoreline and includes freight at risk.’
‘A contract or any terms thereof may be annulled or modified if the contract has been entered into under undue influence or the influence of danger and its terms are inequitable’
‘Salvage operations which have had a useful result give right to a reward.’
‘Except as otherwise provided, no payment is due under this Convention if the salvage operations have had no useful result.’
There is usually an element of urgency about the organising of a salvage operation; it needs to happen as soon as possible to maximise the chances of success. The Master of the vessel is empowered to organise salvage even if that is against the wishes of the owner; equally, if the Master deems the salvage provisions obtained by the owner to be insufficient, the Master is at liberty to make their own arrangements under their overriding authority.
This element of urgency means that there isn’t the luxury of spending days wrangling over the details of a contract. This is where Lloyds Open Form shines.
Lloyds Open Form is the most commonly used form of salvage contract. At time of writing, Lloyds Open Form 2020 is the most recent version. This is a two-page document that can be filled in in about ten minutes. As soon as the conditions for salvage are reached the Master must seek to invoke salvage.
Principles of Lloyds Open Form
No cure, no pay. There’s a reason this is in bold letters at the very top of the form. If there is no success whatsoever, the wannabe salvor is owed no money.
Recognised worldwide. This form can be used anywhere, by anyone, regardless of jurisdiction, flag state, class society etc.
Often settled out of court. In 2014 83.5% of cases were settled amicably out of court between the salvor and salvee (owner, cargo owners and insurers). In they cannot agree on an amount, Lloyds salvage and arbitration branch approve an arbitrator.
Can be agreed verbally between the salvage master and the master of the vessel. Of course it is important that there are witnesses on the bridge and that an appropriate entry is made in the Official Log Book.
Based on UK law and heard in UK courts.
While the salvage master takes responsibility for the salvage operation, the master of the vessel remains in command of their ship (unless of course the ship is abandoned and subsequently boarded by salvors). Ownership of the vessel remains with the shipowners at all times; even in the case that she has been abandoned and boarded.
How to request salvage?
The Master may request salvage by means of a ‘Pan Pan’ call on the radio, or by hoisting code flag ‘V’. With modern communications the Master could request salvage by email or phone call.
The owner may request salvage, and may engage a salvor using LOF in the event that the Master is unable to do so due to being absent or incapacitated, or if the Master has unreasonably delayed.
The three fundamental types of salvage
Simple salvage
Also known as Master negotiated salvage. The Master is still onboard the vessel and enters, willingly, into a salvage agreement, acting as the agent of the owner.
Salvage after abandonment but with hope of recovery
This is arranged by the Master or by the owner or their representative, after the Master has abandoned the vessel.
Wreck removal
Following an abandonment, and with no hope of recovery. The ships is assumed to be a total constructive loss. This is often based on the need to protect the marine environment.
The Master, when requesting salvage, has two options for what type of salvage happens:
Common law salvage is subject to local legal definitions, is based on the 1989 Convention and features only a basic SCOPIC clause.
Contractual salvage has defined conditions and rewards, the option for SCOPIC clauses and can be arbitrated in a designated jurisdiction (i.e. English courts under LOF). As success is defined it is easier to prove that conditions have been met for a reward. This is by far the preferred option; LOF is an example of contractual salvage.
Environmental protection and SCOPIC clauses
A principle common to both types of salvage given above is that of environmental protection; both the Master of the vessel to be salvaged and the Master of the vessel carrying out the salvage have an obligation to prevent damage to the marine environment; defined as ‘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’
Quoting from The Merchant Shipping Regulations 1995, Schedule 11, Chapter II, Article 8:
‘The salvor shall owe a duty to the owner of the vessel or other property in danger…to exercise due care to prevent or minimise damage to the environment’
‘The owner and master of the vessel or the owner of other property in danger shall owe a duty to the salvor to co-operate fully with him during the course of the salvage operations…to exercise due care to prevent or minimise damage to the environment’
Articles 13 and 14 of Chapter III of the regulations (Rights of Salvors) mention protecting the environment with regards to the reward given to the salvor. Article 14 also mentions a potential outcome of not acting to prevent damage to the environment:
‘If the salvor has been negligent and has thereby failed to prevent or minimise damage to the environment, he may be deprived of the whole or part of any special compensation due under this article.’
What, then, is this Special Compensation?
SCOPIC
SCOPIC stands for Special Clause Of P and I Club. It is Special Compensation to a salvor who has failed to recover property of sufficient value to cover their expenses, and exists to encourage salvors to make an attempt to protect the environment. This is in order to prevent the P&I club having to pay damages and fines following damage to the marine environment; it’s cheaper to pay for prevention than for damages. SCOPIC:
Guarantees expenses
Allows for a bonus if successful
Taken from article 14 of the Convention:
‘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’
‘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 per cent. 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 per cent. of the expenses incurred by the salvor.’
‘If the salvor has been negligent and has thereby failed to prevent or minimise damage to the environment, he may be deprived of the whole or part of any special compensation due under this article.’
If claimed under common law salvage the salvor is entitled special compensation only to cover out-of-pocket expenses.
If SCOPIC is invoked by the salvor, the Master must record this fact, and the time, in the Official Record Book and inform Lloyds Salvage Arbitration Branch.
If the ship or cargo being salvaged is low-value, or there is a low chance of success, it is in the interests of the salvor to invoke SCOPIC. It must be claimed at the time and kicks in once declared by the salvor; either at the very beginning of the operation or at any point. It is therefor in the interest of the salvor to invoke SCOPIC as soon as they think that this will lead to a greater payout than the salvage reward. A full success under SCOPIC (ship and cargo salvaged, marine environment undamaged) will pay out SCOPIC, plus 100% bonus, plus a reduced reward.
Criteria for fixing the reward
Article 13 of the convention (referred to above in the first italicised chapter from article 14) gives the criteria for fixing the reward. From these criteria it should be obvious that a non-specialised vessel, carrying out a non-dangerous salvage operation, shouldn’t expect much in the way of a reward.
the salved value of the vessel and other property
the skill and efforts of the salvors in preventing or minimising damage to the environment
the measure of success obtained by the salvor
the nature and degree of the danger
the skill and efforts of the salvors in salving the vessel, other property and life
the time used and expenses and losses incurred by the salvors
the risk of liability and other risks run by the salvors or their equipment
the promptness of the services rendered
the availability and use of vessels or other equipment intended for salvage operations
the state of readiness and efficiency of the salvor’s equipment and the value thereof
Where does salvage end?
Salvage ends at a defined place of safety, nominated by the master of the vessel being salvaged. Generally this will be the nearest place where she can obtain necessary services. This does not need to be a port; it could be an anchorage.
What happens next?
Once the vessel’s owner has lodged security the Lloyds they are free to sail. An award to the salvor will either be agreed outside of court or decided on by an arbiter appointed by Lloyds. Unpaid salvage dues may give rise to a monetary lien on the vessel. We’ll cover monetary liens, general average etc. in a separate article.
MCAQs
Explain the difference between salvage and towage
Explain the difference between salvage and responding to distress
What four elements must be in place for an act to count as salvage?
When would a towage contract lead to a claim of salvage?
Who can request salvage?
When should they request salvage?
Explain SCOPIC? What does it stand for?
Who can invoke SCOPIC?
Is special compensation different under common law salvage than under contractual salvage?
A vessel is under tow; the wind increases and the tug has to work harder to keep the towed vessel clear of some rocks. Can the tow claim salvage?
Where does salvage end?