LW1072 Module3 Website

CERTIFICATE IN MARINE CLAIMS

2009

MODULE 3

Marine Claims – The Wet Side

AUTHOR

Archie BishopConsultant

Holman, Fenwick and WillanUK

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’

Certificate in Marine Claims 2009 (LW1072) 3-1

CONTENTS

Page No

LEARNING OUTCOME 3

1 COLLISIONS 4

1.1 Claims That Can Arise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41.2 Forum Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51.3 Jurisdiction of the English Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51.4 Time in Which to Commence Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .61.5 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61.6 Collision Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71.7 Apportionment of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81.8 Principles of Apportionment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91.9 Quantum of Claims – Or Assessment of Damages . . . . . . . . . . . . . . . . . . .111.10 Enforcement of Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

2 LIMITATION OF LIABILITY 14

3 GENERAL AVERAGE 17

3.1 What is General Average? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173.2 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183.3 A Peculiarity of Maritime Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .193.4 The York-Antwerp Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

4 SALVAGE – HISTORICAL OVERVIEW 25

5 SALVAGE CONVENTION 1989 29

5.1 Master’s Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .345.2 The LOF Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

6 THE SPECIAL COMPENSATION P&I CLUB CLAUSE 66

6.1 History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

7 POLLUTION 74

7.1 The CLC 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .757.2 The Fund Convention 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .767.3 Supplementary Fund 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .777.4 The HNS Convention 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .777.5 The Bunker Convention 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

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 . . . . . . . . .87Appendix 3 Lloyds Open Form (LOF 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97Appendix 4 Lloyds Procedural Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100Appendix 5 Lloyds Arbitrators Guidelines for Fixed Cost

Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103Appendix 6 The SCOPIC clause (SCOPIC 2007) with

Appendices A, B, and C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140Appendix 7 Code of Practice between the ISU and the Int. Group . . . . . . . . . . .149Appendix 8 Code of Practice between Int. Group and Property

Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

Contents Module 3

3-2 Certificate in Marine Claims 2009 (LW1072)

© Content Copyright Archie Bishop, 2009. All rights reserved. Course structure and module format copyright Informa UKLtd 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 writtenpermission of Informa UK Limited.

PLEASE NOTE

� Self-Assessment Questions have been provided periodicallythroughout this module.These questions are designed to helpyou with your study. The questions are for your personalstudy only; do not send in your answers to these questions asthey will not be assessed.

This module is but an introduction to the world of the wet practitioner and cannothope to be a substitute for his bibles such as Marsden on Collision, Brice on theLaw of Salvage, Lowndes and Rudolf on General Average and Griggs andWilliams on Limitation of Liability, but it will give the student a good overview ofthe subject and better equip him or her to understand and play a part in theresolution of problems arising from shipping casualties. Students are encouraged to develop and expand their knowledge by referring to the abovementioned tomes.

LEARNING OUTCOME


1.1 CLAIMS THAT CAN ARISE

3-001 A variety of claims can arise from a collision and it may be helpful to summarisethem:

� Cost of repairing damage to the ships in collision and the loss of useduring 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.

3-002 It will be appreciated from this list that there will also be a variety of potentialclaimants, each with his own right of action against one or both ships. It isimportant to appreciate that the right of action of each claimant could, may wellbe, enforced in different jurisdictions.

1. COLLISIONS


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1.2 FORUM SHOPPING

3-003 After a collision there is often a wide choice of potential jurisdictions in whichto bring a claim against one or both of the colliding vessels. The tradingpattern of a ship may give opportunities to arrest her at ports at which shecalls, and in so doing establish the jurisdiction of the courts in that country.That choice is much expanded by the Arrest Convention of 1952 whichpermits the arrest of sister ships to secure a claim. Whilst there is a move tostandardise maritime law, there are still very important differences in thelaws of different states which can be to the advantage or disadvantage of theships in collision and the various claimants. As a result, forum shopping is amajor consideration in most collision cases. It is not practicable to deal withsuch matters in this course for it would involve an analysis of the laws of toomany countries, however, it is a factor that should be kept in mind. In thiscourse we will deal solely with English law, which is followed by manyCommonwealth 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 theQueen’s 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). CertainCounty Courts have Admiralty jurisdiction (Section 26 of the County Courts Act1984) but are subject to a very low financial limit (£5,000) which effectivelyprecludes their use.

3-005 The Admiralty jurisdiction of the High Court is defined in sections 20 to 24 of theSupreme Court Act 1981. Section 20(2) of that Act lists the claims set out in theArrest Convention of 1952 (see paragraph 6–295). They include all claims thatarise 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 damagecaused 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 actionin 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 aregenerally brought in rem, for both a maritime and statutory lien attaches to aship that has been in collision which permits the arrest of that ship (or a sistership under Section 21(4)(ii) SCA 1981) to enforce the provision of security fora claim.

3-007 The Admiralty Court will accept jurisdiction for collisions even if they took placeoutside UK waters, though in such circumstances the local law may be relevantas to liability. However, in appropriate cases it may stay an action pending theoutcome of another commenced in another country.

1.4 TIME IN WHICH TO COMMENCE PROCEEDINGS

3-008 Under Section 190 of the MSA 1995, any proceedings to enforce any claim or lienagainst a ship or her owners in respect of any loss of life or personal injury ordamage or loss caused by a collision, must be commenced within two years of thedate of the collision.The court has a discretion, on application, to extend this periodto such extent and on such conditions as it thinks fit and, if satisfied that in theintervening period there has not been a reasonable opportunity for arresting thedefendant’s ship within the jurisdiction of the court or the territorial sea of thecountry in which the plaintiff resides, it must extend the period for bringingproceedings to the extent that is necessary to give a reasonable opportunity forarresting 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 cansometimes gives rise to an action in nuisance or trespass claims are generallybased on negligence:

‘Where damage is done to persons or to property of any kind on land oron water, owing to the negligent navigation or management of a vessel,a cause of action arises against those who, by their own negligence orthe negligence of their servants or agents, cause such damage to bedone.’

(Marsden – 11th edition, p. 1)

1.5.1 Liability can Arise from Either the Negligence of the Ships Crew or thatof the Owners: Crew – Negligent Navigation

‘It is the duty of seamen to take reasonable care and use reasonable skillto prevent the ship from doing injury, and what is reasonable must betested 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 failureto comply with the International Collision Regulations 1972.

1.5.2 Owners – Negligence Management

3-011 Examples of negligence in management include:

� 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 fendersor a proper trim such as not to render the vessel unmanageable anddangerous;

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� failure to employ a tug when necessary or the employment of an inefficienttug may also render the owners liable for negligence.

‘The law casts upon the shipowner the duty of exercising reasonable careto make sure that his ship is in a condition in which it may be navigated orlie at anchor with safety to others. If a vessel is negligently allowed to be ina defective or inefficient state as regards her hull or equipment, or to beinadequately manned and a collision occurs, which probably would nothave occurred had it not been for her defective condition, the collision maybe 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 shipsto comply with the International Regulations for Preventing Collisions at Sea of1972 (the Collision Regulations) which are given the force of law in the UK byway of statutory instrument under the authority of Section 85(1) of the MerchantShipping Act 1995 (MSA 95).

3-013 The Collision Regulations are broken down into five parts:

Part A – General (Application, Responsibility and General Definitions)Part B – Steering and Sailing RulesPart C – Lights and ShapesPart D – Sound and Light SignalsPart E – Exemptions.

3-014 Those particularly relevant to liability for collision are, Part B – Steering andSailing Rules, and Part D – Sound and Light Signals. We will, therefore, discusseach 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 oceansand territorial seas of the world are required to follow them. A copy of the salientprovisions are in Appendix 1. The navigating seaman should know them by heartand 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 betterappreciation of what is expected of ships navigating the seas and a betterunderstanding 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 ofvessels in any condition of visibility (ie whether it be clear or restricted visibility).Particular attention is drawn to:

� Rule 5 – lookout;

� Rule 6 – safe speed;

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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.

3-017 Section 2 of Part B of the Regulations deals with the conduct of vessels in sightof one another. Particular attention is drawn to:

� 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 restrictedvisibility 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 thesignals to be sent in certain circumstances:

� 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 theCollision Regulations or to have committed some other negligent act. In suchcircumstances, the liability between the vessels has to be apportioned.Apportionment of liability in English law is governed by Section 187 of MSA 1995which 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 oneor 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 proportionto 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 notpossible to establish different degrees of fault, the liability shall beapportioned equally.’

3-023 It will be noted from the above that if cargo or freight or any property on boardthe colliding vessels suffers loss, they can only recover from each of thosevessels 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 MSA1995 provides:

‘Where loss of life or personal injuries are suffered by any person on boarda ship owing to the fault of that ship and of any other ship or ships, theliability of the owners of the ships shall be joint and several.’

3-025 Section 189 reserves the shipowner’s right of recourse against the othercolliding vessel in the event of it paying claims for personal injury in excess ofhis 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 68that in apportioning liability under the Act (then the Maritime Conventions Act1911) only faults that contributed to the damage or loss should be taken intoaccount. Thus, if one ship was in breach of one of the Collision Regulations (sayfailed 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 blameshould 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 faultthat contributed to the collision. However, in an exceptional case a fault mayalso be causative, although it did not contribute to the collision, if it contributedto the damage or loss that arose out of it. As an example, take a case where acollision occurs between ship A and ship B solely as a result of the faultynavigation of ship B but the nature and extent of the damage to ship B arisingout of the collision is solely due to the fault of ship A in not having her anchorproperly housed or stowed away. In such a case, although the fault of ship A didnot contribute to the collision itself, it did contribute to the damage to ship Barising out of the collision: The Margaret (1881) 6 PD 76. Liability for thatdamage is, therefore, apportioned under the Act according to the degree of faultof 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 plaintiffto establish both that the defendant was negligent and that the negligencecaused the damage or loss sued for. This has been held by the House of Lordsto 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 Admiraltycases. In most collisions both ships commit faults of navigation prior to thecollision between them. However, the fault of one ship may have been earlierin time than that of the other. In such a case should the collision be regardedas having been solely caused by the later fault or as having been contributedto also by the earlier fault of the first ship? In The Volute [1922] 1 AC 129 it wassaid:

‘Upon the whole I think that the question of contributory negligence mustbe dealt with somewhat broadly and on common sense principles as ajury would probably deal with it. And while no doubt, where a clear linecan be drawn, the subsequent negligence is the only one to look to, thereare cases in which the two acts come so closely together, and thesecond act of negligence is so much mixed up with the state of thingsbrought about by the first act, that the party secondly negligent, while notheld free from blame, might on the other hand invoke the priornegligence as being part of the cause of the collision so as to make it acase 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 liabilitybut it is not a question of adding up the faults of each ship and then apportioningliability according to their number. Each fault has to be weighed in the balanceand some may be more blameworthy than others.

3-031 The seriousness or weight of such faults can be looked at from two angles:

� First, a fault can be looked at from the angle of its blameworthiness orculpability, irrespective of the extent to which it contributed to the damageor loss concerned.

� Second, the fault can be looked at from the angle of the extent to which itcontributed to the damage or loss concerned, irrespective of itsblameworthiness or culpability.

3-032 These two aspects of any relevant fault have been labelled culpability andcausative potency, respectively. In apportioning liability the degree of culpabilityand causative potency of all relevant faults must be taken into account (per LordBrandon, 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 thebalance 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 ofeither ship. It is a comparatively rare event for there is nearly always some faultof one of the two ships but occasionally a case arises where there is no fault. Insuch circumstances where the collision is an inevitable accident, there is noapportionment 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 ofthe Admiralty Court, the quantum of each vessel’s damages is generallyreferred to the Admiralty Registrar. I say generally, for in exceptional cases theAdmiralty judge may order that he should also determine the quantum ofdamages. In any event, he would hear any appeal from the AdmiraltyRegistrar’s decision.

3-036 Further, generally speaking, the assessment of damages is carried out afterliability has been established – though there is a modern trend for these twoaspects of a case to run together.

3-037 The damages of each party are assessed as if each claimant were an innocentparty. It is not until after the assessments have been made that theapportionment 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 theowner of the lost or injured ship, as nearly as possible, in the same pecuniaryposition as he would have been in but for the collision. This principle is calledrestitutio in integrum (‘the right to a full and complete indemnity’) and is themeasure or standard of damages which are recoverable by the owner of a shipwhich has been injured in a collision by a wrongful act on the part of some otherperson.

3-039 However, the principle of restitutio in integrum is qualified in the followingrespects:

� 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 ofthem has sustained damage, her owner can only recover that part of hisloss 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 fullclaim and if the action has been brought in rem and the shipowner has notappeared to defend the action, the judgment of the court is against thevessel 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 oneither ship can only recover from the other ship that proportion of hisdamage 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 foreigncurrency.

1.9.3 Items of Claim

3-042 A shipowner will be able to include in his claim all loss and damage reasonablysuffered as a result of the collision. This can include:

� the damage to the ship (generally the cost of repair or value of the vesselif 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 tocargo to the extent that it is to blame for the collision (Section 187 MSA1995).

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 thedate 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 arrestor threat of an arrest of the other ship or a sister ship. It is commonly providedby means of a guarantee of the vessel’s insurers, usually their P&I club. Ifsecurity has not been provided or if it is insufficient then any subsequentjudgment can be enforced through the courts against any asset of the owner ofthe ship found liable.

Collisions Module 3


Module 3 Collisions


SELF-ASSESSMENT QUESTIONS

� Is a ship necessarily liable for a collision arising out of abreach of the Collision Regulations?

� What are the two essential features to be weighed in thebalance when apportioning blame?

� Can a claim for loss of life or personal injury share in thedamage limitation fund?

� Within what period of time must a collision action bestarted?

� Does where the collision occurred matter to the EnglishAdmiralty Court?

� In what currency will judgment be given?

3-046 It is perhaps a peculiarity of maritime law that in certain circumstances ships areentitled 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 theordinary law of the land. The reason for a vessel’s right to limit its liability is longstanding and stems from the time when merchant venturers first began to useships to trade in foreign lands. On such voyages, many unforeseen eventualitiescould occur and as a matter of public policy it was held appropriate to permit ashipowner to limit his liability so he could more reasonably measure the risks hewas taking.

3-047 The extent of the limit of liability varies from country to country. Broadlyspeaking, there are currently three systems in existence in the world today.Limitation under the Brussels Convention of 1957, which is gradually beingreplaced by many nations but which is still operable in a number of countries;limitation under the 1976 Convention on Limitation of Liability for MaritimeClaims (as amended by the 1996 Protocol to that Convention) which has beenadopted by many nations and is gradually replacing the 1957 Convention; andlimitation by reference to the value of the limiting vessel, a system whichoperates largely in North and South America.

3-048 The 1976 Limitation Convention has 85 participating States representing67.09% of the worlds tonnage. However it has recently been amended by the‘Protocol of 1996 which came into force in February 2004, which currently has37 participating States representing 32.22% of the world’s tonnage. The mainpurpose of the Protocol was mainly to increase the limitation funds fixed by the76 Convention.

2. LIMITATION OF LIABILITY


3-049 The UK is a signatory to the Protocol which was bought into force in the UK onthe 13th May 2004.

3-050 The 1976 Convention provides that a shipowner may limit his liability for any lossof life or personal injury, loss of or damage to property, which arises in direct con-nection 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 (theonus of proof is on the claimant) that the damage or loss resulted from ‘theshipowner’s 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:

� 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 lifeand 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 ship’s gross tonnageand units of account which are defined as the special drawing rights (SDR) asdefined by the International Monetary Fund.

3-054 The limit in respect of loss of life and personnel injury (as per the Protocol of1996) is:

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.

3-055 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 withthe fluctuation of the basket of currencies which constitute SDRs. On the 1 April2009 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 ofeach 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

Module 3 Limitation of Liability


claims after taking into account the apportionment of liability. Thus, one of thetwo 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 underthis balance of claims.

3-059 Interest on a limitation fund is calculated as from the date of collision to the dateof payment into court or payment to the claimants.

3-060 Note that there are additional and separate limitation funds for damage causedby oil pollution. Later in this module we will be dealing with pollution and claimsunder the CLC 1992, the Fund Convention 1992 and Bunker Convention 2002.The CLC Conventions impose strict liability on a tanker owner for any damagecaused by oil that leaks from a laden tanker. The HNS Convention of 1996 is notyet in force but, when it comes into force, it will also impose a strict liability on ashipowner for damage caused by hazardous and noxious substances. Liabilityunder these two conventions is additional and cannot form any part of a claimunder the 76 Limitation Convention. On the other hand the Bunker conventiondoes not have its own limitation fund and any claims under that Convention areto be included with other claims under the 1976 Limitation Convention.

Limitation of Liability Module 3



� In what circumstances can an owner limit his liability underthe 1976 Convention?

� How is the limit calculated?

� When two ships in collision have claims against oneanother, is limit applied before or after the balance of claimis struck?

� Can a claim for damage which is covered by the CLC 92 beincluded in a claim under the 1976 Limitation Fund?

� Can a claim which is covered by the Bunker Convention 2002be included in a claim under the 1976 Limitation Fund ?


3.1 WHAT IS GENERAL AVERAGE?

3-061 General average, like salvage, is a very ancient right – one peculiar to maritimelaw. Whilst probably a principle used by the Phoenicians, the first writtenevidence of it appears in the Rhodian Maritime Code in the sixth century:

‘The Rhodian Law decrees that if in order to lighten a ship merchan-dise has to be thrown overboard, that which has been given for allshould be replaced by the contribution of all.’

3-062 The law was a very pragmatic one. In those times, goods were transported onsmall ships which were readily affected by bad weather. If a storm were todevelop a shipwreck could sometimes only be avoided by jettisoning part of thecargo and the lightening of the ship. A measure, whilst beneficial to the ownersof properties saved, which could ruin the owner of the cargo jettisoned. At thattime the merchants or owners of the cargo were often themselves aboard theships and no doubt would have strong views as to which cargo to jettison. It wasin the interest of all that there should be no delay or hesitation on the part of themaster as to what should be jettisoned. The agreement of all to compensate theone who made a sacrifice for the benefit of the others made the decision as towhich cargo should go that much easier.

3-063 The principle survived for centuries and the laws similar to the Rhodian law wereadopted by many ports and countries in Europe. They are clearly set out in theRoles of Oleron in 1260 and many other sea codes of later years (the Pisan

3. GENERAL AVERAGE

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

3-064 Unlike most other nations, England had no written sea code but its generalmaritime law clearly followed the principles, though not the fine detail, set out in theRoles of Oleron as is evidenced by a case heard in the Kings Bench in 1285.Whilstaccepting the general principle that property saved should compensate propertysacrificed for the mutual benefit, the Court exempted from contribution the ship andits apparel, the Captain’s ring, the seamen’s victuals, implements for making meals,the jewellery of, and silver cup from which the ship’s 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, whowere responsible for the maritime law of England, to govern their decisionsexclusively by the laws of Oleron. Others, like Flanders, Catalonia, Genoa andHolland followed suit. In succeeding years, the general maritime law of Englanddeveloped to where it is today.

3.2 DEFINITION

3-066 So how do we define ‘general average’. A widely accepted judicial definition wasgiven by Lawrence J in Birkley v Presgrave in 1801:

‘All loss which arises in consequence of extraordinary sacrifices made orexpenses incurred for the preservation of the ship and cargo comes withinGeneral 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 beencodified into English statutory law but it is defined in Section 66 of the MarineInsurance Act of 1906 as follows:

‘66-(1) A general average loss is a loss caused by or directlyconsequential on a general average act. It includes a generalaverage expenditure as well as a general average sacrifice.

66-(2) There is a general average act where any extraordinary sac-rifice or expenditure is voluntarily and reasonably made orincurred in time of peril for the purpose of preserving theproperty imperilled in a common venture.’

3-068 Whilst this definition is for the purposes of the Marine Insurance Act, there isjudicial authority for the proposition that it will prevail for all purposes. ‘Althoughthe application of the Act is clearly confined to marine insurance it was intendedto 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. There is a general average act when, and only when, any extraordi-nary sacrifice or expenditure is intentionally or reasonably made orincurred for the common safety for the purposes of preserving fromperil the property involved in the common maritime adventure.’

General Average Module 3


3.3 A PECULIARITY OF MARITIME LAW

3-070 Like salvage, general average is a peculiarity of maritime law and has no placein the ordinary law of the land. Thus, if there were a fire in a warehouse and oth-erwise sound goods were damaged by the fire-fighting effort in extinguishing thefire, there is no suggestion that the property thereby saved should contribute tothe property damaged by the efforts made to save it. But if similar events wereto occur at sea, this would be a general average act and all the property savedwould 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 averageis a voluntary sacrifice made for the benefit of all, whilst particular average is losscaused by a marine peril – an accident. The difference is important for in generalaverage 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 matterinsured, caused by a peril insured against, and which is not aGeneral 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 togeneral 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 cargoesbeing of different nationalities many differences in the application of theprinciples of general average arose. It was obviously desirable to have an inter-national set of rules common to all countries and an attempt to achieve this wasmade by the Glasgow Resolution in 1860. But whilst rules were agreed, theimplementation of them through the legislative process suggested, failed.Another attempt was made in the York conference in 1864 but again failed forsimilar reasons. The problem was finally solved by the Antwerp conference in1877 which agreed to proceed on the path of voluntary agreement rather thanone of legislation. The change of approach was successful and the result wasthe York-Antwerp Rules 1877. Whilst some nations subsequently gave legislativeeffect to these rules, in England they were given practical effect by incorporatingthem 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 noeffect unless specifically incorporated into the contracts of carriage. If they are notincorporated into the contract then in this country the general maritime law ofEngland as found by the courts will apply. Whilst the general maritime law ofEngland recognises the right to general average, there will be differences withmany of the provisions of the York-Antwerp Rules. As this module is just an intro-duction to General Average and the York-Antwerp Rules are generallyincorporated in most contracts of carriage, this module will only focus on the later.

Module 3 General Average


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 whichgive legislative effect to them, on the date directed by that legislation. In thosecountries, such as the UK and the USA, where the rules have no force exceptby contract, it will depend upon the agreement of the contracting parties. If acharterparty were to state that the York-Antwerp Rules 2004 (or possibly evenjust ‘the York-Antwerp Rules’) the 2004 rules will be applied, but if the contractwere to say the York-Antwerp Rules 1974 (or any other edition) then those Ruleswill apply. It is therefore important to look carefully at the contracts of carriage tosee 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 23numbered rules (I to XXIII). They open with the:

Rule of Interpretation

‘In the adjustment of General Average the following rules shall applyto 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 theeffect of the judgment in ‘The Makis’ 1929 1 KB 187) that the numbered rulesprevail over the lettered rules if there is any inconsistency between them. This iswell illustrated by the case of ‘The Alpha’ (1991) 2 LLR 515 which wasconsidering 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. Hermaster with the intent to benefit all and knowing it might cause damage ran hisengine for some time despite a blockage in the cooling system causing some$800,000 worth of damage to the ship’s machinery. The ship claimed acontribution from the cargo in general average under Rule VII which provided:

‘Damage caused to any machinery and boilers of a ship which is ashoreand in a position of peril, in endeavouring to refloat, shall be allowed in gen-eral average when shown to have arisen from an actual intention to float theship 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 inrunning his engines for so long in such circumstances and that this was contraryto Rule A which provides that the ‘sacrifice or expenditure should be reasonablymade’. The judge agreed that the master’s action was both unskilful and unrea-sonable and, if that had been material, would have held it to be negligent, butnevertheless found for the shipowner as there was no requirement of reason-ableness that could be implied into Rule VII, and under the Rule ofInterpretation, 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 inthe 1994 Rules. This rule provides as follows:



Rule Paramount

‘In no case shall there be any allowance for sacrifice or expenditureunless reasonably made or incurred.’

3-083 After the Rule of Interpretation and the Rule Paramount, there then follow the 7lettered rules which are set out hereunder without comment as they give a bet-ter appreciation of the concept of general average as applied within the shippingindustry.

Rule A

1. There is a general average act when, and only when, any extraordi-nary sacrifice or expenditure is intentionally and reasonably made orincurred for the common safety for the purpose of preserving fromperil the property involved in a common maritime adventure.

2. General average sacrifices and expenditures shall be borne by thedifferent contributing interests on the basis hereinafter provided.

Rule B

1. There is a common maritime adventure when one or more vesselsare towing or pushing another vessel or vessels, provided that theyare all involved in commercial activities and not in a salvageoperation. When measures are taken to preserve the vessels andtheir cargoes, if any, from a common peril, these Rules shall apply.

2. A vessel is not in common peril with another vessel or vessels ifby simply disconnecting from the other vessel or vessels she isin safety; but if the disconnection is itself a general average actthe common maritime adventure continues.

Rule C

1. Only such losses, damages or expenses which are the directconsequence of the general average act shall be allowed asgeneral average.

2. In no case shall there be any allowance in general average forlosses, damages or expenses incurred in respect of damage tothe environment or in consequence of the escape or release ofpollutant substances from the property involved in the commonmaritime adventure.

3. Demurrage, loss of market, and any loss or damage sustained orexpense incurred by reason of delay, whether on the voyage orsubsequently, and any indirect loss whatsoever, shall not beallowed as general average.

Rule D

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



been due to the fault of one of the parties to the adventure, but thisshall not prejudice any remedies or defences which may be openagainst or to that party in respect of such fault.

Rule E

1. The onus of proof is upon the party claiming in general averageto show that the loss or expense claimed is properly allowableas general average.

2. All parties claiming in general average shall give notice in writ-ing to the average adjuster of the loss or expense in respect ofwhich they claim contribution within 12 months of the date ofthe termination of the common maritime adventure.

3. Failing such notification, or if within 12 months of a request forthe same any of the parties shall fail to supply evidence in sup-port of a notified claim, or particulars of value in respect of a con-tributory interest, the average adjuster shall be at liberty to esti-mate the extent of the allowance or the contributory value on thebasis of the information available to him, which estimate may bechallenged only on the ground that it is manifestly incorrect.

Rule F

Any additional expense incurred in place of another expense, which wouldhave been allowable as general average shall be deemed to be general aver-age and so allowed without regard to the saving, if any, to other interests, butonly up to the amount of the general average expense avoided.

Rule G

1. General average shall be adjusted as regards both loss and con-tribution upon the basis of values at the time and place whenand where the adventure ends.

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

3. When a ship is at any port or place in circumstances which wouldgive rise to an allowance in general average under the provisionsof Rules X and XI, and the cargo or part thereof is forwarded todestination by other means, rights and liabilities in general aver-age shall, subject to cargo interests being notified if practicable,remain as nearly as possible the same as they would have beenin the absence of such forwarding, as if the adventure had con-tinued in the original ship for so long as justifiable under the con-tract of affreightment and the applicable law.

4. The proportion attaching to cargo of the allowances made in gen-eral average by reason of applying the third paragraph of this ruleshall not exceed the cost which would have been borne by theowners of cargo if the cargo had been forwarded at their expense.



3-084 After the seven lettered rules there follow the numbered rules I to XXIII which asmentioned 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 gen-eral principles of general average, but their text is annexed to the module forready reference should the student so desire.

3-085 The 2004 Rules are very similar to the 1994 version but important changes weremade to meet the concerns of the marine insurance industry and as they arerelatively new, attention is specifically drawn to them. The changes relate toRule VI which deals with salvage remuneration.

3-086 Salvage has long been recognised as a general average expenditure (seeRule VI – York-Antwerp Rules 1974 and 1994) and the subject of a generalaverage adjustment. This was so notwithstanding that, in most cases, salvage isawarded and paid by individual salved interests that is, ship and cargo, in pro-portion to their value (Article 13.2 of the Salvage Convention 1989) and hasalready, in effect, been apportioned between the contributing interests.

3-087 However, the basis of that apportionment has been different. Salvage awardsare based on the value of property at the end of the salvage services, whereasgeneral average is based on the value at the termination of a voyage. Oftenthere is little difference between the two but sometimes there is – particularlywhen there has been another ‘event’ between the completion of the salvageservices and the end of the voyage. The underwriting market has long objectedto this readjustment of a salvage award, which they felt to be an unnecessaryexpense, and for a number of years has sought to extinguish the rule. It wasfinally successful in 2003 when it persuaded the CMI at its Vancouver confer-ence to amend the earlier Rule VI when adopting the new York-Antwerp Rules2004. The new rule VI (a) provides:

‘Salvage payments, including interest thereon and legal fees associatedwith such payments, shall lie where they fall and shall not be allowed in gen-eral average, save only that if one party to the salvage shall have paid all orany of the proportion of salvage (including interest and legal fees) due fromanother party (calculated on the basis of salved values and not general aver-age contributory values), the unpaid contribution to salvage due from thatother 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 paythe whole of any salvage award against ship and cargo.

3-089 As we shall later see in this module, when considering salvage and the assessmentof a salvage award under Article 13 of the Salvage Convention 1989, one of theelements to be borne in mind in that assessment is the skill and effort of the salvorin preventing or minimising damage to the environment (Article 13.1(b)). Thiselement in the assessment of a salvage award has never been separated from theother nine elements but to make it abundantly clear that that element is included inthe exclusion of salvage from general average, Rule VI (b) provides:

‘Salvage payments referred to in paragraph (a) above shall includeany salvage remuneration in which the skill and efforts of the salvors



in preventing or minimising damage to the environment such as isreferred to in Article 13 paragraph 1(b) of the International Conventionon Salvage 1989 have been taken into account.’

3-090 Again, as we shall later see in this module, the Salvage Convention 1989specifically provides that any special compensation awarded under Article 14 ofthe Convention should be for the account of the shipowner alone and, in anaddendum to the Convention, specifically requests that the York-Antwerp Rulesbe amended to ensure that special compensation under Article 14 was notsubject to general average. A provision to this effect was first included in the1994 Rules. This has been amended in the 2004 rules so as to include theSCOPIC clause (a successor to Special Compensation under Article 14 whichwill be discussed later), and Rule VI (c) now reads:

‘Special compensation payable to a salvor by the shipowner underArticle 14 of the said Convention to the extent specified in paragraph 4of that Article or under any other provision similar in substance (such asSCOPIC) shall not be allowed in General Average and shall not be con-sidered a salvage payment as referred to in Paragraph (a) of this Rule.’




� What is General Average?

� Distinguish it from Particular Average.

� When are the York-Antwerp rules applicable and whichversion will be relevant?

� If there is a conflict between the lettered and the numberedrules which prevail?

� Who contributes to GA and in what proportions?

� A fire damages part of the cargo and the efforts to extinguishdamage another, which part is recoverable in GA?

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


3-091 Salvage is a very ancient right. One that can be traced to the laws of many oldtrading countries, some over 3000 years ago. Until recently it has been basedentirely on the principle of no cure – no pay. If you fail, you are entitled to nothingbut if you succeed you are rewarded generously.

3-092 At the beginning of the twentieth century, salvage law was internationallycodified by the Salvage Convention of 1910. While the UK was a signatory tothat Convention it did not actually pass an Act to endorse it as much of theConvention was already part of English common law. Such additions as werenecessary, related to the time for commencement of proceedings and wereincorporated into Section 8 of the Maritime Conventions Act 1911.

3-093 The twentieth century also brought with it the world’s first international salvagecontract, Lloyd’s Open Form (LOF) which was first published for global use in1908. 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 forthe environment, there was a move to amend and modernise the 1910Convention. This gained momentum following the grounding of the ‘AmocoCadiz’ in 1978 and resulted in the Salvage Convention 1989.

4. SALVAGE – HISTORICAL OVERVIEW

3-095 At 09:45 on the 16 March 1978, the ‘Amoco Cadiz’, a VLCC laden with some220,000 tonnes of crude oil and 7,000 tons of bunker fuel, experienced asteering 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 tugassistance. The tug ‘Pacific’ answered the call at 11:28, offered a LOF contractand headed for the casualty off which she arrived at 12:20. It was difficult tomake fast a tow line in the prevailing sea conditions but one was established by14:00 when the tug began to tow. There was a delay in agreeing to the LOFcontract whilst the Captain contacted his owners in Chicago but agreement to aLOF contract was reached at 16:00. At 16:15 the tow line broke through force ofweather and despite best efforts could not be re-established until 20:55 thatevening. Meanwhile ‘Amoco Cadiz’ drifted under the influence of storm forcewinds towards the shore. She first touched bottom at 21:04 causing her engineroom to flood. She grounded again at 21:39 when her hull was breached in wayof her cargo tanks and pollution began. Pounded by the seas she broke in twoat 10:00 the following morning releasing the remains of her entire cargo andbunkers into the sea giving rise to immense pollution which gradually spread inthe following weeks to over 320 kilometres of Brittany’s rocky coastline causingimmense damage to tourism and fisheries.

3-096 That casualty, and the public furore that followed, led many to believe salvage lawwas in need of radical review.The International Maritime Organization (IMO) askedthe Comité Maritime International (CMI) to review the 1910 Salvage Convention,and to draft a new Convention, taking into account modern needs.The CMI agreeda draft Convention at its Conference in Montreal in 1981. That draft was thenpassed to the Legal Committee of IMO who after further work presented a finaldraft to a Diplomatic Conference in 1989. The Convention, which came into forceon 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.

Salvage – Historical Overview Module 3


Module 3 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

Finland Kiribati Saint Kitts and Nevis Faroe Islands

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 tomaritime law. If I see my neighbour’s house on fire and voluntarily extinguish thefire, I am not entitled to any remuneration for so doing. However, if a ship comesacross another vessel on fire and her crew extinguish that fire, or otherwisesave, 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 tosalvage is based on long-standing public policy. The seas can be a lonely placeand even today there are parts of the world where it is not easy to findassistance.The entitlement to salvage encourages others to assist and by givingthat encouragement, discourages any temptation there might otherwise be toengage in piracy.

3-098 These ancient reasons for the right to salvage hold good today, notwithstandingthe greater presence of ships on the sea and modern communications whichpermit calls for assistance. However, yet another reason has been added by the

Salvage Convention of 1989 – the protection of the environment. The preambleto the Salvage Convention 1989 states:

‘NOTING that substantial developments, in particular the increasedconcern for the protection of the environment, have demonstrated theneed 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 areavailable to persons who undertake salvage operations in respect ofvessels and other property in danger.’

3-099 To promote the new objective, the protection of the environment, the Conventionmakes provision for a new system of remuneration in addition to the traditionalsalvage award. As we shall later see, under Article 14, special compensationcan, in certain circumstances, now be given whenever there is a threat ofdamage to the environment.Thus, the modern day salvor is not only encouragedto go to the assistance of ships and property upon the sea but also, whensalving them, to prevent and minimise damage to the environment.

3-100 Salvage may be claimed by anyone who voluntarily goes to the assistance of aship or, with some exceptions with which we will later deal, other property at seawhich 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 becarried out by other merchant vessels or by private individuals. Such claims aregenerally made under the terms of a specific salvage contract, such as Lloyd’sOpen Form, of which we will talk more of later, but in the absence of such acontract it is still possible to make what is known as ‘a common law claim forsalvage’. Under English law and the laws of many other countries, a claim forsalvage will arise whenever a person, acting as a volunteer and without priorduty, succeeds in or contributes to, the preservation of any vessel or otherproperty which is at sea and in danger.

Salvage – Historical Overview Module 3



� What is the age-old principle behind the making of asalvage award?

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

� What motivated the development of the SalvageConvention of 1989?

� Who can claim salvage?


3-102 The Convention is broken down into five chapters. Each will be dealt withseparately.

CHAPTER I – GENERAL PROVISIONS

Article 1 – Definitions

For the purpose of this Convention:

(a) Salvage operation means any act or activity undertaken toassist a vessel or any other property in danger in navigablewaters 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 intentionallyattached to the shoreline and includes freight at risk.

(d) Damage to the environment means substantial physical damageto human health or to marine life or resources in coastal orinland waters or areas adjacent thereto, caused by pollution,contamination, fire, explosion or similar major incidents.

(e) Payment means any reward, remuneration or compensation dueunder this Convention.

5. SALVAGE CONVENTION 1989

(f) Organization means the International Maritime Organization.

(g) Secretary-General means the Secretary-General of the Organization.

3-103 Lets examine these definitions a little more closely.

‘Salvage operations’

‘(a) Salvage operation means any act or activity undertaken toassist a vessel or any other property in danger in navigablewaters or in any other waters whatsoever.’

3-104 This definition substantially widens the subjects which were capable of beingsalved under pre-Convention English common law. and, on the face it, the areasin which salvage operations can take place. The widening of property capable ofsalvage 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.

3-105 Prior to the Convention, English law only recognised as salvage, a service whichtook 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, butnot entirely.

3-106 As we shall see under the provisions of Article 30 of the Convention, it is possi-ble for adopting States to make reservations in respect of some elements andthe 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 –

(a) to a salvage operation which takes place in inland waters ofthe United Kingdom and in which all the vessels involved areof inland navigation; and

(b) to a salvage operation which takes place in inland waters ofthe United Kingdom and in which no vessel is involved.

(2) In this paragraph ‘inland waters’ does not include any waterswithin the ebb and flow of the tide or ordinary spring tides orthe waters of any dock which may directly or (by means of oneor more other docks) indirectly connected with such waters.’

Thus under English law, salvage is still not possible in non-tidal watersunless it is carried out by a sea-going vessel or unless it is in a dockconnected 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 thepast because, as we will later see, the definition of property is so

Salvage Convention 1989 Module 3


all-embracing, it is still important for one of the main changes tosalvage law brought about by the Convention is the entitlement, incertain circumstances, to special compensation under Article 14, whichonly applies to salvage operations in respect of ‘a vessel’. The definitionof ‘vessel’ is therefore still important insofar as liability for specialcompensation is concerned.

Subject to that, this definition accords with the old English common lawdefinition as set out in The ‘GAS FLOAT WHITTON NO. 2’ [1897] AC. 337.

‘Property’

(c) Property means any property not permanently and intentionallyattached to the shoreline and includes freight at risk.

The definition of property considerably widens previous English law so thatvirtually anything is now capable of salvage. Thus, whilst under the old Englishcommon law a light vessel was not capable of being salved because it was nota vessel (the ‘GAS FLOAT WHITTON NO. 2’ ) it clearly would now be salvablebecause it is property which is not permanently and intentionally attached tothe shore line. The widened definition also changes another aspect of oldestablished salvage law. The personal effects and baggage of passengers,master and crew have long been excluded by common law from claims forsalvage. The definition of property clearly changes that. This could give rise todifficulty, particularly if a modern day cruise liner were to be salved. Thedifficulty in enumerating and valuing each passenger’s goods and prosecutinga claim for salvage against each passenger can well be imagined. It is for thisreason that LOF 2000 (see later) specifically excludes from a salvage claim thepersonal effects or the baggage of passengers, master and crew.

‘Damage to the Environment’

‘Damage to the environment means substantial physical damage to humanhealth or to marine life or resources in coastal or inland waters or areasadjacent thereto, caused by pollution, contamination, fire, explosion, orsimilar major incidents.’

3-107 The definition is of considerable importance when assessing whether a salvor isentitled to Special Compensation under the provisions of Article 14 of theConvention. The words substantial physical damage have given rise to muchlegal argument in LOF arbitrations. What is ‘substantial’ ? The arbitrators answeris, ‘it depends’. It depends on the particular circumstances of each individualcase. A few barrels of oil in a sensitive place would be sufficient. On the otherhand 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 sevencountries having refused to give the ship a place of refuge because of a per-ceived danger to their coastline, the then Lloyd’s appeal arbitrator found that30,000 tons of petroleum and 100 tons of bunkers on a ship which may havegrounded off Cape Palos in Spain, may have given rise to a reasonably per-ceived threat of substantial damage to the environment for the purposes ofArticle 14.1 (a point which he did not have to decide), but would not have givenrise to actual substantial damage for the purposes of entitlement to the upliftunder Article 14.2. He agreed that it would have given rise to some damage butin his view the damage would not have been ‘substantial’.

Module 3 Salvage Convention 1989


The remaining definitions in Article 1 are self-apparent and do not needfurther explanation.

Article 2

Application of the Convention

This Convention shall apply whenever judicial or arbitral proceedingsrelating to matters dealt with in this Convention are brought in a StateParty.

This Article makes the Convention applicable in any legal proceedings inany contracting State even if the services took place outside the territorialwaters 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 contractout 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 mobileoffshore drilling units when such platforms or units are on location engagedin the exploration, exploitation or production of sea bed mineral resources.

This provision was not in the original CMI Draft Convention and wasinserted by the Legal Committee during its debate on that draftfollowing representations made by the oil industry. Offshore fixed orfloating platforms when in operation can be extremely complicated andthe oil industry feared that if they were not excluded from theConvention it would encourage volunteer salvors, without the necessaryknowledge and expertise, to attempt a salvage operation on a platformin an emergency and result in more damage than harm. The oil industrystrongly felt such work should be carried out by professionals who hadskill and specific knowledge of the operation of such platforms. It wasfor this reason that this sole exclusion from an otherwise substantiallywidened definition of what property could be salved was made.

It will be noted that to be excluded platforms have to be on location and tobe actually engaged in exploration or exploitation or production. A self-propelled rig underway or a rig under tow is, therefore, subject to theConvention. The term ‘engaged’ has still to be interpreted by the arbitratorsor the courts, but it is submitted that it would include a temporary shut downof production for a short period if it was in the normal course of production.

Article 4

State-owned Vessels

1. Without prejudice to Article 5, this Convention shall not apply to warshipsor other non-commercial vessels owned or operated by a state and



entitled, at the time of salvage operations, to sovereign immunity undergenerally recognised principles of international law unless that statedecides 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 suchapplication.

Section 230(1) of the Merchant Shipping Act of 1995 provides that,‘subject to Section 29 of the Crown Proceedings Act 1947 (exclusion ofproceedings in rem against the Crown) and so far as is consistent withthe Salvage Convention, the law relating to simple salvage, whether oflife or property, shall apply in relation to salvage services in assistingany of Her Majesty’s ships, or in saving life therefrom, or in saving anycargo or equipment belonging to Her Majesty in the right of herGovernment 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 arerendered by or on behalf of Her Majesty, whether in right of herGovernment in the United Kingdom or otherwise, her Majesty shall beentitled to claim salvage in respect of those services to the same extentas any other salvor, and shall have the same right and remedies inrespect of those services as any other salvor.’

It is convenient to note there that under Section 230 (3) of the 95 Act ‘noclaim for salvage services by the Commander or crew or part of thecrew of any of Her Majesty’s ships shall be finally adjudicated upon,without the consent of the Secretary of State to the prosecution of theclaim.’ Consent is generally given to the extent that the salvage servicehas been purely personal and not in respect of a service rendered undera public duty.

Article 5

Salvage Operations Controlled by Public Authorities

1. This Convention shall not affect any provisions of national law or anyinternational convention relating to salvage operations by or underthe control of public authorities.

2. Nevertheless, salvors carrying out such salvage operations shall beentitled to avail themselves of the rights and remedies provided forin this Convention in respect of salvage operations.

3. The extent to which a public authority under a duty to performsalvage operations may avail itself of the rights and remediesprovided for in this Convention shall be determined by the law of theState where such authority is situated.

Shipping casualties which threaten a coastline or coastal environmentoften give rise to intervention by government or public authorities who



can intervene and even take charge of a salvage operation in whichprivate salvors are involved. Their right to do so is recognised by Article5 but to prevent this being used as an argument for depriving theprivate salvor of his right to claim salvage it will be seen that Article 5.2specifically reserves his position.

Article 6

Salvage Contracts

1. This Convention shall apply to any salvage operations save to theextent that a contract otherwise provides expressly or by implication.

2. The master shall have the authority to conclude contracts for salvageoperations on behalf of the owner of the vessel. The master or theowner of the vessel shall have the authority to conclude suchcontracts on behalf of the owner of the property on board the vessel.

3. Nothing in this article shall affect the application of article 7 norduties to prevent or minimize damage to the environment.

3-108 It will be noted that it is possible under Article 6.1 to contract out of the provisionsof the Salvage Convention, subject to it not affecting the application of Article 7and the duty to prevent or minimise damage to the environment. As we shalllater see, this freedom to contract has been used in the LOF 2000 contract, toreplace Article 14 with the SCOPIC clause.

5.1 MASTER’S AUTHORITY

3-109 A salvage contract such as Lloyd’s Open Form (LOF) is generally made onbehalf of the shipowner, the cargo owner and the owners of all property on boardand as we shall see under the Salvage Convention each and every owner isliable 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 theshipowner there would not appear, at first sight, to be anyone with authority tocontract on behalf of the other property interests.

3-110 Before the Salvage Convention, English law resolved the problem with thedoctrine of ‘agent of necessity’ (see Choko Star (1990) 1 Lloyd’s Rep.525) butwith modern communications that doctrine came under strain. The problem hasnow 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 salvageoperations on behalf of the owners of the vessel. The master or theowner of the vessel shall have the authority to conclude suchcontracts on behalf of the owner of the property on board the vessel.’

3-111 This provision is important for without it a master or owner may not haveauthority to conclude salvage contracts on behalf of cargo and modern day



salvage would be impossible. Just imagine a ship’s master seeking authority tosign a salvage contract from the owners of all the cargo aboard a moderncontainer ship.

3-112 It will be noted that this provision also specifically provides that the master shallhave authority to conclude salvage contracts on behalf of the owners of the ves-sel. In English law he has probably always had ostensible authority to contractbut in the light of the ‘Amoco Cadiz’ experience where there was a delay whilstthe owners’ consent to contract was sought, this made it clear the master couldact without obtaining that consent.

Article 7

Annulment and Modification of Contracts

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

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

(b) the payment under the contract is in an excessive degree toolarge or too small for the services actually rendered.

3-113 The English courts have long-standing jurisdiction to set aside inequitablecontracts induced by undue influence which are in breach of common lawand this provision does no more than give legislative confirmation of thatposition. As to what is ‘undue influence’ this is a complicated aspect of con-tractual law and it is not appropriate to deal with if here but students shouldbe aware of the possibility. It is rarely relevant to two commercial contractualparties.




� 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?

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 orother 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 tothe environment;

(c) whenever circumstances reasonably require, to seekassistance from other salvors; and

(d) to accept the intervention of other salvors when reasonablyrequested to do so by the owner or master of the vessel orother property in danger; provided however, that the amountof his reward shall not be prejudiced should it be found thatsuch a request was unreasonable.

3-114 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 providesthe salvor shall use his ‘best endeavors’ to salve the property. What is the differ-ence? It is clear the requirement to use ‘best endeavors’ in LOF 2000 is moreonerous. It includes the duty set out in Article 8 to exercise due care but alsoimposes an obligation on the salvor to complete the salvage service and takethe ship to a place of safety. There is no such obligation under the Convention.

3-115 It will be seen that Article 8.1(b) imposes a duty on the salvor to exercise due care toprevent or minimise damage to the environment. This is a new duty reflecting theincreased concern for the protection of the environment. As we shall later see, thequid pro quo for this additional duty on the salvor is that ‘the skill and effort of thesalvor in preventing or minimising damage to the environment’has been added to thelist 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 compen-sation if there is a ‘threat of damage to the environment’ (Article 14.1 and 14.2).

3-116 The duty to accept the intervention of another salvor is new and instigated by theConvention because it was felt important to ensure the best effort was alwaysmade to salvage vessels which threatened damage to the environment. It will beseen that if the salvors are unreasonably requested to accept the intervention ofothers, they should not be prejudiced.

3-117 The duties of the master and owners are covered by the second section ofArticle 8 which provides:

2. The owner and master of the vessel or the owner of other prop-erty in danger shall owe a duty to the salvor:

(a) to co-operate fully with him during the course of thesalvage operations;



(b) in so doing, to exercise due care to prevent or minimizedamage to the environment; and

(c) when the vessel or other property has been brought to aplace of safety, to accept redelivery when reasonablyrequested by the salvor to do so.

3-118 The provision in 2(a) is important for whilst the salvor is responsible for thesalvage of the ship and the cargo, the owners master and crew, who havegreater knowledge of the ship, her machinery and equipment, can often be ofconsiderable assistance. As we shall see in Module 2, this duty is mirrored andexpanded in Clause F of LOF 2000.

3-119 Article 8.2(b) mirrors the new obligation on the salvor imposed by Article 8.1(b).

3-120 Whilst one would normally expect an owner to be willing to accept redelivery ofhis vessel at the end of a salvage service this is not always so. In the past therehave been many instances where an owner has unreasonably refused so as toavoid the expense of maintaining a damaged vessel whilst claims against hisinsurers 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 Stateconcerned to take measures in accordance with generally recognizedprinciples of international law to protect its coastline or related interestsfrom pollution or the threat of pollution following upon a maritimecasualty or acts relating to such a casualty which may reasonably beexpected to result in major harmful consequences, including the right ofa coastal State to give directions in relation to salvage operations.

3-121 Most provisions of the Convention are designed to be within the field of privatelaw rather than public law and this Article has been included in order to ensurethat nothing intrudes on the power of coastal States to take such steps as theyfeel are necessary in the interests of their coastlines.

Article 10

Duty to Render Assistance

1. Every master is bound, so far as he can do so without seriousdanger to his vessel and persons thereon, to render assistanceto any person in danger of being lost at sea.

2. The States Parties shall adopt the measures necessary toenforce the duty set out in paragraph 1.

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

3-122 This Article reinforces the long-standing obligation of ships to go to theassistance of any person in danger at sea. In the UK the obligation has been



incorporated into Section 93 of the Merchant Shipping Act 1995. As we shall latersee when looking at Article 16, it is not possible to claim salvage from personswho have been saved from danger but the saving of life can enhance a salvageaward against salved property (see Article 13.1(e)). To ensure the duty imposedby Section 93 does not infringe the common law principle that every salvor mustbe 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 relatingto salvage operations such as admittance to ports of vessels in distressor the provision of facilities to salvors, take into account the need for co-operation between salvors, other interested parties and public authoritiesin order to ensure the efficient and successful performance of salvageoperations for the purpose of saving life or property in danger as well aspreventing damage to the environment in general.

3-123 This provision does no more than exhort States to take into account the need forco-operation with the private interests in salvage operations. It has been citedfrequently in connection with the recent debate on Places of Refuge whichresulted in the IMO Guidelines for seeking and granting a Place of Refuge, butunfortunately seems to have no real tangible legal effect.




� 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 anyother 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. Salvage operations which have had a useful result give right toa reward.

2. Except as otherwise provided, no payment is due under thisConvention if the salvage operations have had no useful result.

3. This chapter shall apply, notwithstanding that the salved vesseland the vessel undertaking the salvage operations belong to thesame owner.

3-124 As mentioned earlier, success is an essential common law ingredient to the rightto claim salvage. This Article does no more than codify that common lawprinciple. To succeed there must be a useful result. The words ‘Except as other-wise provided . . . .’ in 12.2 are necessary in order to permit the payment of anyspecial compensation that may be due under Article 14.1 which will later be fullydiscussed.

3-125 In the absence of any special provision an owner of a ship would not be able toclaim salvage for saving a sister ship for one cannot claim salvage and sue one-self. This was felt undesirable, for assistance should always be encouraged andin practice most ships are insured. Hence Article 12.3.

Article 13

Criteria for Fixing the Reward

1. The Reward shall be fixed with a view to encouraging salvageoperations, taking into account the following criteria withoutregard 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 minimiz-ing 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 thesalvors;

(g) the risk of liability and other risks run by the salvors or theirequipment;

(h) the promptness of the services rendered;

(i) the availability and use of vessels or other equipmentintended for salvage operations;

(j) the state of readiness and efficiency of the salvor’s equip-ment and the value thereof.

2. Payment of a reward fixed according to paragraph 1 shall bemade by all of the vessel and other property interests in propor-tion to their respective salved values. However, a State Party mayin its national law provide that the payment of a reward has to bemade by one of these interests, subject to a right of recourse of



this interest against the other interests for their respectiveshares. Nothing in this article shall prevent any right of defence.

3. The rewards, exclusive of any interest and recoverable legalcosts that may be payable thereon, shall not exceed the salvedvalue of the vessel and other property.

3-126 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 beencouraged 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 andthe policy of encouragement can be found in the judgment of Sir John Nicholl inThe Industry (1835 – 3 Hag Adm 203):

‘The amount of remuneration must depend upon all the circumstances. Itis 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 forconsideration – the state of the weather, the degree of damage and dangeras 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, thereis still another principle – to encourage enterprise, reward exertion, and tobe liberal in all that is due to the general interests of commerce, and thegeneral benefit of owners and underwriters, even though the reward mayfall upon an individual owner with some severity.’

3-127 This policy of encouragement continues today and is clearly set out in the open-ing paragraph of Article 13.1:

‘The reward shall be fixed with a view to encouraging salvageoperations, taking into account the following criteria without regardto the order in which they are presented below.’

3-128 It will be noted that the reward shall be fixed ‘with a view to encouraging salvageoperation’. The whole emphasis of the Convention, as is confirmed by the pre-amble, is to encourage salvors. Article 13.1 continues with the criteria to betaken into account:

‘(a) the salved value of the vessel and other property;’

3-129 It should be noted that salved values are the market value (not the insuredvalue) at the place and date of termination of the services. This differs from gen-eral average where the values at the place and date of the termination of thevoyage are taken.

‘(b) the skill and efforts of the salvors in preventing or minimisingdamage to the environment;’

3-130 This is a new criterion imposed by the Salvage Convention and is the reward tothe salvor for increasing his duties under Article 8.1(b) to include a duty of careto prevent and minimise damage to the environment. It is also consistent withone of the prime aims of the Convention which is to salve ships which threatendamage to the environment (see preamble).



3-131 In The Nagasaki Spirit [1995] 2 Lloyd’s Rep 59, the Admiralty judge afterreferring to this provision said:

‘Thus, where the efforts of the salvor prevent or minimise damage to theenvironment and the salvage services are successful, he will obtain a largersalvage award against ship and cargo than he would otherwise have done.Moreover, there is no reason why an award should not be substantiallylarger in appropriate cases.’

‘(c) the measure of success obtained by the salvor;’

3-132 Success is the essential ingredient of a salvage service. There must be somedegree of success but clearly, a salvor will be entitled to more if he was respon-sible for the whole operation rather than just a participant amongst many. Washe completely successful or only partially successful? Who else helped? Wasthere an element of self-help?

‘(d) the nature and degree of danger;’

3-133 Danger is another essential ingredient of a salvage service. However, the degreeof danger can be particularly important. Was the salved property plucked fromthe jaws of death or was it in no immediate danger but simply immobilised andtherefore valueless until aided?

‘(e) the skill and efforts of the salvors in salving the vessel, otherproperty and life;’

3-134 Did the services of the salvor require any particular skill? Was any great inge-nuity 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;’

3-135 Time is important. Clearly, a salvage operation which can be concluded in thespace of two hours does not justify an award as high as for one which reason-ably takes 30 days. The expenses and losses incurred are equally important.

3-136 In many salvage operations no out-of-pocket expenses (payments to third par-ties) are incurred but in many others they can total millions. In most cases, wherethere is sufficient value to justify it, the salvor might reasonably expect to recoverhis expenses, but that would be impossible where the expenses exceed thesalved value for as we shall see no award can exceed the value of the propertysalved. 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 acciden-tally ground causing damage. The extent of the damage and consequential lossare factors to be taken into account.

‘(g) the risk of liability and other risks run by the salvors or their equipment;’

3-137 Salvors in rendering services to property in danger, often necessarily run risksof incurring liability to themselves, their crew or their equipment. They have tooperate in many remote parts of the world and on some occasions in countrieswhose 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



of obligation or duty simply because they happen to be there. These risks, whenthey arise, need to be taken into account in the overall picture.

‘(h) the promptness of the services rendered;’

3-138 Clearly, a salvor who is ready to go and acts quickly should be rewarded to ahigher extent than one who is unprepared or slower off the mark. Speed ofaction must be encouraged.

‘(i) the availability and use of vessels or other equipment intended forsalvage operations;’

3-139 This provision is designed to encourage the professional salvor who may investmen and equipment by having them ready for instant action.Tugs are sometimeskept on salvage station ready to move as soon as a ship comes into danger.Further, many professional salvors now keep and maintain substantial stores ofequipment ready for instant distribution to a casualty which may require them.These are elements that need to be taken into account.

‘(j) the state of readiness and efficiency of the salvors’ equipment andthe value thereof.’

3-140 This provision is again to encourage the professional salvor by showing thataccount should be taken of the state of readiness and the efficiency of hisequipment and its value: in short, how much he has invested in being availablefor salvage operations. All his equipment has to be borne in mind – not just thatactually 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 bemade by all of the vessel and other property interests in proportion totheir respective salved values. However, a State Party may in itsnational law provide that the payment of a reward has to be made byone of these interests, subject to a right of recourse of this interestagainst the other interests for their respective shares. Nothing in thisarticle shall prevent any right of defence.’

3-141 Note that the award is payable by all salved property (ship and Cargo) pro ratato value. In contrast, as we shall later see, special compensation (and SCOPIC)is paid by ship alone.

3-142 While the law in the majority of countries has long provided that any salvageaward shall be paid by all property interests in proportion to their respectivevalues there have been some countries, notably The Netherlands, Belgium andFrance, whose national law has provided that a salvage award against all prop-erty interests may be recovered from the ship interests who then have a right ofrecourse from the other property interests. This particular Article preserves thisright should a state so decide. It is understood that both The Netherlands andBelgium, who have enacted the Convention, have continued to provide in theirnational law that the shipowner is liable for the whole salvage award subject tohis right of recourse.



3-143 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 wasdoubted in a more recent case (M Vatan I [1990] Lloyd’s Rep 336) and seems nowto have been completely overridden by the first sentence of Article 13.2.


‘The rewards, exclusive of any interest and recoverable legal coststhat may be payable thereon, shall not exceed the salved value of thevessel and other property.’

3-144 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 prac-tice, courts and arbitrators never make awards equivalent to the complete salvedfund. As a matter of principle something is always left to the owner otherwise hewould have no incentive to seek salvage assistance. A reward of a very high per-centage of the value is comparatively rare and usually only occurs where thesalvor’s expenses are so high that, even with the reward, he is unlikely to makea 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 vesselwhich by itself or its cargo threatened damage to the environmentand has failed to earn a reward under Article 13 at least equivalent tothe special compensation assessable in accordance with this article,he shall be entitled to special compensation from the owner of thatvessel equivalent to his expenses as herein defined.’

3-145 There is a lot to be digested from this particular provision.

3-146 First, it will be noted that for this paragraph to bite the salvor does not have tosucceed in either salving property or protecting the environment, he simply hasto be involved in a salvage operation in which the casualty threatens damage tothe environment.

3-147 Second, it will be seen that the salvor has to carry out ‘salvage operations inrespect of a vessel which by itself or its cargo threatened damage to the envi-ronment’. What do we mean by ‘threatened’? The LOF arbitrators have foundthat a reasonably perceived threat, as opposed to an actual threat, is sufficient.

3-148 Third, unlike a salvage award under Article 13 (which is ultimately paid by theship and cargo property insurers), it will be noted that special compensation ispayable by the shipowner alone (which is paid by their P&I insurer).

3-149 There is a further and very important point to take into account. What is meantby ‘damage to the environment’? This is defined in Article 1(d) as follows:

‘Damage to the environment means substantial physical damage tohuman health or to marine life or resources in coastal or inland waters



or areas adjacent thereto caused by pollution contamination, fireexplosion or similar major incidents.’

3-150 A lot of problems arise from this definition.

3-151 First, while the general meaning of the definition is clear, there is scope forjudicial development when interpreting the word ‘substantial’. What is substan-tial? In R v Monopolies and Mergers Commission ex parte South YorkshireTransport [1993] 1 WLR 23, Lord Mustill said:

‘ . . . one of the purposes of the Convention, and in particular of theintroduction of the provisions for special compensation, was to reflect theincreased concern for the protection of the environment and to encouragesalvors to perform efficient and timely salvage operations to assist inpreventing or minimising damage to the environment. In that context to askwhether the threatened damage was something worthy of considerationfor the purposes of the Convention may be a reasonable and sensibleapproach to the meaning of the word ‘substantial’. That must plainly meansomething considerably more than ‘not trifling’ but need not meansomething right at the upper end of the scale. To be worthy of note orconsideration damage does not have to be a major catastrophe or disasterattracting international headlines . . . pollution does not need to be ofinternational or even national importance and a threat to an identifiable andsensitive area will suffice . . .’

3-152 The LOF arbitrators have also had to consider the meaning of ‘substantial’. Inthe early days they appeared to take a fairly relaxed view of the word, acceptingthat a comparatively small quantity of oil could cause ‘substantial’ damage ifleaked into a particularly sensitive area. But a lot depends on the sensitivity ofthe area, as is illustrated by a recent case where a ship, laden with 30,000 tonsof petroleum and 100 tons of heavy fuel oil, was prevented from grounding nearCabo de Palos on the Spanish coast. In that case the then LOF appeal arbitrator(whose decisions influence those of all the other arbitrators), while embracingthe words of Lord Mustill and accepting that the ship gave rise to a (reasonablyperceived) threat of damage to the environment sufficient to trigger Article 14.1,found that while a grounding and consequent leakage would have caused somedamage, it would not have been sufficient to trigger Article 14.2 (see later) asthe 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 birdsand fish, which might have ensued from a grounding off Cabo de Palos,can be described as ‘substantial physical damage to marine life’ withinthe meaning of the Convention. It seems to me that the bird reserve andfish stocks in the vicinity of Cabo de Palos are identifiable sensitiveresources worthy of consideration having regard to the purposes of theConvention.

However, the definition of damage to the environment in the sense of‘substantial physical damage’ shows clearly that not all damage to marinelife qualifies as damage to the environment within the meaning of theConvention. For the reasons which I have given earlier in these reasons,



the scope for damage to birds, plankton and benthos and hence fish, in theevent of a grounding off Cabo de Palos in winter, appears to me to havebeen very restricted indeed, notwithstanding the large volume of gasolinethat might have escaped. Whilst there might have been some fatalitiesamongst birds and fish and some tainting of fish flesh, there was noevidence that the fish stocks or bird population would be significantlydepleted by the limited damage which might have occurred. I have,therefore, found it difficult to conclude that there was a risk of ‘substantialphysical damage to marine life’ off Cabo de Palos.’

3-153 As to the bunkers, the appeal arbitrator continued as follows:

‘I have taken into account that there were also bunkers (fuel oil and somediesel oil) on board the casualty. These would be more persistent than thecargo and to that extent would increase the risk of environmental damage.However, the arbitrator held that effect would only be marginally worsehaving regard to the location of the fuel oil tanks in the casualty . . . I wasnot persuaded that the arbitrator’s assessment was wrong. I do notconsider that that marginal effect is sufficient to drag the damage thatmight have been caused to birds, plankton, benthos, and fish off Cabo dePalos up to the level of ‘substantial physical damage to marine life’.’

3-154 Second, what are ‘coastal or inland waters or areas adjacent thereto’? They arenot defined by the Convention and the phrase has not been construed by thecourts. Most probably it means within 12 miles off the coast as set out in UNC-LOS. 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 isundecided but presumably so close that the pollutant might reasonably beexpected to enter or seriously threaten coastal waters. Should the assessmentof special compensation start before a casualty enters coastal waters? Probablynot, but the point is as yet undecided. Should it continue after the threat of dam-age has been removed? Yes, said the Admiralty Court in the Nagasaki Spirit.Once triggered, the assessment of special compensation should continue untilthe end of the salvage service. To do otherwise would discourage salvors fromremoving the threat as soon as possible.


‘If, in the circumstances set out in paragraph 1, the salvor by hissalvage operations has prevented or minimised damage to theenvironment, the special compensation payable by the owner to thesalvor under paragraph 1 may be increased up to a maximum of 30%of the expenses incurred by the salvor. However, the Tribunal, if itdeems it fair and just to do so and bearing in mind the relevant criteriaset out in Article 13, paragraph 1, may increase such specialcompensation further, but in no event shall the total increase be morethan 100% of the expenses incurred by the salvor.’

3-155 This complex wording and apparent contradiction, deserve some explanation.The original draft Convention prepared by the CMI and that later put forwardby the IMO Legal Committee to the full Diplomatic Conference, provided thatthe uplift should be a maximum of 100% of the expenses recoverable under



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 coun-tenance a greater uplift than 30%. The conference quickly became splitbetween those delegates who wanted the maximum to be 30% and those whowanted it to be 100%. There was a serious risk, after 10 years of work, of theConvention falling to the ground because of the lack of agreement on what wasa particularly minor issue. At the end of the day the conference compromisedwith the wording set out above leaving the courts of each country to interpretit as they will.

3-156 LOF arbitrators have taken the 30% to be the point at which one should pausefor thought and should not be exceeded except in the most serious of cases. Todate the 100% mark has never been reached despite some serious casualties.The highest uplift recorded has been 65% (The Nagasaki Spirit). It is perhapsright to say that an uplift of 100% is highly unlikely. No matter how serious thecasualty or threat of damage to the environment, one can always envisagesomething worse for which the 100% mark should be reserved.

3-157 There are other points which should be mentioned in relation to this particularparagraph 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 arbi-trator has found that to benefit from this provision the salvor must prove he actu-ally prevented or minimised damage to the environment. Unlike Article 14.1 it isinsufficient to prove that it was a reasonably perceived threat. The salvor has toshow, on the balance of probabilities, that but for the services, damage to theenvironment would have occurred. The point is well illustrated by the facts of thecase 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 about30 tonnes of gas oil. Forty-five tonnes of gas oil remained on board and this wassuccessfully salved, though the vessel was lost. An Article 14 claim was madeand the appeal arbitrator awarded the salvors their expenses under Article 14.1as 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 notsatisfied that the 45 tons of gas oil that had been salved, would have actuallycaused damage to the environment. The 30 tons that had leaked when the shiphad grounded, despite every ones reasonable fears, had not in practice causedany damage so it was unlikely a further 45 tons would do so either.

3-158 Apart from having to show that but for the salvage services, damage would haveoccurred, the reader is reminded it is also necessary to show ‘substantial dam-age’, as defined in the definition of ‘damage to the environment’, would result.We have already discussed and cited an example of an LOF appeal arbitrator’sinterpretation of ‘substantial’. In that case, while there was a sufficient threat(reasonably perceived threat rather than an actual threat) of damage to the envi-ronment to trigger Article 14.1 and while some damage would have resulted, theactual (rather than reasonably perceived) damage that would have resultedwould not have been ‘substantial’ enough to trigger Article 14.2.


‘Salvors’ expenses for the purposes of paragraphs 1 and 2 mean the outof pocket expenses reasonably incurred by the salvor in the salvage



operation and a fair rate for the equipment and personnel actually andreasonably used in the salvage operation taking into consideration thecriteria set out in Article 13 paragraph 1(h), 1(i) and 1(j).’

3-159 Out-of-pocket expenses are fairly easily ascertained.They are monies expendedby the salvor to enable them to carry out the salvage operation – perhaps hireof salvage equipment or fuel oil consumed. However, the assessment of a ‘fairrate’ for equipment and personnel actually and reasonably used has proved tobe a particularly difficult problem. It was considered in the House of Lords in TheNagasaki Spirit [1997] 1 Lloyd’s Rep 323, where the salvors contended that a fairrate included an element of profit and the owners contended that it merely meantcompensation for the overall expense to the salvor of the operation without anyelement of profit. The House of Lords found in favour of the shipowners. In thewords of Lord Lloyd of Berwick:

‘ . . . fair rate for equipment and personnel actually and reasonably used inthe salvage operation in Article 14.3 means a fair rate of expenditure, anddoes not include any element of profit. This is clear from the context, andin particular from the reference to expenses in Article 14.1 and 2, and thedefinition of salvors expenses in Article 14.3. No doubt expenses couldhave been defined so as to include an element of profit, if very clearlanguage to that effect had been used. But it was not. The profit elementis confined to the mark-up under Article 14.2 if damage to the environmentis minimised or prevented.’

3-160 As a result of the House of Lords’ decision in The Nagasaki Spirit and the finalwording of Article 14.3 namely ‘ . . . taking into consideration the criteria set outin Article 13 paragraph 1(h), 1(i) and 1(j)’, it is necessary in every Article 14 caseto investigate the cost to the salvor of not only the craft and equipment used dur-ing the course of the salvage services, but also the availability and use of othervessels or equipment intended for salvage operations and the value of thatequipment. For a large salvage company this is a major accounting exercise andone in which many questions remain unanswered. For instance, for what periodshould you look at the idle time of the salvage equipment? It is common to usea one-year period but is this the correct period? There can be huge differencesif you stretch or reduce the period. Further, what about depreciation? Shouldone adapt the accounting practices of the company – which may differ from onecompany to another? Whilst one of the law lords described it as ‘just anaccounting exercise’, it is a major exercise – full of unanswered questions.


‘The total special compensation under this Article shall be paid only ifand to the extent that such compensation is greater than any rewardrecoverable by the salvor under Article 13.’

3-161 Special compensation was always intended to be a safety net. A minimumpayment to the salvor. One which took away some of the risk endemic in a ‘nocure – no pay’ situation. Consequently, it is only payable to the extent that itexceeds the traditional Article 13 salvage reward. It will be noted that the amountto be paid is that which such assessed compensation is greater than any rewardrecoverable (not recovered) by a salvage reward under Article 13.




‘If the salvor has been negligent and has thereby failed to prevent orminimize damage to the environment, he may be deprived of thewhole or part of any special compensation due under this article.’


Nothing in this article shall affect any right of recourse on the part ofthe owner of the vessel.

Article 15

Apportionment between Salvors

1. The apportionment of a reward under article 13 between salvorsshall be made on the basis of the criteria contained in that article.

2. The apportionment between the owner, master and other personsin the service of each salving vessel shall be determined by thelaw of the flag of that vessel. If the salvage has not been carriedout from a vessel, the apportionment shall be determined by thelaw governing the contract between the salvor and his servants.

3-162 It is often the case that several salvors are involved in the salvage of a ship andher cargo. In that event the split between them of the overall award is, as statedin 15.1, dealt with in accordance with the criteria set out in Article 13. In mostcountries the split between the owner, master and crew of the salving ship isdealt with on a similar basis having regard to the input and responsibility of eachindividual but the laws in some countries do set out how the overall award shouldbe divided. Article 15.2 preserves that right.

Article 16

Salvage of Persons

1. No remuneration is due from persons whose lives are saved, butnothing in this article shall affect the provisions of national lawon this subject.

2. A salvor of human life, who has taken part in the services ren-dered on the occasion of the accident giving rise to salvage, isentitled to a fair share of the payment awarded to the salvor forsalving the vessel or other property or preventing or minimizingdamage to the environment.

3-163 As mentioned earlier when discussing Article 10, it has never been possible inthe UK, nor most other countries, to claim life salvage from anyone whose lifehas been in danger but when life has been saved, a claim can be made againstany property that has also been salved. This principle is endorsed by Article 16.



3-164 While Article 16.2 clearly confirms that the salvor of human life is entitled to afair share of the sum awarded for the salvage of the property, it does give rise toa potential problem for it will be seen that he is entitled to ‘ . . . a fair share of thepayment awarded to the salvor for salving the vessel . . . ’. Prior to theConvention such claims would have been made direct against the owners of theproperty but as a result of language used in the Convention it would appear suchclaims have now to be made against the salvor. This might give the propertysalvor a problem if he was not involved in the life salvage, which is so often thecase. His salvage claim under Article 13 and claim for special compensationunder Article 14 would under normal circumstances be restricted to the workthat he carried out and the expense that he incurred, and not include the effortof some third party over which he had no control. In view of the wording of Article16.2, any property salvor would be wise to ensure any claim by a life salvor wasincluded either in his own claim under Articles 13 and 14 or in the sameproceedings.

3-165 It is convenient to mention here a related issue. Aside from Article 16 of theSalvage Convention (which is enacted by Section 224(i) of the MerchantShipping Act 1995 – the MSA 1995), a life salvor may be able to recover some-thing under paragraph 5 of Part II of Schedule 11 to the Merchant Shipping Act1995 which gives the Secretary of State discretionary power to make paymentswhen the services are rendered in UK waters in saving life, from a vessel of anynationality or elsewhere if saving life from any UK ship, provided he has notalready been compensated by Article 16.2.

Article 17

Services Rendered under Existing Contracts

No payment is due under the provisions of this Convention unless theservices rendered exceed what can be reasonably considered as dueperformance of a contract entered into before the danger arose.

3-166 This Article reflects what has been a long-standing principle of the Englishcommon law and an essential ingredient of salvage. You must be a volunteer. Ifyou have a contractual duty to do something you cannot be a volunteer.You can-not claim salvage for doing what you contracted to do. The problem is illustratedby a towage contract. If for instance the tow line broke during the course of thetow, you would expect the tug to secure a new tow line. She would normally havea duty to do so under the towage contract and therefore could not claim salvagefor so doing. However, if the vessel ran aground before the towline could be re-established, through no fault on the part of the tug, you would not expect the tugto refloat the ship under the towage contract, and she could claim salvage for sodoing (The Minnehaha (1861) 15 Moo.PC 133).

Article 18

The Effect of Salvor’s Misconduct

A Salvor may be deprived of the whole or part of the payment dueunder this Convention to the extent that the salvage operations havebecome necessary or more difficult because of fault or neglect on his



part or if the salvor has been guilty of fraud or other dishonest conduct.

3-167 A salvor has always owed a duty of care to the salved property and this is con-firmed in the Convention by Article 8.2. It follows that he is responsible for anynegligence on his part. However, aside from that potential liability, Article 18 ineffect provides that he should also not benefit to the extent that the salvageoperations have become necessary or more difficult as a result of his fault orneglect or fraud.

3-168 The potential liability of a salvor is no different from that of anyone who is inbreach of his duty of care but it should be noted that, like others, he is entitledto limit his liability under the provisions of the 1976 Limitation Convention whichis given the force of English law under Section 185 of the Merchant ShippingAct 1995.

Article 19

Prohibition of Salvage Operations

Services rendered notwithstanding the express and reasonableprohibition of the owner or master of the vessel or the owner of anyother property in danger which is not and has not been on board thevessel shall not give rise to payment under this Convention.

3-169 There are several points to note from this article. First, note that it has to be anexpress and reasonable prohibition. It does not apply if the prohibition is unrea-sonable. So if a master unreasonably refused assistance to the potential detri-ment of the owner, a salvor who continued, notwithstanding the refusal, mightwell be still entitled to claim salvage.

3-170 The test is whether a master or owner of reasonable prudence would haverefused the assistance of the salvors. If he acted reasonably the claim will berejected (The Pretoria (1920) Ll.LRep. 112) but if his refusal was unreasonablethe 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, notfor instance, the cargo owner or other property on board. This ties in with Article6.2 which gives the master and owner of the vessel the power to contract onbehalf of all property on board. Think of the problems that would otherwise ariseif every property interest on board a vessel was permitted to contract or refusesalvage services.

3-172 Third, the owner of ‘any other property’ can only refuse if that property has notbeen aboard a vessel. This provision was necessary in view of the widedefinition 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 ownerof the property should be entitled to refuse salvage services.



CHAPTER IV – CLAIMS AND ACTIONS

Article 20

Maritime Lien

1. Nothing in this Convention shall affect the salvor’s maritime lienunder any international convention or national law.

2. The salvor may not enforce his maritime lien when satisfactorysecurity for his claim, including interest and costs, has been dulytendered or provided.

3-173 Under English law salvage gives rise to a maritime lien which entitles a salvor totake proceedings in rem and arrest all salved property pending the determina-tion 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.

3-174 Salvage also gives rise to a statutory lien under the provisions of Section 21 ofthe Supreme Court Act 1981 which gives the salvor the added benefit of beingable to pursue a claim against a sister ship.

3-175 However, these liens do not cover claims for special compensation under Article14 which are clearly severable from salvage claims, and do not currently giverise to a maritime lien. It is doubtful, but arguable, whether such a claim evengives rise to a statutory lien. That said, Article 1(c) of the Arrest Convention of1999 will make it possible to arrest a ship for a claim for special compensationunder Article 14, when the Arrest Convention comes into force. At the time ofwriting it is not in force as insufficient nations have so far ratified it.




� What are the conditions necessary for a salvor to be ableto claim a salvage reward?

� How is a salvage award to be apportioned betweendifferent 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 whatcircumstances can the tug claim salvage?

� Can a master prohibit salvage services?

� Can the cargo owner?

Article 21

Duty to Provide Security

1. Upon the request of the salvor a person liable for a payment dueunder this Convention shall provide satisfactory security for theclaim, including interest and costs of the salvor.

2. Without prejudice to paragraph 1, the owner of the salved ves-sel shall use his best endeavours to ensure that the owners ofthe cargo provide satisfactory security for the claims againstthem including interest and costs before the cargo is released.

3. The salved vessel and other property shall not, without the con-sent of the salvor, be removed from the port or place at whichthey first arrive after the completion of the salvage operationsuntil satisfactory security has been put up for the salvor’s claimagainst the relevant vessel or property.

3-176 The first part of this article imposes a duty on the owners of salved property toprovide security in respect of the salvor’s claim, including costs and interest.Further protection is given to the salvor by Article 21.2, which imposes a furtherduty on the shipowner to use ‘best endeavors’ to ensure that the owners of cargoprovide satisfactory security.

3-177 The duties detailed above are supported by Article 21.3 which protects thesalvor by prohibiting the removal of the salved vessel and other property fromthe port or place at which they first arrive after completion of the salvage serv-ices until satisfactory security has been put up for the salvor’s claim.

Article 22

Interim Payment

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

2. In the event of an interim payment under this article the securityprovided under Article 21 shall be reduced accordingly.

3-178 This provision encourages interim payments on account which in keeping withthe whole tenor of the Convention, will encourage the salvor to salve again.

Article 23

Limitation of Actions

1. Any action relating to payment under this Convention shall betime-barred if judicial or arbitral proceedings have not been insti-tuted within a period of two years. The limitation period commenceson the day on which the salvage operations are terminated.



2. The person against whom a claim is made at any time during therunning of the limitation period may extend that period by a dec-laration to the claimant. This period may in the like manner be fur-ther extended.

3. An action for indemnity by a person liable may be instituted evenafter the expiration of the limitation period provided for in thepreceding paragraphs, if brought within the time allowed by thelaw of the State where proceedings are instituted.

3-179 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 areterminated’ probably means the day on which the whole salvage operation ter-minated 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 thisConvention shall be determined according to the law of the State inwhich the tribunal seized of the case is situated.

Article 25

State-Owned Cargoes

Unless the State owner consents, no provision of this Conventionshall be used as a basis for the seizure, arrest or detention by anylegal process of, nor for any proceedings in rem against, non-commercial cargoes owned by a State and entitled, at the time of thesalvage operations, to sovereign immunity under generallyrecognized principles of international law.

3-180 This Article should be compared with Article 4 which excludes the provisions ofthe Convention to warships and non-commercial vessels owned by the State.Unlike Article 4 this Article, which applies to state-owned non-commercialcargoes, does not exclude all the provisions of the Convention, but simply thebasis for enforcing a claim. That would leave one with a problem that can onlybe resolved under the laws of the particular State. In practice most States willvoluntarily accept and pay a salvage claim.

Article 26

Humanitarian Cargoes

No provision of this Convention shall be used as a basis for theseizure, arrest or detention of humanitarian cargoes donated by aState, if such State has agreed to pay for salvage services rendered inrespect of such humanitarian cargoes.



3-181 This is an entirely new concept which is clearly brought about by the desire toensure humanitarian cargoes are not detained following salvage services but itsprovision 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 theconsent of the parties, the publication of arbitral awards made insalvage cases.

3-182 The assessment of a salvage award is a skill that is honed by practice andknowledge of other awards in similar circumstances. The Article is intended tospread that knowledge and experience. However, most salvage cases thesedays are carried out under contracts such as LOF, which provide for privatearbitration. As they are private, they cannot be published without the parties con-sent. This is often refused because of a desire not to highlight the case in thepublic eye. Lloyd’s have tried to encourage agreement to publication by askingthe parties to specifically direct their minds to this issue but so far, this has hadlittle effect. That said, Lloyd’s do publish a Digest, which can be obtained by sub-scription, which summarises the interpretations of Lloyd’s Arbitrators to the var-ied provisions of the LOF contract and salvage law. It does not however, set outthe amounts awarded.

3-183 The remainder of the Convention deals with administrative matters.




� Does a salvor have a lien for a claim for SpecialCompensation?

� What, if any, duty does the shipowner have with regard tothe 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 ownedcargo?

� Can a claim be made against a humanitarian cargo?

3-184 We now pass to what is the most popular internationally used form of salvagecontract – Lloyd’s Open Form (LOF).

CHAPTER V – LLOYD’S OPEN FORM

History and Administration

3-185 Some background as to the history of LOF and explanation as to how it isadministered will be useful in understanding the contract fully.

3-186 The forerunner to Lloyd’s Open Form (LOF) was created in 1890 when the firstLloyd’s salvage contract was made between Lloyd’s of London and local tugowners in the Dardanelles. At that particular time there were a number ofproblems resulting from salvage services rendered in the Dardanelles. Lloyd’sunderwriters felt the amounts demanded were often too high and that challengesto the local courts were too uncertain. To resolve the problem they sent theirSecretary-General, Sir Henry Hosier, to Istanbul to negotiate an acceptablesolution. Sir Henry successfully negotiated a contract which provided thatLloyd’s of London were the final arbiter. The contract was for a specific case, butthe result proved satisfactory to both sides and the contract quickly became thestandard form of salvage contract for the area. It was developed and fine tunedinternationally over the ensuing years and led to the first Lloyd’s Standard Formof Salvage Agreement ‘no cure – no pay’ (LOF) being introduced in 1908.Promoted by the London insurance market, it was intended for worldwide use byall nationalities with a view to achieving the following objectives:

� A standard form of contract easily understood and known to befair to salvors, shipowners, cargo owners and underwriters alike.

� A contract which could be agreed without hesitation ornegotiation, thereby enabling necessary salvage work to startwithout any delay.

� The setting up of an administrative system under which theassessment of a salvage award and all disputes could safely



be left to be resolved after a successful operation had beencompleted. One which incorporated an arbitration service ofexperienced arbitrators who applied internationallyunderstood and accepted principles of salvage law.

� A service that could be trusted to be consistent in its levelof awards and fair to all parties.

� The setting up of a procedure to avoid the arrest of shipsand their consequent detention by ensuring security wasgiven promptly at the conclusion of the salvage service.

3-187 These objects have been achieved and the original concept has proved asuccess story. LOF is known internationally by almost every seafarer, owner andunderwriter and there are comparatively few competing types of contract usedinternationally. It follows internationally recognised law as set out in the SalvageConvention of 1989.

3-188 Shipping casualties have reduced in recent years with the result that there arefewer salvage cases than in the past, but there are still on average about 100new LOF salvage cases each year and the resultant continual practice enablesthe arbitrators to keep their finger on the pulse of the market place.

3-189 While Lloyd’s form has stood the test of time, this has largely been a result of itbeing regularly reviewed and amended to take account of changing circum-stances, both in the law and with the practice of the industry itself. The contractis regularly reviewed by the Lloyd’s Salvage Group, a body set up by Lloyd’s tomonitor the working of the contract. The Salvage Group meets annually and ismade up of representatives of the insurance market (hull and cargo), the P&IClubs, the shipowners and the salvors. It is chaired by the appeal arbitrator. Itspurpose is to consider any problems which arise in the administration or legaloperation of LOF, and any relevant changes in commercial practice, internationaltreaty, municipal law and industrial practice, with a view to ensuring that any nec-essary changes to the LOF are made at an appropriate time in order to smooththe path of its operation.There have been 10 revisions since 1908, the last beingeffected 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 theSalvage Group, been prepared to move ahead of the law of salvage oncesufficient support for change has been established amongst the internationalcommunity and the shipping industry. An example of this is LOF 90 which incor-porated many of the provisions of the 1989 London Salvage Convention beforethat Convention was given the force of law in 1995, thereby permitting the ship-ping 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 theSCOPIC clause which, as we will later hear, was devised by industry to solveproblems being encountered with Article 14 of the Convention.

3-191 The general administration of LOF is run by The Salvage Arbitration Branch ofLloyd’s Agency Department in London (www.lloyd’sagency.com). As soon asthey 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 isusually done by way of standard forms of guarantee from the appropriate under-



writers of the property salved. The guarantees have to be given either by aLloyd’s underwriter; or a London underwriter recognised by Lloyd’s; or by andEnglish Bank; or by and other body acceptable to the salvor.

3-192 The collection of security can at times be a complicated and lengthy processparticularly when there are a substantial number of salved interests. Eachproperty interest has a separate liability so one can imagine the difficulty inobtaining security from the individual cargo interests on a container ship. Inmodern ships there can be thousands of owners. Salvors are naturally anxiousto obtain security before they release the ship following the service. They areentitled to detain the vessel pending provision of that security but recognise thecommercial difficulty that this can sometimes place on the shipowner who maywell be anxious to resume the voyage. To help resolve these problems theInternational Salvage Union (ISU) have devised their own forms of guarantee,which do not follow the strict requirements of Lloyd’s and can be provided by aninstitutions based outside England. With the agreement of the salvor in eachindividual case, these forms of guarantee are often used in lieu of the guaran-tees to Lloyd’s. Of particular interest is the ISU 2 Guarantee in which theshipowner provides security on behalf of the cargo interests, provided the salvorcontinues his efforts to obtain security from that cargo, which when obtained,replaces that given by the shipowner on the cargo’s behalf. Such a guaranteeenables the ship to continue her voyage leaving the salvor to obtain securityfrom cargo at the port of destination.

3-193 Apart from collecting security from the salved property, The Salvage ArbitrationBranch of Lloyd’s will appoint a single arbitrator from their panel to deal with thecase and ultimately make the salvage award. Currently there are four arbitratorson the panel. Of the four, one always sits as an appeal arbitrator. All the arbitratorsare experienced members of the English Admiralty Bar with extensive experienceof salvage law and their regular practice and the single and consistent appealarbitrator, ensure uniformity of awards. They will basically handle all aspects ofthe 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 Lloyd’s StandardSalvage Arbitration Clauses (LSSA clauses) and the Lloyd’s Procedural Rules.The LSSA clauses set out the administrative rules affecting the provision ofsecurity; the appointment of an arbitrator; the arbitration procedure and arbitra-tors powers; the representation of the parties; the entitlement to interest; howcurrency fluctuations should be dealt with; the rules for appeals and crossappeals; and provisions as to payment of awards.

3-195 The Procedural Rules set out in greater detail the arbitrators powers and themanner in which the arbitration should be conducted. There are provisions thatdeal with a preliminary meeting; the order for directions; the disclosure ofdocuments; expert evidence; mediation; the hearing of the arbitration; and theappeal arbitration.

3-196 It is not appropriate in this course to deal in detail with either the LSSA clausesor the Procedural Rules but they are included as an appendix to this module foradditional reading or reference if required. However, it should be mentioned thatthey 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



process ‘leads to a fair and efficient disposal of disputes between partieswhether amicably, by mediation, or by arbitration within a reasonable time andat a reasonable cost’.

3-197 Most LOF salvage arbitrations are dealt with on documents alone (though, whilstdiscouraged, oral evidence can be given) and with all parties being representedby counsel. However, it is recognised that this can be an expensive procedure insmaller cases. In order to provide a less expensive process the arbitrators haveguidelines for a ‘Fixed Arbitration Procedure on Documents Alone’ which it ispossible 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 Lloyd’swho then publish it to the parties and, if the award is not paid, enforce the secu-rity given at the beginning of the case. If either party wishes to appeal, they willappoint 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 thestatistics. The number of LOF salvage cases now average about 100 per year. Ofthese approximately 80% are settled between the parties amicably. Theremaining 20% of cases are arbitrated and of those, approximately 20% areappealed.




� 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 ofwhich is annexed to this module.You will see the contract itself is fairly short butit is important to know it is backed up by the ‘Lloyd’s Standard Salvage andArbitration clauses’ (LSSA clauses) which set out a number of essential but sup-plementary rules and ‘The Procedural Rules’ which govern the way in which anarbitration is conducted. They are lengthy and not annexed to this module butcan be found on the Lloyd’s website at www.lloyd’sagency.com.

3-201 You will see that LOF 2000 is made up of nine BIMCO style boxes on the frontpage, each requiring completion with appropriate detail when the contract isconcluded, and 12 clauses on the back page, lettered A to L, which set out theessential terms of the contract.

3-202 Generally speaking, the nine boxes on the front page of the contract are torecord essential information necessary to identify the ship or casualty. Most areself-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 personaleffects or baggage of passengers, master or crew. Some explanation isnecessary.

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, asdiscussed earlier in this module, the Salvage Convention of 1989, defines salvedproperty (Article 1(c)) in such a broad way that it includes the personal effectsand baggage of crew and passengers. LOF is a commercial contract and it hasnever been felt necessary to include claims against personal effects and bag-gage 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 vehiclesof accompanying passengers and their personal effects in those vehicles (seeLSSA Clause 3.2). This was deliberately done for very practical reasons. Theirindividual value is not likely to be high in relation to other salved property andthe enforcement of a salvage claim against private vehicles on a car ferry wouldin practice be virtually impossible. By specifically excluding this property fromthe assessment of the award the contractors will be entitled to a complete awardfrom 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 aspecific agreement to a particular currency, any award under the contract is tobe 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 theSCOPIC Clause is incorporated into the agreement. We will be discussing theSCOPIC clause in detail in this module. It will be noted from Clause C thatunless the word ‘No’ in Box 7 has been deleted the LOF agreement will bedeemed to have been made on the basis that the SCOPIC Clause is not incor-porated and forms no part of the agreement. It will also be noted from Clause Cthat even if the word ‘No’ is deleted in Box 7 this should not of itself be construedas notice to invoke the SCOPIC Clause within the meaning of subclause 2 ofthat clause. Two important reminders.



3-208 It is perhaps convenient to point out here that Clause 3.9 of LSSA Clausesprovides that any reference to the SCOPIC Clause in LOF 2000 shall bedeemed to mean that version of SCOPIC which is current at the date the agree-ment is made.Thus, there is no need to identify the particular version of SCOPICfor the up-to-date version to be applied. The latest version is SCOPIC 2007which 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 herebyagree to use their best endeavours to salve the property specified in Box 2and to take the property to the place stated in Box 3 or to such other placeas may hereafter be agreed. If no place is inserted in Box 3 and in theabsence of any subsequent agreement as to the place where the propertyis 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 theproperty. This imposes an obligation on the contractor to complete the salvageservice, even if it is uneconomical for him to do so. However, this does not meanhe has to complete the job whatever the cost. He will probably be released fromthe burden of this obligation if he can show his expenditure does not justify thebenefit 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 whateverthe circumstances. If after the contract has been agreed there is, without fault onthe 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 thereafterare fundamentally different from those envisaged at the beginning, the contractmay be frustrated and the obligation at an end.

Clause B

‘Environmental protection: While performing the salvage services thecontractors shall also use their best endeavours to prevent orminimise damage to the environment.’

3-212 This simply emphasises the new duty of salvor under Article 8.1(b) of theSalvage Convention 1989.

Clause C

‘SCOPIC Clause: Unless the word ‘No’ in Box 7 has been deleted thisagreement shall be deemed to have been made on the basis that the SCOPICClause 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 invokingthe 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 SCOPICclause has been incorporated into the agreement. Care should be taken toresolve this issue if the LOF is verbally agreed and not actually signed untilsome time later.



Clause D

‘Effect of other remedies: Subject to the provisions of theInternational Convention on Salvage 1989 as incorporated intoEnglish law (‘the Convention’) relating to special compensation and tothe SCOPIC Clause if incorporated the contractors’ services shall berendered and accepted as salvage services upon the principle of ‘nocure – no pay’ and any salvage remuneration to which the contractorsbecome entitled shall not be diminished by reason of the exception tothe principle of ‘no cure – no pay’ in the form of special compensationor remuneration payable to the contractors under a SCOPIC Clause.’

3-214 The long-standing ‘no cure – no pay’ principle of salvage was always animportant factor to take into account when assessing a salvage award. Thesalvor had to be encouraged by giving him a higher award for taking the risk ofreceiving no payment at all regardless of the expense he incurred. Special com-pensation and SCOPIC remuneration eased this risk with the result that, but forthis clause, many modern salvage cases would have resulted in a lesser awardthan what would have been made before the days of special compensation orSCOPIC. This was not felt to be encouraging to the salvor so this particularclause was introduced to prevent that effect.

Clause E

‘Prior services: Any salvage services rendered by the contractors tothe property before and up to the date of this agreement shall bedeemed to be covered by this agreement.’

3-215 Despite the provision of Article 6.2 of the Salvage Convention which gives aship’s master the power to agree salvage contracts on behalf of all parties (seeparagraph 6–085) ship masters frequently prefer to consult with their ownersbefore agreeing to a salvage agreement. In the interval the salvage contractorsare 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 insuccessive versions of LOF.

Clause F

‘Duties of property owners: Each of the owners of the property shallco-operate fully with the contractors. In particular:

(i) the contractors may make reasonable use of the vessel’s machinerygear and equipment free of expense provided that the contractors shallnot unnecessarily damage abandon or sacrifice any property on board;

(ii) the contractors shall be entitled to all such information as theymay reasonably require relating to the vessel or the remainder ofthe property provided such information is relevant to the per-formance of the services and is capable of being provided with-out undue difficulty or delay;

(iii) the owners of the property shall co-operate fully with the con-tractors in obtaining entry to the place of safety stated in Box 3or agreed or determined in accordance with Clause A.’



3-216 These duties are in addition to those imposed on the owner and master byArticle 8.2 and Article 21 of the Salvage Convention. The duty to co-operate ingetting the vessel into a place of safety can be particularly important and can ineffect mean that the ship or cargo should provide any reasonable securityrequired by the port authorities before granting permission for the ship to enter.

Clause G

‘Rights of termination: When there is no longer any reasonableprospect of a useful result leading to a salvage reward in accordancewith Convention Articles 12 and/or 13 either the owners of the vesselor the contractors shall be entitled to terminate the serviceshereunder 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 TheSalvage Convention was incorporated into LOF 90. They feared without it, anunscrupulous salvor might be encouraged to keep a salvage service going justto achieve the benefit of the special compensation that would be due. It was lateramended to include the contractor in LOF 90, simply on the basis that the clauseshould be seen to be even handed.

3-218 It will be seen that the wording ‘ . . . a useful result leading to a salvage award inaccordance with Articles 12 and/or 13 . . . ’ does not include specialcompensation under Article 14. So, continued work simply to prevent damage tothe environment would not count as a ‘useful result’ for the purposes of thistermination clause. Further, the removal of a wreck which has no value (whilstuseful from a practical point of view) would not be a ‘useful result’ within themeaning 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 asalvage award is no longer possible.

3-219 It is important to draw attention to the different termination provisions undersub-clause 9 of SCOPIC which will apply, and override the above, if SCOPIC isincorporated into the LOF. The differences are important and we will discussthem 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 takento a place of safety, it was not specifically stated (though implied) that on rede-livery the ship should be in a safe condition. Some were unhappy with that so itwas decided a change should be made in LOF 2000. Further, it was felt someguidance 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 whenthe property is in a safe condition in the place of safety stated in Box 3 oragreed or determined in accordance with clause A. For the purpose of thisprovision the property shall be regarded as in a safe conditionnotwithstanding that the property (or part thereof) is damaged or in need ofmaintenance if (i) the contractors are not obliged to remain in attendance tosatisfy the requirements of any port or harbour authority, governmental



agency or similar authority and (ii) the continuation of skilled salvage servicesfrom the contractors or other salvors is no longer necessary to avoid theproperty 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 butsimply put it in a condition that the owner can arrange for it to be looked afterwithout the need for skilled salvage assistance.

Clause I

‘Arbitration and the LSSA Clauses: The contractors’ remunerationand/or special compensation shall be determined by arbitration inLondon in the manner prescribed by Lloyd’s Standard Salvage andArbitration Clauses (the LSSA Clauses) and Lloyd’s Procedural Rules.The provisions of the LSSA Clauses and Lloyd’s Procedural Rules aredeemed to be incorporated in this agreement and form an integralpart hereof. Any other difference arising out of this agreement or theoperations 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 LOFwhich were felt to have become too lengthy and complex. As a consequence sixclosely printed pages were reduced to two. To achieve this all the proceduraldetail previously incorporated into the contract was taken out and inserted in anew standard document entitled the Lloyd’s Standard Salvage and ArbitrationClauses (the LSSA Clauses). Clause I incorporates the LSSA Clauses into thecontract without having to set them out in detail.

Clause J

‘Governing law: This agreement and any arbitration hereunder shallbe governed by English law.’

3-224 As English law now incorporates the Salvage Convention, all the provisions ofthe Convention apply to LOF 2000.

Clause K

‘Scope of authority: The master or other person signing this agreementon behalf of the property identified in Box 2 enters into this agreementas agent for the respective owners thereof and binds each (but not theone 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 contractbetween shipowners and cargo owners. It is an agreement between salvors, onthe one hand, and the respective owners of property on the other. Thus, as nonew contractual relationship is brought into existence between ship and cargo,there is no scope for implying binding legal obligations between them under theLOF contract. Any disputes between ship and cargo have to be resolved underthe Contracts of Carriage. Thus, a claim for damages suffered as a result of oneparty delaying the provision of security must be dealt with under the Contractsof Carriage rather than the LOF.



Clause L

‘Inducements prohibited: No person signing this agreement or anyparty on whose behalf it is signed shall at any time or in any mannerwhatsoever offer provide make give or promise to provide or demandor take any form of inducement for entering into this agreement.’

3-226 A self-explanatory clause which was felt important enough to incorporate intosuccessive versions of LOF.

3–227 The contract concludes with the following Important Notices:

‘1. Salvage Security

As soon as possible the owners of the vessel should notify theowners of other property on board that this agreement has beenmade. If the contractors are successful the owners of such propertyshould note that it will become necessary to provide the contractorswith salvage security promptly in accordance with Clause 4 of theLSSA Clauses referred to in Clause I. The provision of generalaverage security does not relieve the salved interests of theirseparate obligation to provide salvage security to the contractors.

2. Incorporated Provisions

Copies of the SCOPIC Clause; the LSSA Clauses and Lloyd’sProcedural Rules may be obtained from:

(i) the contractors; or

(ii) the Salvage Arbitration Branch at Lloyd’s, 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 removingthe old version administrative matters. These are now contained in the LSSAClauses. There are 15 clauses which for those interested can be found on theLloyd’s website (www.lloyd’sagency.com) They are largely self-explanatory andrequire no further comment.

5.2.5 The Procedural Rules

3-230 Finally, mention must be made of the Procedural Rules which were designed toexpedite the assessment of salvage awards. Again they can be found on theLloyd’s website. It will be seen that the arbitrator has the power to take a veryhands-on approach which permits him to override any party who employs delay-ing tactics. Their purpose is to ensure a quick and economical disposal of anydisputes which arise under the Contract. Most arbitrations involve an oral hear-ing at which all parties are entitled to be represented. In small cases this can beunnecessarily cumbersome and expensive so in 2005 Lloyd’s devised specialrules entitled ‘Fixed Costs Arbitration Procedural Rules’ to cover such cases.These can be found on the website.



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




� Does the contract have to be in writing?

� If SCOPIC is included in the LOF contract, is any otheraction required to invoke its provisions?

� To what extent, under an LOF contract, can a claim be madefor 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 LOFcontract?

� What is meant by the provision that the contractor shoulduse his best endeavours?

6.1 HISTORY

3-231 The Salvage Convention of 1989 made a fundamental change to theinternational law of salvage by creating a new concept – SpecialCompensation – which was intended to encourage salvors to proceed to theassistance of ships which threatened damage to the environment. We discussedSpecial Compensation earlier in this paper which concluded with the commentthat whilst the concept was initially widely welcomed by all sides of the shippingindustry, practical experience proved its mechanics to be uncertain in outcome,time-consuming, expensive, cumbersome to operate, and a disincentive ratherthan 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 theexpense of commercial need. Instead of being encouraged, salvors becamediscouraged and the P&I Clubs, new to the world of salvage and the payers ofSpecial Compensation, became concerned at their lack of involvement.

3-232 To resolve the problem, industry got together and devised the SCOPIC Clausewhich we are about to discuss. In considering the Clause it is important toremember that it was designed to have the same intent as Article 14 – toencourage salvors to go to the assistance of ships that threaten damage to theenvironment – and to follow it as closely as possible but remove the problems thatwere giving rise to so much difficulty. In describing SCOPIC it is therefore useful aswe go along, to look at the problems that arose from Article 14 and see how theSCOPIC Clause set out to resolve them. This is not just of academic interest, forwith knowledge of what the parties were trying to achieve it is easier to understandthe contract and, where there is doubt or ambiguity, interpret it the way intended.

6. THE SPECIAL COMPENSATION P&I CLUB CLAUSE


3-233 To say the SCOPIC Clause is something of a misnomer would be anunderstatement. Fifteen complicated subclauses, three lengthy appendices andtwo supporting codes of conduct is not exactly what you would imagine to be ‘aclause’. 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 understandSCOPIC is to look at what I would call its ‘Ten Essential Elements’.

THE 10 ESSENTIAL ELEMENTS OF SCOPIC

1. SCOPIC is designed to be an addendum to LOF and will only be includedas part of that contract if specifically agreed in writing (see subclause 1).

3-234 It will be recalled that Box 7 of the LOF 2000 requires the parties to recordwhether SCOPIC is part of the contract. Further, Clause C of LOF 2000 providesthat if this box is not completed SCOPIC will not form part of the contract. (seealso Rule 3.9 of Lloyd’s Standard Salvage and Arbitration Clauses (LSSAclauses) – If SCOPIC is not incorporated into the contract then Article 14 (ifrelevant) will apply.

2. When incorporated into the contract, SCOPIC replaces Article 14 ofthe Salvage Convention which thereafter will no longer be applicable.(see subclause 1)

3-235 Thus, subject to point 4 below, if SCOPIC is incorporated into the contract butnot specifically invoked (see 3 below) or is later terminated (see 8 below) thesalvor will have neither the protection of Article 14 nor of SCOPIC.

3. Even when SCOPIC is incorporated into the contract, itsremuneration provisions will not begin to bite until the Clause isspecifically invoked in writing by the salvor (subclause 2). Further, thecalculation 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 ofdamage to the environment’. It will be recalled that we discussed this earlier. Itcaused enormous difficulty. What was a threat ? Did it have to be an actual threator was it sufficient for it to be a reasonably perceived threat ? What were coastalwaters or waters adjacent thereto? What was ‘substantial’ ? How substantial didit 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 thesimplest and most unchallengeable trigger mechanism was to give the salvor thesole and unfettered power, whatever the circumstances and at any time of hischoosing, to specifically invoke the clause in writing. Hence this provision.

3-237 To balance this trigger mechanism and to discourage salvors from invoking theclause in every case, two counter-balancing provisions were made. The first wasto provide for a discount if the traditional salvage award should exceed theassessed SCOPIC remuneration (see point 7 below). And the second was togive the shipowner the right to withdraw from SCOPIC at any time, subject to fivedays notice and the local authorities permitting it. (see point 8 below)

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

Module 3 The Special Compensation P&I Club Clause


3-238 This provision was made for the salvors’ protection and on their insistence forwithout it there is no effective means of enforcing payment. Whilst Article 21 ofthe Salvage Convention provides that security should be provided for a salvor’sclaim, it is not due until the end of the salvage operations and, in the case ofsecurity for Special Compensation, there was often no way of enforcing itsprovision. Further, before the days of SCOPIC, there was a marked reluctanceto provide it. In a number of cases shipowners, guided by their P&I Club, refusedto 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 providessecurity in the sum of $3 million must be provided within two days of the clausebeing invoked and makes provision for it to be adjusted, up or down, at thetermination of the services. To assist further, the Clubs agree not to refuse togive security because it could not be obtained in any other way (see Clause 4 ofthe Code of Practice between the International Salvage Union (ISU) and TheInternational Group of P&I Clubs) and, to save unnecessary costs, the ISUagreed to accept as security a letter of undertaking from the Club concerned inan agreed form (see Clause 6 of the said Code of Practice). Generally thisprovision 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 isnot provided the contractor has the option to withdraw from SCOPIC (rather thanpursue a claim for a breach of contract) which would reinstate the limitedprotection afforded by Article 14. This is unlikely to be of benefit to the salvor forif security is not given for SCOPIC it is unlikely to be given for Article 14, but theprovision was included in case there were some circumstances where thatoption may be of an advantage.

5. Once SCOPIC has been invoked SCOPIC remuneration will be assessedin accordance with a tariff (subclause 5 (iv) and Appendix A) for men andequipment reasonably engaged or used in the operation, plus a bonus.

3-241 It will be recalled that under Article 14.3, when assessing SpecialCompensation, a ‘fair rate’ for all the men and equipment has to be used. TheEnglish courts decided in the ‘Nagasaki Spirit’, that the term ‘fair rate’ was to beinterpreted as a rate of expense which did not include any element of profit butdid take into consideration the criteria set out in Article 13 (h), (i), and (j), whichare provisions to encourage a professional salvor to invest in equipment andkeep it on standby ready for use in case of need. This meant, whenever anassessment had to be made as to a ‘fair rate’, consideration had to be given toall of the salvor’s equipment, even that not used in the particular service. Thisfactor resulted in Special Compensation often being assessed at a figure thatwas just as much, or sometimes more, than it would have been, if assessed ona normal profit rate basis. However, the mechanism gave rise to unacceptablecomplications. In each case the salvors’ accounts, for all their equipmentwhether used or not, had to be examined and consideration given to a host ofnew factors, in order to establish what was a ‘fair rate’ in the particularcircumstances of a case. In many cases it proved to be a major accountingexercise. This caused untold delay, expense and much uncertainty. Whendrafting SCOPIC, it was determined this problem had to be avoided.

The Special Compensation P&I Club Clause Module 3


3-242 The answer was to establish tariff rates and Appendix A of the SCOPIC Clausewas the result. In arriving at the Tariff rates for personnel, tugs, and equipmenta very broad-brush approach was needed. It was intended that the rates shouldbe profitable and encouraging to salvors but clearly it was going to be moreprofitable in some parts of the world, where personnel, tugs and equipment werecheap, than in others. Consideration was given to applying different rates toeach item for different areas but dismissed as being a further complication towhat was already a very complicated clause. SCOPIC was intended as a safetynet, a minimum payment, and a broad brush approach was sufficient. A singletariff rate for personnel tugs and equipment, that operated worldwide, would do.By applying tariff rates it became fairly simple to calculate SCOPICremuneration 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 thatbut for his services there would have been damage to the environment, andsatisfy the tribunal as to the extent of that damage, which clearly would affect thepercentage of uplift. In almost every case expert evidence was needed. It wastime-consuming and expensive operation and there was much uncertainty longafter the services were complete. It was not a commercially acceptable way toassess the remuneration due.

3-244 The solution was again to take a very broad-brush approach. At that time theaverage uplift under Article 14.2 in arbitrated cases, was 26%. It was decidedthat a general and fixed uplift of 25% would compensate. Again it wasrecognised this would be more generous in some cases than in others but thiswas a safety net, a method of assessing a minimum payment, and it wasimportant to have simplicity and certainty.

6. The assessed SCOPIC Remuneration is due from the shipowner(Note – not cargo or other property) or his P& I insurer, insofar as itexceeds the traditional salvage award made against salved propertyunder Article 13 of the Salvage Convention (subclause 6).

3-245 This mirrors Article 14.4 of the Salvage Convention which provides that SpecialCompensation shall only be paid to the extent that its assessment exceeds thetraditional Article 13 salvage award. The position is the same under SCOPIC. Soif the traditional salvage award is say $1 million and the assessed SCOPICremuneration is $1.5 million, the salvor will receive $1 million from the ship andcargo, pro rata to value, and $0.5 million from the shipowner in respect ofSCOPIC remuneration.

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

3-246 As mentioned in 2 above, some check was needed to prevent salvors invokingSCOPIC in every case. Without some check a salvor would have nothing to loseand might as well invoke SCOPIC on day one in every case. That would takeaway one of the main elements of traditional salvage law – the element of ‘nocure – no pay’. So how do we get him to invoke it only when he felt it really



necessary and what penalty should he pay for the protection and securityafforded when SCOPIC was invoked? The answer was twofold. To give theowner 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 Article13 award is higher than the assessed SCOPIC remuneration, then the Article 13award shall be discounted by 25% of the difference between it and the SCOPICassessment. So, if the salvage award was say $1.5 million and the assessedSCOPIC remuneration $1 million no SCOPIC remuneration would be due and thesalvage 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 invokedin 20% of cases.

3-249 Note that the discount benefits the property underwriters, who are liable to paythe Article 13 award, by a reduction in that award, not the P&I Clubs who areliable to pay the Article 14 or SCOPIC remuneration. This was a consciousdecision and intended as some recompense to the property underwriters for theprovision in Article 13.1 (b) (the skill and effort of the salvor in preventingdamage to the environment) which in effect enhances a salvage award payableby the property underwriters.

8. The owner is entitled to terminate SCOPIC (note – not the LOFcontract) at any time, after giving five days written notice (subclause9 (ii)), PROVIDED the appropriate authorities do not object(subclause 9 (iii)), and the salvor can withdraw from the whole LOFcontract if it is no longer financially viable (subclause 9(i)).

3-250 The Termination provisions of SCOPIC (subclause 9), together with the Discountprovision (see 7 above), counterbalance the salvor’s right to invoke the clausewhatever the circumstances (see 3 above) and are intended to ensure the salvorwill only invoke the clause when there is a threat of damage to the environmentand he is in need of the protection of the clause. There are three terminationprovisions. Each is designed to have an effect on the other with a view toensuring that overall, the principal aim of SCOPIC is achieved. Namely, that it beused and enforced by the salvor only when there is a threat of damage to theenvironment.

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 undersubclause 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 localauthorities would object thus preventing the owner from withdrawing when sucha threat existed. To back up this intention, the International Group of P&I Clubs incl. 8 of the ‘Code of Practice between ISU and The International Group’, agreedto recommend the owners not to withdraw without reasonable cause.

3-252 If the owners were to withdraw from SCOPIC, the salvor would no longer havethe financial protection of either SCOPIC or Article 14, and could be stuck withan unprofitable LOF contract which he is still obliged, under that contract, tocomplete. This would be unfair if he had been induced by the prospect of theprotection of SCOPIC remuneration when agreeing to the LOF contract, and the



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

9. As soon as SCOPIC is invoked the owner may appoint a SpecialCasualty Representative (SCR) (see subclause 12) to represent allsalved property (ship and cargo)

3-253 One of the most unsatisfactory aspects of many salvage cases, particularlythose that involved Special Compensation, was the lack of information that cameback to the insurers during the course of the services This was particularly sofrom a P&I Club point of view. Indeed, because of the way it was devised, therewere many Special Compensation cases of which they knew nothing untilmonths after the services were complete. This was unsatisfactory and to ensurethey were kept well advised on a daily basis SCOPIC provides that in everySCOPIC case they can appoint a Special Casualty Representative (SCR)whose principal duty is to keep them informed on a daily basis. Once appointedthe SCR represents and reports to all salved interests.

3-254 The Salvage Master must keep the SCR informed of his plans and listen to anycomments the SCR may have but the final decision on any aspect of the salvageservice is always that of the Salvage Master. The SCR has no authority or powerto bind the salved property but clearly his voice is influential. He must eitherendorse the salvage master’s daily report or issue a dissenting report. All reportsand communications are to be sent to all salved property through Lloyd’s, withcopies to the salvor.

3-255 The duties of the SCR are set out in Appendix B and are further explained in theGuidelines for SCRs, SCR Digest 1, and SCR Digest 2, all of which can be foundon the Lloyd’s website www.lloyd’sagency.com. His independence from anyparty 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 theSCR 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 benefitof the tariff rates it is now possible for an owner and his insurers to be aware andkeep an eye on the minimum cost of any operation on a daily basis. Anenormous improvement on special compensation

10. In addition to an SCR, the hull underwriters and the cargounderwriters are each allowed to send a Special Representative toobserve and report (subclause 13 and Appendix C)

3-257 The SCR represents all salved interests. When SCOPIC was devised it wasthought property underwriters would like to be separately represented and so aprovision was made for the hull underwriters and the cargo underwriters to eachappoint a Special Representative, one for hull and one for cargo, as additionalwatchdogs. In practice, the independence of the SCR and the unbiased mannerin which they have fulfilled their duties, has ensured that Special



Representatives are seldom appointed. When they are appointed their dutiesare governed by Appendix C of SCOPIC which largely restricts them to watchingand reporting on events as they occur.

3-258 So there we have it. SCOPIC in a nutshell. How has it worked? Lloyd’s statistics on 3 March 2008 show that there have been 844 LOF cases since theinception of SCOPIC in August 1999; that the clause had been incorporated inthe 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 theSCR panel are reviewed each year by the SCR Committee set up underAppendix B, and considered annually by the Lloyd’s Working Group which hasoverall responsibility for its provisions. After its first year of use someamendments were made, largely to correct errors, which resulted in SCOPIC2000. A further version, SCOPIC 2005, came into effect on 1 January 2005. Thechanges were not large and mainly to correct further initial errors and take intoaccount currency fluctuations between the time of the termination of theservices, and the date of any set-off or date of final assessment. Last year somefurther fine tuning was carried out and the tariff rates reviewed, resulting inSCOPIC 2007.

3-260 Finally, it should be noted that SCOPIC is a negotiated contract whichrepresents a balance of interests between the negotiating parties. It is not aperfect instrument. There are parts which are not completely fair and logicalwhich can result in anomalies. As an example, the discount clause(subclause 7) provides that when calculating the discount one should assessthe SCOPIC remuneration on the assumption that the clause had beeninvoked on day one, thereby not penalising the salvor for a late invocation ofthe 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 notbite) 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 orArticle 14. To be even-handed, there should be a notional assessment ofSCOPIC remuneration until the end of the actual salvage service, beforeassessing the amount of the discount. Attempts have been made to correctthis but they have been rebuffed on the ground that it is a negotiated contractwith pluses and minuses on all sides and this is a minus that salvors have tolive with. Despite such anomalies the clause represents what all sides of theshipping industry can live with. It should be read in that light.



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)

Lloyd’s Digest (available from Lloyd’s Agency department)

DVD. ‘Lloyd’s Open Form – Serving the Maritime Community’ (available fromLloyd’s Agency Department)

Useful Websites

www.lloyd’sagency.com

www.marine-salvage.com

www.lof-at-isu.com




� Why was SCOPIC devised and what did it replace?

� At what point does the calculation of SCOPIC remunerationbegin 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 LOFcontract

(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?


3-261 On the morning of 18 March 1967 the Torrey Canyon, laden with 120,000 tonsof crude oil, struck Pollards Rock on the Seven Stones Reef between the ScillyIsles and Lands End. During the subsequent salvage operation there was anexplosion in the engine room and the ship split in two.The salvage operation wascalled off and on the orders of the Prime Minister, the Royal Air Force wasinstructed to bomb the ship and set her cargo ablaze. The attempt to burn off theoil succeeded in part, but a large quantity remained and in subsequent dayswind and tide carried it to the western coastline of England and covered itsbeaches and harbours with a thick brown oily sludge. Severe environmentaldamage was caused to both the tourist and fishing industries and there was asustained public outcry.

3-262 It was to be the first of many tanker casualties in environmentally sensitive areasthat were to occur in subsequent years and gave rise to a whole new chain ofregulation, laws and international conventions which materially affected themaritime industry worldwide.

3-263 Since that time there have been a number of other major tanker casualties, theAmoco Cadiz, the Exon Valdez, the Sea Empress, the Brier, the Erika, theNakhodka, the Prestige and the Castor. All in their way have contributed to thetightening of the legislative and regulatory screw imposed on shipowners,substantially increased their, and their insurers’ potential liabilities and thetrend continues. Civil liability for pollution has increased, extended from oilcargoes to bunkers and hazardous and noxious substances, and criminal

7. POLLUTION

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liability for pollution introduced. This module will focus on the shipowner’s civilliability for pollution and is only intended to give an overview of what is acomplex subject.

3-264 The Civil Liability for Oil Pollution Convention of 1969 and the Fund Conventionof 1971 were the initial international reaction to the Torrey Canyon. Bothmaterially affected and increased the civil liability of tanker owners, their insurersand oil importers. In subsequent years, after pressure created by othercasualties to tighten their provisions, and several failed attempts, bothconventions were amended and replaced by The International Convention onCivil Liability for Oil Pollution Damage of 1992 (CLC 1992) and the InternationalConvention on the establishment of an International Fund for Compensation forOil Pollution Damage of 1992 (Fund Convention 1992). The cover afforded bythese two conventions was further extended by a Protocol that created theInternational Oil Pollution Compensation Supplementary Fund of 2003(Supplementary Fund Convention 2003). These three conventions now governthe pollution liabilities of shipowners, their insurers and oil importers of cargoescarried in tankers. However, two other international conventions for otherpollutants have been added, The Hazardous and Noxious SubstancesConvention of 1996 (HNS Convention), which covers cargo pollutants other thanoil, and the Bunker Convention 2002 which covers the bunkers of all ships. Thismodule will deal with each Convention separately.

7.1 THE CLC 1992

3-265 This Convention came into force on 30 May 1996 and as of 31 March 2009 wasapplicable in 121 States representing 96.39% of the world’s 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 theterritorial sea or economic zone (200 miles) of a contracting state, causedoutside a ship by contamination resulting from the escape of oil from a shipwherever such escape or discharge may occur’. (Article I.6) and for ‘preventivemeasures, 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 ofa 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 causedamage by a third party, or

3. was wholly caused by the negligence or other wrongful act of anygovernment or other authority responsible for the maintenance of lights orother navigational aids in the exercise of that function. (Article III)

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3-269 No claim for pollution damage covered by the Convention can be made againstthe owner other than in accordance with the Convention (Article III.4).

3-270 Subject to an owner’s right of recourse, no claim for compensation for pollutiondamage 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 owner’s personal actor omission, committed with intent to cause such damage, or recklessly withknowledge that such damage would result, the owner is entitled to limit hisliability to 4.51 million SDRs (US$6.15 million as of 22.4.09) if the ship is of5,000 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$133.1million) (Article V).

3-272 The owner of a ship carrying more than 2000 tonnes of oil in bulk is required tomaintain insurance, or other financial security, up to the limit of liability of theship and retain on board the ship a certificate of that insurance (Article VII. 1and 2). Direct action may be taken against the insurer for any liability of theowner but the insurer can limit his liability to that of the ship and may availhimself of any defence available to the owner (Article VII.8).

3-273 Claims under the Convention must be brought within three years from the datethe damage occurred (Article VIII) and may only be brought in the courts of thestate 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 areparties to the CLC 92 can be parties to this Convention. As of 31 March 2009the Convention was applicable in 103 States representing 94.12% of the world’stonnage.

3-275 The Convention set up a fund for the primarily purpose of providing additionalcompensation when the CLC 1992 is inadequate to compensate all theclaimants. It is in effect a top-up fund but also covers claims where the owner isunable to meet his financial obligations under the CLC 1992 and claims wherethere 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 wasfrom a war ship or other ship engaged on a non-commercial service or the

claimant cannot prove that the pollution resulted from an incident involving oneor more ships (Article 4.2).

3-277 The maximum amount for which the fund is liable is the difference between theactual sum paid under the CLC 92 and (as from 1 November 2003) 203 millionSDRs (US$300.99 million). It therefore substantially extends overall cover forpollution.

3-278 Any right to compensation under the Fund is lost unless an action is broughtagainst 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 totalquantity of oil exceeding 150,000 tons in a Contracting State. (Article 10.1) andis managed by an Assembly formed of contracting member states and asecretariat 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 numberof States felt the limits of the CLC 1992 and Fund Convention 1992 were toolow and sought change. The limits of the Fund Convention 1992 wereincreased to those mentioned above as from 1 November 2003, but they werestill not enough and pressure resulted in the creation of a new fund entitledthe Supplementary Fund for Compensation for Oil Pollution Damage 2003.(Supplementary Fund). The Supplementary Fund is in effect a third tier ofcompensation and increases the total amount of compensation available forany one incident in participating States of all three conventions, to 750 millionSDRs (US$1,112.03 million).

3-281 The Supplementary Fund came into force on 3 March 2005. Only members ofthe CLC 92 and Fund Convention 92 can be parties to it. As of 31 March 2008there were 23 contracting States representing 19.84% of the worlds tonnage. Itcovers 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 thereforenot yet in force. It requires the consent of at least 12 States who together importmore than 400 million tons of HNS cargo Thirteen have consented but they arewell short of the required tonnage. The difficulty relates to the method by whichimporters contribute to the Fund. In an effort to break the current deadlock andresolve the situation, a Protocol to the Convention has been prepared andapproved by the legal Committee of IMO and is likely to be put to a fulldiplomatic conference in 2010. As the Convention forms an important part ofmaritime environmental liability and completes the pollution liability circle, itwould be useful to outline in this module its provisions as to liability which arenot expected to be changed by any amending Convention.

3-283 The HNS Convention in effect is in two parts. One part deals with a shipowner’sliability as the CLC 1992 does for oil pollution and the other part deals with the

Module 3 Pollution


setting up of a fund as the Fund Convention 1992 does for oil pollution. It is reallylike two conventions rolled into one.

3-284 The Convention provides that the owner ‘shall be liable for damage caused byany hazardous and noxious substances in connection with their carriage by seaon 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 anexceptional inevitable and irresistible character; or

2. The damage was wholly caused by an act or omission done with intent tocause damage by a third party; or

3. The damage was caused wholly by the negligence of any Government orauthority responsible for the maintenance of lights or other navigationalaids; or

4. The failure of the shipper to furnish information as to the nature of thesubstances shipped has

i. caused the damage, wholly or in part; or

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

3-285 Apart from an owners right of recourse no claim for damage under theCconvention 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.

3-286 The owner of the ship is entitled to limit liability unless it is proved that ‘thedamage resulted from the personal act or omission of the owner, committed withthe intent to cause such damage or recklessly and with knowledge that suchdamage would probably result’ (Article 9.2).

3-287 The limit of liability is an aggregate of

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.

3-288 Provided that the total amount does not exceed 100 million SDRs (Article 9.1).

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3-289 Hazardous and Noxious substances are defined and listed in Article 1.5 and ingeneral terms include certain oils in bulk (not within the CLC 1992); listedsubstances; dangerous liquids; dangerous materials; and liquefied gas.

3-290 ‘Damage’ means loss of life or personal injury, loss of or damage to propertyoutside the ship, loss or damage by contamination, and the cost of preventivemeasure (Article 1.6).

3-291 The second part of the Convention deals with the setting up of a fund which likethe Fund Convention 1992, will pay for claims not met by the owner because heis unable to meet his financial obligations under the Convention; or he has noliability; or because the damage exceeds his liability (Article 14.1). The Fund willnot have any liability if it proves the damage resulted from war or the claimantcannot prove the damage resulted from an incident involving one or more ships(Article 14.3).

3-292 The maximum amount for which the Fund can be liable for any one incident isthe difference between the actual sum paid by the owner under the Conventionand 250 million SDRs (US$ 370.7 million) (Article 14.5).

7.5 THE BUNKER CONVENTION 2002

3-293 This Convention will come into force on 21 November 2008. To date it has beenratified by 38 Contracting States which represent 75.5% of the worlds tonnage.

3-294 The Convention applies to any pollution caused in the territorial sea andeconomic zone of a State party (Article 2). It imposes strict liability on ashipowner for pollution damage caused by any bunker oil onboard or originatingfrom the ship unless he can prove:

1. the damage resulted from an act of war or a natural phenomenon of anexceptional inevitable and irresistible character; or

2. The damage was wholly caused by an act or omission done with intent tocause damage by a third party; or

3. The damage was caused wholly by the negligence of any Government orauthority responsible for the maintenance of lights or other navigationalaids. (Article 3.3)

3-295 No claim can be made for pollution damage covered by the Convention otherthan in accordance with the Convention (Article 3.5). Pollution damage meansloss or damage caused outside the ship by contamination resulting from theescape of bunker oil from the ship, wherever such escape or discharge mayoccur (Article 1.9) and the cost of preventive measures.

3-296 The Convention does not apply to pollution damage defined in the CLC 1992;nor to warships or State-owned non-commercial ships unless that Stateotherwise elects (Article 4).

3-297 Article 6 provides that nothing in the Convention shall affect the right of theshipowner to limit his liability under any applicable national or international

Pollution Module 3


regime such as the Convention on Limitation of Liability for Maritime Claims1976 as amended (see p 3-048). Thus in the UK, claims arising from bunkerdamage will not have their own exclusive limitation fund (as in the CLC and HNSConvention) and must share with any other claimant to the limitation fund.

3-298 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). Anyclaims for compensation under the Convention may be brought directly againstthe insurer (Article 7.10).

3-299 Claims for compensation under the Convention must be brought within threeyears from the date when the damage occurred. (Article 8).

3-300 Unlike the CLC 92 and HNS Convention, there is no protection from suite forcertain third parties such as rescuers or salvors. However, the diplomaticconference did invite participating states to include a similar protection to thatgiven in those two earlier conventions if they so wished and some of the States,such as the UK, have done so.

3-301 That concludes the discussion on Pollution and this module.


� Who is liable for damage caused by pollution covered bythe CLC Convention?

� Who is not liable?

� If a laden tanker discharges bunkers into the sea, is thedamage 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?

Module 3 Pollution


Useful Websites:

www.imo.org

www.iopc.org

www.itopf.com


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.