No. X.3 - Law of marine salvage

1 The legal principles of marine salvage relate to the successful rescue by a salvor of a ship, cargo and certain other classes of property in navigable waters or in any other waters whatsoever from real danger, provided that such service is voluntary in the sense of being attributable neither to a pre-existing contractual or other legal obligation nor solely for the interests of the salvor (a).

2 The concept behind salvage is that the salvor should be encouraged by the prospect of an appropriate award to intervene in any casualty situation. The legal principles on salvage are based on fairness and public policy, as it is in the public interest that vessels or other property in peril at high see or in other waters are saved and that a salvor receives a fair reward for his salvage operation in light of the fact that he conducts that operation for the public benefit. The idea of encouraging persons to become salvors by liberal rewards has been aptly described by Storey J. in The Henry Ewbank ((1883) 11 Fed. Cas. (Case No. 6376) 1166, 1170):

„Salvage, it is true, is not a question of compensation pro opera et labore. It raises to a higher dignity. It takes its source in a deeper policy. It combines with private merit and individual sacrifices larger considerations of the public good, of commercial liberality, and of international justice. It offers a premium by way of honorary reward, for prompt and ready assistance to human sufferings; for a bold and fearless intrepidity; and for that affecting chivalry, which forgets itself in an anxiety to save property, as well as life.“

3 In the civil law world, salvage has its origins in ancient compilations of maritime law principles such as the Rhodian Sea Law of 800-600 BC and in Artt. 4, 5 of the Rȏles d’Oléron which were written between 1160 and 1286 AD. Originally, however, the entitlement to a salvage reward was derived from the Roman law doctrine of negotiorum gestio to be found in Book 3, Title 5 (De Negotiis Gestis) of Emperor Justinian‘s Digests containing equitable provisions for the rendering of services for an absent person, i.e. without a contract, but on the basis of a quasi-contractual relationship with that person. Since the 18th century, altruistic emergency relief became one of he typical cases in which this legal institution of Roman law was applied.

4 Today, salvage provisions are contained in many domestic laws. While the English Admiralty Court has maintained that rights and liabilities relating to salvage are not derived from a maritime law of the world (Lex Maritima) but from the internal municipal law of a particular sovereign state (The Tojo Maru, [1972] A.C. 242, 290 et seq) the International Convention on Salvage of 28 April 1989 (1989 Convention), including its three Attachments and traveaux préparatoires, have made a major contribution to the global unification and transnationalisation of maritime salvage law. As of July 2024, the 1989 Convention has been ratified by sixty-nine states which represent over fifty percent of the gross tonnage of the world's merchant fleet. The 1989 Convention has replaced the 1910 Brussels Convention for the Unification of Certain Rules with Respect to Assistance and Salvage at Sea. Both Conventions were based on preparatory work undertaken by the Comité Maritime International (CMI), one of the most important and influential formulating agency in the area of maritime law.

5 There are three basic ingredients of customary salvage which must be present: danger, voluntariness and success. The subject of salvage must be in real danger, which means it is exposed to damage or destruction, e.g. by fire, explosion, stranding or collision. While the danger needs to be real, it must not necessarily be immediate or absolute. Rather, the test which has to be applied is whether a reasonable and prudent master, if offered assistance, would have accepted the offer.

6 The 1910 Convention introduced in its Article 2 the fundamental „no cure, no pay" principle (c) according to which a salvor is only entitled to a reward for his services if his operation was successful: „No remuneration is due if the services rendered have no beneficial result…“. However, success of the salvage operation need not be total. Partial success is sufficient, provided that there is some measure of preservation to the owners. Salvage may encompass towing, lifting a vessel, or effecting repairs to a ship.

7 The amount of the reward (b) for the salvor is typically fixed in commercial negotiations between the salvor and the shipowner or by a court or arbitral tribunal, for example from a panel of the Lloyd’s Salvage Arbitration Branch if the salvage contract contains the Lloyd’s Salvage Arbitration Clause (LSAC) 2024. The amount of the salvor‘s reward will be determined on the basis of a comprehensive evaluation of all circumstances of the individual salvage operation. Art. 13 (3) of the 1989 Convention provides that the reward, exclusive of any interest and recoverable legal costs, “…shall not exceed the salved value of the vessel and other property“. A list of ten internationally accepted criteria relevant for the fixing of the salvor’s reward and intended to ensure that the reward is fixed „with a view to encourage… salvage operations“ is contained in Art. 13 (1) of the 1989 Convention:

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

(b) the skill and efforts of the salvors in preventing or minimizing damage to the

environment;

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

(d) the nature and degree of the danger;

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

(f) the time used and expenses and losses incurred by the salvors;

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

(h) the promptness of the services rendered;

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

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

Art. 13 (1) of the 1989 Convention also clearifies that the order in which these criteria are present does not imply a hierarchy of their relevance in a given case. A case study for determining the salvage reward under Art. 13 of 1989 Convention, which is based on an actual arbitral award, is presented by Jingjing Xu, Assessment of salvage award under Lloyd's Open Form [LOF], 2000, pp. 27 et seq. with quotes from the original award.

8 Although the basic rule „no cure, no pay“ (see supra Para. 6) worked well in most cases, it did not take marine pollution into account, a problem which has become very acute and severe over the past decades. A salvor who prevented a major pollution incident (for example, by towing a damaged tanker away from an environmentally sensitive area) but did not manage to save the ship or the cargo was not compensated under the „no cure, no pay“ rule. There was therefore little incentive to a salvor to undertake an operation which has only a slim chance of success but involves a great threat for the environment. This situation runs counter to the underlying concept of salvage (see supra Para. 1), especially in the context of environmental protection for which there is today a very high level of global public interest.

9 Art. 14 of the 1989 Convention sought to remedy this deficiency by creating an exception to the „no cure, no pay“ principle. Art. 14 (1) of the 1989 Convention provides for an enhanced salvage award („special compensation“) to be paid (only) by the owner of the vessel if the salvor has carried out salvage operations in respect of a vessel which by itself or its cargo threatened damage to the environment, but has failed to earn a reward under Art.13. Pursuant to Art. 1 (d) of the 1989 Convention, damage to the environment means „substantial physical damage to human health or to marine life or resources in coastal or inland waters or areas adjacent thereto, caused by pollution, contamination, fire, explosion or similar major incidents“.

10 The special compensation consists of the salvor's expenses, plus (Art. 14 (2) of the 1989 Convention) an increase of up to 30% of these expenses if, thanks to the efforts of the salvor, environmental damage has been minimized or prevented. The salvor's expenses are defined as "out-of-pocket expenses reasonably incurred by the salvor in the salvage operation and a fair rate for equipment and personnel actually and reasonably used". In assessing the salvor’s reward, the court or tribunal may increase the amount of special compensation further to a maximum of 100% of the salvor's expenses, "if it deems it fair and just to do so and bearing in mind the relevant criteria set out in article 13, paragraph 1".

11 Due to the wording and structure of Art. 14 of the 1989 Convention, which was the result of a political compromise during the drafting process, the assessment of special compensation under the existing regime proved to be time consuming, cumbersome, uncertain and expensive to operate. These problems were revealed in a number of English court decisions, including The Nagasaki Spirit rendered by the English House of Lords in 1997. In that judgement, Lord Mustill, who delivered the opinion of the Court, hinted at the considerable difficulties in assessing the „fair“ rate of special compensation for the salvor under Art. 14 (2) of the 1989 Convention, given that the special compensation does not include any profit or bonus, components that are particularly relevant for professional salvage companies, which, today, perform the vast majority of salvage operations.

12 A salvage operation requires that there is no contractual agreement between the salvor and the owner of the vessel prior to the coming into existence of the danger. If the owner or master of a vessel, who has the presumed authority to conclude contracts for salvage operations on behalf of the owner (Art. 6 (2) of the 1989 Convention), accepts an offer of salvage assistance or merely acquiesces in the salvor's intervention, a salvage agreement is concluded that gives the successful salvor a right for reward under the 1989 Convention. Contractual terms may be agreed prior to the commencement of salvage services, during the course of such services, or even after the services have been completed.

13 In many cases, a salvage contractor, e.g. a professional salvage company, and the owner of the vessel or cargo will sign an agreement, such as the Lloyd’s Standard Form of Salvage Agreement („Lloyd’s Open Form“, LOF 2024) after the event has occurred and before the salvage operation begins. The 1989 Convention is incorporated by reference into LOF. The LOF’s significance goes well beyond the individual salvage agreement which is based on it. The LOF is today the most widely used international salvage agreement of its kind. It has therefore been argued that „the LOF represents a partial non-statutory codification of the customary salvage law“ (Mukherjee, Salvage Agreement and Contract Salvage: Risk Dynamics in Salvage Law, in: Basu Bal/Rajput/Argüello/ Langlet (eds.), Regulation of Risk: Transport, Trade and Environment in Perspective, 2023, pp. 551, 561). There are, however, other standard forms for the rendering of salvage services, usually known as Fixed Price Contracts or Contracts on Negotiated Terms, such as the „Donjon-Smit, LLC Oil Pollution Act of 1990 Salvage, Firefighting and Lightering Contract and Funding Agreement“, or the „International Salvage Union Lumpsum Sub-Contract Salvcon 2005“. Art. 2 of the LSAC provides an insight into the policy considerations underlying the LOF. That section provides that in construing the LOF or in the making of any arbitral order or award, „regard shall be had to the overriding purposes of the [LOF], namely:

2.1 to seek to promote safety of life at sea, the preservation of property at sea and, during the salvage operations, to prevent or minimise damage to the environment;

2.2 to ensure that its provisions are operated in good faith and that it is read and understood to operate in a reasonably businesslike manner;

2.3 to encourage cooperation between the parties and with relevant authorities;

2.4 to ensure that the reasonable expectations of salvors and owners of salved property are met and

2.5 to ensure that it leads to a fair and efficient disposal of disputes between the parties whether amicably, by mediation or by arbitration within a reasonable time and at a reasonable cost.“

14 In light of the deficiencies with respect to the application of Art. 14 of the 1989 Convention (see supra Para. 11), it has become standard practice since August 1999 to append a SCOPIC Clause ("Special Compensation Protection and Indemnity Clause") to the LOF. The SCOPIC Clause has been designed for use in casualties involving members of the International Salvage Union and ships entered with a member of the International Group of P&I (Protection & Indemnity) Clubs and takes the form of a rather lengthy and complicated optional addendum to the LOF.

15 The SCOPIC Clause does not seek to affect any changes to Art. 14 of the 1989 Convention. It merely provides an alternative, more convenient and viable method of assessing special compensation for the salvor, while ensuring that remuneration is to be assessed on a sensible commercial basis, and not be simply a reimbursement of expenditures as under Art. 14 (2) of the 1989 Convention. Pursuant to Section 5 of the SCOPIC Clause, „SCOPIC remuneration shall mean the total of the tariff rates [listed in Appendix A] of personnel, tugs and other craft, portable salvage equipment, out of pocket expenses, and bonus due.“ Two case studies for determining the special compensation under the SCOPIC Clause, which are based on actual assessments by the United Kingdom P&I Club, are presented by Jingjing Xu, Assessment of salvage award under Lloyd's Open Form [LOF], 2000, pp. 73 et seq.

Please cite as: "Commentary to Trans-Lex Principle , https://www.trans-lex.org/945300"