2009
MODULE 3
Archie Bishop
Consultant
Holman, Fenwick and Willan
UK
Lloyd's and the Lloyd's crest are the registered trademarks of the society incorporated by the Lloyd's Act 1871 by the name of Lloyd's
CONTENTS
Page No
LEARNING OUTCOME
COLLISIONS
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
LIMITATION OF LIABILITY
14
GENERAL AVERAGE
17
3.1
3.2
3.3
3.4
25
29
5.1
5.2
3-1
Contents
Module 3
66
6.1
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
POLLUTION
7.1
7.2
7.3
7.4
7.5
74
APPENDICES
Appendix 1 International Collision Regulations Part B, Steering and
Sailing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
Appendix 2 Numbered Rules (I to XXIII) of York Antwerp Rules 2004 . . . . . . . . .87
Appendix 3 Lloyds Open Form (LOF 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Appendix 4 Lloyds Procedural Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Appendix 5 Lloyds Arbitrators Guidelines for Fixed Cost
Arbitration Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
Appendix 6 The SCOPIC clause (SCOPIC 2007) with
Appendices A, B, and C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140
Appendix 7 Code of Practice between the ISU and the Int. Group . . . . . . . . . . .149
Appendix 8 Code of Practice between Int. Group and Property
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
PLEASE NOTE
G
3-2
Content Copyright Archie Bishop, 2009. All rights reserved. Course structure and module format copyright Informa UK
Ltd 2008.
No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical,
including photocopying, scanning, recording or by any information storage or retrieval system, without the prior written
permission of Informa UK Limited.
LEARNING OUTCOME
This module is but an introduction to the world of the wet practitioner and cannot
hope to be a substitute for his bibles such as Marsden on Collision, Brice on the
Law of Salvage, Lowndes and Rudolf on General Average and Griggs and
Williams on Limitation of Liability, but it will give the student a good overview of
the subject and better equip him or her to understand and play a part in the
resolution of problems arising from shipping casualties. Students are
encouraged to develop and expand their knowledge by referring to the above
mentioned tomes.
3-3
1.
COLLISIONS
1.1
3-001
A variety of claims can arise from a collision and it may be helpful to summarise
them:
3-002
3-4
Cost of repairing damage to the ships in collision and the loss of use
during repair.
It will be appreciated from this list that there will also be a variety of potential
claimants, each with his own right of action against one or both ships. It is
important to appreciate that the right of action of each claimant could, may well
be, enforced in different jurisdictions.
Module 3
Collisions
1.2
FORUM SHOPPING
3-003
1.3
3-004
Collision and Limitation actions (to which we will later refer) are assigned to the
Queens Bench Division of the High Court and are heard by the Admiralty Court
(Section 62 of the Supreme Court Act 1981 and RSC Order 75 Rule 2). Certain
County Courts have Admiralty jurisdiction (Section 26 of the County Courts Act
1984) but are subject to a very low financial limit (5,000) which effectively
precludes their use.
3-005
3-006
The Admiralty jurisdiction of the High Court can be exercised either by an action
in personam, that is, an action against a named plaintiff, or by an action in rem,
that is, an action directed against the ship itself. In collision cases actions are
generally brought in rem, for both a maritime and statutory lien attaches to a
ship that has been in collision which permits the arrest of that ship (or a sister
ship under Section 21(4)(ii) SCA 1981) to enforce the provision of security for
a claim.
3-007
The Admiralty Court will accept jurisdiction for collisions even if they took place
outside UK waters, though in such circumstances the local law may be relevant
as to liability. However, in appropriate cases it may stay an action pending the
outcome of another commenced in another country.
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Collisions
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1.4
3-008
Under Section 190 of the MSA 1995, any proceedings to enforce any claim or lien
against a ship or her owners in respect of any loss of life or personal injury or
damage or loss caused by a collision, must be commenced within two years of the
date of the collision. The court has a discretion, on application, to extend this period
to such extent and on such conditions as it thinks fit and, if satisfied that in the
intervening period there has not been a reasonable opportunity for arresting the
defendants ship within the jurisdiction of the court or the territorial sea of the
country in which the plaintiff resides, it must extend the period for bringing
proceedings to the extent that is necessary to give a reasonable opportunity for
arresting the ship.
1.5
LIABILITY
3-009
The law of tort generally applies to claims arising from collisions at sea,
wherever they occur. There are a variety of torts but whilst claims can
sometimes gives rise to an action in nuisance or trespass claims are generally
based on negligence:
Where damage is done to persons or to property of any kind on land or
on water, owing to the negligent navigation or management of a vessel,
a cause of action arises against those who, by their own negligence or
the negligence of their servants or agents, cause such damage to be
done.
(Marsden 11th edition, p. 1)
1.5.1
Liability can Arise from Either the Negligence of the Ships Crew or that
of the Owners: Crew Negligent Navigation
It is the duty of seamen to take reasonable care and use reasonable skill
to prevent the ship from doing injury, and what is reasonable must be
tested by the circumstances of each case.
(Marsden 11th edition)
3-010
A prime and frequent example of negligence on the part of seamen is the failure
to comply with the International Collision Regulations 1972.
1.5.2
3-011
3-6
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Collisions
The law casts upon the shipowner the duty of exercising reasonable care
to make sure that his ship is in a condition in which it may be navigated or
lie at anchor with safety to others. If a vessel is negligently allowed to be in
a defective or inefficient state as regards her hull or equipment, or to be
inadequately manned and a collision occurs, which probably would not
have occurred had it not been for her defective condition, the collision may
be held to have been caused by the negligence of her owners.
(Marsden 11th edition, p. 5)
1.6
COLLISION REGULATIONS
3-012
In the vast majority of cases, collisions are brought about by the failure of ships
to comply with the International Regulations for Preventing Collisions at Sea of
1972 (the Collision Regulations) which are given the force of law in the UK by
way of statutory instrument under the authority of Section 85(1) of the Merchant
Shipping Act 1995 (MSA 95).
3-013
A
B
C
D
E
3-014
Those particularly relevant to liability for collision are, Part B Steering and
Sailing Rules, and Part D Sound and Light Signals. We will, therefore, discuss
each in a little more depth.
1.6.1
3-015
In essence, this is the highway code of the seas. All ships navigating the oceans
and territorial seas of the world are required to follow them. A copy of the salient
provisions are in Appendix 1. The navigating seaman should know them by heart
and those who have occasion to deal with collisions should be familiar with them.
Students will find it useful to take the time to read them, if only to get a better
appreciation of what is expected of ships navigating the seas and a better
understanding of the liability which attaches to ships in breach of the regulations.
For the purposes of this module we will confine ourselves to a general overview.
3-016
As will be seen, Section 1 of Part B of the Regulations deals with the conduct of
vessels in any condition of visibility (ie whether it be clear or restricted visibility).
Particular attention is drawn to:
G
Rule 5 lookout;
3-7
Collisions
3-017
Module 3
Section 2 of Part B of the Regulations deals with the conduct of vessels in sight
of one another. Particular attention is drawn to:
G
3-018
1.6.2
3-019
These can also be very relevant in collision actions for the part sets out the
signals to be sent in certain circumstances:
G
1.7
APPORTIONMENT OF LIABILITY
3-020
3-021
3-8
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Collisions
board, the liability to make good the damage or loss shall be in proportion
to the degree in which each ship was at fault.
3-022
3-023
It will be noted from the above that if cargo or freight or any property on board
the colliding vessels suffers loss, they can only recover from each of those
vessels that proportion of their claim for which each vessel was at fault. In short,
the colliding vessels are not jointly and severally liable.
3-024
The position in relation to personal injury is different. Section 188(1) of the MSA
1995 provides:
Where loss of life or personal injuries are suffered by any person on board
a ship owing to the fault of that ship and of any other ship or ships, the
liability of the owners of the ships shall be joint and several.
3-025
Section 189 reserves the shipowners right of recourse against the other
colliding vessel in the event of it paying claims for personal injury in excess of
his proper proportion of fault.
1.8
PRINCIPLES OF APPORTIONMENT
1.8.1
3-026
1.8.1.1
3-027
For the purposes of almost all cases, a causative fault can be defined as a fault
that contributed to the collision. However, in an exceptional case a fault may
also be causative, although it did not contribute to the collision, if it contributed
to the damage or loss that arose out of it. As an example, take a case where a
collision occurs between ship A and ship B solely as a result of the faulty
navigation of ship B but the nature and extent of the damage to ship B arising
out of the collision is solely due to the fault of ship A in not having her anchor
properly housed or stowed away. In such a case, although the fault of ship A did
not contribute to the collision itself, it did contribute to the damage to ship B
arising out of the collision: The Margaret (1881) 6 PD 76. Liability for that
damage is, therefore, apportioned under the Act according to the degree of fault
of each ship.
3-9
Collisions
Module 3
1.8.1.2
3-028
It is a general principle of the common law of negligence, that it is for the plaintiff
to establish both that the defendant was negligent and that the negligence
caused the damage or loss sued for. This has been held by the House of Lords
to equally apply to Admiralty cases (Heranger v Diamond [1939] AC 94).
1.8.1.3
3-029
1.8.1.4
3-030
3-031
The seriousness or weight of such faults can be looked at from two angles:
G
Second, the fault can be looked at from the angle of the extent to which it
contributed to the damage or loss concerned, irrespective of its
blameworthiness or culpability.
3-032
These two aspects of any relevant fault have been labelled culpability and
causative potency, respectively. In apportioning liability the degree of culpability
and causative potency of all relevant faults must be taken into account (per Lord
Brandon, Tulane Law Review 1977).
3-10
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Collisions
3-033
Each case is to be taken in the round and the faults of each ship weighed in the
balance before an apportionment is made.
1.8.1.5
Inevitable Accident
3-034
It sometimes happens that collisions come about without any fault on the part of
either ship. It is a comparatively rare event for there is nearly always some fault
of one of the two ships but occasionally a case arises where there is no fault. In
such circumstances where the collision is an inevitable accident, there is no
apportionment of blame, and each vessel bears its own loss.
1.9
3-035
While liability for any collision is usually determined by the Admiralty judge of
the Admiralty Court, the quantum of each vessels damages is generally
referred to the Admiralty Registrar. I say generally, for in exceptional cases the
Admiralty judge may order that he should also determine the quantum of
damages. In any event, he would hear any appeal from the Admiralty
Registrars decision.
3-036
3-037
The damages of each party are assessed as if each claimant were an innocent
party. It is not until after the assessments have been made that the
apportionment of blame is applied and a balance between the two claims struck.
3-038
The objective of an award of damages arising out of the collision is to place the
owner of the lost or injured ship, as nearly as possible, in the same pecuniary
position as he would have been in but for the collision. This principle is called
restitutio in integrum (the right to a full and complete indemnity) and is the
measure or standard of damages which are recoverable by the owner of a ship
which has been injured in a collision by a wrongful act on the part of some other
person.
3-039
First, the owner of the wrongdoing ship may be entitled to limit his liability,
an aspect which we will deal with later.
Second, where two vessels in collision are both to blame but only one of
them has sustained damage, her owner can only recover that part of his
loss which is proportionate to the degree of blame of the other vessel
(Section 187 MSA 1995).
Third, the wrongdoing ship may be of insufficient value to answer the full
claim and if the action has been brought in rem and the shipowner has not
appeared to defend the action, the judgment of the court is against the
vessel alone and, therefore, limited to the value of the vessel.
3-11
Collisions
Module 3
Fourth, where two ships are each at fault the innocent owner of cargo on
either ship can only recover from the other ship that proportion of his
damage that corresponds to the degree of fault of that ship.
1.9.1
3-040
1.9.2
3-041
Prior to 1975, the English courts only awarded damages in sterling. However,
since the decision of the House of Lords in Miliangos v George Frank (Textiles)
Limited [1976] AC 443 a judgment or arbitration award can be in a foreign
currency.
1.9.3
Items of Claim
3-042
A shipowner will be able to include in his claim all loss and damage reasonably
suffered as a result of the collision. This can include:
G
the damage to the ship (generally the cost of repair or value of the vessel
if lost);
3-043
Note that it will not include any liability to cargo as each ship is only liable to
cargo to the extent that it is to blame for the collision (Section 187 MSA
1995).
1.9.4
3-044
An owner will be entitled to interest which will run from the date of his loss to the
date judgment is given or the claim settled.
1.10
ENFORCEMENT OF JUDGMENTS
3-045
3-12
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Collisions
SELF-ASSESSMENT QUESTIONS
G
3-13
2.
LIMITATION OF LIABILITY
3-046
3-047
The extent of the limit of liability varies from country to country. Broadly
speaking, there are currently three systems in existence in the world today.
Limitation under the Brussels Convention of 1957, which is gradually being
replaced by many nations but which is still operable in a number of countries;
limitation under the 1976 Convention on Limitation of Liability for Maritime
Claims (as amended by the 1996 Protocol to that Convention) which has been
adopted by many nations and is gradually replacing the 1957 Convention; and
limitation by reference to the value of the limiting vessel, a system which
operates largely in North and South America.
3-048
3-14
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Limitation of Liability
3-049
The UK is a signatory to the Protocol which was bought into force in the UK on
the 13th May 2004.
3-050
The 1976 Convention provides that a shipowner may limit his liability for any loss
of life or personal injury, loss of or damage to property, which arises in direct connection with the operation of ship and consequential loss resulting therefrom.
3-051
However, a shipowner loses that right to limit his liability if a claimant can prove (the
onus of proof is on the claimant) that the damage or loss resulted from the
shipowners personal act or omission, committed with the intent to cause such loss,
or recklessly and with knowledge that such loss will probably result (Article 4).
3-052
the first is exclusively for claims for loss of life or personal injury; and
the second is in respect of all other claims, including claims for loss of life
and personal injury over and above the specific limit set for those claims.
3-053
The amount of each limit is calculated by a multiple of the ships gross tonnage
and units of account which are defined as the special drawing rights (SDR) as
defined by the International Monetary Fund.
3-054
The limit in respect of loss of life and personnel injury (as per the Protocol of
1996) is:
3-055
i.
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.
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.
3-056
The precise limitation fund of each vessel will vary on a day-to-day basis with
the fluctuation of the basket of currencies which constitute SDRs. On the 1 April
2009 one SDR was equal to US$1.482719 (22.4.09).
3-057
All claims against a limitation fund are shared pro rata to the overall claim of
each claimant.
3-058
When two ships have been in collision and each has a claim against the other,
the ultimate amount due to one party or the other is calculated on a balance of
3-15
Limitation of Liability
Module 3
claims after taking into account the apportionment of liability. Thus, one of the
two ships is ultimately liable to pay on balance a specified sum to the other ship.
If the limit of liability of that ship is involved, it is applied to the sum due under
this balance of claims.
3-059
Interest on a limitation fund is calculated as from the date of collision to the date
of payment into court or payment to the claimants.
3-060
Note that there are additional and separate limitation funds for damage caused
by oil pollution. Later in this module we will be dealing with pollution and claims
under the CLC 1992, the Fund Convention 1992 and Bunker Convention 2002.
The CLC Conventions impose strict liability on a tanker owner for any damage
caused by oil that leaks from a laden tanker. The HNS Convention of 1996 is not
yet in force but, when it comes into force, it will also impose a strict liability on a
shipowner for damage caused by hazardous and noxious substances. Liability
under these two conventions is additional and cannot form any part of a claim
under the 76 Limitation Convention. On the other hand the Bunker convention
does not have its own limitation fund and any claims under that Convention are
to be included with other claims under the 1976 Limitation Convention.
SELF-ASSESSMENT QUESTIONS
3-16
3.
GENERAL AVERAGE
3.1
3-061
General average, like salvage, is a very ancient right one peculiar to maritime
law. Whilst probably a principle used by the Phoenicians, the first written
evidence of it appears in the Rhodian Maritime Code in the sixth century:
The Rhodian Law decrees that if in order to lighten a ship merchandise has to be thrown overboard, that which has been given for all
should be replaced by the contribution of all.
3-062
The law was a very pragmatic one. In those times, goods were transported on
small ships which were readily affected by bad weather. If a storm were to
develop a shipwreck could sometimes only be avoided by jettisoning part of the
cargo and the lightening of the ship. A measure, whilst beneficial to the owners
of properties saved, which could ruin the owner of the cargo jettisoned. At that
time the merchants or owners of the cargo were often themselves aboard the
ships and no doubt would have strong views as to which cargo to jettison. It was
in the interest of all that there should be no delay or hesitation on the part of the
master as to what should be jettisoned. The agreement of all to compensate the
one who made a sacrifice for the benefit of the others made the decision as to
which cargo should go that much easier.
3-063
The principle survived for centuries and the laws similar to the Rhodian law were
adopted by many ports and countries in Europe. They are clearly set out in the
Roles of Oleron in 1260 and many other sea codes of later years (the Pisan
3-17
General Average
Module 3
Code 1298, the Genoeise Code 1341, the Statute of Anocona 1397, the
Ordinance of Louis XIV 1681, and the Ordinance of Rotterdam 1721).
3-064
Unlike most other nations, England had no written sea code but its general
maritime law clearly followed the principles, though not the fine detail, set out in the
Roles of Oleron as is evidenced by a case heard in the Kings Bench in 1285. Whilst
accepting the general principle that property saved should compensate property
sacrificed for the mutual benefit, the Court exempted from contribution the ship and
its apparel, the Captains ring, the seamens victuals, implements for making meals,
the jewellery of, and silver cup from which the ships Captain drinks, and the sailors
freightage of the wines and other goods which had been saved.
3-065
3.2
DEFINITION
3-066
3-067
Whilst remaining part of the general maritime law general average has not been
codified into English statutory law but it is defined in Section 66 of the Marine
Insurance Act of 1906 as follows:
66-(1)
66-(2)
There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or
incurred in time of peril for the purpose of preserving the
property imperilled in a common venture.
3-068
Whilst this definition is for the purposes of the Marine Insurance Act, there is
judicial authority for the proposition that it will prevail for all purposes. Although
the application of the Act is clearly confined to marine insurance it was intended
to codify the law and thus may be regarded as having wider application.
(Australian Coastal Shipping Commission v Green 1971 1KB 456 478).
3-069
3-18
There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally or reasonably made or
incurred for the common safety for the purposes of preserving from
peril the property involved in the common maritime adventure.
Module 3
General Average
3.3
3-070
Like salvage, general average is a peculiarity of maritime law and has no place
in the ordinary law of the land. Thus, if there were a fire in a warehouse and otherwise sound goods were damaged by the fire-fighting effort in extinguishing the
fire, there is no suggestion that the property thereby saved should contribute to
the property damaged by the efforts made to save it. But if similar events were
to occur at sea, this would be a general average act and all the property saved
would contribute to the loss of the property damaged by the fire-fighting effort.
3.3.1
3-071
3-072
3-073
So, cargo damaged by fire in a ship, would be the subject of particular average
a loss that would have to be borne by the owner or insurer of that cargo alone.
But cargo damaged by the efforts to extinguish the fire, would be the subject to
general average and a loss shared by all the property saved.
3.4
3-074
With ships trading between different countries and owners of ships and cargoes
being of different nationalities many differences in the application of the
principles of general average arose. It was obviously desirable to have an international set of rules common to all countries and an attempt to achieve this was
made by the Glasgow Resolution in 1860. But whilst rules were agreed, the
implementation of them through the legislative process suggested, failed.
Another attempt was made in the York conference in 1864 but again failed for
similar reasons. The problem was finally solved by the Antwerp conference in
1877 which agreed to proceed on the path of voluntary agreement rather than
one of legislation. The change of approach was successful and the result was
the York-Antwerp Rules 1877. Whilst some nations subsequently gave legislative
effect to these rules, in England they were given practical effect by incorporating
them into individual contracts of carriage. The position is the same today.
3-075
It is important to note that under English law the York-Antwerp Rules will have no
effect unless specifically incorporated into the contracts of carriage. If they are not
incorporated into the contract then in this country the general maritime law of
England as found by the courts will apply. Whilst the general maritime law of
England recognises the right to general average, there will be differences with
many of the provisions of the York-Antwerp Rules. As this module is just an introduction to General Average and the York-Antwerp Rules are generally
incorporated in most contracts of carriage, this module will only focus on the later.
3-19
General Average
Module 3
3-076
Since 1887, the York-Antwerp Rules have been amended on six occasions,
1890, 1924, 1950, 1974, 1994 and most recently, 2004.
3-077
The York-Antwerp Rules of 2004 will come into effect in those countries which
give legislative effect to them, on the date directed by that legislation. In those
countries, such as the UK and the USA, where the rules have no force except
by contract, it will depend upon the agreement of the contracting parties. If a
charterparty were to state that the York-Antwerp Rules 2004 (or possibly even
just the York-Antwerp Rules) the 2004 rules will be applied, but if the contract
were to say the York-Antwerp Rules 1974 (or any other edition) then those Rules
will apply. It is therefore important to look carefully at the contracts of carriage to
see which particular version of the Rules is applicable.
3-078
3-079
This rule was first introduced in the 1950 version to emphasise (and change the
effect of the judgment in The Makis 1929 1 KB 187) that the numbered rules
prevail over the lettered rules if there is any inconsistency between them. This is
well illustrated by the case of The Alpha (1991) 2 LLR 515 which was
considering the 1974 version which had the same Rule of Interpretation.
3-080
A small ore carrier grounded some 70 miles up the Zaire river in West Africa. Her
master with the intent to benefit all and knowing it might cause damage ran his
engine for some time despite a blockage in the cooling system causing some
$800,000 worth of damage to the ships machinery. The ship claimed a
contribution from the cargo in general average under Rule VII which provided:
Damage caused to any machinery and boilers of a ship which is ashore
and in a position of peril, in endeavouring to refloat, shall be allowed in general average when shown to have arisen from an actual intention to float the
ship for the common safety at the risk of such damage; but where . . . . .
3-081
It was contended by the cargo that the master had acted unreasonably in
running his engines for so long in such circumstances and that this was contrary
to Rule A which provides that the sacrifice or expenditure should be reasonably
made. The judge agreed that the masters action was both unskilful and unreasonable and, if that had been material, would have held it to be negligent, but
nevertheless found for the shipowner as there was no requirement of reasonableness that could be implied into Rule VII, and under the Rule of
Interpretation, the numbered rules prevail over the lettered rules.
3-082
It was as a result of this case that the new Rule Paramount was introduced in
the 1994 Rules. This rule provides as follows:
3-20
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General Average
Rule Paramount
In no case shall there be any allowance for sacrifice or expenditure
unless reasonably made or incurred.
3-083
After the Rule of Interpretation and the Rule Paramount, there then follow the 7
lettered rules which are set out hereunder without comment as they give a better appreciation of the concept of general average as applied within the shipping
industry.
Rule A
1.
There is a general average act when, and only when, any extraordinary sacrifice or expenditure is intentionally and reasonably made or
incurred for the common safety for the purpose of preserving from
peril the property involved in a common maritime adventure.
2.
Rule B
1.
2.
Rule C
1.
2.
3.
Rule D
Rights to contribution in general average shall not be affected, though
the event which gave rise to the sacrifice or expenditure may have
3-21
General Average
Module 3
been due to the fault of one of the parties to the adventure, but this
shall not prejudice any remedies or defences which may be open
against or to that party in respect of such fault.
Rule E
1.
2.
All parties claiming in general average shall give notice in writing to the average adjuster of the loss or expense in respect of
which they claim contribution within 12 months of the date of
the termination of the common maritime adventure.
3.
Rule F
Any additional expense incurred in place of another expense, which would
have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to other interests, but
only up to the amount of the general average expense avoided.
Rule G
3-22
1.
General average shall be adjusted as regards both loss and contribution upon the basis of values at the time and place when
and where the adventure ends.
2.
This rule shall not affect the determination of the place at which
the average statement is to be made up.
3.
4.
The proportion attaching to cargo of the allowances made in general average by reason of applying the third paragraph of this rule
shall not exceed the cost which would have been borne by the
owners of cargo if the cargo had been forwarded at their expense.
Module 3
General Average
3-084
After the seven lettered rules there follow the numbered rules I to XXIII which as
mentioned above override the lettered rules. Save for Rule VI mentioned below,
they are not detailed for formal review in this module which only looks at the general principles of general average, but their text is annexed to the module for
ready reference should the student so desire.
3-085
The 2004 Rules are very similar to the 1994 version but important changes were
made to meet the concerns of the marine insurance industry and as they are
relatively new, attention is specifically drawn to them. The changes relate to
Rule VI which deals with salvage remuneration.
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However, the basis of that apportionment has been different. Salvage awards
are based on the value of property at the end of the salvage services, whereas
general average is based on the value at the termination of a voyage. Often
there is little difference between the two but sometimes there is particularly
when there has been another event between the completion of the salvage
services and the end of the voyage. The underwriting market has long objected
to this readjustment of a salvage award, which they felt to be an unnecessary
expense, and for a number of years has sought to extinguish the rule. It was
finally successful in 2003 when it persuaded the CMI at its Vancouver conference to amend the earlier Rule VI when adopting the new York-Antwerp Rules
2004. The new rule VI (a) provides:
Salvage payments, including interest thereon and legal fees associated
with such payments, shall lie where they fall and shall not be allowed in general average, save only that if one party to the salvage shall have paid all or
any of the proportion of salvage (including interest and legal fees) due from
another party (calculated on the basis of salved values and not general average contributory values), the unpaid contribution to salvage due from that
other party shall be credited in the adjustment to the party that has paid it,
and debited to the party on whose behalf the payment was made.
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The exception was to deal with the situation, which exists in a few countries
(such as Holland and Belgium), where the shipowner can be held liable to pay
the whole of any salvage award against ship and cargo.
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As we shall later see in this module, when considering salvage and the assessment
of a salvage award under Article 13 of the Salvage Convention 1989, one of the
elements to be borne in mind in that assessment is the skill and effort of the salvor
in preventing or minimising damage to the environment (Article 13.1(b)). This
element in the assessment of a salvage award has never been separated from the
other nine elements but to make it abundantly clear that that element is included in
the exclusion of salvage from general average, Rule VI (b) provides:
Salvage payments referred to in paragraph (a) above shall include
any salvage remuneration in which the skill and efforts of the salvors
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General Average
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Again, as we shall later see in this module, the Salvage Convention 1989
specifically provides that any special compensation awarded under Article 14 of
the Convention should be for the account of the shipowner alone and, in an
addendum to the Convention, specifically requests that the York-Antwerp Rules
be amended to ensure that special compensation under Article 14 was not
subject to general average. A provision to this effect was first included in the
1994 Rules. This has been amended in the 2004 rules so as to include the
SCOPIC clause (a successor to Special Compensation under Article 14 which
will be discussed later), and Rule VI (c) now reads:
Special compensation payable to a salvor by the shipowner under
Article 14 of the said Convention to the extent specified in paragraph 4
of that Article or under any other provision similar in substance (such as
SCOPIC) shall not be allowed in General Average and shall not be considered a salvage payment as referred to in Paragraph (a) of this Rule.
SELF-ASSESSMENT QUESTIONS
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Further reading for GA Lowndes & Rudolf General Average and York
Antwerp Rules 12th Edition (1997) Sweet & Maxwell.
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4.
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Salvage is a very ancient right. One that can be traced to the laws of many old
trading countries, some over 3000 years ago. Until recently it has been based
entirely on the principle of no cure no pay. If you fail, you are entitled to nothing
but if you succeed you are rewarded generously.
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The twentieth century also brought with it the worlds first international salvage
contract, Lloyds Open Form (LOF) which was first published for global use in
1908. We shall talk more of this contract later in this module.
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In the latter part of the twentieth century, with the increasing public concern for
the environment, there was a move to amend and modernise the 1910
Convention. This gained momentum following the grounding of the Amoco
Cadiz in 1978 and resulted in the Salvage Convention 1989.
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3-095
At 09:45 on the 16 March 1978, the Amoco Cadiz, a VLCC laden with some
220,000 tonnes of crude oil and 7,000 tons of bunker fuel, experienced a
steering failure in storm force winds off the north-west coast of France. At 11:20,
following investigation and on finding repair impossible, she called for tug
assistance. The tug Pacific answered the call at 11:28, offered a LOF contract
and headed for the casualty off which she arrived at 12:20. It was difficult to
make fast a tow line in the prevailing sea conditions but one was established by
14:00 when the tug began to tow. There was a delay in agreeing to the LOF
contract whilst the Captain contacted his owners in Chicago but agreement to a
LOF contract was reached at 16:00. At 16:15 the tow line broke through force of
weather and despite best efforts could not be re-established until 20:55 that
evening. Meanwhile Amoco Cadiz drifted under the influence of storm force
winds towards the shore. She first touched bottom at 21:04 causing her engine
room to flood. She grounded again at 21:39 when her hull was breached in way
of her cargo tanks and pollution began. Pounded by the seas she broke in two
at 10:00 the following morning releasing the remains of her entire cargo and
bunkers into the sea giving rise to immense pollution which gradually spread in
the following weeks to over 320 kilometres of Brittanys rocky coastline causing
immense damage to tourism and fisheries.
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That casualty, and the public furore that followed, led many to believe salvage law
was in need of radical review. The International Maritime Organization (IMO) asked
the Comit Maritime International (CMI) to review the 1910 Salvage Convention,
and to draft a new Convention, taking into account modern needs. The CMI agreed
a draft Convention at its Conference in Montreal in 1981. That draft was then
passed to the Legal Committee of IMO who after further work presented a final
draft to a Diplomatic Conference in 1989. The Convention, which came into force
on 14 July 1996, has since been ratified or acceded to by the following 57 nations
(Table 4.1). We shall deal with it in detail later in this module.
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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
Estonia
Kenya
Russian
Federation
Macao, China
Saint Kitts
and Nevis
Faroe Islands
Finland
Kiribati
Table 4.1
The 57 Nations Who Have Ratified or Acceded to the Convention
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Salvage, like General Average, is not only an ancient right but one peculiar to
maritime law. If I see my neighbours house on fire and voluntarily extinguish the
fire, I am not entitled to any remuneration for so doing. However, if a ship comes
across another vessel on fire and her crew extinguish that fire, or otherwise
save, or contribute in saving, the ship in distress and/or its cargo from danger,
the owners master and crew will be entitled to a salvage award. This right to
salvage is based on long-standing public policy. The seas can be a lonely place
and even today there are parts of the world where it is not easy to find
assistance. The entitlement to salvage encourages others to assist and by giving
that encouragement, discourages any temptation there might otherwise be to
engage in piracy.
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These ancient reasons for the right to salvage hold good today, notwithstanding
the greater presence of ships on the sea and modern communications which
permit calls for assistance. However, yet another reason has been added by the
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To promote the new objective, the protection of the environment, the Convention
makes provision for a new system of remuneration in addition to the traditional
salvage award. As we shall later see, under Article 14, special compensation
can, in certain circumstances, now be given whenever there is a threat of
damage to the environment. Thus, the modern day salvor is not only encouraged
to go to the assistance of ships and property upon the sea but also, when
salving them, to prevent and minimise damage to the environment.
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Most salvage today is carried out by professional salvors but it can also be
carried out by other merchant vessels or by private individuals. Such claims are
generally made under the terms of a specific salvage contract, such as Lloyds
Open Form, of which we will talk more of later, but in the absence of such a
contract it is still possible to make what is known as a common law claim for
salvage. Under English law and the laws of many other countries, a claim for
salvage will arise whenever a person, acting as a volunteer and without prior
duty, succeeds in or contributes to, the preservation of any vessel or other
property which is at sea and in danger.
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5.
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The Convention is broken down into five chapters. Each will be dealt with
separately.
CHAPTER I GENERAL PROVISIONS
Article 1 Definitions
For the purpose of this Convention:
(a)
(b)
(c)
(d)
(e)
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(f)
(g)
(a)
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This definition substantially widens the subjects which were capable of being
salved under pre-Convention English common law. and, on the face it, the areas
in which salvage operations can take place. The widening of property capable of
salvage is more conveniently dealt with later under the definitions of Vessel and
Property but the area in which salvage can take place should be discussed here.
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Prior to the Convention, English law only recognised as salvage, a service which
took place in tidal waters. Any service in non-tidal waters could not be rewarded.
(The GORING [1988] AC 831 and The POSTANIEC WIELKOPOLOSKI [1989]
QB.279). On the face of it, this definition changes the common law position, but
not entirely.
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As we shall see under the provisions of Article 30 of the Convention, it is possible for adopting States to make reservations in respect of some elements and
the UK has chosen to do so in this particular case. Schedule 11 Part 2
Clause 2 of the Merchant Shipping Act 1995 provides:
Claims Excluded from the Convention
2. (1)
(2)
(a)
(b)
Thus under English law, salvage is still not possible in non-tidal waters
unless it is carried out by a sea-going vessel or unless it is in a dock
connected to tidal waters.
Vessel
(b)
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(c)
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1.
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1. This Convention shall not affect any provisions of national law or any
international convention relating to salvage operations by or under
the control of public authorities.
2. Nevertheless, salvors carrying out such salvage operations shall be
entitled to avail themselves of the rights and remedies provided for
in this Convention in respect of salvage operations.
3. The extent to which a public authority under a duty to perform
salvage operations may avail itself of the rights and remedies
provided for in this Convention shall be determined by the law of the
State where such authority is situated.
Shipping casualties which threaten a coastline or coastal environment
often give rise to intervention by government or public authorities who
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1.
2.
The master shall have the authority to conclude contracts for salvage
operations on behalf of the owner of the vessel. The master or the
owner of the vessel shall have the authority to conclude such
contracts on behalf of the owner of the property on board the vessel.
3.
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It will be noted that it is possible under Article 6.1 to contract out of the provisions
of the Salvage Convention, subject to it not affecting the application of Article 7
and the duty to prevent or minimise damage to the environment. As we shall
later see, this freedom to contract has been used in the LOF 2000 contract, to
replace Article 14 with the SCOPIC clause.
5.1
MASTERS AUTHORITY
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Before the Salvage Convention, English law resolved the problem with the
doctrine of agent of necessity (see Choko Star (1990) 1 Lloyds Rep.525) but
with modern communications that doctrine came under strain. The problem has
now been completely resolved by Article 6.2 of the Salvage Convention which,
as seen above, provides:
The master shall have the authority to conclude contracts for salvage
operations on behalf of the owners of the vessel. The master or the
owner of the vessel shall have the authority to conclude such
contracts on behalf of the owner of the property on board the vessel.
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This provision is important for without it a master or owner may not have
authority to conclude salvage contracts on behalf of cargo and modern day
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It will be noted that this provision also specifically provides that the master shall
have authority to conclude salvage contracts on behalf of the owners of the vessel. In English law he has probably always had ostensible authority to contract
but in the light of the Amoco Cadiz experience where there was a delay whilst
the owners consent to contract was sought, this made it clear the master could
act without obtaining that consent.
Article 7
Annulment and Modification of Contracts
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(a)
the contract has been entered into under undue influence or the
influence of danger and its terms are inequitable; or
(b)
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1.
(b)
(c)
(d)
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It will be noted that the salvor is required to carry out salvage operations with
due care. As we shall later see in Module 2, Clause A of LOF 2000 provides
the salvor shall use his best endeavors to salve the property. What is the difference? It is clear the requirement to use best endeavors in LOF 2000 is more
onerous. It includes the duty set out in Article 8 to exercise due care but also
imposes an obligation on the salvor to complete the salvage service and take
the ship to a place of safety. There is no such obligation under the Convention.
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It will be seen that Article 8.1(b) imposes a duty on the salvor to exercise due care to
prevent or minimise damage to the environment. This is a new duty reflecting the
increased concern for the protection of the environment. As we shall later see, the
quid pro quo for this additional duty on the salvor is that the skill and effort of the
salvor in preventing or minimising damage to the environment has been added to the
list of the criteria to be considered when assessing the amount of salvage reward
(Article 13.1(b)), and the creation of a possibility of being entitled to special compensation if there is a threat of damage to the environment (Article 14.1 and 14.2).
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The duty to accept the intervention of another salvor is new and instigated by the
Convention because it was felt important to ensure the best effort was always
made to salvage vessels which threatened damage to the environment. It will be
seen that if the salvors are unreasonably requested to accept the intervention of
others, they should not be prejudiced.
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The duties of the master and owners are covered by the second section of
Article 8 which provides:
2.
The owner and master of the vessel or the owner of other property in danger shall owe a duty to the salvor:
(a)
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(b)
(c)
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The provision in 2(a) is important for whilst the salvor is responsible for the
salvage of the ship and the cargo, the owners master and crew, who have
greater knowledge of the ship, her machinery and equipment, can often be of
considerable assistance. As we shall see in Module 2, this duty is mirrored and
expanded in Clause F of LOF 2000.
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Article 8.2(b) mirrors the new obligation on the salvor imposed by Article 8.1(b).
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Nothing in this Convention shall affect the right of the coastal State
concerned to take measures in accordance with generally recognized
principles of international law to protect its coastline or related interests
from pollution or the threat of pollution following upon a maritime
casualty or acts relating to such a casualty which may reasonably be
expected to result in major harmful consequences, including the right of
a coastal State to give directions in relation to salvage operations.
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Most provisions of the Convention are designed to be within the field of private
law rather than public law and this Article has been included in order to ensure
that nothing intrudes on the power of coastal States to take such steps as they
feel are necessary in the interests of their coastlines.
Article 10
Duty to Render Assistance
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1.
2.
3.
The owner of the vessel shall incur no liability for a breach of the
duty of the master under paragraph 1.
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incorporated into Section 93 of the Merchant Shipping Act 1995. As we shall later
see when looking at Article 16, it is not possible to claim salvage from persons
who have been saved from danger but the saving of life can enhance a salvage
award against salved property (see Article 13.1(e)). To ensure the duty imposed
by Section 93 does not infringe the common law principle that every salvor must
be a volunteer, which would exclude anyone with a duty to salve, Section 93 (7)
specifically provides that the duty shall not affect the right to claim salvage.
Article 11
Co-operation
This provision does no more than exhort States to take into account the need for
co-operation with the private interests in salvage operations. It has been cited
frequently in connection with the recent debate on Places of Refuge which
resulted in the IMO Guidelines for seeking and granting a Place of Refuge, but
unfortunately seems to have no real tangible legal effect.
SELF-ASSESSMENT QUESTIONS
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1.
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2.
3.
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In the absence of any special provision an owner of a ship would not be able to
claim salvage for saving a sister ship for one cannot claim salvage and sue oneself. This was felt undesirable, for assistance should always be encouraged and
in practice most ships are insured. Hence Article 12.3.
Article 13
Criteria for Fixing the Reward
1.
2.
(b)
the skill and efforts of the salvors in preventing or minimizing damage to the environment;
(c)
(d)
(e)
(f)
(g)
the risk of liability and other risks run by the salvors or their
equipment;
(h)
(i)
(j)
the state of readiness and efficiency of the salvors equipment and the value thereof.
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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 be
encouraged by a generous award, one that is assessed by weighing in the
balance a number of criteria. An early statement of the criteria to be applied and
the policy of encouragement can be found in the judgment of Sir John Nicholl in
The Industry (1835 3 Hag Adm 203):
The amount of remuneration must depend upon all the circumstances. It
is not a mere question of work and labour, not a mere calculation of hours,
though time is undoubtedly an ingredient; but there are various facts for
consideration the state of the weather, the degree of damage and danger
as to ship and cargo, the risk and peril of the salvors, the time employed,
the value of the property; and when all these things are considered, there
is still another principle to encourage enterprise, reward exertion, and to
be liberal in all that is due to the general interests of commerce, and the
general benefit of owners and underwriters, even though the reward may
fall upon an individual owner with some severity.
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This policy of encouragement continues today and is clearly set out in the opening paragraph of Article 13.1:
The reward shall be fixed with a view to encouraging salvage
operations, taking into account the following criteria without regard
to the order in which they are presented below.
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It will be noted that the reward shall be fixed with a view to encouraging salvage
operation. The whole emphasis of the Convention, as is confirmed by the preamble, is to encourage salvors. Article 13.1 continues with the criteria to be
taken into account:
(a)
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It should be noted that salved values are the market value (not the insured
value) at the place and date of termination of the services. This differs from general average where the values at the place and date of the termination of the
voyage are taken.
(b)
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This is a new criterion imposed by the Salvage Convention and is the reward to
the salvor for increasing his duties under Article 8.1(b) to include a duty of care
to prevent and minimise damage to the environment. It is also consistent with
one of the prime aims of the Convention which is to salve ships which threaten
damage to the environment (see preamble).
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3-131
In The Nagasaki Spirit [1995] 2 Lloyds Rep 59, the Admiralty judge after
referring to this provision said:
Thus, where the efforts of the salvor prevent or minimise damage to the
environment and the salvage services are successful, he will obtain a larger
salvage award against ship and cargo than he would otherwise have done.
Moreover, there is no reason why an award should not be substantially
larger in appropriate cases.
(c)
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the skill and efforts of the salvors in salving the vessel, other
property and life;
Did the services of the salvor require any particular skill? Was any great ingenuity used? Was the service carried out easily or was enormous effort required?
All are relevant.
(f)
the time used and expenses and losses incurred by the salvors;
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In many salvage operations no out-of-pocket expenses (payments to third parties) are incurred but in many others they can total millions. In most cases, where
there is sufficient value to justify it, the salvor might reasonably expect to recover
his expenses, but that would be impossible where the expenses exceed the
salved value for as we shall see no award can exceed the value of the property
salved. Has the salvor incurred any losses? This is not an infrequent occurrence.
A tug can be manoeuvring in shallow water trying to refloat a ship and accidentally ground causing damage. The extent of the damage and consequential loss
are factors to be taken into account.
(g)
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the risk of liability and other risks run by the salvors or their equipment;
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of obligation or duty simply because they happen to be there. These risks, when
they arise, need to be taken into account in the overall picture.
(h)
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This provision is designed to encourage the professional salvor who may invest
men and equipment by having them ready for instant action. Tugs are sometimes
kept on salvage station ready to move as soon as a ship comes into danger.
Further, many professional salvors now keep and maintain substantial stores of
equipment ready for instant distribution to a casualty which may require them.
These are elements that need to be taken into account.
(j)
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3-141
Note that the award is payable by all salved property (ship and Cargo) pro rata
to value. In contrast, as we shall later see, special compensation (and SCOPIC)
is paid by ship alone.
3-142
While the law in the majority of countries has long provided that any salvage
award shall be paid by all property interests in proportion to their respective
values there have been some countries, notably The Netherlands, Belgium and
France, whose national law has provided that a salvage award against all property interests may be recovered from the ship interests who then have a right of
recourse from the other property interests. This particular Article preserves this
right should a state so decide. It is understood that both The Netherlands and
Belgium, who have enacted the Convention, have continued to provide in their
national law that the shipowner is liable for the whole salvage award subject to
his right of recourse.
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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 was
doubted in a more recent case (M Vatan I [1990] Lloyds Rep 336) and seems now
to have been completely overridden by the first sentence of Article 13.2.
Article 13.3 provides:
The rewards, exclusive of any interest and recoverable legal costs
that may be payable thereon, shall not exceed the salved value of the
vessel and other property.
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This is the practical limit of any salvage reward, the value of the property salved.
It will be noted that it excludes any interest or recoverable legal costs. In practice, courts and arbitrators never make awards equivalent to the complete salved
fund. As a matter of principle something is always left to the owner otherwise he
would have no incentive to seek salvage assistance. A reward of a very high percentage of the value is comparatively rare and usually only occurs where the
salvors expenses are so high that, even with the reward, he is unlikely to make
a full recovery and is in an overall loss situation.
Special Compensation
Article 14.1 Special Compensation provides:
If the salvor has carried out salvage operations in respect of a vessel
which by itself or its cargo threatened damage to the environment
and has failed to earn a reward under Article 13 at least equivalent to
the special compensation assessable in accordance with this article,
he shall be entitled to special compensation from the owner of that
vessel equivalent to his expenses as herein defined.
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First, it will be noted that for this paragraph to bite the salvor does not have to
succeed in either salving property or protecting the environment, he simply has
to be involved in a salvage operation in which the casualty threatens damage to
the environment.
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Second, it will be seen that the salvor has to carry out salvage operations in
respect of a vessel which by itself or its cargo threatened damage to the environment. What do we mean by threatened? The LOF arbitrators have found
that a reasonably perceived threat, as opposed to an actual threat, is sufficient.
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Third, unlike a salvage award under Article 13 (which is ultimately paid by the
ship and cargo property insurers), it will be noted that special compensation is
payable by the shipowner alone (which is paid by their P&I insurer).
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There is a further and very important point to take into account. What is meant
by damage to the environment? This is defined in Article 1(d) as follows:
Damage to the environment means substantial physical damage to
human health or to marine life or resources in coastal or inland waters
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3-151
First, while the general meaning of the definition is clear, there is scope for
judicial development when interpreting the word substantial. What is substantial? In R v Monopolies and Mergers Commission ex parte South Yorkshire
Transport [1993] 1 WLR 23, Lord Mustill said:
. . . one of the purposes of the Convention, and in particular of the
introduction of the provisions for special compensation, was to reflect the
increased concern for the protection of the environment and to encourage
salvors to perform efficient and timely salvage operations to assist in
preventing or minimising damage to the environment. In that context to ask
whether the threatened damage was something worthy of consideration
for the purposes of the Convention may be a reasonable and sensible
approach to the meaning of the word substantial. That must plainly mean
something considerably more than not trifling but need not mean
something right at the upper end of the scale. To be worthy of note or
consideration damage does not have to be a major catastrophe or disaster
attracting international headlines . . . pollution does not need to be of
international or even national importance and a threat to an identifiable and
sensitive area will suffice . . .
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The LOF arbitrators have also had to consider the meaning of substantial. In
the early days they appeared to take a fairly relaxed view of the word, accepting
that a comparatively small quantity of oil could cause substantial damage if
leaked into a particularly sensitive area. But a lot depends on the sensitivity of
the area, as is illustrated by a recent case where a ship, laden with 30,000 tons
of petroleum and 100 tons of heavy fuel oil, was prevented from grounding near
Cabo de Palos on the Spanish coast. In that case the then LOF appeal arbitrator
(whose decisions influence those of all the other arbitrators), while embracing
the words of Lord Mustill and accepting that the ship gave rise to a (reasonably
perceived) threat of damage to the environment sufficient to trigger Article 14.1,
found that while a grounding and consequent leakage would have caused some
damage, it would not have been sufficient to trigger Article 14.2 (see later) as
the limited amount of damage that would have occurred would not have been
substantial damage. In reaching this conclusion, he said:
I have considered as carefully as I can whether the damage to the birds
and fish, which might have ensued from a grounding off Cabo de Palos,
can be described as substantial physical damage to marine life within
the meaning of the Convention. It seems to me that the bird reserve and
fish stocks in the vicinity of Cabo de Palos are identifiable sensitive
resources worthy of consideration having regard to the purposes of the
Convention.
However, the definition of damage to the environment in the sense of
substantial physical damage shows clearly that not all damage to marine
life qualifies as damage to the environment within the meaning of the
Convention. For the reasons which I have given earlier in these reasons,
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the scope for damage to birds, plankton and benthos and hence fish, in the
event of a grounding off Cabo de Palos in winter, appears to me to have
been very restricted indeed, notwithstanding the large volume of gasoline
that might have escaped. Whilst there might have been some fatalities
amongst birds and fish and some tainting of fish flesh, there was no
evidence that the fish stocks or bird population would be significantly
depleted by the limited damage which might have occurred. I have,
therefore, found it difficult to conclude that there was a risk of substantial
physical damage to marine life off Cabo de Palos.
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Second, what are coastal or inland waters or areas adjacent thereto? They are
not defined by the Convention and the phrase has not been construed by the
courts. Most probably it means within 12 miles off the coast as set out in UNCLOS. However, there is a case for arguing that it could be the economic zone
(200 miles). How adjacent do areas adjacent thereto have to be? Again, it is
undecided but presumably so close that the pollutant might reasonably be
expected to enter or seriously threaten coastal waters. Should the assessment
of special compensation start before a casualty enters coastal waters? Probably
not, but the point is as yet undecided. Should it continue after the threat of damage has been removed? Yes, said the Admiralty Court in the Nagasaki Spirit.
Once triggered, the assessment of special compensation should continue until
the end of the salvage service. To do otherwise would discourage salvors from
removing the threat as soon as possible.
Article 14.2 provides:
If, in the circumstances set out in paragraph 1, the salvor by his
salvage operations has prevented or minimised damage to the
environment, the special compensation payable by the owner to the
salvor under paragraph 1 may be increased up to a maximum of 30%
of the expenses incurred by the salvor. However, the Tribunal, if it
deems it fair and just to do so and bearing in mind the relevant criteria
set out in Article 13, paragraph 1, may increase such special
compensation further, but in no event shall the total increase be more
than 100% of the expenses incurred by the salvor.
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Article 14.1. During the course of the Diplomatic Conference some countries,
after noting that LOF 80 restricted the uplift to 15%, said they could not countenance a greater uplift than 30%. The conference quickly became split
between those delegates who wanted the maximum to be 30% and those who
wanted it to be 100%. There was a serious risk, after 10 years of work, of the
Convention falling to the ground because of the lack of agreement on what was
a particularly minor issue. At the end of the day the conference compromised
with the wording set out above leaving the courts of each country to interpret
it as they will.
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LOF arbitrators have taken the 30% to be the point at which one should pause
for thought and should not be exceeded except in the most serious of cases. To
date the 100% mark has never been reached despite some serious casualties.
The highest uplift recorded has been 65% (The Nagasaki Spirit). It is perhaps
right to say that an uplift of 100% is highly unlikely. No matter how serious the
casualty or threat of damage to the environment, one can always envisage
something worse for which the 100% mark should be reserved.
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There are other points which should be mentioned in relation to this particular
paragraph of Article 14. It will be noted that the uplift is only payable if the salvor
has prevented or minimised damage to the environment. A LOF appeal arbitrator has found that to benefit from this provision the salvor must prove he actually prevented or minimised damage to the environment. Unlike Article 14.1 it is
insufficient to prove that it was a reasonably perceived threat. The salvor has to
show, on the balance of probabilities, that but for the services, damage to the
environment would have occurred. The point is well illustrated by the facts of the
case which the appeal arbitrator was considering in making this decision.
A small ship ran aground on an outcrop of rocks in the northern part of Scotland.
As a result of the grounding, her fuel tanks were punctured and she lost about
30 tonnes of gas oil. Forty-five tonnes of gas oil remained on board and this was
successfully salved, though the vessel was lost. An Article 14 claim was made
and the appeal arbitrator awarded the salvors their expenses under Article 14.1
as there was a reasonably perceived threat of damage to the environment.
However, he did not award an increment under Article 14.2 because he was not
satisfied that the 45 tons of gas oil that had been salved, would have actually
caused damage to the environment. The 30 tons that had leaked when the ship
had grounded, despite every ones reasonable fears, had not in practice caused
any damage so it was unlikely a further 45 tons would do so either.
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Apart from having to show that but for the salvage services, damage would have
occurred, the reader is reminded it is also necessary to show substantial damage, as defined in the definition of damage to the environment, would result.
We have already discussed and cited an example of an LOF appeal arbitrators
interpretation of substantial. In that case, while there was a sufficient threat
(reasonably perceived threat rather than an actual threat) of damage to the environment to trigger Article 14.1 and while some damage would have resulted, the
actual (rather than reasonably perceived) damage that would have resulted
would not have been substantial enough to trigger Article 14.2.
Article 14.3 provides:
Salvors expenses for the purposes of paragraphs 1 and 2 mean the out
of pocket expenses reasonably incurred by the salvor in the salvage
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operation and a fair rate for the equipment and personnel actually and
reasonably used in the salvage operation taking into consideration the
criteria set out in Article 13 paragraph 1(h), 1(i) and 1(j).
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Out-of-pocket expenses are fairly easily ascertained. They are monies expended
by the salvor to enable them to carry out the salvage operation perhaps hire
of salvage equipment or fuel oil consumed. However, the assessment of a fair
rate for equipment and personnel actually and reasonably used has proved to
be a particularly difficult problem. It was considered in the House of Lords in The
Nagasaki Spirit [1997] 1 Lloyds Rep 323, where the salvors contended that a fair
rate included an element of profit and the owners contended that it merely meant
compensation for the overall expense to the salvor of the operation without any
element of profit. The House of Lords found in favour of the shipowners. In the
words of Lord Lloyd of Berwick:
. . . fair rate for equipment and personnel actually and reasonably used in
the salvage operation in Article 14.3 means a fair rate of expenditure, and
does not include any element of profit. This is clear from the context, and
in particular from the reference to expenses in Article 14.1 and 2, and the
definition of salvors expenses in Article 14.3. No doubt expenses could
have been defined so as to include an element of profit, if very clear
language to that effect had been used. But it was not. The profit element
is confined to the mark-up under Article 14.2 if damage to the environment
is minimised or prevented.
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As a result of the House of Lords decision in The Nagasaki Spirit and the final
wording of Article 14.3 namely . . . taking into consideration the criteria set out
in Article 13 paragraph 1(h), 1(i) and 1(j), it is necessary in every Article 14 case
to investigate the cost to the salvor of not only the craft and equipment used during the course of the salvage services, but also the availability and use of other
vessels or equipment intended for salvage operations and the value of that
equipment. For a large salvage company this is a major accounting exercise and
one in which many questions remain unanswered. For instance, for what period
should you look at the idle time of the salvage equipment? It is common to use
a one-year period but is this the correct period? There can be huge differences
if you stretch or reduce the period. Further, what about depreciation? Should
one adapt the accounting practices of the company which may differ from one
company to another? Whilst one of the law lords described it as just an
accounting exercise, it is a major exercise full of unanswered questions.
Article 14.4 provides:
The total special compensation under this Article shall be paid only if
and to the extent that such compensation is greater than any reward
recoverable by the salvor under Article 13.
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1.
2.
It is often the case that several salvors are involved in the salvage of a ship and
her cargo. In that event the split between them of the overall award is, as stated
in 15.1, dealt with in accordance with the criteria set out in Article 13. In most
countries the split between the owner, master and crew of the salving ship is
dealt with on a similar basis having regard to the input and responsibility of each
individual but the laws in some countries do set out how the overall award should
be divided. Article 15.2 preserves that right.
Article 16
Salvage of Persons
1.
2.
A salvor of human life, who has taken part in the services rendered on the occasion of the accident giving rise to salvage, is
entitled to a fair share of the payment awarded to the salvor for
salving the vessel or other property or preventing or minimizing
damage to the environment.
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As mentioned earlier when discussing Article 10, it has never been possible in
the UK, nor most other countries, to claim life salvage from anyone whose life
has been in danger but when life has been saved, a claim can be made against
any property that has also been salved. This principle is endorsed by Article 16.
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While Article 16.2 clearly confirms that the salvor of human life is entitled to a
fair share of the sum awarded for the salvage of the property, it does give rise to
a potential problem for it will be seen that he is entitled to . . . a fair share of the
payment awarded to the salvor for salving the vessel . . . . Prior to the
Convention such claims would have been made direct against the owners of the
property but as a result of language used in the Convention it would appear such
claims have now to be made against the salvor. This might give the property
salvor a problem if he was not involved in the life salvage, which is so often the
case. His salvage claim under Article 13 and claim for special compensation
under Article 14 would under normal circumstances be restricted to the work
that he carried out and the expense that he incurred, and not include the effort
of some third party over which he had no control. In view of the wording of Article
16.2, any property salvor would be wise to ensure any claim by a life salvor was
included either in his own claim under Articles 13 and 14 or in the same
proceedings.
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This Article reflects what has been a long-standing principle of the English
common law and an essential ingredient of salvage. You must be a volunteer. If
you have a contractual duty to do something you cannot be a volunteer. You cannot claim salvage for doing what you contracted to do. The problem is illustrated
by a towage contract. If for instance the tow line broke during the course of the
tow, you would expect the tug to secure a new tow line. She would normally have
a duty to do so under the towage contract and therefore could not claim salvage
for so doing. However, if the vessel ran aground before the towline could be reestablished, through no fault on the part of the tug, you would not expect the tug
to refloat the ship under the towage contract, and she could claim salvage for so
doing (The Minnehaha (1861) 15 Moo.PC 133).
Article 18
The Effect of Salvors Misconduct
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A salvor has always owed a duty of care to the salved property and this is confirmed in the Convention by Article 8.2. It follows that he is responsible for any
negligence on his part. However, aside from that potential liability, Article 18 in
effect provides that he should also not benefit to the extent that the salvage
operations have become necessary or more difficult as a result of his fault or
neglect or fraud.
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There are several points to note from this article. First, note that it has to be an
express and reasonable prohibition. It does not apply if the prohibition is unreasonable. So if a master unreasonably refused assistance to the potential detriment of the owner, a salvor who continued, notwithstanding the refusal, might
well be still entitled to claim salvage.
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Second, note that the refusal has to be by the master or owner of the vessel, not
for instance, the cargo owner or other property on board. This ties in with Article
6.2 which gives the master and owner of the vessel the power to contract on
behalf of all property on board. Think of the problems that would otherwise arise
if every property interest on board a vessel was permitted to contract or refuse
salvage services.
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Third, the owner of any other property can only refuse if that property has not
been aboard a vessel. This provision was necessary in view of the wide
definition given to property under Article 1. A vessel may no longer be involved,
perhaps the salved property is an oil rig or a light vessel. In that event the owner
of the property should be entitled to refuse salvage services.
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SELF-ASSESSMENT QUESTIONS
G
1.
2.
The salvor may not enforce his maritime lien when satisfactory
security for his claim, including interest and costs, has been duly
tendered or provided.
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Under English law salvage gives rise to a maritime lien which entitles a salvor to
take proceedings in rem and arrest all salved property pending the determination of the case or the provision of security for the claim. Unlike a statutory lien,
a maritime lien will follow the ship even if there is a change of ownership.
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Salvage also gives rise to a statutory lien under the provisions of Section 21 of
the Supreme Court Act 1981 which gives the salvor the added benefit of being
able to pursue a claim against a sister ship.
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However, these liens do not cover claims for special compensation under Article
14 which are clearly severable from salvage claims, and do not currently give
rise to a maritime lien. It is doubtful, but arguable, whether such a claim even
gives rise to a statutory lien. That said, Article 1(c) of the Arrest Convention of
1999 will make it possible to arrest a ship for a claim for special compensation
under Article 14, when the Arrest Convention comes into force. At the time of
writing it is not in force as insufficient nations have so far ratified it.
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Article 21
Duty to Provide Security
1.
Upon the request of the salvor a person liable for a payment due
under this Convention shall provide satisfactory security for the
claim, including interest and costs of the salvor.
2.
Without prejudice to paragraph 1, the owner of the salved vessel shall use his best endeavours to ensure that the owners of
the cargo provide satisfactory security for the claims against
them including interest and costs before the cargo is released.
3.
The salved vessel and other property shall not, without the consent of the salvor, be removed from the port or place at which
they first arrive after the completion of the salvage operations
until satisfactory security has been put up for the salvors claim
against the relevant vessel or property.
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The first part of this article imposes a duty on the owners of salved property to
provide security in respect of the salvors claim, including costs and interest.
Further protection is given to the salvor by Article 21.2, which imposes a further
duty on the shipowner to use best endeavors to ensure that the owners of cargo
provide satisfactory security.
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The duties detailed above are supported by Article 21.3 which protects the
salvor by prohibiting the removal of the salved vessel and other property from
the port or place at which they first arrive after completion of the salvage services until satisfactory security has been put up for the salvors claim.
Article 22
Interim Payment
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1.
The tribunal having jurisdiction over the claim of the salvor may,
by interim decision, order that the salvor shall be paid on
account such amount as seems fair and just, and on such terms
including terms as to security where appropriate, as may be fair
and just according to the circumstances of the case.
2.
1.
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2.
The person against whom a claim is made at any time during the
running of the limitation period may extend that period by a declaration to the claimant. This period may in the like manner be further extended.
3.
These provisions are self-evident and require no comment other than to say that
the limitation period commences on the day on which the salvage services are
terminated probably means the day on which the whole salvage operation terminated rather than when an individual piece of property was salved.
Article 24
Interest
The right of the salvor to interest on any payment due under this
Convention shall be determined according to the law of the State in
which the tribunal seized of the case is situated.
Article 25
State-Owned Cargoes
This Article should be compared with Article 4 which excludes the provisions of
the Convention to warships and non-commercial vessels owned by the State.
Unlike Article 4 this Article, which applies to state-owned non-commercial
cargoes, does not exclude all the provisions of the Convention, but simply the
basis for enforcing a claim. That would leave one with a problem that can only
be resolved under the laws of the particular State. In practice most States will
voluntarily accept and pay a salvage claim.
Article 26
Humanitarian Cargoes
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This is an entirely new concept which is clearly brought about by the desire to
ensure humanitarian cargoes are not detained following salvage services but its
provision is limited by the necessity for a State to agree to pay for any sums due.
Article 27
Publication of Arbitral Awards
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We now pass to what is the most popular internationally used form of salvage
contract Lloyds Open Form (LOF).
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The forerunner to Lloyds Open Form (LOF) was created in 1890 when the first
Lloyds salvage contract was made between Lloyds of London and local tug
owners in the Dardanelles. At that particular time there were a number of
problems resulting from salvage services rendered in the Dardanelles. Lloyds
underwriters felt the amounts demanded were often too high and that challenges
to the local courts were too uncertain. To resolve the problem they sent their
Secretary-General, Sir Henry Hosier, to Istanbul to negotiate an acceptable
solution. Sir Henry successfully negotiated a contract which provided that
Lloyds of London were the final arbiter. The contract was for a specific case, but
the result proved satisfactory to both sides and the contract quickly became the
standard form of salvage contract for the area. It was developed and fine tuned
internationally over the ensuing years and led to the first Lloyds Standard Form
of Salvage Agreement no cure no pay (LOF) being introduced in 1908.
Promoted by the London insurance market, it was intended for worldwide use by
all nationalities with a view to achieving the following objectives:
G
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These objects have been achieved and the original concept has proved a
success story. LOF is known internationally by almost every seafarer, owner and
underwriter and there are comparatively few competing types of contract used
internationally. It follows internationally recognised law as set out in the Salvage
Convention of 1989.
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Shipping casualties have reduced in recent years with the result that there are
fewer salvage cases than in the past, but there are still on average about 100
new LOF salvage cases each year and the resultant continual practice enables
the arbitrators to keep their finger on the pulse of the market place.
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While Lloyds form has stood the test of time, this has largely been a result of it
being regularly reviewed and amended to take account of changing circumstances, both in the law and with the practice of the industry itself. The contract
is regularly reviewed by the Lloyds Salvage Group, a body set up by Lloyds to
monitor the working of the contract. The Salvage Group meets annually and is
made up of representatives of the insurance market (hull and cargo), the P&I
Clubs, the shipowners and the salvors. It is chaired by the appeal arbitrator. Its
purpose is to consider any problems which arise in the administration or legal
operation of LOF, and any relevant changes in commercial practice, international
treaty, municipal law and industrial practice, with a view to ensuring that any necessary changes to the LOF are made at an appropriate time in order to smooth
the path of its operation. There have been 10 revisions since 1908, the last being
effected in 2000, resulting in the form being known as LOF 2000.
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While LOF is subject to English law, it has at times, under the guidance of the
Salvage Group, been prepared to move ahead of the law of salvage once
sufficient support for change has been established amongst the international
community and the shipping industry. An example of this is LOF 90 which incorporated many of the provisions of the 1989 London Salvage Convention before
that Convention was given the force of law in 1995, thereby permitting the shipping and salvage industries to reap many of its benefits at a much earlier stage.
Another example is LOF 2000 which made provision for the optional use of the
SCOPIC clause which, as we will later hear, was devised by industry to solve
problems being encountered with Article 14 of the Convention.
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Apart from collecting security from the salved property, The Salvage Arbitration
Branch of Lloyds will appoint a single arbitrator from their panel to deal with the
case and ultimately make the salvage award. Currently there are four arbitrators
on the panel. Of the four, one always sits as an appeal arbitrator. All the arbitrators
are experienced members of the English Admiralty Bar with extensive experience
of salvage law and their regular practice and the single and consistent appeal
arbitrator, ensure uniformity of awards. They will basically handle all aspects of
the case, other than the provision of security and the payment of the award.
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As will later be seen, Clause I of LOF 2000 incorporates the Lloyds Standard
Salvage Arbitration Clauses (LSSA clauses) and the Lloyds Procedural Rules.
The LSSA clauses set out the administrative rules affecting the provision of
security; the appointment of an arbitrator; the arbitration procedure and arbitrators powers; the representation of the parties; the entitlement to interest; how
currency fluctuations should be dealt with; the rules for appeals and cross
appeals; and provisions as to payment of awards.
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The Procedural Rules set out in greater detail the arbitrators powers and the
manner in which the arbitration should be conducted. There are provisions that
deal with a preliminary meeting; the order for directions; the disclosure of
documents; expert evidence; mediation; the hearing of the arbitration; and the
appeal arbitration.
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It is not appropriate in this course to deal in detail with either the LSSA clauses
or the Procedural Rules but they are included as an appendix to this module for
additional reading or reference if required. However, it should be mentioned that
they have been devised to ensure that the appointed arbitrator takes a
hands-on approach to all aspects of the case, in order to ensure that the
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Most LOF salvage arbitrations are dealt with on documents alone (though, whilst
discouraged, oral evidence can be given) and with all parties being represented
by counsel. However, it is recognised that this can be an expensive procedure in
smaller cases. In order to provide a less expensive process the arbitrators have
guidelines for a Fixed Arbitration Procedure on Documents Alone which it is
possible to use whenever the total security provided in a case is less than
$1 million. These guidelines are also included in the appendix.
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Once an arbitrator has made his or her award, he/she will forward it to Lloyds
who then publish it to the parties and, if the award is not paid, enforce the security given at the beginning of the case. If either party wishes to appeal, they will
appoint an appeal arbitrator who will hear the case afresh.
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Before moving on to the LOF contract itself, it may be useful to look at the
statistics. The number of LOF salvage cases now average about 100 per year. Of
these approximately 80% are settled between the parties amicably. The
remaining 20% of cases are arbitrated and of those, approximately 20% are
appealed.
SELF-ASSESSMENT QUESTIONS
G
5.2
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So much for history, let us now look at the current LOF, LOF 2000, a copy of
which is annexed to this module. You will see the contract itself is fairly short but
it is important to know it is backed up by the Lloyds Standard Salvage and
Arbitration clauses (LSSA clauses) which set out a number of essential but supplementary rules and The Procedural Rules which govern the way in which an
arbitration is conducted. They are lengthy and not annexed to this module but
can be found on the Lloyds website at www.lloydsagency.com.
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3-201
You will see that LOF 2000 is made up of nine BIMCO style boxes on the front
page, each requiring completion with appropriate detail when the contract is
concluded, and 12 clauses on the back page, lettered A to L, which set out the
essential terms of the contract.
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Generally speaking, the nine boxes on the front page of the contract are to
record essential information necessary to identify the ship or casualty. Most are
self-explanatory but there are a few matters to which attention should be drawn.
5.2.1
Property to Be Salved
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It will be seen in Box 2 that the salved property specifically excludes personal
effects or baggage of passengers, master or crew. Some explanation is
necessary.
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It had always been the position under English law, in other countries and in LOF,
that personal effects and baggage were excluded from salvage. However, as
discussed earlier in this module, the Salvage Convention of 1989, defines salved
property (Article 1(c)) in such a broad way that it includes the personal effects
and baggage of crew and passengers. LOF is a commercial contract and it has
never been felt necessary to include claims against personal effects and baggage which are usually of a minor value compared with everything else. It was,
therefore, decided to maintain this exclusion, hence the provision.
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Further, it was felt advisable to extend it by excluding the private motor vehicles
of accompanying passengers and their personal effects in those vehicles (see
LSSA Clause 3.2). This was deliberately done for very practical reasons. Their
individual value is not likely to be high in relation to other salved property and
the enforcement of a salvage claim against private vehicles on a car ferry would
in practice be virtually impossible. By specifically excluding this property from
the assessment of the award the contractors will be entitled to a complete award
from the balance of the value salved, that is, ship, bunkers and freight.
5.2.2
Currency of Award
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5.2.3
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Box 7 is completely new to LOF and requires the parties to state whether the
SCOPIC Clause is incorporated into the agreement. We will be discussing the
SCOPIC clause in detail in this module. It will be noted from Clause C that
unless the word No in Box 7 has been deleted the LOF agreement will be
deemed to have been made on the basis that the SCOPIC Clause is not incorporated and forms no part of the agreement. It will also be noted from Clause C
that even if the word No is deleted in Box 7 this should not of itself be construed
as notice to invoke the SCOPIC Clause within the meaning of subclause 2 of
that clause. Two important reminders.
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It is perhaps convenient to point out here that Clause 3.9 of LSSA Clauses
provides that any reference to the SCOPIC Clause in LOF 2000 shall be
deemed to mean that version of SCOPIC which is current at the date the agreement is made. Thus, there is no need to identify the particular version of SCOPIC
for the up-to-date version to be applied. The latest version is SCOPIC 2007
which came into force with effect from 1 July 2007.
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So much for the boxes. Over the page are 12 specific clauses lettered A to L.
Clause A
It will be noted that the contractors agree to use their best endeavours to salve the
property. This imposes an obligation on the contractor to complete the salvage
service, even if it is uneconomical for him to do so. However, this does not mean
he has to complete the job whatever the cost. He will probably be released from
the burden of this obligation if he can show his expenditure does not justify the
benefit likely to be conferred on the owner of the property salved if he continues.
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Further, it probably does not mean that the contractor must proceed whatever
the circumstances. If after the contract has been agreed there is, without fault on
the part of the contractor, a major change in the circumstances of the casualty
(eg the casualty capsizes) so that the salvage services to be rendered thereafter
are fundamentally different from those envisaged at the beginning, the contract
may be frustrated and the obligation at an end.
Clause B
This simply emphasises the new duty of salvor under Article 8.1(b) of the
Salvage Convention 1989.
Clause C
SCOPIC Clause: Unless the word No in Box 7 has been deleted this
agreement shall be deemed to have been made on the basis that the SCOPIC
Clause is not incorporated and forms no part of this agreement. If the word
No is deleted in Box 7 this shall not of itself be construed as a notice invoking
the SCOPIC Clause within the meaning of subclause 2 thereof.
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This has been inserted to ensure there is no doubt as to whether the SCOPIC
clause has been incorporated into the agreement. Care should be taken to
resolve this issue if the LOF is verbally agreed and not actually signed until
some time later.
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Clause D
Despite the provision of Article 6.2 of the Salvage Convention which gives a
ships master the power to agree salvage contracts on behalf of all parties (see
paragraph 6085) ship masters frequently prefer to consult with their owners
before agreeing to a salvage agreement. In the interval the salvage contractors
are often willing to get on with the job in hand and begin the salvage operation.
To encourage such a prompt response this clause has long been included in
successive versions of LOF.
Clause F
(ii)
(iii)
the owners of the property shall co-operate fully with the contractors in obtaining entry to the place of safety stated in Box 3
or agreed or determined in accordance with Clause A.
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These duties are in addition to those imposed on the owner and master by
Article 8.2 and Article 21 of the Salvage Convention. The duty to co-operate in
getting the vessel into a place of safety can be particularly important and can in
effect mean that the ship or cargo should provide any reasonable security
required by the port authorities before granting permission for the ship to enter.
Clause G
This clause was originally inserted at the request of the P & I interests when The
Salvage Convention was incorporated into LOF 90. They feared without it, an
unscrupulous salvor might be encouraged to keep a salvage service going just
to achieve the benefit of the special compensation that would be due. It was later
amended to include the contractor in LOF 90, simply on the basis that the clause
should be seen to be even handed.
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It will be seen that the wording . . . a useful result leading to a salvage award in
accordance with Articles 12 and/or 13 . . . does not include special
compensation under Article 14. So, continued work simply to prevent damage to
the environment would not count as a useful result for the purposes of this
termination clause. Further, the removal of a wreck which has no value (whilst
useful from a practical point of view) would not be a useful result within the
meaning of this clause for it cannot lead to a salvage award as there is no value.
Thus a salvage service may be terminated (by either party) as soon as a
salvage award is no longer possible.
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While earlier editions of LOF provided that the salved property should be taken
to a place of safety, it was not specifically stated (though implied) that on redelivery the ship should be in a safe condition. Some were unhappy with that so it
was decided a change should be made in LOF 2000. Further, it was felt some
guidance should be given as to the meaning of safe condition.
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agency or similar authority and (ii) the continuation of skilled salvage services
from the contractors or other salvors is no longer necessary to avoid the
property becoming lost or significantly further damaged or delayed.
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It is clear that a salvor is not expected to carry out any repair to the vessel but
simply put it in a condition that the owner can arrange for it to be looked after
without the need for skilled salvage assistance.
Clause I
As English law now incorporates the Salvage Convention, all the provisions of
the Convention apply to LOF 2000.
Clause K
Note the words . . . but not the one for the other . . . . LOF is not a contract
between shipowners and cargo owners. It is an agreement between salvors, on
the one hand, and the respective owners of property on the other. Thus, as no
new contractual relationship is brought into existence between ship and cargo,
there is no scope for implying binding legal obligations between them under the
LOF contract. Any disputes between ship and cargo have to be resolved under
the Contracts of Carriage. Thus, a claim for damages suffered as a result of one
party delaying the provision of security must be dealt with under the Contracts
of Carriage rather than the LOF.
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Clause L
3227
Salvage Security
As soon as possible the owners of the vessel should notify the
owners of other property on board that this agreement has been
made. If the contractors are successful the owners of such property
should note that it will become necessary to provide the contractors
with salvage security promptly in accordance with Clause 4 of the
LSSA Clauses referred to in Clause I. The provision of general
average security does not relieve the salved interests of their
separate obligation to provide salvage security to the contractors.
2.
Incorporated Provisions
Copies of the SCOPIC Clause; the LSSA Clauses and Lloyds
Procedural Rules may be obtained from:
(i)
the contractors; or
(ii)
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5.2.4
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5.2.5
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Finally, mention must be made of the Procedural Rules which were designed to
expedite the assessment of salvage awards. Again they can be found on the
Lloyds website. It will be seen that the arbitrator has the power to take a very
hands-on approach which permits him to override any party who employs delaying tactics. Their purpose is to ensure a quick and economical disposal of any
disputes which arise under the Contract. Most arbitrations involve an oral hearing at which all parties are entitled to be represented. In small cases this can be
unnecessarily cumbersome and expensive so in 2005 Lloyds devised special
rules entitled Fixed Costs Arbitration Procedural Rules to cover such cases.
These can be found on the website.
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SELF-ASSESSMENT QUESTIONS
G
Recommended Reading:
Brice on Salvage Law
Kennedy and Rose on the Law of Salvage
Useful Websites:
www.marine-salvage.com
www.lof-at-isu.com
www.lloydsagency.com
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6.
6.1
HISTORY
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To resolve the problem, industry got together and devised the SCOPIC Clause
which we are about to discuss. In considering the Clause it is important to
remember that it was designed to have the same intent as Article 14 to
encourage salvors to go to the assistance of ships that threaten damage to the
environment and to follow it as closely as possible but remove the problems that
were giving rise to so much difficulty. In describing SCOPIC it is therefore useful as
we go along, to look at the problems that arose from Article 14 and see how the
SCOPIC Clause set out to resolve them. This is not just of academic interest, for
with knowledge of what the parties were trying to achieve it is easier to understand
the contract and, where there is doubt or ambiguity, interpret it the way intended.
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It will be recalled that Box 7 of the LOF 2000 requires the parties to record
whether SCOPIC is part of the contract. Further, Clause C of LOF 2000 provides
that if this box is not completed SCOPIC will not form part of the contract. (see
also Rule 3.9 of Lloyds Standard Salvage and Arbitration Clauses (LSSA
clauses) If SCOPIC is not incorporated into the contract then Article 14 (if
relevant) will apply.
2.
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Thus, subject to point 4 below, if SCOPIC is incorporated into the contract but
not specifically invoked (see 3 below) or is later terminated (see 8 below) the
salvor will have neither the protection of Article 14 nor of SCOPIC.
3.
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One of the main problems with Article 14 is its trigger mechanism, a threat of
damage to the environment. It will be recalled that we discussed this earlier. It
caused enormous difficulty. What was a threat ? Did it have to be an actual threat
or was it sufficient for it to be a reasonably perceived threat ? What were coastal
waters or waters adjacent thereto? What was substantial ? How substantial did
it have to be ? In designing SCOPIC these were all problems we wished to avoid.
So what other trigger mechanism could we have? It was concluded that the
simplest and most unchallengeable trigger mechanism was to give the salvor the
sole and unfettered power, whatever the circumstances and at any time of his
choosing, to specifically invoke the clause in writing. Hence this provision.
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To balance this trigger mechanism and to discourage salvors from invoking the
clause in every case, two counter-balancing provisions were made. The first was
to provide for a discount if the traditional salvage award should exceed the
assessed SCOPIC remuneration (see point 7 below). And the second was to
give the shipowner the right to withdraw from SCOPIC at any time, subject to five
days notice and the local authorities permitting it. (see point 8 below)
4.
Once SCOPIC has been invoked the shipowner must provide security
in the sum of $3 million (subclause 3).
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This provision was made for the salvors protection and on their insistence for
without it there is no effective means of enforcing payment. Whilst Article 21 of
the Salvage Convention provides that security should be provided for a salvors
claim, it is not due until the end of the salvage operations and, in the case of
security for Special Compensation, there was often no way of enforcing its
provision. Further, before the days of SCOPIC, there was a marked reluctance
to provide it. In a number of cases shipowners, guided by their P&I Club, refused
to provide security, fought a case for Special Compensation to appeal and then
negotiated on the final appeal award.
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The answer was to establish tariff rates and Appendix A of the SCOPIC Clause
was the result. In arriving at the Tariff rates for personnel, tugs, and equipment
a very broad-brush approach was needed. It was intended that the rates should
be profitable and encouraging to salvors but clearly it was going to be more
profitable in some parts of the world, where personnel, tugs and equipment were
cheap, than in others. Consideration was given to applying different rates to
each item for different areas but dismissed as being a further complication to
what was already a very complicated clause. SCOPIC was intended as a safety
net, a minimum payment, and a broad brush approach was sufficient. A single
tariff rate for personnel tugs and equipment, that operated worldwide, would do.
By applying tariff rates it became fairly simple to calculate SCOPIC
remuneration on a daily basis.
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The next question was How do we replace the bonus element of Article 14.2 ?.
This had also given much trouble in its assessment. A salvor had to prove that
but for his services there would have been damage to the environment, and
satisfy the tribunal as to the extent of that damage, which clearly would affect the
percentage of uplift. In almost every case expert evidence was needed. It was
time-consuming and expensive operation and there was much uncertainty long
after the services were complete. It was not a commercially acceptable way to
assess the remuneration due.
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The solution was again to take a very broad-brush approach. At that time the
average uplift under Article 14.2 in arbitrated cases, was 26%. It was decided
that a general and fixed uplift of 25% would compensate. Again it was
recognised this would be more generous in some cases than in others but this
was a safety net, a method of assessing a minimum payment, and it was
important to have simplicity and certainty.
6.
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This mirrors Article 14.4 of the Salvage Convention which provides that Special
Compensation shall only be paid to the extent that its assessment exceeds the
traditional Article 13 salvage award. The position is the same under SCOPIC. So
if the traditional salvage award is say $1 million and the assessed SCOPIC
remuneration is $1.5 million, the salvor will receive $1 million from the ship and
cargo, pro rata to value, and $0.5 million from the shipowner in respect of
SCOPIC remuneration.
7.
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necessary and what penalty should he pay for the protection and security
afforded when SCOPIC was invoked? The answer was twofold. To give the
owner power to terminate (see 8 later) and to build in a discount clause.
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Subclause 7 provides that if the SCOPIC clause has been invoked and the Article
13 award is higher than the assessed SCOPIC remuneration, then the Article 13
award shall be discounted by 25% of the difference between it and the SCOPIC
assessment. So, if the salvage award was say $1.5 million and the assessed
SCOPIC remuneration $1 million no SCOPIC remuneration would be due and the
salvage award to be paid would be reduced by $125,000 (1.5 1 25%).
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The ploy seems to be successful for statistics show that SCOPIC is only invoked
in 20% of cases.
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Note that the discount benefits the property underwriters, who are liable to pay
the Article 13 award, by a reduction in that award, not the P&I Clubs who are
liable to pay the Article 14 or SCOPIC remuneration. This was a conscious
decision and intended as some recompense to the property underwriters for the
provision in Article 13.1 (b) (the skill and effort of the salvor in preventing
damage to the environment) which in effect enhances a salvage award payable
by the property underwriters.
8.
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The Termination provisions of SCOPIC (subclause 9), together with the Discount
provision (see 7 above), counterbalance the salvors right to invoke the clause
whatever the circumstances (see 3 above) and are intended to ensure the salvor
will only invoke the clause when there is a threat of damage to the environment
and he is in need of the protection of the clause. There are three termination
provisions. Each is designed to have an effect on the other with a view to
ensuring that overall, the principal aim of SCOPIC is achieved. Namely, that it be
used and enforced by the salvor only when there is a threat of damage to the
environment.
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Under subclause 9(ii) the owner can withdraw from SCOPIC (note not the LOF)
on giving five days written notice, but he is prevented from doing so under
subclause 9(iii), if the appropriate authorities object. When drafting the subclause,
it was thought that if there was a threat of damage to the environment, the local
authorities would object thus preventing the owner from withdrawing when such
a threat existed. To back up this intention, the International Group of P&I Clubs in
cl. 8 of the Code of Practice between ISU and The International Group, agreed
to recommend the owners not to withdraw without reasonable cause.
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If the owners were to withdraw from SCOPIC, the salvor would no longer have
the financial protection of either SCOPIC or Article 14, and could be stuck with
an unprofitable LOF contract which he is still obliged, under that contract, to
complete. This would be unfair if he had been induced by the prospect of the
protection of SCOPIC remuneration when agreeing to the LOF contract, and the
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owner later withdrew SCOPIC. So, to protect his position, he is given the right to
withdraw from the entire LOF contract if it is no longer financially viable.
(subclause 9(i)). This provision is much stronger and more easily applied than
the termination provisions of LOF itself and acts as an additional brake on an
owner terminating SCOPIC unreasonably.
9.
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The Salvage Master must keep the SCR informed of his plans and listen to any
comments the SCR may have but the final decision on any aspect of the salvage
service is always that of the Salvage Master. The SCR has no authority or power
to bind the salved property but clearly his voice is influential. He must either
endorse the salvage masters daily report or issue a dissenting report. All reports
and communications are to be sent to all salved property through Lloyds, with
copies to the salvor.
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The duties of the SCR are set out in Appendix B and are further explained in the
Guidelines for SCRs, SCR Digest 1, and SCR Digest 2, all of which can be found
on the Lloyds website www.lloydsagency.com. His independence from any
party and impartiality is important to the smooth working of SCOPIC. To protect,
encourage, and instil trust in the independence of the SCR, it is agreed that the
SCR shall not give evidence in any litigation other than in the claim for salvage
(see final sentence of subclause 11 and Appendix B).
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SCRs have played an important role in SCOPIC situations and with the benefit
of the tariff rates it is now possible for an owner and his insurers to be aware and
keep an eye on the minimum cost of any operation on a daily basis. An
enormous improvement on special compensation
10.
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The SCR represents all salved interests. When SCOPIC was devised it was
thought property underwriters would like to be separately represented and so a
provision was made for the hull underwriters and the cargo underwriters to each
appoint a Special Representative, one for hull and one for cargo, as additional
watchdogs. In practice, the independence of the SCR and the unbiased manner
in which they have fulfilled their duties, has ensured that Special
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Representatives are seldom appointed. When they are appointed their duties
are governed by Appendix C of SCOPIC which largely restricts them to watching
and reporting on events as they occur.
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It should be noted that the SCOPIC clause is a living contract. The rates and the
SCR panel are reviewed each year by the SCR Committee set up under
Appendix B, and considered annually by the Lloyds Working Group which has
overall responsibility for its provisions. After its first year of use some
amendments were made, largely to correct errors, which resulted in SCOPIC
2000. A further version, SCOPIC 2005, came into effect on 1 January 2005. The
changes were not large and mainly to correct further initial errors and take into
account currency fluctuations between the time of the termination of the
services, and the date of any set-off or date of final assessment. Last year some
further fine tuning was carried out and the tariff rates reviewed, resulting in
SCOPIC 2007.
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SELF-ASSESSMENT QUESTIONS
G
Who pays
(i)
(ii)
(ii)
(ii)
Recommended Reading
Brice on Maritime Law of Salvage 4th Edition, edited by John Reeder
(Thomson Sweet and Maxwell)
Kennedy and Rose on The Law of Salvage (Sweet and Maxwell)
Lloyds Digest (available from Lloyds Agency department)
DVD. Lloyds Open Form Serving the Maritime Community (available from
Lloyds Agency Department)
Useful Websites
www.lloydsagency.com
www.marine-salvage.com
www.lof-at-isu.com
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7.
POLLUTION
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On the morning of 18 March 1967 the Torrey Canyon, laden with 120,000 tons
of crude oil, struck Pollards Rock on the Seven Stones Reef between the Scilly
Isles and Lands End. During the subsequent salvage operation there was an
explosion in the engine room and the ship split in two. The salvage operation was
called off and on the orders of the Prime Minister, the Royal Air Force was
instructed to bomb the ship and set her cargo ablaze. The attempt to burn off the
oil succeeded in part, but a large quantity remained and in subsequent days
wind and tide carried it to the western coastline of England and covered its
beaches and harbours with a thick brown oily sludge. Severe environmental
damage was caused to both the tourist and fishing industries and there was a
sustained public outcry.
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Since that time there have been a number of other major tanker casualties, the
Amoco Cadiz, the Exon Valdez, the Sea Empress, the Brier, the Erika, the
Nakhodka, the Prestige and the Castor. All in their way have contributed to the
tightening of the legislative and regulatory screw imposed on shipowners,
substantially increased their, and their insurers potential liabilities and the
trend continues. Civil liability for pollution has increased, extended from oil
cargoes to bunkers and hazardous and noxious substances, and criminal
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liability for pollution introduced. This module will focus on the shipowners civil
liability for pollution and is only intended to give an overview of what is a
complex subject.
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The Civil Liability for Oil Pollution Convention of 1969 and the Fund Convention
of 1971 were the initial international reaction to the Torrey Canyon. Both
materially affected and increased the civil liability of tanker owners, their insurers
and oil importers. In subsequent years, after pressure created by other
casualties to tighten their provisions, and several failed attempts, both
conventions were amended and replaced by The International Convention on
Civil Liability for Oil Pollution Damage of 1992 (CLC 1992) and the International
Convention on the establishment of an International Fund for Compensation for
Oil Pollution Damage of 1992 (Fund Convention 1992). The cover afforded by
these two conventions was further extended by a Protocol that created the
International Oil Pollution Compensation Supplementary Fund of 2003
(Supplementary Fund Convention 2003). These three conventions now govern
the pollution liabilities of shipowners, their insurers and oil importers of cargoes
carried in tankers. However, two other international conventions for other
pollutants have been added, The Hazardous and Noxious Substances
Convention of 1996 (HNS Convention), which covers cargo pollutants other than
oil, and the Bunker Convention 2002 which covers the bunkers of all ships. This
module will deal with each Convention separately.
7.1
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This Convention came into force on 30 May 1996 and as of 31 March 2009 was
applicable in 121 States representing 96.39% of the worlds tonnage.
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The CLC 1992 applies to all ships that are carrying oil in bulk as a cargo
(Article I.1). It makes the owner liable, without fault, for loss or damage in the
territorial sea or economic zone (200 miles) of a contracting state, caused
outside a ship by contamination resulting from the escape of oil from a ship
wherever such escape or discharge may occur. (Article I.6) and for preventive
measures, wherever taken, to prevent or minimize such damage (see
Article I. 6 and Article II (a) and (b)).
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Note: the definition of oil includes bunkers so the Convention covers bunkers of
a ship when she is carrying an oil cargo.
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2.
3.
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No claim for pollution damage covered by the Convention can be made against
the owner other than in accordance with the Convention (Article III.4).
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2.
3.
4.
5.
6.
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Unless it is proved the pollution damage resulted from the owners personal act
or omission, committed with intent to cause such damage, or recklessly with
knowledge that such damage would result, the owner is entitled to limit his
liability to 4.51 million SDRs (US$6.15 million as of 22.4.09) if the ship is of
5,000 gross tons or less, plus 631 SDRs (US$935.6) for each additional ton,
subject to the overall total not exceeding 89.77 million SDRs (US$133.1
million) (Article V).
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The owner of a ship carrying more than 2000 tonnes of oil in bulk is required to
maintain insurance, or other financial security, up to the limit of liability of the
ship and retain on board the ship a certificate of that insurance (Article VII. 1
and 2). Direct action may be taken against the insurer for any liability of the
owner but the insurer can limit his liability to that of the ship and may avail
himself of any defence available to the owner (Article VII.8).
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Claims under the Convention must be brought within three years from the date
the damage occurred (Article VIII) and may only be brought in the courts of the
state in where the incident occurred (Article IX).
7.2
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This Convention also came in force on 30 May 1996. Only States who are
parties to the CLC 92 can be parties to this Convention. As of 31 March 2009
the Convention was applicable in 103 States representing 94.12% of the worlds
tonnage.
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The Convention set up a fund for the primarily purpose of providing additional
compensation when the CLC 1992 is inadequate to compensate all the
claimants. It is in effect a top-up fund but also covers claims where the owner is
unable to meet his financial obligations under the CLC 1992 and claims where
there is no liability on the owner under the CLC 1992 (Article 4.1).
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The Fund is not liable if it proves the pollution damage resulted from war or was
from a war ship or other ship engaged on a non-commercial service or the
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Pollution
claimant cannot prove that the pollution resulted from an incident involving one
or more ships (Article 4.2).
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The maximum amount for which the fund is liable is the difference between the
actual sum paid under the CLC 92 and (as from 1 November 2003) 203 million
SDRs (US$300.99 million). It therefore substantially extends overall cover for
pollution.
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Any right to compensation under the Fund is lost unless an action is brought
against the Fund, before a competent court provided for under the CLC 1992,
within three years of the date the damage occurred (Article 6).
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The Fund is financed by contributions from any person who has received a total
quantity of oil exceeding 150,000 tons in a Contracting State. (Article 10.1) and
is managed by an Assembly formed of contracting member states and a
secretariat headed by a Director (Articles 16 and 17).
7.3
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Driven by other tanker casualties such as the Nakhodka and Erika, a number
of States felt the limits of the CLC 1992 and Fund Convention 1992 were too
low and sought change. The limits of the Fund Convention 1992 were
increased to those mentioned above as from 1 November 2003, but they were
still not enough and pressure resulted in the creation of a new fund entitled
the Supplementary Fund for Compensation for Oil Pollution Damage 2003.
(Supplementary Fund). The Supplementary Fund is in effect a third tier of
compensation and increases the total amount of compensation available for
any one incident in participating States of all three conventions, to 750 million
SDRs (US$1,112.03 million).
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The Supplementary Fund came into force on 3 March 2005. Only members of
the CLC 92 and Fund Convention 92 can be parties to it. As of 31 March 2008
there were 23 contracting States representing 19.84% of the worlds tonnage. It
covers pollution in the territorial seas and economic zones of contracting States.
7.4
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This Convention has not yet been adopted by sufficient States and is therefore
not yet in force. It requires the consent of at least 12 States who together import
more than 400 million tons of HNS cargo Thirteen have consented but they are
well short of the required tonnage. The difficulty relates to the method by which
importers contribute to the Fund. In an effort to break the current deadlock and
resolve the situation, a Protocol to the Convention has been prepared and
approved by the legal Committee of IMO and is likely to be put to a full
diplomatic conference in 2010. As the Convention forms an important part of
maritime environmental liability and completes the pollution liability circle, it
would be useful to outline in this module its provisions as to liability which are
not expected to be changed by any amending Convention.
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The HNS Convention in effect is in two parts. One part deals with a shipowners
liability as the CLC 1992 does for oil pollution and the other part deals with the
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setting up of a fund as the Fund Convention 1992 does for oil pollution. It is really
like two conventions rolled into one.
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The Convention provides that the owner shall be liable for damage caused by
any hazardous and noxious substances in connection with their carriage by sea
on board the ship in the Economic Zone. (Article 7.1) unless he proves that:
1.
2.
The damage was wholly caused by an act or omission done with intent to
cause damage by a third party; or
3.
4.
ii.
Apart from an owners right of recourse no claim for damage under the
Cconvention or otherwise may be made against:
i.
ii.
iii.
iv.
v.
vi.
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The owner of the ship is entitled to limit liability unless it is proved that the
damage resulted from the personal act or omission of the owner, committed with
the intent to cause such damage or recklessly and with knowledge that such
damage would probably result (Article 9.2).
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i.
ii.
1500 SDRs for each ton between 2001 and 50,000 gross tons; and
iii.
Provided that the total amount does not exceed 100 million SDRs (Article 9.1).
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Hazardous and Noxious substances are defined and listed in Article 1.5 and in
general terms include certain oils in bulk (not within the CLC 1992); listed
substances; dangerous liquids; dangerous materials; and liquefied gas.
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The second part of the Convention deals with the setting up of a fund which like
the Fund Convention 1992, will pay for claims not met by the owner because he
is unable to meet his financial obligations under the Convention; or he has no
liability; or because the damage exceeds his liability (Article 14.1). The Fund will
not have any liability if it proves the damage resulted from war or the claimant
cannot prove the damage resulted from an incident involving one or more ships
(Article 14.3).
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The maximum amount for which the Fund can be liable for any one incident is
the difference between the actual sum paid by the owner under the Convention
and 250 million SDRs (US$ 370.7 million) (Article 14.5).
7.5
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This Convention will come into force on 21 November 2008. To date it has been
ratified by 38 Contracting States which represent 75.5% of the worlds tonnage.
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The Convention applies to any pollution caused in the territorial sea and
economic zone of a State party (Article 2). It imposes strict liability on a
shipowner for pollution damage caused by any bunker oil onboard or originating
from the ship unless he can prove:
1.
2.
The damage was wholly caused by an act or omission done with intent to
cause damage by a third party; or
3.
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No claim can be made for pollution damage covered by the Convention other
than in accordance with the Convention (Article 3.5). Pollution damage means
loss or damage caused outside the ship by contamination resulting from the
escape of bunker oil from the ship, wherever such escape or discharge may
occur (Article 1.9) and the cost of preventive measures.
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The Convention does not apply to pollution damage defined in the CLC 1992;
nor to warships or State-owned non-commercial ships unless that State
otherwise elects (Article 4).
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Article 6 provides that nothing in the Convention shall affect the right of the
shipowner to limit his liability under any applicable national or international
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Owners are required to maintain insurance for any liability under the Convention,
and keep a certificate of insurance on board the ship (Article 7.4 and 7.5). Any
claims for compensation under the Convention may be brought directly against
the insurer (Article 7.10).
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Claims for compensation under the Convention must be brought within three
years from the date when the damage occurred. (Article 8).
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Unlike the CLC 92 and HNS Convention, there is no protection from suite for
certain third parties such as rescuers or salvors. However, the diplomatic
conference did invite participating states to include a similar protection to that
given in those two earlier conventions if they so wished and some of the States,
such as the UK, have done so.
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Pollution
SELF-ASSESSMENT QUESTIONS
G
Who pays for claims made under the Fund Convention 92?
Useful Websites:
www.imo.org
www.iopc.org
www.itopf.com
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APPENDICES
APPENDIX 1
International Collision Regulations Part B, Steering and Sailing Rules.
APPENDIX 2
Numbered Rules (I to XXIII) of York Antwerp Rules 2004.
APPENDIX 3
Lloyds Open Form (LOF 2000)
APPENDIX 4
Lloyds Procedural Rules.
APPENDIX 5
Lloyds Arbitrators Guidelines for Fixed Cost Arbitration Procedure.
APPENDIX 6
The SCOPIC clause (SCOPIC 2007) with Appendices A, B, and C.
APPENDIX 7
Code of Practice between the ISU and the Int. Group
APPENDIX 8
Code of Practice between the Int. Group and Property Underwriters.
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