Salvors call for Environmental Salvage Awards

By Andreas Tsavliris, President of the International Salvage Union

The legal framework which governs salvage is complicated and has evolved over the centuries. At the heart of that framework lies the 1989 Salvage Convention (the Convention). But the International Salvage Union, (ISU), which represents the interests of the global salvage industry, believes that some Articles in the Convention are outdated and no longer fit for purpose. In particular ISU considers the Convention should be modified to continue providing for the assessment of a financial Award for salvage services to maritime property, and, crucially, should also provide a financial Award for the degree of success a salvor achieves in preventing or minimising damage to the environment during salvage services.

The present system under the Convention, and the commercial arrangements of the most commonly-used salvage contract, Lloyd’s Form 2011 (and where applicable the Special Compensation P&I Club Clause – SCOPIC 2011) are not considered to provide proper recognition of the salvor’s efforts in carrying out his obligations under the Convention – an obligation to prevent or minimise damage to the environment salvage operations. The Award criteria in the Convention requires that an Arbitrator or Tribunal should take into consideration “the skill and efforts of the salvors in preventing or minimizing damage to the environment” whilst providing salvage services to the casualty vessel but no separate award is made for such services.

Article 14 of the Convention allows the Salvor to be paid so-called “Special Compensation” under specific circumstances where he has rendered services to a vessel which, by itself or its cargo, threatened damage to the environment, but where the salved property fund is insufficient to provide the salvor with a normal salvage reward.

This “special compensation”, if applicable, is assessed on the basis of a “fair rate” for personnel and equipment used during the salvage services, and additionally for the re-imbursement of the reasonable out of pocket expenses incurred by the salvor. A bonus of up to 30% of the total expenses, or, if fair and just to do so, up to 100% of such expenses, can also be awarded. It must be stressed this is compensation for work done when there is not enough in the salved fund to pay a proper salvage award.

This system arose out of what is known as the “Montreal Compromise” negotiated between the parties to the Comite Maritime International Conference held in that Canadian city in 1981. This “compromise” came about following Professor Erling Selvig’s proposal to introduce the concept of Liability Salvage into a new salvage convention. The ISU would say Professor Selvig’s initial approach was right. They supported it at the time but, in Montreal it was quite clear that the P&I Clubs were opposed to this new concept, and, as a consequence and so as not to block the creation of a new Convention, ISU went along with the proposed compromise which eventually was incorporated into the Convention.

In practice the Special Compensation provisions proved time consuming and expensive to assess. So the commercial parties using Lloyd’s Form salvage contracts produced an alternative method of assessing Special Compensation, namely the Special Compensation P&I Club Clause, or SCOPIC.

SCOPIC is a tariff-based system of assessing Special Compensation, with a fixed bonus of 25% of the salvor’s expenses under the SCOPIC Tariff . It is a system that has the support of the ISU and the P&I Clubs, but that in itself does not mean there is no need for change.

Since those days in Montreal, over 30 years ago, much has changed. The structure of the salvage industry is different. Today, there are only a few salvors with a global reach and capability. At the same time there has also been a decline in the amount of salvage work available. 20 years ago there were on average about 200 Lloyd’s Form cases a year, today there are less than 100 each year.

What should be of concern to the shipping industry as a whole is whether the future response of the salvage industry will be swift and effective. The ISU suggests that salvors are more likely to be ready to invest in personnel and equipment to maintain the capability to intervene to save life and property and to protect the environment if its members are paid fairly for what they actually do and achieve in the context of modern environmental requirements.

The need for change

The basic principle of salvage is that the reward for success should be a proportion the market value of ship and cargo at the termination of the salvage services.

The ISU has data collected since 1978 covering nearly 2,900 Lloyd’s Form cases which shows that annual salvage revenue amounts to an average of 8.12% of salved values. The highest year was 2000 when the salvors’ revenue averaged 12.5% of salved values. Compared to the values at risk, which under Lloyd’s Form have amounted to US$ 24.5 billion from 1978 to 2008, the revenue is comparatively modest.

A further data collection exercise carried out by ISU since 1994 shows that each year its members have salved ships laden with an average of just over 1 million tonnes of potential pollutants. Not every vessel was a casualty which would have given rise to actual environmental damage, but clearly every year some real risk of environmental damage was avoided.

The question is: “should the Montreal Compromise continue into the future?” ISU suggests that the answer is that it should not. And for good reason:

• The compromise was made some 30 years ago and should be reviewed in the light of changed circumstances. Circumstances which are very different today from what they were in 1981. Environmental issues, while important then, are even more important today and play a far larger part in today’s salvage operation than they did 30 years ago.

• The bunker fuel capacity of modern ships is much greater than that of shipping of 30 years ago. Today there are bulk carriers, container ships, oil tankers and cruise liners with bunker capacities well in excess of 5,000 tonnes. Practically every salvage operation today has an environmental dimension. After safety of life, the environment is the primary concern of coastal states. It means salvors are often required to undertake environmental protection measures which are not strictly necessary for the successful salvage of ship and cargo.

• In the majority of shipping casualties, it is only the salvage industry that has the necessary expertise and equipment to both salve the casualty and protect the environment.

• And the salvage industry is one of the principle parties to the compromise but is no longer comfortable with the 1989 Salvage Convention and wishes to re-examine it.

How change could be achieved?

ISU suggests that the 1989 Salvage Convention’s current Article 14 – special compensation – should be replaced with an Environmental Award which, in appropriate circumstances, should be made in addition to the traditional award against ship and cargo.

And we think it could be done fairly simply by amending just three of the Articles of the Convention.

One of the key modifications would be to change Article 13 such that “damage to the environment” be assessed as “significant” (rather than “substantial”) physical damage to human health or marine life or resources regardless of proximity to the shore.

“Significant” is considered to be a more realistic measure given that even a casualty with only a small quantity of bunkers on board may be regarded by a coastal state as a significant threat to the environment.

We also propose to remove the geographical restriction from the current definition. All maritime Conventions since the 1989 Salvage Convention (such as the 1992 Protocol, the Hazardous and Noxious Substances Convention and the Bunker Convention) all refer to the “Economic Zone” and ISU suggests this might be more applicable.

An alternative new limit of the coastal state’s Exclusive Economic Zone would be more acceptable but the ISU feels that there really is no need for a geographical limit. An informed Tribunal would be quite capable of making up its mind as to the risk of “significant” damage to the environment in the light of all the circumstances and we see no purpose in imposing any geographical limit.

The key changes would be a new Article 14. The existing Article was extensively examined in numerous Lloyd’s Open Form arbitrations and carefully examined by the House of Lords (English law’s Supreme Court at the time) in case of the “Nagasaki Spirit”. On the whole the industry found Article 14 uncertain in outcome, cumbersome to operate and expensive to implement. It was replaced in Lloyd’s Open Form cases by SCOPIC but is still the law in 59 countries.

The proposal of the ISU is that the existing clause be removed and replaced with a straightforward form of words incorporating the idea that if a salvor carries out operations on a casualty which threatened damage to the environment then he should be entitled to an environmental award in addition to the award made under Article 13 (property award).

The Tribunal could make an environmental award whenever there is a “threat of damage to the environment”. The salvor does not have to actually prevent damage to the environment. This is no different from the current position except that under the existing Article the reward is limited to expenses as defined in the Convention whereas under the new proposal recovery is left entirely to the discretion of the Tribunal. ISU agrees that there should be a cap to any such award.

The liability for an environmental award is placed on the ship owner, rather than the cargo interests, as it is the owner who is liable for any pollution under modern Conventions and Laws.

It will be noted that an environmental award is left entirely to the discretion of the Tribunal. Experience over the last 100 years has shown that an informed Tribunal is quite capable of weighing up the relevant factors making a fair and just award which satisfies industry. The Lloyd’s Open Form system deals with many cases every year – some of enormous proportions. It is tried and tested. There is no reason why a Tribunal cannot do the same when assessing an environmental award. The only difference is, instead of examining the danger of damage or loss to ship and cargo, it will have to also examine the danger of damage to the environment.

More detail of the proposed changes to the Convention is available on the ISU website’s environmental pages.

The ISU sincerely hopes that Maritime Law Associations will recognise that these proposals are a real attempt to reflect the need for a change in the 1989 Salvage Convention, to bring the law up to date to reflect the reality of present day salvage operations, whilst maintaining the degree of encouragement necessary to stimulate and sustain salvage capability, investment and training.