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Transparency and trust in the salvage industry

Arnold Witte, President, International Salvage Union

The salvage industry has not always in the past had a sparkling reputation. But compared today with Wall Street and the banking community, we must be considered stellar performers. I would argue that neither conclusion is totally fair but, as they say, perception is reality. In either case, transparency, cooperation and understanding breeds trust.

Observers not familiar with the level of risk, investment and expertise involved in salvage could be surprised by the quantum of awards made. Salvage is also casualty related. It does not encourage investment dependent upon five year projections. It is perhaps overlooked that the guiding principle of the most commonly used form of salvage contract, the Lloyds Open Form (LOF) is “no cure-no pay”. What other form of contract places the risk of performance entirely upon one of the contracting parties. That, at least in part, explains the levels of award.

Colleagues will all be able to tell of past cases where, despite using their best endeavours, the outcome of an operation was “no pay” for the salvor.

Historical negative attitudes toward salvage and wreck removal must be dispelled, especially in the current casualty arena of ever-increasing costs. The gradual change in perception must begin with the International Convention on Salvage of 1989. Its Article 14 recognised that a salvor’s efforts were often valuable in preventing marine or coastal pollution even if the action did not salve the ship and cargo. It suggested that in such cases the salvor should be due special compensation. It was the first admission that the environmental influence on a salvage or wreck removal was of primary importance.

The regime matured further and in 1999 the Special Compensation, or SCOPIC clause, supplementary to the LOF, was introduced. The new arrangements were agreed between the International Salvage Union and the marine insurance community: both property and liability. Scopic has become a substitute for Article 14.

It provided for the salvor to be properly compensated under the wider LOF system for the manpower and equipment costs of an operation even if there was “no cure” to the casualty. A bonus element would also be paid. It was the decision of the salvor, based on assessment of the nature of the casualty and conditions, whether it was prudent for him to invoke SCOPIC.

One of the key elements to SCOPIC was the introduction of the Special Casualty Representative or SCR. I would suggest that the introduction of SCRs has of itself done much to improve the image of the salvors. The SCR process introduced transparency and prompt daily recording of all activities relating to the casualty.

If SCOPIC was invoked the shipowner had the right to appoint an SCR to attend the salvage operation. Although appointed by the owners, the SCR performs his functions on behalf of all the parties and their insurers. In short, the role is to observe the operation and to report at its conclusion: the report then forms the basis for the settlement of the SCOPIC remuneration due to the salvor.

SCRs must be experienced, often retired salvage masters themselves. A committee representing the P&I Clubs; the International Salvage Union; the International Union of Marine Insurers and the International Chamber of Shipping appoints suitably qualified individuals to a panel but the appointment of an SCR to an operation is the choice of the shipowner.

The SCOPIC regime states that the duty of the SCR is to use his best endeavours to assist in the salvage of the vessel and property. Scope for interference? But the guidelines for the conduct of SCRs also made clear that the salvage master remains at all times in overall charge of the operations and makes the final decision as to what he thinks best and is responsible for the operation.

Early concerns about the value of the SCR process ebbed away rapidly. Because, in practice, the role of the SCR quickly proved to be beneficial both to the salvor and to the other interests. It provided assurance that the actions taken and equipment used by the salvor were justified. Questions about the actions taken could be dealt with at the time and often at the very scene rather than a year later at arbitration.

And far from casting salvors in a poor light, it had the opposite effect. Salvors recognise that with possibly millions of dollars involved it is only reasonable that the “client” of the services contracted should have some assurance about what is going on.

The key point is that the system now had built into it the mechanism to ensure that suspicion about the conduct of the operation was no longer supportable. And in most cases there was little disagreement about the way the salvage was handled and it was manifest that the salvor had behaved responsibly and fairly. Consequently it has been most beneficial to the reputation of the industry. It is important that the SCRs should remain properly independent.

The issue of trust is key to so many aspects of business. I believe that if confidence and trust diminishes it is best combated by increased levels of openness and transparency -as the introduction of SCRs demonstrates.

A further way to increase transparency is to encourage the publication of salvage awards. The International Salvage Union believes that publication of Lloyds’ Form salvage awards is in the best interests of the whole of the marine community. It will enable all interested parties to see the facts as opposed to picking up perhaps market rumour about the level of the award but without knowing the full details of the case. As salvors we have nothing to hide and expect no more than a fair return for services rendered in light of the investment we make and of the particular circumstances of the case.

Transparency should also return to wreck removal. We must reinstate the practice of open, competitive fixed term tenders for wreck removal. Although the Clubs certainly have the right to assess the quality, experience and professionalism of any low bidder, over the last decade there has been developing a policy of renegotiating terms, conditions and award after the close of the tender. This has often worked to the disadvantage of the Clubs as well as the salvage industry.

The drive for increased transparency is one reason why the International Salvage Union is therefore in support of the proposal to introduce the new “Respondents’ Independent Salvage Consultant” or RISC. Put simply the RISC will fulfill a similar function to the SCR but in LOF cases where SCOPIC has not been invoked. We expect the RISCs to be the same kind of individuals who are presently SCRs. Details and documentation are still being worked on and the introduction of RISCs remains some way off. But we expect the benefits of increased transparency again to follow.

Economic conditions are as tough as many of us can remember. The shipping industry is truly struggling with the contraction in international trade and the International Salvage Union recognises that the underwriting community is suffering. When times are hard the pressure on relationships increases – which is exactly why now is the time to increase cooperation and for all parties, despite their varied interests, to work together to find mutually satisfactory ways of doing business.

Trust based on regular, open communication and exchange of information is essential but, at the same time, salvage must continue to be profitable. Only fair competition and fair compensation will support a profitable, forceful and effective salvage industry.