Discussion Paper for Review of Salvage Convention 1989 International Sub-Committee Meeting: 12 May 2010 at 10am
at the offices of Reed Smith: Broadgate Tower, 20Primrose Street, London

Introduction

In December 2008, the International Salvage Union (ISU) wrote to the Comite Maritime International (CMI) pointing out that the Salvage Convention 1989 (the Convention) was nearly 20 years old and it was over 30 years since work had first begun on its drafting. It suggested that there was a need for review of certain aspects of the Convention and invited CMI to undertake such a review.

The CMI set up an International Working Group (IWG) in 2009 and a Questionnaire was sent to National Marine Law Associations (NMLA) in July 2009. A copy is attached to this paper (Annex 1). Seven responses had been received prior to a meeting of the IWG which was held in London on 17September 2009.

Also attached are a report of the IWG meeting (Annex 2) and a synopsis of the responses received from those seven NMLAs as well as the seven further NMLAs who have responded since that meeting (Annex 3), making a total, at the time of the preparation of this Discussion Paper, of 14.

As will be seen from the Questionnaire, questions were asked concerning various matters identified by the ISU in relation to eight articles in the Convention, they being Articles 1, 5, 11, 13, 14, 16, 20 and 27.

Before considering the responses to the Questionnaire, and the issues which were raised in it, it is proposed to describe the background to the debate concerning the appropriate remuneration of salvors which has taken place over the last 30 years.

Background

A little over 30 years ago (September 1979) the CMI established an international subcommittee under the chairmanship of Professor Erling Selvig to study the subject of salvage and prepare a report for the Montreal Conference to be held in 1981. An IWG was set up which drafted a new Salvage Convention to replace the 1910 Salvage Convention (which CMI had also prepared). At the 1981 Montreal Conference a draft text was approved by the Assembly and forwarded to IMCO (which changed its name in 1982).

LOF80

This activity was in response to discussions which had taken place at the IMCO Legal Committee, following on from the "Amoco Cadiz" disaster in 1978. Not surprisingly industry responded to the challenge of community concerns and opened the door to providing an extended remedy for salvors in respect of laden tankers. It provided that the ship owners should reimburse the salvor for his expenses, plus a fair rate for tugs, craft, personnel, and other equipment, of up to an additional 15% to the extent that it exceeded any salvage award, the amount of the increment being dependent upon the value of the result of the salvor's effort. This term was referred to as the "safety net" (in clause 1(a) of LOF 1980) and its introduction reflected an ever increasing awareness worldwide of the effects of oil pollution on the environment. Prior to that industry had, of course, reacted earlier to the growing environmental concerns caused by oil pollution (the TOVALOP Agreement which was followed by the Civil Liability Convention).

Liability Salvage

As a first step in the work done by CMI, following on a request from IMCO, Professor Selvig prepared a "Report on the Revision of the Law of Salvage" in April 1980, which is to be found in the Travaux Preparatoires of the Convention on Salvage 1989. That report is as relevant today as it was then. In discussing salvage operations Professor Selvig made the following comments:

"In the overall context of international shipping State - organised machineries established at the national level, cannot be regarded as a viable alternative to an internationally active private salvage industry. National machineries will probably be tailor-made to the needs of the coastal state concerned and primarily for use in the waters adjacent to that State. However, most States will not be in a position to establish or maintain on its own or on a regional level a salvage machinery with the overall capacity required. Consequently, the role of national machineries can be expected to be only a supplementary one, mainly limited to the area within their respective jurisdictions.

The overall cost of such a combined system under which the private salvage industry retains a main role will probably be less than the system based only on State organised salvage. The capital intensive character of modern salvage techniques suggest that at a given cost level, the combined system will make available to international shipping and States affected thereby, a higher and permanent overall salvage capacity....

The income of the salvage industry must be sufficient to maintain an internationally adequate salvage capacity. It is probably required that total compensations reach a higher level than at present. Moreover, the risk of incurring expenses without compensation or of incurring liabilities in connection with salvage operations, should not be such that salvors are discouraged from intervening in particular cases".

Professor Selvig then went on to introduce the concept of "liability salvage". He said as follows:

"Nevertheless, the concept of salvage should be extended so as to take account of the fact that damage to third party interests has been prevented. Since the ship which created the danger, will have a duty to take preventive measures in order to avoid such damage, this will mean that salvage should refer not to ship and cargo, but also to the ship's interest in avoiding third party liabilities (liability - salvage). Thus, the ship's liability insurers should be involved in the salvage settlement and pay for benefits obtained by the salvage operation.

In the long run the law of salvage cannot neglect to recognise that compensation for salvage is nearly always actually paid by insurers. Moreover, insurers of ship and cargo cannot reasonably be required to cover fully the expenses for salvage operations from which another group of insurers - the liability insurers - regularly benefit.

Inclusion of the liability interest within the concept of salvage will undoubtedly provide a more equitable distribution of the overall cost of salvage. It may also provide a beneficial encouragement to salvors to engage in salvage operations when third party interests outside the ship are in danger, particularly in cases where the chance of saving ship and cargo is rather remote. Finally, contributions from new sources may enable the international salvage capacity to remain at an adequate level".

Later on in his report Professor Selvig also made the following comments:

"The salvor should be entitled to a reward on the ground that liability for damage to third party interests outside the ship has been prevented or minimised. This should be considered to be "a useful result" within the meaning of the principles of "no cure and no pay" of the 1910 Convention Article 2. ...

Some particular rules may be required to determine how the reward for liability - salvage shall be fixed. The values in danger as well as the salvaged values will as a rule have to be determined with regard to applicable limits of liabilities. In the case of oil pollution, for instance, depending upon the circumstances, both the 1969 and the 1971 limits may be relevant, also with the consequence that the liability insurer and the fund each will have to cover a proportionate part of the reward.

In cases where the salvors have prevented damage for which the ship owner would not have been liable, the salvors may only recover the cost of preventive measures...

In cases of liability - salvage as well as salvage of ship and/or cargo, the reward may be fixed in two stages, first the total amount and subsequently the apportionment determining for which amount each of the respective interests shall be responsible."

CMI - Montreal Conference

It is also worth quoting from the report of Professor Selvig, which accompanied the text of the IWG draft convention with the papers for the CMI Montreal Conference [CMI Yearbook Montreal 1]. He said as follows:

"The main differences of view in the sub-committee related to the question of whether salvors should be entitled to payments on the ground that salvage operations have been carried out also in order to prevent damage to the environment or that by the endeavours of the salvors such damage has actually been avoided. One approach to these problems was suggested in the chairman's initial report, another in the LOF 1980 and the draft prepared by the British MLA. The compromise, now contained in the draft convention Articles 3.2 and 3.3, reflects the "safety net" idea of the LOF 1980 as well as certain other notions having emerged during the discussion, and assumes that, in accordance with the draft convention Article 1.5, these articles may be departed from by contract."

What is often referred to as the "Montreal Compromise" is described by Professor Nicholas Gaskell in the Tulane Maritime Law Journal (1991) Volume16, in this way:

"Under the Montreal Compromise the salvors agreed to give up some of their more radical proposals. [Footnote 20: Foremost among these was the concept of "liability salvage", by which the salved fund was to be increased beyond the value of the property salved to include a notional amount representing pollution liability saved, eg by pulling a tanker away from the shoreline. The P&I Clubs were particularly concerned by this proposal as such liabilities would have been extremely difficult to quantify and potentially open ended. Salvors also wanted a 300% safety net]. In exchange, representatives of insurers, ship owners and cargo owners agreed to certain provisions which would increase their present liability. It is essential to appreciate that those involved in the Montreal Compromise regarded the core compensation provisions in the 1981 CMI Draft Convention as a package. In particular, there was to be a balance in the responsibility for paying for pollution prevention between ship and cargo interest. Like most compromises, nobody was happy with everything, but the need to reach agreement was regarded as paramount. ...Nevertheless, it is right to record that the substance of the Montreal Compromise was eventually incorporated in the 1989 Convention."

In essence what was approved at the Montreal Conference was what had been drafted by the IWG and presented for debate at the conference.

In his introductory remarks to the Conference papers, Professor Selvig had also said as follows:

"A key concept in the draft Convention, damage to the environment, has been defined in Article 1.1.4. This term refers to physical damage to persons or property, not to the economic consequences thereof. It points to damage outside the ship and covers cases of pollution, contamination and the like damage to air, land or waters in coastal or inland waterway areas, as well as other types of substantial damage in areas caused by fire, explosion or similar major incident. This concept is used in Article 3.2.1 and Article 3.3 where the relevant considerations are the endeavours of the salvors to avoid or minimise such damage or the extent to which this has been done. Damage to the environment can in a sense be described as a generic term since as a rule, it does not refer to damage to any particular person, property or interest, but rather to the damage in the area concerned. Relevant in salvage law is not the damage itself but that there exists a risk of damage emanating from a ship in danger."

Professor Selvig also pointed out that the remuneration available to the salvor under Article 3.2 is limited to the value of the property salved at the time of the completion of the salvage operation.

In relation to Article 3.3 Professor Selvig pointed out that the salvor's right to recover his expenses "is not conditioned upon any measure of success; he is to be compensated for his endeavours to avoid damage to the environment" and that the observer of the ISU considered the definition of "salvor's expenses" in the drafts to be too narrow. Professor Selvig noted:

"The differences mainly relate, in the first place, to drafting and, in the second place, to the manner in which to take account of the salvor's standing costs etc when determining what is a "fair rate" in the particular case. Article 3.3(3) leaves this to the court's discretion."

In the CMI draft the actual limit of the special award under Article 3.3 was left in square brackets. The word "twice" was inserted in square brackets explained Professor Selvig "both because it provides some indication of the level, generally speaking, within which this special reward should be kept, and because it reflected a kind of an intermediary position and as such appeared as part of a compromise proposal...."

Salvage Convention 1989

For ease of convenience Articles 13 and 14 of the Salvage Convention 1989 are attached (Annex 4).

The Salvage Convention came into force internationally on 1 July 1995. The entry into force provisions required 15 States to agree to it (Article 29) and in Article 32 enabled the Secretary General to convene a conference of the State parties for revising or amending the convention at the request of eight parties, or one-fourth of the State parties, whichever is the higher figure.

The Salvage Convention 1989 refers to the environment in Articles 1(d), 6(3), 8(1)(b), 8(2)(b), 11, 13(2), 14(2), 14(5) and 16.

Article 8.1(b) imposes a duty on a salvor :"to exercise due care to prevent or minimise damage to the environment", whilst carrying out salvage operations. The owner and master of a vessel is under a similar duty - Article 8.2(b) and Article 13 emphasises in the opening words the concept of "encouraging salvage operations".