The rights and obligations of parties involved in marine salvage under the admiralty law - Essay Example

PostGraduate Programme in Law Assessed Essay on Admiralty Law August 2007-08 Student No. ___________ Date of Submission: Friday, 15 August 2008 The Rights and Obligations Of Parties Involved in Marine Salvage Under the Admiralty Law Case The oil ship Rusty Floater was moored alongside Old Bucket in the process of feeding oil to the latter when a gale blew and, though moderate, was enough to break the forward quay moorings of Old Bucket. It came so sudden that there was no time to disconnect the oil supply pipeline. Old Bucket broke free from the oil feeder ship and proceeded to drift into port, threatening to collide with other vessels anchored at the marina. At this, the crew of a tugboat in the area sprung into action. The tugboat master, who is experienced in oil spill control at sea, concentrated on Rusty Floater and helped disconnect its oil pipeline properly, while his crew cast tow ropes at Old Bucket to hold her steady. The operation succeeded such that Old Bucket did not harm other vessels and the oil feeder ship Rusty Floater was prevented from spilling bunker oil into the sea. When the danger was over, the tug towed Old Bucket to another berth, while the master of Rusty Floater signed an LOF 2000 agreement with a SCOPIC clause with the tugboat owner. Questions (1) What are the chances for success of salvage claims by the tug owners against both Old Bucket and Rusty Floater (2) How could the tug owners bring their claim if neither the owners of Rusty Floater nor Old Bucket is within admiralty jurisdiction (3) To what extent should any successful claims against Rusty Floater or Old Bucket be subjected to the limitation of liability provisions (4) How appropriate is it for the tug owners to think in traditional terms of personifying any ship that they may wish to arrest in rem Answers No. 1 In signing the LOF (Lloyd's Open Forum) 2000 contract with a SCOPIC clause, the owners of Rusty Floater basically signified their agreement to provide an award to the tug for the salvage of their vessel. As a form of salvage contract, LOF 2000 defines the services rendered by the rescuer and the rights and obligations of the parties, such as what proportion of the salved values of the vessel would be awarded. In the instant case, the LOF 2000 contract probably specified the parties' agreement that the salvage operation was a low-value case that nonetheless became critical because of the threat to the environment (Bishop, 2000). The addition of the SCOPIC clause in the contract indicates the parties' agreement to an amount of award appropriate to this "low-value" threat. The SCOPIC clause in the LOF 2000 contract also means that the parties agreed to a two-tier remuneration system: full tariff rates if all the tug's salvage equipment were reasonably engaged or used at some stage of the operation, but only 50 percent if these equipment were mobilised but not used. In effect, the signing of LOF 2000 with a SCOPIC clause between the masters of Rusty Floater and the tug guarantees a successful salvage claim against the oil feeder ship. There was no mention if the owners of Old Bucket signed the same agreement but if they did, the tug owner is due for two potentially successful salvage claims against both Rusty Floater and Old Bucket. The salvage claim against Old Bucket derives its strength from admiralty law provisions dictating that there is such a claim if a vessel requires assistance as result of an incident to try to minimize the extent of its losses and, in this case, prevent a possible collision with other moored vessels. From the oil carrier Rusty Floater, the tug owner deserves an even higher salvage award because his action served to prevent pollution and damage to the environment. Today, protection of the environment from such cargoes as oil is often considered a higher priority than saving a ship or its cargo (Nixon, 1994). The rescue operation performed by the tug may be classified as "pure salvage" since there was no prior contract between the vessel's owner and the salvor for the operation to quality as contract salvage. However, the absence of such a contract does not make the claims any weaker because the relationship between vessel owner and salvor in pure salvage is one implied by law (Piper, 2004). The law says that if a property is lost at sea or about to be lost at sea and rescued by another, it amounts to marine salvage in which case the rescuer is entitled to claim a salvage award based on the "merit " of the service and on the value of the salvaged property (Steam Shaw LLP, 2000). Pure salvage is in turn categorized into high-order and low-order salvage, depending on the degree of the risks involved. In a high-order salvage operation, the salvor and his crew expose themselves to risk of personal injury and loss or damage to their equipment just so they can salvage a damaged ship (Nixon, 1994), while there are no or little risks of that nature in a low-order salvage. Among the high-order salvage actions identified in admiralty law is boarding a ship that is on fire, sinking, and in heavy weather or towing a ship to deeper waters to keep it from running aground. On the rescue of Old Bucket, a gale certainly qualifies as heavy weather since it drove the vessel out of its moorings and, aside from a possible collision with other vessels in the marina, it could have gone ashore if not controlled in time. From the evidence, the simultaneous rescue of Old Bucket and Rusty Floater was "pure" salvage with a high-order dimension because it prevented the former from colliding with other vessels and the latter from spilling oil pollutant into the sea. For a rescue operation at sea to qualify as marine salvage, the law sets a few other criteria, including: 1) the skills of the salvor, 2) the peril to which the salvaged property was exposed, 3) the value of the property risked in effecting the salvage, and 4) the amount of time and money expended on the operation. The rescue operation performed by the tug on Old Bucket and Rusty Floater clearly fulfilled all these other criteria. The prospect for a successful claim is further ensured by the emphasis in today's maritime law on providing incentives to boats with towage capabilities to assist any tankers in trouble. In this view, no vessel will ever come to the aid of another distressed vessel again if one tugboat rescued another such vessel and received nothing for the trouble (Bishop, 2000). The salvage claims of the tug get additional support from the International Convention on Salvage 1989, which provides for en enhanced salvage award based on the skill and efforts of the salvor in preventing a sea mishap or minimising damage to the environment. The old Convention dating back to 1910 followed the "no cure, no pay" principle such that salvors are rewarded for their services only if the operation is successful. For example, a salvor who towed a damaged tanker away from an environmentally sensitive area but failed to save the ship or its cargo does not get anything. This key provision in marine salvage was found irrelevant in the new age of heightened awareness of the dangers of oil pollution and so the new Convention struck out the no cure, no pay principle. Now, salvors who fail to earn a reward in the normal way for salving a ship and its cargo are entitled to a "special compensation." This consists of the salvor's expenses, plus 30 percent of these expenses, if his efforts are credited with minimising or preventing environmental damage. The sailor's expenses are described as "out of pocket expenses reasonably incurred by the salvor in a salvage operation and a fair rate for the equipment and personnel actually and reasonably used (Kiss, 1985). In addition, a tribunal or arbitrator may increase the reward to a maximum of 100 percent of the salvor's expenses if the tribunal or arbitrator decides that "it is fair and just to do so." This payment has to be made by the vessel and other property interests in proportion to their respective values. Under an LOF 2000 contract, special compensation is to awarded with generosity, irrespective of the type of vessel or substance that threatens the environment. No.2 In Sisson v Ruby 497 US 358 (1990), protecting commercial shipping is placed at the heart of admiralty jurisdiction. This means that vessels and individuals are within jurisdiction only when they are engaged in commercial maritime activity. In the case of the rescue operation involving Old Bucket and Rusty Floater, the owners of these ships may argue that one was just feeding oil to the other when the accident happened such that they were not really engaged in commercial maritime activity. The jurisdiction issue is also likely to be raised with respect to the International Convention on Salvage 1989, which provides that a salvor may be deprived of payment in whole or in part if the salvage operation takes place in inland waters and all the vessels involved are of inland navigation; if no other vessels are involved; and if all interested parties are nationals of the State in whose inland waters the operation takes place. If the Old Bucket and Rusty Floater owners invoke these issues, it could only mean that the rescue operation took place in inland waters and that they and the tug owners are all nationals of the State that occupies those inland waters (Kiss, 1985). The best advice that the tug owners can get to counter such claims is to let the courts conduct the proper jurisdictional tests. The admiralty court will assess the general features of the type of incident to determine if it is likely to disrupt commercial maritime activity. Based on case precedents such as Foremost Insurance Co. v Richardson 457 US 668 (1982), jurisdiction receives secondary consideration if a vessel is out of control and has the potential to create hazard for the navigation of commercial vessels in the vicinity. A vessel is thus considered within admiralty jurisdiction if it figures in an accident in navigable waters that might disrupt maritime commerce. A vessel out of control, no matter the jurisdiction issues on inland navigation, has potentially disruptive impact on maritime commerce as it can spread to nearby commercial vessels or make the marina inaccessible to such vessels. As again noted in Sisson v Ruby 497 US 358 (1990), "every accident in navigable waters that might disrupt maritime commerce supports admiralty jurisdiction." In such cases, jurisdiction exists even if there is no action in the jurisdiction in respect of a claim (Seismic Shipping v Total E&P UK plc). The matter of jurisdiction is often invoked when there is no permission from the owner or master of a vessel for another vessel to conduct a salvage operation. Because of this requirement for the permission of a vessel's master or owner, many salvage rights claims get tangled in legal disputes. However, the frequently evolving maritime law provides that such permission is no longer required if a vessel is abandoned or out of control. Old Bucket was certainly out of control after it was buffeted by a gale, while Rusty Floater was momentarily helpless as the vessel it was feeding oil to broke loose. Only the salvage action of the tug's master, with his experience in oil pollution control, prevented a disastrous oil spill. The admiralty law defines a salvage operation as any act or activity intended to assist a vessel or any other property that is in danger or poses danger in navigable waters or any other waters whatsoever. Historically and legally, salvage is any voluntary and successful rescue of a boat, its cargo and passengers from peril at sea. There is a distinction between simple towing or soft grounding and the more serious and expensive salvage effort, which is attended by distress or danger. Towing assistance only provides help during cases of breakdown or light grounding of vessels, while salvage means such serious trouble as that faced by Old Bucket and Rusty Floater when the former accidentally broke free from the latter while in the process of feeding oil. Rescue attempts that qualify as salvage require payment, which may be covered by the vessel's insurance policies. For this reason, all ship owners are required by maritime law to acquire marine insurance coverage since adequate insurance is considered the best protection against a big salvage bill. Based on the evidence, Old Bucket and Rusty Floater indeed owe the tug that came to their rescue a big salvage bill. No. 3 The Convention on Limitation of Liability for Maritime Claims 1976 limits the liability of a vessel's owners for any damage done to the value of the vessel and its freight. Thus, the owners of both Old Bucket and Rusty Floater may invoke this provision to at least minimise the amount of the reward accruing to the tug. This was successfully done by the owners of RMS Titanic in the aftermath of its sinking in 1912. Upon sinking of the ocean liner in the Atlantic, the Titanic owners rushed to New York to file a limitation of liability proceedings, which was hinged on the limitation provision that "if an accident happens due to circumstances beyond the privity and knowledge of ship owners, the owners can limit their liability to the value of the ship after it sinks (Kiss, 1985)." It turned out that only 14 lifeboats and "pending freight" valued at $91,000 were saved from the Titanic and so the survivors and families of the hundreds of drowned passengers had to split among themselves the $91,000 value of remaining lifeboats and pending freight. The New York court lent credence to the argument that the Titanic sank without the privity and knowledge of its owners. This happened because the limitation of liability provision is essentially intended to protect all ships, whose commercial maritime operations make industries around the world function. For this reason, ship owners may invoke the limitation act although no limitation fund has been constituted. In the case of Rusty Floater, which brings the 2001 International Convention on Civil Liability of Bunker Oil Pollution Damage into play, the law even provides that persons taking reasonable measures to prevent or minimise the effects of oil pollution are exempt from liability unless said liability arose from an intentional or reckless act (Nixon, 1994). From the evidence, the threat of bunker oil pollution momentarily posed by Rusty Floater did not arise from a reckless or intentional act since it was disrupted from feeding oil to Old Bucket by an accident of nature. This entitles the ship to the limitation provisions regarding the value of the award it should pay to the tug. However, the question may be raised as to the effectiveness of the ship's preventive measures, which should have withstood a moderate gale. Is this kind of gale a common occurrence in the area If so, it suggests that Rusty Floater was partly to blame for the incident, in which case it is obliged to pay the tug for the value of its salvage services. Thus, the limitation of liability available to the oil feeder ship stops at the value of the salvage services rendered by the tug that came to the rescue. This excludes the value of the ship and its oil cargo that was prevented from spilling into the sea. In this case, the final amount of the salvage award shall be decided by either one of three ways - negotiation with the ship's insurance firm, a binding arbitration, or through litigation in an admiralty court (BoatUS, 2008). If Rusty Floater could not avail itself of the limitation provisions, its owners would have to pay the value of the salvage services and the salved value of the vessel and its cargo. Let us say the salvage services were valued at $1 million, the salved value of the ship was $10 million and the salved value of its cargo was $2 million. This means that the salvor would be richer by $800,000 from the ship interests and $200,000 from the cargo interests. Since there is an LOF 2000 contract signed between Rusty Floater and the salvor, however, this amount may be reduced depending on the use or non-use of the tug's salvage equipment during the rescue. Under the law, the limit of liability for claims involving threats to oil pollution is 2 million special drawing rights ($3.17 million) for ships not exceeding 2,000 gross tonnage. The LLMC 1976 also limits the liability of a vessel with a gross tonnage of 5,975 tons at 2.59 SDR ($3.8 million). As for Old Bucket, the amount of award it owes to the salvor tug could not be subject to the limitation provisions since its owners did not sign an LOF 2000 contract on the salvage operation. This remuneration may be categorised as pure or "merit" salvage award, which is usually set at 50 percent of the value of the salved property (Piper, 2004). Such limit on liability is imposed when the rescue operation fits the description of a low-order salvage, in which the salvor is exposed to little or no personal risk. An example of low-order salvage is towing a vessel in calm seas or pulling it off a sand bar. One of the major criteria for qualifying a marine salvage is the act of clearing a channel for navigation, which was what the salvor tug did when Old Bucket broke loose and threatened to hinder navigation in the area. What if the assistance given by the salvor arose because of the fault of the vessel, such as lack of seaworthiness and defenses against the elements Even in this case, the vessel and cargo interests are still obliged to pay the salvor for the value of his services, although this claim would involve issues on security, liability, limitation and jurisdiction. There is always the possibility that the owners of both Old Bucket and Rusty Floater might question the ability of the tug's master to sue them if the rate of reward to be asked by the latter is not met. Another provision of the limitation of liability law limits the ability of people to sue others, such as for inadequate performance. If the petition for limitation refers to the absence of permission from the owners of the vessels for the tug to conduct the salvage operation, it has been demonstrated that this permission is no longer required if the vessel is out of control, which was exactly what happened to Old Bucket and Rusty Floater. If the petition refers to the skill and experience of the tug's master, this also will not hold water in that the master was described as an experienced salvor in oil spill prevention. He had also the appropriate equipment and crew. No. 4 An admiralty action in rem is usually brought against a ship in whole or in part, its equipment, freight or cargo and its limitation fund. Such maritime actions are suits seeking to arrest or take custody of ships in order to enforce demands against the ship owners, such as maritime mortgages and liens, petitions to limit the ship owners' liability to the value of a ship after a major accident, actions seeking to partition the ownership of a ship, and suits for damage to cargo because of collisions between vessel, wake damage and other maritime pollution cases. In the case of the salvor of Old Bucket and Rusty Floater, he is within his rights to institute an action in rem against both vessels if they fail to provide security equivalent to the salvage award that he deserves. Once this happens, the salvor has a reasonable and probable cause to secure an arrest of the property. The salvor has to make sure, however, that he does not make an excessive claim or require excessive security. Under a properly signed LOF 2000 contract, which defines the relationship between the tug and Rusty Floater, a salvor can effect an arrest in rem against the salved vessel if its owners refuse to meet the demand for a salvage award consisting of the allowed proportion of the salved values, including interest and costs. The vessel may be held as security and will not be released until its owners fulfill their obligations under the 1989 Salvage Convention. The salved vessel and other property must raise an acceptable amount of security before they can be removed from port or place at which they first arrived after the completion of the salvage operation, unless the salvor consents to their earlier removal. The salvor may refuse to release the vessel and its cargo until he is given suitable security to cover this potential salvage claim The case Moore v Purse Seine Net (194) may be relevant here. In this case, authorities seized the fishing contraption of a fishing boat found operating in a prohibited area as an action in rem. The fishing net owners protested the action, saying the civil court had no jurisdiction to hear an action in rem because it was a maritime cause of action that is within the exclusive jurisdiction of admiralty courts. The court denied the petition and ordered forfeiture proceedings. The International Convention on Salvage 1989 sets the following criteria for fixing the salvage award: The salved value of the vessel and property. Skill and efforts of the salvor in preventing or minimising damage to the environment or salving a vessel, property and lives. The measure of success obtained by the salvor. Nature and degree of the danger. The time used as well as the expenses and losses suffered by the salvor and his equipment. The risk of liability and other risks faced by the salvor or his equipment. Promptness of the services rendered. Availability and use of the vessel or other equipment intended for the salvage operation. The state of readiness and efficiency of the salvor's equipment and value thereof. All these criteria are met by the salvage operation conducted by the tug on Old Bucket and Rusty Floater. The tug's master is asking for a just proportion of the salved value of the vessels and property based on the Salvage Convention, and it is fair and reasonable because he obtained some measure of success in preventing Rusty Floater from causing environmental damage and Old Bucket from ramming into other vessels in the marina. This was made possible of the skill and experience of the tug's crew in this type of operations, the availability and state of readiness and efficiency of their rescue equipment, which were used in the operation. In the process, the tug's master and crew faced and overcame some risks even as their rescue equipment were put to the same risks. All this means that the salvor tug has a reasonable and probable cause to initiate an arrest in rem against both Rusty Floater and Old Bucket, if their owners and interests refuse to meet the demands for an appropriate salvage award. An admiralty action in rem is used against a thing, property, status or right rather than against a person. It is usually brought against a ship to enforce any maritime liens. If the owners the tug that rescued Old Bucket and Rusty Floater decide to implement an action in rem, they should do so by the complementary moves of holding the vessels physically and going to an admiralty court to formalise the action. If the court found that the conditions for an action in rem exist, it will issue an order arresting the vessels and other property that are the subject of the action. References 1) Bishop, A. (2000). "Revised LOF 2000 Proves an Asset." Holman Fenwick & Willan, London. 2) BoatUS (2008). "Towing vs Salvage." Boat Owners Association of the US. 3) Kiss, A. (1985). "Commentary by the Rapporteur on the Limitation Provisions." John Hopkins University Press: Human Rights Quarterly, Vol. 7, No. 1. 4) Piper, P. (2004). "When is it Salvage." BoatUS Magazine, July 2004. 5) Nixon, D.W. (1994). "Marine and Coastal Law: Cases and Materials." Praeger: Westport, CT. 6) Steam Shaw LLP (2000). "Claims for Salvage and General Average." Read More