salvage

SALVAGEVidar Solemdal

Senior Claims Executive, Gard ASJanuary 15th, 2014

The Nordic Association of Marine Insurers1

Introduction to salvage

1. Principle of salvage2. Salvage contracts3. LOF/SCOPIC4. Examples

The Nordic Association of Marine Insurers 2

1. The principle of salvage:

No Cure, No Pay

Award are based on salved values and nine other factors based on article 13 of the 1989 Salvage

convention


The principle of salvage – criteria for the Award

1989 Salvage Convention Article 13a) Salved valueb) Skills and efforts in preventing damage to environmentc) Measure of successd) Nature and degree of dangere) Skills and efforts in salving vessel, property, lifef) Time used and expenses and losses incurredg) Risk of liability and other risksh) The promptness of the service renderedi) Availability and use of vessels and other equipmentj) State of readiness and efficiency of salvors equipment


The principle of salvage, cont.

SALVAGEA salvage situation is a situation where the vessel need assistance from third parties (Salvors) to avoid damage to the vessel:

•Refloat the vessel if grounded•Put out fire •Tow to safe port •etc.


The principle of Salvage, cont.

Most Salvors, in any part of the world will try to demand/persuade the master to sign a salvage contract (LOF/TOF etc) prior to commencing the salvage operation.

Is this OK?

Yes, if the vessel, crew or cargo is in immediate danger.

No, if the situation is relatively stable and Owner/Insurer can be contacted prior to signing.


The principle of salvage, cont.

Depending on vessel location and the level of danger the vessel is in, it is very often time to negotiate with the salvors. A fixed priced agreement (lump sum, hourly rate, day rate etc) will always be preferred if time permits.

The main responsibility of the Master in a perilous situation is to protect human life, the environment and the property under his charge, and if these are seriously threatened there will be no time to negotiate alternative contracts to an open form.


2. Salvage contracts

Standard contracts• LOF 2011 – Lloyds Open Form

• Salvage contract• TOF – Turkish Open Form

• Salvage contract for Turkish monopoly area• Towcon

• Ocean towage agreement (lump sum)• Towhire

• Ocean towage agreement (daily hire)• Wreckhire

• Wreck removal and marine services agreement (daily hire)• Wreckfixed

• Wreck removal and marine services agreement (fixed price – no cure, no pay)


Contracts – LOF

Purpose of the LOF Contract

• Recognized all over the world• Simple to fill in – one page• For all situations• Disputes to be solved by the Lloyds Arbitration


Contracts – LOF


Contracts – LOF 2000 vs LOF 2011

Minor changes to the LOF:1) Details of LOF award will be «public» on Lloyds website2) All contracts made shall be reported to Lloyds

Changes to LSSA (Lloyds Standard form of Salvage Agreement)

3) Salvor can demand Security for fees incurred or (reasonably) anticipated. (Clause 6.6 and 10.8)

4) New Clause 13: Cargo security. Notice to cargo insurers only. 5) New Clause 14: Salvor can apply to Arbitrator to bind the minority of

cargo Owners (when 75% agree)6) New Clause 15: Excuse liability for salvage for low value cargo. (Clause 13, 14 and 15 only applicable for container cargo)


LOF Statistics


3. Salvage - SCOPIC

No Cure, No Pay

Award can not be higher than salved values

Severe casualty – high risk – low value


Salvage - SCOPIC

1989 Salvage convention

- Article 13 – Salvage Award- Article 14 – Special compensation


Salvage - SCOPIC

1989 Salvage Convention Article 13a) Salved valueb) Skills and efforts in preventing damage to environmentc) Measure of successd) Nature and degree of dangere) Skills and efforts in salving vessel, property, lifef) Time used and expenses and losses incurredg) Risk of liability and other risksh) The promptness of the service renderedi) Availability and use of vessels and other equipmentj) State of readiness and efficiency of salvors equipment


Salvage - SCOPIC

Article 14 of the 1989 Salvage convention•Expenses covered if threat or damage to the marine environment.•Increased if damage avoided

SCOPIC = Special Compensation P&I ClauseISU and IG – replaces article 14


Salvage - SCOPIC

SCOPIC• Must be incorporated in LOF and invoked• Replaces article 14

SCOPIC remuneration• Based on tariff rates + 25% + out of pocket expenses• Subject to speedy payment provisions• Paid for excess Art. 13 awards

Control of tariffs and ”Taxi –meter”• Special Casualty Representative (SCR)


SCOPICTypical tariff details


SCOPIC – invoke or not


SCOPIC – invoke or not

Can be invoked at any time by contractor (in writing). SCOPIC cost start counting from time of written notice.Salvage services according to Art. 13Scopic tariffs only when exceeding Art. 13

DiscountIf Art. 13 exceeds SCOPIC tariffs, the Art. 13 award or settlement shall be discounted with 25% of the difference between the award and the SCOPIC remuneration (but then counted from day 1)


Salvage Case study (14.9, page 325 in Gard guidance)

• A fully laden container vessel of 9,567 GT suffered Main Engine breakdown in the Atlantic Ocean, approximately 50 nm SW of Madeira. Weather conditions at the time favourable but the attempts to rectify the problem failed. Vessel drifted slowly towards Madeira.

• After some back and forth, H&M confirmed to Owner that they were ready to conclude a contract with salvage company X, on a daily hire basis. Salvor had suitable tug and equipment two days away.

• Shipowner, unfortunately, had in the meantime signed a LOF with SCOPIC incorporated with salvage company Y. Salvage company Y resources were 4 days away.


Salvage Case study, cont.

• One day later weather deriorated. Vessel continued her drifting towards the shoreline of Madeira, and was estimated to run aground in 30 hours.

• Salvor Y invoked SCOPIC.• Salvor Y sub-contracted Salvor X to prevent

grounding/save vessel.• Vessel grounded before Salvor X tug arrived.• Salvor Y successfully refloated the vessel in 18 days.• Lloyds Arbitration Panel awarded Salvor Y the sum of

USD 4,150,000 – pursuant to article 13 of the Salvage Convention. This was based on a saved value (ship, cargo and bunker) of MUSD 42.


Salvage Case study, cont.

• Article 13 award was higher than the total SCOPIC cost, which were assessed/calculated to USD 3,320,000.-

• A deduction of 25% of the difference between SCOPIC and Article 13 was deducted from the award ((4,150,000 – 3,320,000) * 0.25 = 207,500)

• Salvage award = 4,150,000 – 207,500 = USD 3,942,500 paid by Property insurers (H&M and Cargo)

• What went wrong?


SCOPIC example

6 day service SCOPIC invoked on day 3Art. 13 award MUSD 1.5

SCOPIC expenses from date invoked USD 400,000.-

SCOPIC recalculated from day 1, USD 700,000.-

Diff between Art. 13 and SCOPIC = USD 800.000.-

Salvage award = USD 700’ + USD 600’ = MUSD 1,3


Scopic Example - illustrated


4. Practical examples


Salvage case 1 - Voutakos

Voutakos Engine damage off Ushan 29.10.06



Please be advised that during the vessel's voyage fromColombia to Rotterdam the vessel sustained major MainEngine breakdown at position Lat:48 - 07 N Long 07 - 58 W(abt 120 miles off Ushant). The vessel is loaded with174,496.60 mt of cargo of ' Colombian Steam coal'.Efforts by the crew to repair the damage have been

unsuccessful and the Master requested tug assistance.LOF 2000 has been signed with Tsavliris Salvage

(International)Ltd. Towage commenced this morning.



Voutakas, cont.

• Salvor contracted two commercial tugs• Vessel towed to Rotterdam• Salvor awarded MUSD 1.8 by Lloyds arbitration • Out of pocket expenses MUSD 0.8• Award appealed – MUSD 2.7• Sent to High Court for ”disparity principle”• Award kept – MUSD 2.7


Salvage case 2 – CSCL Hamburg

CSCL HamburgGrounding on coral reef in Egypt 31.12.2009


Salvage case 2 – CSCL Hamburg

• Value of vessel / cargo in damaged condition MUSD 25• Claim from Egyptian Authorities MUSD 14.5• 11 days of negotiations – prior to refloating• Final result MUSD 6 mill (+ P&I compensation for reef)• Refloating in 12 minutes


Salvage case 3 – DS Splendour


Grounding in Orinoco river 01.03.2006

Salvage case 3 – DS Splendour

Offer from commercial Salvor – LOF 2000Offer from local tug company – lumpsum + bonus

4 days ligthering and refloating – USD 350,000,-

Value of vessel and cargo – MUSD 35-40

Award with LOF 2000?


Salvage case 4 – MS Nordlys

15th September 2011 – Fire in Engine room and flooding outside Ålesund.


Salvage case 4 – MS Nordlys

Issue:One company (BuBE) appointed by local fire brigade (IUA)BuBe contracted diving companyGard contracted specialists – SMIT

Vessel was saved. All the above companies contributed in the salvage. Problem: all the above claimed that they were the «key» to salving the vessel.

Salvage award to who and what proportion?


Almost Salvage case 5 – Laden LNG

Vessel drifting in Red Sea December 2013


Almost Salvage case 5 – Laden LNG, cont.

• Fixed offer received by Tug company A in Yanbu – USD 350,000 for assisting vessel. Very high price….

• Fixed offer received from Tug company B in Jeddah – USD 1,500,000.- ….!!

• Tug offer A suddenly a bit more digestable…• Fortunately vessel regained engine power, and no need

for tug. • Tug company A and B had the same owners…


Finally - Salvage – general approach

In a salvage situation:

• Close contact with Owners• Appoint local representative • Inform authorities• Get the facts

• Degree of danger• Weather• Damage

• Commercial world – use it• Stay calm - usually more time available than salvors

want you to believe.


Thank you

The Nordic Association of Marine Insurers41

salvage

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