Alexey Remeslo, Senior Lawyer, Interlegal, Law firm / Ilona Belyuk, Lawyer, Interlegal Law firm
Salvage has a very long history, dating back to the 11th century B.C. Since that period it went through the development to the stage where it is now. However, not all of the countries and navigable waters have convenient legislation and marine practice on salvage. One of those quite ambiguous areas is the Danube River.
World practice on salvage
The international practice has appropriate experience in salvage legislative improvement activity by the maritime professional community. The following is analysis of some of them.
Public law
The most widely used is the Convention on Salvage 1989, which came into effect in July 1996 (hereinafter referred to as “Convention”). According to the Article 2 of the Convention,
the Convention shall apply whenever judicial or arbitral proceedings relating to matters dealt with in this Convention are brought in a State Party.
The Danube river crosses nine countries, some of them are the parties to the Convention: Bulgaria, Croatia, Germany, Romania; and some of them are not: Austria, Hungary, Moldova, Serbia, Slovakia and Ukraine.
The Convention states a list of criteria for calculating the award, based on the principle “no cure – no pay” without any specification with regard to the calculation of the award effect. So the actual amount of the award to be paid is to be calculated by the salvor or by the court. The award calculated this way to be paid by the ship-owner and cargo owners.
The Convention contains the provision of the award upon preventing damage to the environment during salvage operations. It includes the relevant provision – Special Compensation (Article 14), which is included with the intention to encourage salvers to salve the environment against pollution, even in the case, if the overall salvage operation was not to be rewarded.
If the salvor has carried out salvage operations in respect of a vessel which by itself or its cargo threatened damage to the environment and has failed to earn a reward (under article 13 of Convention) at least equivalent to the special compensation assessable in accordance with this article, he shall be entitled to special compensation from the owner of that vessel equivalent to his expenses as herein defined.
Special compensation, payable by the owner to the salvor may be in no event more than 100% of the expenses incurred by the salvor. Unlike salvage award, special compensation is payable by the ship-owner alone.
The Convention also contains the provisions on security of payments under the salvage: upon the request of the salvor, a person liable for a payment due under this Convention shall provide satisfactory security for the claim, including interest and costs of the salvor. The salved vessel and other property shall not, without the consent of the salvor, be removed from the port or place at which they first arrive after the completion of the salvage operations until satisfactory security has been put up for the salvor’s claim against the relevant vessel or property.
However, as stated above, not all the Danube countries ratified the Convention, which means that the judicial trial upon reward on salvage operations will be proceeded upon different legislative basis, thus disputing usefulness of the Convention in the region. According to the international principle, in case of the claim arising out of the salvage, the case has to be filed in the country of respondent’s residence. It is well known, that most vessels on the Danube River, fly with the flag of one of the adjacent countries, which the Danube river crosses. For example, as long as Ukraine did not ratify the Convention, here the salvage operations are regulated by the Merchant Shipping Code of Ukraine, which is applicable when case filed in Ukraine. In this case, the salvage reward is to be granted by the court’s award, unless the special salvage agreement was signed between the parties, providing the other.
This situation brings more uncertainty to the claims of salvage, because most cases will be proceeded according to the national legislation of the defendant’s country, as it was stated above, not all the Danube River countries ratified the Convention.
Private law
The most widely used example of regulation in private law, which deals with salvage operations is Lloyd’s Open Form, (LOF), a contract for salvage, developed by the Salvage Arbitration Branch of Lloyd’s Agency Department (Department) in London.
LOF is generally made on behalf of the ship-owner, the cargo owner and the owners of all property on board. The signing of the LOF, similarly to the Convention, has many criteria for the determination of the sum, prescribed by Lloyd’s Standard Salvage and Arbitration Clauses (the LSSA Clauses) and Lloyd’s Procedural Rules, in case it is not stated accordingly in the contract or the calculation of which is disputable. LOF is also based on the principle of “no cure – no pay”. The LOF includes in the contract the exact place of proceeding of the claim (London) and certain law – English, which means, all the provisions of the Convention are to be applicable to the LOF as well.
LOF also provides security for payment of the award. As soon as the Department is notified of a salvage operation provided and the amount of security required by the salvor, Department, through its worldwide contacts, will collect the security for the claim. This is usually done by way of standard forms of guarantee from the appropriate underwriters of the property salved. The guarantee has to be given either by Lloyd’s underwriter; or a London underwriter recognized by Lloyd’s; or by the English Bank or anybody acceptable to the salvor.
Once an arbitrator has made his award, he will forward it to Department who then publish it to the parties and. If the award is not paid Department will enforce the security given at the beginning of the case.
Similarly to the Convention, SCOPIC (Special Compensation P&I Clause) is clause in LOF, which is to be deemed as in unincorporated, unless, the word “No” in Box 7 of the contract has been deleted. If SCOPIC is not incorporated into the contract then Article 14 (Special Compensation) of Convention will apply. If SCOPIC is incorporated into the contract but not specifically invoked or is later terminated the salvor will have neither the protection of the Convention, nor of the SCOPIC. Once SCOPIC has been invoked the ship-owner must provide security in the sum of $3 mil.
Notwithstanding of the convenience of LOF, the arbitration procedure is quite expensive in terms of the features of salvage operation on the Danube river, where 90% of it consists of pulling off ground and has its own features, as it is regulated under the English law.
The ICC of Ukraine also developed and presented its own salvage agreement. This salvage agreement establishes the place for possible judicial trials – Maritime Arbitration Commission of Chamber of Commerce of Ukraine and governing law – as Ukrainian.
International Salvage Union (ISU), which is the global trade association representing marine salvors, i.e. professional salvors, which have devised their own forms of contract, which do not always follow the strict requirements of Lloyd’s and can be provided by an institutions based outside of England. In fact, this organization provides its own contracts, similar to LOF, as the organization consists of the international salvors.
Salvage operations on the Danube River
Taking the above into account, that salvage operations could be performed upon two different occasions: according to the salvage contract with a professionally engaged salver, and accidently, by the occasionally forthcoming merchant vessel or other unprofessional salver or private individuals. On the Danube river, there are no professional salvors and all of the salvage operations are provided by occasionally passing merchant vessels. At the same time, such merchants, which provide the salvage, meet the impediments when receiving of the reward from the salved vessel.
The most widely used among the countries on the Danube river regulation of the legal relationship between adjacent to this river countries are Bratislava Agreements. It is worth mentioning, that Bratislava Agreements (Agreements), which were adopted according to the specification of the region, deal in particular with some issues upon repayments of expenses, occurred during salvage operations. First of all, in comparison to the above salvage tools, they contain the principle, opposite to “no cure- no pay”. Under the Agreements the salvor gets the reward even if the salvage operation was not successful. The reward includes: all actual expenses suffered due to salvage, in particular towing services rendered to be paid with accordance of coefficient 3,0 to the tariffs of lay time and running time stipulated in the Agreements (in Supplement 6); all expenses due to damage of the vessel, which rendered salvage services and its equipment. However, the Agreements are a part of the Private law and are enforced only between the parties to the Agreements. Moreover, the Agreements do not provide the arbitration clause.
What we would recommend…
With regard to specific navigation on the Danube river, in the existing tough situation upon repayment of debts in salvage operations, we would recommend to conclude an agreement on salvage. Here is the question: what agreement to conclude?
LOF, as we can state with the reference to international salvage practice, is a very useful instrument. But, the other question is, whether it is suitable for the Danube river region? This tool is quite expensive, sometimes inconvenient for small claims procedures and time consuming, due to English law, governing the contract and arbitrage in London. Thus, LOF – can provide a good ground for salvage form for business makers on the Danube river, if to choose a more convenient for salvor regional jurisdiction. For the purposes of calculating the award – the deserving approach – is to use the tariffs of working of tug, stipulated in the Supplement 6 of Bratislava Agreements. The above recommendations of International law offices Interlegal found its support during 59th Conference of Directors of Danube Shipping Companies, participants of Bratislava Agreements, which was held in October, 2014 in Constanta. As the outcome of this Conference, Interlegal was asked to develop an addendum to Bratislava Agreements in the form of regional standard contract on salvage. On the next, i.e. 60th, anniversary Conference, the regional salvage agreement will be announced seeking the approval by the members.