QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| (1) THE OWNERS OF THE VESSEL "OCEAN CROWN", HER BUNKERS,STORES AND CARGO
(2) MINERVA ESCONDIDA LIMITADA
(3) STERLITE INDUSTRIES (INDIA) LTD
(4) COMPANIA MINERVA DONA INES DE COLLAHUASI SCM
(5) HINDALCO INDUSTRIES LIMITED
(6) OCEANPRECIOUS SHIPPING LIMITED
|- and -
|FIVE OCEANS SALVAGE CONSULTANTS LTD
|THE "OCEAN CROWN"
Timothy Hill QC (instructed by Clyde & Co) for the Respondent
Hearing dates: 2/10/09
Crown Copyright ©
Mr Justice Gross:
i) Whether, when assessing salvage remuneration payable pursuant to a Lloyds Open Form salvage agreement in the standard form, it is correct to take into account, as an enhancing feature, the possibility that the salvor and/or the salvage industry may experience difficult economic conditions in the future;
ii) If, in principle, it is relevant to take such matters into account, whether it is permissible to take into account the actual economic conditions experienced between the date of termination of the services and the date of the award;
iii) Whether the principle in The Amerique (1874) LR 6 PC 468 is applicable to all types of salvage cases, including complex and comprehensive cases, or whether, as the appeal arbitrator found, a different principle applies in such cases.
Issues i) and ii) will be considered together; both concern the principle of "encouragement". Issue iii) will be considered separately.
THE UNDERLYING FACTS
" There was a short term risk of further damage and flooding of No.3 hold; this risk became much more serious towards the end of September, carrying with it a risk of flooding No.4 hold with a prospect of the casualty in the future becoming unsalveable. There was some pollution risk. "
" The Contractors are a young company, but the experience and professionalism of their officers and employees are well known from their service with other well known professional salvors of high repute. They have quickly established themselves as a major player in the salvage business, both by their activities and by their impressive investment…..The Arbitrator stated that the Contractors are (and were at the time of the services) entitled to be described as top class international salvors and entitled to the full encouragement accorded to salvors in this category. I agree with her. "
ISSUES i) and ii)
" 1. The reward shall be fixed with a view to encouraging salvage operations, taking into account the following criteria without regard to the order in which they are presented below:
(a) the salved value of the vessel and other property;
(b) the skill and efforts of the salvors in preventing or minimizing damage to the environment;
(c) the measure of success obtained by the salvor;
(d) the nature and degree of danger;
(e) the skill and efforts of the salvors in salving the vessel, other property and life;
(f) the time used and expenses and losses incurred by the salvors;
(g) the risk of liability and other risks run by the salvors or their equipment;
(h) the promptness of the services rendered;
(i) the availability and use of vessels or other equipment intended for salvage operations;
(j) the state of readiness and efficiency of the salvor's equipment and value thereof."
" 1453 The International Salvage Convention 1989 confirms the judicially promoted policy of encouraging salvage operations by the prospect of assessment of the reward in a generous way…..
1454 The Admiralty Court not only developed the general policy of encouraging salvage operations but overtly took on board the additional value of encouraging persons who were particularly able to render effective services, especially where they held themselves in readiness to provide services of a dedicated salvage nature. Four classes of salvor are recognisable: those who would normally not expect to render salvage services; those, like harbour authorities, whose normal work is not salvage but who might on occasions render salvage services as an incident of their normal work; those for whom salvage is a part of their normal activities, albeit not their exclusive concern (and who may hire in salvage equipment or sub-contractors to work with their salvage superintendent); and the full professional salvor who maintains specially equipped salvage vessels, pumps and other equipment in a state of readiness allowing for quick reaction to disasters. The tribunal will react progressively more favourably the further along this scale the claimant is…… "
" Plainly the award must in all the circumstances be fair to all parties or else salvage operations will not be encouraged. Nevertheless, the concept of what is fair is influenced in individual cases by the application of the criteria relevant to the fixing of the award. Those criteria may lead in particular cases to the award of very large sums…."
The upshot could be, as Sir John Nicholl had said in The Industry (1835) 3 Hagg 203, at p.204, that "…the reward may fall upon an individual owner with some severity". That, however, would only be the case where, as the appeal arbitrator put it, "the factors in the assessment call for an award on a very liberal scale, or there are other special circumstances".
" In my view another factor to be borne in mind, is that encouraging awards provide the professional salvor with a cushion in difficult times. When this service was performed the market was very buoyant, as demonstrated by the high rates of hire for the lightning vessels and hull values. Since then there has been a dramatic collapse. If this service were performed today it would perhaps cost less, but the difficulty in obtaining loans and credit in the current economic climate offsets that consideration. Without some reserve, salvors face a financing problem in larger cases. "
To this paragraph in the Reasons the Appellants do take exception – and it gives rise to Issues i) and ii).
" You cannot encourage someone for something in the past; something that they have already done. You can only encourage someone for the future…..To so encourage it is necessary to look to see what the future conditions may be within which the salvors are operating. "
As to Issue ii), the appeal arbitrator had not suggested that a salvage award should be assessed at any time other than the date of termination of the services.
" …was not seeking to make an increased award to reflect this particular difficulty. He was not making an 'enhanced' award ….because of the likely future global financial problems. He was simply stating that, as a generality, this is just one of the many reasons why salvors should be encouraged by a generous award."
i) I answer Issue i), "no" and Issue ii), "not applicable" or "no".
ii) The Appellants are accordingly entitled to relief in respect of these Issues. I defer the question of the appropriate form of relief until after my consideration of Issue iii).
" Where the Court below had awarded an exceptional and excessive amount of remuneration solely from regard to the value of the property salved, their Lordships, notwithstanding their general rule of non-interference upon a question of mere discretion, reduced the said amount…."
" The rule seems to be that though the value of the property salved is to be considered in the estimate of the remuneration, it must not be allowed to raise the quantum to an amount altogether out of proportion to the services actually rendered. And this is consistent with what is said by Lord Stowell in The Blenden Hall.... 'In fixing a proportion of the value the Court is in the habit of giving a smaller proportion where the property is large, and a higher proportion where the value is small, and for this obvious reason, that in property of small value a small proportion would not hold out a sufficient consideration; whereas in cases of considerable value a smaller proportion would afford no inadequate compensation."
" The value salved is an element – an important element – in considering the amount to be awarded; but the Court must not be induced by it to award a sum which is out of proportion to the services of the salvors. "
The Court of Appeal declined to reduce the award, having regard, inter alia, to the dangers and the very significant element of professionalism involved.
" …where one has…a practical certainty of continuing damage and continuing expense, coupled with a possibility, even if it is not more than a bare possibility, of a much more serious loss, one has to give some real effect to the very high value of the salved property. By that I mean that one must give some effect to it, beyond saying to oneself merely that this is a case in which the value of the salved property at least provides a sufficient and abundant fund out of which to reward the salvors.
I am not saying that you can measure salvage awards as sums in arithmetical proportion in relation to the salved property when you have values of the magnitude that you have in this case, but equally it would not …be right to say that, where you have a value of this size, the addition of a few millions of the subtraction of a few millions would make no difference whatsoever. So long as even an outside chance of anything in the nature of total loss remains, then …the increase of value must involve some, although possibly not great, increase in the salved award over and above what might have been awarded had the value been much smaller.
I have tried to give effect to that in the awards which I propose to make in this case. I have tried to give effect to the well-known principle whereby a salvage award should be a fair remuneration for the services rendered…. I have tried to give effect to the principle that the awards must be such as will encourage these salvors, and others, to be ready to go out and render like services in similar emergencies to other vessels… "
" …there was a short term risk of continuing damage and risk of flooding of No.3 hold which would have damaged the cargo, though the risk was not of a high order. In the longer term there was a serious risk of this occurring, coupled with a risk to the No. 4 hold. The casualty could in time have become unsalveable. This scale of risk requires clearly to be reflected in the award. The damage is not a remote possibility: the risks defined are very real and important, as is the continuing loss and expense associated with the casualty being immobilised. "
" This statement of principle has full force and effect in cases where the services are straightforward. Its significance dwindles away in complex and arduous cases of almost continuous activity requiring Contractors to exhibit diverse salvage skills. However, in so far as an award of salvage must be fair to all parties in all circumstances of the case, a sense of proportion has to be maintained in all cases, but liberality is merited in complex cases, for how else is hard work and skill to receive recognition and encouragement? This was a complex case."
Later, it would seem by way of development of his thinking, the appeal arbitrator expressed the matter this way (at para. 267):
" This was a case where the service was complex and comprehensive and thus the principle in The Amerique does not apply in terms. Rather general considerations of proportionality and balance are to be applied. "
There then followed a reference to a passage in the decision of David Steel J in The Voutakos  2 Lloyd's Rep 516, which, with respect to the appeal arbitrator, is not at first blush entirely easy to follow – as it deals with the significance of sub-contracted services.
" ….There is no direct relationship between a simple service and the size of the award but the award should not be allowed, on account of the size of the fund, to rise to a level out of all proportion to the services rendered. Similarly, in largely subcontracted cases, there is no direct relationship between the sum awarded and the amount of the expenditure. Expenditure has to be taken into account and that has to be balanced with other factors, but the award, on account of the size of the fund, should not be allowed to rise to a level out of all proportion to the amount of the expenditure. In addition, high expenditure imports financial risk and risk increases encouragement, but subcontracting has an effect in reducing the breadth of that encouragement. It is a question of balance and assessment, not calculation."
" What Mr. Reeder QC was saying was that where the services are complex and arduous, though performed in whole or in part by a sub-contractor, the principle still applies but the effect of its application will be muted or more limited than in cases where the services were straightforward. This is of course logical…."
Even if paras. 263 and 267 of the Reasons were not easy to follow, they involved no more than a conflation of the appeal arbitrator's thoughts on the principle in The Amerique, cases of high value funds and the impact of sub-contracting; it would not be right to conclude that he had erred in law.
i) The value of the salved fund is in any case a significant element in the assessment of a salvage award. Additionally and in accordance with the principle of encouragement already discussed, where the value of the salved property is very high and it is at risk of damage or loss in the absence of assistance, then it is right "to give some real effect to the very high value of the salved property" beyond simply recognising it as furnishing a sufficient fund out of which to reward salvors. See: The Queen Elizabeth (supra), at p.821; Kennedy & Rose (op cit), at paras. 1457-1458.
ii) However, the high value of the fund must not be allowed to raise the quantum of a salvage award to an amount altogether out of proportion to the services actually rendered; this is the moderating principle, for which The Amerique (supra) stands as authority. The point is well illustrated in Brice (op cit), at para. 2-159:
" If one bears in mind that a ship of a certain size laden with a very valuable cargo is just as easy or difficult to salve as an identical ship laden with a cargo of about the same size but of little value, one can see why the salved value, though significant, must not be allowed to detract from the true worth of the service. "
Moreover, as observed in the authorities to which reference has already been made, where the value of the property is high, an award of a small proportion may well provide adequate compensation.
iii) The moderating principle in The Amerique (itself a case of derelict) is equally applicable to all cases, whether straightforward, or involving high dangers (e.g., The Glengyle – imminent danger of certain loss), or complex services.
iv) That said, the application of this moderating principle is necessarily fact sensitive; whether an award will be "altogether out of proportion" to the services actually rendered must involve a consideration (inter alia) of the applicable dangers and the nature of the salvage services. So, an award which is "altogether out of proportion" in a case of low dangers, involving short and simple salvage services may well not be disproportionate in a case where the risks to the salved property are serious and complex salvage services have been provided. The key point, as it seems to me, is that the value of the salved property by itself must not be allowed to result in an award "altogether out of proportion" to the services actually rendered.