Salvage Contracts: Time to Get Wrecked

Otto Wulf tugboats in the port of Cuxhaven on an icy and wintry night.

By Erik Kravets 2016-01-24 14:54:26

Nothing quite captures the sailor's imagination like ships crashing, whether it be into each other, against islands, against the shore, on offshore platforms, etc. Likewise, shipwrecks, anchors and chains falling off, engines failing and rudders breaking are the cause of many nightmares - which is why, for us at least, salvage has a really special place in our hearts.

We think this quote nails it:

Salvage, it is true, is not a question of compensation pro opera et labore ... it offers a premium by way of honorary reward, for a prompt and ready assistance to human sufferings for a bold and fearless intrepidity and for that affecting chivalry, which forgets itself in anxiety to save property, as well as life ... a mixed question of public policy and private right. - Judge Story J in The Henry Ewbank (1883) 11 Fed Cas (Case No. 6376) 1166 at p. 1170.

Of course, when all else fails, sometimes all we can do is remove the wreck.

And on what legal basis is wreck removal conducted - contractual or statutory? A vessel, or a piece of property, which is at the bottom of the ocean can be claimed as traditional (in Germany: statutory, as in § 577 HGB) salvage. And in general, valuables will be claimed in this manner since doing so offers an economic reward. 

But what about when the salvage is especially perilous, uneconomical, the items are of little value but very environmentally hazardous, or if the recovery is mandated by the authorities? In this case, the incentive to salvage on private initiative is not there. Judge Story J's remark about salvage being a mix of public policy and private right is very smart. In these scenarios, a separate, contractual basis for the salvage is needed. 

BIMCO offers three great standard wreck removal forms which address various aspects of contract salvage. (Note: Lloyd's Open Form will not be discussed in this article.) Whether via a daily hire, a fixed price or staged lump sum payments, the nature of salvage has changed and along with it, the legal frameworks within which the work can be conducted.

BIMCO's contracts have in common that they contain descriptions of the "Vessel" to be salvaged. But the definition of "Vessel" is noteworthy. While in plain English the word "vessel" means a ship of some kind, in BIMCO's contractual, legally defined language, it means any kind of conceivable property, even bunkers! Thus these agreements can apply to a very wide range of situations and can be flexibly adjusted for any particular variety of desired salvage operation.

The "nature of services" (e.g. Box 7 in WRECKHIRE) is definable in all of the mentioned BIMCO contracts. This is useful when the scope of the wreck removal is particularly complicated and does not simply involve the straightforward salvage of a wreck. The nature of the services can also be defined as deconstruction, transport, environmental cleanup, retrieving a discrete part of a wrecked vessel (e.g. an expensive propeller) or even taking apart an offshore installation and dismantling its foundation which is attached to the ocean floor.

A section under "nature of services" also permits the parties to agree on compliance with official requirements, a facet which will be particularly salient whenever environmental considerations play a role at the worksite. Also important is WRECKSTAGE's Box 12, namely extra costs: with the complex nature of today's salvage, sometimes specialized equipment needs to be manufactured from scratch in order to make the performance possible. The costs can be divvied up between the two parties so that both feel they are getting a fair shake. The other charterparties have similar boxes, e.g. the corresponding box in WRECKHIRE for extra costs is Box 14.

With all the diversity of today's market, BIMCO's contracts need to offer a lot of flexibility. The rising technical requirements have been touched upon, but are becoming especially intimidating with the ever-growing size of the world's biggest projects. WRECKSTAGE is the agreement which will typically be used for complex jobs. It allows for payment upon reaching certain milestones, as in Box 9. Given that salvage jobs can take a great deal of time, this is vital to ensure a flow of liquidity to the salvor. Otherwise the salvor would be asked to undertake expensive and time consuming performance whilst taking no more than the payment on signing.

The world's biggest ships (e.g. see our report on the massive CSCL Globe, 19,000 TEU) dwarf most tugs. If there ever were a truly grievous marine casualty in this size class, there is a prospect that the vessel would become a total loss, given that intervention is difficult due to the sheer scope of the required assistance. While most tugs are able to help the last generation of vessel, the newest generation can cause truly eye-watering damages. Also, given that such ships are relatively uncommon, salvors may not see the merit in investing in the next generation of equipment necessary to deal with such casualties. Thus, they could end up as police matters.

For the record, we surely hope that there will never be a sufficient number of casualties in this size segment of vessel that keeping such equipment on hand makes business sense!

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.