Ocean Crown v Five Oceans Salvage Consultants Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Gross |
| Judgment Date | 26 November 2009 |
| Neutral Citation | [2009] EWHC 3040 (Admlty) |
| Court | Queen's Bench Division (Admiralty) |
| Date | 26 November 2009 |
| Docket Number | Case No: 2009 FOLIO 582 AND 584 |
[2009] EWHC 3040 (Admlty)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT
Mr Justice Gross
Case No: 2009 FOLIO 582 AND 584
Tim Brenton QC (instructed by Holman Fenwick Willan and Hill Dickinson) for the Appellants
Timothy Hill QC (instructed by Clyde & Co) for the Respondent
Hearing dates: 2/10/09
Mr Justice Gross:
INTRODUCTION
This is an appeal by ship and cargo interests (“the Appellants”) from an arbitration award dated 31 st March, 2009, made by Mr. John Reeder QC, the Lloyd's Salvage Appeal Arbitrator (“the appeal arbitrator” and “the appeal award”). By the appeal award, the appeal arbitrator allowed an appeal by the Respondent salvors (“the Contractors”) from the award of the first instance arbitrator, Ms Bucknall QC (“the arbitrator” and “the award”). The arbitrator had awarded the Contractors salvage remuneration in the amount of US$34,500,000 plus interest and costs; the appeal arbitrator increased that award to the sum of US$40,750,000, plus interest and costs.
The appeal award was also concerned with a cross-appeal from the arbitrator, whereby the Appellants had sought to argue that the arbitrator had overstated the dangers to the casualty. That cross-appeal was dismissed by the appeal arbitrator and from that decision there is no appeal.
The Appellants have been granted leave to appeal on three questions of law arising out of the appeal award:
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
The underlying facts can be shortly summarised and appear from the Reasons accompanying the appeal award (“the Reasons”).
The m.v. “OCEAN CROWN” (“the ship”) is a modern, handy sized, geared bulk carrier, 189.99 metres in length and 32.26 metres in bream, of 52,347 DWT, fitted with five holds, equipped with 4 deck cranes and powered by a diesel engine developing 7,880 kW. She was laden with 49,850.6 tonnes of copper concentrates in bulk (“the cargo”), when, in August 2007, in the course of a voyage from Chile to Indian ports, she ran aground on an uncharted rock in the Canal Darwin, in about a position 45° 24.57' S, 074° 03.717'W.
By an agreement dated 7 th August, 2007, on the LOF standard form of salvage agreement made between the Contractors and the owners of the ship, her cargo, bunkers and stores (“the LOF”), it was agreed that the Contractors would exercise their best endeavours to salve the vessel and her cargo and that the Contractors' remuneration for doing so would be determined by arbitration in London.
The appeal arbitrator described the grounding location as “reasonably well sheltered” but in a pollution sensitive area and very remote from any major port, so posing a logistical challenge for the Contractors.
It should at once be mentioned that the salved fund was of a very high value. The value of the ship (at the termination of the LOF services and so after the casualty) and her stores was US$66,096,259.79, that of her bunkers was US$243,291 and that of her cargo US$99,846,280.00, making a total salved fund of US$166,185,830.79.
So far as concerns dangers, it was common ground that the casualty was immobilised until assisted by a professional salvor with the resources to perform the service. A lengthy period of immobilisation was itself a serious risk for a ship and cargo of this value; it may be noted that this grounding impacted on the market for copper concentrates.
Turning to the physical risks to the casualty, hold No. 1 had flooded and the casualty was hard aground on her port side from about the aft end of No. 3 hold and the forward end of No.4 hold to about amidships. In agreement with the arbitrator, the appeal arbitrator held that the physical risks to the casualty were serious. In summary:
“ 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 services were lengthy and successful. They lasted for some 66 days to the redelivery of the ship on the 11 th October, 2007 and about 107 days until completion of redelivery of the transhipped cargo (an operation arranged by the Contractors under the LOF) on the 24 th November, 2007. The appeal arbitrator held that the services had been rendered “with exemplary speed and efficiency in a remote and difficult location”.
As a matter of fact, the vast majority of the salvage services were performed by sub-contractors engaged by the Contractors. The total cost to the Contractors of the sub-contracted services was a little under US$18 million (without taking into account financing costs). It is therefore apparent – and should not be overlooked—that the Contractors took a very significant commercial risk in undertaking these salvage operations.
As to the status of the Contractors, the appeal arbitrator said this:
“ 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. ”
In all these circumstances and on any view, the Contractors were entitled to a substantial award. That much is plain, not least from the size of the award of the arbitrator. Moreover, there is no question of an appeal to this Court simply on the basis that the appeal arbitrator awarded a still larger sum. However, the Appellants submit that in coming to his award, the appeal arbitrator erred in law in those respects identified in Issues i) and ii) and Issue iii).
ISSUES i) and ii)
(I) Introduction: As already foreshadowed, Issues i) and ii) concern the principle of “encouragement”.
That principle long pre-dates the London Salvage Convention 1989 (“the 1989 Convention”) in which it is now given express mention. Art. 13 (“Criteria for fixing the reward”) of the 1989 Convention provides as follows:
“ 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.”
The leading textbooks on salvage both emphasise the principle of encouragement. Kennedy & Rose, Law of Salvage (6 th ed.), comments as follows:
“ 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...
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