Mr Justice David Steel :
- This is an appeal brought by shipowners with the leave of Aikens J on questions of law arising out of a Final Interim Award dated 7 January 2008 made by Mr. John Reeder Q.C. in his capacity as the Lloyd's Salvage Appeal Arbitrator ("the Appeal Arbitrator"). By his award ("the Appeal Award") the Appeal Arbitrator substantially increased the salvage renumeration payable for salvage services rendered to VOUTAKIS and her cargo in late October 2006 from US$1,750,000 to US$2,700,000. The award from which the appeal was brought ("the Original Award") had been made by Mr. Simon Kverndal Q.C. on 20 July 2007 ("the Original Arbitrator").
- The services were rendered in October 2006. It is only necessary to summarise the circumstances briefly:-
a) On 19 October 2006 the motor bulk carrier VOUTAKOS ("the vessel") suffered a main engine breakdown in the South Western approaches to the English Channel. She was in position Latitude 48° 17? North, Longitude 07° 58? West. She was in the course of a voyage from Puerto Prodoco, Columbia to Rotterdam with about 174,496 tons of coal.
b) Very quickly a salvage agreement was entered into between the owners and the salvors on the terms of a Lloyd's Standard Form of Salvage Agreement 2000 ("the LOF") and steps were taken by the respondents to identify a suitable tug to take the vessel in tow.
c) In due course the salvors chartered in the ocean going tug FAIRMOUNT GLACIER from Fairmount Marine. The tug proceeded to the vessel's position and established a towage connection during the morning of 30 October. The tug then commenced towing the vessel to Rotterdam in good weather conditions.
d) On 31 October the wind increased in force causing the vessel to shear. On 1 November with the wind having increased to force 6 – 7 and the flotilla approaching the Dover straits, the salvors decided to hire in another tug to act as a steering vessel for the casualty.
e) Accordingly the ALPHONSE LETZER was hired from URS. She made fast to the vessel at 1510 on 1 November and the tow continued.
f) On 2 November the flotilla was close to the entrance channel to Europort where she was due to pick up a pilot. However difficulties in controlling the tow led to the pilot slot being missed.
g) The wind reduced in force and at 08.20 on 3 November the flotilla picked up a pilot and the vessel was duly berthed in Rotterdam at 19.00.
h) The tow had covered some 560 miles.
LOF
- The 2000 edition of LOF contains the following provisions:-
"Contractor's basic obligation: The contractors identified in Box 1 hereby agree to use their best endeavours to salve the property specified in Box 2 and to take the property to the place stated in Box 3 or to such other place as may hereafter be agreed…
Effect of other remedies: Subject to the provisions of the International Convention on Salvage 1989 as incorporated into English law ("the Convention") relating to special compensation and to the Scopic clause if incorporated the contractors services shall be rendered and accepted as salvage services upon the principle of "no cure - no pay"…
Arbitration and LSSA clauses: The contractor's renumeration and all special compensation shall be determined by arbitration in London in manner prescribed by Lloyd's Standard Salvage and Arbitration clauses ("the LSSA clauses) and Lloyd's procedural rules. The provisions of the LSSA and Lloyd's procedural rules are deemed to be incorporated into this Agreement and form an integral part hereof…
- The relevant LSSA clauses included the following provisions:
"2. Overriding objective
In construing the agreement or on the making of any arbitral order or award regard shall be had to the overriding purposes of the agreement namely:
…(d) to ensure that the reasonable expectation of salvors and owners of salved property are met and …
6. Arbitration Procedure and Arbitrators Powers
6.1 The arbitration shall be conducted in accordance with the Procedural Rules approved by the Council ("Lloyd's Procedural Rules") in force at the time the Arbitrator is appointed…
6.7 The Arbitrator's award shall (subject to appeal as provided in clause 10) be final and binding on all the parties concerned whether they were represented at the arbitration or not and shall be published by the Council in London…
10. Appeals and Cross Appeals
10.1 Any party may appeal from an award by giving written Notice of Appeal to the Council provided such notice is received by the Council no later than 21 days after the date on which the award was published by the Council…
10.7 In addition to the powers conferred on the Arbitrator by English law and the Agreement, the Appeal Arbitrator shall have power to:…
ii. confirm, increase or reduce the sum(s) awarded by the Arbitrator and to make such order as to the payment of interest on such sum(s) as he may think fit;…
Merchant Shipping Act 1995
- Schedule 11 to the Merchant Shipping Act 1995 sets out the text of the International Convention on Salvage 1989 which by virtue of section 224 (1) of the Act has the force of law in the United Kingdom and which by virtue of Article 2 applies to LOF arbitration proceedings:
"Article 1
Definitions
For the purpose of this Convention—
(a) Salvage operation means any act or activity undertaken to assist a vessel or any other property in danger in navigable waters or in any other waters whatsoever.
Article 6
Salvage contracts
1 This Convention shall apply to any salvage operations save to the extent that a contract otherwise provides expressly or by implication.
2 The master shall have the authority to conclude contracts for salvage operations on behalf of the owner of the vessel. The master or the owner of the vessel shall have the authority to conclude such contracts on behalf of the owner of the property on board the vessel.
Article 12
Conditions for reward
1 Salvage operations which have had a useful result give right to a reward.
2 Except as otherwise provided, no payment is due under this Convention if the salvage operations have had no useful result.
Article 13
Criteria for fixing the reward
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 minimising damage to the environment;
(c) the measure of success obtained by the salvor;
(d) the nature and degree of the 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 the value thereof….
3 The rewards, exclusive of any interest and recoverable legal costs that may be payable thereon, shall not exceed the salved value of the vessel and other property."
The questions of law
- The questions of law on which leave to appeal was granted are as follows:-
"(i) Whether, when assessing salvage remuneration for a service consisting of towage for a vessel in no physical danger, the commercial rate for service is a wholly irrelevant consideration.
(ii) Whether, based on the findings of fact in the appeal Award, as distinct from the appeal arbitrator's characterisation of the case, the "disparity principle" - which states that in salvage cases where there is only immobilisation, there exists no great urgency and only straightforward towage is required to effect a cure, it is important that the sum awarded should not be wholly out of line with commercial towage rates - was properly applicable to the present case.
(iii) Whether the "disparity principle" is fundamentally flawed.
(iv) Whether a general increase in awards in towage cases is required to comply with the requirements of the 1989 Salvage Convention."
- When the paper application for leave to appeal came before Aikens J he commented that it might logically be better for the "disparity principle" issue to be dealt with first before turning if necessary to the more general questions (i) and (iv). I have no doubt he was right.
- To elaborate on the nature of the so-called "disparity principle" and its potential impact on the award, it is necessary to set out in summary form the reasoning of the Appeal Arbitrator. I infer that Aikens J in giving leave to appeal had much in mind the general importance of the issue since it is clear that the Appeal Arbitrator was setting out some general comments, at least as regards all "towage" cases, and thus they were of significance not just for the present case. This is against the background that salvage claims are now very seldom determined in this court but are dealt with very efficiently under the auspices of LOF or contractual forms of a similar kind with limited scope for the court's intervention.
Assessment of salvage remuneration
- The concept of salvage is based on two main considerations – first that salvors should be paid for benefits conferred to property and second that public policy requires such payment to be generous with a view to encouragement of salvors: see e.g The William Beckford (1801) 3 C. Rob 355, The Industry (1835) 3 Hagg 203. The major criteria to be to be considered are set out in Article 13. The task for the court or tribunal remains to analyse such of the criteria as are consistent with the facts so as to distil an appropriate award in money terms.
- But the conceptual basis for this process is not easy to spell out in much the same way as the difficulty in explaining the mode of assessing damages for non-financial loss in personal injury cases: see Every v. Miles [1964] CAT No 261. To similar effect, the proper award for a particular service is essentially a conventional one in the sense that it falls within an acceptable bracket. This in turn calls for examination of cases of comparable factual content: The City of Chester (1884) 9 PD 182. In practice therefore the present source of "comparables" is to be found in the awards made under LOF: see generally Kennedy and Rose: Law of Salvage 6th Ed: para 1392.
- It is in this context that the Appeal Arbitrator started his discussion of the appropriate level of award for the services rendered by the respondents by referring to a review of the general level of awards in towage cases undertaken by his distinguished predecessor as Appeal Arbitrator, Mr. John Willmer Q.C. in the late 1990's. In an award relating to a 600 mile subcontracted tow, Mr. Willmer stated that "it is important that the award should not be wholly out of line with commercial rates". The rationale for this view was, as he saw it, two-fold. On the one hand professional salvors should be encouraged by generous awards even in conventional towage cases. On the other hand, owners (and underwriters) should not be discouraged from accepting services on salvage terms. "In the end a fair balance has to be struck between the competing considerations".
The disparity principle
- In his reasons, the Appeal Arbitrator states that this guidance has given rise to what has been called the "disparity principle" applicable only to rescue towage services. It is a concept that is discussed in some detail in Brice on the Maritime Law of Salvage 4th Ed para 2-152. It is said to provide an exception to the general rule that tariff rates for the engagement of a particular tug, or for tugs offering alternative assistance, are irrelevant. Even then the learned editors express caution as to identifying appropriate cases for taking cognisance of commercial rates. For instance the following points are made:
a) The services must consist solely of straightforward towage.
b) There must be no physical danger or even immediate financial exposure as for instance from an immobilised container vessel on a liner trade.
c) There must be an adequate opportunity for the shipowner to consider the availability of commercial assistance and the area must be such that it is likely that towage on commercial terms would be available.
d) The anticipated costs of towage, the provision of guarantees to port authorities and so on must be well within the capacity of the shipowner to furnish upfront.
- In his reasons the Appeal Arbitrator concluded that this principle was "seriously flawed" and should be "discarded". Moreover, he went on to find that the repeated application of the principle had led to "an undue restraining effect on arbitrators' generosity where although a physical risk is present the essential service is that of towage".
Rescue Towage
- Since the disparity principle is said to be applicable only in straightforward rescue towage cases, it is sensible to consider whether it is possible to isolate such cases. By straightforward towage cases is meant, as I understand it, those where the only danger is immobilisation, where the service is readily within the capacity of a tug outside the professional category and where the owners of such a tug would undertake the service on commercial terms. However it seems to me that the creation of such a stark categorisation is somewhat unreal.
- Let me start with immobilisation. The circumstances in which a pure risk of immobilisation elides into one of some sensible degree of physical danger is not capable of any precise identification. A vessel in mid-Atlantic in summer with no propeller may well be legitimately regarded as in no physical danger from shallows or other craft. But move the position progressively towards Rotterdam, and one or other more of these risks start to be influential at some stage.
- Next professional status. The rationale for generosity toward professional salvors is partly to recognise their initiative and expertise and partly to recognise their investment in readily available salvage craft: see generally Kennedy & Rose: Law of Salvage: 6th Ed. para. 42ff. But again there is a sliding scale of professionalism. At one end of the scale are those companies, perhaps rare these days, whose primary raison d'etre is the performance of salvage services and to which end maintain purpose built, powerful and well equipped salvage tugs on station with immediate readiness to respond to vehicles in distress, all backed up by heavy investment in sophisticated equipment and highly trained salvage personnel positioned ashore but ready for deployment. At the other end of the scale perhaps are those companies who have a fleet of harbour tugs, which engage from time to time in short inshore rescue work on salvage terms.
- But in fact few if any tug owners fall fairly and squarely within either category. The position is that there is a wide range professional status with salvors of international renown at the pinnacle and small port tug operators at the lowest rung. There is not only a full range of status in between but the significance of that status will vary from case to case. For instance the highest status will be of less significance the more the work achieving success has been contracted out.
- This leads to the question of commercial terms. Again at one extreme, some companies may only undertake salvage work and do so solely on salvage terms. At the other end of the spectrum there may be tug owners who will usually contract on a daily rate or on a lump sum basis even in circumstances where the situation would justify no cure- no pay salvage terms whether under a contract such as LOF or otherwise. But again such stark differentiation does not reflect the real life situation.
- Almost no salvor so-called lives by salvage work alone. Even the highest class of tugs may be used for commercial work, albeit between engagements they may lie on salvage station. This commercial work is usually contracted at a daily rate reflecting the size and power of the tug and its location in comparison with any competition. There is in short a market for the engagement of tug services. Whilst no doubt there is a legitimate expectation that salvage remuneration will provide (subject to values) a high degree of return, this "bread and butter" commercial work will make a contribution to the crew, insurance and maintenance costs associated with providing a tug with a high degree of readiness.
- Thus, whilst it is true that many tug owners are members of the International Salvage Union and thus are broadly committed to providing services of a salvage nature on salvage terms only, the overall picture is less stark. Where there is plenty of time to negotiate for rescue work, an agreed rate for the tug probably reflecting an enhanced rate over normal commercial work may be agreed (the more so if there is available competition). Whilst this will usually apply only to straightforward towage cases, this is not universal. Daily rate agreements for a whole range of salvage work (including services to vessels aground) are not by any means unheard of.
Services to VOUTAKOS
- The present case illuminates the infinitely variable nature of these factors rather well. I take first the reasons of the Original Arbitrator:
a) He recorded that the salvors had not put forward ("correctly") a risk of grounding or of collision. They had submitted that "the casualty was immobilised until professionally assisted by a suitably powerful tug with an experienced tug master."
b) He rejected the submission that the casualty was not in need of professional assistance. He was not persuaded that the respondents had simply monitored the sub-contracted tug's progress.
c) In any event, he was doubtful if the owners of the sub-contracted tug would have been prepared to take the financial and physical risks of entering into LOF.
- As regards the Appeal Arbitrator, he appears to have accepted that "the casualty was immobilised until professionally assisted by a suitably sized tug." He rejected the argument, once again advanced by the shipowners, that the service could have been performed by the owners of FAIRMOUNT GLACIER for the same reasons given by the Original Arbitrator. He went on to explain that there was a difference in degree between immobilisation "until assisted by a suitably powerful tug" and immobilisation "until assisted by a professional salvor".
- He summarised his conclusions at para 16:-
"Looking at the case objectively it appears to me that this was definitely a case for a professional. This was a large laden bulk carrier, adrift in a busy shipping lane. She was on an even keel and any mariner would recognise she was likely to sheer heavily under tow if the wind picked up from an unfavourable quarter. The tow she needed was some distance: 568 miles in congested waters. Such an operation requires careful monitoring and an ability to obtain further resources as required. Any salvor had to be willing and able to undertake the financial risks. This type of service is one for a professional. Both the "FAIRMOUNT GLACIER" and the "ALPHONSE LETZER" are owned by members of the ISU and are entitled to professional status. The service was performed by professional subcontractors. Of course, one cannot rule out that a large powerful tug owned by a non professional could have done the service, but it is hard to envisage that. Such a possibility can hardly impact on the award, since there has to be fed into the equation the willingness to find a steering tug, the expertise to advise on that and the willingness to fund the operation."
- That all said, these factors cannot be identified with precision. As regards the dangers, the finding of the Appeal Arbitrator (in accord with the Original Arbitrator) that the danger could be summarised as "immobilised" without any sensible physical danger has to be read with the finding that she was "a large laden carrier adrift in a busy shipping lane". As the Original Arbitrator put it: "Though drifting slowly, this very large casualty was nevertheless moving towards the French and British coasts: whilst the risks of collision or of grounding are of too low an order to be taken into account, an ETV [Emergency Towage Vehicle] would have been mobilised sooner rather than later." This nicely demonstrates that it is not easy to identify the borderline between pure immobilisation to which the "disparity principle" applies and immobilisation with some element of physical risk to the salved property to which the principle does not apply.
- There is then the question of professional status. The respondents, Messrs. Tsavliris, are well known within the salvage industry. They have recently invested in the acquisition of a large new tug (formerly ABEILLE NORMANDIE) which is stationed in South Africa. They also have FOTIV KRYLOV and SB4BS stationed variously at Djibouti and Colombo and LEOPARD at Cape Verde islands. Their expenses of maintaining readiness there and elsewhere are exemplified by a cost of gas oil for idle time and abortive sorties amounting to $3 million p.a.
- The subcontractors were two-fold, Fairmount Marine and URS. They are both members of the ISU. The tugs they furnished are significant towage instruments: FAIRMOUNT GLACIER was a brand new ocean going tug of 16,230 b.h.p. and 205 tons bollard pull. ALPHONSE LETZER is an ocean going tug of 7,200 b.h.p. and 95 tons bollard pull. Further, their owners, in the view of both the Original Arbitrator and the Appeal Arbitrator, can be fairly "regarded as semi-professional salvors". It may be that similar semi-professional status could also legitimately be accorded to ITC the owners of SIMOON a 8,440 b.h.p. ocean going tug then based in Falmouth which could have afforded alternative assistance albeit with less power and greater delay.
- The Original Arbitrator found that whilst he could not "rule out the possibility that a tug owner might have offered to tow the casualty on commercial terms" on balance "the casualty was immobilised until assisted by professional salvors, on salvage terms, with a suitably powerful tug". He went on to observe:
"This is, therefore a case in which there was one actual alternative (SIMOON) and possible alternatives some distance away (southern sector North Sea) failing which assistance would in due course have been forthcoming (an ETV). It is likely that all of these alternatives would only have been offered in salvage terms."
- As I see it the Appeal Arbitrator did not disagree with any of those conclusions. But he emphasised that the danger associated with immobilisation, even absent material physical risk, was also a matter of degree: it might be curable by a suitably powerful tug or it might need a cure by a professional salvor. But the one possibility does not necessarily exclude the other. In the present case, as appears from paragraph 16 of the reasons quoted above, the Appeal Arbitrator regarded the circumstances as calling for professional assistance although "one cannot rule out that a large powerful tug owned by a non-professional could have done the service". Thus even if rescue might be achieved by a large tug on commercial terms it might not be possible to rule out the need for a professional salvor and vice versa. The concept of "immobilization until professionally assisted" is more a term of art rather than a science.
- Turning last to commercial rates, this is a case in which there was in fact some evidence of commercial rates. They formed the basis for the sub-contracting out and might also have formed the basis of quotes for alternative assistance:
a) FAIRMOUNT GLACIER was subcontracted out on a daily rate of $95,000 per day with a salvage bonus of $100,000. The total hire amounted to $638,743.
b) As regards ALPHONSE LETZER she also was engaged at a daily rate. The total hire was $96,032 (including the engagement of some small harbour tugs).
c) The ITC tug SIMOON was available for sub-contract at about $50,000 a day excluding fuel.
In other cases there may simply be evidence of the general market or tariff for tug charter.
Discussion on questions (ii) and (iii)
- Of course, if relevant, it is quite another question as to how theses rates should inform any award. But the point for the moment is whether any influence should be restricted to straightforward towage cases. Of course it is certainly in that field that the influence is likely to be at its greatest. But the issue is whether it is only in such a case that commercial rates are relevant with the aim of the award not being wholly out of line with those commercial rates. Insofar as this is put forward as a principle of law in this very narrow sense, I agree with the Appeal Arbitrator that it is "seriously flawed".
- Leaving aside the absence of any reference to such a restricted disparity principle in the authorities, my primary reason is that any principle expressed in such a limited sense is unworkable given the gradations of danger in cases of immobilisation, taken with the problem of identifying the proper status of the salvors to be adopted for the purpose of the claim and the uncertainties as to the terms on which such services might have been performed by others. The facts (and arguments) in the present case provide a paradigm example of the difficulties. In short I agree with the Appeal Arbitrator that the "disparity principle" in the sense advanced is misconceived. This is enough to dispose of questions (ii) and (iii).
Question (i)
- But, turning to question (i), the Appeal Arbitrator may appear to have gone further and concluded that commercial rates are always irrelevant to the assessment of salvage renumeration. He put this more general proposition as follows:
"I consider the "disparity principle" to be seriously flawed and it should be discarded. First, there is clear authority that commercial rates are irrelevant to the assessment of salvage renumeration: see The Batavier. Secondly, what commercial rate should be taken? Is it one reflected in the out of pocket expenses? This may not be a valid comparison because the rate may reflect the business arrangement, both present and future, of the salvors and their sub-contractors. I have already noted that the towage industry is buoyant and unless evidence of rates is adduced it may be that the arbitrators' historical knowledge of rates is grossly in error. Thirdly, and importantly, one of the overriding objectives of LOF is "to ensure the reasonable expectations of the salvors and the owners of the salved property are met." The disparity argument acknowledges that the criteria of article 13 must be applied and that full effect has to be given to the Contractors' status, but the introduction of the suggestion that the award must not be wholly out of line with commercial rates imports some form of comparison. If in one case the award is twice the hire costs of a subcontracted tug, underwriters and owners may think this a yardstick - so might salvors and be bitterly disappointed. If an award is five or six time the hire costs what does the respondent or salvor think then. It is inevitable that the parties will seek to think in terms of some multiple of hire costs in a subcontracted case and that is a wholly wrong situation and that is a wholly wrong approach. Fourthly, nowhere in Article 13 is there any suggestion that commercial rates are one of the criteria to be taken into account. Fifthly, existing principle, particularly the Amerique, is quite sufficient to enable a proper balance to be struck, and in the context of alternative assistance it has always been the case that the possibility or probability of assistance on commercial terms has an impact on the size of the award. How much impact will depend on the facts of each case. Sixthly, there is a risk in talking down the award too far by the application of the principle in the Amerique and by giving effect to the disparity argument. "
- I say "may" because it could be a misreading of the Appeal Arbitrator's reasons in this passage that it was being suggested by him that commercial rates are always irrelevant. The thrust of the quoted paragraph may still be directed at the disparity principle as originally defined. Even then it is a proposition that requires consideration. Once the borderline between rescue towage and towage of a vessel in some physical danger is perceived to be impossible to determine, then one outcome might be that commercial rates are always to be regarded as irrelevant. The only alternative is a position where commercial rates are always relevant (though obviously to a highly variable degree).
- The starting point here must be the authority that the Appeal Arbitrator put at the forefront of his comments namely the decision in The Batavier (1853) 146 ER 98. It is put forward as clear authority to the effect that commercial rates are irrelevant to the assessment of salvage remuneration. The Batavier was an unusual case. She was a cargo/passenger craft on a regular run from London to Rotterdam. En route to Rotterdam the main shaft of her engines broke while she was at the entry into the Thames. Having sent light and rocket signals, she was taken in tow by another merchantman but at her request was cast off about 15 miles from North Foreland because the tow was damaging her paddle-wheel machinery. The merchantman called in the tug. She duly towed the vessel to Rotterdam and presented an account for £175.
- There was dispute as to whether the vessel was in any danger at the time the tug arrived given that she still had her sailing capabilities. Dr. Lushington concluded that she was not in any physical danger given the season and prevailing weather but "she was most desirous of performing her voyage, for the general credit of the service, and the benefit of the owners, with punctuality." Dr Lushington summarised his conclusions as follows:
"The price paid for ordinary towage I disclaim as being a guide to the Court as to the sum which should be allotted to remunerate this service; yet, in one point of view, it may be useful. It appears, from the card before referred to, that to tow a vessel the size of the "Batavier" from London to the Downs, the charge would be £47. The distance is 100 miles: but the tug only towed this vessel 90 ninety miles; however, I disclaim that as a test. It is true that the tug was taken out of her ordinary occupation, and carried to a foreign port, where she was detained a certain length of time, and then came back in safety, being provided, as I ought to remember, with coals by the owners of the "Batavier." The question is, whether £175 is sufficient under these circumstances, the value of the property being nearly £3000. The latter circumstance I hold to be of infinitely minor importance in a case of this description. I do not hold that the steamer was in danger or disabled; the service consisted in towing a dull sailing-vessel for the distance in question, and no more; and, taking all the facts into consideration, I must pronounce the tender sufficient, and I think it my duty to condemn the salvors in costs. "
- It is not entirely clear whether this constituted an award of salvage. If it did not but was simply some form of quantum meruit, then of course it affords no assistance on the topic one way or the other. But given the reference to the value of the vessel, it may well be that this was an award of salvage remuneration. If that be right, the decision seems to be entirely consistent with the proposition that commercial rates, whilst not remotely determinative of the appropriate level of remuneration, are relevant and "useful". They certainly provide a useful cross check by way of providing a floor to a salvor's legitimate claim.
- In fact the Appeal Arbitrator does not appear to regard commercial rates as wholly irrelevant. Indeed he records the fact that "commercial rates have risen dramatically in more recent times" and questions whether this factor has found expression in the remuneration awarded in accord with the disparity argument. His concern was directed in particular towards the possibility that arbitrators' knowledge of prevailing rates might be gravely out of date. He certainly does not go so far as to say that the actual level of the increased rates or the actual terms on which sub-contracted assistance was available are irrelevant.
- The Appeal Arbitrator does pose the question as to what commercial rate should be taken and whether the correct rate (if any) is that reflected in the out-of-pocket expenses. On this aspect it is convenient to start with Article 13. It is of course correct that there is no discrete requirement that commercial rates be taken account of. But the criterion set out in Article 1(f) calls for the expenses incurred by the salvors to be taken into account. Where as here (and indeed in the award of Mr. Willmer Q.C. quoted by the Appeal Arbitrator) the bulk of the services have been subcontracted on a daily rate, the actual cost thereby incurred becomes by definition a relevant factor.
- The salvor is of course entitled to an encouraging award. It must have regard to his general expertise, his investment, his readiness to respond, his unsuccessful ventures and so on. Equally he can pray in aid the value added by the specific service, the skill and work involved, the risks run and so on. But I do not subscribe to the proposition that where all or a significant part of the service has been performed by a subcontractor for an agreed figure such is irrelevant to the assessment of the salvage remuneration. I say this however elaborate the services were and however professional the salvors may be. It must be the case that where a major part of the service has been sub-contracted the award will be less than the award payable to the salvor who has actually made use of his own investment in craft and equipment to confer the benefit.
- Article 13 also requires that the assessment of the remuneration must take account of the need to "encourage salvage operations". The LSSA terms require that the "reasonable expectation of salvors and owners are met". I accept the appellants' submission that this is a two way street. Salvors must be encouraged to make salvage services available and the owners of maritime property must be encouraged to accept them timeously: see The Maasdam (1893) Asp. MLC 400.
- As the Appeal Arbitrator states: "It has always been the case that the possibility or probability of alternative assistance on commercial terms has an impact on the award", this despite the fact that alternative assistance in general let alone at any specific rate is not included in the criteria listed under Article 13. Yet without any material as to what those rates are it is difficult to see how that impact can be assessed.
- Indeed, even in the absence of a daily rate for the use of tugs, their crews and other equipment by way of sub-contract, it is of some assistance to the court to be aware of the general level of towage rates. As already noted the Appeal Arbitrator rightly makes reference to the buoyant rate of the market. The rates concerned may be those in fact endorsed by salvors offering alternative assistance which would perhaps give a better feel for the relevant rate. As the respondents say in their skeleton argument: "The higher the commercial rates for towage the higher the salvage awards should be so as to attract professional salvors to be ready to perform salvage services rather than transfer their vessels to the offshore/commercial shipping market. Furthermore the cost of subcontracting having increased, this needs to be reflected in salvage awards not only to cover expenses where there has been a successful redelivery but also cases where the cure has failed or the fund has proved insufficient."
- The impact of such out-of-pocket expenditure actual or potential on the part of the salvor or the level of expenditure on the part of the salved property for alternative assistance will be highly variable. In a situation where local tugs are hired to hold a vessel during a complicated, prolonged and difficult salvage operation the impact is likely to be almost immaterial. Per contra, with a vessel adrift in the Atlantic taken in tow by a chartered tug that happens to be crossing to Europe in any event, the cost involved must be more influential - the more so if other tugs at similar prices were offering. Any other conclusion leads to the logical conclusion that, in the event the salvors chose not to claim their expenditure, an application for disclosure could be successfully resisted on the grounds of irrelevance.
- I appreciate, as the Appeal Arbitrator points out, that all this affords no help to the court as to the level of uplift or multiple that might justly be applied. But the court's role is to take account of all circumstances in assessing the award. The task of ensuring that the award is not out of proportion to the services rendered or to the values of the property salved are well recognised requirements: The Amerique (1874) LR 6 PC 468. Taking a similar approach to questions of commercial rates presents no more substantial difficulty. To repeat an earlier observation made in regard to the disparity principle, a fair balance has to be struck between encouraging professional salvors by generous awards and discouraging owners (and underwriters) from accepting services on salvage terms. Such, in my judgment, reflects public policy.
- In short commercial rates are admissible and relevant but their significance will depend on the facts of each case. In the simplest of towage cases they may be particularly influential and provide, subject to values, a floor to any award that could begin to be regarded as encouraging. The present case may be a good example. The out-of-pocket cost to the respondents was substantial. The total was $874,000 being mainly made up of the cost of chartering in the two tugs. This figure may somewhat pale into insignificance compared with the salved fund of $42 million. It is certainly readily absorbed in any award. Further it has to be borne in mind that one of the benefits of the service is that the respondents were ready to take on the heavy financial load. But it cannot be that the actual cost and the rates of hire involved (and the contribution made thereby to success) are to be treated as wholly irrelevant.
Question (iv)
- I turn lastly to question (iv) and the extent to which a general increase in awards in towage cases is required. Put in those terms it is not a question of law and certainly not a question which can be answered by the court, not least because the court is seldom invited to assess salvage renumeration. The efficient and effective machinery under LOF has rightly attracted international acceptance and it is within the published digests of awards made under the auspices of the form that the "conventional" award can be determined.
- The Appeal Arbitrator put the point this way:
"However the effect of the requested application of the principle in my view has led to stagnation in the level of awards in such cases and may have had an undue restraining effect on arbitrators' generosity where, although a physical risk is present, the essential service is that of towage. The same effect may be detected in cases where the towage service was one requiring the intervention of a professional. There have, however, been notable exceptions. I have examined the overall level of awards in towage cases and it seems to me a general increase is required properly to comply with the requirements of the 1989 Salvage Convention and the policy issues underlying it, given the current conditions in the shipping and salvage industry as a whole. I must, however, emphasise that the level of awards must not be such that "no-cure no-pay" salvage is priced out of the market to the detriment not only of salvors but, potentially, of the industry generally, and it is essential that individual awards are assessed on their merits and remain at all time fair and just to the parties."
- The proposition advanced is that awards in straightforward towage cases have been unjustly limited by the "disparity principle". This in turn has led to a curb of awards in cases where there was some physical risk and/or where the salvors were professional. If and to the extent some form of disparity principle has been applied in and only in some classes of case, such was wrong in principle. But the significance of the point is probably highly marginal since the impact of commercial rates would be the greater in straightforward towage cases.
Conclusion
- The way forward is for this award to be remitted to the Appeal Arbitrator for reconsideration in light of this judgment.
