Arbitration usually for a good reason

Simon Tatham looks at how a potentially long and costly dispute was avoided.

Lloyd’s of London decided recently to publish LOF salvage awards on their Salvage and Arbitration Branch’s website. I thought it might be interesting to trawl through some of the more recent awards to see whether they threw up anything of interest. When a case goes to arbitration it is usually for a good reason.

One such case involved a 1996 Japanese-built geared general cargo vessel of 18,000grt which had been involved in a heavy collision off Nouakchott in Mauritania. Her no.2 hold had been penetrated and was tidal.

I flew into Nouakchott some 30 years ago on a case and recall the anchorage being littered with wrecks, though I understand many have since been cleared. More alarming to me were the aircraft carcasses near the runway. In the present case, an ISU contractor’s salvage tug on standby in Senegal was mobilised together with a salvage team from Europe, arriving in early June 2013.

The vessel was shifted to a new position and a large patch was fabricated on board measuring 9m x 10m, lifted into position using the ship’s crane and welded in place with reinforcements. This took about three weeks. It held. The weather meanwhile was unhelpful, while both electrical power and provisions had to be supplied by the tug to the casualty. The contractors then advanced funds to enable a bank guarantee to be provided to the port, to the crew who were unpaid and on strike and to cover agents’ disbursements, all of which were agreed as allowable salvage disbursements. In return for the cash advances and the subsequent willingness of the salvors to tow the vessel to Turkey, the respondent owners accepted that a minimum salved fund of US$5.85m would apply. Tact and diplomacy was needed to placate the authorities and allow the flotilla to leave.

By week seven the casualty was under tow to Gibraltar and there the tow was handed over to a sister tug. Funds of around US$140,000 were advanced with paperwork for the costs of passage through the Dardanelles, and the vessel, after a tow of 38 days over 3,000 miles, was delivered to the repair yard at the beginning of September.

The services had lasted 88 days in total. At the arbitration there was debate as to what risks the vessel had faced as a result of one hold being tidal and the extent to which a perilous situation might then have been avoided by the action of the crew. There was found to be a low order, medium- to long-term risk of catastrophe in this respect. The vessel was nevertheless immobilised and in need of professional assistance. All told, the salvors’ out-of-pocket expenditure to be taken into account, including bunker costs but excluding tugs and crew, was around US$1.5m. The services were prompt, skilful and successful.

The arbitrator felt constrained by the modest salved fund from making an encouraging award that would, in the arbitrator’s opinion, fully remunerate the salvors. It was therefore one of those cases where the inevitable issue was, how much of the fund should be returned to the respondents? The arbitrator said 65 per cent, or around US$4m, and awarded this together with interest at 6 per cent plus costs.  If the salvors were considered efficient, this was matched by the lawyers, as the award was published almost precisely seven months after the end of the services.

Simon Tatham is a partner at Tatham Law and founder member of the www.tugadvise.com service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine. View original article.