When there’s nothing left to save

Simon Tatham looks into what happens in salvage cases involving a total loss.

I write this as I return from 10 days in the tropics: a case of a sinking vessel in West Africa, ultimately lost with all but a small part of its containerised cargo. Not untypically, LOF, with SCOPIC immediately invoked, was agreed in the early hours of the incident. Salvors mobilise fast, but with the best will in the world, by the time assistance is on site at a remote location, it is often too late.

In these cases, where hull and machinery underwriters are facing an inevitable total loss claim with little prospect of any value being recovered from the hull, and with ruined cargo likewise of no potential salved value, practical questions arise as to how best to handle the case.

SCOPIC is a very useful tool in this context, as it enables a salvage contractor to continue working at agreed rates while at least an assessment is made of the remaining options available to its owners and underwriters.
P&I insurers then pick up the bill for that.

Having a competent and experienced international salvor on scene meanwhile serves a number of useful functions. Very often, the local authorities require steps to be seen to be taken and, depending on where you are in the world, with the crew now ashore with passports removed by immigration, owners need to be seen to be doing something, rather than nothing.

I recall a case more than 20 years ago where the Club involved engaged salvors in an attempted refloatation knowing full well it would be impossible, but needing to prove just that. It worked, and the ship was allowed to remain in situ and was eventually swallowed by the waters and deep silt of a majestic South American river estuary.

In other cases, however, the next stage is a wreck removal order, and the issue becomes how to manage the period of time between the end of a salvage contract and the commencement of the set piece removal operation, often many months later. For example, the authorities might require  standby services, deployment of oil booms or prompt bunker removal, and time is also needed to take stock and prepare the bidding process for a removal contract.

Such interim work can, of course, be done under SCOPIC, as it is entirely flexible, but insurers are often reluctant to allow that because the salvor remains in control,  dictating the pace, equipment and cost, which he passes on with a 25 per cent mark-up subject to the approval of the SCR (special casualty representative). However, the SCR is not bound to protect P&I interests above other parties interested in the ship and cargo. SCOPIC can be terminated at will by owners, provided the authorities permit it, and while that may not bring LOF itself to an end, usually in that event, salvors will call it a day and abandon the job. They are paid, meanwhile, for their demobilisation.

A favoured solution is to enter into a caretaking contract with a contractor, which provides for a range of services to be done at the request of owners and their Club, shifting the control to them. Of course, if there is a salvage contractor on scene with suitable personnel craft and equipment, he is often the best placed to win the job, allowing for a cost-effective transition from one contract to the other, which is most likely to appease the local authorities (who may not take kindly to watching salvors abandon the site).

The ideal solution is to have an agreed expert take command, dictating the pace and nature of the work, reporting back to the owners but working hand-in-hand with the salvors to ensure that what must be done is done efficiently and economically. As to the remuneration regime, at least one option is to stick with SCOPIC rates. Assuming the contractor is looking at what might potentially be months of activity, and therefore a steady cashflow, he will usually be amenable to discounting the rates or to a reduced uplift.

There is no tailor-made industry standard contract for this, but with some adjustment, BIMCO’s 2010 Wreckhire & Marine Services Agreement can be knocked into a new shape suitable for the operation. A relatively small job for the lawyers.

Simon Tatham is a partner of Tatham Macinnes LLP and a founding member of its new service, TugAdvise.com. He has 30 years’ experience in shipping law.
Reproduced with kind permission of International Tug & OSV magazine. View original article.