Coming to terms as first to assist

At the time of writing, Northern Europe has been hit by large storms, posing danger to shipping.

Imagine then, that your tug is on return passage to Scandinavia from the US when it picks up a Pan-Pan signal. Deviating towards the ship in distress, its master advises by VHF that they have been drifting for two days undertaking engine repairs; however, with the weather now deteriorating, they are rolling heavily and are having difficulty in the engine room completing the operation.

He asks if you can secure a line forward to hold them steady and on a precautionary basis to avoid them drifting too close to the Faroe Islands. Completing the repairs will only take about 24 hours. The vessel is only two years old and is otherwise in good condition, with a cargo on board. Its owners will be in touch to agree terms. A connection is established. Once underway at about 2 knots, the vessel steadies and its master reports that repairs are now progressing. Brokers make contact and a daily rate is proposed under TOWHIRE 2008, at roughly twice the market rate.

However, before terms are agreed, your master receives a weather report. A severe gale is expected in about 36 hours. In conversations with the casualty’s master he has also learned that the rough weather, causing heavy rolling, has taken its toll. One of the engineers has broken two ribs and has mild concussion, others are unwell, and the accommodation is in a mess.

In westerly winds some progress is made and the Faroe Islands are safely passed, but there is no report that the main engine is yet operational.

Later that afternoon, the casualty’s master asks if your tug can continue towing his vessel towards Norway. Your master replies that the laden casualty is too large a ship for your tug to tow in the forecast conditions, and the best that can realistically be done is to hold her pending completion of repairs or assistance.

You decide to go ahead and to accept the daily rate terms which have now been increased to three times the market daily rate, but before this is confirmed and fixed by email you receive a message from international salvors who assert that they have a LOF agreed with the underwriters of the drifting ship.

Their large tug is 300 miles away with an ETA of about 24 hours. They request that your tug co-operates in assisting their tug to establish a towing connection, and once their tug has the casualty under control your tug will be released.

Separately, the owners confirm that your services will no longer be required after that.

What do you do?

Your company traditionally has not got involved with salvage. It’s not an area you understand or feel particularly comfortable with. Nonetheless, if these owners are happy to engage international salvors, you feel that surely they should also be recognising your actions so far.

From a legal perspective, your tug has been providing voluntary assistance in what have proven to be critical circumstances. The casualty is immobilised, and all the signs are that it is unable to proceed without assistance.  Holding the vessel steady has also made life tolerable for the unfortunate crew. But for your assistance, it is possible that the vessel may have drifted into close proximity with the Faroes.

Furthermore, useful assistance will continue to be provided by your tug until the LOF contractors take over the tow. In that respect, you should be aware that you have a duty under Art. 8(d) of the Salvage Convention of 1989 to co-operate both with owners and the LOF salvor.

First, a claim under the Convention will only apply if judicial or arbitral proceedings are brought in a Convention state. As the port of destination is to be Norway, where the Convention applies, a claim could be brought there (albeit that the Norwegian courts are not regarded as very salvor-friendly). You can nevertheless be confident that owners and underwriters will be keen to avoid two competing claims in two jurisdictions. This provides you with some negotiating leverage.

Secondly, it is unrealistic to expect that owners will agree a second LOF with your tug for the earlier services, even though your assistance should be categorised as salvage. As the expression goes: you can ask, but you probably will not get.

Thirdly, it is open to you to agree terms with the LOF contractors to bring your claim within the LOF to avoid the inconvenience to them of the existence of a separate  competing claim. If that were agreed, the Form automatically incorporates assistance performed prior to the agreement to the LOF.

Realistically, however, the contractors will most likely offer only a daily rate, perhaps not dissimilar to that offered by the brokers, and this does not appear attractive to you. Moreover, annoyingly, it would then be the LOF salvors who would principally benefit from the useful work you did.

Fourthly and alternatively, you might threaten to bring a competing claim in Norway unless the LOF salvor agrees to join your claim under the LOF on terms of the ISU (Award Sharing) Sub-Contract 2001. This allows the LOF salvor to run the claim. If agreement cannot be reached between salvors as to how the award or settlement be divided, the LOF arbitrator is to determine that. This is a good solution, but the LOF salvors may be reluctant to agree an indeterminate future share of the award; moreover, if those shares are not quickly agreed, it could further delay distribution of the salvage proceeds.

Fifthly, you might consider the option of approaching owners and concerned underwriters with a proposal to agree an ASG 3 Private Submission to Arbitration in London. Although that will run separately from the LOF, if you offer to agree to appoint the same arbitrator, then the two procedures can not only be aligned, but the single arbitrator will ensure that, in effect, a global award is made and effectively carve that up between the salvors according to merit.

If the parties are co-operative and seeking to save costs, two awards can be produced based on a single set of reasons. Since an award runs to two pages and the reasons likely to be 20-30 pages, this is very efficient. This is a neat solution where salvors will not co-operate and underwriters are looking to simplify the outcome and to keep costs down.

As a sixth option, you might simply seek to agree the daily rate but with a salvage bonus via the brokers and get paid in weeks rather than months. Where cashflow is your priority that is attractive, but it will otherwise certainly be less than the expected share of a salvage award, assuming the value of the property salved is significant.

Finally, it is important not to forget that these challenges always crop up on a Friday afternoon of a bank or national holiday weekend!

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

Reproduced with kind permission of International Tug & OSV magazine.