The news of the sinking of roll-on roll-off car carrier M/V Felicity Ace provides a unique opportunity to illustrate and distinguish the two major types of marine salvage — pure salvage and contract salvage — and the effect of a “no cure, no pay” provision as included in the Lloyd’s Open Form Salvage Agreement. For additional information please see my latest article relating to the fire aboard the M/V Felicity Ace.
The salvors began towing M/V Felicity Ace on February 24th, however, despite the efforts of the salvors the ship sank last Tuesday morning with her cargo with a total estimated value of $438,000,000.
Generally, maritime salvage falls within one of two categories, pure salvage, and contract or “fixed price” salvage. Both types of salvage are intended to save a vessel or property, however, depending on the circumstances and the type of salvage services employed, the financial expectations and implications may vary greatly.
“[T]he law of salvage aims to create a post-hoc solution that will induce the parties to save the ship without first agreeing on terms.” By design, the law of salvage historically provides salvors with generous rewards to reflect the perilous undertaking to save marine property. Indeed, “[c]ompensation as salvage is . . . viewed by the admiralty courts . . . as a reward given for perilous services, voluntarily rendered, and as an inducement to seamen and others to embark in such undertakings to save life and property.”
In determining the reward for salvage services, courts will consider: (1) the labor expended by the salvors in rendering service; (2) the promptitude, skill, and energy displayed; (3) the value of the property employed by the salvors and the danger to which such property was exposed; (4) the risk incurred by the salvors securing the property from peril; (5) the value of the property saved; and (6) the degree of danger from which the property was saved.
Importantly, for an event to qualify as a pure salvage claim, three elements must be present: (1) a marine peril; (2) salvors must be successful, in whole or in part, in saving the property; and (3) the salvage must be voluntarily rendered.
The Lloyd’s Open Form, which is one of the predominate salvage agreements, however, operates under the principle of “no cure, no pay” — meaning if the salvage services are not successful, in whole or in part, in saving the property in peril the award to the salvors is “no pay.”
In comparison to pure salvage events that generally require a more urgent response to a marine peril, in contract or fixed price salvage there is a contractual agreement between the salvor and the owner of the vessel or cargo prior to the commencement of any salvage operations. The contract will require payment to the salvor irrespective of whether the salvors are successful in saving or recovering the property. Contracts may fix price by lump sum, daily rate, or even hourly rates. Contract salvage services are generally less expensive for a shipowner, but the obligation to pay for salvage services that may yet fail to rescue property may be seen as a deterrent to some. These contracts exist in many forms and are published by many entities such as BIMCO or the International Salvage Union.
M/V Felicity Ace
The M/V Felicity Ace, although a tragic sinking, provides a unique opportunity to distinguish the two forms of salvage. If, for example, the salvage services were performed pursuant to a contract or fixed price basis the salvors would be entitled to payment pursuant to the terms of the contract. Perhaps a daily rate or lump sum. On the other hand, if the salvage services rendered were provided under a pure salvage arrangement, because M/V Felicity Ace sank and the salvors therefore failed to “cure”, sinking of the vessel may mean that the salvors receive “no pay”.
Marine salvage agreements often have significant implications on the various rights of parties involved in, receiving, or contracting for salvage services — Vandeventer Black’s attorneys are available to assist parties assessing marine salvage options.