Vidar Solemdal Senior Claims Executive, Gard AS January 15th, 2014 SALVAGE Vidar Solemdal Senior Claims Executive, Gard AS January 15th, 2014 The Nordic Association of Marine Insurers

Introduction to salvage Principle of salvage Salvage contracts LOF/SCOPIC Examples The Nordic Association of Marine Insurers

1. The principle of salvage: No Cure, No Pay Award are based on salved values and nine other factors based on article 13 of the 1989 Salvage convention The Nordic Association of Marine Insurers

The principle of salvage – criteria for the Award 1989 Salvage Convention Article 13 Salved value Skills and efforts in preventing damage to environment Measure of success Nature and degree of danger Skills and efforts in salving vessel, property, life Time used and expenses and losses incurred Risk of liability and other risks The promptness of the service rendered Availability and use of vessels and other equipment State of readiness and efficiency of salvors equipment The Nordic Association of Marine Insurers

The principle of salvage, cont. A salvage situation is a situation where the vessel need assistance from third parties (Salvors) to avoid damage to the vessel: Refloat the vessel if grounded Put out fire Tow to safe port etc. The Nordic Association of Marine Insurers

The principle of Salvage, cont. Most Salvors, in any part of the world will try to demand/persuade the master to sign a salvage contract (LOF/TOF etc) prior to commencing the salvage operation. Is this OK? Yes, if the vessel, crew or cargo is in immediate danger. No, if the situation is relatively stable and Owner/Insurer can be contacted prior to signing. The Nordic Association of Marine Insurers

The principle of salvage, cont. Depending on vessel location and the level of danger the vessel is in, it is very often time to negotiate with the salvors. A fixed priced agreement (lump sum, hourly rate, day rate etc) will always be preferred if time permits. The main responsibility of the Master in a perilous situation is to protect human life, the environment and the property under his charge, and if these are seriously threatened there will be no time to negotiate alternative contracts to an open form. The Nordic Association of Marine Insurers

2. Salvage contracts Standard contracts LOF 2011 – Lloyds Open Form TOF – Turkish Open Form Salvage contract for Turkish monopoly area Towcon Ocean towage agreement (lump sum) Towhire Ocean towage agreement (daily hire) Wreckhire Wreck removal and marine services agreement (daily hire) Wreckfixed Wreck removal and marine services agreement (fixed price – no cure, no pay) The Nordic Association of Marine Insurers

Contracts – LOF Purpose of the LOF Contract Recognized all over the world Simple to fill in – one page For all situations Disputes to be solved by the Lloyds Arbitration The Nordic Association of Marine Insurers

Contracts – LOF The Nordic Association of Marine Insurers

Contracts – LOF The Nordic Association of Marine Insurers

Contracts – LOF 2000 vs LOF 2011 Minor changes to the LOF: Details of LOF award will be «public» on Lloyds website All contracts made shall be reported to Lloyds Changes to LSSA (Lloyds Standard form of Salvage Agreement) Salvor can demand Security for fees incurred or (reasonably) anticipated. (Clause 6.6 and 10.8) New Clause 13: Cargo security. Notice to cargo insurers only. New Clause 14: Salvor can apply to Arbitrator to bind the minority of cargo Owners (when 75% agree) New Clause 15: Excuse liability for salvage for low value cargo. (Clause 13, 14 and 15 only applicable for container cargo) The Nordic Association of Marine Insurers

LOF Statistics The Nordic Association of Marine Insurers

LOF Statistics The Nordic Association of Marine Insurers

3. Salvage - SCOPIC No Cure, No Pay Award can not be higher than salved values Severe casualty – high risk – low value The Nordic Association of Marine Insurers

Salvage - SCOPIC 1989 Salvage convention Article 13 – Salvage Award Article 14 – Special compensation The Nordic Association of Marine Insurers

Salvage - SCOPIC 1989 Salvage Convention Article 13 Salved value Skills and efforts in preventing damage to environment Measure of success Nature and degree of danger Skills and efforts in salving vessel, property, life Time used and expenses and losses incurred Risk of liability and other risks The promptness of the service rendered Availability and use of vessels and other equipment State of readiness and efficiency of salvors equipment The Nordic Association of Marine Insurers

Salvage - SCOPIC Article 14 of the 1989 Salvage convention Expenses covered if threat or damage to the marine environment. Increased if damage avoided SCOPIC = Special Compensation P&I Clause ISU and IG – replaces article 14 Article 14 still applies where SCOPIC not applicable The Nordic Association of Marine Insurers

Salvage - SCOPIC SCOPIC Must be incorporated in LOF and invoked Replaces article 14 SCOPIC remuneration Based on tariff rates + 25% + out of pocket expenses Subject to speedy payment provisions Paid for excess Art. 13 awards Control of tariffs and ”Taxi –meter” Special Casualty Representative (SCR) Tariff rates are relatively generous, and the 25% is the salvage bonus. The Nordic Association of Marine Insurers

SCOPIC Typical tariff details The Nordic Association of Marine Insurers

SCOPIC – invoke or not The Nordic Association of Marine Insurers

SCOPIC – invoke or not Can be invoked at any time by contractor (in writing). SCOPIC cost start counting from time of written notice. Salvage services according to Art. 13 Scopic tariffs only when exceeding Art. 13 Discount If Art. 13 exceeds SCOPIC tariffs, the Art. 13 award or settlement shall be discounted with 25% of the difference between the award and the SCOPIC remuneration (but then counted from day 1) The Nordic Association of Marine Insurers

Salvage Case study (14.9, page 325 in Gard guidance) A fully laden container vessel of 9,567 GT suffered Main Engine breakdown in the Atlantic Ocean, approximately 50 nm SW of Madeira. Weather conditions at the time favourable but the attempts to rectify the problem failed. Vessel drifted slowly towards Madeira. After some back and forth, H&M confirmed to Owner that they were ready to conclude a contract with salvage company X, on a daily hire basis. Salvor had suitable tug and equipment two days away. Shipowner, unfortunately, had in the meantime signed a LOF with SCOPIC incorporated with salvage company Y. Salvage company Y resources were 4 days away. The Nordic Association of Marine Insurers

Salvage Case study, cont. One day later weather deriorated. Vessel continued her drifting towards the shoreline of Madeira, and was estimated to run aground in 30 hours. Salvor Y invoked SCOPIC. Salvor Y sub-contracted Salvor X to prevent grounding/save vessel. Vessel grounded before Salvor X tug arrived. Salvor Y successfully refloated the vessel in 18 days. Lloyds Arbitration Panel awarded Salvor Y the sum of USD 4,150,000 – pursuant to article 13 of the Salvage Convention. This was based on a saved value (ship, cargo and bunker) of MUSD 42. The Nordic Association of Marine Insurers

Salvage Case study, cont. Article 13 award was higher than the total SCOPIC cost, which were assessed/calculated to USD 3,320,000.- A deduction of 25% of the difference between SCOPIC and Article 13 was deducted from the award ((4,150,000 – 3,320,000) * 0.25 = 207,500) Salvage award = 4,150,000 – 207,500 = USD 3,942,500 paid by Property insurers (H&M and Cargo) What went wrong? The Nordic Association of Marine Insurers

SCOPIC example 6 day service SCOPIC invoked on day 3 Art. 13 award MUSD 1.5 SCOPIC expenses from date invoked USD 400,000.- SCOPIC recalculated from day 1, USD 700,000.- Diff between Art. 13 and SCOPIC = USD 800.000.- Salvage award = USD 700’ + USD 600’ = MUSD 1,3 The Nordic Association of Marine Insurers

Scopic Example - illustrated The Nordic Association of Marine Insurers

4. Practical examples The Nordic Association of Marine Insurers

Salvage case 1 - Voutakos Voutakos Engine damage off Ushan 29.10.06 The Nordic Association of Marine Insurers

Salvage case 1 - Voutakos Please be advised that during the vessel's voyage from Colombia to Rotterdam the vessel sustained major Main Engine breakdown at position Lat:48 - 07 N Long 07 - 58 W (abt 120 miles off Ushant). The vessel is loaded with 174,496.60 mt of cargo of ' Colombian Steam coal'. Efforts by the crew to repair the damage have been unsuccessful and the Master requested tug assistance. LOF 2000 has been signed with Tsavliris Salvage (International) Ltd. Towage commenced this morning. The Nordic Association of Marine Insurers

Salvage case 1 - Voutakos Voutakas, cont. Salvor contracted two commercial tugs Vessel towed to Rotterdam Salvor awarded MUSD 1.8 by Lloyds arbitration Out of pocket expenses MUSD 0.8 Award appealed – MUSD 2.7 Sent to High Court for ”disparity principle” Award kept – MUSD 2.7 The Nordic Association of Marine Insurers

Salvage case 2 – CSCL Hamburg CSCL Hamburg Grounding on coral reef in Egypt 31.12.2009 The Nordic Association of Marine Insurers

Salvage case 2 – CSCL Hamburg Value of vessel / cargo in damaged condition MUSD 25 Claim from Egyptian Authorities MUSD 14.5 11 days of negotiations – prior to refloating Final result MUSD 6 mill (+ P&I compensation for reef) Refloating in 12 minutes The Nordic Association of Marine Insurers

Salvage case 3 – DS Splendour Grounding in Orinoco river 01.03.2006 DS Splendour, Multi purpose/Dry cargo/Container carrier, 20742 Dwt, Loaded with 17330mt Aluminum products On her way from Puerto Ordaz to Veracruz, Mexico Three vessels formed a pilot assisted convoy, and were to pass through the dredged channel from mile 40 into the open sea in the Orinoco River Delta. DS Splendour was the first vessel. The Nordic Association of Marine Insurers

Salvage case 3 – DS Splendour Offer from commercial Salvor – LOF 2000 Offer from local tug company – lumpsum + bonus 4 days ligthering and refloating – USD 350,000,- Value of vessel and cargo – MUSD 35-40 Award with LOF 2000? The Nordic Association of Marine Insurers

Salvage case 4 – MS Nordlys 15th September 2011 – Fire in Engine room and flooding outside Ålesund. The Nordic Association of Marine Insurers

Salvage case 4 – MS Nordlys Issue: One company (BuBE) appointed by local fire brigade (IUA) BuBe contracted diving company Gard contracted specialists – SMIT Vessel was saved. All the above companies contributed in the salvage. Problem: all the above claimed that they were the «key» to salving the vessel. Salvage award to who and what proportion? The Nordic Association of Marine Insurers

Almost Salvage case 5 – Laden LNG Vessel drifting in Red Sea December 2013 The Nordic Association of Marine Insurers

Almost Salvage case 5 – Laden LNG, cont. Fixed offer received by Tug company A in Yanbu – USD 350,000 for assisting vessel. Very high price…. Fixed offer received from Tug company B in Jeddah – USD 1,500,000.- ….!! Tug offer A suddenly a bit more digestable… Fortunately vessel regained engine power, and no need for tug. Tug company A and B had the same owners… The Nordic Association of Marine Insurers

Finally - Salvage – general approach In a salvage situation: Close contact with Owners Appoint local representative Inform authorities Get the facts Degree of danger Weather Damage Commercial world – use it Stay calm - usually more time available than salvors want you to believe. The Nordic Association of Marine Insurers

The Nordic Association of Marine Insurers Thank you The Nordic Association of Marine Insurers