Making Salvage Terms Stick
Will changes to the salvage convention protect cargo owners from hasty decisions?
John Reeder QC
This article by John Reeder QC first appeared in Lloyd's List on 26 January 2011.
In the past there have frequently arisen disputes as to whether a master had authority to enter into a particular salvage contract. Often the dispute centred upon whether the place of redelivery agreed was appropriate in all the circumstances. The plank for the attack was provided by the English law rules relating to agency of necessity. This Article focuses on the extent to which Article 7 of the International Salvage Convention 1989 may or may not impact on the changes brought about by Article 6.2 of the Convention as regards the application of the principles of agency of necessity to salvage contracts, and, specifically, Lloyd’s Open Form.
The scope of the debate can be best defined by taking a particular set of hypothetical facts and examining the application of the relevant provisions of the Convention to those facts. Suppose that a casualty is immobilised as a result of an engine breakdown. A LOF is entered into by the ship owners with salvors which provides for redelivery of the casualty at the port of destination under the bill of lading contract, which will involve a tow of several thousand miles and a route whereby the flotilla will pass a number of suitable ports of refuge. Plainly the reward will be greater than it would be if the tow were shorter and some intermediate port agreed as the place of safety. Have cargo owners, for example, any redress under Article 7 of the Convention in these circumstances?
The Convention
The principal provisions of the Salvage Convention are incorporated into the law of the United Kingdom by section 224 and schedule 11 of the Merchant Shipping Act 1995.
Article 6.1 provides,
“This Convention shall apply to any salvage operations save to the extent that a contract otherwise provides expressly or by implication "
Article 6.2 provides,
“The master shall have the authority to conclude contracts for salvage operations on behalf of the owner of the vessel. The master or the owner of the vessel shall have the authority to conclude such contracts on behalf of the owner of the property onboard the vessel. ’’
This provision protects salvors from disputes as to whether the other party to a salvage contract (usually the casualty’s master or her owner) had authority to bind the owners of all the property at risk. Consequentially, it relieves them of the need to seek authority from all the salved interests as to the terms of the agreement. Its effect as far as English law is concerned is to reverse the decision in The Choko Star.
Its significance is that the requirements are not circumscribed by “reasonableness”. There is no express provision that the terms of the salvage contract should be reasonable, e.g. as to the port of redelivery. Further it is not necessary to imply such a requirement, and to do so would go some way to defeat the intention of the Convention to encourage salvage operations. The cargo owner’s remedy lies under the contract of carriage, unless Article 7 provides protection.
Article 6.3 provides,
“Nothing in this article shall affect the application of Article 7 nor duties to prevent or minimise damage to the environment. ”
The significance of this provision is that it prevents parties to a salvage contract from opting out of Article 7 and those Articles dealing with pollution.
Article 7 of the Convention
Article 7 provides as follows:
“Annulment and modification of contracts
A contract or any terms thereof may be annulled or modified if -
the contract has been entered into under undue influence or the influence of danger and its terms are inequitable; or
the payment under the contract is in an excessive degree too large or too small for the services actually rendered. ”
This wording gives rise to a number of considerations, all of which bear on its possible application to our hypothetical case.
First, comparison of the terms of Article 7(a) and Article 7(b) make it clear that while Article 7(b) is limited to terms concerning remuneration for salvage services, Article 7(a) is not so limited. Thus a term agreeing the place of safety under a LOF salvage contract is one which is within the scope of Article 7(a).
Secondly, Article 7(a) confers a jurisdiction to annul or modify a salvage contract if, but only if, the specified conditions are met. The first is that the contract has been entered into under undue influence or the influence of danger. Usually influence of danger alone is relied upon to impugn the offending provision. The second is that the term (or the entire contract) which the applicant for relief seeks to have annulled or modified is inequitable. These two requirements are linked by the conjunction “and”.
Does the fact that a salvage contract is not entered into unless the vessel is in danger automatically cause the first requirement to be fulfilled or is some peculiarly exigent danger required? If the mere presence of a salvage danger were sufficient then all that would be required is the fulfilment of the second condition. As far as danger is concerned, there is no need to draw a distinction between different levels of danger. In the case of both undue influence and danger, the threshold for the jurisdiction is proof that the applicant’s bargaining power was vitiated by one or other of these matters. Accordingly, in cases where the applicant relies upon danger in order to found jurisdiction to annul or modify a particular term, he must demonstrate that his power to negotiate was removed altogether or significantly eroded by reason of the actual or reasonably apprehended danger faced by the property at risk at the time the bargain was struck. Of course, the greater and more immediate the danger, the more likely it will be that he will be able to discharge his burden of proof on this point and vice versa.
It is not surprising that the jurisdiction conferred by Articles 7(a) and (b) should be formulated in the way that they are. As far as terms relating to remuneration are concerned, the mischief to be addressed is the agreement to an amount which in the event proves to be excessively too high or too low for the services actually rendered. The English Court has long been willing to modify such bargains, even where there has been no undue influence or particularly exigent danger.
Where a claim for modification of a term of a salvage contract is brought, the scope of the jurisdiction is that provided by Article 7(a) itself. If the jurisdiction formulated in the past by the English Courts appears wider than the Convention it is inconsistent with it, and any such wider jurisdiction cannot survive the introduction of the Convention into the law of the United Kingdom.
Thirdly, there is no nexus between Article 7(a) and 7(b).There is nothing surprising about the fact that Article 7(b) is not subject to a requirement of undue influence or influence of danger. This is because the approach in the two sub-paragraphs is very different. Thus, Article 7(a) requires the Court to consider the circumstances at the time when the agreement was made while Article 7(b) requires the Court to evaluate the fairness of the agreed remuneration in the light of hindsight.
Fourthly, it is implicit in the wording used in Article 7(a) that the party seeking relief must show a causal relationship between the undue influence or the influence of danger and the inequity of the term. In other words that party must show that he, or the person acting on his behalf, agreed the inequitable term because of the undue influence or the influence of danger.
Conclusion
It will readily be appreciated that in a simple case of immobilisation, such as that provided by our example, there will be considerable difficulty confronting the owners of cargo in overcoming the first hurdle, namely, that the ship representative’s mind or choice was overborne by the danger confronting the casualty. As regards the second limb, it is a question of fact in each case as to whether the particular term, i.e. the place of redelivery in the example under consideration, may be regarded as inequitable. It is also a question of fact whether the exigent danger caused the agreement to the inequitable term. It is unlikely that Article 7 will serve to protect the cargo owners where they claim the agreement is inequitable from their point of view.