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The law of salvage: Case tackles unique area of maritime law

05 February 2019

#Transport, Shipping & Logistics

Nathan Cecil

Published by Nathan Cecil, Adam Vrahnos, Christopher Yong

The law of salvage: Case tackles unique area of maritime law

Case note – Mount Isa Mines Ltd v The Ship “Thor Commander” [2018] FCA 1326

There is a long established principle in maritime law whereby a person who helps recover another person’s ship or cargo in peril at sea is entitled to be rewarded for their good deed.

No, it’s not called "finders, keepers" but the law of salvage, and the case of Mount Isa Mines Ltd v The Ship “Thor Commander” [2018] FCA 1326 examines many issues in relation to this very interesting area of maritime law.

Background 

The “Thor Commander” (Ship) broke down on 11 January 2015 near the Great Barrier Reef on its way to Townsville, Australia from Chile carrying copper products (Cargo). 

Her owners, MarShip GmbH & Co KG MS “Sinus Aestuum” (Owners) arranged for a tug, the “Smit Leopard”, to tow the Ship to a nearby port in Gladstone. However, dangerous weather conditions at the time meant the Ship needed to be towed away from its course which would likely bring it aground on the Great Barrier Reef before the “Smit Leopard” arrived. 

So on 12 January 2015, the Australian Maritime Safety Authority (AMSA) issued a distress signal for any ship within a 10 hour proximity to tow the Ship to a safe position. A capesize vessel, the “Xinfa Hai” (Salvor), responded to this distress signal. Prior to the Owners and the Salvor agreeing on a commercial arrangement, and owing to the impending danger of grounding, AMSA issued a direction for the Salvor to tow the Ship to a safe position away from the Great Barrier Reef, while Owners awaited the arrival of the “Smit Leopard”.

The Salvor successfully hooked up with and towed the Ship to a safe distance away from the Great Barrier Reef, before letting her go to safely drift in open waters. The Salvor spent about 25.5 hours engaged in salvage operations. The Salvor claimed common law salvage as against Owners and the cargo on board.

The judgment discusses a number of issues related to the law of salvage. Was it a salvage operation? Were the salvage operations even necessary? What’s a reasonable reward? Should the owners of Cargo contribute to the reward? These issues are discussed below. 

Was it salvage or something else? 

One of the elements to establish salvage is that the salvage operations must be rendered by a ‘volunteer’ i.e. there must not be a pre-existing contract or official duty to undertake the salvage operations.

This concept is preserved under article 6(1) of the International Convention on Salvage done at London on 28 April 1989 (1989 Convention) which applies to any salvage operations save to the extent that a contract otherwise provided. The Navigation Regulation 2013 (Cth) gives force of law to article 6 of the 1989 Convention. 

Given the Salvor was acting at the request of AMSA, could the Salvor be considered a ‘volunteer’? 

The Court noted that the test of voluntariness was only applicable as between the Salvor and the salved, being the Ship. It was immaterial that the Salvor had been requested to conduct the operations by AMSA.  

The cited various authorities which have established that a person who obeys a statutory duty or obligation, can still be a salvor, because that duty or obligation is not enforceable against the salvor by the ship in danger, but by a governmental authority which in this case is AMSA. 

Notwithstanding, it didn’t matter whether the salvage operations were voluntarily performed because the definition of “salvage operations” under section 14 of the Navigation Act 2012 (Cth) does not create a precondition that the salvor be a volunteer, just that the salvor salvaged the “Thor Commander” in danger. 

Further, the Protection of the Sea (Powers of Intervention) Act 1981 (Cth) (Intervention Act) gives AMSA the power to issue directions and take such measures as AMSA considers necessary to prevent or reduce the extent of likely pollution by the oil or noxious substance of any Australian waters. 

Under the Intervention Act, in complying with an AMSA direction, a person has the right to recover their expenses from the owner of a ship for complying with a direction to provide salvage services.

Was it necessary for the Salvor to provide salvage to the “Thor Commander”?

A salvage operation includes any act or activity undertaken to assist a ship in danger at sea. The danger does not have to be actual or immediate, or imminent and absolute. 

During the trial, an expert witness was called to prepare projections of how far the Ship could have drifted between when it broke down to when the “Smit Leopard” arrived. Owners argued that based on the expert witness’ projections, the Ship was not in imminent danger and that the Salvor should not have intervened. 

However, the Court did not agree, holding instead that there was always a real and sensible risk that some unforeseen problem might arise to place the Ship and her valuable cargo in actual peril of grounding on the Great Barrier Reef. 

The Court concluded that it was necessary for the Salvor to provide salvage to the Ship and that no reasonable person in charge would have refused the assistance, even with the condition that a salvage award was payable.

What is a reasonable salvage award?

The majority of the Cargo was also salvaged. 

The owners of the cargo, Mount Isa, and its insurers agreed to pay the Salvor US$1 million to settle the salvage claim (Settlement). 

When Mount Isa sought to recover the Settlement from the Owners, the Owners argued that the Settlement was unreasonable.

Mount Isa argued that the settlement amount was reasonable in all the circumstances, having regard to the significant risk of legal proceedings if the matter did not settle and the advice it received from English and Australian Senior Counsel was that the Salvor would likely succeed in a salvage claim. 

Owners on the other hand argued that the advice Mount Isa obtained was ultimately based on very little documentary evidence, that the advice shed little light on the appropriate quantum of the salvage reward and that the advice they did receive on quantum indicated that the salvage reward would have been for a much lower sum. 

The Court held that Mount Isa did have sufficient material to reach a reasonable settlement having regard to Owners withholding various documents, Owners being very “cagey” with the information it shared with Mount Isa and the advice obtained as to the availability of a salvage award was reasonable. 

However, the Court found that the advice obtained by Mount Isa did not demonstrate to the Court how Mount Isa decided the settlement sum. This was because those acting for Mount Isa failed to obtain any advice from Australian lawyers as to the likely quantum of the settlement. While they did obtain advice from Australian Senior Counsel, that advice stopped short of advising as to quantum due to the documentary deficiencies previously mentioned. 

Mount Isa instead relied on advice from English lawyers who, in the Judge’s words, 

“never took the simple common sense course of seeking advice from Australian lawyers as to…the range within which Mount Isa could expect a salvage award to be made by an Australian court, or…what Mount Isa would need to do to prove that any settlement for which it claimed damages against MarShip would, or could be found to be recoverable as damages in this proceeding.”

The Court found it appropriate to assess the salvage reward based on the total value of the salved property (i.e. the vessel, her bunkers and her cargo). This was because the entirety of that property was salved, and in the circumstances, the cargo owners, should bear the liability to pay the salvage reward to the Salvors rateably based on the value of their respective salved property.

Having regard to that finding and taking into consideration that a reward should encourage salvage operations, the Court held that an overall salvage award of USD1 million for all the salved property would have been appropriate, and that Mount Isa is entitled to damages against Owners for USD909,000 out of the USD1 million that it paid to the Salvor, together with its agreed costs of £42,660.47. 

Should Mount Isa contribute to general average?

General average is a loss mitigation convention recognised by the global maritime industry. It is where ship owners and cargo interests proportionately contribute to fully reimburse those in the venture who sustained loss or damage. Parties contribute to general average so as to prevent the total loss of a ship, crew and its cargo.

So when the Owners declared general average on 13 January 2015, Mount Isa became potentially liable to contribute to general average. Mount Isa argued that it would likely suffer loss and damage if it were to contribute to the losses occasioned by the Owners’ failure to provide a seaworthy ship. 

Relevantly, the Court held that the Owners should not be able to claim contributions to general average where they have produced the damage for which they seek to recover.

The Court concluded that the Owner was at fault for the event that gave rise to the settlement expenditure, namely the engine breakdown which exposed the “Thor Commander” and the cargo to the risk of grounding. 

Therefore, Mount Isa was not liable to contribute to general average and was able to recover damages proportionate to the amount claimed by the Owners.

Why does this matter to you?

Before diving into the details, there are a couple of key takeaways in this case. 

Firstly, whether it involves a maritime claim or not, it is vital that parties seek out advice from an Australian lawyer when considering whether a settlement with a third party is reasonable, if there is any intention to recover that settlement from a counterparty in Australia. 

Secondly, a claim for general average should not be made by the party who has significantly contributed to the loss or damage for which they claim.

Authors: Nathan Cecil, Adam Vrahnos & Christopher Yong

Contacts:

Sydney
Nathan Cecil, Partner 
T: +61 2 8083 0429 
E: nathan.cecil@holdingredlich.com

Geoff Farnsworth, Partner 
T: +61 2 8083 0416 
E: geoff.farnsworth@holdingredlich.com

Melbourne
Harry Kingsley, Partner
T: +61 3 9321 9888 
E: harry.kingsley@holdingredlich.com

Brisbane
Suzy Cairney, Partner 
T: +61 7 3135 0684 
E: suzy.cairney@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Nathan Cecil

Published by Nathan Cecil, Adam Vrahnos, Christopher Yong

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