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SALVAGE

SALVAGE. Vidar Solemdal Senior Claims Executive, Gard AS January 15 th , 2014. Introduction to salvage. Principle of salvage Salvage contracts LOF/SCOPIC Examples. 1. The principle of salvage:. No Cure, No Pay

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SALVAGE

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

  2. Introduction to salvage • Principleofsalvage • Salvagecontracts • LOF/SCOPIC • Examples The Nordic Association of Marine Insurers

  3. 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

  4. 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

  5. The principle of salvage, cont. • SALVAGE • 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

  6. 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

  7. 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

  8. 2. Salvage contracts • Standard contracts • LOF 2011 – Lloyds Open Form • Salvage contract • 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

  9. 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

  10. Contracts – LOF The Nordic Association of Marine Insurers

  11. Contracts – LOF The Nordic Association of Marine Insurers

  12. 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

  13. LOF Statistics The Nordic Association of Marine Insurers

  14. LOF Statistics The Nordic Association of Marine Insurers

  15. 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

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

  17. 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

  18. 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&IClause • ISU and IG – replaces article 14 The Nordic Association of Marine Insurers

  19. 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) The Nordic Association of Marine Insurers

  20. SCOPIC • Typical tariff details The Nordic Association of Marine Insurers

  21. SCOPIC – invoke or not The Nordic Association of Marine Insurers

  22. 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

  23. Salvage Case study(14.9, page 325 in Gard guidance) • A fully laden container vesselof 9,567 GT suffered Main Engine breakdown in the Atlantic Ocean, approximately 50 nm SW of Madeira. Weatherconditions at the time favourablebuttheattempts to rectifythe problem failed. Vesseldriftedslowlytowards Madeira. • Aftersome back and forth, H&M confirmed to Owner thattheywereready to conclude a contractwithsalvagecompanyX, on a daily hire basis. Salvorhadsuitabletug and equipmenttwodaysaway. • Shipowner, unfortunately, had in themeantimesigned a LOF with SCOPIC incorporatedwithsalvagecompany Y. Salvagecompany Y resourceswere 4 daysaway. The Nordic Association of Marine Insurers

  24. Salvage Case study, cont. • One day later weatherderiorated. Vesselcontinued her driftingtowardstheshorelineof Madeira, and wasestimated to run aground in 30 hours. • Salvor Y invoked SCOPIC. • Salvor Y sub-contractedSalvorX to preventgrounding/save vessel. • VesselgroundedbeforeSalvorXtugarrived. • Salvor Y successfullyrefloatedthevessel in 18 days. • Lloyds Arbitration Panel awardedSalvor Y the sum of USD 4,150,000 – pursuant to article 13 oftheSalvage Convention. This wasbasedon a savedvalue (ship, cargo and bunker) of MUSD 42. The Nordic Association of Marine Insurers

  25. Salvage Case study, cont. • Article 13 awardwashigherthanthe total SCOPIC cost, whichwereassessed/calculated to USD 3,320,000.- • A deductionof 25% ofthedifferencebetween SCOPIC and Article 13 wasdeducted from theaward ((4,150,000 – 3,320,000) * 0.25 = 207,500) • Salvageaward = 4,150,000 – 207,500 = USD 3,942,500 paid by Property insurers (H&M and Cargo) • Whatwentwrong? The Nordic Association of Marine Insurers

  26. 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

  27. Scopic Example - illustrated The Nordic Association of Marine Insurers

  28. 4. Practicalexamples The Nordic Association of Marine Insurers

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

  30. 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

  31. 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

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

  33. 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

  34. Salvage case 3 – DS Splendour Grounding in Orinoco river 01.03.2006 The Nordic Association of Marine Insurers

  35. 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

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

  37. 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

  38. AlmostSalvagecase 5 – Laden LNG • Vesseldrifting in Red Sea December 2013 The Nordic Association of Marine Insurers

  39. AlmostSalvage case 5 – Laden LNG, cont. • Fixed offer received by Tugcompany A in Yanbu – USD 350,000 for assistingvessel. Veryhighprice…. • Fixed offer received from Tugcompany B in Jeddah – USD 1,500,000.- ….!! • Tug offer A suddenly a bit more digestable… • Fortunatelyvesselregainedengine power, and noneed for tug. • Tugcompany A and B hadthe same owners… The Nordic Association of Marine Insurers

  40. 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

  41. Thank you The Nordic Association of Marine Insurers

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