Why should an OSV operator get involved in salvage?

3rd August 2013

Simon Tatham looks at how salvage law and practice might catch up with the market place.

Salvage jobs performed by OSVs often tend to be ‘nick of time’ services, for example where an anchor-handler attending a nearby drilling rig is the only immediately available unit. The type of casualty and whether it is loaded or in ballast will impact on the salved property values and whether they are sufficient to command an encouraging salvage award.

If there is competition available (known as ‘alternative assistance’ in the salvage business), the job may get driven towards commercial terms, unless the operators are sufficiently canny to know when they are well placed to hold out for an LOF. With many OSVs working in the spot market, chartering managers are understandably prone to treating an emergency tow as just another job, though perhaps commanding a higher daily rate than usual. At least there is assurance of a quick and certain hire payment.

But there are other factors which tend to discourage OSV operators from pursuing salvage. OSVs sometimes command very high rates. Obviously rates are driven by availability and market forces, but why would a chartering manager bother with a speculative salvage when his units might be capable of earning up to £100,000 a day in the North Sea, at least in the summer months? A salvage job involves going off-hire and some months’ delay before getting paid. Then the crew may be on generous terms. For example the master and crew of Norwegian-flagged vessels are entitled to a significant share of a salvage award, after expenses are deducted: a throwback perhaps to days when merchant vessels had sizeable crews. Finally, 50 per cent of the net balance is typically payable to any charterer who will have incurred no hire, risk or expense, unless they needed to hire in a substitute vessel.

It does not help that the law and practice of salvage is also behind the times. However, I do feel the wind of change.

The traditional application of Article 13 of the Salvage Convention of 1989 rewards professional salvors who have invested in salvage, distinguishing them from other operators and conferring on them a special status that historically has commanded a premium award. Secondly, arbitrators, in calculating awards, have traditionally ignored the commercial reality that the majority of the reward for an OSV or similar, may go not to the operator but to the crew and charterers.

These practices hark back to some very old cases in a different era. Arbitrators are, however, well aware that some of the most successful salvors of recent times have divested themselves of tugs and many salvage personnel and rely heavily upon hiring in skilled personnel, craft and equipment. At the same time the case today can be made strongly that OSV operators are obliged to invest substantial resources in terms of new-builds, fifi, DP, safety, helidecks and levels of engineering redundancy required by the oil industry that would simply be uneconomic for a traditional salvor. These are usually more sophisticated and often more valuable than the casualty itself. For sure, the investment is for the market in which they operate and not specifically for salvage purposes, but it nonetheless makes for highly capable vessels and confers a definite benefit in any salvage situation. These vessels are, in effect, the safety vessels of the offshore world and can exhibit ship-handling skills that make a typical salvage hook-up look like the seagoing equivalent of a walk in the park. It is wrong therefore to suggest that they are not in the business of investing for the saving of life and property.

A helpful development is that LOF awards are now being published online by Lloyd’s. This means that they are available to set a wider precedent, bearing on future cases. A restatement of the law and practice by the Lloyd’s Appeal Arbitrator addressing the commercial reality of a changing market would allow the above issues to be tackled at least in part. If necessary, the right case might be taken to the High Court, enabling the English Common Law system to update itself, as it regularly does to align with the market place. The overriding principle of the Convention is that salvage should be encouraged by fair but generous awards, and some of the tools are there to do so for OSVs. When the Salvage Convention next comes up for review, the opportunity could be taken to take this one step further.

Simon Tatham

Simon Tatham is a partner at Tatham Law and founder member of the www.tugadvise.com service. He has more than 30 years’ experience of shipping law.