A changing approach to Marine Salvage and Wreck Removal

IMIF BUFFET LUNCHEON

Date: Monday 9th March 2015

Venue: Ince & Co LLP,International House, 1 St Katharine’s Way, London  E1

Host: Renaud Barbier-Emery, Partner, Ince & Co

Speaker: John Noble, Noble Marine

Subject: A changing approach to Marine Salvage and Wreck Removal

The salvage industry still faces big challenges, especially as giant new ships come on stream; and together with marine insurers the industry is watching anxiously the growing governmental and environmental demands on recovery operations. Those were the main themes emerging from Mr Noble’s presentation, and from the lively audience discussion which ensued.

“With the introduction of very large container ships and super bulk carriers, the salvage contractors acknowledge the lack of capability to offload cargo when lightening is required or for other reasons,” said Mr Noble.  “Some might suggest that salvage of such ships may be pushing the boundaries outside current capabilities.”

Mr Noble instanced the MSC Oscar, at 19,244 teu the largest containership in the world; and referred to plans for ships of 22,200 teu. Showing a picture of the mighty MSC Oscar accompanied by tugs, Mr Noble urged those present: “Look at the tugs – they are tiny in comparison. That gives an indication of the size of the challenge we are going to face.”

Relatively small ships that become stricken pose concerns, too. The Rena which grounded off New Zealand in October 2011 and broke in two, leading to more than three years of salvage operations and consultations, was only equivalent to a feeder ship, Mr Noble pointed out, but had occasioned significant costs to P&I clubs and underwriters.

Mr Noble began his talk by explaining how modern salvage contracts began, with the introduction in 1908 of Lloyd’s Open Form, a strictly ‘no cure – no pay’ contract. That was a fairly harsh financial environment in which to work, where the risk lay entirely with the salvor, who received a reward based on factors including the salved value of the property saved, but ended up with nothing if the salvage effort failed.

The beginning of the end of ‘no cure – no pay’ came in 1980 with a major revision of LOF whereby salvors could claim for activities where the anticipated salved value was lower than the operational expenses. There was room for arbitrators to enhance the award by 30%, or in special circumstances by up to 100%. This special compensation regime was never really successful on its own, so the provisions of the 1989 Salvage Convention were voluntarily incorporated into LOF.

It soon was realised that Article 14 of the 1989 convention was not offering sufficient compensation to salvors (Nagasaki Spirit House of Lords ruling in 1997).  Discussions took place between the International Salvage Union and the International Group of P&I Clubs to devise a system that allowed a generous level of compensation in circumstances where a ‘no cure – no pay’ reward was likely not to compensate salvors for their efforts,

The resulting SCOPIC (Special Compensation P & I Clause) provisions set down circumstances where salvors could claim for the use of their equipment. SCOPIC was incorporated into LOF 2000; the latest revision of SCOPIC rates was included in LOF 2011, with a mechanism of inflation-linked increases every three years.

(Mr Noble referred to the relative decline in the use of LOF contracts.  In 1999 there were 178 LOF salvages while in 2014, there were only 37, according to Lloyd’s Salvage Arbitration Branch.)

Introduction of SCOPIC had been the biggest change in the way salvors approached casualty situations.

Once the SCOPIC provisions were incorporated into LOF and invoked by a salvor, the concept of ‘no cure no pay’ for attending a casualty was almost redundant.  There were provisions that if an award under Article 13 of the convention exceeded the SCOPIC amount, where SCOPIC had been invoked, the Article 13 award is reduced by 25%.  In theory, this meant salvors should invoke SCOPIC only where there was no realistic chance of a decent Article 13 award, but salvors, through the encouragement offered by the SCOPIC rates, were able to stay on site knowing their efforts would attract a reasonable level of compensation.

Since Mr Noble had first been involved in wreck removal some 35 years ago there had been many changes, he said.  In earlier years, where there was a legal liability on the owner to remove a wreck the P&I clubs had indemnified owners.  Wreck removal rules did vary between clubs, but the provision for a legal requirement to remove wreck was common.

In those days the costs involved were a small portion of the overall claims expenditure of the clubs; now the story was rather different.  Wreck removal costs formed a significant proportion of claims.  2012 was an exceptional year, with the Costa Concordia and Rena casualties costing the clubs and their reinsurers an eye-watering amount of money – “we have to ask ourselves why” – and the International Group formed a working party under Michael Kelleher (of West of England P&I Club) to examine how member clubs might improve wreck disposal operations.

Mr Noble, who has attended wreck removal operations in many countries, spoke of the former approach in which an attending surveyor had to deal with the authorities, usually through the harbour master.

Nowadays the authorities generally had become much more proactive.  Environmental concerns often took precedence over operational considerations, sometimes to the extent of influencing how a removal was conducted (as with the Costa Concordia). Sometimes there would be an insistence that all oil be removed before work on a wreck started, even if this were not the safest environmental option.

Mr Noble drew attention to the Nairobi Wreck Removal Convention, due to enter into force on April 14 2015. “It seems to have caught a lot of people by surprise. The idea is to get some sort of stability and uniformity into what will become a major issue: environmental casualty response. Under the convention, the definitions of what could be a wreck are quite widespread. There is a whole page on what constitutes a wreck. Quite clearly, ‘new wrecks’ can be different from the ‘old wrecks.’ ” Flag states for the first time, and the ship operators would have requirements for reporting. The owners were liable for the costs, and had to demonstrate they had insurance for wreck removal. “It remains to be seen how it will work in practice, but I do think it offers some helpful solutions,” said Mr Noble of the convention.

Where a salvage contract included the SCOPIC clause and the situation deteriorated such that there was a wreck, the attending salvors would remain on site, thereby keeping the authorities satisfied while the operation transferred from pure salvage to wreck removal.  Often, but not always, the salvor became the wreck removal contractor.

The ever increasing cost of removal operations was clearly a worry to the clubs and reinsurance underwriters, and increasing environmental aspects had a major influence over increased costs.  Casualties made good television, so the public was much more aware when there was an incident, as in the case of the Hoegh Osaka which grounded at the beginning of 2015 near Southampton.

Comments from those present at the meeting highlighted the role of politicians. “If government says you have to remove the wreck, you have to remove it: we are still seeing this with the Rena,” said one delegate. Mr Noble said that in the old days, governments might ‘walk away’ from casualties, but no longer was this so.

He recommended to all with an interest in salvage a publication of which he was technical editor, Casualty Management Guidelines, produced by the Nautical Institute in association with the International Salvage Union.

Mr Davis said it had been a great privilege to welcome Mr Noble to throw light on a subject about which everyone needed to learn more. He stressed that the shipping industry had “a pretty good casualty record, and we should not be ashamed of that.” Mr Davis thanked Mr Noble for offering such a useful and wide-ranging overview of salvage issues, and expressed appreciation to Mr Barbier-Emery and his colleagues at Ince & Co for hosting the event in the pleasant arena of the firm’s dining room.