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Finders, but Not Keepers

11.01.14 | INSIGHTS

By Marilyn Raia
Shareholder, San Francisco Office, 415.352.2721

The ditty “finders keepers, losers weepers” may apply in a schoolyard, but it does not apply at sea. A person finding and salvaging a vessel at sea may not keep it. However, he is entitled to compensation based on the principles of maritime salvage. This column explains those principles.

Salvage Defined

It has been said maritime salvage is “as old and hoary a doctrine as may be found in the Anglo-American law.” The earliest reference to the doctrine dates to the maritime code of the island of Rhodes circa 900 BC. Since then, the seafarer who has voluntarily saved maritime property from a peril on the high seas has been entitled to a reward. There is no equivalent reward due to a volunteer who saves property in peril on land.

The United States Supreme Court in The Blackwall, 77 U.S. 1 (1869), defined salvage to be “the compensation allowed to persons by whose assistance a ship or her cargo has been saved, in whole or in part, from impending peril on the sea or in recovering such property from actual loss, as in cases of shipwreck, derelict or recapture.” Stated another way, salvage is the monetary reward provided by federal maritime law for successful services voluntarily rendered in saving maritime property, such as a vessel, that is at risk or in distress at sea.

There are two types of maritime salvage, pure salvage and contract salvage. Pure salvage occurs when a person, known as the salvor, voluntarily provides salvage services to maritime property at risk without a pre-existing agreement about how much compensation he will get if the salvage effort is successful in whole or in part. In that case, a federal court will exercise its discretion and determine what the compensation will be, taking into account various factors. Contract salvage occurs when the parties agree ahead of time what the compensation for salvage services will be. The parties can agree on a lump sum basis, or a time and materials basis, or a Lloyd’s Open Form (LOF) “no cure no pay” basis under which the successful salvor’s compensation will be determined by a Lloyd’s arbitrator under English law.

A salvor cannot agree to accept an amount for salvages services under a contract and later seek an additional discretionary award from a federal court. Taylor v. The Ahmednager Queen, 1989 AMC 2631 (N.D. Ca. 1988) illustrates the point. That case involved a yacht that struck an object in the water, became disabled, and faced deteriorating weather conditions. The owner’s distress call was answered by Taylor, whose fishing vessel, Voyager, was at anchor. Taylor guided his vessel in the worsening weather, located the Ahmednager Queen, and safely towed her in. The next morning, Taylor contacted the owner of the Ahmednager Queen seeking payment. The owner offered Taylor $200 which Taylor accepted in writing. The owner paid Taylor $200 and a $50 tip. Two days later, Taylor discovered the Voyager had suffered damage during the salvage operation. He then sued for a discretionary salvage award. The district court entered summary judgment in favor of the Ahmednager Queen’s owner, holding a valid salvage contract precluded the court from considering a further discretionary salvage award.

Who is entitled to a salvage award?

The owner of a vessel providing successful salvage services as well as the crew of that vessel, unless the crew’s employer is a professional salvor, are entitled to a salvage award. The crew is not bound by any agreement made by their employer. They have their own separate causes of action for salvage. If multiple vessels with different owners and crews are involved in the salvage operation, they all are entitled to salvage awards but not necessarily of the same magnitude.

Procedure for obtaining a salvage award

When a salvor is successful in whole or in part, he obtains a maritime lien on the property salved. A maritime lien for salvage can be enforced in only one way. Enforcement requires filing a complaint in federal court naming the salved vessel as the defendant and arresting it pursuant to a warrant of arrest issued by the court. The owner of the salved property may then post security representing the value of the salved vessel or such other amount as the federal judge deems appropriate. The district court will then hold a trial to determine the amount of the award. While the salved vessel itself must be sued in federal court for enforcement of a maritime lien for salvage, the salved vessel’s owner may also be sued in federal or state court for a salvage award.

The amount of a salvage award

There is no statute or regulation setting forth a formula for determining how much a successful salvor is entitled to recover. Instead, the district court considers various factors when determining the amount of the salvage award. In The Blackwall, the United States Supreme Court mentioned six factors commonly considered: 1) the labor expended by the salvor; 2) the promptness, skill, and energy displayed by the salvor; 3) the value of the property used by the salvor in the salvage operation; 4) the risk incurred by the salvor in securing the salved property from impending peril; 5) the value of the property salved; and 6) the degree of danger from which the property was salved. Since The Blackwall, the courts have considered additional factors, namely, the efforts of the salvor to protect the environment and to protect any historical and archeological value of the wreck. A professional salvor commonly gets a bonus or premium.

In 1996, the United States adopted the International Convention on Salvage of 1989 [“Salcon 89”]. Article 13 of that convention lists certain criteria to be considered when the amount of the salvage award is being determined. The criteria are similar to those set forth in The Blackwall and later case law. The limit of any award under Article 13 is the post casualty value of the salved property. Article 14 of the convention provides for special compensation exceeding the salved vessel’s post casualty value under certain circumstances when the salvor prevents or minimizes damage to the environment.

Examples of salvage awards

It is not uncommon for the owners of salved vessels to minimize the value of the salved vessel and level of risk, arguing for “low order salvage” and for salvors to maximize the value of their efforts and the level of risk, arguing for “high order salvage”. The courts analyze each case on its merits and strive to arrive at a fair award.

In Margate Shipping Company v. M/V Ja Orgeron, 143 F.3d 976 (5th Cir. 1998), a very large salvage award was given to the owner of an oil tanker that rescued a tug and barge. In that case, the tug M/V Ja Orgeron was towing the barge Poseidon on which an external fuel tank for NASA’s space shuttle program was being carried. During the trip, due to a mechanical failure on the tug, the tug and tow became adrift in heavy seas and strong winds. The 688-foot tanker M/V Cherry Valley, loaded with nine million gallons of heavy fuel oil, heard the tug’s distress call and proceeded to the area. After several attempts, the tanker’s crew was able to get a line on the tug, and the flotilla was safely towed to port.

The tanker owner sued for a discretionary salvage award. After considering The Blackwall factors, the district court held the tanker owner was entitled to recover 12.5 percent of the $53,834,000 value of the saved fuel tank and tug, or $6,406,440. The Fifth Circuit affirmed the tanker owner’s entitlement to a substantial salvage award. However, it found the district court had erred when valuing NASA’s fuel tank, and reduced the award to $4,125,000.

A more modest award was rendered by the court in Sea Tow Portland/Vancouver v. High Steaks, 2007 AMC 2705 (D. Or. 2007). In that case, Sea Tow towed a yacht valued at $2,146,000 away from a fire in a nearby boathouse, spending approximately thirty five minutes on the job. Sea Tow sought an award of 10% of the value of the salved yacht. The yacht owner argued Sea Tow should recover only $600. After considering the facts, the district court awarded Sea Tow $3,000.

International Towing & Salvage, Inc. v. The F/V Lindsey Jeanette, 1999 AMC 2465 (M.D. Fla 1998) involved a salvage award that exceeded the value of the salved property. In that case, a commercial fishing vessel capsized at sea after a collision with a freighter. Among other things, International Towing secured the drifting vessel and stabilized the capsized hull to capture the contents of a ruptured fuel tank and other pollutant sources in the vessel. The vessel was then towed into port, after which the pollutants were safely removed, and the vessel was righted. The base costs incurred for the salvage operation were more than $33,000 and subsequent charges increased the amount incurred to $49,287.50. But the post casualty market value of the hull was only $30,000. International Towing sued the vessel itself and its owner seeking special compensation in excess of the vessel’s post casualty value under article 14 of Salcon 89, arguing it had minimized or prevented environmental damage. The court agreed and gave an award of $49,287.50.

The doctrine of maritime salvage is a longstanding integral part of maritime commerce. The owner of a vessel at sea in distress and the party who successfully saves the vessel have rights and obligations that should be understood before the need arises.

This article is being republished or posted with permission extended by Pacific Maritime Magazine

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