The "Voutakos"

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DMC/SandT/08/21
Owners of The Vessel "Voutakos" v. Tsavliris Salvage (International) Ltd
English High Court: Queen’s Bench Division: Admiralty Court: David Steel J.: [2008] EWHC 1581 (Comm): 10 July 2008
T Brenton QC and Stewart Buckingham, instructed by Ince & Co, for the appellant shipowners
Steven Gee QC and Tim Hill, instructed by Hill Dickinson, for the respondent salvors
SALVAGE: ARBITRATION AWARDS UNDER LLOYD’S OPEN FORM: TOWAGE: EXISTENCE AND APPLICABILITY OF "DISPARITY PRINCIPLE": SIGNIFICANCE OF COMMERCIAL TOWAGE RATES IN FIXING SALVAGE AWARDS: INTERNATIONAL CONVENTION ON SALVAGE 1989 ART.13(1)(f)
Summary
In this case the Admiralty Judge had a rare opportunity to consider an appeal from a Lloyd’s Open Form arbitration award. The case concerned the effect of the so-called "disparity principle" and the extent to which commercial towage rates should be taken into account by Arbitrators in the assessment of salvage awards, particularly in cases involving straightforward towage. Whilst holding the disparity principle to be flawed and unworkable, the judge further held that commercial towage rates were relevant in providing a useful cross-check by way of providing a floor to a salvor’s legitimate claim. Their relative significance would depend on the facts of each case.

DMC Category Rating: Developed

This case note is based on an article by Solicitors Stephen Pink and Joanna Waterfall that first appeared in the August 2008 Shipping Update published by Clyde & Co.

Background
In October 2006 the motor bulk carrier Voutakos was in the South Western Approaches to the English Channel bound for Rotterdam with a cargo of nearly 175,000 tons of coal, when she suffered a main engine breakdown. Her owners entered into a Lloyds Open Form salvage agreement with Tsavliris Salvage.

The salvors were able to charter in the tugs Fairmount Glacier and, subsequently, Alphonse Letzer (which were both in the vicinity) to act as main towage and steering vessel respectively. After a tow covering 560 miles, during which some difficulties were caused by winds increasing to force 6-7, the casualty was safely redelivered in Rotterdam.

The salvors' claim proceeded to arbitration where the Arbitrator made a salvage award of US$1,750,000 against a salved fund of over US$42 million. In doing so the Arbitrator noted that the dangers were limited to immobilisation until professionally assisted and that the cost to the salvors of hiring in the tugs that performed the service totalled US$874,122.58. The salvors appealed against this award on the main ground that the award was too low.

The "disparity principle"
The Appeal Arbitrator (John Reeder QC) took the opportunity of this appeal to conduct a review of recent Lloyd’s Form awards in towage cases and, in particular, the effect of the "disparity principle". This was an approach that the Appeal Arbitrator identified as having been applied over a number of years in salvage cases where dangers were held to consist of immobilisation only, with no great emergency, and where only towage assistance was required. In such cases the principle was said to have the effect that any sum awarded should not be wholly out of line with commercial towage rates.

Having reviewed the authorities, the Appeal Arbitrator held that the disparity principle was "seriously flawed" and that its effect had been to result in stagnation in the level of awards in towage cases. He concluded that a general increase was required in order to comply with the 1989 Salvage Convention and the policy issues underlying it. The result was that the Appeal Arbitrator allowed salvors' appeal and increased the award for the services to US$2.7 million.

Appeal to the High Court
The owners of the salved property sought leave to appeal against the Appeal Arbitrator's findings and were given permission to pose four questions of law:

"(i) Whether, when assessing salvage remuneration for a service consisting of towage for a vessel in no physical danger, the commercial rate for service is a wholly irrelevant consideration.

(ii) Whether, based on the findings of fact in the appeal Award, as distinct from the appeal arbitrator’s characterisation of the case, the "disparity principle" - which states that in salvage cases where there is only immobilisation, there exists no great urgency and only straightforward towage is required to effect a cure, it is important that the sum awarded should not be wholly out of line with commercial towage rates - was properly applicable to the present case.

(iii) Whether the "disparity principle" is fundamentally flawed.

(iv) Whether a general increase in awards in towage cases is required to comply with the requirements of the 1989 Salvage Convention."

Judgment
The Admiralty Judge, Mr Justice David Steel, first considered issues (ii) and (iii) concerning the disparity principle. He found that in law there could be no such principle that applied only to straightforward towage cases. His reasoning was that in practice it was impossible to identify, with any degree of accuracy, the class of salvage service to which the principle could be said to apply. The gradations of danger in cases of immobilisation, together with the difficulty in identifying the proper status of salvors meant that, as the judge put it, "the concept of "immobilisation until professionally assisted" is more a term of art rather than a science".

Having apparently found in salvors' favour, albeit on restricted grounds, on the disparity principle point, the judge turned to issue (i) and whether, on a more general basis, commercial towage rates could ever be relevant to the assessment of salvage remuneration. As authority for the suggestion that such rates are always irrelevant, the salvors relied on "The Batavier", an 1853 decision by Dr Lushington. Having considered the case in some detail the judge noted:

"… the decision seems to be entirely consistent with the proposition that commercial rates, whilst not remotely determinative of the appropriate level of remuneration, are relevant and "useful". They certainly provide a useful cross check by way of providing a floor to a salvor’s legitimate claim."

The judge emphasised this point in summarising his views on this important head of appeal as follows:

"In short, commercial rates are admissible and relevant but their significance will depend on the facts of each case. In the simplest of towage cases they may be particularly influential and provide, subject to values, a floor to any award that could begin to be regarded as encouraging. …But it cannot be that the actual cost and the rates of hire involved (and the contribution made thereby to success) are to be treated as wholly irrelevant."

Finally, the Court considered issue (iv) and the extent to which a general increase in towage awards was required. It was held that this was not a question of law and therefore was not something that could be considered as part of the appeal.

Based on these findings the court remitted the award to the Appeal Arbitrator for reconsideration in the light of the judgment.

Comment
Having held that commercial tug hire rates are relevant and admissible in salvage cases, the judge appeared to face some difficulty in deciding to what extent this meant that the Appeal Arbitrator had erred in law. This uncertainty arose because it was not entirely apparent from the reasons on appeal whether the Appeal Arbitrator had concluded that such rates were always irrelevant, or whether his comments in this respect were directed only to his consideration of the disparity principle. However, the fact that the award was ultimately remitted for reconsideration appears to suggest that the judge felt that there was a significant possibility that erroneous principles had been followed.

The difficulty for the Appeal Arbitrator now, and for salvors and owners of salved property alike in the future, is to decide exactly how commercial rates are to be taken into account in the assessment of awards. In the instances quoted above, the judge makes it clear that in appropriate cases such rates can be a useful cross check in establishing a floor to a salvage award. But to what extent can they be considered to be a restricting factor? Although there are parts of the judgment that indicate such evidence should be capable of restricting awards, the mechanism by which this is to take place and the extent of such influence is much less clear. In a revealing comment, which may well be obiter given that it was made in consideration of point (iv) of the appeal, the judge concluded:

"If and to the extent some form of disparity principle has been applied in and only in some classes of case, such was wrong in principle. But the significance of the point is probably highly marginal since the impact of commercial rates would be the greater in straightforward towage cases."

The forgoing statement would tend to confirm that the relevance of commercial rates only applies to cases where the salved vessel is not saved from physical danger. For example, owners investigating the availability and rates for tugs to assist a vessel drifting towards a lee shore will probably discover that tug operators are not so willing to offer their tugs on the normally available commercial rates. Even if such rates are put forward in evidence, in cases of that type it appears that they will exert little or no influence on the level of award.

Applying the principles of this judgment, it is now up to the Appeal Arbitrator to decide, on the facts of this and future cases, what the "impact" of commercial rates on salvage awards should be.

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