Background
The distinction matters enormously for the commercial outcome. Under towage, the contractor is paid the agreed daily or lump-sum rate regardless of the difficulty of the operation, and the risk allocation is set out in the contract (typically TOWCON or TOWHIRE 2021). Under salvage, the salvor is paid an award proportional to the value of the property saved (vessel, bunkers, cargo, freight) and the difficulty and risk of the service, calculated under Article 13 of the Salvage Convention 1989 and decided either by Lloyd’s arbitration under LOF or by litigation. A successful salvage can generate awards of tens or hundreds of millions of dollars; a failed salvage typically generates nothing under the no-cure-no-pay rule, subject to special compensation under Article 14 and SCOPIC.
This article covers the towage-salvage distinction, the modern legal architecture provided by the Salvage Convention 1989 and Lloyd’s Open Form 2020, the special compensation regime for environmental salvage under Article 14 and SCOPIC, the calculation of salvage awards, the contemporary salvage industry and its leading professional salvors, and a selection of notable salvage cases that illustrate the principles in operation.
Towage versus Salvage
Towage exists when one vessel provides motive power, escort, steering assistance, or similar service to another under a contract that fixes the consideration in advance. The towed vessel is in normal operating condition and the towage is a chosen method of accomplishing a routine task: an offshore platform tow from a builder to its operating site, an LNG carrier delivery from a Korean shipyard, an inland barge transit, an escort through restricted waters.
Salvage exists when service is rendered to a vessel or cargo that is in actual or threatened danger and the service is voluntary (not under a pre-existing duty owed to the property) and the property is saved in whole or in part. The classical formulation requires three elements: real and imminent peril, voluntary service, and success in saving the property. All three are matters of fact in each case.
Two scenarios commonly raise the towage-salvage distinction. First, a tug under a routine towage contract encounters circumstances during the tow that change the nature of the service from contracted assistance to peril-response: weather deterioration that endangers the tow, parting of the towline, casualty in the tow itself. Whether the additional services constitute salvage outside the towage contract depends on the contract terms (modern TOWCON and TOWHIRE expressly preserve salvage rights for events outside contemplation) and on the surrounding facts.
Second, a vessel agrees with another to perform what looks like a tow but is in fact responding to peril. The agreement may be express (a “lump-sum salvage” rather than LOF) or implied. The legal characterisation depends on the substance, not the form, of the agreement.
Salvage Convention 1989
The International Convention on Salvage 1989, adopted in London on 28 April 1989 and in force since 1996, is the principal international instrument. It replaced the Brussels Salvage Convention 1910 and updated the law to reflect modern conditions, particularly the increased risk and consequence of marine pollution.
The Convention applies to salvage operations except where the parties expressly contract out and (subject to mandatory provisions on environmental salvage) where the Convention itself does not require its application. It binds states parties, including the UK, France, Germany, the Netherlands, Greece, Italy, Australia, China, Japan, the United States (which signed in 1992), and most major maritime states.
Article 12 sets out the basic principle: salvage operations that have a useful result give right to a reward. No reward is payable if the operations have had no useful result, except as provided in Article 14.
Article 13 sets out the criteria for fixing the reward, with the objective of encouraging salvage operations. The criteria are listed without ranking and include: the salved value of the vessel and other property, the skill and efforts of the salvors in preventing or minimising damage to the environment, the measure of success obtained by the salvor, the nature and degree of the danger, the skill and efforts of the salvors in salving the vessel and lives, the time used, expenses and losses incurred, the risk of liability and other risks run, the promptness of the services, the availability and use of vessels and other equipment, and the state of readiness and efficiency of the salvor’s equipment.
Article 14 introduces the special compensation regime for environmental salvage. Where the salvor has failed to earn a reward under Article 13 sufficient to cover his expenses, but has prevented or minimised environmental damage from a vessel that “by itself or its cargo threatened damage to the environment”, he may be entitled to special compensation from the owner equal to his expenses, with an enhancement of up to 30% (or in exceptional cases 100%) where actual environmental benefit is achieved.
Lloyd’s Open Form
Lloyd’s Open Form (LOF) is the standard salvage contract used worldwide. The first version dates from 1908; the current version is LOF 2020, the latest in a series of revisions reflecting industry developments. LOF is administered by the Council of Lloyd’s and salvage arbitrations are conducted before the Lloyd’s Arbitrator, currently Sir Bernard Eder QC.
LOF is a no-cure-no-pay form: if the salvor fails to save any property, no Article 13 reward is payable, although Article 14 special compensation and SCOPIC remuneration may still apply. The form is short (one page) and is signed by the master of the vessel in distress on the salvor’s behalf, with the consideration of award to be determined later by Lloyd’s arbitration in London.
LOF 2020 incorporates the Salvage Convention 1989 by reference and provides standard wording for the parties to opt for SCOPIC at the time of signature or invocation thereafter. The 2020 revision updated the form to address modern issues including cyber risk, sanctions, and clarification of the SCOPIC opt-in mechanics.
The decision to sign LOF rather than negotiate a fixed-price salvage contract is typically made under intense time pressure by the master or owners on advice from their P&I Club. LOF gives the salvor an immediate basis on which to begin work without negotiation, and gives the property a salvage outcome that is fair under tested principles. The Lloyd’s salvage arbitration system is highly specialised and provides expert determination, although awards are sometimes appealed to the Lloyd’s Appeal Arbitrator.
SCOPIC: Special Compensation P&I Club Clause
SCOPIC, introduced in 1999 in response to perceived deficiencies in Article 14 of the Salvage Convention, is a contractual modification of Article 14 that provides a more predictable basis for special compensation. It is incorporated into LOF by tickbox and can be invoked by either party at any time during the operation.
Under SCOPIC, when invoked, special compensation is calculated by reference to a fixed tariff of daily rates and equipment charges set out in the SCOPIC schedule (revised periodically; the 2014 revision is the current operative version, with subsequent updates). The tariff covers tug rates, manpower, equipment, and a 25% uplift on the calculated tariff sum.
A critical feature of SCOPIC is that the salvor is entitled to elect SCOPIC at any time, even if the Article 13 reward would be higher. However, if the salvor invokes SCOPIC, the Article 13 reward is reduced by the amount of SCOPIC if SCOPIC is greater, and by 25% of the difference between SCOPIC and Article 13 if Article 13 is greater (the “SCOPIC penalty”). This calibrates the incentive: invoking SCOPIC unnecessarily costs the salvor a quarter of the upside from Article 13.
The owners’ P&I Club, by signing the SCR (SCOPIC Confirmation by P&I Club), provides security for the SCOPIC payment. This addresses a chronic problem with Article 14 where the salvor was contractually entitled to special compensation but the property owners were unable or unwilling to pay it.
Salvage Award Factors
The factors in Article 13 of the Salvage Convention 1989 are applied by the Lloyd’s Arbitrator to the facts of each case to fix the reward. The reward is typically expressed as a percentage of the salved fund, the aggregate value of vessel, cargo, and bunkers saved, although it may also be expressed as a fixed sum.
Salved values are determined as at the place of safety. For the vessel, this is typically the market value at the place of safety adjusted for any continuing damage or pre-existing condition. For cargo, the CIF value at the actual or intended port of discharge. For bunkers, the value of fuel saved.
The percentage applied to the salved fund typically ranges from 1-2% for low-risk straightforward operations to 15-20% for major casualty interventions, with extreme cases reaching higher. The Lloyd’s Arbitrator’s published reasoning (although awards are not formally published, summaries appear in the trade press and in Lloyd’s List) gives guidance on the application of factors.
The factor that has grown most in recent years is the environmental factor. Article 13(1)(b) requires the arbitrator to take into account the salvors’ skill and efforts in preventing or minimising environmental damage. This is in addition to (not duplicating) the special compensation regime under Article 14.
Environmental Salvage
Environmental salvage is the operational and legal dimension that emerged from the major tanker casualties of the 1970s-1990s (Torrey Canyon 1967, Amoco Cadiz 1978, Exxon Valdez 1989, Sea Empress 1996). The earlier no-cure-no-pay regime gave salvors no incentive to intervene where the property was likely to be lost (and so no reward earned) but the environmental consequence of non-intervention would be severe.
Article 14 and SCOPIC together remedy this gap by providing payment for the salvor’s expenses and a measure of profit even where the property is lost, provided the salvor has prevented or minimised environmental damage. The professional salvors retain large environmental response capabilities (oil spill containment, pumping equipment, lightering capability, fire-fighting tugs) on the basis of this revenue stream.
The interaction between the environmental salvage regime and the MARPOL civil liability regime (CLC, IOPC Fund, Bunkers Convention) is complex. Salvage compensation comes from the property owner’s P&I Club; the IOPC Fund and CLC liability comes from a different fund and is paid to pollution victims. The two regimes are designed to operate in parallel but interactions arise particularly where the salvage payment ultimately reduces the property owner’s exposure to pollution liability.
Professional Salvage Industry
The professional salvage industry has consolidated dramatically over the past four decades. Historically, dozens of independent salvors operated worldwide; today the field is dominated by a small number of major groups.
Boskalis Smit (formerly Smit Salvage and Wijsmuller, both absorbed by Boskalis in 2010) is the largest single salvage operator, with a fleet of high-bollard-pull tugs based at strategic locations worldwide and extensive specialist equipment.
T&T Salvage is the major US-based salvor, particularly active in the Caribbean and Gulf of Mexico, and was the principal salvor on the X-Press Pearl casualty in Sri Lanka (2021).
Resolve Marine Group, Donjon Marine, and a few other US operators provide capability for the US market. Tsavliris Salvage (Greek) and Five Oceans Salvage (Greek) are notable specialist operators.
Subchapter operators (Ardent, formerly Svitzer Salvage, since dissolved or absorbed) and ad hoc consortia respond to major casualties on a case-by-case basis.
The contraction of the industry has been driven by the high capital cost of salvage tug fleets, the unpredictability of revenue under no-cure-no-pay (mitigated but not eliminated by SCOPIC), the increasing safety and environmental obligations on salvors, and the pressure on insurance markets to find economic ways of paying for environmental response capability.
Notable Salvage Cases
A number of cases illustrate the principles in action.
The Nagasaki Spirit (1997) was an English Court of Appeal case that addressed the meaning of “fair rate” in Article 14 of the Salvage Convention. The Court held that “fair rate” referred to a reasonable rate of remuneration for the use of the salvor’s tugs and equipment, not a market rate of profit. This decision contributed to the dissatisfaction with Article 14 and the development of SCOPIC.
The Sea Empress (1996) grounded at the entrance to Milford Haven and broke up after ten days of salvage attempts, releasing 72,000 tonnes of crude oil. The salvors (Smit Tak in collaboration with Maersk) recovered approximately 70,000 tonnes of cargo before final loss. The salvage award reflected the partial success and the prevention of even larger pollution.
The Erika (1999) and Prestige (2002) sinkings off the coasts of France and Spain respectively reinforced the regulatory drive for double-hull tankers and the importance of port refuge for distressed vessels. The legal aftermath included the EU Erika I, II, and III packages and the IMO MARPOL Annex I amendments accelerating the phase-out of single-hull tankers.
The Hanjin Pennsylvania (2002) experienced a major fire and explosion in the Indian Ocean and was salved by Smit. The award (around US$32 million) was at that time one of the largest under LOF and reflected the high salved value of the containership and her cargo.
The Costa Concordia (2012) wreck removal off Giglio, Italy, was a landmark wreck removal operation rather than a classical salvage, but illustrated the capability of the modern industry. The parbuckling and refloating in 2013-2014, led by Titan Salvage and Micoperi, was at the time the largest wreck removal in history.
The Ever Given grounding in the Suez Canal (March 2021) was technically a refloating operation rather than a salvage in the classical sense, but the dredging and tug operations led by Boskalis Smit illustrated the practical capabilities of modern professional salvors.
The X-Press Pearl (May 2021) caught fire off Colombo, Sri Lanka, with cargo of nitric acid and plastic pellets. The salvage operation by T&T Salvage attempted but was unable to prevent total loss, with substantial environmental contamination of the Sri Lankan coast. The case illustrated both the limits of salvage capability for chemical and pellet cargoes and the role of Article 14/SCOPIC where the property is ultimately lost.
Towage Contracts
Towage contracts other than those discussed above include the older UK Standard Towing Conditions (UKSTC), still occasionally used in the UK domestic market; the BIMCO TOWHIRE and TOWCON 2021 forms (see tug operations); the BIMCO Heavycon 2007 for heavy-lift dry-tow; the BIMCO Projectcon 2020 for project cargo; and various ad hoc forms used in particular trades.
The principal commercial concerns in towage contracts are: definition of the service, allocation of risk for delays and weather, knock-for-knock indemnities, insurance requirements, ship inspection clauses, sanctions clauses, and dispute resolution. Modern BIMCO forms include detailed BIMCO sanctions clauses, BIMCO Cyber Security Clause, and BIMCO Force Majeure Clause that have become standard in the trade. See the force majeure in shipping article for related contractual analysis.
Related Wiki Articles
- Tug Operations and Bollard Pull
- Pilotage Operations
- Berthing Operations and Fender Selection
- Maritime Lien and Ship Arrest
- Force Majeure in Shipping
- MARPOL Convention
- MARPOL Annex I Oil Pollution Prevention
- Heavy Weather Operations
- Voyage Charter Party
- Time Charter Party
References
- International Convention on Salvage, London, 28 April 1989
- Lloyd’s Open Form (LOF 2020)
- SCOPIC Clause 2014 and subsequent revisions
- BIMCO TOWCON 2021 and TOWHIRE 2021
- BIMCO Salvage 2014
- BIMCO Heavycon 2007
- The Nagasaki Spirit [1997] AC 455 (HL)
- Council of Lloyd’s, LOF Salvage Arbitration Procedure
- International Salvage Union (ISU) annual statistics
- IMO Resolution A.949(23), Guidelines on Places of Refuge
- IMO MARPOL Convention, as amended
- IMO International Convention on Civil Liability for Bunker Oil Pollution Damage 2001
- IOPC Funds Annual Reports and individual incident reports
- ICS Bridge Procedures Guide, current edition
- ITOPF (International Tanker Owners Pollution Federation) technical papers and incident statistics