In Part 3 of this series, I will look at how the 1989 Salvage Convention changed the concept of agency of necessity.
1989 Salvage Convention
The question of the master’s authority has now been enacted by implementation of the 1989 Salvage Convention, in particular Article 6.2, which provides: –
“The Master shall have the authority to conclude contracts for salvage operations on behalf of the owner of the vessel. The Master or the owner of the vessel shall have the authority to conclude such contracts on behalf of the owner of the property on board the vessel.”
The latter part of this provision also enables an owner to bind a third-party cargo interest and, therefore, dispenses with the agency of necessity principle.
The Salvage Convention does, however, expressly provide for circumstances that will enable a salvage contract to be annulled or modified under Article 7 if: –
“(a) The contract has been entered into under undue influence or the influence of danger and its terms are inequitable; or
(b) The payment under the contract is in an excessive degree too large or too small for the services actually rendered.”
This provision simply gives statutory effect to the position established in the authorities over many years. It logically constrains the master or owner from binding a third-party cargo interest to a salvage contract that may be considered wholly unreasonable in amount.
However, it is unlikely that the Lloyd’s Form would come within this provision given that it is a well-recognised and internationally used salvage contract and is, indeed, very much the salvage contract of choice. It is a “no cure no pay” contract and the amount of the award is not prearranged or fixed between the owner and the salvor. It is no longer “open”. The amount is to be determined by the well entrusted method of arbitration in London with provision for appeal through an Appeal Arbitrator.
In the circumstances, the Lloyd’s Form would be regarded by the Courts as a reasonable contract per se. In my view, therefore, it would be extraordinarily difficult for the cargo interests or a hull insurer to argue that signing an LOF as opposed to any other salvage contract would be considered unreasonable.
Of course, each case turns on its own facts and it is possible for there to be a situation where an owner enters into an LOF in circumstances where there is realistically no danger or emergency and where the owner could have arranged the work required on simple commercial terms. This would, however, be an extreme and obvious case. I am not aware of any English case that has gone to the courts, at least from cargo interests’ point of view that has actually challenged (successfully or otherwise) an LOF contract under Article 7 of the Salvage Convention. I would, however, be interested to hear from anyone who knows otherwise.
Clearly a salvor, or for that matter a shipowner, may still be exposed to cargo interests (or hull insurers) if they have agreed an LOF that leaves the place of redelivery blank, then subsequently agreed a place of redelivery that could be considered unreasonable in the circumstances. That collateral contract or variation may not be binding on cargo interests – see the Pa Mar [1999] 1 Lloyd’s Rep 338, discussed in Part 1.
Are there any circumstances in which a hull underwriter could argue that his assured shipowner should never have signed an LOF in the first place? To be continued in Part 4!
Part 4 of this series will be published on 17 September 2024. Please see part 1 and part 2.
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