On 10 July Mr Justice David Steel of the Queen’s Bench Division of the Admiralty Court handed down the High Court Judgement in the matter of an arbitration between Tsavliris Salvage (International) Ltd and the owners of the vessel Voutakos, her bunkers, stores and cargo. This case had been appealed to the High Court on four questions of law, primarily centred around the so-called “disparity principle” and the appropriate levels of salvage awards in rescue towage cases.
Background
The Voutakos, a motor bulk carrier, suffered a main engine breakdown in the South Western Approaches to the
Initial Award
On 20 July 2007 an initial award of U.S.$1,750,000 was made against a salved fund of U.S.$42,469,777.27. In making this award, the Arbitrator noted he had taken into account the level of out of pocket expenses in a case where the tow was totally sub-contracted to a third party. He found that there was no risk of physical danger other than immobilisation.
Appeal
This award was subsequently appealed by the salvors, on three grounds:
1) that, in making his award, the arbitrator had wrongly held that French and UK Emergency Towing Vessels were a viable alternative to the services that they had provided;
2) that the arbitrator’s findings were inconsistent with regard to the difficulties of the salvage service rendered;
3) that the award was too low and unjust to the salvors.
The Appeal Arbitrator (John Reeder QC) set out the factors making up what has come to be known as the “disparity principle”, by which awards in rescue towing cases such as that of the Voutakos had come to be determined. By this principle, owners have sought to argue that in salvage cases resulting from immobilisation where only a tow is required and there is no great urgency, the sum awarded should not be wholly out of line with the commercial towage rates.
John Reeder QC rejected this principle as “seriously flawed”. Further, and citing the case of ‘The Batavier’, he concluded that commercial rates are wholly irrelevant to the assessment of salvage remuneration. He went on to outline the difficulties associated with selecting an appropriate commercial rate and of applying a fixed multiple of this when making awards, whilst also judging that the principle is unnecessary given the existing considerations of a salvage award. He indicated he had carried out a review of recent towage cases and concluded that the application of the “disparity principle” had led to the stagnation of towage salvage awards which were now at such a level that they no longer encouraged salvage, as required by Article 13 of the 1989 Salvage Convention. He increased the award to U.S.$2,700,000.
High Court
The Owners appealed to the High Court and posed the following four questions:
i) Whether, when assessing salvage remuneration for a service consisting of towage for a vessel in no physical danger, the commercial rate for a 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 the 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.
Crucially, the Court answered the first question “no” and indeed went further saying that the commercial rates were relevant in all cases. In rescue tow cases the relevance would be greater than say in cases where there was physical danger. The Court said that the commercial rates “are admissible and relevant but their significance will depend on the facts of each case. In the simplest towage cases they maybe particularly influential and provide, subject to values, a floor to any award ........”
This was enough for the Court to allow the appeal with owners costs and to order the Award to be remitted to the Appeal Arbitrator for further consideration.
On the issue of the disparity principle he agreed that it was flawed but for reasons very different than those given by the Appeal Arbitrator. The Judge found that the disparity principle was flawed only in the narrow sense that it had been put to the Court in respect of rescue tows. In doing so the Court answered question ii) no, because the “disparity principle” in the restricted sense is flawed and iii) “yes” in the restricted sense described in question ii.
The Court decided that question iv) was not a question of law and therefore the Court could not consider it. It follows though that the review carried out by the Appeal Arbitrator into recent towage cases must be based on the wrong premise if as seems likely the Appeal Arbitrator had no regard to the commercial rates.
Conclusion
It is difficult at this stage to assess the full impact of this decision but it is clear that in any future case the Arbitrator must have regard to commercial rates in all aspects of a salvage operation before rendering an Award. The relevance will be greater in rescue tow cases particularly those where the service is sub-contracted to a third party where there is clear evidence of the rates charged. Whilst salvors may say they have been vindicated in showing that the disparity is flawed the reality is that the commercial rates should now act as a constraining factor in the assessment of an Award.