Article by Stephen F. White, Esq.
Every year, hundreds of boaters discover first-hand the difference between contract towing and salvage. In many cases, the discovery is made when the surprised boat owner receives a bill for a salvage reward as opposed to a bill for towing services, and the difference between the two can be enormous. The typical towing bill is based upon the hourly-rates of the towing company. While such bills can be considerable, they will usually pale by comparison to a bill for a salvage reward, which is usually based upon the salvor’s claim that he is entitled to be liberally rewarded for saving property from damage by a marine peril. Many salvors will base their claim upon a percentage of the value of the salvaged vessel. This can range anywhere from 1 percent to 100 percent. Hopefully, boat owners who read this article will gain advance knowledge of the differences between towing and salvage so that they will be better prepared to react in a crisis and to make the best selection between accepting salvage services and forming a contract for marine towage and recovery services.
The law of marine salvage has existed in one form or another since the Middle Ages. The fundamental incentive driving the law of marine salvage has been to provide a reward for salvors who voluntarily come to the assistance of vessels in distress in order to save persons and property from destruction. Marine salvage laws hail from a time when most vessels at sea were engaged in commerce. Before a ship operator would be willing to depart from his schedule and to incur additional expenses caused by a side trip to save persons and vessels in distress, an incentive was needed to make the effort worthwhile. Maritime law and international treaties have provided such an incentive in the form of a reward to the successful salvor.
In order to claim a salvage reward, the salvor must meet three requirements. There must be (1) a marine peril; (2) service voluntarily rendered; and (3) success in saving persons or property. If these three requirements are met, the salvor may present the owner of the salvaged property with a claim for his reward. The size of the reward will vary from case-to-case based upon the circumstances presented by the salvage situation. Many boaters believe that they do not need to become familiar with the law of salvage, since “that salvage stuff only applies to large ships and I only own a 25-foot runabout.” The laws of marine salvage apply to every vessel upon navigable waters, from a canoe to an ocean liner. It is not necessary for the vessel to be engaged in commerce. This subjects almost all recreational vessels (except those on landlocked lakes and ponds) to claims for salvage rewards.
It is not necessary for a salvor to be engaged in commerce or to be a professional tower/salvor. Passing boaters (known as “chance salvors”) and professional salvors are both entitled to present a claim for a salvage reward. The only difference is in the size of their rewards, since professional salvors are typically entitled to receive an uplift in their rewards due to the investment of time and money they have made to purchase and maintain their equipment, keep up a radio watch, and to stand ready at an instant to assist boaters in distress.
The underlying marine peril, which must exist before a salvage claim can be asserted, may take many forms. Typically, a marine peril is the kind of dangerous situation at sea that will almost certainly inflict damage upon a vessel in distress if it is left subject to wind, waves, weather and tide without prompt salvage assistance. Such circumstances typically include fire, collisions, leaking/sinking, grounding, and distress brought upon by mechanical breakdowns and equipment failures. In order to simplify life on the water, many professional marine towing and salvage companies have adopted unwritten policies defining which situations and perils they will consider to present as a salvage situation as opposed to a simple towing job. Many companies consider any job that requires more than one towing vessel (such as a “hard grounding”), or a job performed in perilous circumstances (such as in fog, shoal water or in a storm) to be a marine salvage job, and they will send a bill for a salvage reward. Other marine towing and salvage companies have not adopted any such policies and, unless some other agreement is reached with the boat owner, they will consider every job involving the slightest actual or potential peril to be marine salvage.
The requirement that a salvage service be “voluntary” should not be exaggerated. Voluntariness only requires that there be no pre-existing contractual duty between the salvor and the vessel in distress. If a tower has a contract to perform the work, it cannot present a salvage claim. Another exception is for salvors who are statutorily obligated to render assistance such as members of the Coast Guard, police and fire departments. They typically cannot present a salvage claim because their service is not considered “voluntary.”
Upon arriving at the scene of a potential salvage job, many professional salvors will present the boat owner with a “No Cure, No Pay” contract. By signing a “No Cure, No Pay” contract, the boat owner usually agrees to some form of binding arbitration, which will achieve a relatively quick determination of the appropriate amount of the salvage reward. The boater also acknowledges that the services being provided will form the basis of a salvage claim, and that the salvor will be entitled to a lien upon the vessel in the amount of the claim. Regardless of the existence of a “No Cure, No Pay” salvage contract, and in the absence of a towing agreement or other contract, the services rendered by a salvor are still considered to be voluntary and will entitle him to a reward if he is successful. Without a “No Cure, No Pay” agreement, if the boat owner disagrees with the amount of the claim it will then be necessary for the salvor to go to court in order to get paid.
Because every salvage situation is different, it is extremely difficult to set the amount of the salvage reward. In the absence of a “No Cure, No Pay” agreement calling for arbitration, an admiralty court will set the reward after suit is filed by the salvor against the boat owner and/or his vessel. The United States is a signatory to the Salvage Convention of 1989 (SALCON 89). This is an international treaty which attempts to standardize the law of salvage. SALCON 89 includes ten different criteria which must be examined in order for the court or arbitrator to determine the appropriate amount of a salvage reward. The maximum amount of the reward is capped at the post-salvage value of the vessel. In no particular order of importance, the ten criteria to be considered are:
- The salved value of the vessel and other property;
- The skill and efforts of the salvors in preventing or minimizing 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, other property and life;
- The time used and expenses and losses incurred by the salvors;
- The risk of liability and other risks run by the salvors or their equipment;
- The promptness of the services rendered;
- The availability and use of vessels or other equipment intended for salvage operations; and
- The state of readiness and efficiency of the salvor’s equipment and the value thereof.
In some cases, a salvor is successful in saving the vessel, only to find that it is a constructive total loss, or that its post-salvage value is insufficient to pay a meaningful salvage reward. In cases of constructive total loss, the salvor will not be entitled to any salvage reward, since he has effectively salvaged nothing of value. The salvor will, however, be entitled to an award of “Special Compensation” – a new form of compensation adopted by SALCON 89. The possibility of receiving “Special Compensation” is designed to encourage salvors, even in cases in which saving the vessel is hopeless, to continue to exert their best efforts to minimize environmental damage (primarily oil pollution). Under such circumstances, the salvor is entitled to be paid the fair value of his out-of-pocket expenses, plus a fair rate for the equipment and personnel actually utilized in the salvage operation. If he is successful in minimizing environmental damage, the salvor is entitled to recover up to 130 percent of this amount. In extraordinary cases where court or other tribunal deems it appropriate, the salvor may be entitled to receive up to 200 percent of this amount.
It can be seen that there is a considerable difference between marine towing and marine salvage. It is the boaters who do not know the difference who are surprised when they receive a bill for a salvage reward instead of a bill for marine towage or other services based upon an hourly-rate. The difference can be enormous. Take for example a $150,000 yacht, which is purposefully grounded by its owner because he can’t find the source of a leak. If a marine tower were called and agreed to assist the vessel on an hourly-rate basis, then repaired the leak and pulled the boat off in 4 to 5 hours, and billed for its work at an hourly-rate, the cost might be $500 to $600. However, the same marine tower who arrives and sees a boat in peril because the weather is deteriorating or because the grounding is close to the shipping channel, and who enters into no contractual agreement with the owner before providing his services, could demand and receive a salvage reward for $25,000 for doing essentially the same work.
If the boat owner has time in which to obtain a marine contractor on an hourly-rate basis, as opposed to allowing a salvor to save his vessel, he may prefer to make a contractual arrangement rather than accepting salvage services and the inevitable claim for a salvage reward. SALCON 89 does provide that a boat owner has the right to refuse salvage services. Under circumstances in which the boat owner may have time to hire the marine contractor of his choice on a contractual basis rather than accepting the offered services of a salvor, and where a small delay will not overly exacerbate the danger to his property, it is much more advantageous for the boat owner to hire a marine contractor who is willing to perform the services for a conventional bill. If time allows, the boat owner should consult with his insurance company before allowing salvage to take place. The insurer may be able to recommend marine contractors in his area or be able to make other useful suggestions. Nevertheless, if the boat is in immediate peril and there is no time to take a more considered approach, accepting the services of a marine salvor is often the only rational choice. Under such circumstances, the salvor’s services should not be refused (but the boat owner must be prepared to receive a substantial bill for a marine salvage reward).
Hopefully, this article has been useful in explaining the differences between marine towing and marine salvage. Since the recreational boater is subject to the same laws of salvage as are large ocean-going ships, the recreational boat owner must be just as astute as a seagoing Captain in making his choice of remedies when his boat is exposed to a marine peril. Marine salvors should still be considered the “good Samaritans” of the sea. They provide a valuable and necessary service. Their voluntarily offered services are only misunderstood by boaters who do not appreciate the difference between accepting a salvor’s services and retaining a contractor on an hourly-rate basis. The only way to avoid surprise and confusion – and to be absolutely sure that you will receive a bill for services rendered as opposed to a bill for a salvage reward – is to get your agreement in writing prior to the time the marine contractor begins his work. If you have a signed agreement for services at an hourly-rate, then you should be able to keep track of the costs of those services as they are incurred, and you should not have to fear the unexpected receipt of a sizeable bill for a salvage reward based upon a percentage of the value of your vessel.
If your boat is in peril (and if you have time), the best advice is to ask the responding marine contractor what he will charge for his services before he gets started, get your agreement in writing, and contact your insurance carrier as soon as possible.
Stephen F. White is a maritime attorney and Chairman of the Litigation Section with the law firm of Wright, Constable & Skeen, LLP in Baltimore, Maryland. He attended the University of North Carolina-Chapel Hill and the University of Maryland School of law, graduating from both with Honors. As an Ensign in the U.S. Navy, he served aboard destroyers as Officer of the Deck, Surface Warfare Officer, and Combat Information Center Watch Officer. He is admitted to the bar in all Maryland State and Federal courts, the U.S. Courts of Appeals for the Fourth Circuit, Third Circuit, and Federal Circuit, as well as the U.S. Supreme Court.
© 2000 Stephen F. White