CASE COULD LEAD TO ARBITRATION OF LOCAL SALVAGE DISPUTES IN U.S.

Salvage is a concept recognized only in admiralty law. When property on land is in peril and is saved by a volunteer, no remuneration is given. Yet, precisely the same service rendered at sea will yield an ample reward to the rescuer.

The law of salvage developed in response to society’s need to encourage maritime commerce by reducing sea losses. The law is based on the premise that one who voluntarily saves another’s property from sea perils should be rewarded by the property owner. This concept also serves as an inducement to embark on salvage operations

A salvor must satisfy certain criteria to obtain a salvage award. There must be a maritime peril from which the property could not have been saved without the salvor’s efforts. The salvor must provide assistance voluntarily and efforts must be successful. If property is not saved (“no cure”), the salvor receives no remuneration (“no pay”).

Compensation is based on factors such as labor expended, skill, promptness, energy displayed, value of property employed by the salvor and the danger to which it was exposed, the risk incurred and the value of the property saved.

In the United States, federal district courts have exclusive jurisdiction over salvage cases. Jurisdiction is seldom exercised, however, as most salvage disputes arise under private contracts that are arbitrated in London. This occurs because salvage operations are usually conducted pursuant to Lloyd’s Open Form salvage agreements (LOF) that contain London arbitration clauses. There is also a federal policy of enforcing foreign arbitration agreements involving maritime matters.

LOF contracts allow salvors to conduct salvage operations without negotating prices. The “no cure, no pay” contract will be signed prior to the commencement of salvage efforts. At the completion of the operation the salvor will submit its claim to the property owner. If the amount is challenged, the salvor will seek a salvage arbitration award from the Committee of Lloyd’s, an internationally recogized body which deals with salvage arbitrations.

The recently reported “Brier” case (1993 A.M.C. 1194) in the New Jersey U.S. District Court indicates that federal courts will not require parties to LOF salvage agreements to arbitrate in London when disputes are between American citizens and local in nature.

In the “Brier” case, an American yacht, sailing from Connecticut to Maryland, grounded on the New Jersey Coast. The American vessel owner contracted with a New Jersey salvage company to refloat the yact under an LOF agreement. The vessel was then refloated and towed to safety.

Thereafter, the vessel owner was informed that the salvage cost amounted to $38,000. The vessel owner refused to pay and instituted an action in the federal court to determine the correct forum for resolving the salvage compensation issue.

The vessel owner successfully argued that the court could not compel it to arbitrate in London under the Convention on Recognition of Enforcement of Foreign Arbitration Awards.

Both parties were U.S. citizens and the situs of the dispute occurred in U.S. waters. Merely by stating that the LOF contract was to be arbitrated in a foreign country did not convert the purely local controversy into an agreement enforceable under the Convention. The case was then retained by the federal court.

Over the past few years there have been discussions in American shipping circles on creating a forum in the United States for the arbitration of local salvage compensation disputes. It remains to be seen if the “Brier” case will cause U.S. salvors to incorporate American arbitration clauses into their salvage agreements in order to assure prompt salvage services in American waters.


[Back]