The 'disparity principle' has re-emerged as a hot topic following the Admiralty and Commercial Court decision in the appeal proceedings in the "VOUTAKOS" (2008).
The Voutakos was bound for Rotterdam when she suffered a main engine breakdown in the South Western Approaches to the Channel. Pursuant to a Lloyd's Open Form ("LOF") salvage agreement entered into between her owners and salvors Tsavliris, salvors undertook a successful tow covering some 560 miles and delivering her safely at Rotterdam.
Salved interests and salvors could not reach agreement on salvage remuneration and the matter was referred to arbitration under LOF/LSSA rules. The first instance arbitrator awarded salvors US$1,750,000 against a salved fund of US$42,469,777.27. On appeal, the award was substantially increased to US$2,700,000 by the LOF Appeal Arbitrator.
The LOF Appeal Arbitrator held that the "disparity principle", which has in the past been applied to cases of "rescue towage" such as this and permits reference to commercial towing rates when determining salvage remuneration, was seriously flawed. He considered there should be a general increase in awards in towage cases. Salved interests appealed to the High Court arguing the LOF Appeal Arbitrator had erred in law by discarding the disparity principle and the Admiralty judge was given the rare opportunity to consider an appeal from an LOF arbitration.
Salved interests' appeal was allowed and the award was remitted to the LOF Appeal Arbitrator for reconsideration of quantum. The Admiralty judge rejected the argument by respondent salvors that commercial towing rates were always wholly irrelevant to the assessment of salvage remuneration. In his view, they provided a useful cross-check for salvage remuneration in the sense that they establish a "floor" or base for salvors' claims.
However, the Admiralty judge agreed with the LOF Appeal Arbitrator that, insofar as the disparity principle was said to be a narrow principle applying only in straightforward rescue towage cases, it was seriously flawed. He considered that attempts at precise categorisation or gradation of salvage services were artificial given the realities of salvage at sea. He held that it was simply not possible to establish any rule as to when risks of pure immobilisation of a vessel elided into more serious and immediate dangers.
The encouragement and protection of the salvage industry through generous awards has long been considered an essential public policy element of LOF awards. The giving of high awards in appropriate cases encourages salvors to continue to respond to casualties, benefiting all involved in the marine industry. Article 13 of the Salvage Convention 1989 states that courts and arbitrators should fix awards with a view to encouraging salvors and salvage at sea.
The above must be balanced against the rights and needs of salved interests and their underwriters. They should not feel discouraged from asking for and accepting salvage services because of the risk of excessive awards being made. It is not in the public interest for salved interests to avoid entering into salvage contracts - this would have grave consequences for safety of life at sea, vessels, cargo and the environment.
The full impact of this judgment is still to be felt. In particular, the extent to which commercial towing rates might play a role in shaping future awards has yet to emerge. In a recent award, it was indicated that while commercial rates were always relevant, providing evidence of those rates in every case would be discouraged. It seems higher LOF awards in cases of rescue towage will inevitably occur as a result of the Appeal Arbitrator's decision that there should be a general increase in the level of awards for such cases.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.