Maritime Law and Practice in China

Liang Zhao and Lianjun Li

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CHAPTER 12 Salvage at sea

12.1 Salvage at sea in the CMC 1992 refers to the salvage operations rendered at sea or any other navigable waters adjacent thereto to the ships and other property in danger.1 The provisions for salvage at sea in the CMC 1992 were drafted based on the International Convention on Salvage 1989 (the “Salvage Convention 1989”). Therefore, both the structure and the contents of the relevant provisions in the CMC 1992 are very similar to the provisions in the Salvage Convention 1989. Meanwhile, in 1993, China acceded to the Salvage Convention 1989. According to the CMC 1992, if any international convention concluded or acceded to by the PRC contains provisions differing from those contained in the CMC 1992, the provisions of the relevant international convention shall apply, unless the provisions are those on which the PRC has announced reservations.2 Therefore, the provisions of the Salvage Convention 1989 have the force of law in China except for any reservations, and have the priority in application over the relevant provisions in CMC 1992.

Concepts and application

12.2 “Ship” in the context of salvage at sea means any ship referred to in the CMC 1992 and any other non-military, public service ship or craft that has been involved in salvage operations therewith.3 The ship in the CMC 1992 means sea-going ships and other mobile units, but does not include ships or craft to be used for military or public service purposes, nor small ships of less than 20 tons gross tonnage.4 The Salvage Convention 1989 also provides that “this Convention shall not apply to warships or other non-commercial vessels owned or operated by a State and entitled, at the time of salvage operations, to sovereign immunity under generally recognized principles of international law unless that State decides otherwise”.5 12.3 “Property” means any property not permanently and intentionally attached to the shoreline and includes freight at risk. “Payment” means any reward, remuneration or compensation for salvage operations to be paid by the salved party to the salvor according to the provisions for salvage in the CMC 1992.6 The provisions for the salvage at sea in the CMC

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1992 do not apply to fixed or floating platforms or mobile offshore drilling units when such platforms or units are on location engaged in the exploration, exploitation or production of sea-bed mineral resources.7 12.4 Salvage at sea includes the salvage of cargoes on board the salved ship. There is no concept of cargo in the CMC 1992 or the Salvage Convention 1989. So the cargo for the purposes of salvage at sea means any general cargo except for state-owned cargo and humanitarian cargo. Unless the State owner consents, no provision of the Salvage Convention 1989 shall be used as a basis for the seizure, arrest or detention by any legal process of, nor for any proceedings in rem against, non-commercial cargoes owned by a State and entitled, at the time of the salvage operations, to sovereign immunity under generally recognised principles of international law.8 Furthermore, no provision of the Salvage Convention 1989 shall be used as a basis for the seizure, arrest or detention of humanitarian cargoes donated by a State, if such State has agreed to pay for salvage services rendered in respect of such humanitarian cargoes.9 12.5 China acceded to the Salvage Convention 1989 but reserved the right not to apply the provisions of the Salvage Convention 1989: (a) when the salvage operations take place in inland waters and all vessels involved are of inland navigation; (b) when the salvage operations take place in inland waters and no vessel is involved; and (c) when the property involved is maritime cultural property of prehistoric, archaeological or historic interest and is situated on the sea-bed.

Salvage contract and performance

Salvage contract

12.6 In the CMC 1992, a contract for salvage operations at sea is concluded when an agreement has been reached between the salvor and the salved party regarding the salvage operations to be undertaken.10 In some dangerous emergency circumstances, the salvor and the salved party may have no time or chance to conclude a written contract for salvage. The salvage operations may be conducted by the salved party or the master of the ship in danger. Therefore, the lack of written salvage contract is not a valid defence of the salved party to deny its liability for the salvage payment.11 12.7 The master of the ship in distress shall have the authority to conclude a contract for salvage operations on behalf of the shipowner. The master of the ship in distress or its owner shall have the authority to conclude a contract for salvage operations on behalf of the owner of the property on board.12 Because of the authority of the owner of the salved ship, the shipowner, after paying the salvage payment to the salvor, has the right of recourse against the owners of the salved property for the apportionments of the salvage payment. However, this recourse claim is a claim relating to the contract of carriage of goods by sea,

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namely the claim of the carrier against the cargo interests, but not a claim relating to the salvage at sea.13

Salvage operations

12.8 A salvage operation in the Salvage Convention 1989 means any act or activity undertaken to assist a vessel or any other property in danger in navigable waters or in any other waters whatsoever.14 A salvage operation is always an urgent demand because the ship to be salved is in danger. For this reason, special operations for salvage may be conducted before the conclusion of the salvage contract. The special operations include but are not limited to off-loading operations and towing operations. It is always a dispute in Chinese judicial practice that the salved party denies the special operation as part of the salvage operation. So, the construction of the nature of special operations is important for the recognition of the salvage operation so that the salved party may be entitled to the salvage payment. 12.9 When the goods are off-loaded from the ship in danger, it might be argued that the operation is not a salvage operation but a lightening operation. Laizhou Anda Shipping Agency Co Ltd v Eastern Light Shipping Ltd is such a kind of case for bulk cargo.15 In this case, a bulk carrier grounded on the channel and failed in the attempt of refloating. After receiving instruction from the Penglai Maritime Safety Administration, the claimant sent its ship for the over barge operation. During the two days’ operation, about 2,700 tons of logs were off-loaded and, after that, the bulk carrier successfully refloated by its own engine with assistance of three tug boats. The Qingdao Maritime Court held that the over barge operation was a salvage operation. The owner of the bulk carrier appealed and argued that it had only concluded an off-loading contract with the claimant. The appeal was rejected by the Shandong High People’s Court. It was pointed out that the bulk carrier was in danger when it failed to refloat and thus the off-loading operation was for salvage purposes. 12.10 Similar lightening operations for oil tankers may also be considered as salvage operations. In Putian Haishen Shipping Co Ltd v Pingan Property Insurance Co Ltd Hainan Branch and Hainan Yuehai Shipping Logistics Co Ltd,16 an oil tanker sank into the sea after collision and the break-hole was below the surface of sea. The master of the oil tanker requested the local rescue centre for the drainage of water in the engine room. Upon the request of the rescue centre, the claimant sent its ship to pump out the oily water and to lay out an oil fence. After the receiving operation, the break-hole rose over the surface and the oil tanker was salved. However, the owner of the oil tanker denied salvage at sea, but instead contended that the claimant had just provided oily water receiving operations which was not part of a salvage operation. The SPC in the retrial of the case pointed out that the oil tanker was in real danger and the claimant’s operation was a salvage operation even if the oil pollution had not eventually occurred. 12.11 A ship without power may not be in danger but may be in danger in special circumstances, e.g. in bad weather. In those special circumstances, a towing operation shall

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be considered as a salvage operation. In The Guangzhou Rescue and Salvage Bureau v Dalian Jiliang Shipping Co Ltd and others,17 the ship of the defendant lost power due to a collision with another ship. The defendant sent a request to the claimant for towing the ship to a safe port. When the towage commenced, the claimant requested to calculate the salvage reward based on the “no cure no pay” principle, but the defendant replied that it wanted to calculate remuneration for towage. After towing, a dispute arose whether the defendant should pay the salvage reward or the towage remuneration. The northeast wind was found at 5–7 level and gust at 8 level before and at the beginning of towing. The Guangzhou Maritime Court pointed out that, although the collision did not put the defendant’s ship in danger, the ship lost power and was actually in danger in the weather condition at that time. Therefore, it was held that the towing operation was a salvage operation.

State-controlled salvage

12.12 With respect to the salvage operations performed or controlled by the relevant competent authorities in China, the salvors shall be entitled to the rights and remedies provided for in the CMC 1992 in respect of salvage operations.18 Therefore, besides the relevant competent authorities that perform the salvage operations by themselves, the private salvors that perform the salvage operation controlled by the relevant competent authorities are also the salvors although they may not conclude any written salvage contract.19 In China, the relevant competent authorities include the Maritime Safety Administration (MSA) and its branches, and China Rescue and Salvage (CRS) and its branches of the Ministry of Transport of the PRC. The salvage operations may be organised by local maritime safety administrations and performed by local rescue and salvage bureaus. 12.13 In practice, the MSA may entrust CRS for salvage operations according to the entrustment agreement between them. A question in practice arose on whether the MSA can claim salvage payment as a salvor. In Shantou Maritime Safety Administration of the PRC v Sinopec Guangdong Yuedong Petroleum Branch,20 the defendant requested salvage of its oil tanker from Shantou Maritime Safety Administration (Shantou MSA) and Shantou MSA organised China Rescue and Salvage Shanghai Branch (Shanghai CRS) to perform the salvage operation. After successful salvage, Shantou MSA claimed the salvage payment, but this was rejected by the defendant who argued that Shantou MSA did not perform the salvage operation and thus was not the salvor. The Guangzhou Maritime Court pointed out that Shantou MSA was legally authorised to organise the salvage operation according to law.21 It was agreed in the entrustment contract that Shantou MSA was entitled to claim for the salvage payment and Shanghai CRS promised not to claim directly against the salved party for the salvage payment. Therefore, it was held that Shantou MSA was entitled to the salvage payment as the salvor.

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Performance of salvage

12.14 During the salvage operation, the salvor shall owe a duty to the salved party to:22

(1) carry out the salvage operations with due care;
(2) exercise due care to prevent or minimise damage to the environment;
(3) seek assistance from other salvors whenever circumstances reasonably require;
(4) accept the intervention of other salvors when reasonably requested to do so by the salved party; provided however that the amount of his reward shall not be prejudiced should it be found that such a request was unreasonable.

12.15 During the salvage operation, the party salved is under an obligation to the salvor to:23

(1) cooperate fully with the salvor;
(2) exercise due care to prevent or minimise the damage to the environment;
(3) promptly accept the request of the salvor to take delivery of the ship or property salved when such ship or property has been brought to a place of safety.

12.16 Under the CMC 1992, every master is bound, so far as he can do so without serious danger to his ship and persons thereon, to render assistance to any person in danger of being lost at sea.24 The Salvage Convention 1989 also requires that the States Parties shall adopt the measures necessary to enforce the master’s duty.25 However, it is not clear what the liability is if the master of a ship fails to comply with the duty to render assistance under Chinese law. In the common law jurisdiction of the Hong Kong Special Administrative Region of the PRC, the master of a vessel who fails to comply with the duty to render assistance commits an offence and shall be liable (a) on summary conviction, to imprisonment for a term not exceeding six months or a fine of Hong Kong Dollars (HKD) 10,000, or both; (b) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine of HKD 50,000, or both.26

Annulment and modification of contracts

12.17 The salvage contract may be modified by a judgment of the court that has entertained the suit brought by either party, or modified by an award of the arbitration organisation to which the dispute has been submitted for arbitration upon the agreement of the parties, if the contract has been entered into under undue influence or the influence of danger and its terms are obviously inequitable, or the payment under the contract is in an excessive degree too large or too small for the services actually rendered.27 12.18 The reason for the modification of the salvage contract may be that the salvage operations were actually different from the agreed operations in the salvage contract. In

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Nanhai Rescue Bureau of the Ministry of Transport v Archangelos Investments ENE and Another,28 the salvor, upon the request of the owner of the ship in danger, agreed to provide three tugs and a diving team for towing operations based on the tug rate RMB 3.5 per horsepower hour. However, the towing operation was replaced by the off-loading operation. In the dispute over the calculation of the payment for salvage, the Guangzhou Maritime Court held that it was reasonable to reduce the tug rate to RMB 2.9 per horsepower hour because the services rendered by the tug were easier than the agreed services and the agreed tug rate was obviously higher than a reasonable rate for off-loading operation.

Rights of salvors

No cure no pay

12.19 The principle of salvage reward in the CMC 1992 is “no cure no pay”. Where the salvage operations rendered to the ship and other property in danger have had a useful result, the salvor shall be entitled to a reward. Except as otherwise provided for the special compensation in the CMC 1992 or by other laws or the salvage contract, the salvor shall not be entitled to the payment if the salvage operations had no useful result.29 Therefore, when parties have agreed the payment for the salvage operation in a salvage contract, the principle of “no cure no pay” shall not apply and the salvage payment shall be calculated and paid not on the basis of the success of salvage but on the salvage contract. In this circumstance, the salvor shall be entitled to the payment for salvage irrespective of the success of salvage if it is so agreed in the salvage contract.30 Furthermore, the provisions with respect to the salvage payment in the CMC 1992 apply to the salvor’s right to the payment for the salvage operations carried out between the ships of the same owner.31

Salvage reward

12.20 According to article 180, paragraph 1 of the CMC 1992, the reward shall be fixed with a view to encouraging salvage operations, taking into full account the following criteria:32

(1) the salved value of the ship and other property;
(2) the skill and efforts of the salvors in preventing or minimising the damage to the environment;
(3) the measure of success obtained by the salvors;
(4) the nature and degree of the danger;
(5) the skill and efforts of the salvors in salving the ship, other property and life;
(6) the time used and expenses and losses incurred by the salvors;
(7)

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the risk of liability and other risks run by the salvors or their equipment;
(8) the promptness of the salvage services rendered by the salvors;
(9) the availability and use of ships or other equipment intended for salvage operations;
(10) the state of readiness and efficiency of the salvor’s equipment and the value thereof.

The reward shall not exceed the value of the salved ship and other property.33

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