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25 July 2018
A recent Agder Court of Appeal decision regarding remuneration for towage of the vessel Kvitnos underscores that where commercial terms have been discussed, a party wishing to claim a salvage award should expressly reserve its rights to do so.
Kvitnos, a modern liquefied natural gas-powered cargo vessel, suffered a main engine breakdown while crossing the Oslo Fjord in December 2015 and was adrift in poor weather conditions about six hours from the nearest shallows. A tug proceeded to assist Kvitnos after being alerted to the situation by a local fisherman. The master on Kvitnos had communicated with the local vessel traffic service of its need for assistance, but had not instructed the tug.
In order to find out what had been agreed regarding remuneration, the vessel's hull and machinery insurers contacted the tug owners whilst the tug operation was under way. The insurers talked with the tug owners' general manager by telephone about 15 minutes before the tug attended the Kvitnos.
The subsequent legal dispute revolved around whether the parties had concluded an oral agreement for towage on commercial terms during this telephone call. While the parties drew different conclusions from the call, the court considered that they had agreed on the main content (ie, only commercial terms regarding towage had been discussed, salvage or the 'no cure – no pay' principle had not been mentioned, and it had been agreed that the paperwork could wait until the following working day). It was further proven that after the call, the insurers had had the impression that an agreement on commercial terms had been concluded, something which had been communicated internally via email, but not confirmed by the tug owners.
The question of whether a commercial agreement was reached is underpinned in this situation by the rules on salvage. Under Norwegian law, which has incorporated the Salvage Convention 1989, a salvor that saves a vessel from peril has a statutory right to claim a salvage award, but only if:
The legal threshold for the peril requirement is low and awards are typically set high, especially for professional salvors.
In Kvitnos, the parties agreed that the vessel's situation exceeded the low threshold of the peril requirement. The district court therefore initially awarded the tug owners a salvage award of NKr7.5 million. However, the Court of Appeal overturned this judgment, holding that given that commercial terms had been discussed in the call with Kvitnos's insurers, if the tug owners had still wished to claim a salvage award, it had been incumbent on them to expressly reserve their rights to do so in any discussions with the insurers. On the basis that the tug owners had not reserved such rights, the Court of Appeal ruled that commercial terms had been concluded and awarded the tug owners remuneration of NKr450,000 in place of the NKr7.5 million salvage award. The tug owners appealed this decision to the Supreme Court, but the Supreme Court did not give leave to appeal.
The case illustrates that oral agreements may give rise to disputes when parties have divergent impressions of what has been agreed, especially in distressed situations where time is of the essence and information is scarce. When entering into commercial towage agreements in respect of distressed vessels, it is important to be aware of the underlying rules on salvage and to have good routines for communication in place to avoid unnecessary disputes.
For further information on this topic please contact Gaute K Gjelsten, Nina M Hanevold-Sandvik or Bård Breda Bjerken at Wikborg Rein by telephone (+47 22 82 75 00) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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