The Supreme Court recently issued a significant decision on the apportionment of a salvage reward among a shipowner and cargo interests.
In the early hours of 29 May 2009, a fire started on board a passenger ferry while it was en route from Naples to Palermo. The ferry was assisted by two tugs, which extinguished the fire with the help of firefighters and the local coastguard.
Some time after the incident, the owner of the ferry was admitted to the extraordinary administration procedure (ie, an insolvency procedure which applies to large insolvent companies and aims to ensure the continuation of their activities and preserve their business's operational unity).
The two tug companies filed an application to have their salvage reward credits admitted to the extraordinary administration procedure. The commissioner of the insolvency procedure partially granted their application.
The salvors appealed the above decision before the Rome Tribunal, which granted their request by increasing the salvage reward by more than 15% in their favour.
The Rome Tribunal's decision was further appealed before the Supreme Court by the commissioner of the insolvency procedure (ie, the party representing the interests of the owner of the salved vessel). In particular, the appellant argued that such decision contravened Article 13, Paragraph 2 of the International Convention on Salvage 1989 (the Salvage Convention) since it affirmed that the shipowner was liable for the full salvage reward, including the shares due by the cargo owners.
Notwithstanding the fact that the shipowner's appeal on the specific issue above was rejected due to a technical procedural ground, the Supreme Court considered that the legal issue raised in the appeal deserved to be examined, as it was an issue of particular importance which had given rise to conflicting decisions and debate among scholars.
First, the Supreme Court referred to Article 13, Paragraph 2 of the Salvage Convention, which entered into force in Italy in 1996, providing that national laws of the adhering states may maintain or introduce a rule requiring a salvage reward to be paid by an interested party, "subject to a right of recourse of this interests against the other interests for their respective shares".
The Supreme Court identified in Article 497 of the Code of Navigation the national law provision referred to in Article 13, Paragraph 2 of the Salvage Convention. According to Article 497:
the expense for the remuneration and the reward due to the salvor ship in case of assistance or salvage of a ship or aircraft, shall be paid by all property interests in accordance with the provisions on general average contribution, even when the assistance has not been requested by the master of the ship or of the aircraft in distress or has been provided against his refusal.
Pursuant to Article 497 of the Code of Navigation, the compensation due to salvors for the salvage of an entire expedition, considered as a whole, amounts to a sort of 'average expense', which must be apportioned among all of the interested parties after the salvor has been paid, in accordance with the mechanism of the general average contribution.
By comparing a salvage reward to an average expense, the shipowner is thus considered by the court to be the principal debtor towards the salvor on the basis of several provisions of the Code of Navigation which identify the shipowner (also through the master) as the leader of a maritime expedition. The court stated that the shipowner is responsible for any act or event which generates obligations inherent to the ship's operation, including those relating to salvage, in relation to:
- voluntary salvage;
- mandatory or obligatory salvage; and
- salvage under contract.
To this purpose, the court referred to several provisions of the Code of Navigation – namely:
- the duty to safeguard an expedition from dangerous events by all available means (Article 302);
- the analogous duty, when necessary and consistent with the needs of the expedition, to provide for the protection of the cargo interests, cooperating with them with a view to adopting the most appropriate measures to avoid or reduce damages (Article 312); and
- a shipowner's liability for the acts of the crew and for the obligations contracted by the master, as regards the ship and the expedition (Article 274).
In light of the above, the court concluded that a salvor is entitled to claim all of the reward against a shipowner, which can then file a recourse action against the cargo interests for their proportional shares.
The court also specified that insofar as the portion of a reward relating to cargo is concerned, the shipowner's liability is vested jointly in the cargo interests for their own shares. This means that the salvor can choose to claim against:
- the shipowner for the entire reward; or
- each of the cargo interests for their respective shares.
In this respect, the court excluded the joint liability of cargo interests, given the independence and autonomy of their respective positions, stating that they are liable only for the portion of a salvage reward relating to their own goods.
The Supreme Court decision is the first on the specific matter of the apportionment of a salvage reward issued after the Salvage Convention's entry into force in Italy. The decision has confirmed the principle already expressed in previous Supreme Court judgments that the shipowner is liable towards the salvor for an entire salvage reward, subject to recourse action by said shipowner against the cargo interests.
What is notable is that the court reaffirmed this principle by referring to Article 13, Paragraph 2 of the Salvage Convention.
However, the Supreme Court's conclusions are debatable, as is its interpretation of Article 497 of the Code of Navigation, which it referred to as the national rule providing that the payment of a salvage reward must be made by one of the interests. Therefore, contrasting decisions of the lower courts or even the Supreme Court are likely to be issued in future – rendering the debate on this specific issue far from concluded.
