Laying the Mark to Port and Starboard:Salvage Under Duress and Economic Duress at Contract Law

• Author: Olivia Lennox-King
• Pages: 32-69

LAYING THE MARK TO PORT AND STARBOARD: SALVAGE UNDER DURESS

AND ECONOMIC DURESS AT CONTRACT LAW

Olivia Le nnox-King*

The law of salvage rewards volunteers who render valuable services to recognised subjects of salvage in danger.

The nature of this legal right is neither consent-based, nor contractual in nature, and appears as antithetical to the

contract law, being based on public policy and equitable considerations. Nevertheless, in modern times

contracts control salvage operations with such frequency that contractual salvage has become the norm, usually

under a standard form contract known colloquially as the Lloyd's Open Form.

Despite this development, there has been little discussion on the interrelationship between salvage and contract

law. This has led to theoretical uncertainty in areas where the two jurisdictions apply different rules to the same

concepts, particularly in the area of duress. While the approach of contract law is procedural, salvage law

combines a procedural approach with an enquiry into the substantive fairness of the contractual terms. After

consideration of alternative models, where each regime overrides the other, this paper argues that a scenario

where the two regimes co-exist is preferable. Based on the common rationale of controlling illegitimate behaviour,

it is argued that the procedural approach of contract law should be incorporated into salvage law, and the latter's

substantive requirements correspondingly relaxed.

1. Introduction

This paper examines modern salvage law, from its early development to the modern concept of salvage as

successful service to salvageable property in peril. In more recent times salvage, existing as it does within the

particular jurisdiction of Admiralty law, has run up against the rules of contract law. The juxtaposition of the law of

sea and the rules invoked in private commercial dealings (a category to which the majority of shipping contracts

belong) has some repercussions for the law relating to salvage. The aim of this paper is to examine the

justifications for the special rules of salvage, so that the current situation can be critiqued. While the case for

special rules applying to salvage is sustainable, some adjustments to the present position are considered desirable.

It seems, for law, the sea changes everything. From the earliest developments of legal systems, a fundamental

difference has been recognised between the law that applies on land, and the law that governs actions on the water.

To maritime activities, agreements and commerce, a different set of rules is applied, born of the belief that business

of the sea is fundamentally different to any other endeavour. From this recognition, the modern jurisdiction of

maritime, or Admiralty, law has developed and flourished.1 Modern law continues to work within this historical

paradigm, developed over centuries into a separate body of law that, if not a ‘maritime law of the world’2, finds

similar expression throughout maritime nations. An entire body of jurisprudence exists, outlining the differences

between both the maritime and municipal contexts, and the unique nature of the legal rules applicable to the former.

The law of salvage is but one area that illustrates the uniqueness of maritime law. Indeed, as will be seen, the rules

and principles of salvage are remarkable in that in many areas they differ significantly from those found within the

* I wish to thank Paul Myburgh, Associate Professor of Law and Associate International Dean at the University of Auckland, for his invaluable

help and support throughout the researching and writing of this paper.

1 At the outset, it is important to clarify the terminology used in this paper. In jurisdictions belonging to the Anglo-Common law tradition, the

nomenclatures ‘Admiralty’ and ‘maritime’ are often used interchangeably to refer to the law governing claims relating to the sea. Strictly

speaking, maritime or shipping law comprises ‘the law that regulates navigation and commerce by sea’, and is the more expansive term, while

the term ‘Admiralty’ refers to the issue of the jurisdictions of the courts, and the traditional rules exercised by the Admiralty courts of England.

See Paul David, ‘Maritime Law: Admiralty’ in Law Book Company, Laws of New Zealand (at 5 January 2007) [1-1] (LexisNexis NZ Online,

Commentary).

2 See The Tojo Maru [1972] AC 242, 290-291 (Lord Diplock), where His Lordship refuted the existence of any such body of law.

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Laying the Mark to Port and Starboard

common law.3 However, to a student of modern maritime law, the unique nature of the salvage claim is not

necessarily clear, particularly where other legal rules appear applicable. More specifically, modern salvage rules

increasingly co-exist with contractual obligations between the parties to a salvage operation. Contract law has its

own set of rules and principles. In many cases, it seems that the two regimes have laid the same course, only to

approach the mark on opposing tacks. Which tack, then, is the law to take? Various options present themselves. On

the one hand, it is possible that the rules of contract law override the rules of salvage, which might be considered

default rules in the absence of express agreement between the parties. Then again, the special rules of maritime law

are jealously guarded, and have been consistently applied, so that their supercession by contract law rules cannot be

assumed. Moreover, the special treatment afforded to salvage agreements has been further enshrined in the 1989

Salvage Convention,4 so that, where the 1989 Salvage Convention applies, law has come down on the side of

public policy and the supremacy of salvage law

Nevertheless, common law principles are increasingly making their presence felt, and the current state of the law

should not be the end of the enquiry. There remain enduring questions as to the present and future approach to

salvage, and the applicability of contract law, particularly in the modern context where the majority of salvage

cases involve commercial salvage operations. The aim of this paper is to examine the justifications for the special

rules of salvage to see whether the current position is sustainable, in light of the case law developments, industry

practices and the traditional rationales behind the doctrines. Although maritime case law is sometimes problematic

in establishing hard and fast rules and setting precedents, it is still highly instructive on the way maritime judges

conceive of salvage, and the interaction between salvage and contract law. Close examination of important cases

will illustrate the problems and possibilities that arise when exporting contract law into the salvage domain. As to

the specific questions of this paper, the concept of duress as it appears in salvage law and contract law will be

compared and contrasted. The procedural approach of contract law, focusing on the quality of the consent to the

contract and the process that occurred up to the conclusion of the contract is very different from the position of

salvage law, which is concerned with a dual enquiry into first, the position of the parties, and secondly, the terms of

the contract itself and what they reveal about the bargaining process. Once the separate regimes have been

discussed, and their differences considered, it will be possible to examine three separate scenarios for the law:

where contract is supreme; where the rules of salvage are upheld; and finally, the possibilities for the two schemes

working together.

Essentially, the thesis of this paper is that the special rules of salvage that exist in the maritime jurisdiction are a

justifiable feature of our legal system. When one considers the weight of the policy considerations behind the rules,

and the specific context of salvage, existing as it does in times of emergency and necessity, the tendency to

encourage salvors via reward and lenient rules is both understandable and desirable, a result of the careful

balancing act undertaken by the maritime judiciary, and more recently by international regulation. However, this

paper also asserts the view that the rules of salvage law should not be too jealously guarded, nor should the value of

contract law’s influence be ignored. Many developments of the law of the land are equally applicable to maritime

law, and, when applied by thorough reasoning and care, may be a welcome addition to the legal principles

governing maritime cases. Moreover, the rationale behind the concept of salvage is not as far removed as might be

assumed: salvage law shares many of the characteristics of other areas of the law, dealt with under the law of

restitution. It will be argued that if restitution values form at least part of the basis of salvage, arguments that assert

a connection between maritime and common law – such as the one in this paper, that contract law should have a

place in the law of salvage – are more convincing.

The concept of duress in salvage law is an excellent example of this argument, existing as it does by virtue of the

appearance of contracts and contract law within the maritime realm. Because of this, and for other reasons of legal

principle and development, the rules of duress that appear in contract law should, as this paper will argue, be

applicable in the maritime context, albeit with some modifications for the nature of salvage compared to an

3 In New Zealand, maritime law has been integrated into the common law legal system insofar as there exists no separate court for the

administration of the Admiralty jurisdiction, and the High Court of New Zealand exercises the jurisdiction concurrently with the general

jurisdictions of equity and common law. The separate Admiralty jurisdiction that was developed in England has been imported into the New

Zealand context via various statutes, from the Colonial Courts of Admiralty Act 1890 (Imp), to the current Admiralty Act 1973. In addition, the

provisions of the Maritime Transport Act 1994 enact various international maritime conventions as part of domestic law. For more detail see

David, above n 1, para 1-2. The term ‘common law’ used here and elsewhere in this paper therefore refers to the rules of law not concerned with

maritime law.

4 International Convention on Salvage, opened for signature 28 April 1989 (entered into force 14 July 1996) (1989 Salvage Convention).

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ordinary commercial contract. Other contractual considerations have rightly been applied in the maritime context,

such as contractual misrepresentation, in order to deal with questions that come before the court that are undeniably

of a contractual nature. However, care should be taken with such importation. Although helpful in deciding

maritime cases, principles of contract law should be applied so that they work with the current established salvage

system, and do not undermine it. How precisely this should occur, and the various readings of the international

regulations and case law, will be considered below.

2. Salvag e, a Uniquely Maritime Conce pt

2.1. The Historical Development of the Conce pt of Salvage

Maritime law as a whole, and salvage in particular, has a long and colourful history. Texts dealing with maritime

law almost always emphasise the ancient and long-standing origins of the jurisdiction.5 The beginning of the

common law Admiralty tradition6 can be found in evidence of civil law texts of Rhodian and Roman law, and later,

in Italian merchant law and King Richard I’s maritime exposition, The Rolls of Oleron.7 Via such ‘ancient and

various sources, developed and built upon by decisions of the [Admiralty] Court’8, the modern English Admiralty

jurisdiction has been developed, from which the maritime laws of other common law nations were born. However,

the sources on which modern salvage law is built are consistent in three important respects: they consistently

recognise the merit in remunerating volunteers who act to preserve ships and their contents, that such remuneration

should be in the form of a reward, and that the salvor in question should be entitled to enforce his claim by way of a

possessory lien or in rem claim.9

Perhaps because of its ancient roots, the salvage law of today has undergone much change from its historical

ancestor. The traditional concept of salvage involved the rescue of property from wrecked ships, and included

‘flotsam, jetsam and lagan’.10 Today’s concept of salvage has developed from its original form, of rewarding those

who rescued property that had been lost at sea (the conventional idea of salvage being, for example, those who

recovered valuables from the wreck of a foundered ship). Modern salvage also encompasses the rewarding of those

whose efforts succeed in preventing the loss of property at sea, aiding a ship in distress and recovering property

from a vessel that would otherwise be lost.11 The categories of property that can be salved have also been

widened.12 From here, maritime law has created, via the doctrine of salvage, two relationships: between the rescuer

and the rescued (that is to say, the owner of the thing rescued), and between the thing saved and the salvor, in the

form of a security relationship based on the salvor’s maritime lien. As is clear from this development, two concepts

of salvage now exist: one of recovery of already lost or abandoned property, and one of aiding others in the

retention of property in danger of being lost. The wisdom behind assimilating the two concepts into the single

heading ‘salvage’ may justifiably seem puzzling to the onlooker. The first category conjures up colourful images of

piracy and looting,13 far removed from commercial steamship operations arising between experienced commercial

parties, where the object is to rescue a stranded ships and her cargo in return for substantial financial reward. Some

5 See for example William Tetley, International Maritime and Admiralty Law (2002) Chapter 1; John Reeder (ed), Brice on Maritime Law of

Salvage (4th ed 2003) Chapter 2; and Francis D Rose (ed.), Kennedy and Rose, the law of salvage (6th ed 2002) Chapter 1.

6 As mentioned above at n 1 and n 3, the terminology in this area is somewhat problematic. The reference to ‘common law Admiralty’ is to the

rules of maritime law that exist in common law countries and have been developed from the English Admiralty inheritance, in many common

law countries via the Colonial Courts of Admiralty Act 1890 (UK). However, the Admiralty law developed in England is of civil law heritage.

After the Protestant Reformation of the 16th century, Admiralty law was been practiced by a body of practitioners descended from the medieval

canon lawyers, who were influenced by the earlier arrival of the Romans in England. These practitioners congregated in the Doctors Commons,

where Admiralty law developed and resided until the dissolution of the Commons in 1857. See Kennedy, above n 5, 51-54.

7 For further detail, see Donald A. Kerr, ‘The Past and Future of ‘No Cure, No Pay’’ (1992) 23 JMCLQ 3, 411, 412-413.

8 Admiralty Commissioners v Valvadera (Owners) [1938] AC 173, 200 (Lord Roche).

9 Kerr, above n 7, 412. Salvage is one of a limited range of circumstances recognised by judicial doctrine that give rise to a maritime lien, a

‘privileged charge or claim upon property that arises by operation of law’. The resultant maritime lien allows the salvor to bring an in rem claim

directly against the ship or property concerned; Aleka Mandaraka-Sheppard, Modern Admiralty Law (2002) 22.

10 Kennedy, above n 5, 59-60.

11 Rhys Clift and Robert Gay, ‘The Shifting Nature of Salvage Law: A View From a Distance’ (2005) 79 Tulane Law Review 1355, 1357-1358;

see also Brandon J’s judgment in The Unique Mariner (No.1) [1974] 1 Lloyd’s Rep 555 (discussed below).

12 See Article 1(c) of the 1989 Salvage Convention, above n 4, where property is defined as ‘any property not permanently or intentionally

attached to the shoreline, and includes freight at risk’, cf the decision in The Gas Float Whitton (No 2) [1897] AC 337.

13 For a modern example of the juxtaposition of the different concepts of salvage, the recent case of the grounding of the MSC Napoli is

interesting see BBC, ‘700 Napoli Cargo Items Salvaged’, BBC News, 8 February

2007<http://news.bbc.co.uk/2/hi/uk_news/england/devon/6344559.stm> 8 February 2007.

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