The Restitutionary and Economic Analyses of Salvage Law

• Author: Catherine Melissa Swan
• Position: BA/LLB (Hons) student at the University of Auckland. This article is based on an honours seminar paper and was an entrant for the Morella Calder Prize in 2008. My thanks to Professor Rick Bigwood for supervising this paper
• Pages: 99-110

(2009) 23 A&NZ Mar LJ

THE RESTITUTIONARY AND ECONOMIC ANALYSES OF SALVAGE LAW

Catherine Swan∗

1 Introduction

Maritime salvage has evolved over many hundreds of years into a branch of law that operates within the

Admiralty jurisdiction of the High Court. Because its roots are based on civilian principles, Admiralty law

allows for recovery of benefits conferred outside of contract in cases where the common law would not. Salvage

law is a prime example of the Admiralty Court’s jurisdiction to place principles of fairness and justice above

fixed contractual rules. The Court has the power, conferred both by law and statute, to modify or annul

contracts for salvage that are grossly unfair to one party even when the source of the unfairness is the substance

of the contract itself. The inherently stressful nature of the circumstances in which salvage contracts tend to be

made means the possibility of abuse is always present. Time is often critical, and the consequences of failure to

reach a contract can include loss of the entire ship and its cargo, liability for pollution, and even loss of life. To

mitigate the pressure on the parties, most salvage agreements allow for the price to be fixed by arbitration after

the salvage operation is concluded. The most common contract for major salvage operations is the Lloyds Open

Form Salvage Agreement, a standard-form document that can be agreed to by the parties at the incident without

the need for protracted negotiation. The Lloyds Open Form (LOF) is an example of a contractual solution to the

problems associated with negotiating in a high-stress situation such as salvage. LOF was developed by hull

insurers, salvors, and cargo interests to create a contract that would serve all of their interests. The first version

was used at the end of the nineteenth century and it has been periodically modified to suit changing

circumstances ever since.

In this article I shall outline a brief history of salvage law and canvass two competing approaches that seek to

explain and justify the way the Courts of Admiralty deal with claims for salvage both within and outside of

contract. Typically the facility of the Admiralty jurisdiction to reward those whose efforts preserve property is

justified on the basis of equity and public policy. For instance, it would be inequitable for a saved party to be

enriched at the expense of her rescuer without compensating the rescuer for the service. Further, there is a wider

public interest in encouraging volunteers to undertake rescues at sea. This public interest justifies the reward

element of salvage payments. Francis Rose and others have characterised salvage awards as a form of

restitution for unjust enrichment, whereas legal economists such as Richard Posner prefer an analysis that seeks

to explain the evolution of salvage law as progress towards an allocatively efficient use of rescue and safety

resources. I shall describe these two models for explaining salvage and examine how each can be applied to

modern developments in salvage law and in particular the more recent need to reward salvors for their efforts in

preventing environmental pollution. The demise of the original ‘no cure no pay’ system of salvage awards

appears to strain the restitutionary analysis of salvage to breaking point. I shall conclude that while the

economic model appears to fit salvage law better than the restitutionary one, the dismissal of public policy and

equitable considerations as valid sources of the law ignores the explicit statements of judges and lawmakers of

the rationale for the prevailing system of salvage law.

2. History of salvage law

The right of a maritime rescuer to be rewarded with a portion of the value of the saved property has been

recognised for as long as there has been commercial trade at sea. The modern Admiralty jurisdiction can trace

back its origins to Roman civil law and possibly further to the Rhodian maritime code of 900BC.1 Because

Admiralty law evolved in parallel with the English common law, certain principles apply to maritime cases that

do not apply to the same circumstances on land. The law of salvage is an example of this. In general, under the

common law, a volunteer who rescues property from danger is not entitled to seek a reward from the owner of

the property.2 However, if the property in danger is on the sea, then the rescuer has a right to a reward backed

up by a lien against the property itself.3 The Court of Admiralty was historically a separate jurisdiction from the

common law and Chancery courts. Admiralty law was based on civilian principles and practised exclusively by

∗BA/LLB (Hons) student at the University of Auckland. This article is based on an honours seminar paper and was an entrant for the

Morella Calder Prize in 2008. My thanks to Professor Rick Bigwood for supervising this paper.

1 Geoffrey Brice Maritime Law of Salvage (3rd ed, Sweet & Maxwell, London, 1999) 6.

2 A necessitous intervener may in some cases claim compensation for expense incurred but this does not amount to a reward for the public

policy purpose of encouraging intervention. See Francis D Rose, ‘Restitution for the Rescuer’ (1989) 9 Oxford Journal of Legal Studies

167-204.

3 Francis D Rose Kennedy & Rose: The Law of Salvage (6th ed, 2002) 2.

99