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VII. Salvage Contracts

There are many sound reasons why a salvor would want the vessel master or owner to sign a salvage contract or agreement. Such a document would clearly establish that the vessel accepted the salvage services. Similarly, the contract may address issues such as security, arbitration, interest, attorney's fees or other terms. The contract may or may not specify the compensation to be paid in the event of success. If the contract predates the services, rather than being executed contemporaneously with or after the services, the services are not salvage services because the services are not rendered voluntarily but as the result of a preexisting legal duty.

Not every salvage contract results in contract salvage. If the contract provides that the contractor will be paid regardless of success, the services become contract salvage services. The contract salvor retains a lien on the vessel but not a high priority salvage lien.

Importantly, if the contract provides that the salvor will be paid only in the event of success, whether or not the contract fixes the amount of compensation the salvor retains his status as a "pure" salvor and retains also his salvage lien. Such contracts are called "no cure-no pay" salvage contracts.

If the contract fixes the compensation to be paid to the salvor but only in the event of success, it is a fixed price, "no cure-no pay" salvage contract. Under such a contract, the salvor loses his right to a discretionary salvage award and can only be awarded the agreed amount.

If the contract does not contain an agreement to pay a given sum or to pay without regard to success but only provides that the salvor will be entitled to an award in the event of success on a "no cure-no pay" basis, the services do not become contract salvage but retain their status as "pure salvage services".

While some use is made of contract salvage for recreational vessels, primarily in the context of wreck removal, most salvage contracts presented to recreational vessel operators and owners are "no cure-no pay". The use of fixed price contracts is uncommon except in cases of raising vessels sunk at their berths in shallow water or in the salvage of vessels of relatively low value.

A number of questions arise even with regard to "no cure-no pay" contracts calling for a discretionary salvage award. On one of the first inquiries raised, assuming that the owner did not execute the agreement, is whether the person executing the contract on behalf of the owner had, or needed, the authority of the owner to sign the agreement. It is well settled that when a vessel requires salvage services, the vessel's master has the authority to sign a salvage agreement without special authority from the owner who is bound by the actions of the master. However, the signing of a salvage agreement by the master after the vessel has been assisted requires authorization by the vessel owner.

Next, the insurer presented with a salvage agreement signed by the insured or his agent will often argue that the agreement is void because it was signed as the result of duress or coercion. Of course, if the agreement was signed after the services were rendered, any duress or coercion created by the exigent circumstances is no longer a factor. Just because the contract was signed under exigent circumstances, however, does not automatically mean that it is unenforceable as a result of duress. A certain amount of duress is inevitably present when the master or owner is under the pressure of the peril threatening his vessel. Duress of that nature does not, however, automatically void the salvage agreement. An admiralty court will closely scrutinize the agreement for any sign of overreaching, improper coercion or over charging by the salvor, and will set aside the contract if it finds that the salvor took advantage of the situation to impose unconscionable or inequitable contract terms on the vessel.

Extortionate demands forced by a salvor upon the master of a vessel in extremis will not only void the contract but often results in a salvage award that is less than it would otherwise be. If, however, the terms of the contract are reasonable and not oppressive, the contract will be upheld without regard to pressures created by the emergency faced by the vessel.

Many of the same factors that will void a contract under common law such as fraud, collusion, mutual mistake, misrepresentation or suppression of material facts or compulsion will also void a salvage contract. There are few reported cases involving recreational vessels where a salvage agreement has been found to be void because of duress, fraud or coercion. In one case, however, the arbitrator found an agreement to salvage a recreational vessel to be unenforceable, not because the provisions with regard to compensation were unconscionable, but because they were incomprehensible. The arbitrator found, however, no misconduct on the part of the salvor and went on to award $8,500 for the salvage of a motorboat worth $41,500.

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