"Kvitnos" – when is a commercial agreement entered into for towage assistance to a distressed vessel?

A recent judgment from Agder Court of Appeal in Norway regarding remuneration for towage of the vessel “Kvitnos” underscores that in circumstances where commercial terms have been discussed a party wishing to claim a salvage award should expressly reserve their rights to do so.

"Kvitnos”, a modern LNG-powered cargo vessel, had a main engine breakdown while crossing the Oslo Fjord in December 2015 and was adrift in poor weather conditions about six hours away 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 was under way. The insurers talked with the tug owners’ general manager by telephone about 15 minutes before the tug attended the “Kvitnos”.

The legal threshold for the “peril” requirement is low and awards are typically set high, especially for professional salvors

The subsequent legal dispute revolved around whether an oral agreement for towage on commercial terms had been concluded between the parties during this telephone call. While the parties drew different conclusions from the call, the court considered that they agreed on the main content, i.e. only commercial terms regarding towage was discussed, salvage or the “no cure – no pay” principle was never mentioned, and it was agreed that the paperwork could wait until the following working day. It was further proven that after the call, the insurers had the impression that an agreement on commercial terms had been concluded, something which was communicated internally via email but not confirmed towards 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 who saves a vessel from “peril” has a statutory right to claim salvage award, but only if the vessel has been successfully salvaged and, importantly, only if the parties did not agree on other terms. The legal threshold for the “peril” requirement is low and awards are typically set high, especially for professional salvors.

In the “Kvitnos” case the parties agreed that the vessel’s situation exceeded the low threshold of the peril requirement. The tug owners were therefore initially awarded a salvage award of NOK 7.5m by the District Court. This judgment was later overturned by the Court of Appeal however, which held that given that commercial terms had been discussed in the call with “Kvitnos”’s insurers, if the tug owners still wished to claim a salvage award, it was incumbent on them to have expressly reserved their rights to do so in any discussions with “Kvitnos”’s insurers. On the basis that the tug owners had not so reserved their rights, the Court of Appeal ruled that commercial terms had been concluded and awarded the tug owners remuneration of NOK 450,000 in place of the NOK 7.5m 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.

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