On 23 February 1995, the Panache IV, a 44-foot sailing yacht, sank in deep water in Haro Strait while on a voyage from Crescent Beach on the mainland to Seattle by way of Victoria on Vancouver Island to list the vessel for sale with brokers in Seattle.

General Accident Indemnity Co (the plaintiff) was the underwriter of the Panache IV and denied the claim on the grounds that the Panache IV had been scuttled, but that it had mounted a recovery effort and successfully raised it. The Panache IV was subsequently sold by Court order but realised only a fraction of the pre-scuttling value.

The plaintiff claimed salvage from the sale proceeds. The Canadian Imperial Bank of Commerce (CIBC), the mortgagee of the Panache IV, opposed the salvage claim as it wished the sale proceeds to go towards the mortgage. The owners waived their interest in the Panache IV.

The salvage operation was conducted to bolster the denial of the claim. The claims manager of the plaintiff learned that the owner (Mr Hahn) had removed electronics and other objects of value from the Panache IV before departure and thought that this was inconsistent with listing the vessel for sale. The departure time and route, taking the vessel across the Gulf of Georgia and through Haro Strait at night, were inconsistent with tide, traffic and eventual destination. There were material discrepancies between the statements given to the Royal Canadian Mounted Police (RCMP) and to an adjuster. The vessel was worth about CAD 200,000 but insured for CAD 275,000.

The salvage of the Panache IV took three attempts and the total cost came to CAD 307,854.44. The vessel suffered substantial deterioration while sunk in deep water and suffered more deterioration while in the custody of the RCMP, who seized the vessel to examine it and obtain evidence. The sale price of the vessel was CAD 30,100. Sales costs of CAD 2,893.12 were paid out of the proceeds. The plaintiff also spent CAD 916.43 to clean up the Panache IV and CAD 1724.38 to lift and store the vessel ashore. The balance of the sale proceeds remained in trust at interest.

Held: Action allowed.

The facts surrounding the raising of the Panache IV contained the elements necessary to constitute salvage. The underwriter (having denied coverage) acted as a volunteer in that it had no duty or overriding self-serving interest which would preclude a salvage claim.

The International Convention on Salvage 1989 (the Salvage Convention 1989) has been brought into force in Canada by s 449 of the Canada Shipping Act. Article 12 of the Salvage Convention 1989 provides that a salvage operation which has had a useful result gives a right to reward. A 'salvage operation' is defined in art 1 as 'any act or activity undertaken to assist a vessel or any other property in danger in navigable waters or any other waters whatsoever'. This provision may make mandatory a salvage award to an underwriter who is no longer bound by a policy and therefore no longer on the risk. However, the underwriter in this instance is also entitled to a salvage award at common law.

A common law, salvage awards depend upon the presence of three elements: danger to the salved vessel; a voluntary rendering of services and success; and contribution to success. In the present instance, the successful location and recovery of the derelict Panache IV from 145 fathoms of water, where in fact it had suffered damage and would continue to suffer ongoing damage, satisfies two of the necessary elements.

That the salvor must be a volunteer is an essential element of salvage. If services are rendered pursuant to a contractual or official duty owed to an owner, or solely as a matter of self-preservation, the services are not salvage. Generally speaking, an underwriter is a party interested in a vessel and therefore may not claim salvage. However, in The Pickwick (1852) 16 Jur 669 (Adm), Dr Lushington held that because the underwriters of the Pickwick chartered a steam vessel and ultimately brought the Pickwick to safety, the underwriters ought to be treated as owners of the instrument of salvage service which was at risk and allowed them to have a salvage award. Here, the circumstances are akin to those in The Pickwick. The underwriter hired ships, equipment and personnel to effect the recovery of the Panache IV and thus falls into the classification of salvor.

On the question of self-interest on the part of salvors, it was in the interest of the underwriter, in denying the claim on a suspicion of scuttling, to confirm the cause of the loss. However, the result of the intended salvage was speculative. The underwriter did not know what it would discover as to the cause of the loss until the Panache IV was raised. Further, while there is a universal moral obligation to render every possible assistance at sea, particularly to life salvage, the salvage of ships and cargo is also motivated to a substantial degree by economic self-interest.

Having denied the claim, the underwriter was under no duty to raise the Panache IV. Moreover, the underwriter clearly had an intent that the salved value might go toward defraying the cost of raising the Panache IV.

The amount of the salvage award is a matter of discretion. The factors that go to the making of a salvage award are the degree of danger to the property salved, its value, the effect of the services rendered, and whether other services were available, the risks run by the salvors, the length and severity of their efforts, the enterprise and skill displayed, the value and efficiency of the vessel they have used, and the risks to which they have been exposed. The amount of the award depends on the degree in which all, many or few of these factors are present.

The danger to the Panache IV was not great in the short run, but in the longer run, or had there not been a willing salvor with a deep pocket, there was a danger that there might well have been no recovery. The salved value of the Panache IV was quite modest and that in itself is a limit on a salvage award. The successful salvage was meritorious, and when one considers the setbacks, it was an example of a determined effort leading to a good result. There were certainly other salvors in the Vancouver and Victoria area, but none were prepared to undertake such a speculative venture and that state of affairs leads to an enhanced award. The salvors themselves were, at times, in difficult and dangerous situations. The salvage was not accomplished quickly, but neither does it appear that the salvors wasted time, but rather were tenacious and enterprising and displayed the appropriate skill. The salvors expended a substantial amount of money in salving the derelict Panache IV. All of these factors indicate that the award should be a generous one.

All of the factors considered, an award of CAD 12,000 on a salved value of CAD 30,100 is an appropriately generous award to the salvors, keeping in mind that the property interest of the CIBC, as mortgagee, should also be protected.