The Voutakos suffered a main engine breakdown in the English Channel. Tsavliris Salvage (International) Ltd (the defendant) provided salvage services to the vessel and its cargo (the claimant) on the terms of a Lloyd's Standard Form of Salvage Agreement 2000 (LOF). Steps were taken by the defendant to identify a suitable tug to take the vessel in tow.

The original arbitrator awarded the defendant USD 1,750,000. The appeal arbitrator increased the award to USD 2,700,000. The appeal arbitrator referred to the so-called 'disparity principle', which provided an exception to the general rule that tariff rates for the engagement of a particular tug, or for tugs offering alternative assistance, were irrelevant. The appeal arbitrator concluded that the 'disparity principle' was 'seriously flawed' and should be 'discarded', and therefore there should be a general increase in awards in towage cases.

The claimant appealed and argued that the appeal arbitrator had erred in law in discarding the 'disparity principle'.

Held: Appeal allowed.

Schedule 11 to the Merchant Shipping Act 1995 (UK) (the Act) set out the text of the International Convention on Salvage 1989 (the Salvage Convention 1989), which by virtue of s 224(1) of the Act had the force of law in the UK and which by virtue of art 2 applied to LOF arbitration proceedings.

Although the 'disparity principle' was said to be applicable only in straightforward rescue towage cases, the creation of such a stark categorisation was unreal. Insofar as there was a narrow principle that it was only in straightforward towage cases that commercial rates were relevant, such a narrow principle was seriously flawed. Any principle expressed in such a limited sense was unworkable given the gradations of danger in cases of immobilisation, taken with the problem of identifying the proper status of the salvors to be adopted for the purpose of the claim and the uncertainties as to the terms on which such services might have been performed by others. Thus, the Court agreed that the 'disparity principle' in the sense advanced was misconceived.

However, the Court did not agree with the arbitrator’s conclusion that commercial rates were always irrelevant to the assessment of salvage remuneration. Commercial rates were relevant and provided a useful cross-check by way of providing a floor to a salvor's legitimate claim.

With respect to what commercial rate should be taken into account and whether the correct rate (if any) was that reflected in the out-of-pocket expenses, it was convenient to start with art 13 of the Salvage Convention 1989. The criterion set out in art 13.1.f called for the expenses incurred by the salvors to be taken into account. Thus, where the bulk of the services had been subcontracted on a daily rate, the actual cost thereby incurred became by definition a relevant factor.

In addition, art 13 required that the assessment of the remuneration must take account of the need to 'encourage salvage operations'. The Court held that a fair balance had to be struck between encouraging professional salvors by generous awards and discouraging owners from accepting services on salvage terms. Accordingly, commercial rates were relevant but their significance would depend on the facts of each case.

Finally, the extent to which a general increase in awards in towage cases was required to comply with the requirements of the Salvage Convention 1989 was not a question to be answered by the Court. The efficient and effective machinery under the LOF had rightly attracted international acceptance and it was within the published digests of awards made under the auspices of the form that the 'conventional' award could be determined. The Court therefore remitted the award to the appeal arbitrator for reconsideration.