Judgments

T-1497-95

General Accident Indemnity Company (Plaintiff)

v.

The Owners and All Others Interested in the Ship Panache IV and The ShipPanache IV, Helmut Peter Hahn, and Diana Mary Hahn (Defendants)

Indexed as: General Accident Indemnity Co.v. Panache IV (The) (T.D.)

Trial Division, Hargrave P."Vancouver, July 31 and October 31, 1997.

Maritime law — Salvage — Underwriter claiming salvage from sale proceeds of salved vessel — When vessel sank, plaintiff denying insurance claim as suspected owner of scuttling vessel — (1) Canada Shipping Act, s. 452 providing for award payable by owner of wrecked ship, not applicable as not granting right to look to salved ship for salvage award — Even if entitled to award under International Convention on Salvage 1989, Art. 12 underwriter also entitled to salvage award at common law — Elements necessary to constitute salvage: (i) danger to salved vessel; (ii) voluntary rendering of services; (iii) success or contribution to success — Location, recovery of vessel from deep water where suffering ongoing damage satisfying (i), (iii) — Underwriter, having denied coverage, acting as volunteer in that no duty or overriding self-serving interest precluding salvage claim — (2) Generally underwriter may not claim salvage as interested in vessel — After ship abandoned at sea, underwriter salving ship entitled to claim salvage if hiring salvage ship, thus becoming owners of salving ship — Underwriter herein hiring ship, equipment, personnel to recover vessel — Oral agreement whereby owners of ships, equipment, personnel agreeing not to claim salvage — Authorities not denying standing of non-demise charterer to claim salvage — Policy justification for salvage to encourage salvage services — Also important aspect of public policy to encourage discovery of insurance fraud — Salvage award herein appropriate expression of community values or public policy — Self-interest not barring salvage as (i) result of intended salvage speculative; (ii) to negate salvage award, services must be rendered with intent not to claim salvage — Underwriter intending salved value to go toward cost of salvage — Meritorious agency cases distinguished — (3) Amount of salvage discretionary — Factors for assessment of quantum set out in Humphreys et al. v. M/V Florence No. 2 considered — Indicating award should be generous — $12,000 awarded on salved value of $30,100.

The underwriter was claiming salvage from the sale proceeds of the Panache IV. The Panache IV was mortgaged for $224,000 on which substantial interest had accrued, representing a debt of about $240,000 to the Canadian Imperial Bank of Commerce (CIBC). It was insured with the plaintiff for $275,000. When the Panache IV sank, the plaintiff underwriter was suspicious that the vessel had been scuttled and denied the claim. It employed Coast Underwriters as its agent to locate and retrieve the vessel. Coast Underwriters chartered vessels and hired various subcontractors on the terms that there would be payment for services regardless of success, and that any claim for salvage would be made by Coast Underwriters, or its principals, and not by a subcontractor or vessel owner. The cost of locating the vessel was $61,500. After three attempts, each employing a different methodology, and at a cost of $307,854.44, the yacht was raised and it was confirmed that it had been scuttled. The RCMP seized the vessel so that they might examine and obtain evidence from it. The Panache IV was not returned to the underwriter for three weeks. The vessel had suffered substantial deterioration while sunk in deep water and further deterioration likely occurred while the vessel was in RCMP custody. The vessel was sold by court order. The sale price was $30,100. Sale costs of $2,893.12 were paid out of the proceeds. The plaintiff had also spent $916.43 to clean up the vessel and $1,724.38 to lift and store the vessel ashore. The owner of the ship was eventually convicted of attempted insurance fraud. The raising of the Panache IV provided evidence critical not only to the decision to prosecute, but also for the conviction. CIBC opposed the salvage claim, seeking to have the proceeds go towards satisfaction of its substantial mortgage.

The issues were: (1) whether the services were in the nature of salvage; (2) whether an underwriter is entitled to a salvage award; and (3) what was the amount of the salvage entitlement.

Held, the action should be allowed.

(1) Canada Shipping Act, section 452 which provides that where a vessel is wrecked or abandoned and services are rendered in saving the wreck, an award shall be payable to the salvor by the owner, did not apply to give an automatic entitlement to a salvage award. It deals with in personam jurisdiction for it requires the owner to pay salvage. It does not grant an in rem right to a salvor to look to the salved ship or her sale proceeds. Here the claim was against the sale proceeds.

Article 12 of the International Convention on Salvage, 1989, which provides that a salvage operation which has had a useful result gives a right to a reward, may well make mandatory a salvage award to an underwriter who is no longer bound by a policy and therefore no longer assuming any risk. The underwriter in this instance was also entitled to a salvage award at common law.

At common law salvage awards, which are governed by public policy considerations, including the desirability of encouraging salvors to take risk to save property are never automatic, but depend upon the presence of three elements: (1) danger to the salved vessel; (2) a voluntary rendering of services; and (3) success, or contribution to success. Those elements existed herein. The successful location and recovery of the derelict Panache IV from 145 fathoms of water, where it had in fact suffered damage and would continue to suffer damage, clearly satisfied the first and third of those elements. 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. 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.

(2) Generally, an underwriter is a party interested in a vessel and therefore may not claim salvage. The proposition that after a ship has been abandoned at sea, an underwriter who succeeds in salving the ship will be entitled to claim salvage, is limited to instances in which underwriters hire a salvage ship, thus becoming in effect the owners of the salving ship. The underwriter had hired ships, equipment and personnel to effect the recovery of the Panache IV and thus fell into the classification of salvor, but CIBC submitted that the charters of vessels and the hire of equipment did not amount to a charter whereby Coast Underwriters would be responsible for loss or damage to a vessel or equipment as would an owner. In such circumstances the owner, not the charterer, is entitled to salvage. There were two answers to this. First, in the oral agreements to hire equipment and vessels the owners thereof agreed not to claim salvage. Second, the authorities neither deny the locus standi of a non-demise charterer nor deny such claim for salvage and with reference to a non-demise charterer it may be that public policy favours their claim.

An important justification for salvage rewards is the public policy of encouraging salvage services. The courts have promoted this encouragement of salvors by making rewards, whenever it is reasonable to do so, in excess of a pure quantum meruit award. It is also an important aspect of public policy that the discovery of improper insurance claims be encouraged. One way of doing so is to look upon an underwriter who mounts a salvage operation, particularly of an abandoned vessel, as a salvor, of course excepting the underwriter who has a duty to recover a vessel. A salvage award herein was an appropriate expression of community values or of the public policy of encouraging salvage.

To CIBC's argument that the underwriter's self-interest was a bar to a claim for salvage, two points were made. First, although it was in the interest of the underwriter to confirm the cause of the loss, the result of the intended salvage was speculative. Second, the salvage of ships is motivated to a substantial degree by economic self-interest. To negate a salvage award the intent must go beyond an operation motivated by self-interest, but must be services rendered with an intent not to claim salvage. CIBC submitted that the underwriter should be denied salvage because it would have undertaken the raising of the vessel regardless of a salvage award. The underwriter, having denied the claim, thus denying coverage, 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. A salvage award was appropriate.

The present case was distinguished from meritorious agency (where successful and meritorious services have been rendered, not strictly amounting to salvage, liberal remuneration may be in order) cases because the owner did not request that the vessel be raised. But the meritorious agency cases reinforced the concepts that the use of hired equipment is not a bar to an award of some type, and that a court of admiralty jurisdiction will always apply equitable principles to see that meritorious services are rewarded, both of which were pertinent herein.

(3) The amount of a salvage award is a matter of discretion, subject to the maxims that discretion in law must be sound and that awards should be fair and reasonable. But for the efforts of the underwriter there would not have been a fund at all. It was only equitable that the underwriter, who spent more on the salvage operation than the value of the denied and saved insurance, be compensated to some degree.

The factors to be considered in assessing quantum as set out in Humphreys et al. v. M/V Florence No. 2 include (i) the degree of danger to the property salved; (ii) its value; (iii) the effect of the services rendered, and whether other services were available; (iv) the risks run by the salvors; (v) the length and severity of their efforts; (vi) the enterprise and skill displayed; (vii) the value and efficiency of the vessel they have used; (viii) and the risks to which they have been exposed. The danger to the Panache IV was not great in the short run, but in the long 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 alone was a limit on a salvage award. The successful salvage was meritorious and an example of a determined effort leading to a good result. There were other salvors in the Vancouver and Victoria area, but none were prepared to undertake such a speculative venture and that state of affairs lead to an enhanced award. The salvors themselves were, at times, in difficult and dangerous situations. The salvage was not accomplished quickly, but neither did 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. The final factor was that the Panache IV was derelict. Courts no longer automatically award a moiety in the case of derelict, but consider all of the usual factors. All of these factors indicated that the award should be a generous one. An award of $12,000 on a salved value of $30,100 was considered an appropriately generous award to the salvors, keeping in mind that the property interest of the CIBC, as mortgagee should also be protected. The salvors should not be out of pocket for storage and cleaning expenses. The underwriter was therefore awarded out of the sale proceeds an additional $2,640.81 to cover necessary and reasonable post-salvage expenses. The balance of the sale proceeds together with accrued interest went to the CIBC.

statutes and regulations judicially considered

Canada Shipping Act, R.S.C., 1985, c. S-9, ss. 449.1 (as enacted by S.C. 1993, c. 36, s. 1), 452.

International Convention on Salvage, 1989, London, April 28, 1989, S.C. 1993, c. 36, Sch. V, Arts. 1 "salvage operation", 12.

cases judicially considered

applied:

Fisher v. The Ship —Oceanic Grandeur— (1972), 127 C.L.R. 315 (Aust. H.C.); Neptune, In re The (1824), 1 Hagg. 227; 166 E.R. 81; Pickwick (The) (1852), 16 Jur. 669 (Adm.); True Blue, The (1866), L.R. 1 P.C. 250; Cuba, In re The, [1860] Lush. 14; (1860), 167 E.R. 8; Humphreys et al. v. M/V Florence No. 2, [1948] Ex. C.R. 426; Cythera, The, [1965] 2 Lloyd's Rep. 454 (N.S.W.S.C.); Cape Packet, In re The (1848), 3 W. Rob. 122; 166 E.R. 909; Atlas, In re The, [1862] Lush. 518; (1862), 167 E.R. 235 (P.C.); Fusilier, In re The, [1865] Br. & L. 341; (1865), 167 E.R. 391 (P.C.).

distinguished:

Ruabon Steamship Company v. London Assurance, [1900] A.C. 6 (H.L.).

considered:

Crouan v. Stanier, [1904] 1 K.B. 87; Purissima Concepcion, In re The (1849), 3 W. Rob. 181; 166 E.R. 930; Liffey, The (1887), 6 Asp. M.L.C. 255; Lomonosoff, The, [1921] P. 97; Favorite, In re The (1844), 2 W. Rob. 255; 166 E.R. 751; Acanthus, The, [1902] P. 17; Jacobsen et al. v. The Ship —Archer— (1894), 3 B.C.R. 374 (Ex. Ct.); Simon v. Taylor , [1975] 2 Lloyd's Rep. 338 (Singapore H.C.); Glengyle, The, [1898] P. 97 (C.A.); Cape Packet, In re The (1848), 3 W. Rob. 122; 166 E.R. 909; Atlas, In re The, [1862] Lush. 518; (1862), 167 E.R. 235 (P.C.); R. v. Hahn, Victoria Registry 82319-T, Skipp J., judgment dated 4/10/96, B.C.S.C., not yet reported; Paust, The, [1951] 2 Lloyd's Rep. 171; Saltburn, The (1894), 7 Asp. M.L.C. 474.

referred to:

Thetis, in re H.M.S. (1833), 3 Hagg. 14; 166 E.R. 312; Cargo, The, ex Honor (1866), L.R. 1 A. & E. 87; Kate B. Jones, The, [1892] P. 366; Happy Return, In re The (1828), 2 Hagg. 198; 166 E.R. 217; Bartley, In re The, [1857] Swab. 1093; (1857), 166 E.R. 1093; Henry, In re The, [1810] Edw. 192; (1810), 165 E.R. 1079; Watt, In re The (1843), 2 W. Rob. 70; 166 E.R. 681; Glengyle (Owners of) v. Neptune Salvage Company, [1898] A.C. 519 (H.L.); Scheldestad, The (1933), 45 Ll.L. Rep. 269 (Adm.); Pacific, The (1931), 41 Ll.L. Rep. (Adm.); Topa Topa, The (1935), 50 Ll.L. Rep. 211 (Adm.); Evaine, The, [1966] 2 Lloyd's Rep. 413 (C.A.); Markin v. The Ship Sea Gay, T-2692-71, judgment dated 2/3/72, F.C.T.D., not reported.

authors cited

Kennedy, W. R. Civil Salvage, 4th ed. by K. C. McGuffie. London: Stevens & Sons, 1958.

Kennedy, W. R. Law of Salvage, 5th ed. by D. W. Steel and F. D. Rose. London: Stevens & Sons, 1985.

Newson, Harry. The Law of Salvage, Towage, and Pilotage. London: W. Clowes and Sons, 1886.

Sutton, C. T. The Assessing of Salvage Awards: An Enquiry into English Admiralty Practice. London: Stevens & Sons, 1949.

ACTION for salvage by the underwriter from the sale proceeds of the salved vessel. Action allowed.

counsel:

Shelley A. Chapelski and S. Harry Lipetz for plaintiff.

Brad M. Caldwell for Canadian Imperial Bank of Commerce.

Murray B. Blok for defendants.

solicitors:

Connell Lightbody, Vancouver, for plaintiff.

Brad M. Caldwell, Vancouver, for Canadian Imperial Bank of Commerce.

Russell & DuMoulin, Vancouver, for defendants.

The following are the reasons for order rendered in English by

Hargrave P.: During the late evening of 23 February 1995, the Panache IV, a 44 foot (registered length) auxiliary sailing yacht, sank in deep water in Haro Strait, about a mile west of Turn Point, while on a voyage from Crescent Beach, on the mainland, to Seattle, by way of Victoria, on Vancouver Island.

The plaintiff underwriter of the Panache IV, General Accident Indemnity Company (referred to both as "General Accident" and as the "underwriter"), who promptly denied the claim, mounted a determined and indeed noteworthy recovery effort, by which it successfully raised the vessel. At that point the suspicions of the underwriter were confirmed: the Panache IV had clearly been scuttled. The vessel was subsequently sold by Court order, but realized only a fraction of the pre-scuttling value.

The underwriter now claims salvage from the sale proceeds. The Canadian Imperial Bank of Commerce (the CIBC), mortgagee of the Panache IV, opposes the salvage claim, for it wishes the sale proceeds to go towards satisfaction of its substantial mortgage. The owners have waived their interest in the Panache IV, vis-à-vis the underwriter.

This proceeding raises a number of interesting points, including whether the services were in the nature of salvage, the entitlement of an underwriter in the position of General Accident to a salvage award and if so entitled, the amount of the award given all of the circumstances, including that the Panache IV was a derelict. I now turn to some relevant background facts.

FACTS

The Panache IV, built in 1986, was purchased in 1989 by the defendants, Helmut and Diana Hahn, for US$165,000. Pursuant to a settlement between Mr. and Mrs. Hahn the vessel was listed in 1993 with brokers in San Diego, California, for US$225,000, but did not sell.

The owners decided to list the vessel with brokers in Seattle, Washington. Mr. Hahn undertook to deliver the vessel to the brokers in February 1995. The Panache IV was then mortgaged for some CAN $224,000 on which substantial interest had accrued, representing a debt of about $240,000 to the CIBC. The Panache IV was insured with General Accident for CAN$275,000.

The Panache IV, with Mr. Hahn as sole person aboard, left Crescent Beach in Boundary Bay at about 5:30 p.m. on 23 February 1995, bound for an overnight berth at Oak Bay, near Victoria. The Panache IV proceeded at about 7.5 knots under power.

Shortly after rounding Turn Point into Haro Strait, about two thirds of the distance to Oak Bay, Mr. Hahn reported, in a written statement to underwriters, that the vessel's engine stopped. On attempting to go below he found some 2" feet of water in the main cabin. In due course, Mr. Hahn sent out a mayday call, gave his position to the American Coast Guard at Seattle and abandoned the Panache IV in calm weather by way of an inflatable raft, from which he was retrieved by helicopter and deposited at Victoria airport.

General Accident employed Coast Underwriters Ltd., of Vancouver, as its agent. Shortly after receiving notice of the sinking of the Panache IV, Paul Mendham, Assistant Claims Manager of Coast Underwriters, became suspicious about the sinking. He learned, among other things, that Mr. Hahn had removed the electronics and other objects of value from the Panache IV before departure: he felt 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. On comparing statements given to the RCMP and to an adjuster, Mr. Mendham noted material discrepancies. Mr. Mendham also believed there was a moral risk, the vessel being in his view worth, at the time of the loss, about $200,000, but insured for $275,000. The underwriter therefore denied the claim.

Coast Underwriters, on behalf of the underwriter, decided to try to locate and retrieve the Panache IV in order to further bolster the denial of the claim. Coast Underwriters believed that the Panache IV would have a salved value to assist in defraying the cost of recovery. To effect the raising of the Panache IV Coast Underwriters chartered vessels and hired various subcontractors. I accept Mr. Mendham's evidence that the chartering of vessels and the hiring of subcontractors were on the terms that there would be payment for services regardless of success and that any claim for salvage would be made by Coast Underwriters, or its principal and not by a subcontractor or vessel owner.

In early March 1995, Coast Underwriters, as a first step, that of locating the vessel, hired Western Subsea Technology Ltd. Western Subsea mobilized its equipment 10 March 1995, located a vessel on 15 March and subsequently confirmed the identity of the Panache IV, by video camera, in about 145 fathoms of water. The cost of locating the vessel, using a remote-operated vehicle and side-scan technology, was some $61,500.

The particular difficulty in raising the Panache IV was the place of the sinking, a relatively exposed area of deep water where the tidal turbulence is not just a lateral motion, but also a horizontal one, in both directions, creating large boils. Indeed, the evidence of the underwriter, relying on expert advice, is that the area off Turn Point is the second most turbulent spot in the world, with a flow equivalent to that at the mouth of the Amazon River.

Coast Underwriters, on behalf of its principal, the underwriter, mounted three attempts to raise the Panache IV. In the first attempt it used a remote-operated undersea vehicle, the plan being to hook a line onto the Panache IV and bring the vessel to the surface. This attempt, which cost approximately $36,800, failed.

The second attempt to raise the Panache IV took place 25 to 27 March 1995 utilizing the services of Can-Dive Marine Services Ltd. and a diver using a Newt Suit, a patented flexible jointed metal diving suit allowing a diver to work at a depth beyond the range of conventional diving equipment. This attempt, which cost some $115,000, also failed.

It appears the failure of the first two attempts to raise the Panache IV was a result of weather and current. During the first salvage attempt weather and current were such that the umbilical cord attaching the remote-operated vehicle became entangled in the propeller of an attending tug. An additional vessel had to be called out in order to put divers in the water to clear the propeller. Indeed, during this operation one of the divers got into difficulty and in rescuing him a small rescuing vessel sank. That operation was called off as conditions were too hazardous. Similarly, on the second attempt, the Newt-suited diver got into difficulty by reason of tidal current conditions and that attempt had to be abandoned.

At this point I would note that attendance at the scene of and direct participation in a salvage is not a precondition to a salvage award (Thetis, in re H.M.S. (1833), 166 E.R. 312, as to the salvage award to Admiral Baker),¹ but may go to enhance an award. In the present instance the president of Coast Underwriters attended the operation from time to time and Paul Mendham of Coast Underwriters was in attendance throughout. I accept Mr. Mendham's evidence, on cross-examination on his affidavit, that he, as a former sea-going man, acted as a crew member during the retrieval operations and that he was the primary decision maker as to whether an operation would continue or would stop.

The Panache IV was successfully raised on the third salvage attempt. Coast Underwriters, in preparation for this attempt, commissioned the construction of a two-ton grappling hook, which was deployed from a barge. Utilizing a crew of ten, the barge was positioned on a single point 8-ton anchor and was moved back and forth across the site of the sinking by taking in and paying out anchor line, in conjunction with a tug to better position the barge. During this grappling procedure Coast Underwriters modified the grappling hook prongs by adding barbs. After five days of dragging the grappling hook caught the rudder stock of the Panache IV. The Panache IV was then brought to the surface by the heavy lift crane barge N.W. Rigger on 19 May 1997. The crane barge and Panache IV were towed to Bedwell Harbour, a six- hour trip, at slow speed to minimize the chance of losing the Panache IV, against the tide.

At Bedwell Harbour the Panache IV was lowered to the bottom in shallow water where divers positioned slings for proper lifting. The Panache IV was then lifted to the surface and pumped out. At that point Mr. Mendham, two surveyors and an RCMP officer entered the vessel and found not only three holes in the bottom of the vessel, from which fittings had been removed, but also that the seawater line to the forward head appeared to have been cut through. In addition two electrical switches, one for the aft bilge pump and the other for an automatic bilge pump, were in the off position.

Bedwell Harbour affords an anchorage during winter months, but is subject to strong winds blowing from the head of the bay. It has minimal facilities. It is unsuitable as a place of safety for a vessel in the condition of the Panache IV. The RCMP seized the Panache IV and ordered that she be taken to Sidney on Vancouver Island. En route the vessel began to sink in the middle of the night. One of the attending surveyors was able to get aboard the vessel, through a forward hatch, where he stood on and thus stopped two man-made holes in the bottom of the vessel while the vessel was again pumped out. Once the Panache IV was delivered to Sidney, the RCMP took custody so they might examine and obtain evidence from the vessel. The Panache IV was not returned to the underwriter, so it might be cleaned up and preserved, for nearly three weeks.

This third and successful attempt to raise the Panache IV cost just over $62,000. The costs of the three attempts, set out above, do not include an initial aerial search for oil slicks, surveyors' fees, charges for Coast Underwriters' personnel, storage fees, clean up expenses and other miscellaneous costs. The total cost of successfully locating and raising the Panache IV, taking her to a place of safety at Sidney, storing and cleaning came to $307,854.44.

Unfortunately the Panache IV suffered substantial deterioration while sunk in deep water, including corrosion to engine, electrical wiring and fittings. Further deterioration likely occurred while the vessel was in RCMP custody at Sidney, to the exclusion of the underwriter and anyone else. Despite submissions to the contrary I do not fault the underwriter either for involving the RCMP or for not being able to take steps to preserve and clean up the Panache IV immediately when it arrived at Sidney. The RCMP, while the vessel was in its custody, removed some items from the Panache IV. Perhaps such items, which I expect included two corroded bilge pump switches set in an off position, might have minimally raised the sale value, but underwriters are not to be faulted for the removal of such items for use in the criminal proceeding against Mr. Hahn which followed. It became imperative to sell the vessel in early 1996 before too much freezing weather occurred, for it was feared that water, under pressure, had entered the hull and deck core, between the fibreglass outer and inner surfaces of the vessel and should freezing of that water occur there would be substantial additional damage. For this reason and for other reasons, including the ongoing cost of storage and the minimal estimated value of the vessel, $25,000 to $30,000, the Court ordered the vessel sold. The sale price was $30,100. Sale costs of $2,893.12 were paid out of the proceeds. General Accident also spent $916.43 to clean up the Panache IV, which included shovelling mud out of the cabin and $1,724.38 to lift and store the vessel ashore. The balance of the sale proceeds, which are at issue in this proceeding, are in trust at interest.

An event occurring after the raising of the vessel is also pertinent. Mr. Hahn was charged with various criminal offences. In October of 1996, following a two-week trial, he was convicted of, among other things, attempted insurance fraud by reason of the scuttling of the Panache IV. I accept Mr. Mendham's affidavit evidence, thoroughly tested on cross-examination, that the raising of the Panache IV provided evidence critical not only to the Crown deciding to prosecute, but indeed for the conviction. That the raising of the Panache IV provided critical evidence is also confirmed by the reasons of the Trial Judge, given during the trial in the course of a voir dire.

ANALYSIS

I am satisfied the facts surrounding the raising of the Panache IV contain the elements necessary to constitute salvage. The Panache IV, sunk and abandoned in deep water, was successfully raised and then taken to a place of safety at Sidney, B.C. 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. That a salvor must be a volunteer is a concept upon which I will in due course elaborate, but first there is the consideration of the basis of the salvage claim, beginning with Canada Shipping Act [R.S.C., 1985, c. S-9] provisions.

Section 452 of the Canada Shipping Act

I will not do more than touch on submissions made on behalf of the underwriter that General Accident may claim as a right for a salvage award under section 452 of the Canada Shipping Act, which provides that where a vessel is wrecked or abandoned an award shall be payable by the owner. Granted, the owner abandoned the Panache IV leaving her derelict. However this does not mean that there must be a mandatory salvage award in all instances.

Section 452 of the Canada Shipping Act provides:

452. When, within Canadian waters or on or near the coasts thereof, any vessel is wrecked, abandoned, stranded or in distress, and services are rendered by any person in assisting the vessel or in saving any wreck, there shall be payable to the salvor by the owner of the vessel or wreck, as the case may be, a reasonable amount of salvage including expenses properly incurred. [Emphasis added.]

This section clearly deals with in personam jurisdiction for it requires the owner to pay salvage. It does not grant or touch on an in rem right to a salvor to look to the salved ship or her sale proceeds. Here the claim is against sale proceeds. No claim is made in the present motion against the owner. Section 452 does not apply to give an automatic entitlement to a salvage award.

Salvage Convention of 1989

Counsel for the underwriter also referred me to the International Convention on Salvage, 1989, signed at London [S.C. 1993, c. 36, Sch. V], which has now been brought into force in Canada by section 449.1 [as enacted by S.C. 1993, c. 36, s. 1] of the Canada Shipping Act. Article 12 provides that a salvage operation which has had a useful result gives a right to a reward. A "salvage operation" is defined, in Article 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 well 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, to which I will now turn.

Common Law Salvage

At common law salvage awards, which are governed by public policy considerations, including the desirability of encouraging salvors to take risk to save property, are never automatic, but depend upon the presence of three necessary and distinct elements. Those elements are danger to the salved vessel, a voluntary rendering of services and success, or contribution to success, all as neatly set out in Fisher v. The Ship —Oceanic Grandeur— (1972), 127 C.L.R. 315 (Aust. H.C.), at page 318:

"The awarding of salvage is governed largely by considerations of public policy and by the desirability of encouraging seafaring folk to take risks for the purpose of saving property.""(Willmer J in The Sandefjord [1953] 2 Lloyd's Rep 557, at 561.) However, although the courts look favourably on claims to salvage reward ("The Sappho" (1871) L.R. 3 P.C. 690, at 695)"there are certain essential features which must be present before an entitlement to any reward can arise. There must be danger to the vessel salved. There must be a voluntary rendering of services in the sense that the services must not have been rendered pursuant to a contractual or official duty owed to the salved vessel. Again, in the absence of special contract, the services must turn out to have been successful, or to have contributed to success, before any reward can be earned.

In the present instance the successful location and recovery of the derelict Panache IV from 145 fathoms of water, where in fact she had suffered damage and would continue to suffer ongoing damage, clearly satisfies two of the necessary elements of salvage. Whether the underwriter's services were rendered voluntarily and not as a duty is a more interesting point to which I now turn.

An Underwriter as Salvor

That a 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. This concept was neatly expressed by Lord Stowell in In re The Neptune (1824), 166 E.R. 81, at page 85:

What is a salvor? A person who, without any particular relation to a ship in distress, proffers useful service, and gives it as a volunteer adventurer, without any pre-existing covenant that connected him with the duty of employing himself for the preservation of that ship.

Generally speaking an underwriter is a party interested in a vessel and therefore may not claim salvage: see for example Crouan v. Stanier, [1904] 1 K.B. 87, in which underwriters successfully refloated an abandoned vessel and claimed salvage. The case is a decision of Mr. Justice Kennedy, later Sir William Rann Kennedy, of Kennedy's Civil Salvage and thus is of considerable weight. In that instance the Isidoro Antunes grounded, submerged for most of her length, in the Amazon. The ship was abandoned by owners, who claimed a total loss. The policy was for total or constructive total loss only, and contained the usual suing and labouring clause so that if the ship owner expended efforts to avert a total or constructive total loss, the ship owner would have a right to recover expenses for those efforts under the suing and labouring clause.

In order to recover the Isidoro Antunes the underwriters contracted with a firm of salvors, on a no cure-no pay basis, for a fixed salvage reward in the event of success: it is a key point that there was no contract for the use of a salvage vessel by underwriters, but rather only a salvage contract. The salvage succeeded. The underwriters paid the agreed award to the salvors and then themselves claimed either as salvors or under common law for work and labour done. Mr. Justice Kennedy pointed out that underwriters as well as the assured had the right to work on and to try to preserve the ship. Owners might have laboured and recovered the vessel and would have been entitled to recover their expenses from underwriters. Thus the underwriters, in claiming for work and labour done for the assured, were asking the Court for an award which might be recovered back from them by the assured under the suing and labouring clause of the policy which was in effect. Mr. Justice Kennedy found the salvage portion of the claim much more difficult to deny, for certainly underwriters had been instrumental in salvaging a vessel belonging to the assured. He pointed out that if such a claim were maintainable it would be a most extraordinary thing, considering the number of vessels salved by underwriters. In the case of the Isidoro Antunes he felt it was in the interest of underwriters to salvage so there should be no constructive total loss and thus underwriters were not volunteers. However to reach that conclusion Mr. Justice Kennedy had to distinguish the decision of Dr. Lushington in The Pickwick (1852), 16 Jur. 669 (Adm.).

In The Pickwick the vessel was abandoned off the Calf of Man. The underwriters of the Pickwick chartered the steam vessel President and ultimately brought the Pickwick to safety. In distinguishing The Pickwick Mr. Justice Kennedy referred to Dr. Lushington and said (Crouan v. Stanier, supra, at pages 93-94):

That great judge was acting, it seems to me, simply upon the view that for the time being the underwriters, under their contract for the employment of the President, ought to be treated as owners of the instrument of the salvage service which was at risk, and he allowed them as such to have a salvage award. It appears to me that in this case the circumstances are not the same. Were they the same I should feel myself simply bound to follow that decision. But here there was no contract for the hire or use of a ship at all . . . . Just as a shipowner is entitled to reward for the use of his vessel and crew employed in a salvage, the judge there gave the underwriters, who, apart from their temporary ownership of the salving vessel, were not salvors, the reward which the owners of the chartered vessel would have been entitled to as owners, according to the practice of the Admiralty Court, but which, as I understand the facts, under the charterparty they must have surrendered to the underwriters. Here there is nothing of the kind; there were certain successful services rendered by persons engaged under a contract made with them by the insurers, who were not only interested in the safety of the property as insurers, and therefore were not pure volunteers, but who were . . . doing that which under the circumstances was successful in preventing constructive total loss, with the knowledge and consent and in a sense on behalf of the assured person"in other words, suing and labouring for him, he knowing that under the policy he was entitled to treat the thing done, either directly or indirectly, as done at the expense of the underwriters.

In effect Mr. Justice Kennedy, as he then was, felt he would have been bound to follow The Pickwick if underwriters had chartered a salvage vessel, rather than entered into a no cure-no pay salvage contract with the owners of a salvage vessel.

In the present instance the circumstances are akin to those in The Pickwick. Here the underwriter hired ships, equipment and personnel to effect the recovery of the Panache IV and thus falls into the classification of salvor. Indeed, as Newson in The Law of Salvage, Towage, and Pilotage (W. Clowes and Sons, London, 1886) points out, at page 39:

After a ship has been abandoned at sea by her master and crew, should the underwriters on ship or cargo succeed in salving the ship and cargo, they will be entitled to claim salvage for their services.

Newson refers to The Pickwick for this proposition, which as we now see is limited by Crouan v. Stanier to instances in which underwriters hire a salvage ship, thus becoming, for the time being, in effect, the owners of the salving ship. Newson on Salvage also refers to the In re The Purissima Concepcion (1849), 166 E.R. 930, a decision of Dr. Lushington. There the Court was prepared to award an agent of Lloyd's remuneration for organizing a successful salvage, even though he had remained ashore and had taken no part in the operation, the salvage award being contingent upon the salvor presenting accounts to show that he dealt properly with proceeds of the sale of cargo from the salvaged ship. In the present instance the salvage was arranged for by Vancouver agents of the underwriters, Coast Underwriters. However I also note that management from Coast underwriters was not only aboard the salvaging vessels, but also made final decisions as to the salvage operation.

Counsel for the CIBC points out that the charters of vessels and the hire of equipment did not, except in the case of the side-scan sonar unit used to locate the vessel, amount to a charter by demise or a similar type of equipment hire agreement whereby Coast Underwriters would be responsible for loss or damage to a vessel or equipment as would an owner. He then refers to a passage from the 5th edition of Kennedy on the Law of Salvage (London, Stevens & Sons, 1985) at page 161 which follows the general proposition that salvage is payable to the owner of a salving vessel:

In consequence, it has long been the view that, where a ship is under a charterparty not amounting to a demise and silent as to salvage, it is still the owner"and not the charterer"who is entitled to salvage.

Now there are two answers to this. First, I am satisfied that in the oral agreements to hire equipment and vessels the owners of the equipment and vessels agreed not to claim salvage, but rather to be content with their guaranteed hire and thus would not be looking to the Panache IV for any salvage award. The second answer to this issue is supplied by Kennedy in the passages which follow at pages 161-163. Kennedy points out that the opportunity of a time charterer to earn salvage may be small, but that the authorities neither specifically deny the locus standi of a non-demise charterer nor specifically deny such a claim for salvage and with reference to a non-demise charterer it may be that public policy favours their claim. In the present instance not only is it clear that those who provided vessels and equipment to Coast Underwriters would not claim for salvage, but there is also a public policy aspect.

Policy to Encourage Salvage

An important underlying and indeed well-entrenched justification for salvage is the public policy of encouraging salvage services. The courts have promoted this encouragement of salvors by making rewards, whenever it is reasonable to do so, in excess of a pure quantum meruit award. Yet there are other sorts of public policy going beyond the encouragement of salvors to recover marine property. In this instance there is an appropriate passage from the reasons of Mr. Justice Skipp, in R. v. Hahn, Victoria Registry 82319-T, Skipp J., judgment dated 4/10/96, B.C.S.C., arising out of a voir dire during criminal proceedings as to the admission of evidence obtained from the Panache IV by the RCMP. Mr. Justice Skipp refers to public policy in the context of values of the community at large and makes the point that the public would be in a censorious mood if real evidence going to the scuttling of the Panache IV were excluded [at page 11 of reasons]:

Finally, the effect of excluding this evidence. One effect would be according to Crown counsel that the Crown would have to fold its case (sic) that is not a reason for not giving effect to a valid point for the accused, but what I did want to talk about was the values of the community at large as it has been put.

It is very difficult for anyone, be he counsel, be he a judge, to pretend to precisely understand the values of the community at large. My own take on the values of the community at large is that the public would be in a more censorious mood were real evidence under all of these circumstances to be excluded. I do not think the community at large would approve.

As another example of relevant public policy, I am aware of several occasions in the past when underwriters on this coast have recovered vessels and have established valid reasons to deny insurance coverage. It is an important aspect of public policy that discovery of improper insurance claims be encouraged, not only generally, but particularly to protect other insureds from the longer range results of payment of false claims, being higher premiums.

One must logically conclude that underwriters should be encouraged, in proper instances, to diligently investigate truly suspicious claims. One way of offering encouragement, where an underwriter mounts a salvage operation, particularly of an abandoned vessel, is to look upon the underwriter as a salvor, of course excepting the underwriter who has a duty to recover a vessel. In the present instance the underwriter, having clearly and for substantial reason repudiated the risk, a salvage award is an appropriate expression of community values or of the public policy of encouraging salvage.

The Self-interested Salvor

I should deal at this point with the question of self-interest on the part of salvors, for it was in the interest of the underwriter, in denying the claim on a suspicion of scuttling, to confirm the cause of the loss.

To begin, 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 as to life salvage, the salvage of ships and cargo is also motivated, to a substantial degree, by economic self-interest.

Counsel for the CIBC submits self-interest is a bar to a claim for salvage, referring to Crouan v. Stanier (supra) and particularly a passage at page 91:

As far as I know, such a claim by underwriters, unless the case of The Pickwick raised the point, is practically a novel one and if such a claim were legally maintainable, this would seem to be an extraordinary thing, considering the number of vessels that must have been salved by underwriters within this last century.

Kennedy J. (as he then was) looked upon the underwriters as acting in their own interest, not as volunteers, in seeking to prevent a constructive total loss of the Isidoro Antunes. I have already pointed out that the facts here parallel more neatly those in The Pickwick, the case which Mr. Justice Kennedy had to distinguish. However that does not necessarily deal with the whole issue of whether the underwriter in the present instance had a particular self-interest intent which might exclude it from claiming salvage. On this point counsel for the CIBC submits that the editors of the 5th edition of Kennedy on Salvage, in ignoring Crouan v. Stanier, have taken a wrong view of the law of intention as it applies to salvage. Counsel paraphrases and I think properly, that the current view set out in Kennedy on Salvage is that to negate a salvage award the intent must go beyond an operation motivated by self-interest, but must be services rendered with an intent not to claim salvage: Kennedy on Salvage, 5th edition, pages 25-26 and 193-195. Counsel in support of what he says is a mistaken view on the part of the editors of Kennedy on Salvage, refers to The Liffey (1887), 6 Asp. M.L.C. 255; The Lomonosoff, [1921] P. 97; and Simon v. Taylor, [1975] 2 Lloyd's Rep. 338 (Singapore H.C.).

In The Liffey a claimant rendered services in the nature of salvage, but under the mistaken view that it was his own vessel and thus it would be inconceivable that he would not have tried to save the vessel. The Judge held it was fair and equitable that on discovering the mistake and realizing he was not an owner, it followed that there was no reason why he ought to be disentitled from salvage.

In The Lomonosoff the salvage claimant, acting entirely out of self-interest, being under arms fire from the dock and other ships, commandeered the Lomonosoff at Murmansk so that he and fellow British and Belgian officers and soldiers might escape the certainty of imprisonment and the probability of being shot by Bolsheviks if they remained in Murmansk. Mr. Justice Hill noted that the claimants had other conceivable means of escape and they were under no duty to save the Lomonosoff. As such they were volunteers entitled to a salvage award (page 103).

Simon v. Taylor involved the 1971 salvage of a cargo of mercury from a German submarine that had gone down in 1944 in the Strait of Malacca. Now the Singapore High Court in denying the successful retrieval of cargo from a long sunken vessel came to some interesting conclusions, including that the submarine was not derelict and abandoned, despite lying well off-shore for some 28 years, that the cargo was in no danger, and that the divers were not entitled to a salvage reward because they brought up the cargo entirely for their own benefit. Counsel submits that the correct interpretation of Simon v. Taylor is that it supports the denial of a salvage award in other situations, such as in the case of the Panache IV. The interpretation given to the case by the editors of Kennedy on Salvage is a narrow one, being that if a claimant performs a service with an intention of not claiming salvage, no salvage is payable. Perhaps, in Simon v. Taylor, the Court was incensed by the fact that the divers who raised the cargo had tried to get away with the whole of the cargo, as if they were owners by reason of finding and retrieving it, rather than merely claiming an interest as salvors.

Counsel for the CIBC submits that the underwriters in the present instance, as was the case in  Crouan v. Stanier, ought to be denied salvage because they would have undertaken the raising of the vessel regardless of a salvage award. Counsel for the CIBC I believe misses the point that the editors of Kennedy on Salvage, in writing about intention and voluntariness, deal with an intention of not claiming salvage and with the absence of a duty to assist or raise a ship. I do not read anything into the fact that the editors of at least the last two editions of Kennedy on Salvage refer neither to Crouan v. Stanier nor to The Pickwick: the area is just not touched upon. In my view the reasoning behind Crouan v. Stanier and The Pickwick is clear. As I have pointed out, the two cases can be differentiated one from the other. The circumstances surrounding the raising of the Panache IV fall within the principles set out in The Pickwick. There is no need to work at rationalizing the facts and circumstances surrounding the Panache IV in order to artificially fit them into the exception found by the Trial Judge in Crouan v. Stanier.

My analysis is that Simon v. Taylor has no real application in the present instance and in The Liffey and in The Lomonosoff the issue was really one of duty: the salvors in both instances had no pre-existing duty to provide the service, were volunteers and despite an element of self-interest and indeed self-preservation and had no intention of waiving a claim for salvage. In the present instance the underwriter of the Panache IV, having denied the claim, thus denying coverage, 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.

Meritorious Agency

At the conclusion of argument on this motion I asked counsel to consider and present written argument on the doctrine of an award for meritorious agency as an alternative to a salvage award. While I have found a salvage award as such is appropriate, it would be useful to touch on the concept that where successful and meritorious services have been rendered, not strictly amounting to salvage, liberal remuneration may be in order: See In re The Favorite (1844), 166 E.R. 751, at page 752. In The Favorite the claimant, retained by the master, successfully performed a meritorious salvage of cargo from a grounded ship in circumstances where, but for the claimant's efforts, the cargo would have been lost. The cargo owner refused to pay expenses of "155. Dr. Lushington could not award salvage, as the claimant had been engaged to remove the cargo by the master, but did award "250 and costs for meritorious agency services. In The Favorite , as in other cases of this type, the services were performed with hired equipment and in some instances without the claimant becoming physically involved in the salvage effort itself.

Similarly, in four other cases, In re The Purissima Concepcion (1849), 166 E.R. 930; The Cargo ex Honor (1866), L.R. 1 A. & E. 87; The Kate B. Jones, [1892] P. 366; and In re The Happy Return (1828), 166 E.R. 217, cited by counsel for the underwriter, agents who organized and paid for successful salvages were allowed to claim as salvors, although they were not directly involved in physical risk themselves.

Counsel for the CIBC correctly points out that in each of these meritorious agency cases there was a request from the master or owner to render assistance and a resulting agreement: this differentiates the meritorious agency cases from the present involving the Panache IV, in which the evidence indicates that the owner not only did not request that the vessel be raised, but indeed was somewhat alarmed at the prospect. However this line of cases both reinforces the concept that the use of hired equipment is not a bar to an award of some type and that a court of admiralty jurisdiction will always apply equitable principles to see that meritorious services are rewarded. Both of these concepts are pertinent in the present instance. Having found the elements necessary to support a salvage award, as such, I now turn to a determination of the amount.

THE SALVAGE AWARD

Some Equitable Considerations

Counsel for the CIBC submits that even if the underwriter is a salvor I ought to apply equitable principles and deny an award, for example by looking upon the underwriter as, to paraphrase Kennedy, an officious intervenor who ought to be denied (Kennedy on Salvage, 5th edition, at page 18). I also reject the concept that equitably the CIBC ought to be able to wait ashore for the arrival of the recovered Panache IV and apply its entire value to the mortgage, since the underwriter acted in its own interest: here counsel referred to Ruabon Steamship Company v. London Assurance, [1900] A.C. 6 (H.L.). The Ruabon Steamship case may be easily distinguished: there the owner took advantage of a docking, at the expense of underwriters, to do an owner's classification survey. As explained in The Acanthus, [1902] P. 17, at page 22, one is not bound to contribute to a project or undertaking unless there is some legal obligation: the mere fact that one obtained an advantage from an opportunity which in the minds of some might give rise to the idea of imposing a duty of payment is not sufficient to impose a legal obligation. In the present instance the CIBC apparently took the opportunity of sending a surveyor to look at the vessel after the salvage and that certainly falls within the Ruabon Steamship case, but there is no obligation on the part of the underwriter to turn the whole vessel over to the CIBC as a windfall to a mortgagee.

Counsel for the CIBC submits that the bank has lost substantial money and given that the underwriter has achieved its ultimate end, an uncontested denial of the claim, the CIBC ought equitably to have all of the proceeds of the sale of the Panache IV. However, but for the efforts of the underwriter there would be no fund at all. It is only equitable that the underwriter, who spent more on the salvage operation than the value of the denied and saved insurance, be compensated to some degree. From the point of view of the CIBC, it would still seem to have an in personam right against its customers, the mortgagors of the Panache IV.

Still dealing with equitable aspects, counsel for the underwriter pointed out that the CIBC, although aware of the salvage to be attempted, made no move to participate physically or monetarily. I do not read anything adverse into this, for bankers ought not to be in the risky and expensive business of salvage. However the CIBC also ought not to be surprised by an award of salvage, indeed a substantial award, to the underwriter.

Assessment of Salvage Awards

The amount of the salvage award is a matter of discretion:

The amount of salvage reward due is not to be determined by any rules; it is a matter of discretion, and probably in this, or in any other case, no two tribunals would agree. [In re The Cuba (1860), 167 E.R. 8, at page 8.]

This is subject to the maxim that discretion in law must be sound discretion and to the broad salvage maxim that awards should be fair and reasonable: see Sutton The Assessing of Salvage Awards: An Enquiry into English Admiralty Practice, Stevens & Sons (London, 1949), at page 2. In addition there are traditional or established factors which I must consider in exercising my discretion in order to arrive at a proper consideration or reconciliation of what is due to the owners, or in this case to the CIBC as mortgagee, in the protection of its property in the vessel with a liberal award for meritorious service due to salvors: see The Thetis (supra), at page 329. The factors to consider in assessing quantum are open-ended, however there is a good statement setting out established and important factors in Humphreys et al. v. M/V Florence No. 2, [1948] Ex. C.R. 426, at page 434, in judgment of Mr. Justice Sidney Smith:

The factors which go to the making of a salvage award are well-known and well-established, but may bear repetition here. They are, first, the degree of the danger to the property salved, its value, the effect of the services rendered, and whether other services were available; next, 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 here. The amount of the award depends on the degree in which all, many, or few of these factors are present.

I will begin with a consideration of the danger to the property salved.

Degree of Danger to Panache IV

In finding a degree of danger merely in the fact the Panache IV was sitting abandoned and unlocated on the bottom, inaccessible to owner and to the CIBC as mortgagee I am not unaware of Simon v. Taylor (supra) in which the Singapore High Court pointed out that cargo may be on the bottom of the sea for many years and yet not be exposed to any imminent or pending danger (page 344). That is not the case in this instance. Both counsel agree the vessel was deteriorating and would deteriorate further while on the bottom.

A loss of proprietary rights, without physical danger, has been taken into account: see for example The Cythera, [1965] 2 Lloyd's Rep. 454 (N.S.W.S.C.), where the situation was one of retrieval of a vessel from pirates, who were good seaman and had done no damage, but had only interfered with the owner's proprietary rights, such deprivation being sufficient to found the plaintiff's salvage claim. Here, the owner and the CIBC as mortgagee might well have been deprived of proprietary rights indefinitely had the underwriter not located and retrieved the Panache IV. Indeed, one should not belittle the location of the vessel by the underwriter: it took skill, perseverance and money to locate the vessel in open water with only an approximate point from which to begin the search.

Salved Value

The value of the property salved is one of the most important ingredients in fixing an award, although a court ought not to be induced, by a salved value figure, to award a sum which is out of proportion to the services rendered: The Glengyle, [1898] P. 97 (C.A.), at page 103. One might also observe that where the value of salved property is large, the amount of the reward bears a smaller proportion to the property value than in cases where the property salved is of small value. In the present instance the salved value of the Panache IV, just over $30,000, was very modest and all the more so in proportion to the salvor's expenditures.

Effect of Services

In the present instance the salvage was successful. But for the effort of the underwriter as salvor it is very likely, given all of the circumstances surrounding the position of the Panache IV, that the vessel would never have been either located or brought to the surface.

Risk Run by the Salvors

Salvage courts have always recognized danger to the lives of salvors as an important factor, although not an essential factor, in determining an award: see for example In re The Bartley (1857), 166 E.R. 1093, at page 1094 and In re The Henry (1810), 165 E.R. 1079, at page 1080.

I may take note of the general fact that salvage operations, particularly those involving heavy lift equipment in an exposed area, are inherently dangerous. In the present instance the divers retained by the salvors got into difficulties on two occasions. One of the surveyors faced danger when he crawled through a forward hatch, at night, when the Panache IV began to sink while being taken to a safe port and had the fortitude and presence of mind to stand on two holes in the bottom of the Panache IV until the water could be pumped out. These risks and difficulties go toward a substantial award.

Time Occupied in the Salvage

The factor of time occupied to effect a salvage is well summed-up in the 5th edition of Kennedy on Salvage, at page 469:

If the salvage service is dangerous, or involves the continued exercise of skill or labour, the length of its duration will, of course, enhance the salvor's reward.

In the present instance the location of the Panache IV and the subsequent salvage operation took place between 7 March 1995 and 19 May 1995, when the vessel was finally recovered. However I also recognize that salvage equipment was not on site at all times, but consisted of the operation of locating the vessel and then three separate salvage attempts, interspersed with time taken to formulate new plans and to locate, construct and mobilize vessels and equipment. In the present instance the length of time taken, together with the tenacity shown by the salvor's three attempts, go to enhance the award.

Enterprise and Skill

Exemplary feats of seamanship and salvage are always well rewarded. Indeed, "the salvage reward always bears a proportion to the skill and knowledge displayed in the performance of the salvage service": Kennedy on Civil Salvage, 4th ed., 1958, at page 184.

In the present instance the salvors showed a professional approach in locating the vessel in a number of ways including by hiring expert help to give advice, mounting an aerial search for any oil slick and obtaining state of the art equipment to locate a vessel and then to confirm that it was the Panache IV. Granted the salvors needed three attempts, with different types of equipment, to retrieve the Panache IV, however the annals of salvage are replete with many instances in which a number of attempts were mounted before the salvage was brought to a successful conclusion.

The CIBC takes issue with the professionalism of the salvors and indeed believes the salvors made a number of mistakes which should be taken into account in determining an appropriate award. To begin, "when persons undertake to perform a salvage service, they are bound to exercise ordinary skill and ordinary prudence in the execution of the duty which they take upon themselves to perform.": In re The Cape Packet (1848), 166 E.R. 909, at page 909. In Cape Packet Dr. Lushington went on to point out that salvors "must possess and exercise such a degree of prudence and skill as persons in their condition ordinarily do possess, and may fairly be expected to display": at page 910.

The burden of proving misconduct so as to deprive a successful salvor of all or a portion of a reward is upon those who impute the misconduct. And indeed the evidence must be conclusive in the sense of leaving no reasonable doubt:

. . . where success is finally obtained, no mere mistake or error of judgment in the manner of procuring it, no misconduct short of that which is wilful and may be considered criminal, and that proved beyond a reasonable doubt by the owners resisting the claim, will work an entire forfeiture of the salvage. Mistake or misconduct other than criminal, which diminishes the value of the property salved, or occasions expense to the owners, are properly considered in the amount of compensation to be awarded. Wilful or criminal misconduct may work an entire forfeiture of it; but that must be proved by those who impute it. The presumption, of course, is in favour of innocence, and this rule applies so strongly in favour of salvors that the learned Judge of the Admiralty, in the case of The —Charles Adolphe— (Swab. 156), has laid it down that the evidence must be "conclusive" before they are found guilty; by which he must be understood to mean that it must be such as leaves no reasonable doubt in the mind of the Judge. [In re The Atlas (1862), 167 E.R. 235 (P.C.), at page 241.]

The CIBC refers to the evidence of Mr. Mendham that in his view the Panache IV, as she lay on the bottom, was deteriorating rapidly both by reason of water penetrating the balsa core of the fibreglass hull and deck and because of corrosion. The CIBC, in its written submission, faults the underwriter for taking 90 days to raise the vessel (from sinking to recovery took 84 days) and for initially employing a remote operated vehicle and then a Newt-suited diver, when they ought to have used a grappling hook in the first instance. This is pure hindsight. Indeed, one would expect there was every reason why a grappling hook was not used in the first instance, for to find a small sailing vessel in open water, 145 fathoms deep with a grappling hook deployed on 1000 feet of line and the barge anchored in current with 1000 meters of wire rope and then to have the grappling hook actually catch on some fitting or rigging strong enough to lift the Panache IV, amounts to very long odds.

Next and this is approbation and reprobation, the CIBC faults the underwriter for using the grappling hook which, on catching on the Panache IV's rudder stock, is said to have caused the vessel to tip and break the mast, reducing the salved value by perhaps $5,000. Now a grappling hook is basic technology: it is very hit and miss and can easily do damage to a fragile object such as a sailing vessel. However its use as a final alternative salvage tool, after sophisticated equipment had proved unequal to the task, stops well short of misconduct, or a mistake or an error in judgment, for at that point the salvors would seem to have run out of any other economic means to attempt to raise the vessel.

Finally, the CIBC faults the salvors for getting the police involved. The CIBC says that police involvement, which resulted in their seizing the vessel for some three weeks for examination and to remove evidence of the scuttling, allowed the vessel to deteriorate. Mr. Mendham's evidence is that the police had asked to be advised if the vessel was recovered (page 10 of his affidavit sworn 31 October 1995) and that he wished to have an RCMP officer in attendance to see the vessel was not tampered with on being raised. This was a prudent and proper approach. The CIBC would, in effect, have counselled the underwriter, its employees and contractors to conspire to hide the evidence of the scuttling. This would be a display of poor corporate citizenship to say the least.

Vessels Used in the Salvage

The value of vessels and equipment used by salvors and the danger to which they are exposed are elements which must be considered in each case. The objective is that owners of salvaging vessels should be compensated for the risk to which they expose themselves in order that the owners of vessels, particularly large and valuable vessels, might be encouraged to render salvage services.

In this instance vessels and equipment of very substantial value were used in the salvage. However the underwriter organized its affairs so that, for the most part, it would have no liability for loss of or damage to equipment or vessels. However the matter does not end there. The expenditures of salvors are relevant and indeed a court will try to make an award, if possible, sufficient to cover the expense incurred by salvors together with a reasonable amount as compensation for their services. Where there is a meritorious service which salves a vessel of high value, courts will give an enhanced award to take into consideration instances in which the salvor may make large expenditures and through no fault of its own find that the salved vessel has a low salved value. The latter is the case here. The large expenditures of the underwriter, to salvage the Panache IV, are reason to give an enhanced award, however the underwriter, on any calculation of benefits received, will be out of pocket.

Public Policy

I touched earlier on public policy which, along with the principle that salvors should be paid for the benefits they confer, is the basis of the law of salvage. In In re The Fusilier (1865), 167 E.R. 391 (P.C.), at page 394, Dr. Lushington put this neatly:

Salvage is not governed by the ordinary rules which prevail in mercantile transactions on shore. Salvage is governed by a due regard to benefit received, combined with a just regard for the general interest of ships and marine commerce.

As Mr. Justice Skipp pointed out in R. v. Hahn (supra) it is difficult for anyone to precisely understand the values of a community at large: there are also the same pitfalls in trying to establish what public policy is at any given time. However the public, most of whom are payers of premium for insurance of one description or another would, in all likelihood, wholeheartedly encourage the discovery of insurance fraud. Thus I consider the encouragement of legitimate investigation and the discovery of insurance fraud to be a reason for an enhanced salvage award.

Other Salvors

An aspect of the danger of a distressed ship may be the availability, or lack thereof, of other suitable or timely salvage assistance. In some instances, such as the present, it is appropriate to consider the possibility of other salvage assistance as a factor in assessing an award and here I have in mind cases such as The Paust, [1951] 2 Lloyd's Rep. 171, in which the cost of rendering assistance was perhaps "300, but for a number of reasons, including the fact that the salvaging vessel was the only ship able to render assistance to the Paust which had lost her propeller off the southern coast of Greenland, the award was much higher. There were no shore-based lifeboats, salvage vessels or anything of the sort nearby. While this lack of alternate assistance was not the sole factor for an award of "9,000, on a salved value, ship and cargo, of "46,000, it was certainly a factor. In the case of the Panache IV there are any number of salvors within a few hours sailing time of the place of the loss. However it does not appear that anyone, other than General Accident, was prepared to mount such a speculative salvage. Granted, a salvage award was not the prime consideration, but the fact that General Accident did decide to undertake the salvage merits consideration when determining the award.

Derelict

The final factor to consider is that the underwriter salvaged a derelict. The Panache IV was voluntarily abandoned by her master and owner without any intent of return or recovery, thus becoming a derelict.

Historically, in the case of derelict, the courts of admiralty awarded a moiety, being one half of the salved value of the vessel or property. Exceptionally more than a moiety might be awarded: see for example The Jubilee, an 1826 decision referred to in The Thetis (supra, at page 323) as a very extensive footnote. The moiety as an award survived until well into the 19th century: In re The Watt (1843), 166 E.R. 681, at page 682, in which Dr. Lushington said he was bound to award a moiety for the successful salvage of a derelict. However, 20 years later, in The True Blue (1866), L.R. 1 P.C. 250, at page 256, in delivering the judgment of the Privy Council, Dr. Lushington pointed out that even in the situation of a derelict a court did not automatically award a moiety, but considers all of the usual factors:

Now, in truth and in fact, when the Court comes to consider the question of derelict or not, it takes into consideration the danger to the property; and so it does where the vessel is not derelict: the property may be in infinite danger though it is not derelict: but the Court always considers that one of the material ingredients, upon which it gives a large salvage, is the danger to the property; and the danger may be (we do not say it is, but the danger may be), and in certain cases of salvage it is, as great to the property which is not derelict as it is in other cases where the property is derelict. Therefore, the proper course to pursue in all these cases is to consider the fact of derelict as being, as it were, an ingredient in the degree of danger in which the property is.

Thus, the fact that the Panache IV was derelict is merely an ingredient to be considered in arriving at an appropriate award.

It is interesting to look at the evolution of the law of derelict and the moiety a little further. In the 4th edition of Kennedy, 1958, at page 180, the editor points out that in the case of a derelict the award has been rarely less than one-third, except where the value of the salved property has been very large, at page 180:

The award in cases of derelict has often amounted to a moiety, or about a moiety, of the value of the salved property; in a few cases of an exceptional character, more than a moiety, and rarely less than one-third. But, where the value of the salved property has been very large, a sum representing less than one-tenth has been awarded.

In the current edition of Kennedy, the 5th edition, 1985, the editors acknowledge what they refer to as an ancient practice of awarding a moiety to salvors of derelict, but note it is now well settled that there is no automatic right to a moiety. Rather the fact of a vessel being derelict generally implies a higher degree of danger to the vessel, but that it is only one factor to consider: Kennedy, 5th edition, page 463. As a result of all of this the practice in determining awards, where derelict is a factor, has changed quite remarkably in the last century. In the 5th edition of Kennedy the editors also point out that awards of greater than a moiety remain rare and that the courts will look at the overall nature of the case: at pages 459-460.

An examination of this modern view of the moiety, say cases over the last hundred years or so, indicate that where there have been liberal awards there has been more than just the successful salvage of a derelict. For example, in Jacobsen et al. v. The Ship —Archer— (1894), 3 B.C.R. 374 (Ex. Ct.), the salvors were awarded 50% on a value of some $5,000, together with a towage allowance. There the Archer was saved from certain destruction, life salvage was involved and local natives had to be fought off. Similar liberal awards have run from 25% as in Glengyle (Owners of) v. Neptune Salvage Company, [1898] A.C. 519 (H.L.), to 68% in The Scheldestad (1933), 45 Ll. L. Rep. 269 (Adm.), with awards in the range of 25% to 40% being the usual: see for example The Pacific (1931), 41 Ll. L. Rep. 83 (Adm.), an award of "6,000 (38%); The Topa Topa (1935), 50 Ll. L. Rep. 211 (Adm.), an award of "20,000 (28%); The Evaine , [1966] 2 Lloyd's Rep. 413 (C.A.), an award of "1,200 (40%); and Markin v. The Ship Sea Gay , an unreported Federal Court Trial Division decision of 2 March 1972 in action T-2692-71 an award of $4,000 (24%). Not all of these cases involved a derelict, but where that was the situation, there were other meritorious factors going to the generous award.

CONCLUSION

I have touched on various pertinent elements to be considered in making an award in this instance. 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 indeed, when one considers the setbacks, 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.

Sometimes it is possible to find similar fact cases and use them as a guide. The pitfall to this approach is the unlikelihood that any two courts, given the same facts, would arrive at the same award. In the present instance the facts may well be unique. I am not aware of any reported case, to use by way of comparison, which would be of any particular help.

All of the factors considered, an award of $12,000 on a salved value of $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.

There is an additional matter to consider and that is the expense of cleaning up the Panache IV in order to make her presentable for sale and also the cost of storage from the time of salvage until sale. Clean up expenses totalled $916.43. Storage costs amounted to $1,724.38. Those costs include hauling the Panache IV out of the water and dry land storage.

The usual approach is to award salvors a gross sum covering both salvage remuneration and also an allowance for losses or expenses of the salvors. In most instances such losses and expenses of salvors are part and parcel of and occurred during the salvage. However the courts have also, in some instances, made a separate assessment of expenses and have made reimbursement outside of the salvage award: for example in Archer (supra), the selling value of the vessel was greatly enhanced by the salvor's repairs and so they were reimbursed a substantial amount, which enhanced the award beyond a moiety. In The Saltburn (1894), 7 Asp. M.L.C. 474, an amount to cover the expenses of the owner of the salving vessel was split off before making a general disposition of the salvage award among the salvors. Often in salvage cases there is a separate allowance for towage, necessary after the salvage. In the present instance the salvors ought not to be out of pocket for the expense of dry land storage and for making the Panache IV more presentable to potential purchasers. The underwriter will therefore have, out of the sale proceeds, an additional $2,640.81 to cover necessary and reasonable post-salvage expenses. The balance of the sale proceeds together with accrued interest, shall go to the CIBC.

Costs were not argued before me. The parties wish to make submissions following this decision.

¹ The Thetis is usually cited as an example of an award of a moiety, being one half the salved value, at one time the standard award to salvors of derelict and as to responsibilities incurred in a salvage, going to enhance an award. However this last reported judgment of Sir Christopher Robinson is well worth reading as a narrative of a truly epic salvage.