Case of XX Salvage Bureau v. Company A, Company B, Company C, and Third Party XX Electric Company Regarding Salvage Contract Dispute

—Criteria for Determining Salvage Operations and the Determination of Salvage Reward and Liable Parties

XX Salvage Bureau engaged a transportation company to carry a shipment of goods by sea. Just before arrival, the vessel unexpectedly ran aground. In the absence of a written salvage contract, XX Salvage Bureau assisted in refloating the vessel. This raises the legal issue: Did this constitute a maritime salvage operation, or was it merely voluntary assistance provided gratuitously?

Case Review

On January 8, 2021, XX Salvage Bureau entered into an International Transportation Contract with Company A, engaging it to transport a batch of steel pipe piles and ancillary components by sea in multiple shipments from Zhongshan Guangxin Wharf to a designated customs clearance anchorage near the Tra Vinh Project in Vietnam. Following the conclusion of the contract, both parties awaited the fulfillment of conditions necessary for staggered shipments, ensuring timely transportation of the cargo to its destination.

On June 26, 2021, at approximately 4:00 AM, the calm sea was suddenly disrupted by a rumbling sound—the vessel YUAN JING, which was carrying the said cargo, had unexpectedly run aground in coastal waters near a county in Tra Vinh Province, Vietnam.

Following the grounding, Company A contacted XX Salvage Bureau via WeChat and email, requesting assistance in refloating YUAN JING. At 4:48 AM, XX Salvage Bureau deployed tugs and anchor-handling vessels in an attempt to tow YUAN JING off the grounding position, but the initial efforts were unsuccessful. As discussions regarding the refloating operation continued, time elapsed, and at 12:40 PM, with the assistance of XX Salvage Bureau's tugboats, YUAN JING was successfully refloated. However, no prior agreement had been made among the parties regarding compensation for the refloating assistance, leaving a potential dispute unresolved.

In the six months following the incident, the parties engaged in significant disputes over whether the operation constituted maritime salvage, the amount of salvage reward, and the parties responsible for its payment. XX Salvage Bureau asserted that, in the process of refloating YUAN JING, it had deployed a total of seven vessels, including a crane vessel, anchor-handling vessels, tugs, and workboats, mobilized 96 personnel, utilized emergency materials to prevent oil pollution, and incurred losses due to vessel and machinery downtime. As a result, on March 31, 2022, XX Salvage Bureau issued a letter to Company A, demanding 15% of the total value of the salved property—equivalent to RMB 15 million—as a salvage reward for the refloating of YUAN JING on June 26, 2021. On May 10, 2022, XX Salvage Bureau sent a follow-up letter to Company A, reiterating its demand for payment of the salvage reward.

Given that Company C was the owner of YUAN JING, Company B was the bareboat charterer, and Company B had subsequently chartered the vessel to Company A for cargo transportation, XX Salvage Bureau, on July 13, 2022, issued a letter to all three companies, demanding that they provide full security of RMB 17 million as a guarantee for the salvage reward.

As negotiations failed to yield a resolution, XX Salvage Bureau filed a lawsuit with the Guangzhou Maritime Court (GZMC), seeking an order requiring the three companies to jointly pay the salvage reward of RMB 17 million plus interest (calculated from June 26, 2021, the completion date of the salvage operation, to the date of actual payment, at the LPR published by the National Interbank Funding Center). Additionally, XX Salvage Bureau sought an order requiring the three companies to jointly bear the litigation costs of the case.

The court established the facts as follows:

I. Grounding and Refloating of YUAN JING

The vessel YUAN JING is a steel general cargo ship with a gross tonnage of 10,177, a net tonnage of 3,053, a length of 142.805 meters, and a beam of 32.20 meters. Its owner is Company C. Between July 1, 2019, and July 1, 2022, Company C bareboat chartered YUAN JING to Company B and completed the bareboat charter registration with the relevant maritime safety administration.

In December 2020, XX Electric Company entered into a procurement contract with XX Salvage Bureau, under which XX Electric Company contracted XX Salvage Bureau for services related to the transportation, pile-driving, and installation of wind turbine foundations.

On January 8, 2021, XX Salvage Bureau entered into an International Transportation Contract with Company A, engaging it to transport a batch of wind turbine monopile foundations and integrated ancillary components supplied by XX Electric Company. These items were to be shipped in multiple batches from Zhongshan Guangxin Wharf to the customs clearance anchorage near the Tra Vinh Project in Vietnam. The contract stipulated the transportation would occur from January to June 2021, once the cargo met the necessary conditions for staggered shipments.

On February 20, 2021, Company B and Company A signed a time charter contract, under which Company B chartered YUAN JING to Company A for a fixed period of no less than four months. The vessel was delivered to Company C at Yangjiang Anchorage in Guangdong Province on February 17, 2021, and was to be used for transporting and loading all lawful cargoes that met the vessel's stability, weight, and safety requirements. YUAN JING subsequently completed part of the transportation stipulated in the International Transportation Contract between XX Salvage Bureau and Company A, with the voyage involved in the case being the fourth voyage under the contract.

II. Expert Witness Opinions

An expert called BI, commissioned by XX Salvage Bureau, issued an expert opinion titled "Expert Opinion on the Maritime Salvage of the Vessel YUAN JING" (the "Expert Opinion") on March 28, 2023. The Expert Opinion concludes as follows: The grounding of YUAN JING exposed the vessel to substantial risks, and it was unable to refloat independently, thus necessitating external salvage assistance. XX Salvage Bureau, in line with the principles of salvage agreement, worked round-the-clock, carrying out timely exploration and assessment, and formulating a feasible salvage plan. The Bureau urgently mobilized salvage vessels, equipment, and engineering personnel to salvage the ship, using reasonable efforts to ensure its success. Despite the significant dangers faced by the salvage personnel, they applied sound salvage techniques, achieving notable success. The operation proceeded without fatalities, and both YUAN JING and its cargo were maximally preserved and rescued. Furthermore, the operation effectively prevented sinking or environmental pollution, thereby averting potentially severe losses for all relevant parties. Based on these findings, the expert concluded that XX Salvage Bureau was entitled to 10% of the total value of the vessel and cargo as the salvage reward.

The XX Maritime Association, engaged by Company B, issued the "Evaluation Opinion on Issues Related to the Grounding of the Vessel YUAN JING" (the "Evaluation Opinion"). The Evaluation Opinion summarizes the following key points: 1. Evidence suggests that, following the grounding of YUAN JING, no imminent danger was present. Even without tugboat assistance, the vessel could have refloated on its own before the high tide at 15:00 on June 26, 2021. 2. The assistance provided by the tugboats in the refloating operation does not constitute maritime salvage. Therefore, XX Salvage Bureau is not entitled to claim a salvage reward for YUAN JING based on the salvage rates that are typically applied in maritime salvage incidents. 3. Should the second refloating attempt by the tugboats be considered, and if the relevant parties agree to provide economic compensation under the commercial towing method, it is recommended that the rate be 50% of the salvage rate for the vessel "LI ZHOU CHANG RONG", calculated at a rate of RMB 1 per horsepower hour for economic compensation.

ZHAO, engaged by Company A, issued the "Analysis of the Expert Opinion on the Maritime Salvage of the Vessel YUAN JING" (the "Analysis") on June 15, 2023. The Analysis critiques the conclusions of the Expert Opinion as follows: 1. The conclusion in the Expert Opinion that YUAN JING faced significant risks after running aground and could not refloat on its own, thus requiring external salvage assistance, is unsupported by direct evidence. 2. No salvage agreement existed between the master of YUAN JING, Company A, and XX Salvage Bureau. XX Salvage Bureau did not engage in a round-the-clock salvage operation, as suggested by the Expert Opinion, because the first attempt to refloat the vessel took only 40 minutes, and the second attempt (in the afternoon) took only 10 minutes. 3. The tugboats deployed by XX Salvage Bureau were solely for assisting with cargo discharge, not as part of a salvage operation. Therefore, the "no effect, no reward" model of salvage does not apply in this case. The Expert Opinion's conclusion that XX Salvage Bureau is entitled to 10% of the total value of the vessel and cargo as salvage reward, based on a contractual salvage rate, represents XX Salvage Bureau's unilateral expectation and should not be accepted. Even if the refloating assistance is deemed a maritime salvage operation, two types of salvage should be considered. The Expert Opinion's choice of the "no effect, no reward" salvage model lacks appropriate justification. The Analysis concludes with the following points: 1. No maritime salvage agreement exists between XX Salvage Bureau and YUAN JING. 2. XX Salvage Bureau's assistance in refloating YUAN JING does not meet the basic criteria for maritime salvage. 3. XX Salvage Bureau's claims for compensation regarding the vessels and personnel involved in the operation lack authenticity, necessity, and reasonableness. 4. Regarding the tugboats and anchor-handling vessels that assisted with the refloating, it is suggested that economic compensation be based on 50% of the salvage rate for the vessel "LI ZHOU CHANG RONG", calculated at RMB 1 per horsepower hour. This would result in an economic compensation amount of RMB 24,800 (RMB 1 × 6200HP × 4 hours) for XX Salvage Bureau.

III. Value of the Salved Vessel and Cargo, and Freight Charges

(i) Vessel Value

After YUAN JING was refloated, no parties conducted an assessment of the value of the salved vessel and cargo. In 2022, YUAN JING was sold by Company C for a vessel price of RMB 60.2 million.

(ii) Cargo Value

The export customs declaration for the goods shows that the declared date was June 16, 2021, and the total cargo price was USD 6,781,946.70, under the CIF (Cost, Insurance, and Freight) terms.

(iii) Freight Charges

A dispute arose between XX Salvage Bureau and Company A regarding the performance of their International Transportation Contract. Company A filed a lawsuit with the court, and the court accepted the case on March 15, 2022. On November 30, 2022, the court rendered a civil judgment, and both parties appealed the judgment to the Guangdong Higher People's Court, which issued a final civil judgment on June 20, 2023, dismissing the appeal and upholding the original judgment.

The effective judgment determines that Company A had completed the transportation of 30 wind turbine units and six voyages under the contract. The original total freight price was RMB 24,880,000, but due to the overdue contract, an additional RMB 5.6 million in freight charges were incurred. After the judgment became effective, XX Salvage Bureau fulfilled the obligation to pay the aforementioned freight charges. Based on the facts recognized in the effective judgment, the freight charges for the voyage in question were calculated to be RMB 5.08 million.

Based on the above, the total value of the salved vessel, cargo, and freight at risk stood at RMB 108,586,798.85.

Court Decision

On May 31, 2024, GZMC rendered the following civil judgment: 1. Company B and Company C (defendants) shall jointly pay a salvage reward of RMB 1,662,000 to XX Salvage Bureau (plaintiff), along with interest (calculated from September 14, 2022 until the date of full payment at the one-year LPR published by the National Interbank Funding Center). 2. Company A (also a defendant) shall pay a salvage reward of RMB 138,000 to XX Salvage Bureau, along with interest (calculated in the foregoing same manner). 3. All other claims of XX Salvage Bureau are dismissed. Following the announcement of the judgment, none of the parties filed an appeal.

Rationale of Judgment

The legally effective judgment of the court holds that YUAN JING, which was carrying steel monopile foundations and supporting components for wind turbine installations, ran aground while en route from Zhongshan Guangxin Wharf, Guangdong Province, China, to the customs clearance anchorage of the Tra Vinh Project in Vietnam. Since the grounding occurred in Vietnamese waters, the case involves foreign-related elements. According to Article 8 of the Law of the People's Republic of China on the Application of Law to Civil Relations Involving Foreign Interests, "The characterization of foreign-related civil relations shall be governed by the law of the place where the court is located." The plaintiff asserted that the dispatch of its vessels to assist YUAN JING in refloating constituted maritime salvage and, on that basis, sought salvage reward from the defendants. Thus, this case constitutes a dispute over a maritime salvage contract. According to Article 269 of the Maritime Code of the People's Republic of China (the "Maritime Code"), "The parties to a contract may choose the law applicable to such contract, unless the law provides otherwise. Where the parties to a contract have not made a choice, the law of the country having the closest connection with the contract shall apply." In the court proceedings, all parties chose to apply the laws of the People's Republic of China, and therefore, Chinese law shall govern the substantive disputes in this case. China is a contracting state to the International Convention on Salvage, 1989 (the "Convention"), which entered into force for China on July 14, 1996. According to Paragraph 1, Article 268 of the Maritime Code, "If any international treaty concluded or acceded to by the People's Republic of China contains provisions differing from those contained in this Code, the provisions of the relevant international treaty shall apply, unless the provisions are those on which the People's Republic of China has announced reservations." This case falls within the scope of application of the Convention. Chapter IX (Salvage at Sea) of the Maritime Code was formulated primarily based on the Convention. Where the provisions of Chinese law are consistent with the Convention, both may apply concurrently in this case; where they differ, the provisions of the Convention shall prevail. The key disputed issues in this case are as follows: 1. The nature of the plaintiff's assistance in refloating YUAN JING (whether it constitutes maritime salvage); 2. Whether the plaintiff is entitled to claim salvage reward, and the determination of the salvage reward amount; 3. The parties responsible for paying the salvage reward; 4. The interest on the salvage reward. The court's analysis of these disputed issues is set out below:

I. The Nature of the Plaintiff's Assistance in Refloating YUAN JING

According to Paragraph 1, Article 1 of the Convention, "salvage operation" means any act or activity undertaken to assist a vessel or any other property in danger in navigable waters or in any other waters whatsoever. The court held that the plaintiff's assistance in refloating YUAN JING constituted maritime salvage. The specific rationale is as follows: First, YUAN JING and its cargo qualify as legally recognized objects of salvage. Article 171 of the Maritime Code stipulates that "The provisions of this Chapter shall apply to salvage operations rendered at sea or any other navigable waters adjacent thereto to ships and other property in distress." Article 172 further defines the relevant terms: (1) "Ship" means any ship referred to in Article 3 of this Code and any other non-military, public service ship or craft that has been involved in a salvage operation therewith; (2) "Property" means any property not permanently and intentionally attached to the shoreline and includes freight at risk; ..." The plaintiff conducted salvage operations on YUAN JING, its cargo, and freight at risk. At the time of the incident, YUAN JING was engaged in commercial transport rather than military or governmental service. The cargo consisted of steel monopile foundations and associated components, which fall within the scope of "property" as defined by the applicable legal provisions. Second, YUAN JING and its cargo were in a state of actual and foreseeable danger, rather than merely a hypothetical risk. In the context of maritime salvage, the concept of "danger" does not require an absolute or immediate peril; rather, it is sufficient that, based on the circumstances at the time, the danger was reasonably foreseeable and unavoidable. Although, following the grounding of YUAN JING, the vessel's master arranged for an inspection by the crew, which revealed no damage or deformation to the hull, no displacement or loosening of the stowed cargo, and the fact that the vessel was in an area experiencing a rising tide at the time, these factors do not justify the conclusion that YUAN JING was not in danger or that it could have refloated without external assistance. According to an email sent by Company A to the plaintiff on the day of the incident, the rising tide caused strong currents at the site, creating a risk of pushing the vessel into shallower waters, thereby exacerbating the danger. As a result, waiting for the highest tide was not a viable option, and Company A explicitly requested the plaintiff to assist YUAN JING in refloating at the earliest possible time. This demonstrates that, based on the on-site assessment conducted by YUAN JING and Company A, YUAN JING was indeed in a state of danger. The Evaluation Report and the Analysis only evaluated the degree of danger based on buoyancy loss while failing to consider the risks posed by tidal currents. Furthermore, the plaintiff's assistance in refloating YUAN JING did not arise from any statutory or contractual duty to provide salvage services. Initially, the plaintiff and Company A agreed that the cargo would be delivered at the customs clearance anchorage near the Tra Vinh Project in Vietnam. However, the parties subsequently mutually agreed to change the delivery location to the project's offshore operational site, which was still some distance from the grounding location. The plaintiff had only entered into an International Transportation Contract with Company A, under which Company A bore sole responsibility for any safety-related incidents occurring during transportation, and there was no contractual provision imposing a salvage obligation on the plaintiff. Finally, the plaintiff successfully assisted in refloating YUAN JING through two towing operations. Evidence in the case file indicates that, after YUAN JING ran aground, both Company A and the vessel's master directly communicated with the plaintiff, urgently requesting the plaintiff to develop a refloating plan and dispatch tugboats for assistance.

The defendants contended that the refloating of YUAN JING was not directly attributable to the plaintiff's salvage operations. However, neither the Expert Opinion, the Evaluation Report, nor the Analysis asserted that, at 12:40 on June 26, 2021, when YUAN JING was successfully refloated, the water depth was already sufficient for the vessel to refloat on its own. The defendants also asserted that the plaintiff towed YUAN JING toward shallower waters, thereby placing it in greater danger, and thus the operation did not constitute maritime salvage. Furthermore, the defendants claimed that YUAN JING had repeatedly and safely navigated between the plaintiff's construction site and the designated cargo handover location both before and after the grounding and that the vessel only ran aground on June 26, 2021, due to a deviation from its original navigational course. They argued that, since the vessel was in a less hazardous state while navigating within its designated route and near the plaintiff's construction site, and since the plaintiff had already completed the salvage operation by the time YUAN JING deviated from its course and ran aground, subsequent events should not negate the fact that a salvage operation took place. The court held that the post hoc statements made by YUAN JING's master and the defendants regarding the nature of the plaintiff's assistance did not affect the legal determination of whether the refloating operation constituted maritime salvage.

II. Plaintiff's Right to Claim Salvage Reward and the Determination of the Salvage Reward

Although YUAN JING was carrying both materials required for the plaintiff's construction and cargo entrusted for transportation at the time of the incident, and the plaintiff's salvage efforts objectively reduced construction delays, the fact that the plaintiff benefited from the salvage operation does not alter the legal nature of the act as salvage. Therefore, it does not negate the plaintiff's right to claim a salvage reward. Article 186 of the Maritime Code provides that: "The following salvage operations shall not be entitled to remuneration: (1) The salvage operation is carried out as a duty to normally perform a towage contract or other service contract, with the exception, however, of providing special services beyond the performance of the above-said duty. (2) The salvage operation is carried out in spite of the express and reasonable prohibition on the part of the Master of the ship in distress, the owner of the ship in question and the owner of the other property." In this case, there is no evidence to suggest that YUAN JING or any of the three defendants explicitly refused the plaintiff's salvage assistance. On the contrary, YUAN JING actively cooperated with the plaintiff in order to refloat the vessel. Additionally, Company A explicitly requested the plaintiff's assistance via email, and the master of YUAN JING remained in direct communication with the plaintiff's personnel throughout the operation. YUAN JING did not exercise its right to refuse salvage; rather, through its actions, it clearly sought and accepted the plaintiff's assistance. Therefore, the defendants' claim that the plaintiff is not entitled to a salvage reward is not upheld by the court.

Article 179 of the Maritime Code provides that: "Where the salvage operations rendered to the distressed ship and other property have had a useful result, the salvor shall be entitled to a reward. Except as otherwise provided for by Article 182 of this Code or by other laws or the salvage contract, the salvor shall not be entitled to the payment if the salvage operations have had no useful result." In this case, YUAN JING and its cargo were successfully removed from peril through the plaintiff's salvage operation, and neither the vessel nor the cargo sustained any damage. The plaintiff's salvage operation achieved a successful outcome, and none of the circumstances stipulated in Article 182 of the Maritime Code apply. Furthermore, the plaintiff did not waive its right to claim a salvage reward. Additionally, Article 191 of the Maritime Code states: "The provisions of this Chapter shall apply to the salvor's right to the payment for the salvage operations carried out between the ships of the same owner." By analogy, although the cargo on board YUAN JING was intended for the plaintiff's construction project, the plaintiff is still entitled to claim a salvage reward.

Beyond the ten factors prescribed under Article 180 of the Maritime Code, the court also considered additional circumstances specific to this case. At the time of YUAN JING's grounding, the vessel was carrying materials essential to the plaintiff's construction project. Had the vessel remained stranded, the delay in cargo delivery could have postponed the plaintiff's construction schedule or even resulted in cargo damage due to potential structural harm to the vessel. By successfully salving YUAN JING, the plaintiff helped minimize delays in cargo delivery and reduced the risk of cargo damage. Thus, the plaintiff derived benefits from its own salvage operation, warranting an appropriate reduction in the salvage reward.

Taking into account the value of the salved vessel and other property, the costs incurred by the salvor, as well as the nature and severity of the peril at the time of the salvage operation, the court determined that the plaintiff is entitled to a salvage reward of RMB 3,000,000. The salvage reward shall not exceed the total value of the salved vessel and property, and its calculation must reflect the principle of encouraging salvage operations.

III. The Liable Parties for the Payment of the Salvage Reward

Paragraph 2, Article 13 of the Convention provides that: "Payment of a reward fixed according to paragraph 1 shall be made by all of the vessel and other property interests in proportion to their respective salved values. However, a State Party may in its national law provide that the payment of a reward has to be made by one of these interests, subject to a right of recourse of this interest against the other interests for their respective shares. Nothing in this article shall prevent any right of defense." Additionally, Article 183 of the Maritime Code stipulates that: "The salvage reward shall be paid by the owners of the salved ship and other property in accordance with the respective proportions which the salved values of the ship and other property bear to the total salved value." The Convention establishes that the responsibility for paying the salvage reward lies with the vessel and other property interests, without restricting liability solely to the owner of the ship. Therefore, under both the Convention and the Maritime Code, the obligation to pay the salvage reward rests with the owners or other interested parties of the salved vessel and property. In this case, during the relevant voyage, Company C was the registered owner of YUAN JING, while Company B was the bareboat charterer. YUAN JING was operated and managed by Company B, and its master and crew were also employed by Company B. Thus, both Company C and Company B qualify as interested parties of YUAN JING, and as such, they are both jointly liable for the payment of the salvage reward. Consequently, Company C and Company B shall pay the plaintiff RMB 1,662,000 in salvage reward, apportioned based on the vessel's salved value relative to the total salved value. Additionally, Company A was the carrier of the cargo in question and, as such, is classified as the party benefiting from the salvage of the freight charges for the voyage. Therefore, Company A shall pay the plaintiff RMB 138,000 in salvage reward, in proportion to the freight charges as part of the total salved value. The plaintiff did not claim a salvage reward from the owner of the cargo, i.e., the third party in this case, which constitutes a disposition of its own civil rights and interests. The court respects this exercise of discretion. The plaintiff's claim that all three defendants should bear joint and several liability for the full salvage reward lacks a legal basis and is therefore not supported by the court.

IV. Interest on the Salvage Reward

Article 577 of the Civil Code stipulates: "Where a party fails to perform his contractual obligation or his performance does not conform to the agreement, he shall bear default liability such as continuing to perform his obligations, taking remedial measures, or compensating for losses." The plaintiff's claim for interest on the salvage reward calculated based on the LPR published by the National Interbank Funding Center is supported by both factual and legal grounds and is therefore upheld by the court. However, as the parties did not reach a consensus on the amount or the payment date of the salvage reward, the plaintiff's request for interest to accrue from June 26, 2021, the date of the salvage operation's completion, lacks a legal basis and is therefore not upheld by the court. Paragraph 4, Article 511 of the Civil Code provides: "Where the period of performance is not clearly stipulated, the debtor may perform his obligations at any time, and the creditor may request the debtor to perform at any time, provided that he shall give the debtor necessary time for preparation." Considering the circumstances of this case, the court determined that the three defendants should have paid the salvage reward within three months of the case being filed, i.e., by September 13, 2022. Therefore, interest on overdue payments shall accrue from the following day, i.e., September 14, 2022.

Key Points of Judgment 

1. The requirements for constituting a salvage operation include the following four elements: the subject of salvage must be legally recognized; the salvor must have no pre-existing duty to conduct the salvage operation; the subject of salvage must be in actual and unavoidable danger; and the salvage operation must achieve a successful outcome.

2. The determination of the salvage reward should take into account the ten factors set out in Article 180 of the Maritime Code, while also considering other relevant factors based on the specific circumstances of the case.

3. The parties liable for paying the salvage reward are the vessel or other property interests that have benefited from the salvage operation.

Related Legal Provisions

Article 179 of Maritime Code of the People's Republic of China

Article 180 of Maritime Code of the People's Republic of China

Article 183 of Maritime Code of the People's Republic of China

Paragraph 1 of Article 268 of Maritime Code of the People's Republic of China

Paragraph 2 of Article 13 of International Convention on Salvage, 1989