B-140736, JUN. 1, 1961

B-140736, JUN. 1, 1961

TO THE SECRETARY OF THE NAVY:

BY LETTER OF MARCH 7, 1961, REFERENCE (GA-428) SER 188M7, MR. WILBUR L. MORSE, COUNSEL, MILITARY SEA TRANSPORTATION SERVICE, REQUESTED OUR DECISION AS TO THE PROPRIETY OF ASSESSING AGAINST GOVERNMENT CARGO AS A PART OF THE GOVERNMENT'S CONTRIBUTION IN GENERAL AVERAGE A PERCENTAGE OF THE COSTS OF LEGAL SERVICES INVOLVED IN THE PROCEEDINGS BEFORE THE LLOYD'S ARBITRATOR IN CONNECTION WITH THE SALVAGE OF THE SS NEWBERRY VICTORY INCIDENT TO THE ABOVE-CITED GENERAL AVERAGE INCIDENT. REFERENCE ALSO IS MADE TO MR. MORSE'S LETTER OF MAY 8, 1961, REFERENCE (GA-428) SER 423M7 INQUIRING AS TO THE STATUS OF THE MATTER.

THE DOCUMENTS SUBMITTED WITH THE LETTER OF MARCH 7 INDICATE THAT THE SS NEWBERRY VICTORY SUFFERED A GENERAL AVERAGE INCIDENT--- THE LOSS OF ITS PROPELLER--- ON AUGUST 24, 1956, WHILE CARRYING BOTH COMMERCIAL CARGO AND CARGO OWNED BY THE UNITED STATES GOVERNMENT. THE SHIP SUBSEQUENTLY WAS TOWED INTO PORT UNDER A LLOYD'S "NO CURE-NO PAY" SALVAGE AGREEMENT AND THE GOVERNMENT-OWNED CARGO WAS DELIVERED SAFELY TO DESTINATION.

THE QUESTION OF THE PROPER AMOUNT OF AN AWARD FOR THE SALVAGE TUG'S SERVICES WAS PRESENTED TO A REPRESENTATIVE OF LLOYD'S FOR DETERMINATION PURSUANT TO THE TERMS OF THE SALVAGE AGREEMENT. ON OCTOBER 2, 1956, JOHNSON AND HIGGINS, AVERAGE ADJUSTERS, ADVISED THE MSTS THAT INCE AND CO. HAD BEEN APPOINTED TO REPRESENT THE VESSEL OWNER AND THAT SUCH APPOINTMENT HAD BEEN APPROVED BY THE COMMERCIAL CARGO UNDERWRITERS, AND INQUIRED WHETHER MSTS ALSO DESIRED THAT COMPANY TO REPRESENT THE GOVERNMENT AT THE ARBITRATION. BY LETTER OF NOVEMBER 2, 1956, JOHNSON AND HIGGINS WERE ADVISED THAT MSTS WAS NOT AUTHORIZED TO COMMIT THE UNITED STATES TO ARBITRATION PROCEEDINGS FIXING GOVERNMENT LIABILITY AND COULD NOT AGREE TO THE APPOINTMENT OF OUTSIDE COUNSEL OR ATTORNEYS IN FACT ACTING ON BEHALF OF GOVERNMENT CARGO IN ARBITRATION PROCEEDINGS. THE LETTER FURTHER ADVISED JOHNSON AND HIGGINS THAT WHILE THE UNITED STATES COULD NOT SUBMIT TO ARBITRATION PROCEEDINGS, IT WOULD ACCEPT AS GOVERNMENT LIABILITY ITS PROPER PROPORTION OF REASONABLE AWARDS.

THE ARBITRATOR'S DECISION DATED JUNE 23, 1958, AWARDED THE SALVORS 10,800 POUNDS STERLING WITH RESPECT TO THE VESSEL AND THE COMMERCIAL CARGO, AND STATED THAT IF ALL INTERESTS (INCLUDING THE UNITED STATES GOVERNMENT CARGO) HAD BEEN BEFORE HIM, HE WOULD HAVE AWARDED AGAINST ALL INTERESTS 20,000 POUNDS STERLING. THE AWARD STATED IN PERTINENT PART AS FOLLOWS:

"PART OF THE GENERAL CARGO ON THE "NEWBERRY VICTORY" WAS OWNED BY THE UNITED STATES GOVERNMENT WHO WERE NOT PARTIES TO THE ARBITRATION. IT WAS AGREED THAT THE TOTAL VALUE OF THE SALVED PROPERTY WAS 1,011,200 POUNDS STERLING. OF THIS TOTAL VALUE THE GOVERNMENT CARGO REPRESENTED ABOUT 46 PERCENT AND THE SALVED VALUE OF THE SHIP, NON GOVERNMENT CARGO AND FREIGHT AT RISK ABOUT 54 PERCENT. I WAS ASKED TO MAKE AN AWARD AGAINST THE LATTER INTERESTS AND TO STATE IN THE REASONS FOR MY AWARD WHAT I WOULD HAVE AWARDED IN RESPECT OF THE GOVERNMENT CARGO HAD IT BEEN BEFORE ME. THERE WAS NO SUGGESTION OF ANY REAL DIFFERENCE IN DANGER BETWEEN SHIP AND CARGO OR THE RESPECTIVE PARCELS OF CARGO. I HAVE THEREFORE THOUGHT IT PROPER TO APPROACH THE QUESTION BY DECIDING WHAT I WOULD HAVE GIVEN HAD THE FUND BEFORE ME BEEN 1,011,200 POUNDS STERLING AND AWARD 54 PERCENT OF THIS AMOUNT TO THE SALVORS IN RESPECT OF THE SERVICES TO THE SALVED PROPERTY WHOSE OWNERS WERE PARTIES TO THE ARBITRATION. ON THIS BASIS I AWARD 10,800 POUNDS STERLING AND HAD THE WHOLE SALVED INTEREST BEEN BEFORE ME I WOULD HAVE AWARDED 20,000 POUNDS STERLING. IT FOLLOWS THAT IN MY VIEW A PROPER AWARD IN RESPECT OF THE GOVERNMENT-OWNED CARGO WOULD HAVE BEEN 9,200 POUNDS STERLING.'

BY LETTER OF SEPTEMBER 10, 1959, THE MSTS REQUESTED OUR APPROVAL OF AN INTERIM PROVISIONAL PAYMENT DIRECTLY TO THE SALVORS IN THE AMOUNT OF 9,200 POUNDS STERLING--- THE EXACT AMOUNT WHICH THE ARBITRATOR INDICATED HE "WOULD HAVE AWARDED IN RESPECT OF THE GOVERNMENT CARGO HAD IT BEEN BEFORE ME"--- AS THE GOVERNMENT'S SHARE OF THE SALVAGE PRIOR TO THE FINAL COMPUTATION OF THE GOVERNMENT'S CONTRIBUTORY SHARE OF GENERAL AVERAGE AND SALVAGE IN THIS CASE. SUCH APPROVAL WAS GRANTED BY OUR DECISION OF OCTOBER 26, 1959, B-140736, AND PAYMENT WAS MADE IN THE AMOUNT OF $25,760 (19,200 POUNDS STERLING CONVERTED AT $2.80 PER POUND). THE PRESENT QUESTION ARISES FROM THE CONTENTION OF JOHNSON AND HIGGINS THAT THE LEGAL FEES INCURRED IN CONNECTION WITH THE ARBITRATION OF THE SALVAGE CLAIM SHOULD BE INCLUDED IN THE GENERAL AVERAGE ADJUSTMENT AND THAT THE GOVERNMENT SHOULD PAY ITS PROPORTIONATE SHARE THEREOF, WHEREAS MSTS INSISTS THAT THE GOVERNMENT IS NOT PROPERLY LIABLE FOR SUCH LEGAL FEES.

MSTS BASES ITS CONTENTION ON THE FACT THAT THE ADJUSTERS WERE SPECIFICALLY ADVISED THAT THE ARBITRATOR WAS NOT TO REPRESENT GOVERNMENT CARGO AND SUCH CARGO TECHNICALLY WAS NOT BEFORE THE ARBITRATOR. ALSO, MSTS POINTS OUT THAT THE GOVERNMENT PAID ITS PORTION OF THE SALVAGE CLAIM DIRECTLY TO THE SALVORS, THUS EXCLUDING SALVAGE FROM THE GENERAL AVERAGE, AND STATES THAT IT WOULD APPEAR THAT THE FOLLOWING GENERAL STATEMENT IN OUR DECISION OF AUGUST 1, 1960, B 142277, SHOULD CONTROL:

"* * * IT APPEARS THAT NO CONTRACT OR AGREEMENT, EXPRESS OR IMPLIED, TO PARTICIPATE IN THE COSTS OF THIS UNSUCCESSFUL LEGAL ACTION, EXISTED BETWEEN THE UNITED STATES AND THE SHIPOWNER OR GENERAL AVERAGE ADJUSTER AND NO LIABILITY ON THE PART OF THE UNITED STATES CAN BE FOUNDED ON SUCH BASIS. VOLUNTARY SERVICES RENDERED ON BEHALF OF THE UNITED STATES, WITH CERTAIN EXCEPTIONS NOT HERE INVOLVED, DO NOT CONSTITUTE A BASIS FOR A CLAIM AGAINST THE UNITED STATES. SEE SECTION 3679 (B), REVISED STATUTES, AS AMENDED, 31 U.S.C. 665 (B).'

WHILE THE QUOTED PORTION OF OUR DECISION OF AUGUST 1, 1960, B 142277, STANDING ALONE, MAY APPEAR TO SUPPORT THE POSITION OF MSTS IN THIS MATTER, IT HAS BEEN QUOTED OUT OF CONTEXT AND DOES NOT SUPPORT THE CONCLUSION REACHED. OUR DECISION OF AUGUST 1, 1960, CONCERNED LEGAL EXPENSES INCURRED IN AN UNSUCCESSFUL ATTEMPT TO OBTAIN RECOVERY FOR DAMAGES RESULTING FROM THE STRANDING OF A VESSEL ALLEGEDLY DUE TO THE NEGLIGENCE OF THE LOCAL PILOT. WE STATED THEREIN THAT:

"THERE ARE ONLY TWO BASES UPON WHICH LIABILITY OF THE GOVERNMENT FOR CONTRIBUTION TO THE EXPENSES HERE IN QUESTION COULD BE FOUNDED. ONE BASIS WOULD BE A CONTRACT OR AGREEMENT TO THAT EFFECT BETWEEN THE GOVERNMENT AND THE SHIPOWNER OR THE GENERAL AVERAGE ADJUSTER; THE OTHER WOULD BE A DETERMINATION THAT THE EXPENSE WAS A PROPERLY ALLOWABLE CHARGE IN GENERAL AVERAGE.'

WE MADE THE STATEMENT QUOTED BY MSTS AFTER SHOWING THAT NO CONTRACT OR AGREEMENT EXISTED AND THEN PROCEEDED TO SHOW THAT THE SECOND POSSIBLE BASIS FOR LIABILITY LIKEWISE DID NOT EXIST.

IT IS OBVIOUS IN THE PRESENT CASE THAT NO CONTRACT OR AGREEMENT, EXPRESS OR IMPLIED, TO PARTICIPATE IN THE LEGAL FEES INCURRED INCIDENT TO THE ARBITRATION OF THE SALVAGE CLAIM, EXISTED BETWEEN THE UNITED STATES AND THE SHIPOWNER OR GENERAL AVERAGE ADJUSTER. ON THE CONTRARY, A REQUEST FOR SUCH AN AGREEMENT WAS EXPRESSLY REFUSED BY MSTS. HENCE, WE CONCUR WITH MSTS THAT NO LIABILITY ON THE PART OF THE UNITED STATES FOR THE LEGAL EXPENSES HERE INVOLVED CAN BE FOUNDED ON THE BASIS OF A CONTRACT OR AGREEMENT.

HOWEVER, THERE IS STILL FOR CONSIDERATION THE SECOND POSSIBLE BASIS FOR LIABILITY REFERRED TO IN OUR DECISION OF AUGUST 1, 1960, B-142277, THAT IS, A DETERMINATION THAT THE EXPENSE IS A PROPERLY ALLOWABLE CHARGE IN GENERAL AVERAGE. OUR DECISION TO YOUR PREDECESSOR DATED APRIL 26, 1957, B -131206, PUBLISHED AT 36 COMP. GEN. 745, HELD THAT THE LEGAL EXPENSES THERE INVOLVED, INCURRED IN THE COURT SETTLEMENT OF A SALVAGE CLAIM, WHERE PROPERLY TO BE REGARDED AS PART OF OR INCIDENT TO THE SALVAGE CLAIM AND CONSEQUENTLY WERE ALLOWABLE AS A PROPER EXPENSE UNDER GENERAL AVERAGE AND THE GOVERNMENT MUST PAY ITS PROPORTIONATE SHARE THEREOF. WE STATED THEREIN, IN PERTINENT PART, AS FOLLOWS:

"GENERALLY, SALVAGE CLAIMS ARE FIXED UPON CONSIDERATIONS OTHER THAN THE MERE VALUE OF THE SERVICES RENDERED IN ORDER THAT THE SALVOR MAY BE COMPENSATED IN AN AMOUNT CALCULATED TO COVER THE AMOUNT OF ALL THE RISKS INVOLVED IN THE SALVAGE OPERATION, I.E., LOSS OF PAYMENT IN CASE OF AN UNSUCCESSFUL SALVAGE OPERATION, AND/OR LOSS OF SALVAGE VESSEL, OR EQUIPMENT. SINCE ALL THE RISK FACTORS CANNOT BE ASCERTAINED UNTIL AFTER THE SALVAGE OPERATION IS COMPLETED, SALVAGE CLAIMS ARE USUALLY FIXED AFTER THE SALVAGE OPERATION HAS BEEN COMPLETED BY NEGOTIATION AND AGREEMENT, BY ARBITRATION, OR BY COURT ACTION. MANIFESTLY LEGAL SERVICES ARE NECESSARY IN THE SETTLEMENT OF THESE CLAIMS AND THE COST OF SUCH LEGAL SERVICES ARE PROPERLY TO BE REGARDED AS PART OF, OR INCIDENT TO THE SALVAGE CLAIM AND CONSEQUENTLY WOULD BE ALLOWABLE AS A PROPER EXPENSE UNDER GENERAL AVERAGE.

"CUSTOMARILY EXPENSES OF GENERAL AVERAGE AND SALVAGE ARE INCURRED BY THE VESSEL OWNER FOR THE ACCOUNT OF SHIP AND CARGO. THEREFORE, LEGAL SERVICES PROCURED BY THE VESSEL OWNER AND RENDERED FOR THE GENERAL BENEFIT OF SHIP AND CARGO IN THE SETTLEMENT OF A SALVAGE CLAIM IN GENERAL AVERAGE WOULD CONSTITUTE SUCH SERVICES AS A PROPER ITEM FOR CONTRIBUTION UNDER GENERAL AVERAGE BY THE GOVERNMENT NOTWITHSTANDING THE GOVERNMENT HAS ITS OWN LEGAL STAFF AVAILABLE FOR ASSISTANCE IN THESE MATTERS. HOWEVER, SHOULD THE SERVICE OF ATTORNEYS OF THE UNITED STATES GOVERNMENT BE UTILIZED IN THE SETTLEMENT OF SALVAGE CLAIMS FOR THE BENEFIT OF ALL INTEREST INVOLVED, THE VALUE THEREOF SHOULD BE INCLUDED IN THE EXPENSES UNDER GENERAL AVERAGE FOR WHICH CONTRIBUTION WILL BE MADE, AND REFLECTED AS A CREDIT TO THE GOVERNMENT CARGO INTEREST.'

IN THE PRESENT CASE, WHILE THE AVERAGE ADJUSTER WAS SPECIFICALLY ADVISED BY MSTS THAT MSTS COULD NOT AGREE TO THE APPOINTMENT OF OUTSIDE COUNSEL TO ACT ON BEHALF OF THE GOVERNMENT'S CARGO AND WAS NOT AUTHORIZED TO COMMIT THE UNITED STATES TO ARBITRATION PROCEEDINGS FIXING THE GOVERNMENT'S LIABILITY, AND THE ARBITRATOR STATED THAT GOVERNMENT CARGO WAS NOT BEFORE HIM, HE WAS REQUESTED TO AND DID IN FACT ESTABLISH THE AMOUNT WHICH HE WOULD HAVE AWARDED IN RESPECT OF THE GOVERNMENT-OWNED CARGO IF IT HAD BEEN BEFORE HIM, AND BOTH THE GOVERNMENT AND THE SALVORS ACCEPTED THAT AMOUNT AS PROPER AND MADE SETTLEMENT OF THE SALVAGE CLAIM AGAINST THE GOVERNMENT'S CARGO ON THE BASIS THEREOF. SINCE THE SERVICES OF THE ARBITRATOR RESULTED IN A CONSIDERABLE REDUCTION IN THE POSSIBLE COSTS OF SALVAGE (THE SALVORS HAD DEMANDED $100,000 SECURITY) AND THE GOVERNMENT OBTAINED THE ADVANTAGE OF SUCH REDUCTION WITHOUT TAKING ANY INDEPENDENT ACTION OR INCURRING INDEPENDENT EXPENSE, IT IS APPARENT THAT THE GOVERNMENT BENEFITED FROM THE SERVICES PERFORMED BY THE ARBITRATOR. THE ABSENCE OF A SHOWING THAT THE GOVERNMENT NOT ONLY FORMALLY REFUSED THE SERVICES OF THE ARBITRATOR BUT, IN ADDITION, DID NOT IN FACT UTILIZE SUCH SERVICES OR BENEFIT FROM THEM IN ANY WAY BUT, RATHER, SETTLED THE SALVAGE CLAIM AGAINST GOVERNMENT CARGO AT ITS OWN EXPENSE THROUGH THE UTILIZATION OF ITS OWN LEGAL STAFF, OUR DECISION OF APRIL 26, 1957, B 131206, PUBLISHED AT 36 COMP. GEN. 745, IS FOR APPLICATION HERE. HENCE, WE MUST HOLD THAT THE COSTS OF THE LEGAL SERVICES HERE INVOLVED ARE A PROPER CHARGE IN GENERAL AVERAGE AND THE GOVERNMENT MUST PAY ITS PROPORTIONATE SHARE THEREOF.