With the successful history of over 100 years in the industry, Lloyd’s Open Form needs no introduction. The Lloyd’s Standard Form of Salvage Agreements (Lloyd’s Open Form or LOF) is truly the leading international standard salvage agreement. It has undergone several revisions owing to various factors such as: the changing law; environmental concerns; and the views of salvors.
Lloyd’s Salvage Arbitration Branch (SAB) is the administrative head that creates infrastructure to deal with various activities like salvage, arbitration, etc regulated by rules. Since 1908 the LOF has been revised twelve times. The dates of revision are marked on the bottom left-hand corner of LOF page.
In March 2011 it was agreed that arbitrators’ awards or appeal awards and reasons should be made accessible through Lloyd’s website, though confidentiality of amount and details was maintained earlier.
New clauses 3 & 4
As per the new clause 3 under Important Notices, (subject to certain clauses from LSSA), the Council of Lloyd’s is entitled to make available awards or appeal awards and reasons on its website, 21 days after publication of the award, unless:
- there is an appeal entered against the award whereafter, the award with reasons will only be made available on Lloyd’s website after it is withdrawn. It is also held up when the appeal arbitrator has issued his appeal award; or
- If any party to the award has applied to the arbitrator, to withhold the publication of the award on the Lloyd’s Agency website. The award is held up if there is good reason for it.
Notification to Council of Lloyd’s
To avoid later confusion and ensure better transparency, a new clause 4 was added to LOF 2011 under Important Notices. Salvors are now required to notify the Council of Lloyd’s within 14 days of their engagement and forward the signed LOF agreement or a true copy thereof to the Council of Lloyd’s as soon as possible. This formulizes the position in relation to side letters and any other form of agreement that seeks to execute the usual mechanics for determining the salvage remuneration due to the Contractors under the contract. The intention is to improve the transparency of the LOF procedure and allow the LOF Panel of Arbitrators to review these agreements and consider their enforceability.
Powers to arbitrators
Traditionally, salvage security, to cover the costs for Lloyd’s and the arbitrator was provided directly to the salvors. Sometimes, the security was not in a form acceptable to Lloyd’s and at other times there was no payment provided at all. New clauses provided the arbitrator and appeal arbitrator with power to order security for arbitrators’ fees in amount and in a form that would be determined by the arbitrator.
The cargo interests of Container vessels
Vide LOF 2011, it became sufficient that notice of arbitration etc was given to those that gave salvage security on behalf of cargo interests which would generally be the cargo insurers. This is because, otherwise in case of container vessels there could be several thousand cargo interests including unrepresented cargo interest. The Arbitration Act 1996 requires notices to be given to the owners of the salved property. This change was to simplify the process of notification.
Another new regulation that was added, stated that, if a settlement is reached between the salvors and at least 75 per cent by value of salved cargo, an arbitrator can approve that settlement. He can order that the agreement is binding on the remaining cargo interests, thus, avoiding the need to arbitrate solely against a small minority of cargo interests. The settlement however, should be reasonable before passing an order. Earlier to this, to obtain an award against unrepresented cargo interests, large additional costs were incurred.
Further change provided that cargo with a salved value below a figure (to be agreed) can be omitted from the salved fund as the cost of including these cargoes is likely to be disproportionate to their liability. This was to avoid extensive costs involved in cases of very little return. These changes are to reduce the cost of collecting salvage security and ease the process of obtaining an award against the containerised cargo interests. Thus, the salvage remuneration issues can be resolved without the parties resorting to arbitration/litigation. The issue about non-payment of fees to arbitrators’ is likely to be resolved too.
On 1 January 2020, the Lloyd’s Salvage Arbitration Branch launched an updated edition of the Lloyd’s Standard Form of Salvage Agreement, or Lloyd’s Open Form (LOF 2020). Two major changes brought by LOF 2020 are:
- the consolidation into one document of the previously separate arbitration clauses and procedural rules; and
- inclusion into the above document the Fixed Cost Arbitration Procedure (FCAP).
The Clause H ‘Deemed Performance’, addresses the circumstances in which a contractor may redeliver the ship/property i.e. the salved ship in a safe place and safe condition. The definition of what is a safe condition has been simplified and refined. Thus, the casualty may be redelivered in a damaged state provided:
- the contractors are not obliged to remain in attendance to satisfy the requirements of any port or harbour (regulatory) authority; and
- the continuation of skilled salvage services from the contractors or other salvors is no longer necessary to avoid the property becoming lost or further damaged or delayed.
Another important amendment found in the LSAC 2020 is that of the Special Cargo Provisions in respect of container vessels, now is widened to apply to any cargo where the provisions may be appropriate.
Some clauses causing material change:
In the clause 1 ‘Introduction’,the reference is made to the ‘old’ Procedural Rules which are now set out in Clause 8 and the Fixed Cost Arbitration Procedure, set out in Clause 15 of the LSAC. ‘The overriding objectives’ clause is made more conspicuous at clause no. 2 of the LSAC.
Changes have been made to Clause 4.5 of clause 4, which is ‘Provisions as to Security, Maritime Lien and Right to Arrest’. It deals with the form and format of security that should be provided by a salved property interest.
4.5 Unless otherwise agreed such security shall be provided (i) to the Council (ii) in a form approved by the Council and (iii) by person firms or corporations acceptable to the Council or acceptable to the Contractors. The Council shall not be responsible for the sufficiency (whether in amount or otherwise) of any security which shall be provided nor the default or insolvency of any person firm or corporation providing the same.
Thus, there is no longer the requirement for the guarantor to be resident in the United Kingdom. This shows the growing international nature of the marine insurance market. The Contractors may however stipulate their own requirements for guarantors in accordance with Clause 4.5(iii).
Clause 5 ‘Appointment of Arbitrators’ allowsthe Arbitrator, or the Appeal Arbitrator as the case may be to determine security for his reasonable fees and expenses, whether such fees and expenses have been incurred already or are reasonably anticipated.
Clause 6 ‘Arbitrators Powers’ states, ‘In addition to all powers conferred by the Arbitration Act 1996 (or any amendment thereof) the Arbitrator shall have power:
(i) to admit such oral or documentary evidence or information as he may think fit;
(ii) to conduct the arbitration in such a manner in all respects as he may think fit subject to the LSAC 2020 Clauses;
(iii) to make such orders as to costs, fees and expenses including those of the Council charges under clause 5.2 as may be fair and just;
(iv) to direct that the recoverable costs of the arbitration or of any part of the proceedings shall be limited to a specified amount;
(v)to make any orders required to ensure that the arbitration is conducted in a fair and efficient manner consistent with the aim to minimise delay and expense and to arrange such meetings and determine all applications made by the parties as may be necessary for that purpose;
(vi)to conduct all such meetings by means of a conference telephone call if the parties agree;
(vii)on his own initiative or on the application of a party to correct any award (whether interim provisional or final) or to make an additional award in order to rectify any mistake error or omission provided that
- any such correction is made within 28 days of the date of publication of the relevant award by the Council
- any additional award is made within 56 days of the said date of publication or, in either case, such longer period as the Arbitrator may in his discretion allow;
(viii)to terminate the Agreement on application under clause 19, where he considers it fair and just to do so, having in mind the interests of all the interested parties.
The explanation and interpretation of paragraph viii has been done below in this article.
Clause 7.4 states, ‘Where an Owner of salved cargo has not appointed an agent or representative on his behalf to receive correspondence and notices but security has been put up on behalf of the Owner of salved cargo, service of correspondence and notices upon the party or parties who have provided such security shall be deemed to constitute proper notification to such owner of salved cargo’.
Thus, an owner of salved cargo is deemed to have received notice of the hearing and any relevant correspondence if the contractor provides such notice or correspondence to the guarantor.
Clause 14 ‘Special Cargo Provisions’
The ‘old’ LSSA Clauses 13, 14 and 15 have now been merged into one new clause. It provides that the arbitrator will have increased discretion over the process, allowing them to give such agreements as they may consider appropriate in assessing the salvage award against owners of unrepresented cargo.
Clause 15 is ‘Fixed Cost Arbitration Procedure (FCAP)’ and Clause 19, ‘Contractors’ Special Right to Terminate’ are important changes.
Fixed Costs Arbitration Procedure (FCAP)
It greatly helps to reduce the cost of salvage arbitrations particularly in low salved value or straightforward cases. Thus, the nominal threshold being increased to US$2,000,000, helped easing the situation. Arbitrators get wider powers to order FCAP for straightforward cases excess of the threshold value or order full arbitration in complicated cases below the threshold value.
An extremely important, clause 19 ‘Contractor’s Special Right to Terminate’ addresses an issue between the termination provisions of SCOPIC and LOF. The difficulty arises where an owner may terminate SCOPIC but the contractor has no similar rights of termination under LOF. Thus, the contractor has to attend a casualty with a potentially low salved value without the reassurance of SCOPIC remuneration or an Article 14 award.
It has been understood well that the SCOPIC is better option than the special compensation under Article 14 of the salvage convention. It eclipses special compensation under Article 14 once invoked.
In the situations where shipowner fails to provide security, the options available to salvor are:
- to withdraw from SCOPIC and rely on an Article 14 award if the owner fails to provide initial SCOPIC security;
- to terminate SCOPIC plus the main agreement of LOF itself, if, under SCOPIC, the owner fails to provide increased security.
Let us take a third option where the owner has complied with their SCOPIC security obligations. Now, if he terminates the SCOPIC, the contractor;
- won’t be able to earn SCOPIC remuneration; and
- also does not have any automatic right to terminate the main agreement.
In these circumstances the contractor may be performing under his LOF obligations with limited prospective financial rewards. The new changes provide the contractor an opportunity to apply to the salvage arbitrator to bring the main agreement to an end.
The amendments to the contract and revisions set out in LOF 2020 are widely accepted with open arms. These changes will surely simplify the arbitration procedure and strengthen the objectives of contract.
(You may also visit my youtube videos @captsschaudhari.com)