Lloyd's Open Form and the Special Compensation

P&I Clause (SCOPIC)

The Lloyd's Standard Form of Salvage Agreements (Lloyd's

Open Form or LOF) is well recognised as the leading
international standard salvage agreement. Since its formal
inception in January 1908, LOF has undergone several revisions
in order to meet the intervening and changing law and
circumstances, severity of maritime accidents, concern over
damage to the environment and the needs and concerns of the
shipping and salvage industries.

Under English law claims for salvage may be brought under the
terms of a contract or in common law. Contractual terms may
be agreed prior to the commencement of salvage services,
during the course of such services, indeed, even after the
services have been completed. One of the advantages of
having an agreed form of contract, particularly Lloyd's Open
Form in its various manifestations, is that in an emergency no
time need be lost in agreeing the terms under which the
salvage services are provided but if no contract has been
agreed a claim for the saving of property may be pursued at
common law.

Lloyds Open Form (LOF) remains the most commonly used

form of salvage contract. It has served the shipping community
for over 100 years and has been regularly revised to ensure it
meets the needs of its users.

There are many who say that modern communications have

eroded the need for the Lloyd’s Open Form. It is argued that
the ease with which the master can take advice from shore-
based colleagues means that other forms of contract or
commercial negotiation should be used.
There is a grave risk in the Master being subservient to shore-
based authorities. Only the Master at the scene can properly
judge the condition of his vessel, the weather, sea state and all
the other factors, in order to make the decision as to whether
salvage assistance needs urgently to be engaged.

LOF is a simple contract form with no up-front “haggling” which

again facilitates that quick intervention if the circumstances
mean that is the right thing to do.

Another misunderstanding is that the Master of the casualty

gives up command of the vessel when LOF is agreed. That is
not true. The Salvage Master assumes responsibility for the
salvage operation but the Master remains in command of his
vessel – unless it is completely abandoned and then boarded
by the salvors. It is also sometimes thought that in that
situation the salvor can claim ownership of the casualty vessel
– again that is not true. Even when a vessel has been
abandoned, the ownership remains with the shipowners and
the cargo interests.

Lloyd’s Open Form is not an open cheque for the salvor. True,
fees are not agreed “upfront” but most LOF cases are settled
agreeably between the salvor and the shipowner, cargo
interests and their insurers once the job is done. If agreement
cannot be reached by negotiation, then the case is referred to
arbitration through the Lloyd’s Salvage Arbitration Branch. If
either party does not agree with the Arbitrators decision, there
is an appeal procedure. Recourse to litigation under English law
in the High Court is very rare, and can only arise on a point of
law. It means that disputes are not unnecessarily costly and
analysis of the salvage awards made show a remarkable
consistency over the past decade.

LOF Salvage contracts have been used for more than 100
years. The first standard form was approved by the Committee
of Lloyd's in 1892. Following revisions which were approved in
1908 the agreement was given the name by which it is known
today. Various further revisions have taken place over the
years but the most significant occurred with the publication of
Lloyd's Open Form 1980.

LOF 80 introduced the first movement away from the principle

that remuneration should be based solely upon the value of
property salved. This form provided that the salvor might still
be paid, even if there was no cure, if the services were
rendered to a laden oil tanker which was a threat to the
environment. Except perhaps with the agreement of the P&I
clubs concerned, salvors had not previously been entitled to
payment under such circumstances. LOF 80 introduced a new
concept. This provided that the shipowners should reimburse
the salvor for his expenses, plus a supplement up to an
additional 15 per cent which would be dependent upon the
value of the result of the salvors' efforts. This term was
referred to as the "safety net" and its introduction reflected an
ever-increasing awareness worldwide of the effects of oil
pollution on the environment

Lloyd "s Open Form was revised in 1990 to reflect the 1989
International Conference on Salvage and the text of the
International Convention on Salvage, 1989. The Form bears
the reference LOF 90. Although earlier editions of Lloyd "s
Open Form should have been withdrawn, copies may still exist
and be offered and, to avoid disputes or delays, they should be
accepted.

LOF 90 can be agreed orally or by radio sending the following

message: "ACCEPT SALVAGE SERVICES ON BASIS LLOYD "S
STANDARD FORM LOF 90 NO CURE NO PAY ACKNOWLEDGE
REPEATING preceding. MASTER........"

Under the Convention the main salvage award is still based

upon "no cure no pay", but the award will take into account
"the skill and efforts of the salvors in preventing or minimising
damage to the environment", as well as the traditional factors
of salved value, danger, out of pocket expenses, success, time,
and skill. The basic "no cure no pay" award is dealt with under
Article 13 but the Convention provides a safety net for a salvor
who has worked on a ship or cargo which threatens damage to
the environment but has failed to earn sufficient reward under
that Article. In such circumstances, he is entitled to special
compensation under Article 14, based upon the cost of his tugs
and personnel and his out-of-pocket expenses, plus an uplift of
30-100 per cent if he has prevented or minimised
environmental damage. The hull and cargo underwriters
continue to pay Article 13 awards, even if they are increased
because of environmental factors, but the P and I clubs cover
Article 14 awards.

If an earlier edition of Lloyd "s Open Form is offered and

accepted; the message should refer to that Form. The
engagement of one salvor under LOF 90 does not preclude the
Master from engaging other salvors. Similarly, the salvors may
hire other salvors as subcontractors. If more than one salvor is
involved, every effort should be made to obtain the salvors'
agreement to cooperate and to appoint one leading salvor. The
ship offering assistance may decline LOF 90 and propose other
terms. If the Master considers that immediate assistance is
essential, he should accept the terms offered. Still, if he feels
that the terms offered are unreasonable or greedy, he should
register a protest immediately or, if he thinks that this may
delay the assistance.
If salvage assistance is required, every effort is to be made to
agree on "Lloyd's Standard Form of Salvage Agreement - No
cure, No pay" (LOF2011) A copy of the above Form is also
included within the appendices of the SOPEP/SMPEP. Where
possible, the Master is to contact the Company before signing a
salvage agreement in case alternative arrangements can be
made. However, if the safety of life, the ship, her cargo or the
environment is likely to be compromised by any delay, the
Master must make his own decision based on a careful
assessment of the situation.

Typically, the Lloyd's Open Form is signed and dated by both

Masters. However, a cabled acceptance of assistance per the
terms of the Lloyd's Open Form of Salvage Agreement has the
same value. This acceptance must be recorded in the Deck and
Radio Log Books.

Using The Lloyd's Open Form for "No-Cure-No-Pay"

salvage contract

1. The Lloyd's Open Form or "LOF" is the most widely-used

"No-Cure-No-Pay" salvage contract. In return for salvage
services, the salver receives a proportion of the salved
value (the value of the ship, its cargo and bunkers).

In the past, if there was no recovery, there was no

payment, whatever the expense of the operation.
However, this made the salvers shy away from responding
to high risk or low-value casualties. This resulted in delays
in salvage operation and increased risks of environmental
damage.

2. (2) To counteract this, presently, there is a choice of 2

incentives to the salvers. The first is "Special
Compensation," which becomes payable to the salver
when he has prevented or minimized damage to the
environment. Still, the value of the salved property is
 insufficient to provide for a normal salvage award.

Alternatively, the salver may choose the SCOPIC (Special

Compensation P&I Club Clause) [only if he had opted for it
in the LOF]. The main difference between "Special
Compensation" and "SCOPIC" is that in the former, the
award is decided by Arbitration. In contrast, in SCOPIC,
the remuneration is based on pre-agreed tariff rates.
Certain conditions apply when SCOPIC is used.

Case Study : Nagasaki Spirit – Ocean Blessing Collision in

Malacca Strait

3. (3) While actual salvage remuneration is covered by

Property Underwriters ( H&M/Cargo), the Special
Compensation/SCOPIC is covered by the P&I Club.

4. (4) Usually, the Master will be requested to sign the L.O.F.

on the spot but, in principle, he shall, conditions
permitting, consult with the Company on whether to sign
this Form or not considering the following attention

5. "No Cure No Pay" is a basis specifically designed for

salvage operations on which prospects for success are not
always specific and, therefore, the total cost of salvage
including remuneration is usually higher than will be
incurred in cases of rescue on any other basis, such as
"Daily Hire" basis. Therefore, when there is no doubt that
ship and cargo are salvable, L.O.F. is profitable only to
salvers, so the Master should avoid signing it. (There have
been cases where the Master has signed a LOF even
though he intended to request mere towage services)

Under a L.O.F. contract, salvers usually require security

for their services upon termination of salvage work. This is
the practice, but sometimes it happens that salvers
request an unreasonably high amount of protection. So
Shipowners and Cargo owners will be compelled to
 provide salvers with security as requested but under
protest that the amount required is too high. Thus, the
Master must be prudent in signing L.O.F.

Authority of Master

The Master has complete authority to enter into any salvage

contract where he considers this necessary for the safety of
life, the ship, her cargo, or the environment. The authority of
the Master is not altered by engaging salvors. He remains in
command of the ship despite the presence of a salvage master,
and he should ensure that he is fully aware of the action taken
in the rendering of salvage services. Even though services have
been accepted and assistance is being rendered, the salvor
must cease his services is requested to do so by the Master.

The Master should, however, cooperate fully with the salvors,

who are experts in salvage operations, and in so doing exercise
due care to prevent or minimize damage to the environment.
He should take any advice given by the salvage master or
other person in charge of rendering or advising on salvage
services. The salvors may not be experts in the safety and
handling of cargo or familiar with the ship. If in doubt about
the advisability of any action suggested by the salvors, the
Master should not hesitate to challenge the advice given,
bearing in mind his overriding responsibility for the safety of
the ship, its cargo and those on board.

Legislation may exist in some countries requiring the Master to

accept salvage services or instructions provided by the coastal
country concerned. In such cases, the coastal state to which
the occurrence has been reported may be expected to inform
the Master of national requirements. However, the Master
should also consult documents on board, which might contain
guidance, e.g., sailing directions, notices to mariners, etc.

Fixed price contract

1. Under this form of salvage contract, salvers are entitled to

be compensated for their services based on the fixed price
even if the salvage attempt was unsuccessful.

2. This basis is generally used when the place of the accident is

comparatively safe or the services to be performed are
relatively simple and easy as when an accident occurs in a
bay or a river or towage of a vessel under relatively calm
conditions.

3. There are many variations, such as Daily Hire Basis

Contract, Lump Sum Basis Contract and so on depending
upon circumstances and subject to agreement between the
parties.

Lloyd’s Open Form

LOF 2000 made the form very simple and of a single page

Lloyds Standard Salvage and Arbitration (LSSA) Clauses and

Procedural rules incorporated into LOF 2011

In brief, the changes are as follows: -

1. LOF 2011

 (i) Details of LOF Awards to be published on Lloyd’s web-site

(ii) LOFs must be notified to Lloyd’s

2. LSSA Clauses

(i) Security for Arbitrator’s and Appeal Arbitrator’s Fees

(ii) Details of LOF Awards on Lloyd’s web-site

(iii) Special Provisions for Salved Cargo consisting of Laden

Containers

In order to improve navigation around the form, a common

complaint of salved property interests, the Lloyd’s Standard
Salvage and Arbitration (LSSA) Clauses, Procedural Rules and
Fixed Cost Arbitration Procedure have now been combined into
the single document titled the Lloyd’s Salvage Arbitration
Clauses 2020 (LSAC).