7164MAR Law and Insurance Assignment Sample
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Introduction
The “Lloyd’s Open Form Salvage Contract” (LOF) refers to a standard form of contract that is used in maritime operations. This contract has been used in maritime operations for more than a hundred years. This contract provides “salvage services” on the basis of “no-cure-no-pay” with the award for the success that has been created for saving the property. The salvage contract is one of the types of marine salvage, and the contract has been conducted between the owner of the cargo and the rescuer of the vessels. This study shed light on the evolution of the LOF in 2020 (Lloyds.com, 2021). In addition, this study also focused on the area that discussed how the changes in LOF 2020 agreed by the involved parties AND helped to address the specific concerns raised by the users of LOF.
Discussion
“Lloyds Open Form” (LOF) is used as the most significant salvage contracts that have served the shipping company for more than a century. However, the contract has been revised on a regular basis in order to ensure the requirements of the users. The evolution of this salvage contract and its associated SCOPIC clause is discussed in this study, along with the challenges and opportunities that it provided for the development of the maritime industry (Lloyds.com, 2021). According to the view of Álvarez (2021), this contract provides a legal framework for the contractors for providing salvage services along with protecting the properties such as ships, cargo from danger.
Evolution of LOF
The “Salvage Attribution Branch” of Lloyd introduced the updated edition on 1st January 2020 of the “Lloyd’s Standard Form of Salvage Contract”. It is undeniable that the contract has been simplified and amended over the dates to keep pace with the rapid development of the maritime industry. However, the principles remained the same over the years of the contract and provide a flexible legal framework for the contractors to save the properties from danger (HFW, 2021).
According to the current genesis of this agreement, it has been delivered through extensive discussion with the involved different stakeholders who are part of maritime industry, that further includes the global Salvage Union, Salvage companies, attributes, and insurers and most importantly, the “Admiralty Solicitors Group”. It is noteworthy that the changes or the evolution that has been made in “LOF 2020”which may not be found at the first instamce. However, the evolution has been emphasised on the specific concerns raised by the frequent users of LOF (Gard.no, 2021).
One of the significant changes of this LOF is the departure of Lloyd’s “Standard Salvage and Attribution” (LSSA) clauses, “Fixed Cost Attribution Process”, and “Procedural Rules”. These clauses seem to be merged into the single document that is called Lloyd’s “Salvage attribution Clauses 2020” (LSAC). These attributes address the general complaints from the saved properties, such as individual cargo and others who are unfamiliar with this contract (Marine-salvage.com, 2021).
After reviewing the changes in the LOF agreement, it was decided to amend the “Special Compensation P&I Club” (SCOPIC2) CLAUSE, knowing the fact that its two years trial period had expired. The amended version of the “SCOPIC Clause” is considered as the “SCOPIC 2020”.
Challenges to the LOF
It is evident that “Lloyd’s Open Form Salvage Agreement” has been in practice since the past century. This is the reason it gives the benefits to the salvage services on a “no cure-no pay” basis. This has been utilised for having been awarded for saving property values. On the contrary, the SCOPIC clause gives an alternative remuneration to the salvors that is computed differently to award the salvors as per article 13 and 14 (Limsira, 2020). Johnson Chiu has compared the LOF with the national salvage forms concluding that LOF will be the important agreement when ships, crews and environments are in imminent danger. However, communication and technology have advanced, making considerations of other agreements attractive to ship owners for minor mishaps which avoid immediately putting crews, vessels and environments at large risk.
The utilisation of traditional Lloyd’s Open form salvage agreements is declining slowly. As per Lloyd’s statistics, 255 LOFs were have been awarded during 1980 however nearly 37, a record low in the year 2014 (Li and Chang, 2020). It has been found that the average no. of LOF agreements was 138.7 in 1990. On the contrary, it was found that the average value of awarded property sold was 9.56%. The drastic decline was noticeable in 2002 which was diminished to 102.6. In 2018, it was found to be even lower and reached 53. The decline is understood to be the challenge that came forth in front of the LOF agreement (Mondaq.com, 2021).
It is found that during1970s there were no significant RTC (real-time communication) with ship-owners, “vessels and insurance companies”. Vessel masters had to have minimised experience to deal with fatality that hardly consulted with others in high time. In that case Master used to end the agreement by signing LOF with salvor rendered. They are reinforced to end the contract even if a minor mishap and breakdown occurs. It is evident that technology has made it easier for the salvor to deal with any casualties. With the introduction of technology, with in the shore side is usually enhanced with relevant information from the ship or vessel in a short time. Masters in the current world no longer have to wait for making significant decisions where they face difficult situations (Limsira, 2020). It is found that an appropriate kind of salvage agreement can be selected by salvor and ship-owners and LOF would be avoided from minor casualties.
Apart from challenges faced by LOF, the change in the salvage industry is noticeable. A rigorous competition among salvors has been found. Currently, there are “5 to 6 global salvage operators dominating the scene”. High communication speed and improved technology benefited the salvors. When breakdown of engines is noticed, casualties are informed accordingly from the team, and the operators in the market receive tender notice in the meantime. This is why Ship owners find it difficult to insist on LOF and prefer to offer contract terms in such casualties (Fedcourt.gov.au, 2021).
Under the proposition of London Maritime law firms, it incorporated the LOF with the SCOPIC and allowed the parties to vote for services achieved at the SCOPIC rates, providing a bonus that is optional. The bonus reveals encouragement factors such as danger, skill, service length, and salvage value under article 13. However, ship-owners via association with the International Salvage Union rejected this proposal. Salvors avoid considering this incorporation since this will fail to estimate the level of exposure and total cost of salvage operations (Marine-salvage.com, 2021). It is found that uncertainty made the proposal unattractive to the salvors.
LOF in the current year
It is evident no salvor wishes to be involved under LOF terms unless it is proved to be important. They instead prefer to use salvage contracts computed on a regular basis. On the contrary, it is found that when a ship and a vessel are in a perilous situation, LOF still poses the most preferable salvaged contract as it ensures to protect vessels, ships, property, crews and environment. Before making a decision, salvors need to consider core elements such as danger and elements (Fedcourt.gov.au, 2021). Generally, the ship-owners are not considered anti-LOF; however, they remain to use this as standard while dealing with serious casualties specifically when environmental problems are found. The marine industry always has major concerns and doubts regarding LOF as it is implied with prejudices and misconceptions. Some experts worry that this LOF will disappear soon. However, this perception was found to be vague when fire accidents arose in Maersk Honam and engaged LOF contracts. This supported that Mishap will never decline so that LOF will never decline. It is found that LOF has been modified with continuous innovation. For example ship-owners always welcome new concepts for amending the salvage contracts. The ship industry is working to eliminate debate for choosing the appropriate salvage contracts (HFW. 2021, 2020). However, it is difficult to use appropriate LOF agreements for such circumstances like casualties and mishap.
In 2020, there was a new launch in the Lloyd’s salvage arbitration Branch to update the previous LOF. The current applications are in the form of clause 19. The current modification incorporates ad hoc requirements. This states and formalises position in respect to side letters seeking to circumvent usual mechanisms determining salvage remuneration for the contractors under contract. Following current implications, concern has been made to improve transparency and permit the LOF panel to review agreements and consider their enforceability. It starts with the overriding objective to maintain prominence. Secondly, it is concerned with the provision of security, maritime lien and right of arrest. This clause has been implemented to provide safety to the salvaged property. In clause 4.5, it is provided to Lloyd Salvage for becoming a guarantor in the United Kingdom and provided with the opportunity to become a particular guarantor. As per clause 5 it has been stated that it sorts out the concern related to arbitration. This clause provides the benefits of entitlement to the arbitrators to have security for its reasonable expenses and fees (HFW. 2021, 2020). The arbitrator’s power has been modified. The wide list of understanding provides an opportunity to have insight into non-exhaustive lists and provides arbitrators with wide discretion. In addition, clause 19 has defined that the contractor’s special right has been terminated. The reason for terminating the special right is to cover the circumstances where the ship-owners avoided obligating SCOPIC.
Employment Salvage contract
The “Lloyd’s Standard Form of Salvage Agreement” has significantly found in different succession in the last decades. However, it seems to be amended, and it has been simplified in the past few years in order to cope up with the significant industry development. However, these principle of the contract seems to remain almost similar. This ensures to provide a flexible legal framework for the relevant contractors so that they can be provided with salvage services for that property in danger (Álvarez, 2021). However, the genesis of effective contractor has also developed the relevant and effective discussion along the different stakeholders within the maritime industry that includes all the leading salvage companies, arbitrators as well as “Admiralty Solicitors Group”.
However, the alteration found in the “LOF 2020” may not be effective at the initial stage, whereas the alteration seem to address certain concerns from different edge which seems to effectively enhance by those who probably considers “LOF” (Zhao, 2017). However, the significant change that has been made in terms of separating the “Lloyd’s Standard Salvage and Arbitration” (LSSA) clause, “Procedural Rules” and “Fixed Cost Arbitration Procedure”. Hence, it has now effectively collaborated as a single document that is known as the “Lloyd’s Salvage Arbitration Clause 2020” (LSAC). It is the combination of old clauses as well as the rules that has helped everything to be in place (Shipsbusiness.com, 2021).
“Clause H” of the “LOF” is significantly revised in order to ensure clarity whenever it is required as long as services to perform accordingly. On the other hand, in Clause 4, the subtitle changes have been incorporated that specify the format of the security, which is provided by the “salved property interest”. According to “Clause 4.5”, it is necessary to ensure the security must be provided to the respective council of Lloyds. Hence, it is further seen that there is no longer a requirement of a guarantor to stay as a resident in the UK. It may have increased the international nature of the marine insurance market.
SCOPIC clause and development salvage law
In order to consider “Marine Salvage” and even the “commercial operators” is probably going through differed distress in order to be rewarded to help and to save lives along with property. Therefore, the “Salvage Convention” was significantly amended with the most relevant used salvage contracts that are “Lloyd’s Open Form” (LOF), in the year 1990’s. SCOPIC seems to be the largest Clause which can be found in the 16 sub-clause. However, the Clause can be found in the LOF contract from August 1999 (Shipsbusiness.com, 2021). The SCOPIC regime seems to be complicated, and further, it is not significantly understood. However, there are also certain misinterpretations that are the relevant part of the LOF Salvage Contract (Marine-salvage.com, 2021).
It is further referred to as the optional addendum that is only found in the LOF in case the relevant party records in terms of contract where “SCOPIC” is implemented. In case SCOPIC may be introduced, it is significant that Salvage Convention Article 14 can be applied if it seems to be relevant.
In the case of SCOPIC, remuneration that is received by a salvor for the services must be considered in a significant manner. This is because the risk of the job along with the environmental threat can deteriorate the potential solved value. For instance, 1473 LOF cases were found, whereas SCOPIC was only incorporated in different cases (468), whereas it was probably solicited in 332 cases which make it 25% less of LOF cases (Assets.lloyds.com, 2021).
However, there are different SCOPIC features that enable the owner to appoint “Special Casualty Representatives” (SCR) who will be responsible for attaining casualty as well as report on activity. Hence, it can be stated that SCOPIC seems to be working well, whereas it also requires significant review on time (Marine-salvage.com, 2021). Hence, it is seen that currently, the SCOPIC Committee was developed to enable them to review significant parts of SCOPIC.
Industry concerns and decline of the use of LOF
Álvarez, (2021) has stated that the maritime industry largely depends on this agreement and thus the simplification or amendment within the contract is required to ensure the satisfaction among the contractors and to save the damaged properties. However, after the up gradation of the LOF periodically happens for keeping abreast with the issues that were developed in the practices. It has been found that, there is a consensus in the maritime industry that LOF and its associated SCOPIC work well in the accurate cases, however there are not adequate accurate cases, while the agreement has attracted the unwelcome and certain notoriety related to rescue the simple towage cases (Marine-salvage.com, 2021). By implementing the International Salvage Convention Act, the contractors and other involved stakeholders are able to save the properties from the sea’s perils (Shipsbusiness.com, 2021). LOF has the ability to protect ships and cargo from large disasters reported in maritime operations. However, there are some specific concerns including market forces, overpriced, salvor biased and the issues related to reserving may decline the use of LOF for its regular users.
Conclusion
Through the above discussion, it is evident that the amendments to the contract that has been set out in the LOF 2020 are referred to as the welcoming department. It is further assumed that any significant change simplify different “arbitration procedure” that will enhance the confidence in the contract. However, it is also known that SCOPIC will require cooperative working among the parties as well as the trade association representatives. Hence, it can be concluded that the discussion is made effectively with effective understanding.
References
Álvarez, P.S., 2021. From maritime salvage to IMO 2020 strategy: Two actions to protect the environment. Marine Pollution Bulletin, 170, p.112590.
Assets.lloyds.com. 2021. [online] Available at: <https://assets.lloyds.com/assets/pdf-scopic-2020/1/SCOPIC-2020.pdf> [Accessed 5 November 2021].
Fedcourt.gov.au. 2021. [online] Available at: <http://www.fedcourt.gov.au/__data/assets/pdf_file/0019/29026/Corporate_Plan_2016-2020.pdf> [Accessed 5 November 2021].
Gard.no. 2021. Revisions to the LOF contract and the SCOPIC Clause (Augu… – GARD. [online] Available at: <https://www.gard.no/web/publications/content?p_document_id=3998234> [Accessed 5 November 2021].
HFW. 2021. LOF 2020 – an update to the world’s oldest and most commonly used salvage contract. [online] Available at: <https://www.hfw.com/LOF-2020-an-update-to-the-worlds-oldest-and-most-commonly-used-salvage-contract-Feb-2020> [Accessed 5 November 2021].
HFW. 2021. LOF 2020 – an update to the world’s oldest and most commonly used salvage contract. [online] Available at: <https://www.hfw.com/LOF-2020-an-update-to-the-worlds-oldest-and-most-commonly-used-salvage-contract-Feb-2020> [Accessed 5 November 2021].
Li, X. and Chang, Y.C., 2020. The legal status of the “employment salvage contract” in the Chinese maritime salvage law: A challenge to the principle of ‘no cure, no pay’. Marine Policy, 118, p.104011.
Limsira, P., 2020. Toward a New Salvage Regime for Environment: Reformation of the International Convention on Salvage 1989 and Thailand’s Implementation. Journal of East Asia & International Law, 13(1).
Limsira, P., 2020. Toward a New Salvage Regime for Environment: Reformation of the International Convention on Salvage 1989 and Thailand’s Implementation. Journal of East Asia & International Law, 13(1).
Lloyds.com. 2021. [online] Available at: <https://www.lloyds.com/~/media/files/the-market/tools-and-resources/agency/salvage-arbitration-branch/lof-2020.pdf?la=en> [Accessed 5 November 2021].
Marine-salvage.com. 2021. Lloyd’s Open Form – fact and fiction – The International Salvage Union – Saving Lives, Ships and Cargo. [online] Available at: <https://www.marine-salvage.com/media-information/articles/archive/lloyds-open-form-fact-and-fiction/> [Accessed 5 November 2021].
Marine-salvage.com. 2021. SCOPIC and the SCR – The International Salvage Union – Saving Lives, Ships and Cargo. [online] Available at: <https://www.marine-salvage.com/media-information/conference-papers/scopic-and-the-scr/> [Accessed 5 November 2021].
Mondaq.com. 2021. Is The Salvage Industry In Terminal Decline? LOF v Commercial Contracts – Corporate/Commercial Law – UK. [online] Available at: <https://www.mondaq.com/uk/contracts-and-commercial-law/652920/is-the-salvage-industry-in-terminal-decline-lof-v-commercial-contracts> [Accessed 5 November 2021].
Shipsbusiness.com. 2021. Salvage Contracts -The Lloyd�s Open Form – �No-Cure-No-Pay� or Fixed Price Contract. [online] Available at: <http://shipsbusiness.com/salvage-contract.html> [Accessed 5 November 2021].
Zhao, L., 2017. Maritime salvage under contract: a comparative study of Chinese law and the International Salvage Convention. Lloyd’s Maritime and Commercial Law Quarterly, 2017, pp.286-302.
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