Australia: Marine Salvage: The 2011 Lloyd's Open Form

Last Updated: 7 July 2011
Article by Ron Salter

The 2011 Lloyd's Open Form. While the subject of marine salvage is one which often evokes dramatic images, the reality is mostly very different. True it is that the subject of salvage is invariably a ship in distress, but the hard reality is that salvage normally involves much hard work, danger, and both physical and financial risk. So, it is that for major casualties, professional salvage operators dominate the market.

There are many misunderstandings, even among those in the maritime industry, about the concept of salvage, and it is worth briefly reminding readers of what is involved.

Going back some 3000 years, it was recognised that someone who voluntarily incurs risk to save someone else's property in danger at sea should be rewarded. This philosophy had a dual purpose - firstly, to encourage seafarers to assist others in difficulty, and secondly, to provide an incentive for them to do so.

These ancient principles have been widely adopted around the world, and are enshrined in the International Convention on Salvage of 1989, which is incorporated into Australian law by the Navigation Act 1912 (Commonwealth). Essentially, a person is entitled to a salvage reward when services are rendered voluntarily to assist a vessel in peril, and those services are successful.

While the entitlement to a salvage reward is not dependent on contract, virtually all salvage operations of major casualties and very many lesser ones are conducted on a contractual basis. From the point of view of both salvor and ship owner, the certainty of a contractual relationship has a real benefit.

By far the most popular and widely used salvage contract

-        indeed the only one with a truly international reputation
-        is Lloyd's Standard Form of Salvage Agreement,

commonly called Lloyd's Open Form or LOF. The first printed form of contract emerged early in the 20th century, and it has been revised from time to time ever since. LOF brings with it an infrastructure for the assessment of an appropriate fair and reasonable reward, the infrastructure being found in Lloyd's Standard Salvage and Arbitration Clauses (LSSA). In simple terms, the process requires the giving of security by the owner of salved property to cover the potential reward, interest and legal costs, the submission of the assessment to an arbitrator appointed by Lloyd's and the determination by that arbitrator of the appropriate level of reward, taking into account the proper legal principles for the assessment of salvage rewards.

It may be discerned that one reason at least for the continuing acceptance of the LOF system by the industry has been the fact that regular revisions have often put the LOF system at the forefront of reform. So it is that even before the 1976 Limitation Convention allowed salvors to limit their liability, a revision to LOF catered for this. Again, while the 1989 Salvage Convention did not actually come into force until 1995, the 1990 revision of LOF adopted the reforms of the 1989 Convention.

The latest revision (the 12th edition) of LOF contains a couple of changes which at first blush may appear to be innocuous if not inconsequential. A closer examination of those provisions will demonstrate that again, the LOF scheme is at the vanguard of reform.

Arbitration of any sort (whether maritime or otherwise) is, of course, a private matter, and one of the perceived advantages of arbitration over litigation is that of privacy.  In the maritime context, decisions of arbitrators of the London Maritime Arbitrators' Association, essentially in disputes of a commercial nature, are confidential, while those of the Society of Maritime Arbitrators of New York are not. With arbitration the preferred method of dispute resolution in the maritime industry, there has been continuing agitation for an opening up of the London maritime arbitration decision-making process, so that industry participants might have a ready understanding of such matters as the proper interpretation of charter party contracts and clauses.

This agitation has now found its way to the LOF scheme, so that the LOF 2011 form together with the associated LSSA clauses contain provisions for the publication of awards and reasons subject to conditions. Basically, this will be on an 'opt out' system, so that awards and reasons will be published automatically on the relevant web site unless ordered by the arbitrator. With transparency being the name of the game in business generally, the change is likely to be welcomed more than it is criticised.

A second amendment for 2011 can be found in the LSSA clauses which govern the contract and the ensuing arbitration. A number of new clauses have been added to take account of the large number of interests when salvage involves a container ship. One clause, for instance, allows small value cargoes to be omitted from the salved fund and excused from liability where the cost of including that cargo in the process is likely to be disproportionate to its liability for salvage. Another clause allows an agreement made between the salvors and the owners of salved cargo comprising at least 75% of value to bind all owners of salved cargo, and yet another clause enables salvors to correspond with insurers rather than with the cargo owners in certain circumstances.

While LOF 2011 does not contain any drastic changes, those changes which have been made seem to us to be a useful contribution to the development of knowledge about the LOF process and about salvage generally, and seem also to be of benefit in reducing overall costs in container cases.

For more information, please contact

Ron Salter, Consultant
T + 61 3 9274 5846 

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