Greater confidence is needed in the use of Lloyd’s Open Form (LOF) instead of fixed contracts for salvage, to reduce risk to life, ships and the environment
This was the conclusion from experts and delegates at Riviera Maritime Media’s LOF versus fixed contracts: when does salvage become wreck removal? webinar held on 16 June during Riviera’s ITS Salvage Webinar Week, with discussions focused on what will happen if London-headquartered insurance organisation Lloyd’s goes ahead with its plans to close the Lloyd’s Salvage Arbitration Branch.
Attendees thought this would have a considerable impact on maritime salvage, particularly the use of the LOF, which could put seafarers’ lives, vessels and marine environments at risk.
During the webinar, attendees were asked for their opinions on various aspects of salvage and wreck removal contracting. There was considerable agreement among attendees (91%) that there would be a worse salvage industry without LOF.
The panel of salvage and insurance experts agreed and explained their reasons. This panel consisted of International Salvage Union (ISU) secretary general Roger Evans, Resolve Marine general manager for Europe Daniel Dettor, and Stephen Roberts, a member of the International Group (IG) of Protection and Indemnity (P&I) Clubs’ subcommittee on savage and director for claims at the managers of the London P&I Club.
Mr Evans questioned Lloyd’s reasons for proposing to close its arbitration branch and cutting off LOF support. “It will have knock-on effects on other sectors of insurance and loss of market share,” he said.
It may mean losing LOF as a standard contract enabling salvors to immediately begin assisting a maritime casualty and mitigating the risk of higher insurance claims.
It would also lead to the removal of the Special Compensation P&I Club Clause (SCOPIC) used for special compensation; loss of the special casualty representative panel to act for the P&I clubs in SCOPIC cases; Lloyd’s panel of arbitrators; provision and collection of salvage securities and upkeep on salvage clauses.
“LOF is still recognised as the most frequently used worldwide salvage contract and used without delay,” said Mr Evans. “The big question is what will happen when LOF is not out there?”
He anticipates delayed salvage operations leading to increasing risk to maritime and coastal environments from major ship groundings. “There would be a delay in using available tugs” to quickly react to maritime casualties to prevent them from crashing, breaking up and polluting oil.
Mr Evans said casualties, such as Ever Given which halted maritime traffic through the Suez Canal during a week in March 2021, demonstrated need for salvage infrastructure, equipment and people.
“The shipping industry needs to have standard protocols to avoid response delays,” said Mr Evans. “Salvors have to deal with many incidents of all sizes – and LOF is the right contract. If it is not there, who will provide a replacement?”
In response to these comments, attendees agreed LOF should be used in the future and there must be greater confidence in its application.
When asked: In the interest of saving life, property and protecting the marine environment, it is essential that market confidence in LOF as a universally applicable salvage contract is restored. 75% of delegates strongly agreed and 12% agreed, whereas 4% disagreed and 9% were unsure.
Many of the webinar attendees think LOF use will continue even after Lloyd’s arbitration panel closes. When asked: Would you consider using LOF if it is no longer supported by Lloyds? 64% said yes, they would and 36% said they would not.
Part of restoring confidence in LOF is to understand the requirements from this contract from owners, operators, insurers, P&I clubs and salvors. Mr Roberts said IG P&I had started to consult shipping- and salvage-industry stakeholders for their viewpoints, with questionnaires being sent out soon. Results from this study could be available by the end of this year.
“There are misconceptions of the relative safety of vessel casualties and broader mistrust of LOF,” said Mr Roberts. “But, if there are delays, the casualty can deteriorate and this raises the risk to lives, assets and the environment. This would be a concerning development.”
If a casualty does begin to break up, the responsibility for paying for the salvage or wreck removal costs change. Hull and machinery (H&M) and cargo insurers are expected to cover salvage of a vessel and its cargo to the point where the casualty becomes a construction total loss. Then it becomes a wreck and P&I Clubs become more involved.
“If [a casualty] breaks up, it mutates into a P&I risk and this will increase the costs and risk of pollution, out of proportion to the value of the hull,” said Mr Roberts. “Greater risk is carried by P&I, while hull insurers think around the value of the property.”
To mitigate pay-outs by IG P&I members, distressed ships need to be towed away from coastlines quicker.
“We need to improve confidence in LOF, make LOF universally applicable and prevent these delays,” said Mr Roberts.
There was agreement among the webinar attendees that P&I should be more involved in appointing salvors if the prospect of invoking SCOPIC is high. 30% of those responding agreed and 19% strongly agreed, while 23% disagreed, 2% strongly disagreed and 26% were neutral on the subject.
Resolve’s Mr Dettor agreed P&I should be more involved in selecting salvors and contracts during early stages of saving a casualty. “There are plenty of cases where H&M and owners do not act quickly as there is little risk of pollution at the time,” he said.
“It then becomes a P&I problem if H&M are not experienced in dealing with casualties. There is a point when P&I needs to get involved if it is becoming a big problem for them,” said Mr Dettor.
He added there were blurred lines between salvage and wreck removal, which complicates whether SCOPIC is invoked.
SCOPIC was introduced in 2000 as an improvement on article 14 for special compensation for environmental considerations. “It is considered a safety net for owners, P&I and salvors,” said Mr Dettor.
“SCOPIC must be incorporated into LOF to replace article 14. Salvors must choose whether to invoke this,” he continued. “There is an agreed set of tariffs for personnel, craft and equipment, plus a 25% uplift.” P&I then provides salvage security of US$3M and has the right to appoint a special casualty representative to oversee salvage.
In the upcoming issue of International Tug & Salvage, Mr Dettor discusses another form of salvage and oil pollution response solution brought into force in the US following the Exxon Valdez oil disaster in 1989.
The Oil Pollution Act of 1990 (OPA-90) was written to address response gaps after the Exxon Valdez oil spill in Alaska. The Act’s intent was to create a regulatory framework to prevent, respond to, and pay for oil spills in US waters, Mr Dettor said.
In a poll question, attendees were asked if OPA-90 regulations, requiring owners to pre-contract with salvors to avoid delays in response, should be implemented globally. 52% of those responding said no and 48% voted yes.
Experts on Riviera Maritime Media’s LOF versus fixed contracts: when does salvage become wreck removal? webinar panel were (left to right): International Salvage Union secretary general Roger Evans, Stephen Roberts, a member of the International Group of Protection and Indemnity Clubs’ subcommittee on savage and director for claims at the managers of the London P&I Club, and Resolve Marine general manager for Europe Daniel Dettor.
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