The international salvage community has responded to the possible closure of an arbitration branch and a key contracting method for rapid emergency response
London-headquartered marine insurance market and institution Lloyd’s is considering closing the Lloyd’s Salvage Arbitration Branch. This will have a considerable impact on maritime salvage, particularly the use of the Lloyd’s Open Form (LOF), and could put seafarers’ lives and marine environments at risk.
The International Salvage Union (ISU) received an email from Lloyd’s head of agency David Lawrence on 23 April as notification that a review had started for considering whether the services of the Lloyd’s Salvage Arbitration Branch should be stopped. Lloyd’s has started consulting the maritime and insurance industries on whether there was value in keeping this arbitration branch open.
There has been a wide range of responses from the shipping and insurance community, including from the ISU.
Below is the letter ISU submitted to Mr Lawrence as part of this consultation:
It is not clear from Mr Lawrence’s email what the review means specifically for the Lloyd’s Standard Form of Salvage Agreement (Lloyd’s Open Form – LOF) but without the Lloyd’s Salvage Arbitration Branch, and the association with Lloyd’s, LOF will be gravely, if not fatally, damaged.
The International Salvage Union (ISU) is the global trade association representing the interests of organisations which operate as main contractors in marine salvage cases.
We have some 50 members and they are individually party to the great majority of the Lloyd’s Open Forms agreed each year. Our members have a proud record of using LOF to save lives, protect the environment and save property.
It is the ISU’s position that to discontinue the support and endorsement of Lloyd’s for Lloyd’s Open Form would have a serious impact on safety at sea and a potentially significant impact on the environment as well as the possibility of catastrophic losses to communities reliant on the sea for their livelihoods.
There would be increased danger to seafarers and an inevitable increase in loss of property such as hull, cargo and in businesses affected ashore.
The Lloyd’s Open Form has had a truly global, recognisable identity in the maritime sector for more than 100 years and is the ’contract of choice’ for emergency response where those at sea face imminent peril.
It was designed by the Lloyd’s insurance market specifically for the benefit of the market and its success is based on worldwide understanding and acceptance of it as the go-to contract.
The marine business of Lloyd’s may have diminished over the years but, at the same time, values of ship, cargo and bunkers – and importantly the complexity of many cases – has increased significantly.
Indeed, over the past 10 years, the average total salved values of ISU members’ LOF cases is more than US$1Bn each year.
And there can also be much greater financial exposure beyond the immediate casualty, as the world saw clearly in the recent case of the container ship Ever Given, grounded in the Suez Canal and refloated by an ISU member, which disrupted trade globally.
The ISU has been tireless in its support for Lloyd’s and the use of Lloyd’s Open Form and actively promotes its use.
We urge you to continue to provide the services of the Lloyd’s Salvage Arbitration Branch and support for the Lloyd’s Open Form because the entirety of the global shipping emergency response industry is based upon, and relies upon, LOF.
Shipowners, insurers and salvage contractors all agree that the availability of LOF is essential to sustain the provision of the salvage services that prevent and mitigate potentially huge losses and protect the environment.
The consequential losses of a major shipping casualty extend far beyond the marine sector. It affects those industries and property ashore that benefit from the coast such as tourism and fisheries and many others in the global supply chain.
Lloyd’s has interests in many sectors beyond marine but without the security and ease of use of Lloyd’s Open Form it is likely that disasters such as Wakashio [2020 bulk carrier grounded on Mauritius reef in the Indian Ocean] will increase.
And the great benefits of the associated Special Compensation P&I Club Clause (SCOPIC) will be lost with a return to the use of the Salvage Convention’s Article 14, turning the clock back more than 20 years.
In the absence of LOF there will be a direct impact on insurers and their clients; financial exposure to losses will increase and shipowners and property underwriters will be wide-open to common law salvage claims.
We recognise that Lloyd’s must be mindful of costs and that the use of LOF has declined, and we also know that history alone is not a good enough reason to persist with an activity.
However, the implications for the shipping industry, coastal states, local and international business and loss prevention go far beyond the place of the Lloyd’s Salvage Arbitration Branch within Lloyd’s.
The association with Lloyd’s – a world scale insurance market and a brand trusted implicitly by all connected with shipping – assures the fairness and integrity of the Lloyd’s Open Form contract and cannot be replaced.
We also believe there are potentially very serious reputational consequences for Lloyd’s, which risks being perceived to be abandoning its interest in preventing marine casualties.
The executive committee of the International Salvage Union
Salvage operations, case studies, use of LOF and emergency response challenges will be discussed in depth during Riviera Maritime Media’s inaugural ITS Salvage Webinar Week, on 15-17 June. Use this link to access more details and to register for these webinars