Changes improve the chance of LOF adoption

Lloyd’s Open Form (LOF) 2024 has now been published by Lloyd’s of London, its 14th edition since it was first launched in 1908, replacing the 2020 Form. Lloyd’s Salvage & Arbitration Branch summarised the update in May 2024 with changes that will impact salvors, insurers and shipowners.

Firstly, there are no changes to the form itself, in the ways in which it can be agreed and the details to be completed. These include optionally the agreed place to which the property is to be brought and the currency of an award if not in US dollars. 

English law allows it to be agreed verbally or by exchange of emails, though it would be sensible to complete the form for the record as soon as circumstances permit. It can be agreed by the master, owners, managers or other agents of the owners and will, in line with the Salvage Convention 1989, automatically be binding on cargo which will have to pay its pro-rata contribution to the salvage award.

Second, the assessment of a salvage award does not change. An award will be assessed on the same principles of salvage, as before. Special Compensation P&I Clause (SCOPIC), where it may apply, remains unchanged and can be incorporated and then invoked, allowing salvors to recover their costs from P&I insurers at published tariff rates with a 25% mark up in those cases where there is insufficient value in the property to permit a conventional award. Otherwise salvors may not be incentivised to intervene, at risk of being left out of pocket.

The main change is the speed at which an award can be made together with a streamlined, simplified document-only procedure to reduce legal costs, particularly if a settlement cannot be achieved. In all but the very largest or otherwise complex cases, there will be no oral hearing, the parties being able to make written submissions together with a small bundle of key evidence. 

There is now a cap on recoverable legal costs and a cap on the arbitrator’s fee, likewise on the appeal arbitrator’s fee if the original award is to be reviewed. This compares very favourably with, say, a typical shipping-style arbitration where there is no limit on such costs. That said, Lloyd’s was operating LOF at a loss and the opportunity has been taken to ensure that an administration fee, capped at £10,000 (US$12,700), is now payable. This does not seem unreasonable.

From the perspective of those underwriters who regarded LOF as sometimes a complex and expensive process which rewarded a salvor who battled on regardless, these cost provisions are to be welcomed.

From the salvors’ perspective, the hope of Lloyd’s and other stakeholders behind these changes is that there will be an increased uptake of LOF, which has seen its numbers decline in recent years, on the basis the industry needs salvors and must find an equitable solution to their engagement and remuneration.

Finally, details of all LOF settlements must now obligatorily be submitted to Lloyd’s enabling more accurate collation of statistics and providing better guidance to the LOF arbitrators who are tasked with making awards. 

With the new form hot off the press, a draft London Market LOF default clause has been circulated for consultation, and if adopted, could be inserted into hull and machinery policies. 

If adopted, it seems likely that other markets, principally in Scandinavia, will follow suit. In essence, this would require the assured owners to consult, over a period of 48 hours in good faith, with their insurers to enable agreement to take place as to the appropriate form of contract to respond to a potential salvage situation. 

If there is no agreement or if the ship’s master reasonably considers in any event that the vessel is in a position of imminent danger, then LOF is to be the default contract. This will guard against perhaps those cases where TOWCON or TOWHIRE are more appropriate than LOF in respect of a drifter far from land. 

At the other end of the spectrum, in instances such as container ship Ever Given that grounded in the Suez Canal, owners would have a greater degree of reassurance that LOF is the appropriate contract. Thus avoiding futile and time-consuming negotiations around a commercial contract which, as that case demonstrated, is not suitable for the job in hand.