Lloyds Open Form

Fact and Fiction - Salvage contract misunderstood but still remains essential, writes Todd Busch President of the International Salvage Union

Lloyds List -Thursday 10 December 2009

LLOYD’S Open Form remains the most commonly used form of salvage contract. It has served the shipping community for over 100 years and has been regularly revised to ensure it meets the needs of its users.

But as I go about my business — meeting shipowners, members of the insurance community and lawyers — it is not uncommon to hear concerns about LOF and sometimes revealing misconceptions about one or more of its features. There seems to be a division between regular users of LOF, who clearly understand it well, and the rest.

The International Salvage Union is quite prepared to accept its share of responsibility that such misunderstandings have taken root — but I am committed to making the effort to explain LOF’s features and benefits.

Of course I have an interest to declare, as one of the key objectives of the International Salvage Union is to ensure that Lloyd’s Open Form remains relevant and popular.

That is because, from the salvors’ point of view, it can facilitate swift intervention in a developing casualty situation. And the long experience of our members shows that delaying the involvement of professional salvors, particularly at the onset, can seriously limit the intervention options and can sometimes make what should have been a relatively simple solution more complex, more risky and often more costly.

Commentators sometimes say that modern communications have eroded the need for the Lloyd’s Open Form. They argue that the ease with which the master can take advice from shore-based colleagues means that other forms of contract or commercial negotiation should be used.

There is a grave risk in the master being subservient to shore-based authorities. Only the master at the scene can properly judge the condition of his vessel, the weather, sea state and all other factors, in order to make the decision as to whether salvage assistance urgently needs to be engaged.

LOF is a simple contract form with no up-front “haggling” which again facilitates that quick intervention if the circumstances mean that is the right thing to do.

Another misunderstanding is that the master of the casualty gives up command of the vessel when LOF is agreed. That is not true. The salvage master assumes responsibility for the salvage operation but the master remains in command of his vessel – unless it is completely abandoned and then boarded by the salvors. It is also sometimes thought that in that situation the salvor can claim ownership of the casualty vessel – again that is not true. Even when a vessel has been abandoned, the ownership remains with the shipowners and the cargo interests.

Lloyd’s Open Form is not an open cheque for the salvor. True, fees are not agreed “upfront” but most LOF cases are settled agreeably between the salvor and the shipowner, cargo interests and their insurers once the job is done. If agreement cannot be reached by negotiation, then the case is referred to arbitration through the Lloyd’s Salvage Arbitration Branch. If either party does not agree with the arbitrator’s decision, there is an appeal procedure.

Recourse to litigation under English law at the High Court is rare, and can only arise on a point of law. It means that disputes are not unnecessarily costly and analysis of the salvage awards made show a remarkable consistency over the past decade.

This article can only hint at the importance of LOF and some of the myths surrounding it, but it is certainly in the long term interests of the wider marine community that there should be a readily available, worldwide professional salvage capability.

LOF helps to ensure that provision by offering quality, integrity, experience, transparency and fairness to all parties involved in a casualty — and that encourages salvors to make the necessary investment. And I encourage readers to explore the benefits of this unique and durable salvage contract. Todd Busch is president of the International Salvage Union

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