LOF 2000

Mike Buckley, partner at Waltons & Morse in London and legal advisor to the Corporation of Lloyd's on salvage matters, reviews the new form, published on 1 September

LLOYD'S Form of Salvage Agreement, or LOF as it is more commonly known, has been revised on many occasions since it was first introduced a hundred years ago. But the latest revision, which has just been completed, is likely to be regarded as one of the more radical revisions so far.

Those familiar with the current version of Lloyd's Form, LOF 1995, will know that it consists of six pages of double-sided text in a single document which opens out to a width of 63cm, or about 25 inches. Its length is explained by the fact that, traditionally, LOF has contained not only the contractual terms which relate directly to the salvage services themselves and the manner of their performance, but also the procedural and administrative provisions governing the LOF arbitration system for the assessment of salvage claims, including the requirements for salvage security and arrangements for the payment of salvage awards.

LOF 2000 will look radically different. It comprises a single sheet of paper incorporating a box lay-out in which essential information such as the name of the ship and the identity of the salvage contractors will need to be inserted. Below the box lay-out and on to the reverse side of the document, there are twelve lettered clauses and two information notices.

This shortening of the form has been achieved by removing all provisions of a procedural or administrative nature. These will be consigned to a set of standard clauses to be known as the Lloyd's Standard Salvage and Arbitration (or LSSA) Clauses which, together with the Lloyd's Procedural Rules which govern the conduct of Lloyd's salvage arbitrations, will be incorporated into LOF 2000 by reference.

It is hoped therefore that LOF 2000 will be a more manageable document, and easier to read and understand. A conscious effort has been made to simplify the language of the contract by substituting plain English for phrases or expressions which may not have been readily intelligible to property owners and underwriters outside the UK, whose first language is not English. But it should not be thought that the changes which will be reflected in LOF 2000 are only cosmetic. Some years ago a Lloyd's Form Working Party was established, the membership of which includes numerous organisations in the shipping, insurance and legal communities regularly concerned with salvage claims under LOF. The new form has been drafted in consultation with the Working Party members and the issues of substance they have raised, have been addressed. They include the following:

1. Property liable for the payment of salvage

Traditionally, the personal effects and baggage belonging to passengers and the master and crew of a vessel have not been regarded in English law as liable to pay for salvage except perhaps for passengers' baggage stowed in the hold and not required on voyage. The International Salvage Convention 1989 may have altered English law in that regard, albeit unintentionally, but the Lloyds Form Working Party agreed that, for LOF purposes, such personal effects should be exempt from the payment of salvage and, furthermore, that this exemption should include any private motor vehicle accompanying a passenger, including its contents. An appropriate provision has therefore been included in LOF 2000.

2. Currency of award

For many years it has been possible for the parties to LOF to select the currency in which the salvage remuneration is payable, but LOF has provided that, if no specific currency of payment was agreed, the remuneration should be paid in pounds sterling.

However, it has become increasingly apparent in recent years that most users of LOF select United States dollars as the currency of payment. Additionally, ship values are invariably expressed in that currency which, more often than not, is also the currency in which cargoes are bought, sold and insured. In recognition of these factors, LOF 2000 provides that, if no alternative currency of payment is agreed, salvage remuneration will be payable in United States dollars.

3. The duty to co-operate

Clause 3 of LOF 1995 obliges the owners and master of a casualty to co-operate with salvors in certain respects. LOF 2000 extends the scope of that duty.

There have been many recent incidents involving fires on ships carrying containerised shipments of chemicals or other hazardous cargo. In such situations, it is essential that salvage personnel are provided with full information to ensure that the salvage operation is properly planned to avoid the dangers to human life, property and the environment which such cargoes may present. LOF 2000 therefore requires the owners and the master to provide the salvors with all information relevant to the performance of the services which is capable of being provided without undue difficulty or delay. This will of course include plans, stability data and similar information if it is relevant.

4. Rights of termination

Clause 4 of LOF 1995 gave shipowners a right to terminate LOF "when there is no longer any reasonable prospect of a useful result leading to a salvage award".

In LOF 2000, an equivalent right is conferred on the salvors who, previously, had no contractual right to terminate an LOF contract.

5. Deemed performance

On a similar topic, LOF 2000 includes a new provision which is designed to provide a practical solution to the difficulty in determining when salvage services can be treated as completed. Provided the salved property has been taken to the agreed place of safety, the salvors will be entitled to treat their services as having been performed if

1. they are not obliged to remain in attendance to satisfy the requirements of any port or harbour authority, governmental agency or similar authority; and
2. the continuation of skilled salvage services is no longer necessary to avoid the property becoming lost or significantly further damaged or delayed.

6. Scopic

In August 1999, an agreement made between the International Salvage Union and the International Group of P&I Clubs, known as the Scopic Clause, became available for use. Its purpose is to provide an alternative regime for the determination of claims for special compensation under Article 14 of the 1989 Salvage Convention which would otherwise be dealt with by arbitration under LOF.

Scopic is expressed to be supplemental to LOF but, since it was only introduced for a trial period, it was not considered appropriate to include more than a brief reference to it in LOF 2000. The box layout in the new form includes a facility enabling the parties to specify whether Scopic forms part of their agreement. LOF 2000 goes on to provide that, if the box is left blank, Scopic will not be regarded as incorporated into the contract.

The LSSA clauses

Most of the administrative and procedural provisions in LOF 1995 have been transferred into the incorporated LSSA clauses without significant change although, where possible, the language has been simplified. But the opportunity has been taken to make some improvements. For example:

1. The clauses emphasise the need to operate the LOF system in good faith and in a businesslike manner with a view to ensuring that claims are resolved fairly and efficiently at a reasonable cost.
2. The arrangements for paying salvage awards have been streamlined to improve efficiency, and Lloyd's will now have a duty to enforce salvage security if payment is delayed beyond 56 days after publication of an award. It is understood that a new standard form of salvage guarantee will also be introduced with the publication of LOF 2000.
3. Under Section 49 of the Arbitration Act 1996, arbitrators have the power to award compound interest on claims. The working party considered that, ordinarily, only simple interest should be awarded on LOF salvage claims. This is stated in LOF 2000 but the clause goes on to provide that an arbitrator may award compound interest if the proceedings have been delayed for an excessive period as a result of 'gross misconduct' on the part of the property owners or "in other exceptional circumstances".
4. Clause 18 of LOF 1995, which deals with the position of subcontractors, has been substantially redrafted to ensure that the claims of all persons engaged by the LOF contractor are dealt with under the LOF, thus providing greater certainty and protection to the property interests.

Lloyd's procedural rules

The Lloyd's procedural rules were introduced in 1990 to provide a standard procedure for dealing with claims under LOF. They have been altered piecemeal on several occasions in the last ten years but, in the latest revision, the rules have been restructured to make them easier to understand. Also, in line with recent changes to court procedures, the new rules give arbitrators greater powers to control proceedings, including, for example, the power to place limitations on expert evidence to contain costs.

Much credit for these reforms is due to the late Geoffrey Brice, QC who was responsible for the initial proposals. Unhappily he did not live to see his ideas come to fruition.

Geoffrey Brice QC

LLOYD'S Open Form of Salvage Agreement 2000 will be Geoffrey Brice's legacy to the salvage industry he served so assiduously over the last several decades. He thought the old form, notwithstanding the steady modernisation it had undergone in its last three revisions over fifteen years, was not sufficiently user-friendly. He was thinking, in his practical way, of the ships' officers and shipowners for whom English was not their mother tongue, and who would struggle to comprehend the many complex clauses of the standard agreement.

It was typical of Geoffrey that he volunteered his own unpaid spare time to an entirely new format for the contract, based on a box-form layout with attached simplified clauses. This initiative was happily taken up by Lloyd's, and Geoffrey was part of the drafting team which was finalising his work into the new LOF 2000 at the time of his untimely death in November 1999.

Geoffrey practised before both the Commercial and Admiralty Bars, and was at his best when his practical knowledge of shipping was used in conjunction with his probing legal analysis. He possessed that rare quality amongst lawyers - he was an innovator. It was Geoffrey who "created" the Mareva injunction, a landmark in English legal procedure, when he appeared together with Michael Howard before Lord Denning and two other Court of Appeal judges, in NYK v Karageorgis (1975 2UR 137), and asked for and obtained this novel remedy.

Geoffrey was the user-friendliest Lloyd's Form arbitrator, and would have been the next Lloyd's-appointed appeal arbitrator. His solicitor clients and the salvors and shipping people who knew him well will miss his innovative, lively mind, his enthusiasm for the law and for the salvage industry and, above all, for his approachability and friendliness to young and old alike.