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Lloyd’s Open Form – fact and fiction

Lloyds Open Form (LOF) 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 salvors go about their business – meeting ship owners, members of the insurance community and lawyers, it is not uncommon to hear people expressing 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 is committed to making the effort to explain LOF’s features and benefits.

Of course salvors have an interest to declare as one of the key objectives of the International Salvage Union is to ensure that Lloyd’s Form remains relevant and popular. That is because, from the salvors’ point of view, it can facilitate swift intervention in a developing casualty situation. The long experience of ISU members shows that delaying the involvement of professional salvors, particularly at the outset, 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 Form. They argue that the ease with which the casualty’s Master can take advice from shore-based colleagues means that other forms of contract agreed by commercial negotiation should be used. In fact 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 the other factors, in order to make the decision as to whether salvage assistance needs to be immediately engaged. LOF is a simple contract form with no up-front “issues” 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 simply not true. The Salvage Master assumes responsibility for the salvage operation but the Master will always remain in command of his vessel. It is also sometimes thought that when a vessel has been abandoned the salvor can claim ownership of the casualty vessel – again that is not true. Even when a vessel has been abandoned, the ownership of the ship and its cargo remains with the shipowners and the cargo interests.

Lloyd’s Form is not an open cheque for the salvor. True, the salvor’s charges are not agreed “upfront,” but most LOF cases are settled by negotiation between the salvor and the shipowner, cargo interests and their insurers once the job is completed. 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 Arbitrators decision, there is an appeal procedure. Recourse to litigation under English law in the High Court, following an Appeal Award, is very 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. That capability can only be provided by the private salvage industry.

Lloyd’s Form helps to ensure the continuance of that salvage capability by offering quality, integrity, experience, transparency and fairness to all the parties involved in a casualty situation – and thereby encouraging salvors to continue making the necessary investment to salve maritime property and whilst doing so, protecting the environment. ISU therefore hopes readers will appreciate the benefits of this unique and durable salvage contract.