How SCOPIC is used under LOF
15th March 2022
Regular columnist Simon Tatham explains the process, benefits and pitfalls of invoking SCOPIC in salvage
Salvage situations develop quickly, calling for rapid decision making by the parties involved. For the opportunist, occasional salvor and a shipowner faced with its first salvage dilemma, they with probably not have experience of Lloyd’s Open Form (LOF) salvage let alone SCOPIC.
They will be questioning whether they should or should not agree to have SCOPIC included in the agreement if LOF is to be signed.
SCOPIC (short for Special Compensation P&I Clause) is an optional supplement to LOF. It was introduced in 1999 and is now a well-established means of remunerating salvors when there is insufficient value in salved property to ensure a conventional salvage award. LOF is a simple contract format containing only a few boxes to complete. One of these asks, “Is the SCOPIC clause incorporated into this agreement? State alternative: Yes/No.”
The first point to note is that SCOPIC was introduced to enable parties to contract out of the problematic special compensation provisions of article 14 of the Salvage Convention of 1989. It is therefore desirable in every case to have SCOPIC incorporated and most salvors will insist on this.
It then sits dormant until notice is given by the contractor that SCOPIC is invoked.
Professional contractors will have experience of past SCOPIC cases, but from the perspective of other potential salvors it may not be immediately clear what advantages it brings and with it, what pitfalls.
Assume a tug in heavy weather is speeding towards a 2017-built, 4,000-gt, fully laden, ungeared bulker, which is without engines and drifting towards a sandy shoreline.
The tug should make connection well before grounding becomes imminent and towage will be a couple of days to a port of refuge.
The owners recognise the dangers and are willing to agree LOF, and there are no other tugs in the area to compete. The value of the ship and cargo on a quick assessment is likely to be around US$5-6M.
In this scenario it will be unnecessary, strictly speaking, either to incorporate SCOPIC or for the contractor to consider invoking SCOPIC. The salvor is unlikely to go unrewarded for his work.
However, if the connection cannot be made and the vessel runs heavily aground, the unfolding situation may prove very different.
A professional salvage master will need to be engaged along with a naval architect, and a salvage plan for a lightening operation involving a crane barge and second hull will be required with associated tugs, personnel and equipment.
Assuming it is successfully refloated, weather and authorities permitting, the ship may need to be inspected and repaired in a distant drydock before cargo can be reloaded.
If bottom damage is extensive, the salved fund might be looking marginal, perhaps US$3M, and if cargo is wetted through ingress, even less.
In this light, the contractor will now struggle after expenses to realise any net reward. In the worst case it may be weeks before it becomes apparent that the value of the vessel and cargo will be less than the expense of salvage and it may prove impossible to obtain security for the claim. This could represent financial disaster for a salvor.
It follows that the cautious salvor, obliged to continue to use ’best endeavours’ to salve, will closely monitor the situation over the first few days.
Schedule A to SCOPIC sets out agreed tariff rates for tugs and a wide range of equipment and the meter starts running for craft, equipment and personnel only from the moment of invocation.
On top of that, the salvor is entitled to a standard bonus of 25%. Invocation gives rise to a right to initial security of US$3M, and the exposure is covered by the vessel’s P&I.
The contractor remains in control but will now have to accept the presence on site of a special casualty representative (SCR) who will need to be consulted and who will observe and report daily on the salvage operation.
The contractor will need to provide the SCR with a daily report and a working spreadsheet itemising all the assets being employed and the SCR can challenge these day by day if considered unreasonable.
In short, shoreside and onsite administration of the LOF operation becomes an urgent necessity. However, the advantage from the contractor’s standpoint is that, if accepted, there is no question of an arbitrator having to assess the SCOPIC remuneration and there are also provisions for prompt payment.
From the shipowner’s perspective when asked to agree that SCOPIC be incorporated, there is little downside to this.
It will ensure, if all goes wrong, that the salvor remains incentivised to complete the operation and minimise the environmental threat and engages P&I insurers in covering the cost.
Moreover, it can in limited circumstances be terminated independently to the LOF. Despite SCOPIC running, property underwriters still have to contribute a conventionally assessed salvage award, P&I in practice making up the payment ’on top’ to the level of the agreed SCOPIC remuneration.
Finally, to discourage a contractor from invoking SCOPIC unnecessarily (ie in cases where the fund is adequate to allow for a proper salvage award without the need for any SCOPIC payment), a penalty applies to reduce his salvage award by 25% of the difference between the final SCOPIC tariff figure and the salvage award.