New Lloyd’s Open Form is timely and practical
10th July 2011
The two most significant changes introduced by LOF 2011 relate to the publishing of awards and procedures to be followed in respect of salvage services provided to containerships.
THE Lloyd’s Salvage Arbitration Branch, the body responsible for administering the Lloyd’s Open Form of Salvage Agreement, has recently issued a new version of the form – LOF 2011.
The changes introduced by LOF 2011 are timely and practical. They provide another example of how the salvage industry, and LOF in particular, constantly adapts to the ever-changing world of shipping – often acting much more quickly and much more effectively than sometimes ineffectual governments and lawmakers.
Although the overall number of LOF cases was down in 2010from 122 in 2009, the use of LOF in the salvage industry continues to remain strong. In 2010, Lloyd’s reported that there were 111 new LOF cases referred to the LSAB. There were 16 awards made, with an average award of 14.4% of the salved values involved. Approximately 34% of cases were ultimately settled before any award was made.
Part of the success of LOF lies in its ability to adapt to the ever-changing challenges posed by modern-day shipping. The latest additions to the LOF system through LOF 2011 introduce a number of further useful changes. Some are relatively minor, including the right of arbitrators to obtain security for their fees from the parties, and the obligation on the parties to report to Lloyd’s the signing of the LOF form, this to allow Lloyd’s to better monitor the actual use of LOF in the industry. Such is the success of the form that many LOFs are agreed and signed, and a salvage award quickly agreed and settled without Lloyd’s ever becoming involved, or arbitration being commenced.
The two most significant changes introduced by LOF 2011 relate to the publishing of awards and the procedures to be followed in respect of salvage services provided to container vessels.
The publishing of awards represents an efforts by Lloyd’s to help make London salvage arbitration more transparent and, therefore, more acceptable to both salvors and property underwriters alike. Previously, awards were kept confidential. Now the awards, along with their underlying reasons, will routinely be made available via the Lloyd’s website 21 days after publication of the award, albeit on a subscription basis. The parties can apply to the arbitrator to prevent the publication of an award where there is “good reason” for withholding it. It is likely that such applications will relate to commercially sensitive information which a party wishes to keep confidential. There are also provisions for the publishing of an award to be postponed if it is in the process of being appealed.
So far as containerships are concerned, the LOF 2011 changes relate to the costs involved in dealing with ‘unrepresented’ cargo. The problems of salvage on large container vessels have been highlighted by the recent very large and very expensive cases of the Hyundai Fortune, APL Panama, Hanjin Pennsylvania and MSC Napoli. Modern container vessels are even larger than these examples, capable of carrying massive numbers of containers – in some cases over 15,000 boxes. This means that there can be thousands of different owners of the various packages of property involved. Each of these property owners is entitled to be involved in the arbitration process, and the salvor has separate duties to all of them.
Many of the cargo owners will take an active part in the salvage proceedings, appointing a representative in the UK, as provided for by the rules. However, many other cargo owners will not take an active part and will not appoint a representative, although, through their insurers, they will nevertheless often provide security to the salvors in order to obtain the early release of their cargo.
Prior to LOF 2011, in order for an award to be valid against unrepresented cargo owners, it was necessary for the salvor to have given each of them proper notice of the arbitration proceedings. In the case of a container vessel, the process of notifying the unrepresented cargo interests could be extremely costly. In practice, salvors often employ an average adjuster to carry out the notifications. However, under the new Clause 13 of the Lloyd’s Standard Salvage and Arbitration clauses (the LSSA clauses), salvors may now give valid notice of the arbitration proceedings to unrepresented parties through the entity providing the security (usually the cargo insurers). This will have the effect of greatly simplifying the notification procedure and reducing the costs involved.
Another problem for the salvor of a container vessel with unrepresented cargo interests involves the situation where a settlement agreement is reached between the salvor and the represented interests. The problem is that, without the agreement of the unrepresented interests, the salvor has little choice other than to proceed with the costly arbitration procedure and to obtain an award against the unrepresented interests. Now, however, subject to the approval of the arbitrator, Clause 14 of the new LSSA clauses allows an agreement reached with 75% (by value) of the represented cargo interests to bind the remaining unrepresented cargo interests. This then avoids the cost of proceeding through the full arbitration procedure.
Finally, subject to the approval of the arbitrator, Clause 15 of the LSSA clauses allows low-value salved cargo to be excused from liability for salvage where the cost of including it is likely to be disproportionate to the contribution involved.
This article appeared in Lloyd’s List in July 2011. For more information visit www.lloydslist.com