LOF 2020: is this a vintage edition?

Lloyd’s has declared, like a good port, the new Lloyd’s Open Form 2020. It’s the 13th iteration of what is arguably the longest standing and most successful of marine services contracts.  Is this a vintage edition?

For sure, much work has been devoted by colleagues in the Salvage Working Group, in London, to bring the Form up to date. The essence of the changes reflects a drive towards simplification, streamlining of claims and procedure, clarification of rights and further protection of parties on all sides.

Structurally, whereas LOF comprised three sets of clauses and a key set of guidelines covering its low-cost procedure for smaller cases, now there are two: the LOF form itself and then simply a comprehensive set of Lloyd’s Salvage Arbitration Clauses 2020 (LSAC). But that is a matter of form rather than content.

As to content, Lloyd’s Form works well and so it is only to be expected that the changes are refinements rather than fundamental changes or additions. Fundamental changes came with the ‘safety net’ for tanker cases in 1980 and ultimately SCOPIC in 2000. That said, the current changes are important and address some of the issues that have arisen in practice and, by dealing with them, reduce further the scope for delay, unfairness and dissent.

The new LOF addresses a perceived problem for contractors, namely the restrictions facing them in terminating their obligations where there is no foreseeable prospect of success and therefore a reward.

This dilemma had been met to a great degree by the introduction of SCOPIC which, where this separate clause is incorporated and invoked, allows the contractor to recover his costs at agreed daily rates (which rates incidentally were updated on 1 January 2020), plus a bonus, secured by a P&I guarantee.

However, the issue that occasionally arose in practice has been that SCOPIC, as updated in 2018 and amended in this respect, affords owners and Clubs the ability to terminate leaving the salvor with an obligation to use best endeavours to continue a fruitless job under LOF, unable to exercise a corresponding right to terminate, if required to continue by the local authorities. Clubs might invoke the SCOPIC termination provisions for a number of reasons and while such situations do not arise every day, for example where it became apparent that the terms of insurance cover had been violated by owners, the financial exposure of salvors, with no prospect of a recovery, could be significant. Waving an arbitrator’s order in the face of belligerent local officials may not, of course, always solve the problem.

Now the contractor can resort to the arbitrator whose powers have been extended to make an order that they are not bound to continue under the LOF where he/she considers it fair and just to do so, taking into account the interests of all the parties (LSAC  6.2 (viii) and 19). This can then in turn be presented to the local authorities, clearing the way contractually for the salvor to demobilise.

The controversy of ‘side letters’ has raged for some five years, under which special terms have apparently been privately agreed outside the LOF between owners and contractors, potentially to the detriment of other stakeholders, typically cargo or P&I. Now there is an obligation to provide to Lloyd’s a copy of any agreement that amends or varies the LOF (LOF cl.4). There is no express sanction for failing to comply.

In container ship salvage cases it is inevitable that part of the cargo will be of low value, uninsured or unrepresented in the LOF arbitration. This creates a headache for the contractor. LOF therefore since 2011 has allowed very low value cargo to be left out of account, provided the arbitrator consents, and this has now been further refined to allow the arbitrator to set the applicable threshold (LSAC 14.2).

In recent years where a contractor has settled with more than 75 per cent of the container cargo by value, he has had the right to enforce similar terms upon unrepresented containerised cargo. That right has been curtailed somewhat, requiring him now to seek an award against unrepresented cargo while granting the arbitrator power to call for evidence of prior settlements and to take those into account in reaching his salvage award (LSAC 14). These provisions have now been extended to any type of cargo, not simply containerised cargo.

Relatedly, Lloyd’s and the arbitrators have always been scrupulous in requiring evidence that the owners of unrepresented cargo are given notice of steps being taken against them, and the provision that notice can be given to the guarantors for unrepresented cargo continues (LSAC 7.4).

Finally, the Fixed Costs Arbitration Procedure (FCAP) has been moved from a set of guidelines into LSAC at cl.15 and the thresholds have been increased. Previously US$1.5m, now this documents only procedure will potentially apply to cases where the salvage security demand reaches up to US$2m. It may also apply, at the arbitrator’s discretion, where security is yet higher where the factual issues are considered straightforward and physical dangers low.

As with a good wine, LOF boasts clarity, structure, balance, maturity and length. It may not be palatable in every case, and may come at a price exceeding commercial rates; however, it generally delivers. It benefits from being a contract that by its very nature can be agreed in an instant without negotiation. That is a rare thing today.

 Simon Tatham is a partner at Tatham & Co and founder member of the TugAdvise.com service. He has more than 30 years’ experience of shipping law.

Reproduced with kind permission of International Tug & OSV magazine.