Authors Ian Teare, Peter Glover
On 9 May 2011 Lloyd’s launched the latest version of the long standing and internationally recognised Lloyd’s Open Form of Salvage Agreement. The new LOF will be known as LOF2011.
Whilst there have been a few minor amendments in the layout of the form itself, the material changes are the addition of two new “Important Notices” provisions, together with changes to the accompanying LSSA clauses.
Set out below are a number of the key changes to the LOF Form itself and the accompanying Lloyds Standard Salvage and Arbitration (LSSA) Clauses which concern both owners and underwriters.
LOF 2011 - Important Notices
3. Awards. The Council of Lloyd’s is entitled to make available the Award, Appeal Award and Reasons on www.lloydsagency.com (the website) subject to the conditions set out in Clause 12 of the LSSA Clauses.
Salvage awards made pursuant to LOF2011 will now be made available on the Lloyd’s website. Traditionally, LOF awards have been confidential and confined to the parties involved. Confidentiality, of course, being a feature common to most, if not all, arbitration regimes. For commercial reasons, usually associated with the sensitivity of the information the subject of the dispute, many parties prefer arbitration over court proceedings as a means of avoiding making such information public.
No doubt different parties to salvage agreements will have differing views as to the merit or otherwise in keeping salvage arbitration awards confidential. One can envisage scenarios such as Article 14 claims, which usually involve the analysis of commercially sensitive accounting information, which salvors may prefer to keep confidential. However, the present thought is that open disclosure of awards will assist the market as a whole in using the Form by giving the market insight into how LOF Arbitrators approach matters of principle and, of particular interest and benefit, disclosure of the quantum of awards together with the factual matrix which will enable third parties to reach a more informed view of their own cases when considering, for example, settlement proposals.
To accommodate concerns relating to public disclosure, there is a provision within the LSSA clauses for any party to apply to the LOF Arbitrator for an order to defer or withhold such information, but they will need to provide good reasons in support of any application. The default position, therefore, is that the awards will be disclosed (see below for further comment on the procedure).
4. Notification to Lloyd’s. The Contractors shall within 14 days of their engagement to render services under this agreement notify the Council of Lloyd’s of their engagement and forward the signed agreement or a true copy thereof to the Council as soon as possible. The Council will not charge for such notification.
As a matter of industry practice, salvors have traditionally not given notice to Lloyd’s in respect of the performance of salvage services under a LOF contract. This is largely due to the ability, in most cases, for salvors and salved interests to arrive quickly at an amicable settlement and therefore avoid the need of the Lloyd’s Salvage Arbitration Branch (SAB) and the LOF arbitration system. Consequently, it has become very difficult to gauge the actual level of use of the LOF, and salvors are now under a requirement to report to Lloyd’s all LOFs within 14 days of their engagement.
Security for Arbitrator’s and appeal Arbitrator’s Fees
6.6 The Arbitrator shall be entitled to satisfactory security for his reasonable fees and expenses, whether such fees and expenses have been incurred already or are reasonably anticipated. The Arbitrator shall have the power to order one or more of the parties to provide security in a sum or sums and in a form to be determined by the Arbitrator. The said power may be exercised from time to time as the Arbitrator considers appropriate.
10.8 The Appeal Arbitrator shall be entitled to satisfactory security for his reasonable fees and expenses, whether such fees and expenses have been incurred already or are reasonably anticipated. The Appeal Arbitrator shall have the power to order one or more of the parties to provide such security in a sum or sums and in a form to be determined by the Appeal Arbitrator. The said power may be exercised from time to time as the Appeal Arbitrator considers appropriate.
Under clauses 6.6 and 10.8, Arbitrators are entitled to order security from time to time for their reasonable fees and expenses, whether such fees and expenses have been incurred already or are reasonably anticipated. This change has been brought about largely due to the increasing concern on the part of Arbitrators as to the potential for the non-payment of their fees. Prior to the introduction of rule 6.6, any party requesting the appointment of an Arbitrator would be required to give an undertaking as to the Arbitrator’s appointment fee only. Clause 6.6 is much wider than this and allows security to be ordered against all reasonable fees and expenses.
It is also important to note that any order for such security may be made by the arbitrator to one or more of the parties to the LOF contract at the Arbitrator’s discretion: salvors, shipowners, cargo or container interests.
Availability of Award, Appeal Award and Reasons
Clause 12 sets out the conditions whereby the award, appeal award and reasons for the same will be published on the Lloyd’s website (www.lloydsagency.com). Under LOF2011 both the award and the reasons for that award will be published on the website no later than 21 days after the date on which the award or appeal award is published by the Council unless any party makes a representation to the Arbitrator within 21 days of the award being published and made available to the parties that the award remain private and confidential. Thereafter the party must submit in writing to the Arbitrator within a further 21 days the reasons for requesting the withholding of the award and reasons from publication.
In the event of an appeal being entered against an award, the award and the reasons shall not be made available on the Lloyd’s website until the Appeal Arbitrator has issued his appeal award, the notice of appeal is withdrawn or an order as set out above is made.
Container Vessel Clauses
Clauses 13, 14 and 15 only apply to salved cargo insofar as it consists of laden containers. These changes originate out of concerns that the costs incurred in the collection of salvage security from low value cargo interests in cases involving container (i.e. multi-bill of lading) vessels were disproportionate to their proportion of any salvage award or settlement. A brief analysis of each of the clauses is set out below.
13. The parties agree that any correspondence or notices in respect of salved property which is not the subject of representation in accordance with Clause 7 of these Rules may be sent to the party or parties who have provided salvage security in respect of that property and that this shall be deemed to constitute proper notification to the owners of such property.
Clause 13 specifically refers to Important Notice No. 1 of the LOF2011 form, which required notices to be given to the owners of the salved property, which in many container ships may amount to several thousand notices. The new clause 13 permits the SAB, or the salvors, or their appointed representatives or agent to send any appropriate notices to the party (in most cases this will usually be the cargo insurers) that has provided the salvage security. Irrespective of which side ultimately ends up being liable for the costs of the arbitration, this costs saving measure must be regarded as a positive step forward in the LOF system.
Of course if a party has appointed a representative ordinarily resident in the United Kingdom under clause 7 (a Clause 7 notice), clause 13 will not apply to that party. Any appointment under clause 7 must be in writing.
14. Subject to the express approval of the Arbitrator, where an agreement is reached between the Contractors and the owners of salved cargo comprising at least 75 per cent by value of salved cargo represented in accordance with Clause 7 of these Rules, the same agreement shall be binding on the owners of all salved cargo who were not represented at the time of the said approval.
Clause 14 provides that where an agreement has been reached between the salvors and the owners of the salved property, which must comprise a minimum of 75 per cent (by value) of the salved cargo, and with the Arbitrator’s express approval, the agreement can be made binding on the owners of all of the salved cargo who were not represented at the time of giving of the Arbitrator’s approval.
One of the problems facing salvors in a multi bill of lading salvage case is how to deal with the legally unrepresented cargo interests when seeking to secure a settlement with the other respondent interests. In such a scenario, the unrepresented cargo interests could amount to a significant proportion of the salved fund and in order to make a recovery from them the salvors would have to proceed to an arbitration notwithstanding that they had settled with the ship owner and those cargo interests who had been legally represented. The logic of this amendment from a costs savings point of view is plain to see. That said, one can see potential for interesting cases to develop. For example, if there is damaged cargo within the represented and unrepresented cargo groups and it is borderline as to whether the 75 per cent threshold has been reached then the Arbitrator will have to look very closely at the evidence as to values in order to be satisfied that he can make the Order envisaged by the new clause.
15. Subject to the express approval of the Arbitrator, any salved cargo with a value below an agreed figure may be omitted from the salved fund and excused from liability for salvage where the cost of including such cargo in the process is likely to be disproportionate to its liability for salvage.
Clause 15 operates to permit salved cargo with a value below an agreed figure to be omitted from the salved fund and excused from liability for salvage where the cost of including such cargo is likely to be disproportionate to any award or settlement. One can see potential for argument on this amendment as there is presently no guidance as to what constitutes salved cargo with a low value. It remains to be seen, therefore, how this amendment will be deployed but it is anticipated that for cargo interests to be excused the emphasis will have to be very much on the combination of low value and difficulty in enforcing any award. Equally, it is anticipated that, to be excluded, cargo interests will have to be a very small proportion of the fund indeed.