LSLC WEBINAR – ADMIRALTY ALERTS – 15th July 2021
Lloyd’s decision to continue operating the Lloyd’s Salvage Arbitration Branch, which oversees the Lloyd’s Open Form salvage contract and procedures, has been widely endorsed by the maritime industry. The Corporation acknowledged the “high volume of representation of support of LSAB and LOF and “is now determined to increase the use of the form and highlight the benefits that its use can bring.” Accordingly, a working party is planned to accomplish this.
The decision was announced just days) after a webinar, staged in mid-July by the London Shipping Law Centre and 36 Stone, in which three maritime lawyers pleaded strongly for retention.
Barristers Vasanti Selvaratnam QC of 36 Stone and Richard Sarll of 7 King’s Bench Walk and Richard Gunn, partner at Reed Smith were deeply concerned about the rising costs, legal inconsistencies, salvage delays and environmental damage likely to ensue from the discontinuation of LSAB and the spread of alternative casualty forms to LOF.
Vasanti Selvaratnam commented: “I would like to think that our debate may have contributed to this desirable outcome.”
The event, entitled ‘Admiralty Alerts,’ was part of LSLC’s global webinar series. Over 140 attendees from around the world were reminded that LOF has “a global footprint from the Philippines to Philadelphia.” Proceedings were chaired by Mr Justice Andrew Baker. During the session, he received an email from an attendee who ‘despaired of the position of masters at sea without being able to resort to LOF.’ Sir Andrew asked “what is to be done to restore the widespread use of LOF and to reverse any decline, given such apparent widespread support among the world shipping community?
Richard Gunn explained that Lloyds had been considering what to do about the future of the Lloyd’s Salvage Arbitration Branch, particularly since late May. “They may have seen LSAB as a somewhat anachronistic, essentially paper-based structure in a digital age.”
Lloyd’s had sought input from the Lloyd’s Form Arbitrators group and from the Lloyd’s Salvage Group whose membership consisted of representatives from a host of international organisations with shipping business interests. The members had delivered written unanimity in support of LOF both individually and as a body to Lloyd’s. “They made it absolutely clear that it would be a disaster for the shipping community should it be withdrawn.”
Mr. Gunn asserted that support for LOF was based on much more than “inertia, conservatism and familiarity. There are vital dont’s: owners don’t want to lose their ships; clubs don’t want wrecks to handle; underwriters don’t want CTLs; and nobody wants pollution. There’s a fear, which I share, that absent LOFs, the consequences of casualties will be more severe.”
He reminded viewers that a casualty was so much more than just damage to ship and cargo. Although the insurance market within Lloyd’s was only about 10% marine, the ramifications of casualties were wider. In particular, pollution affected tourism, trade, the environment and wider wellbeing. “And all claims come back to reinsurance which is heavily in the London market. Everybody has an interest in a ship in difficulties being dealt with promptly, effectively and professionally at a fair price.”
As a Lloyd’s Open Forum Panel arbitrator, Vasanti Selvaratnam reminded the audience that LOF was the only globally accepted norm for a salvage contract.
“Lloyd’s Form was developed at the beginning of the last century following negotiations between the Committee of Lloyd’s and international salvage interests. It sought to balance the interests of marine underwriters at Lloyd’s and salvors. In my view and, I believe, all other panel arbitrators, no other salvage contract enables a vessel in an emergency to get the necessary salvage assistance promptly without delay being caused by haggling over the price.” Marine underwriters were acutely aware that delay could be extremely detrimental: damaging to the environment and increasing the risk of crew injury.
“Lloyd’s Salvage Arbitration Branch has a reputation for being impartial and trusted by all industry sectors. It would be very difficult to replicate that brand with another institution divorced from Lloyd’s.”
Richard Sarll agreed that there neither existed nor was there on the horizon a viable alternative to LOF and the system operating around it. While there had not been that many LOF cases in recent years, compared with past decades, “we need to create a groundswell of support for LOF, including among junior practitioners.”
Mr Gunn underlined the standing of LOF’s “global footprint from the Philippines to Philadelphia. When someone turns up brandishing an LOF, you know precisely what you’re getting into. This brings a level of certainty and comfort. With alternatives, the delay aspect is crucial, stemming from understanding what is on offer, negotiating and liaison with owners. This builds in issues and difficulties that give rise to more severe outcomes and, of course, a greater insurance burden.”
Alternatives to LOF included the Turkish form, perceived to be expensive, and the JSE form widely and successfully used in the Japan market. Local salvage was utilised for the Ever Given. “We know the settlement sum will be between US$150M and US$550M. We don’t know how much of this is attributed to salvage because the authorities have separate claims within these sums.”
The figure did not include the services of salvors Smit. He felt they all did a good job, refloating her quickly, albeit in very calm waters. It would have been very expensive if immediate refloating had failed and cranes had to be brought in to deal with the containers. However, if Lloyd’s Form had been used for the operation, “it is extremely unlikely that the awards would have been settled at these levels.”
It was open to all parties with an interest in a casualty to contract on whatever terms they could negotiate, continued Mr Gunn. However, owners needed to be very careful about the terms as there might be long term consequences, such as insufficient income to sustain a viable salvage industry. “It might come back to bite them.”
Mr Gunn said that while there had been a significant decline in the use of LOF, compared with 10 to15 years ago, the amount being spent on wreck contracts had increased. This reflected the existence, influence and resort by owners to SCOPIC rates. SCOPIC was designed to deal with Article 14 and arrive at a fair rate but was not supposed to be used outside LOF. However, its mere existence had enabled its use as a set of agreed terms and rates which made negotiating an alternative contract to LOF “quite easy.”
The downside with the spread of wreck contracts lay in owners using them to negotiate in situations “where they simply should not. Where LOF is the most appropriate contract, it should be used.” There was anecdotal and reported evidence of owners criticised for delays in obtaining a salvage contractor, thereby exacerbating casualties.
The International Group of P&I Clubs had commissioned an independent survey to identify why people were signing less LOFs than in the past. The Group had said they will share results with Lloyd’s Salvage Group. “Then we should understand more about the drivers behind people’s fear of LOF.”
Vasanti Selvaratnam said it was clear that the Salvage Arbitration Branch had to be self funding to avoid closure. Perhaps concern about financial viability had been a factor in Lloyd’s apparently not regarding the Branch’s work as core business. She urged arbitrators to continue spreading the word about the benefits of LSAB and LOF, especially among potential users. “Before lockdown, Lloyd’s were encouraging lawyers and arbitrators dealing with overseas cases to spread the message abroad about Lloyd’s Form, its attractions and ease of use.”
Richard Sarll regarded ‘transparency’ as essential. Currently, information about awards was only available to those subscribing to a database maintained by the Lloyd’s Arbitration Branch. “Let’s get the information out there so people can understand the workings of LOF and see how awards are assessed.” Vasanti Selvaratnam was strongly in favour of freely accessible awards.
Richard Gunn added: “LOF is the global standard which cements the industry in place and provides comfort and continuity. Nothing else does. It avoids a plethora of local forms. Uncertainty as to what’s being offered gives rise to delay because people are going to consult with their underwriters to ask what they mean and the underwriters may well need to take their own advice. If people aren’t sure about LOF content, they cannot compare it with non-LOF contractors’ clauses.”
If people felt LOF was expensive, continued Mr Gunn, they should fear the prospect of costlier services emanating from a spread of forms. “There is no reason to assume that a particular local jurisdiction, considering Article 13 with little experience of salvage, will award less than a contactor using LOF and an experienced arbitrator. “That is wishful, that is not thinking, building in greater uncertainty and leading to further decline of the salvage industry.” A beleaguered or fragmented salvage industry would be much more likely to lead to a greater increase in actual casualties and the risks of environmental damage.
Consultant – LSLC