Robert Wallis

The P & I Clubs’ dissatisfaction with Article 14 of LOF 95 has led to various alternatives being proposed and discussed, mainly between the International Group of P & I Clubs ("IG") and the International Salvage Union ("ISU"). A Working Party has also been formed to represent London Property Underwriters who have had some (but not as much) input in these discussions. The latest proposals to emerge follow the ISU Annual General Meeting held on 18^th March 1998 in London which has recommended the adoption of a Special Compensation P & I Club ("SCOPIC") clause, which is a variation on an earlier proposal "Salvage 2000" based on a tariff system. A Code of Practice between the ISU and the IG concerning the provision of security by the IG is also proposed.

The main point of dispute is that the Clubs will not guarantee to give a Guarantee so far as security for Special Compensation is concerned. This is not resolved by the SCOPIC clause or the Code of Practice. It has been common ground that a simple method of calculating the "fair rate" in Special Compensation is required. This would be resolved by the SCOPIC clause.

The essential features are :-

1. It is an agreement between the salvor and the shipowner, not between the salvor and the Clubs.

2. The contractor must be a member of the ISU and the vessel must be entered with a member of the International Group of P & I Clubs.

3. The contractor has the option to invoke the Special Compensation provisions at any time of his choosing, regardless of the circumstances and regardless of whether or not there is a threat of damage to the environment.

4. The SCOPIC clause would be an addendum to Lloyd’s form and if invoked, Special Compensation is assessed as per the SCOPIC clause and not Article 14 of LOF.

5. Guarantee for Special Compensation - The shipowner is to provide a Bank guarantee or P & I Club letter for US$3 million within two working days of the clause being invoked. There are provisions for reduction or increase of this security at termination of services, to be resolved by the Arbitrator if not agreed.

6. Withdrawal - If the guarantee is not provided within 2 working days, the contractor can withdraw from the provisions invoked by the SCOPIC clause and rely on the normal Special Compensation provisions of Article 14.

7. Tariff rates - There will be a tariff rate for personnel and equipment other than tugs. That tariff will be reviewed by a Committee from time to time.

The rate for tugs will be based on US$2 per day x BHP of the tug, plus fuel and lubes or US$3 x BHP of the tug up to 5,000 BHP and US$1.5 for every BHP thereafter, plus fuel and lubes (which of these rates is still to be agreed).

8. Out of pocket expenses - These will be agreed at cost, subject to two provisos:-

(i) If expenses relate to hire of men, tugs and/or equipment from another ISU member or their affiliates, the amount due is calculated on the tariff rates regardless of actual cost.

(ii) If men, tugs and/or equipment is hired from any other party, not an ISU member and hire is greater than the tariff rates, actual cost will be allowed in full, subject to shipowners’ casualty representative ("SCR") being satisfied that the costs were reasonable. If no SCR, or a dispute, the Arbitrator to decide whether expense was reasonable.

9. Bonus - Contractors are entitled to a standard bonus of 25% of tariff rates, except for "out of pockets" paid to non-ISU members so far as they exceed the ISU rates.

Relationship with Article 13

10. Salvage Services are assessed in the traditional manner in accordance with Article 13, even if the contractor has invoked the SCOPIC provisions. Special Compensation is payable only to the extent that it exceeds the Article 13 Award, even if the latter is not recovered.

11. Discount - If the SCOPIC provisions are invoked but no part becomes payable because the Article 13 Award exceeds it, the Article 13 Award will be discounted by 25% to the extent it exceeds assessment of Special Compensation.

However, in the event the contractor invokes special compensation during the course of the services and the Article 13 Award is less than the special compensation which would have been payable if the provision had been invoked at the commencement of the services, the discount will not apply.

12. There are provisions for prompt payment of Special Compensation on presentation of the claim and provision for interest.

13. Termination - The owners of the vessel can terminate where there is no longer any reasonable prospect of a useful result leading to a Salvage Award under Article 13. The contractor can also terminate if the total cost to the contractor from the beginning of the service to date of termination exceeds the value of the property capable of being salved, after taking into account any amount to which he would be entitled as Special Compensation.

14. Duties of the contractor - The duties and liabilities of the contractor remain the same as under LOF ’95, i.e. to use their best endeavours to salve the vessel and property and in doing so, to prevent or minimise damage to the environment.

15. Shipowners Casualty Representative ("SCR") - The shipowner may at his sole option, at any time, appoint an SCR to attend the salvage operation. The SCR is selected from a panel approved by a committee made up of representatives appointed by London Property Underwriters, the IG, the International Chamber of Shipping and the ISU. However, the Salvage Master at all times remains in overall charge of the operation. A salvage plan shall be presented by the Salvage Master and discussed with the SCR. The Salvage Master must make daily reports on the progress of the operation and any change in the salvage plan.

In addition to the SCOPIC clause, a Code of Practice is proposed between the ISU and the IG. This concerns the provision of a Club letter as security for Special Compensation claims but the provision of such a letter is not automatic. Furthermore, this Code of Practice is not intended to have any legal effect!

Article 14 of the Salvage Convention is still to remain in LOF.

Mr Geoffrey Brice Q.C. has also prepared a new draft Lloyd’s Form for discussion at the request of the Council of Lloyd’s. This draft is to simplify the contract, introduces a new format and does have some new clauses. These are :-

(a) Good Faith Clause : To demonstrate that the Form is not intended to work in anything other than a businesslike way and at a reasonable cost.

(b) Fair Rate Clause : To lessen the costs of establishing "fair rate" in Special Compensation cases, by allowing reference to recognised tariff rates.

(c) Contractors Right to Terminate Under Clause 4(b) : To resolve cases where, at great expense and inconvenience, a salvor is tied up when the services required are no longer more than those of a commercial nature.

(d) Cargo Security - Clause 5(d) : Extends the present obligation on shipowners to assist in obtaining security not only from cargo owners but also from container and bunker owners.

(e) Place of Arbitration - Clause 8(c) : Gives the parties a discretion to agree a place of arbitration outside London if the Council of Lloyd’s agree, on a case by case basis.

There is provision for Consent Awards under Clause 9(c).

There are also new procedural rules intended to focus attention on key documents and to limit costs. There is also provision for "documents only" arbitration.

The Council of Lloyd’s is content at present to hold Geoffrey Brice’s revised Lloyd’s Form in abeyance, pending resolution of the discussions between ISU, the P & I Clubs and Property Underwriters. They accept that there is a need for a user-friendly form, market generated and intend to await the outcome of the latest initiative to agree the SCOPIC clauses. This will require further consultation with Property Underwriters. If they can be agreed, the final proposals will be incorporated into a new Lloyd’s Form, hopefully in 1998.