LOF Salvage Contract in Practice

By Joanna Waterfall

BDM Seminar

15 March 2012

• Look at the LOF Contract in practice

• By reference to the “RENA”

– What is salvage?

– Overview of Incident

– Brief photo review the salvage operation

• Look at procedure

• Explain how the salvage reward will be determined

– Review Article 13 of the Salvage Convention

– SCOPIC

• Who will pay?

Aims Today

What is Salvage?• A service to save maritime property

• Payment for this service

• Without a salvage contract salvors must prove

– Volunteers

– Success – partial or full

– Element of danger – not imminent

– At sea or in tidal waters or any waters whatsoever*

• LOF is contractual

• Salvage (and agreement to pay) is admitted

• Assessment by Art. 13 Salvage Convention 1989

Key Features of Salvage

• Requires

• water

• “No cure No

Pay”

• Reward not to

exceed value

• Reward fixed

• by agreement

• assessed at

Arbitration

• English Law

The RENA grounding

• 47,230 dwt

• 1,368 containers

• 1,700m/t HFO

• 200m/t MDO

• Grounded at 17 knots

• 4 October 2011…

• Astrolabe Reef, NZ

• LOF 2011 agreed

• Svitzer BV

• SCOPIC invoked

• Note the remote location

The Implications of SCOPIC being invoked

• Special Compensation P&I Club Clause

• Reward

• By reference to Article 13 criteria

• By reference to agreed tariff rates

• Property u/w pay Art. 13 award

• Club pay any SCOPIC expenses over Art. 13 award

• No salved property - Club pay in full

• If Art. 13 exceeds SCOPIC expenses

• P&I Club don’t pay anything

• Salvors award reduced by 25% of the difference

The Salvage Service in pictures

The Salvage Service in pictures

What happens next?

• Salvage security

• Arbitrator must be

appointed within 2 years

• Negotiations for early

settlement -or

• Arbitration

• Unlikely due to costs

• Classic case for LOF 2011

• Amendment which relate to

laden container vessels

Salvage Security• Art. 13 - usually demand made post termination

• Rena demand made early to enable cargo to go forward

• Provided by property owners/insurers

• Must be provided within 21 days of termination

• SCOPIC security

• Amount of USD3million

• Provided by the vessel’s P&I Club

• Within 2 days of contract being invoked

• Can be increased post termination

• No security – claim can be made under Article 14

• Notice to be given

• 1989 International

Convention on Salvage

• Article 13

• 10 criteria all relevant

• Underlying concept of

encouraging salvage

operations

• Reward must not be out of

proportion to the services

• Must reflect the benefit

conferred

Assessment of Salvage

• Only what is salved by

salvors!

• Values from RENA modest

• Bunkers, cargo & containers

• Including freight

• No ship value

• The higher the fund the

higher the likely Award

(a) The Salved Fund

• Clause B of LOF 2011

– salvors to “use their

best endeavours to

prevent…”

• Removed bunkers

• Clean up not covered

• Conferred benefit on

P&I Club

– paid by property

underwriters

(b) Preventing or minimising damage to environment

(c) The Measure of Success

(d) Nature and Degree of Danger

• Assess Benefit conferred

and have regard to

• Nature

• Degree

• No risk of imminent loss

• Physical dangers

increase award

• Alternative Assistance

• Other salvors offering

assistance

(e) The skill and the efforts of the salvor in

salving the vessel, other property and life

• The greater the range

of skill, the more

arduous the effort, the

more meritorious the

service

• Bunker removal

• Container discharge

• Tagging containers

• Naval architecture

• Considerable dangers

facing those on board

(f) Time used and expenses & losses incurred

by the salvors

• Essential to have regard to this

• Failure to do so may lead to a discouraging award

• Does not follow the award will be equal to or more

than expenses

• In the case of the RENA the expenses will far

exceed value of property saved

• These are not SCOPIC expenses

(g) The risk of liability and other risks

run by salvors or their equipment

• Salvors may

incur liability

• Risks to salvor’s

craft, equipment

and personnel

• RENA extremely

dangerous

(h) Promptness of services rendered

• Immediateness of

response is

encouraged

• Always rewarded

• Removes dangers

facing the property

sooner

• Speculation – more

meritorious and further

enhancement

(i) The availability and use of vessels or other equipment

intended for salvage operations

(j) The state of readiness of efficiency of the salvors’

equipment and value thereof

• Hallmark of professional salvors

• Investment in salvage

• Maintain tugs on salvage station

• Idle time can be expensive

• Three or four companies worldwide could do this

• Significant benefit to maritime community

• Large funds reward and encourage this investment

• If own craft used it enhances the award

Key aspects

• Required professional salvage assistance

• Prompt response

• Ability to provide comfort to the local authorities

• Ever increasing risk of total loss

• Six month service

• Valuable property salved, would otherwise have

been lost

• High profile

• Worthy of generous award

• Award will not cover the expenses

Awards in excess of 50%

• On increase since SCOPIC

• Guidance from Lloyd’s

Arbitrators – requires one of

the following:

• Imminent and/or significant

danger

• Lengthy and difficult services

• Extensive expenses (OOPs)

• Low salved values

• “RENA” ticks 3 out of 4

boxes

The end game….

• Wreck removal

• Much of the cargo has

been abandoned

• Salvage sales necessary

• Individual settlements

• LOF 2011 will enable

salvors to avoid having to

go to Arbitration

• The clean up continues…

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© SHW+Partners 2012