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Lloyd’s Standard Form of Salvage Agreement 2024…When the damsel is a vessel in distress…3 October 2024

The law of salvage, a concept unique to maritime law, was established by decisions of the UK Admiralty Court in the 18th and 19th centuries. The Lloyd’s Open Form (“LOF”), which has been in use since 1908, “provides a regime for determining the amount of remuneration to be awarded to salvors for their services in saving property at sea and minimising or preventing damage to the environment”.

It is probably the most widely used salvage contract globally and without doubt one of the attributes that contributes to its success has been its ability to evolve and adapt. On 1 June 2024, an updated and amended edition (13th version) (“LOF 2024”) was launched by the Lloyds Salvage Arbitration Branch (“LSAB”), together with amended Lloyds Salvage Arbitration Clauses (“LSAC 2024”). Some of the key amended clauses are:

"It is probably the most widely used salvage contract globally and without doubt one of the attributes that contributes to its success has been its ability to evolve and adapt."

  1. Clause 6 (Arbitrator’s Powers): This seeks to (i) remove the power of the arbitrator to admit oral/documentary evidence as they may think fit; and (ii) include the power to conduct meetings by video conference (6.2(v)). Notwithstanding (i), arbitrators retain the wider power to conduct the arbitration in such a matter in all respects as they may think fit (6.2(i));
  2. Clause 7 (Representation Parties): Traditionally parties had to be represented by a lawyer or agent “ordinarily resident in the United Kingdom”, however the revised clause 7 has removed this requirement. The effect of this will no doubt be that lawyers not qualified in England and Wales will be able to represent their clients in salvage arbitrations if they so choose;
  3. Clause 10 (The Oral Hearing Procedure): An award following an oral hearing will be published within “a reasonable” time as opposed to “from one month from the conclusion of the hearing”; and
  4. Clause 11 (Appeals and Cross Appeals): Amendments have been made to the appeals and cross appeals clause to deal with an appeal in a FTDO arbitration (discussed below). Details of the procedure are set out in clauses 11.9-11.16.
  5. Important Notice 4: The wording “The Council will not charge for such notification” has been deleted from the LOF as Lloyds had recently revised their fee structure by introducing a management fee for each case (aside from, and in addition to, the hourly rate charged). The management fee is charged at 0.025% of the total salved value involved and covers administrative costs incurred by Lloyds – with a minimum fee of £1,000 and a maximum fee of £10,000.

Critically however, LOF 2024 and LSAC 2024 introduce two significant changes:

  • the sharing of previously confidential settlement data with Lloyds; and
  • the introduction of the new fast track documents only procedure (“FTDO”).

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"The new FTDO procedure will apply to all arbitrations where the security demand is US$10m or less."

Sharing of Confidential Settlement Data

LOF 2024 now contains a proviso that requires contractors and property owners to provide Lloyds with key information (Important Notice 5 and clause 15.2). The data should be provided as soon as practicable after completion of salvage services and in any event within 60 days of termination of the services in respect of (i) and (ii) below and 60 days of conclusion of a settlement in respect of (iii) below. The information required is:

  1. ESG data: A completed ESG data collection form (including details of amounts of bunkers, crude oil, refined oil products, chemicals and hazardous substances, dirty/hazardous bulk and/or benign bulk and containers salved and the potential social impact averted);
  2. Salved Values Data: Details of the amount and currency of the property salved. If this has not been agreed/confirmed, estimates are to be provided and later updated; and
  3. Settlement Data: Details of the amount, currency and apportionment of the settlement (by way of percentages) as between all applicable property interests and the date of settlement with the last remaining party.

This information will be kept confidential by Lloyds and the intention is for the Council of Lloyds to publish on an annual basis the above data collected, aggregated and anonymised.

FTDO Arbitration Procedure

The FTDO procedure is the most important change to the arbitration procedure and is set out in clauses 8 and 9 of LSAC 2024. It replaces the old FCAP procedure that was set out in clause 15 of LOF 2020. The new FTDO procedure will apply to all arbitrations where the security demand is US$10m or less (subject to the arbitrator’s discretion). The FTDO procedure will not be appropriate for cases where the arbitrator considers that an oral hearing is required. This may include cases involving allegations of bad faith or criticism of the contractors, as well as those cases involving complex factual or expert issues. Cases where the security demand is more than US$10 m shall be dealt with by way of an oral hearing unless the arbitrator orders that it should be dealt with under the FTDO. Any party contesting the applicability or not of the FTDO should raise this with the arbitrator at the preliminary meeting.

Clause 9 sets out in detail the FTDO procedure and includes provisions as to the documents and statements that need to be provided, the submissions, award, and costs and fees. There are page limitations on the disclosure and word limitations on the submissions set out in clause 9.2. An arbitrator will send the award and reasons to the LSAB for publication as soon as reasonably practicable. The FTDO fees are currently capped at £30,000 for an arbitrator, £2000 for LSAB (plus the LOF management fee) and £75,000 in terms of party and party costs.

Conclusion

The introduction of the data sharing requirement will have a significant impact on LOF 2024 users as it will undoubtedly offer more transparency to property interests and their insurers, hopefully encouraging more users of the contract long-term. The new FTDO procedure seems more sensible than the previous fixed costs procedure both in terms of the volume of cases that will realistically be heard under this procedure and in terms of costs recoverability – to the benefit of all parties.

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