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Salvage contracts -The Lloyd’s Open Form - “No-Cure-No-Pay” or fixed price contract
Using The Lloyd’s Open Form for “No-Cure-No-Pay” salvage contract
(1) The Lloyd’s Open Form or “LOF” is the most widely-used “No-Cure-No-Pay” salvage contract. In return for salvage services, the salver receives a proportion of the salved value (the value of the ship, its cargo and bunkers).
In the past, if there was no recovery, there was no payment, whatever the expense of the operation. However, this made the salvers shy away from responding to high risk or low value casualties. This resulted in delays of salvage operation and increased risks of environmental damage.
(2) To counteract this, presently there is a choice of 2 incentives to the salvers.
The first is “Special Compensation” which becomes payable to the salver when he has prevented or minimized damage to the environment but the value of the salved property is insufficient to provide for a normal salvage award.
Alternatively, the salver may choose the SCOPIC (Special Compensation P&I Club Clause) [only if he had opted for this option in the LOF]. The main difference between “Special Compensation” and “SCOPIC” is that in the former, the award is decided by Arbitration, whereas in SCOPIC, the remuneration is based on pre-agreed tariff rates.
Certain conditions apply when SCOPIC is used.
(3) While actual salvage remuneration is covered by Property Underwriters ( H&M/Cargo), the Special Compensation/SCOPIC is covered by the P&I Club.
(4) Usually, the Master will be requested to sign the L.O.F. on the spot but, in principle, he shall, conditions permitting, consult with the Company on whether to sign this form or not taking the following attention into consideration :
“No Cure No Pay” is a basis specifically designed for salvage operations on which prospects for success are not always certain and, therefore, the total cost of salvage including remuneration is usually higher than will be incurred in cases of salvage on any other basis, such as “Daily Hire” basis.
Therefore, when there is no doubt that ship and cargo are salvable, L.O.F. is profitable only to salvers so the Master should avoid signing it.
(There have been cases where the Master has signed a LOF even though he intended to request mere towage services)
Under an L.O.F. contract salvers usually require security for their services upon termination of salvage work. This is the practice but sometimes it happens that salvers request an unreasonably high amount of security and so Ship owners and Cargo owners will be compelled to provide salvers with security as requested but under protest that the amount required is too high. So, the Master must be prudent in signing L.O.F.
(5) Nevertheless, L.O.F. is valuable in most maritime casualty cases and the Nippon Salvage Co., Ltd. and other Japanese salvers render their salvage services on a “No Cure No Pay” basis.
- Lloyd’s Standard Form of Salvage Agreement
If salvage assistance is required every effort is to be made to agree on “Lloyd’s Standard Form of Salvage Agreement - No cure, No pay” (LOF2011)
A copy of the above form is also included within the appendices of the SOPEP/SMPEP.
Where possible, the master is to contact the Company before signing a salvage agreement in case alternative arrangements can be made. However if the safety of life, the ship, her cargo or the environment is likely to be compromised by any delay, the Master must make his own decision based on a careful assessment of the situation.
Normally, the Lloyd's Open Form is signed and dated by both Masters. However, a cabled acceptance of assistance as per the terms of the Lloyd's Open Form of Salvage Agreement has the same value. This acceptance must be recorded in the Deck and Radio Log Books.
Authority of Master
The Master has complete authority at anytime to enter into any salvage contract where he considers this necessary for the safety of life, the ship, her cargo or the environment.
Fixed price contract
(1) Under this form of salvage contract, salvers are entitled to be compensated for their services based on the fixed price even if the salvage attempt was unsuccessful.
(2) This basis is generally used when the place of the accident is comparatively safe or the services to be performed are relatively simple and easy as when an accident occurs in a bay or a river or towage of a vessel under relatively calm conditions.
(3) There are many variations, such as Daily Hire Basis Contract, Lump Sum Basis Contract and so on depending upon circumstances and subject to agreement between the parties
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