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Salvage Contracts -The Lloyd’s Open Form - “No-Cure-No-Pay” or Fixed Price Contract

Obtaining assistance: When a ship in distress and the Master has decided that assistance is necessary, he should act promptly to request any available source using the most expeditious means at his disposal. When one or more suitable ships respond to the call for assistance, the Master should immediately request such ship(s) to undertake whatever action is necessary.

The assistance should never be delayed merely to negotiate a particular form of agreement or contract terms. Generally, those rendering beneficial assistance to a ship in peril are entitled to salvage. It is not essential to agree upon the contractual terms for the required aid since there is a right under maritime law to rescue, which exists independently of contract. If the assisting ship(s) request the Master to agree to a contract for the assistance, Lloyd "s Standard Form of Salvage Agreement, known as Lloyd "s Open Form ( is the Form most usually offered and should be agreed upon to avoid any delay in assistance being rendered. This Form provides protection for both parties in the salvage agreement.

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Lloyd "s Open Form was revised in 1990 to reflect the 1989 International Conference on Salvage and the text of the International Convention on Salvage, 1989. The Form bears the reference LOF 90. Although earlier editions of Lloyd "s Open Form should have been withdrawn, copies may still exist and be offered and, to avoid disputes or delays, they should be accepted.

LOF 90 can be agreed orally or by radio sending the following message: "ACCEPT SALVAGE SERVICES ON BASIS LLOYD "S STANDARD FORM LOF 90 NO CURE NO PAY ACKNOWLEDGE REPEATING preceding. MASTER........"

If an earlier edition of Lloyd "s Open Form is offered and accepted, the message should refer to that Form. The engagement of one salvor under LOF 90 does not preclude the Master from engaging other salvors. Similarly, the salvors may hire other salvors as subcontractors. If more than one salvor is involved, every effort should be made to obtain the salvors' agreement to cooperate and to appoint one leading salvor. The ship offering assistance may decline LOF 90 and propose other terms. If the Master considers that immediate assistance is essential, he should accept the terms offered. Still, if he feels that the terms offered are unreasonable or greedy, he should register a protest immediately or, if he thinks that this may delay the assistance.

If the Master considers that immediate assistance is not essential, it may be possible, where time allows, to have the assistance arranged on a contractual basis stipulating ordinary tariff fixed lump sums or daily rates. However, it is emphasized that where life, the ship, its cargo or the marine environment are in peril, such negotiations should not delay the engagement of salvors.

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 in salvage operation and increased risks of environmental damage.

  2. (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. Still, 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 it in the LOF]. The main difference between "Special Compensation" and "SCOPIC" is that in the former, the award is decided by Arbitration. In contrast, in SCOPIC, the remuneration is based on pre-agreed tariff rates. Certain conditions apply when SCOPIC is used.

  3. (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. (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 considering the following attention

  5. "No Cure No Pay" is a basis specifically designed for salvage operations on which prospects for success are not always specific and, therefore, the total cost of salvage including remuneration is usually higher than will be incurred in cases of rescue 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 a 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 protection. So Shipowners and Cargo owners will be compelled to provide salvers with security as requested but under protest that the amount required is too high. Thus, the Master must be prudent in signing L.O.F.

  6. 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.

Salvage assistance - 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.

Typically, the Lloyd's Open Form is signed and dated by both Masters. However, a cabled acceptance of assistance 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 to enter into any salvage contract where he considers this necessary for the safety of life, the ship, her cargo, or the environment. The authority of the Master is not altered by engaging salvors. He remains in command of the ship despite the presence of a salvage master, and he should ensure that he is fully aware of the action taken in the rendering of salvage services. Even though services have been accepted and assistance is being rendered, the salvor must cease his services is requested to do so by the Master.

The Master should, however, cooperate fully with the salvors, who are experts in salvage operations, and in so doing exercise due care to prevent or minimize damage to the environment. He should take any advice given by the salvage master or other person in charge of rendering or advising on salvage services. The salvors may not be experts in the safety and handling of cargo or familiar with the ship. If in doubt about the advisability of any action suggested by the salvors, the Master should not hesitate to challenge the advice given, bearing in mind his overriding responsibility for the safety of the ship, its cargo and those on board.

Legislation may exist in some countries requiring the Master to accept salvage services or instructions provided by the coastal country concerned. In such cases, the coastal state to which the occurrence has been reported may be expected to inform the Master of national requirements (see Section 10.4). However, the Master should also consult documents on board, which might contain guidance, e.g., sailing directions, notices to mariners, etc.

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.

Related Information

  1. General Average & The York Antwerp Rules
    The law of General Average is a principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. It is a unique maritime concept. One of the most ancient aspects of shipping is the general average. When an intentional sacrifice of property is made onboard a ship to avoid a common peril, the law of general average requires all parties to the maritime adventure that benefited by the intentional sacrifice to contribute money on a pro-rata basis.

  2. P&I Clubs guideline
    The P&I Clubs are correctly called Protection and Indemnity Associations and number around 20 worldwide, with the majority being the United Kingdom-based. The shipowner in taking out insurance with a particular association becomes a member of that Club. The Clubs are mutual, which means that all costs involved in providing cover or paying out a claim to anyone member are shared by all members. This is achieved by setting a rating or premium for the Owner, known as an "advance call," and is based on the Owner's history and exposure to risk.

  3. Marine cargo insurance underwriters
    Ships operate in a difficult environment, and cargo may be lost or damaged during domestic and international transit. However, ocean carriers are well protected under the law against responsibility for loss or damage to cargo that might arise during the transportation of goods.

  4. P & I Insurance cover and Members of IG club
    At the heart of P and I is the concept of "mutuality." Shipowners form a nonprofit association to protect and indemnify one another against third party liabilities. Unlike commercial insurance, the insured ship owners, meaning the "members" of the Club, are both the insurer and the insured. Each P and I Club is controlled by its members.

  5. Hull & Machinery underwriters
    A hull and machinery underwriter provides insurance coverage for boats, ships, and other naval assets. It gives protection to shipowners against the hull, machinery, and onboard equipment damages in the event of any perils encountered while on the water, including collision with another vessel, natural obstacles, other structures, and storms and other natural disasters.

  6. Procedure for insurance claim
    A ship is insured against various risks by the Owner taking out different insurance policies. But for many reasons, insurance claims often being denied by marine insurance providers. A shipowner can prosecute a claim accurately and successfully. The Master needs to send full details and documentation relating to any accidents or incidents resulting in damage to the ship, property, cargo, or personal injury. Nautical Institute publication, "The Mariner's Role in Collecting Evidence," is a good source of guidance to shipmasters.

  7. The role of a insurance broker
    Marine insurance brokers play a significant role in helping companies and individuals procure marine cargo insurance, hull and machinery insurance, P and I cover, and other forms of insurance as the case may be. They can canvas the worldwide marine insurance market. The goal is to assist in getting the best terms of insurance cover at the most competitive premium rates.

  8. Marine salvage procedures
    Marine salvage contracts fall into two main categories. First, those which enable salvage services to be rendered on the basis that the compensation to be paid to the salvors will be determined after the completion of the services, either by settlement or if the parties cannot agree, then by a court or by an arbitrator

  9. Role of shipbrokers
    London and New York have always been viewed as major shipbroking centers. In recent years, many U.S. ship brokerage firms have relocated to offices in Stamford and Greenwich, Connecticut, and nearby communities. Of course, there is a large shipbroking presence in Singapore, Hamburg, and other cities.

  10. Sale & purchase brokers
    Sale and Purchase Brokers (S and P Brokers) are highly specialized shipbrokers. Their clients are typically ship owners. S and P Brokers serve as intermediaries in the business of selling and buying ships. They assist in the sale and purchase of second-hand tonnage and newbuilding. Their compensation is normally in the Form of a commission.

  11. Guideline for salvage operation after a collision accident

  12. Guideline for salvage of another ship after collision accident

  13. Emergency check items to find a missing crew

  14. Handling the salvage of another ship, salvage report, and towing arrangement

  15. In case of damage to anchor and chain when to claim for '' general average"? ....

  16. Requirement of towing arrangement in oil tankers, readyness, & training onboard

  17. Salvage remunerations - benifits of L.O.F. contract or daily hire basis contract

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