Lloyd’s Open Form – at the centre in a major maritime crisis

Far fewer LOFs are signed these days because there are fewer shipping accidents
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By Edward Ion

Whenever there is a shipping accident which attracts mainstream media attention, one of the challenges we face as communicators is explaining unusual and often arcane terms and practises. None more so than the concept of the no-cure no-pay “Lloyd’s Open Form”, the traditional contract signed between a salvage company and a shipowner when a vessel gets into trouble.

Still the most internationally accepted form of salvage contract, the LOF has been the subject of much debate in recent years as other forms of contract have emerged and the salvage business has contracted significantly.

In blunt terms, far fewer LOFs are signed these days because there are fewer shipping accidents. Good news for the industry but not for salvors.

There has also been mounting criticism of the LOF system as it can be prohibitively expensive once signed.

The LOF was born in the days when a ship’s master had total control of a vessel and made decisions quickly without recourse to the office or his superiors ashore. It was an emergency in extremis measure with a decision made on the spot when there were no alternatives.

But digital technology and the connected world have ensured there is now a process to go through before an LOF is signed today.

The truth is that for most incidents there can be more cost-effective ways of solving the problem than signing an LOF, which is uncapped in financial terms.

LOF usage has diminished in recent years, with just 34 signed in 2020, down one from 2019 and down from 55 in 2018.

Explaining this arcane and complex relationship between an owner, the ship’s insurers and the various other parties involved in a major casualty to busy journalists with tight deadlines and short attention spans can be hard. But explaining the ways and means of an LOF is a critical part of our job because understanding the dynamics of an LOF signing is also pivotal to understanding how an incident itself develops.

Starting from basics, if journalists do not know what is happening with a vessel in the immediate aftermath of an accident – and more importantly – exactly what the owner is doing to correct the situation, then the scope for misreporting escalates.

Sadly, there are many misconceptions about the use of LOF in the mainstream media and elsewhere, mainly because of its unique and historic nature.

One media angle we’ve had to address over the years is whether or not the LOF represents a ‘bonanza’ moment for the salvor with an open cheque guarantee to make a huge amount of money.

It is correct to say the LOF is uncapped and that there is no pre-arrangement on a fee size between a salvor and an owner with a vessel in distress.

But it is also true that the vast majority of LOF salvage cases are settled amicably between the owner, the salvor, cargo interests and the insurers. Even when there are disputes there is a well-established and internationally accepted arbitration procedure.

The media tends to portray salvors and their business as macho dare-devils coming to the rescue of a ship when all is seemingly lost. But the reality is different. The truth is that salvage is a challenging business which needs vast amounts of experience, technical know-how as well as bravery and pluck.

It is a feast or famine existence which explains why the salvage sector has changed so rapidly in the past decade or so. The image of the daring-do salvor landing on the burning deck of a ship has a lasting image in the mind of the media.

But the reality is rather different as today’s leading salvors use an array of technical and digital means to execute their work once an LOF has been signed.

So long as there are ships there will be a need for salvors on occasion and so the benefit of the LOF system is that it provides a globally accepted solution to what can be a dangerous and fast-moving situation. That is why the LOF has survived for more than a century and why the shipping industry and its insurers need to continue to support it.

We need to explain why this unique contract underpins the many different aspects of how a major shipping casualty evolves and this will doubtlessly assist journalists in their reporting.

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