Is Lloyd’s Open Form still appropriate as ships get bigger and bigger?

The role of the Lloyd's Open Form is being called into question as ships get larger
The role of the Lloyd’s Open Form is being called into question as ships get larger

According to the London Shipping Law Centre, as merchant ships get larger, as their cargoes expand in size and complexity and as their values escalate, the legal challenges facing salvors and wreck removers are multiplying.

In recent years, the salvage industry had tackled incidents all over the world when some of the largest vessels, particularly after groundings, have spilled oil and containers into the sea. Despite deployment of the best available equipment and skills to retrieve cargoes and to contain oil slicks, work could take several months, often in the same atrocious weather conditions that contributed to the incident.

The salvage industry faces the daunting prospect of dealing with incidents on a far greater scale.

Captain Nicholas Sloane, of Resolve Marine Group, who led the Group’s contribution to the salvaging of the Costa Concordia, has no doubts that it is only a matter of time before such an accident occurs. How would salvors cope with a distressed vessel carrying 20,000 TEUs in heavy seas in mid-ocean?

He was addressing an audience of over 150 marine professionals, including insurers, average adjusters, brokers and law firms from Britain, Europe and other parts of the world at a London Shipping Law Centre seminar.

Captain Sloane was joined on the panel by Andrew Chamberlain of Holman Fenwick Willan, Chris Adams of Steamship Insurance Management Services and Richard Gunn of Reed Smith.

Chris Adams presented a vivid picture of the large tankers and containerships which had run aground in recent years. He pointed out that claims of $250,000 plus on P&I Clubs represented around one per cent by number and about 40 per cent by value. Last year there were over 60 such claims. The claims experience of January indicated that a similar number could be expected this year.

Over the past five years, 59 per cent of larger claims costs emanated from groundings and variously involved wreck removal. Mr. Adams reminded his audience that wreck removal costs were not ultimately subject to limited liability provisions.

The speakers were broadly in favour of the continuing validity of the Lloyd’s Open Form as the speediest and most efficient mechanism to enable salvage to start quickly, continue without contractual interruption and provide the most acceptable framework for assessing costs. While “not perfect” and not necessarily the most suitable contract in all instances, it facilitated the early engagement of all parties: owners, charterers, cargo interests, bunker suppliers and insurers.

Andrew Chamberlain said it had “become fashionable to knock the Lloyd’s Open Form.” However, he had no doubt that the Lloyd’s Open Form remained the most suitable option in most incidents and could be developed to meet future contingencies. He warned: “Don’t throw the baby out with the bathwater!”

The panel discussed the folly of salvors continually undercutting each other and the adverse effect on capacity; and insufficient appreciation on the part of shipowners and insurers about what salvage involved. As a new way of sourcing escalating costs, Richard Gunn suggested the formation of a salvage fund to be financed by the property owners and administered separately from market insurance.

All were concerned about the industry’s capacity to handle massive incidents “in a 21st century of megaships.” They recognised the growing prospect of firms working together in the interests of immediacy and the co-ordinated supply of all the necessary equipment and skills.

Local authorities and governments were increasingly insistent on how they wanted close-to-shore incidents handled. They were not slow to stimulate further media interest in highly visual incidents beamed initially through social media. Owners and charterers had to take this into account in issuing their instructions.

George Tsavliris, Principal, Tsavliris Salvage Group, and a member of the LSLC’s Council, explained: “In recent years, the salvage industry has achieved exceptional results with some of the world’s largest distressed vessels. However, salvors have their own technical and financial viability problems. We must ask ourselves: do we have the equipment, skills and project management expertise to cope with the incidents which will inevitably arise when megaships get into serious trouble?

Dr. Aleka Sheppard, Founder and Chairman of the London Shipping Law Centre, concluded: “With their unrivalled expertise, our panel has administered a dose of cold reality on the challenges facing the whole salvage process in the years ahead.”

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