Rescue Contracts and the Lloyd’s Open Form (LOF)
Interlink編集部What Are Salvage Contracts and LOF?
A salvage contract is an agreement made between the party conducting salvage operations and the ship or cargo interests when a vessel or cargo encounters a maritime accident such as grounding, fire, flooding, engine failure, drifting, or collision.
LOF stands for Lloyd’s Open Form, formally known as Lloyd’s Standard Form of Salvage Agreement. In international maritime salvage practice, LOF is sometimes used to quickly initiate salvage operations.
A major characteristic of LOF is that salvage operations are carried out first, and the specific amount of salvage remuneration is decided afterwards. Therefore, from the perspective of cargo owners or freight forwarders, at the time of the incident, the final salvage charge may be unknown, potentially leading to issues later such as Salvage Security, general average contributions, guarantees, and cargo delivery.
It is rare for cargo owners to directly sign LOF. However, when a vessel is salvaged under LOF, the cargo side may also be affected by salvage charges, provision of security, general average, and marine cargo insurance implications.
Scope Covered in This Article
| Topic | Main Content | Practical Confirmation Points |
|---|---|---|
| Basics of salvage contracts and LOF | The positioning of maritime salvage contracts, the role of Lloyd’s Open Form, and how salvage remuneration is determined | Although LOF is usually a contract on the ship’s side, salvage security requirements may affect the cargo side. |
| No cure, no pay | The traditional concept that salvage remuneration becomes an issue only if salvage is successful | Not just the work time, but the value of the salvaged property and risk level are important. |
| SCOPIC Clause | Clauses related to environmental pollution prevention and special compensation | The involvement of the P&I Club and whether special compensation applies should be checked. |
| Salvage Security | Security to secure payment of salvage charges | May be required separately from General Average Guarantees. |
| Relationship with General Average | The relationship among salvage charges, general average contributions, General Average Guarantees, and General Average Bonds | Salvage charges and general average may arise from the same incident but are managed as separate procedures. |
| Relationship with cargo insurance | Insurance company handling of security, contributions, and required documents | Even if insured, early notification and submission of documents to the insurer are necessary. |
| Freight forwarder and NVOCC response | Confirming accident information, existence of LOF, security requirements, general average declarations, and cargo delivery conditions | The salvage side, general average side, and marine cargo insurance side should be organized separately. |
Relationship Between Salvage Contracts and LOF
Salvage contracts broadly refer to agreements related to maritime salvage. LOF is a representative standard form widely used internationally within these contracts.
| Item | Salvage Contracts in General | LOF | Points of Attention for the Cargo Side |
|---|---|---|---|
| Positioning | Contracts concluded for maritime salvage operations generally. | A standard salvage contract form managed by Lloyd’s. | The flow of salvage security requirements may change depending on whether LOF is used. |
| Contract content | Remuneration and terms may be individually agreed between parties. | Based on a standard form, salvage remuneration is often determined later. | The final salvage charge may be unknown at the time of the incident. |
| Remuneration determination | Varies by contract: fixed amount, hourly rates, success-based fees, etc. | Based on the No cure, no pay principle, decided by later negotiation or arbitration. | The salvage charge could be high when finalized later. |
| Provision of security | Varies depending on contract terms. | Salvage Security may be required after salvage. | Security may be required before cargo delivery. |
| Impact on cargo side | The salvaged cargo may bear certain burdens. | Even if not a party to LOF, cargo owners may be subject to salvage security and contribution requirements. | “No signature means no impact” does not necessarily apply. |
Situations Where LOF Is Used
LOF may be used when vessels or cargo are exposed to severe danger, requiring prompt salvage operations.
In maritime accidents, detailed pre-negotiation of salvage remuneration may delay salvage work, allowing vessel sinking, further cargo damage, environmental pollution, or navigation obstruction to progress. To address this, LOF adopts a practical system where salvage operations begin immediately and remuneration details are determined afterwards.
| Situation | Examples of Salvage Operations | Impact on Cargo Side | Documents to Check |
|---|---|---|---|
| Grounding | Refloating, towing, moving to a safe location | Salvage charges and general average contributions may affect the cargo side. | Accident notice, LOF notification, Salvage Security request |
| Fire | Firefighting, cooling, moving to a port of refuge | Water damage from firefighting and salvage costs could become issues. | Survey Report, photos, General Average Declaration |
| Flooding | Pumping out water, preventing sinking, towing | Cargo damage, Survey Report, and salvage security may become concerns. | Accident report, inspection records, notification to insurance company |
| Engine failure / drifting | Towing, evacuation to a safe port | Towing costs may be an issue as general average or salvage charges. | Shipping company notifications, safe port cost details, B/L clauses |
| Risk of environmental pollution | Oil pollution prevention, limiting risk spread, stabilizing the hull | The SCOPIC clause and involvement of the P&I Club may become issues. | SCOPIC notice, P&I Club notification, salvage contractor guidance |
| Navigation obstruction / risk of sinking | Stabilizing the hull, moving, removing hazards | Cargo delivery delays, storage charges, Demurrage, Detention could become issues. | Shipping company notices, relevant port authority information, delivery conditions |
The Concept of No cure, no pay
The basic principle behind LOF is the "No cure, no pay" concept. This means that the salvor only receives remuneration if the salvage operation is successful.
Salvors commit personnel, tugboats, equipment, fuel, and expertise to save vessels or cargoes in peril. Traditionally, in salvage operations, remuneration is not recognized if the salvage is unsuccessful.
Therefore, salvage charges are not simply based on time or actual expenses but are assessed considering the value of the salvaged property, the degree of risk, the difficulty of salvage, the results achieved, and the contribution to environmental protection.
| Outcome | No cure, no pay Concept | Impact on Cargo Side | Points to Check |
|---|---|---|---|
| If the salvage is successful | The salvor may be entitled to remuneration. | Salvage charge burden and security provision relative to the value of the salvaged cargo may become issues. | Check for the presence of Salvage Security requests. |
| If the salvage is unsuccessful | Traditionally, remuneration is typically not recognized. | However, the SCOPIC clause or special compensation may still be relevant. | Check for activation of SCOPIC. |
| If environmental pollution prevention activities are performed | Activities that are difficult to evaluate merely based on salvaged property value become an issue. | Confirmation of the SCOPIC clause, the P&I Club, and special compensation is needed. | Refer to notices from the P&I Club or salvage contractors. |
Meaning of Salvage Charges Being Decided Later
A key characteristic of LOF is that the exact salvage charge is not determined in detail at the time of contract.
In marine casualties, vessels and cargo are often in hazardous conditions, leaving little time for remuneration negotiation. LOF allows salvage operations to begin immediately, with salvage remuneration decided later through discussion or arbitration.
Therefore, from the perspective of cargo owners or freight forwarders, the final salvage charge is unknown at the time of the accident, and subsequently, salvors or salvage contractors may request provision of Salvage Security.
| Stage | LOF Characteristics | Points of Caution for Cargo Side | Practical Response |
|---|---|---|---|
| Upon signing the salvage contract | The priority is to start the salvage operation; the specific salvage charge amount is decided later. | Cargo interests may not know the final cost burden at this point. | Confirm whether LOF is used and the name of the salvor or salvage contractor. |
| During salvage operations | Work proceeds to protect the vessel, cargo, and environment. | Cargo damage, delays, and costs at a port of refuge may occur. | Arrange a surveyor, notify insurance companies, and check cargo status. |
| After salvage completion | Calculation of salvage charges and provision of security become issues. | Salvage Security or guarantees for salvage charges may be requested. | Confirm whom to submit security to, deadlines, and required format. |
| Later settlement / arbitration | Salvage charges are determined by negotiation or arbitration. | Coordinate with insurers and experts to confirm liability coverage. | Manage insurance claims, subrogation potential, and final billing. |
What is the SCOPIC Clause?
The SCOPIC clause stands for Special Compensation P&I Club Clause and relates to special compensation often in issue alongside LOF.
Under the traditional "No cure, no pay" concept alone, salvors who perform essential activities for environmental pollution prevention may not receive adequate remuneration if the value of the salvaged property is insufficient.
The SCOPIC clause provides a system of special compensation for salvors in these scenarios. It is often confirmed together with the involvement of the P&I Club when matters such as environmental protection, oil pollution prevention, hull stabilization, and preventing risk escalation arise.
| Item | When only No cure, no pay applies | When the SCOPIC clause is involved | Points for Cargo Side to Check |
|---|---|---|---|
| Basic concept | The salvor's remuneration depends on successful salvage. | Environmental protection and special compensation perspectives are added. | Check whether SCOPIC has been triggered or is relevant. |
| Relation to property value | The value of the salvaged vessel, cargo, etc. is important. | Activities that are difficult to evaluate only by the value of the salvaged property are problematic. | Confirm the relationship between salvage remuneration and special compensation. |
| Main parties involved | Salvors, shipowners, cargo interests, and insurance companies. | Salvors, shipowners, P&I Clubs, Special Casualty Representatives, etc. | Check communications from the P&I Club. |
| Cargo-side practice | Check salvage charge responsibilities and Salvage Security. | Check if SCOPIC is involved or if there is a response from the P&I Club side. | Prioritize confirming coverage and document requirements rather than detailed SCOPIC calculations. |
The cargo owner or freight forwarder is rarely required to directly assess detailed SCOPIC clause calculations. However, in LOF cases, SCOPIC, P&I Club, salvage charges, general average, and Salvage Security may all arise simultaneously, so it is important to understand the terminology and differences in roles.
Timeline of an LOF Case
In LOF cases, salvage operations, security demands, general average, cargo delivery, and charge finalization may occur in a staggered timeline.
| Stage | What Happens | Points for Cargo Side to Check | Notes |
|---|---|---|---|
| 1. Maritime accident occurs | Grounding, fire, flooding, engine failure, etc. occur. | Confirm the affected vessel, B/L number, and cargo whereabouts. | Record accident details promptly. |
| 2. LOF agreement and salvage starts | The captain or shipowner concludes LOF with the salvor or salvage contractor, and salvage operations begin. | Check if LOF is used and verify instructions from the shipping company or P&I Club. | The cargo side may be affected even without direct signature. |
| 3. Salvage operations progress | Towing, refloating, firefighting, dewatering, pollution prevention, etc. are carried out. | Confirm cargo damage, delays, and entry to refuge ports. | Consider arranging a surveyor if needed. |
| 4. Salvage Security demand | The salvor requests provision of security for the salvage charge. | Check if salvage charge security is required separately from the General Average Guarantee. | Verify submission destination, deadline, and type of guarantee required. |
| 5. General Average Declaration | The shipping company may declare general average. | Confirm the need for a General Average Bond, General Average Guarantee, and Cargo Value Declaration. | Manage salvage charges and general average separately. |
| 6. Cargo delivery | When necessary security and documents are ready, cargo delivery proceeds. | Check storage fees, Demurrage, Detention, and CFS delivery. | Delivery may be halted if security has not been provided. |
| 7. Salvage charge finalization | Salvage charges are determined later through negotiation or arbitration. | Confirm with the insurance company on coverage scope, final payment, and subrogation possibility. | Maintain records even after cargo delivery. |
Relationship Between Salvage Charges and General Average
Salvage charges and general average may arise from the same maritime accident but are not the same.
Salvage charges are remuneration payable to the salvor. General average is a system where sacrifices and expenses incurred to avoid common peril are shared among the parties involved in the saved vessel, cargo, freight, etc.
Salvage charges may be handled within general average, and the cargo side may bear general average contributions. However, Salvage Security as security for salvage charges and General Average Bonds need to be handled as separate documents.
| Item | Salvage Charges | General Average | Practical Notes |
|---|---|---|---|
| Nature | Remuneration payable to the salvor. | A system for sharing expenses or sacrifices made to avoid a common peril. | Different systems even if arising from the same accident. |
| Main counterparties | Salvors, salvage contractors, or their agents. | Shipping companies, general average adjusters. | Separate submission and communication channels should be confirmed. |
| Security documents | Salvage Security, salvage guarantee. | General Average Bond, General Average Guarantee, Cargo Value Declaration, deposits. | Salvage charge security may remain even after providing General Average documents. |
| Notes | Salvage charge demands may come before general average declarations. | Separate general average documents may be required in addition to salvage charge security. | Check for unresolved items regarding both before cargo delivery. |
Impact on the Cargo Side
LOF and salvage contracts may seem like issues related only to vessels, but they also affect cargo owners.
| Impact | Details | Practical Response | Stakeholders |
|---|---|---|---|
| Salvage charge liability | The cargo may be liable for salvage charges proportional to the benefit gained from the salvage. | Confirm whether Salvage Security is required. | Salvors, insurance companies, shippers |
| General Average contribution | Salvage charges and related costs may be settled as general average. | Check the General Average Declaration and the adjuster's instructions. | Shipping lines, general average adjusters, insurance companies |
| Suspension of cargo delivery | Cargo may not be released unless security is provided. | Contact insurance companies, shipping lines, and adjusters promptly. | Shipping lines, CFS, customs brokers, freight forwarders |
| Cargo damage | Cargo can be damaged by salvage operations or the incident itself. | Arrange a surveyor, take photos, and review the Survey Report. | Surveyors, insurance companies, shippers |
| Additional costs | Charges such as storage fees, demurrage, detention, and redelivery costs may arise. | Verify cargo delivery conditions and free time. | Shipping lines, CFS, delivery companies |
| Subsequent settlement | Salvage rewards and general average contributions may be determined at a later date. | Retain documents and communication records even after cargo delivery. | Insurance companies, adjusters, representatives of salvors |
Relationship with P&I Club
In salvage contracts and LOF cases, the P&I Club may be involved.
The P&I Club is involved on the shipowner’s side in matters related to shipowner liability, salvage, general average, and environmental pollution response. The involvement of the P&I Club is also important when SCOPIC clauses are an issue.
From the cargo side, the P&I Club is often not the direct contracting party, but its guidance or guarantees may be relevant in the practical handling of salvage charges, security, guarantees, and general average.
Relationship with Cargo Insurance
In overseas marine cargo insurance, salvage charges and general average contributions can become an issue as insured matters.
If cargo insurance is in place, the insurance company may participate in issuing General Average Guarantees, handling Salvage Security, payment of contributions, and verification of necessary documents, based on the insurance terms.
However, for the insurance company to respond, notification of the incident, B/L, Invoice, Packing List, insurance policy, Cargo Value Declaration, general average-related documents, and guidance concerning Salvage Security are required.
| Insurance Status | Practical Response | Impact on Shipper | Notes |
|---|---|---|---|
| With cargo insurance | The insurance company may handle security and contribution payments. | Prompt notification facilitates smoother cargo delivery handling. | Incident notification and submission of necessary documents to the insurance company are required. |
| Without cargo insurance | The shipper must manage the deposit, bank guarantee, and Salvage Security themselves. | Financial burden, internal approval, and cargo delivery delays are more likely. | Confirm the security amount and payment timing early. |
| Uncertain insurance coverage | Confirm insurance terms, coverage amount, deductibles, and any uninsured parts. | Confirmation with the insurance company or agent is necessary. | Avoid refusing security or payments based on self-judgment. |
Practical Flow to Confirm in LOF Cases
In maritime accidents involving LOF, it is necessary to separately confirm the salvage contract, salvage security, general average, cargo insurance, and cargo delivery.
| Step | Things to Confirm | Points of Caution | Parties Involved |
|---|---|---|---|
| 1. Confirming the details of the marine casualty | Check for grounding, fire, flooding, collision, drifting, risk of sinking, etc. | Confirm whether the accident involves a salvage contract. | Shipping company, overseas agent, NVOCC |
| 2. Confirming the presence of LOF | Check communications from the shipping company, P&I Club, and general average adjuster. | The use of LOF changes the flow of salvage charges. | Shipping company, P&I Club, salvor's representative |
| 3. Checking the SCOPIC clause | Confirm if issues related to environmental pollution prevention or special compensation arise. | Involvement of the P&I Club may increase. | P&I Club, shipping company, insurance company |
| 4. Salvage Security confirmation | Confirm if there is a security demand from the salvage side. | This may be required separately from the General Average Guarantee. | Salvor's representative, insurance company, cargo owner |
| 5. Confirming declaration of General Average | Check if General Average has been declared. | General Average Bond, General Average Guarantee, and Cargo Value Declaration may be required. | Shipping company, general average adjuster |
| 6. Confirming cargo insurance | Verify the insurance company, insurance policy, terms, and insured amount. | Early notification to the insurance company is important. | Shipper, insurance company, insurance broker |
| 7. Preparing required documents | Gather B/L, Invoice, Packing List, insurance policy, Cargo Value Declaration, etc. | Manage documents separately for salvage charges and general average purposes. | Shipper, freight forwarder, insurance company |
| 8. Confirming cargo delivery | Confirm D/O exchange, CFS pickup, storage fees, demurrage, detention. | If security is not submitted, cargo may be held. | Shipping company, CFS, customs broker |
| 9. Finalizing subsequent remuneration | Confirm salvage remuneration, General Average Adjustment Statement, and insurance company follow-up. | Record-keeping remains necessary even after cargo delivery. | Insurance company, salvor's representative, adjuster |
Freight Forwarder and NVOCC Involvement Scope
Freight forwarders and NVOCCs are not in a position to make final legal judgments on salvage contracts or LOF. However, in actual logistics practice, they are deeply involved in contacting the cargo owner, early notification to the insurance company, collecting required documents, confirming the need for security, and verifying cargo delivery conditions.
| Category | Supportive Actions | Actions to Avoid Definite Conclusions On | Practical Handling |
|---|---|---|---|
| Sharing accident information | Share vessel name, B/L number, accident details, and shipping company announcements with the cargo owner. | Final judgment on cause of accident or liability | Accurately forward received information and keep records. |
| Confirming presence of LOF | Check communications from the shipping company and P&I Club. | Legal responsibility under LOF or determination of salvage charge amounts | Share the possibility of LOF involvement with the insurance company early. |
| Salvage Security confirmation | Organize whether security is requested, to whom it should be submitted, deadlines, and required documents. | Legal judgment on whether to provide security or not | Share the demand details with the cargo owner and insurance company, and track the response status. |
| General Average handling | Organize guidance about General Average Bond, General Average Guarantee, and Cargo Value Declaration. | Judgment on appropriateness or final amount of general average contribution | Confirm both the general average adjuster and the insurance company. |
| Cargo damage handling | Support arranging a surveyor, collecting photos, inspection records, and Survey Report. | Definitive judgment on damage cause or insurance coverage eligibility | Follow instructions from the insurance company and preserve evidence documentation. |
| Confirming cargo delivery | Check D/O exchange, CFS pickup, storage fees, demurrage, detention. | Explaining that cargo will always be delivered even without security submission | Confirm timing of unsubmitted security and occurrence of additional fees. |
Decision Checklist
| Situation | Contact Party | Points to Confirm | Actions if Problems Arise |
|---|---|---|---|
| Upon receiving the first report of a marine casualty | Shipping company, overseas agent, NVOCC | Accident details, vessel name, B/L number, cargo location, presence of LOF | Alert the cargo owner and insurance company promptly; continue following up for additional information. |
| When notified about LOF | Shipping company, P&I Club, salvor's representative | Whether LOF is being used, salvage contractor involved, presence of SCOPIC clause | Share with the insurance company and confirm the possibility of salvage security. |
| When receiving a Salvage Security demand | Salvor's representative, insurance company, cargo owner | Submission destination, deadline, amount, guarantee form, required documents | Manage separately from General Average Guarantees. |
| Upon receiving a General Average Declaration | Shipping company, general average adjuster, insurance company | General Average Bond, General Average Guarantee, Cargo Value Declaration, submission deadline | Do not confuse this with salvage security; manage it as a separate list. |
| When confirming cargo insurance | Shipper, insurance company, insurance broker | Whether insured, policy terms, insured amount, notification status of incident | If not notified, notify immediately and submit necessary documents. |
| Before cargo delivery | Shipping company, CFS, customs broker, general average adjuster | Unsubmitted security, ability to exchange D/O, release availability, additional fees | Share any unresolved matters with the cargo owner, insurance company, and other relevant parties. |
Common Trouble Patterns
| Case | Common Issues | Documents to Check | Practical Measures |
|---|---|---|---|
| Unaware that LOF is used, and unclear about the flow of salvage payments | Insufficiently reviewing guidance from the shipping company or P&I Club | Accident notice, LOF notices, P&I Club communications | Confirm the presence of LOF, salvage contractor involved, and whether security is requested. |
| Asked to provide security despite not being a party to LOF, causing confusion for the shipper | Not understanding that salvaged cargo may also be subject to salvage charges | Salvage Security requests, B/L, insurance policy | Explain that security may be requested proportional to the benefit gained from the salvaged cargo. |
| Assuming "No cure, no pay" means nothing happens if salvage fails | Overlooking the possibility of SCOPIC clauses or special compensation | SCOPIC notices, P&I Club notifications, salvage contractor information | Check for the presence of SCOPIC clauses and P&I Club guidance. |
| Provided a General Average Guarantee but cargo is not released | Salvage Security remains outstanding. | General Average adjuster's notice, Salvage Security requests, submission records | Confirm security separately for both general average and salvage charges. |
| Expected to know the salvage amount at the time of the incident | Not understanding that salvage remuneration is determined later under LOF | LOF notices, salvor communications, insurer's information | Manage security provision and final remuneration confirmation separately. |
| Delayed confirmation of cargo damage | Focusing heavily on salvage and general average issues delayed securing evidence of cargo damage. | Photos, Survey Report, inspection records, loading/unloading logs | Arrange surveyors and preserve evidence concurrently with salvage handling. |
| No insurance coverage and unable to provide security | Not anticipating financial obligations for salvage or general average costs | Insurance coverage confirmation, security requests, internal approval records | Early assessment of the need for deposits, bank guarantees, and internal approval. |
Common Misunderstandings
| Misunderstanding | Correct Understanding | Practical Caution |
|---|---|---|
| LOF is only a contract between shipping companies and does not affect cargo. | If cargo is salvaged, issues around salvage charges and security provision may also affect the cargo side. | Check whether Salvage Security is required even if not a direct LOF party. |
| Salvage charges are fixed when LOF is executed. | Under LOF, remuneration may be decided after salvage operations through negotiation or arbitration. | Separate management of security provision and final remuneration confirmation is necessary. |
| Providing a General Average Guarantee settles salvage charges as well. | General Average Guarantee and Salvage Security are separate forms of security. | Confirm submission destinations separately for general average and salvage charges. |
| SCOPIC is exceptional and does not need to be checked. | If environmental protection or special compensation is an issue, P&I Club handling and confirmation are required. | Review notices from the P&I Club and salvage contractors carefully. |
| If cargo is undamaged, salvage charges and general average do not apply. | Even if cargo is intact, security or contribution may be required proportional to the benefit from salvage. | Confirm not only cargo damage but also whether the cargo is subject to salvage. |
| Freight forwarders can judge the reasonableness of salvage charges. | Reasonableness of salvage remuneration involves contracts, negotiations, arbitration, and expert judgments. | Coordinate with insurance companies, P&I Club, and specialists for verification. |
Points Freight Forwarders and NVOCCs Should Confirm
| Focus | Details to Confirm | Who to Check With |
|---|---|---|
| Accident details | Confirm details such as grounding, fire, flooding, collision, drifting, or sinking risks. | Shipping company, overseas agents, NVOCC |
| Presence of LOF | Check whether Lloyd’s Open Form is used through shipping company or P&I Club notices. | Shipping company, P&I Club, salvor's representative |
| Salvor or salvage contractor | Identify which salvor or salvage contractor is involved, and confirm agents and contacts. | Shipping company, salvor's representative |
| SCOPIC Clause | Check if SCOPIC is triggered or involved, and if environmental cleanup is part of the case. | P&I Club, shipping company, insurance company |
| Salvage Security | Confirm where, by when, and in what form salvage security must be provided. | Salvor's representative, insurance company, shipper |
| General Average Declaration | Check if general average has been declared and whether the adjuster’s instructions have been issued. | Shipping company, general average adjuster |
| Cargo insurance | Confirm whether the shipper has marine cargo insurance and if the insurance company or agent has been contacted. | Shipper, insurance company, insurance agent |
| Required documents | Prepare B/L, Invoice, Packing List, insurance policy, Cargo Value Declaration, etc. | Shipper, insurance company, customs broker |
| Cargo delivery | Check effects on D/O exchange, cargo release, storage fees, Demurrage, and Detention. | Shipping company, CFS, customs broker |
| Subsequent settlement | Continue to manage final salvage remuneration determination, General Average settlement, and insurance handling. | Insurance company, salvor's representative, general average adjuster |
Example 1: Case of Salvage Based on LOF
Suppose a container ship runs aground and is unable to refloat by itself. The captain or shipowner enters into an LOF contract with a salvor or salvage contractor to commission refloating and towing operations.
The salvage operation is successful, and the vessel and cargo avoid sinking. However, since the salvage reward will be decided later based on LOF, the cargo side receives a notice requesting the provision of Salvage Security while the final amount is still unknown.
In this situation, the shipper or freight forwarder needs to separately confirm not only whether the cargo is damaged but also the presence of LOF, Salvage Security, General Average Declaration, General Average Guarantee, and cargo insurance handling.
Example 2: Case Where the SCOPIC Clause Became an Issue
In a maritime accident involving oil pollution or environmental contamination risk, suppose the salvor undertakes measures to prevent environmental pollution.
In such cases, the value of the salvaged property alone may not fully reflect the salvor's activities, and the SCOPIC clause can become a critical issue. The involvement of the P&I Club may complicate the relationships among the salvor, shipowner, insurers, and cargo interests.
In actual logistics practice on the cargo side, rather than directly calculating the details of SCOPIC, it is important to confirm whether SCOPIC is involved, whether guidance from the P&I Club has been issued, and whether separate Salvage Security and general average documents are required.
Example 3: Cargo Held Up Due to Failure to Submit Salvage Security Despite Providing General Average Guarantee
A General Average Declaration is issued by the shipping company, and the shipper obtains a General Average Guarantee through its cargo insurer and submits it to the general average adjuster.
However, at the same time, a salvage operation based on LOF is underway, and the salvor requires separate submission of Salvage Security. The shipper and freight forwarder mistakenly believe that submitting the General Average Guarantee completes all financial security requirements and overlook the need to provide security related to the salvage charges.
In this case, even if the general average documents are complete, cargo delivery may be delayed if the salvage-side Salvage Security is not submitted. In LOF cases, the General Average Guarantee and Salvage Security need to be managed as separate forms of security.
Documents to Confirm in Practice
- Accident notifications from the shipping company or P&I Club
- Information regarding LOF
- Requests for Salvage Security from the salvor or their agent
- Information related to the SCOPIC clause
- General Average Declaration
- Documents from the general average adjuster
- B/L and back conditions
- House B/L and Master B/L
- Invoice
- Packing List
- Cargo Value Declaration
- Insurance policy or insurance coverage certificate
- General Average Guarantee
- General Average Bond
- Survey Report
- Photos, inspection records, damage details
- Instructions regarding cargo delivery approval, storage charges, Demurrage, Detention
Points of Caution
Since LOF is often concluded by the vessel side, cargo owners and freight forwarders may think it does not concern them. However, when cargo is saved by salvage, the cargo side may also be affected regarding salvage charge liability and provision of security.
Furthermore, since salvage rewards under LOF are decided later, the final salvage charge may be unknown at the time of the incident. Nonetheless, Salvage Security may be requested before cargo delivery, and delays in responding can cause cargo release to be stopped.
Additionally, the General Average Guarantee and Salvage Security are separate forms of security. Even if General Average documents are submitted, if salvage security is not provided, cargo delivery may be delayed.
Summary
A salvage contract is an agreement to save vessels or cargo involved in maritime casualties. LOF is a representative standard salvage contract widely used in international salvage practice, based on the principle of “No cure, no pay.”
Under LOF, salvage operations proceed first, and the salvage reward may be decided later through negotiation or arbitration. Therefore, the cargo side may be required to provide security such as Salvage Security before the final salvage charge is known.
The SCOPIC clause relates to environmental pollution prevention and special compensation, involving the P&I Club. Even if the cargo owner or freight forwarder is not a party to LOF itself, they may still be involved in practical matters concerning salvage charges, General Average, Salvage Security, General Average Guarantees, deposits, and cargo delivery.
When salvage contracts or LOF issues arise, it is important to separately review guidance from the shipping company, P&I Club, salvors, general average adjusters, and cargo insurers, and to promptly organize the necessary documents and security arrangements.
