Web Alert: Lloyd's Open Form, SCOPIC and the use of side agreements

The Lloyd’s Open Form (LOF) salvage contract has been in use for over 100 years and is often the best contract in an emergency situation. The Special Compensation P&I Club (SCOPIC) clause has been used in conjunction with LOF for nearly 20 years and, like LOF, is in principle supported by The Standard Club.

However, there has been a recent trend for shipowners and their hull & machinery underwriters to enter into side agreements with salvors which modify the operation of the LOF/SCOPIC regime, including by varying the way salvors are remunerated. This practice undermines one of the key advantages of LOF – that the contract can be signed un-amended in an emergency when delay could lead to the situation getting worse.

Members should be aware that the use of side agreements could also prejudice P&I cover to the extent they affect the operation of the SCOPIC clause. There is also a risk side agreements may not be binding, and could be subject to challenge based on provisions of the 1989 Salvage Convention and LOF itself (which relate to unfair contracts and a prohibition on inducements respectively).

Members contemplating the use of a side agreement should consult their usual contact at the club for advice on cover implications. Members seeking further advice on this issue generally should contact Sam Kendall-Marsden, Legal Director at sam.kendall-marsden@ctplc.com or on +44 7827 850 655.