Abstract. The SCOPIC
clause (Special Compensation P&I Club Clause) provides an alternative
remuneration to salvors, which is computed differently to the awards provided
in Article 13 and Article 14 of the International Convention on Salvage (1989).
In essence, SCOPIC provides agreed tariff rates under the form of a
remuneration as an indemnity for the salvage services performed and the
salvor’s investments in the operation.
The award afforded by SCOPIC, although
being a modification of the Article 14 Special Compensation, is based on
different principles than those underlying the respective provision of the
Convention. The major aim of the current paper is to give a comprehensive
explanation of the clause and its features. It will also clarify the
development and the operation of the SCOPIC clause and will underline the
advantages which it provides to the area of marine salvage. To understand the
essence of the SCOPIC clause, one has to be familiar also with the awards
available under Articles 13 and 14, and, therefore, a comparison between the
three will be made. Thus, it will be illustrated that, depending on the award
chosen, there could be a different outcome for all the parties involved in the
salvage operation.
1.
Introduction
The Special
Compensation P&I Club Clause (SCOPIC) was devised to be incorporated into a
Lloyd’s Open Form salvage contract in order to rectify the imperfections of the
International Salvage Convention (1989). To understand how SCOPIC works, a
review of the main points of salvage law will be carried out. First, the
regulatory framework will be introduced and, in particular, those articles of
the International Convention on Salvage which provide for an award to salvors
for the operations they render to vessels in distress. Secondly, the LOF salvage
contract will be explained, which is the natural place where the SCOPIC clause
is to be found. Thirdly, the clause itself will be thoroughly analyzed, and a
table will be used to indicate the main aspects of the various awards
available, including the SCOPIC remuneration.
2. The
International Convention on Salvage (1989)
The
International Convention on Salvage (1989) is the legal backbone in the
architecture of modern salvage law. Introduced by the International Maritime
Organization (IMO), the Convention codifies the ancient salvage principle of
“no cure-no pay”, meaning that no payment shall be effected if the salvage
operations have had no useful result. Subject to that principle, Article 13 of
the Convention entitles a salvor with an award that is assessed according to
ten criteria such as: the salved value of the vessel and other property, the
salvors’ skill and efforts, the measure of success obtained, the nature and
degree of danger, the time used and the expenses and losses incurred, etc. An
Article 13 Salvage Award is paid by both the ship and the cargo interests pro
rata to the salved value, and is insured by their property underwriters – the
H&M and cargo underwriters, respectively. An important principle is that
the amount of the award cannot exceed the salved value of the vessel and other
property.
Article 14 of
the Convention, on the other hand, introduced a new concept – the “safety net”
principle, which had been absent in the previous 1910 Brussels Salvage
Convention.2 The reason for this novelty was that, in the second half of the
20th century, the transportation of oil increased and so did the pollution to
the environment, which proved the ineffectiveness of the “no cure-no pay”
principle. Nations became aware of the enormous damage caused by environmental
pollution, and also of the fact that salvors were not motivated to go to the
assistance of tankers and engage in expensive salvage operations, while running
the risk of not earning any award under the “no cure-no pay” principle. The
“safety net” rule, however, encourages salvors to assist any vessel that is a
threat to the marine environment and ensures that they will not lose money. The
reason for this significant change of law is, thus, the policy to include
protection of the marine environment among the aims of salvage law.
The “safety
net” principle first appeared as a contractual provision in the Lloyd’s Open
Form (LOF) in the 1980 edition of the contract form, and was later codified in
Article 14 of the International Convention on Salvage.
A tribunal
may, exceptionally, increase the special compensation with up to 100% of the
salvor’s expenses.
For example,
if the Article 13 award is $600,000 and the Article 14 special compensation is
$720,000, then the $600,000 will be paid by the shipowner and cargo interests
pro rata to the salved value (covered by the property underwriters), while the
balance of $120,000 is payable by the shipowner alone (covered by his P&I
insurer).
Accordingly,
Article 14, which embodies this new principle, provides a special compensation
for salvors who failed to earn an Article 13 award that is at least equivalent
to the special compensation, but who undertook salvage of a vessel which
threatened damage to the environment. Unlike the traditional Article 13 award,
the special compensation is payable only by the owner of the distressed vessel,
and its amount is equivalent to the salvor’s expenses, which consist of (1) the
salvor’s out-of-pocket expenses and (2) a fair rate for the equipment and
personnel engaged in the salvage operations. Additionally, if the salvor
actually prevented or minimized damage to the environment, he is entitled to an
increase of the special compensation with up to a maximum of 30% of his
expenses.3 Conversely, if the salvor has been negligent and has thereby failed
to prevent or minimize damage to the environment, he may lose part or the whole
of his special compensation. The total special compensation is paid only if and
to the extent that it is greater than any award recoverable under Article 13.4
Articles 13 and 14 are still applicable if the salvor’s vessel and the salvaged
vessel belong to the same owner.5
A relevant
point is that, unlike other mandatory international instruments such as the
Hague and Hague-Visby Rules6, the International Convention on Salvage allows
the parties to contract out of its provisions either expressly or by
implication.7 There are only two exceptions, in which case contracting out is
not allowed: (1) when the salvage contract can be annulled or modified by the
court under Article 7 if the contract has become inequitable or the payment
thereunder has become excessively large or small, and (2) when the parties are
under duties to minimize or prevent damage to the environment (Article 8).
3. The
Lloyd’s Open Form (LOF)
The Lloyd’s
Open Form (LOF) is the most widely used contract for salvage assistance to
ships, and it proved to be very popular among professional salvors. This
salvage agreement has served the shipping industry for more than 100 years,
with the latest, eleventh, revision being LOF 2011. The LOF is under a constant
review by the Lloyd’s Salvage Group (LSG), which is the representative body
established to carry out this task and which is consisted of representatives
from Lloyds, the International Salvage Union (ISU), Property Underwriters, the
International Group of P&I Clubs, International Chamber of Shipping, and
others.8 The continuous amendment of LOF is carried out to guarantee that it
will remain the most favoured salvage contract form by professional salvors and
by the ISU.
According to
data from the International Salvage Union (ISU), for the period 1978-2005,
there have been 2,701 salvage operations performed under a LOF contract out of
5,135 salvage operation in total.
The bundle of
these three documents may be accessed at:
https://www.lloyds.com/the-market/tools-and-resources/lloyds-agency-department/salvage-arbitration-branch/lloyds-open-form-lof.
There are
indeed other standard forms of salvage contracts but none of them is an
alternative to the LOF when it comes to flexibility and the possibility to
incorporate the SCOPIC clause.9 The LOF is a no cure-no pay contract but, since
the LOF 90 revision, it has adopted the principles of the International
Convention on Salvage (1989). The LOF is a simple contract designed precisely
for emergency situations, when time and immediate response are of essence. The
contract can be agreed by the master on behalf of the shipowner without any
pre-contractual negotiations between the parties regarding terms and
conditions, which facilitates quick intervention. In other words, professional
salvage assistance is guaranteed immediately and any commercial considerations,
such as the salvor’s reward, are left for after the salvage operations have
been completed. Issues like financial aspects, law, jurisdiction, and
obligations and liability of the parties are all found in the standard wording
of the LOF as well as in the Lloyd’s Standard Salvage and Arbitration Clauses
(LSSA) and the Procedural Rules, the latter two being an integral part
thereof.10
If necessary,
an experienced arbitrator from the Lloyd’s Salvage Arbitration Branch will
assist the parties to a dispute. As of May 2005, a fixed cost arbitration
procedure (FCAP) has been introduced which, in essence, allows for a
documents-only arbitration process.
4. The SCOPIC
clause
The SCOPIC
clause was agreed in 1999 by several bodies as an alternative instrument to
Article 14. The International Group of P&I Clubs, the International Salvage
Union (ISU) and London property underwriters worked cooperatively to solve a
number of problems in the application of Article 14, which had given rise to
lengthy and costly arbitrations. Firstly, the difficulty to assess the amount
of “fair rate” and to define “threat to the environment” caused uncertainties. Secondly,
the geographical restriction of Article 14 precluded special compensation 4
ruled that the “fair rate” for the salvor’s equipment and personnel should not
include any profit element, and thus the profit was limited only to the
eventual uplift of the special compensation. Finally, there were also
complaints by salvors about having problems with obtaining a satisfactory
guarantee for their Article 14 special compensation, especially when the salved
property had been lost.
The NagasakiSpirιτ ruled that
the“fair rate” for the salvor’s equipment and personnel should not include any profit
element, and thus the profit was limited only to the eventual uplift of the
special compensation. Finally, there were also complaints by salvors about
having problems with obtaining a satisfactory guarantee for their Article14
special compensation, especially when the salved property had been lost. Αll
these problems were addressed by SCOPIC, which has been updated several times
as the latest revision is SCOPIC 2014. It represents a long and detailed
clausemade up of 16 sub-clauses. The complete SCOPIC package contains the
clause itself, three appendices, two codes of practice, and a salvage guarantee
form. The SCOPIC clause does not change Article14 but instead it substitutes its
methods of assessing the special compensation. SCOPIC is designed to be incorporated
into an LOF contract, done simply by deleting the word ‘No’ in box 7 of the
LOF. Thus, SCOPIC is not an automatically or mandatorily incorporated clause, and
a standard LOF is not changed until the parties decide to use the clause and
incorporate it accordingly.
If
the clause is incorporated, the salvor cannot then claim any Article14 award. Instead
he can invoke SCOPIC whenever he chooses, through a written notice to the shipowners,
even if there is no threat to the environment, and also without any geographical
restriction.
From
the moment the clause is invoked, the assessment of the SCOPIC remuneration
will commence, while all services performed prior to the invocation of the
clause will be assessed under Article13. Within two working days after the
invocation, the shipowners shall provide US$ 3 million, in the form of a bank
guarantee or a P&I Club letter, as a security for the SCOPIC remuneration.
If
the shipowners fail to do so, the salvor is entitled to withdraw from SCOPIC and
revert to Article14 as if SCOPIC had not existed.
P&I
Clubs have agreed to provide security on behalf of an entered member for SCOPIC
remuneration or for Article14 Special Compensation, but it is not automatic.
Clubs may refuse to give security in case of non-payment of calls, breach of
warranty rules related to classification and flag state requirements, or other
breach.
However,
it is agreed that the payment of any SCOPIC remuneration is a potential
liability of the shipowner that is covered by his liability insurers (P&I
Club) subject to the Club’s regulations and conditions of insurance.
The
SCOPIC remuneration is payable only by the shipowners and only to the extent that
it exceeds a potential Article13 award. It includes three components:
(1)
The agreed daily tariff rates(fixed in Appendix A) for the
personnel, tugs, and portable salvage equipment,
(2)
the out-of-pocket expenses, and (3)a standard bonus equal to a25% uplift.
If SCOPIC is invoked but the Article13 award appears to be greater than the
SCOPIC remuneration, then not only no SCOPIC remuneration will be paid, but
also the Article13 award will be discounted by 25% of the difference between the
award and the amount of the SCOPIC remuneration that would have been assessed
had SCOPIC been invoked on the first day of the salvage services. Therefore,
the bigger the difference between the Article 13 traditional award and the
SCOPIC remuneration, namely the bigger the overuse or abuse of the clause, the more
the Article 13 award will be diminished.
5.Conclusion
The SCOPIC clauseis not perfect but the 1999-2010 figures show that it is working well: out of 1008 LOF cases, SCOPIC was incorporated in 327 cases (32%of the cases) and it was invoked in 240 cases (24% of the cases), while there were only seven SCOPIC arbitrations. The major advantage and novelty of the SCOPIC clause under an LOF salvage contract is that when professional salvors are uncertain about the outcome of the operation, they have available at all time the option to resort to the alternative remuneration provided by SCOPIC, and in this way at least to recover their costs invested in the salvage operation. The following table summarizes the various salvage awards available. Note that it is not intended to provide a comprehensive statement of the law. The table rather represents a recapitulation of the salvage awards discussed in the article as well as a tool which allows the reader to easily compare the awards and to understand the differences between them.
The SCOPIC clauseis not perfect but the 1999-2010 figures show that it is working well: out of 1008 LOF cases, SCOPIC was incorporated in 327 cases (32%of the cases) and it was invoked in 240 cases (24% of the cases), while there were only seven SCOPIC arbitrations. The major advantage and novelty of the SCOPIC clause under an LOF salvage contract is that when professional salvors are uncertain about the outcome of the operation, they have available at all time the option to resort to the alternative remuneration provided by SCOPIC, and in this way at least to recover their costs invested in the salvage operation. The following table summarizes the various salvage awards available. Note that it is not intended to provide a comprehensive statement of the law. The table rather represents a recapitulation of the salvage awards discussed in the article as well as a tool which allows the reader to easily compare the awards and to understand the differences between them.
Award
Right to
anaward
Amount
Payable by
Insured by
Article
13award (traditional award) No cure-no pay
When
salvage operations have had a useful result.
Assessed,
taking into account ten criteria (e.g. the salved value of ship and cargo, measure
of success). Cannot exceed the salved value of the vessel and other property.
Shipownerand
cargo interests prorate to value
Property
underwriter (H&M and cargo underwriters)
Article
14award
When
there is a “threat to the environment” and Art 13 award too little or none
Equal
to: -the salvor’s expenses (out-of-pocket
expenses
plus a “fair rate”); -a possible increase of up to 30% (exceptionally, up to 100%).
Shipowner
Liability
insurers
(P&I
Clubs)
(special
compensation)
Safety
net
SCOPIC
remuneration
Safety
net
When
SCOPIC is
invoked
by the
salvor.
Equal
to: -the agreed tariff rates of personnel,
tugs,
and portable salvage equipment; -the out-of-pocket expenses; -a bonus of 25%.
Shipowner
Liability
insurers
(P&I
Clubs)
https://www.lloyds.com/market-resources/lloyds-agency/salvage-arbitration-branch/scopic.
Δεν υπάρχουν σχόλια:
Δημοσίευση σχολίου