The use of side agreements in LOF/SCOPIC

February 2018

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ContractLOFSideAgreements

Lloyd’s Open Form (LOF) in its various guises has played a leading role in casualty emergency response contracts for over 100 years and in more recent times since 1999 the supplementary SCOPIC (Special Compensation P&I Clubs) clause has been an integral part of LOF.

LOF and SCOPIC are managed by the Salvage Arbitration Branch of Lloyd’s of London (SAB) which holds bi-annual meetings of the Lloyds Salvage Group and of the SCOPIC Committee with representatives of interested parties from the International Salvage Union (ISU), the International Chamber of Shipping, property underwriters and the International Group of P&I Clubs.

Over the past year Lloyd’s has become increasingly aware of the use of side-agreements (or pre-settlement agreements) which seek to provide an alternative means of calculating a salvage award earned under a LOF contract. Such agreements are primarily private arrangements between a property owner, its underwriters and the salvor and generally the P&I Club concerned may have no knowledge that a side agreement exists. However, with the apparent popularity of side-agreements Lloyd’s have invited parties when giving notice of a LOF contract to advise if a side-agreement exists and provide a copy. Lloyd’s would then inform all parties to the salvage of the existence of the side agreement but without divulging its contents.

In addressing the mechanism by which a salvor earns an award under LOF and SCOPIC a side agreement has the potential to impact on Club cover if there is any variation on how SCOPIC remuneration is calculated. Moreover, any variation on the means of calculation of the Article 13 award could potentially impact Club cover. For these reasons, and as with any contract a member enters into that may have Club cover consequences, the Club strongly recommends a Member faced with a proposal to agree a side-agreement to LOF should seek the Club’s advice and a review of the terms of the side-agreement first to ensure no inadvertent cover prejudice occurs. 

 

  Article by Ian Freeman
Syndicate Manager
ian.freeman@simsl.com