Legal Consequences of the LOF (Lloyd’s Open Form) Agreement in Ship Salvage and Assistance Operations

When a vessel is in distress at sea, time spent negotiating remuneration before intervention may increase the extent of the loss. Lloyd’s Open Form (LOF) is a standard salvage agreement widely used in international maritime practice, allowing salvage operations to commence without the salvage remuneration being fixed in advance. Although concise and practical in form, LOF carries significant legal consequences in relation to representation of the parties, salvage remuneration, security, governing law, and dispute resolution.

The current LOF 2024 sets out the salvor’s principal obligations and incorporates the ‘no cure-no pay’ principle, while providing for English law and London arbitration in respect of disputes arising under the agreement. In cases connected with Türkiye, the salvage provisions of Turkish Commercial Code No. 6102 (‘TCC’), interim and conservatory measures available in Türkiye, and the effect of arbitral awards in Türkiye must also be considered.

What Is an LOF Agreement and When Is It Used?

LOF is an international standard agreement used for the salvage of vessels and other maritime property in danger. It is particularly suitable where negotiating the salvage remuneration in advance could delay an urgent response. Unlike ordinary towage services, salvage requires the existence of a genuine maritime danger and a useful intervention in response to that danger.

Under LOF, the salvor is required to use its best endeavours to bring the relevant property to a place of safety. The salvor is also expected to exercise due care to prevent or minimize damage to the environment. The principal features of LOF may be summarized as follows:

• The agreement is governed by English law.
• As a rule, the ‘no cure-no pay’ principle applies.
• Disputes concerning the salvage award and the agreement are resolved by arbitration in London.
• SCOPIC applies only where it has been incorporated into the LOF and subsequently invoked in accordance with the prescribed procedure.
• Salvage remuneration is not fixed in advance and is generally determined after the operation, either by agreement between the parties or through arbitration.

LOF 2024 also introduced certain reporting requirements intended to enhance transparency in relation to salvage operations. These include the reporting to Lloyd’s, within the applicable time frames following termination of the salvage services, of certain environmental, social, and governance (ESG) data and salved values, as well as specified settlement information where a case is resolved by agreement.

Who Is Bound When an LOF Agreement Is Signed?

One of the distinctive features of LOF is that the person signing the agreement may act on behalf of several different property interests. The vessel’s master or another person authorized to sign the form may act as agent for the owners of the vessel, cargo, freight, bunkers, and other property subject to the salvage operation.

The limits of this agency relationship must, however, be properly understood. The signatory may bind the owners of the relevant property as against the salvor, but those owners are not thereby deemed to act as agents for one another. Nor does the signatory incur personal liability merely by signing the LOF.

Accordingly, although a single signature may bind different interests, such as the vessel and cargo, to the LOF regime, the position of each interest in relation to the salvage award, security, and liability is assessed separately by reference to its own legal position and salved value.

How Does the ‘No Cure-No Pay’ Principle Affect the Salvage Award?

The ‘no cure-no pay’ principle generally means that no salvage award is payable unless a useful result is achieved. Complete success is not, however, required. An award may arise to the extent that economic value has been preserved or salved, and the total salvage award cannot exceed the total value of the salved property.

The salvage award is not determined merely by reference to the time spent or expenses incurred by the salvor. Relevant factors include the salved value of the property, the nature and degree of the danger, the skill and efforts of the salvor, the duration of the operation, the vessels and other equipment employed, the risks incurred, the promptness of the response, and the efforts made to prevent or minimize environmental damage.

This structure distinguishes LOF from a fixed-fee service agreement. The salvor’s remuneration is determined after the operation, either by agreement or arbitration, having regard to the benefit achieved by the operation and the risks undertaken.

When Does SCOPIC Apply?

The Special Compensation P&I Club Clause (SCOPIC) is not a payment mechanism that automatically applies under every LOF agreement. SCOPIC must first be incorporated into the LOF, following which the salvor must invoke it by written notice in accordance with the prescribed procedure.

SCOPIC was developed as an alternative to the special compensation regime under Article 14 of the 1989 Salvage Convention and provides the salvor with a separate remuneration mechanism, particularly in operations where the value of the salved property may be insufficient to support an adequate conventional salvage award. SCOPIC remuneration is calculated by reference to predetermined tariff rates, to which a standard uplift of 25% generally applies.

The existence of an actual threat of environmental damage is not a prerequisite for invoking SCOPIC. Provided that SCOPIC has been incorporated into the LOF, the salvor may invoke the mechanism by serving the required written notice.

Invocation of SCOPIC does not displace the conventional salvage award. The salvage services remain separately assessable under the criteria contained in Article 13 of the 1989 Salvage Convention. SCOPIC remuneration is principally payable by the shipowner to the extent that the assessed SCOPIC remuneration exceeds the total Article 13 award. Conversely, where the Article 13 award exceeds the assessed SCOPIC remuneration, the 25% discount mechanism provided for under SCOPIC may become applicable.

Once SCOPIC is invoked, the shipowner may be required to provide initial security in the amount of US$3 million within two working days, in the form of a bank guarantee or a P&I Club letter of undertaking. The amount of security may subsequently be increased or reduced depending on the progress of the operation and the anticipated SCOPIC remuneration.

P&I Clubs may play an important role in arranging security, monitoring the operation, and administering the SCOPIC mechanism. The Club’s ultimate liability must nevertheless be considered separately by reference to the applicable policy terms, scope of cover, and circumstances of the casualty.

English Law, London Arbitration, and the LSAC Procedure

LOF 2024 provides for English law and London arbitration. The procedure governing the determination of salvage awards and other disputes arising under the agreement is set out in the Lloyd’s Salvage Arbitration Clauses 2024 (LSAC). The LSAC 2024, as revised in May 2026, constitute the current framework governing arbitration and security.

Where a party to an LOF arbitration wishes to be heard or to submit evidence, it must appoint a representative or solicitor to receive correspondence and notices and notify the Council of Lloyd’s accordingly. This is particularly important where vessel and cargo interests are represented separately in the arbitration.

The choice of English law and London arbitration under LOF does not mean that every aspect of a casualty connected with Türkiye is governed exclusively by English law. Applications for interim or conservatory relief, including the arrest of a vessel or other property situated in Türkiye, as well as the recognition, enforcement, and execution of an arbitral award in Türkiye, may require a separate analysis under the applicable conflict-of-laws and procedural rules.

How Is Salvage Security Determined?

The salvor may require reasonable security from the salved interests to secure its claim for a salvage award. The amount of security should be reasonable in light of the information available to the salvor when the demand is made and any subsequent developments. The arbitrator may also order that the amount of security be increased or reduced.

The principal consequences under the current LSAC framework include the following:

• Where the security demand is US$10 million or less, the dispute will generally be determined solely on written documents under the Fast Track Documents Only (FTDO) procedure. The arbitrator may nevertheless direct an oral hearing where this is considered appropriate, including having regard to the nature or complexity of the dispute.
• Where the security demand exceeds US$10 million, the matter will generally proceed by way of an oral hearing. The arbitrator may, however, direct that the dispute be determined under the FTDO procedure where appropriate.
• If the required security is not provided within 21 days after termination of the salvage services, the salvor may, where the relevant conditions are satisfied, take steps to arrest or detain the salved property.
• Where there are reasonable grounds to believe that the property may be removed or that recovery of the salvage claim may otherwise be jeopardized, protective measures may be sought without waiting for the expiry of the 21-day period.

The FTDO procedure replaced the former Fixed Cost Arbitration Procedure (FCAP) and has applied since 1 June 2024.

Under LOF and the LSAC, the salvor may assert a maritime lien over the salved property pending the provision of adequate security for the salvage claim. The timely provision of security is therefore of particular practical importance for the release of the salved property.

It should also be borne in mind that salvage security and general average security secure different claims. The provision of salvage security does not automatically satisfy the requirement for general average security, nor does general average security automatically constitute security for a salvage claim.

Award, Appeal, and Payment Deadlines

Under the LSAC, an appeal against an arbitrator’s award may be brought within 21 days. A different period applies to payment: as a general rule, sums awarded must be paid within 28 days following publication of the award by Lloyd’s.

Accordingly, the 21-day appeal period and the 28-day payment period are separate deadlines, each of which should be independently monitored following publication of the award.

Subject to the exceptions provided for under the LSAC, arbitral awards and the reasons for them may also be made available by Lloyd’s. Failure to comply with the relevant deadlines may directly affect recourse to the security and the recovery process. Early coordination among the shipowner, cargo interests, hull and machinery insurers, cargo insurers, and the P&I Club is therefore essential.

LOF Under the Turkish Commercial Code

Articles 1298–1319 of the TCC contain the principal Turkish law provisions governing salvage. Although LOF provides for English law and London arbitration, the relevance and effect of the TCC in a dispute connected with Türkiye must be assessed separately, taking into account the place of the casualty, the parties involved, the location of the property, and the relief sought.

Under Article 1300 of the TCC, the master is authorized to enter into a salvage agreement and agree to an arbitration clause on behalf of the owners of the vessel and cargo. Article 1301 provides for adjustment or annulment of the agreement where it was entered into under the influence of danger or as a result of misrepresentation, or where its terms are inequitable or grossly disproportionate. Where no useful result is achieved, Article 1304 of the TCC generally precludes entitlement to a salvage award. The criteria set out in Article 1305 are taken into account when determining the award. Under Article 1306, liability for the salvage award falls upon the owners of the vessel and other salved property in proportion to their respective salved values; joint and several liability does not arise automatically merely from the salvage relationship.

For operations undertaken to prevent or minimize environmental damage, the special compensation provisions under Article 1312 of the TCC are also relevant. The obligation to provide security is governed by Article 1314, while the maritime lien, right of retention, and restriction on removing salved property without sufficient security are addressed under Article 1315.

Under Article 1319 of the TCC, salvage claims are subject to a two-year limitation period, commencing on the date on which the salvage operation is terminated.

What Should Be Checked When Signing an LOF Agreement?

The urgency of a salvage operation does not mean that legal review should be deferred entirely until after the operation. At the earliest practicable stage, particular attention should be given to the following:

• the 21-day and 28-day deadlines under the LSAC;
• the amount, scope, and basis of the security demanded by the salvor;
• the capacity of the signatory and the interests represented;
• documentation relating to the values of the vessel, cargo, freight, and bunkers;
• operational records, expenses incurred, environmental risks, and measures taken;
• allocation of responsibilities and coordination among the P&I Club, hull and machinery insurers, and cargo insurers;
• any interim relief, ship arrest, recognition, enforcement, or execution proceedings that may be required in Türkiye;
• whether SCOPIC has been incorporated into the LOF and properly invoked;
• where SCOPIC has been invoked, whether the required security has been provided within the applicable time frame; and
• reporting and data-sharing obligations towards Lloyd’s under the LOF and LSAC.

Legal Assurance with Esenyel Partners

Ship salvage and assistance operations require rapid decision-making. However, an incorrect SCOPIC selection under the LOF, delay in arranging security, failure to clarify signing and representative authority, incomplete operational records, or failure to observe the applicable LSAC deadlines may directly affect the determination of the salvage award, the release of the salved property, and any subsequent arbitration proceedings.

Esenyel Partners, through its maritime law team, provides legal assistance throughout the entire process, from reviewing and signing an LOF and advising on the invocation of SCOPIC to negotiating salvage security and coordinating with P&I Clubs and insurers. London arbitration, together with any ship arrest, interim or conservatory relief, and recognition, enforcement, or execution of arbitral awards that may be required in Türkiye, is considered comprehensively in light of the circumstances and connections of each particular case.

You may contact Esenyel Partners to manage the legal and financial risks arising from ship salvage operations effectively from the outset.

Contact