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Your are here: Home >> About Us >> History >> The Origins of Lloyd's Form HistorySalvage: The Origins of Lloyd's FormIn the bottom left hand corner of every Lloyd's Form of Salvage Agreement ("LOF") there is a list of dates on which previous editions of the form have been published. Although the earliest of those dates is 15th January 1908, several forms of salvage agreement acceptable to Lloyd's had been in existence for many years previously and, by 1908, a significant number of salvage claims had been resolved by arbitration either by the Committee of Lloyd's ("the Committee") or by an arbitrator appointed by the Committee. The story begins in 1890 when, in response to concern regarding the activities of certain salvors in the Dardenelles and Black Sea regions, the Committee of Lloyd's sent Sir Henry Hozier, the Secretary to Lloyd's, to visit Vincent Grech, the most prominent salvor in the area who owned four salvage vessels. The concern which led to the visit arose from complaints from Masters of unreasonable behaviour by salvors in their contractual demands, which invariably involved the Master being compelled to sign a contract for the payment of a lump sum which was often grossly excessive. Experience had shown that it was virtually impossible for owners or underwriters to obtain any redress because that involved the need for litigation in local courts which was difficult, expensive and rarely, if ever, successful. Lloyd's were able to persuade Mr Grech to agree that, in future, he would perform salvage services on the terms of a contract which provided for arbitration in London by the Committee or an arbitrator appointed by the Committee, if there was any subsequent objection to the lump sum figure in the contract. However the contract wording agreed with Mr Grech stipulated that the lump sum had to be paid to Mr Grech in the first instance on termination of the services. This arrangement with Mr Grech was approved by the Committee of Lloyds when it met on 25th June 1890 and was quickly brought into effect. Following the successful salvage by Mr Grech of the vessel "HELEN OTTO" there was an objection to the price agreed with him and, in November 1890, the Committee referred the matter to a sub-Committee, comprising a Mr Hardy and a Mr de Rougemont. Their report was considered at the Committee meeting on 26th November 1890 and it was resolved that the agreed price of £950 should not be disturbed. By this time, Lloyd's had made a similar approach to the other leading salvor in the Dardenelles region, the Perim Coal Company. Although Perim were prepared to agree to use a form of contract very similar to that negotiated with Mr Grech, they declined to give any assurance that they would use that form of contract in all cases. However, Perim did use the contract form agreed with Lloyd's later in 1890 when they had the opportunity to provide salvage assistance to the P&O vessel "HONG KONG" which had stranded. The contract provided for the payment of a lump sum of £30,000 on completion of the services which was a considerable sum of money in those days. There was a subsequent objection to the figure. On this occasion, the Committee decided not to act as arbitrators themselves but to appoint a lawyer as arbitrator. They chose William Walton (later Sir William) who had just retired as a partner in Waltons Bubb & Johnson, who were the Committee's solicitors. Mr Walton was appointed arbitrator on 7th January 1891. At the same meeting the Committee elected William Walton an honorary member of Lloyd's, a rare distinction which had also been conferred on his father in 1871 when he was appointed solicitor to the Committee. William Walton decided that the fixed price of £30,000 was excessive and he reduced the amount to £12,000 in the award he submitted to the Committee in May 1891. Thereafter it became the Committee's practice to appoint Mr Walton or a senior member of the Admiralty Bar as sole arbitrator in all cases. Despite the agreements with these prominent salvors, meetings were held at Lloyd's at the end of November 1890 to consider what further action could be taken to allay underwriters' concerns regarding the availability of salvage assistance and the terms on which such assistance could be obtained. The Committee was asked to consider a proposal that underwriters should form a company to engage in the business of salvage for underwriters benefit. This was not a novel idea. At the time, Liverpool Salvage Association was operating 3 salvage vessels on behalf of Liverpool Underwriters: the "HYNA" was owned by the Association : the "MALLARD" and "ZEPHYR" had been chartered. Moreover, until 1887, the Glasgow Salvage Association had maintained a vessel on station at Ardrossan and, in 1890, the Salvage Association in London were still maintaining a stock of salvage pumps for use in the River Thames. Lloyd's rejected this proposal on the basis that its constitution did not permit the Society to act as salvage contractors. Instead, it was agreed, that a more concerted attempt should be made to establish a standard form of salvage agreement which would include the concept of arbitration by the Committee or its appointed arbitrator. Lloyd's therefore approached salvors in other areas in the hope of concluding such agreements. One of these was the International Salvage Union of Copenhagen which comprised A/S E.Z. Svitzer, the Neptun company and Nordischer Bergungs of Hamburg. However Lloyd's were unable to achieve any agreement with ISU on any standard salvage contract wording. Nevertheless, in January 1891, further support for the concept of arbitration by or on behalf of the Committee of Lloyd's was received from the General Shipowners Society which suggested that, in light of the experience they had so far gained, Lloyd's should prepare a standard form of salvage agreement in terms which might receive universal support. Lloyd's adopted this suggestion and a draft contract was prepared by Waltons. This was modelled on the agreement which had been negotiated with Mr Grech but it differed in one important respect. Instead of providing that the fixed price should be paid to the salvor on completion of the services, it stated that the amount should be paid to Lloyd's in cash where it would be held on deposit pending the outcome of the arbitration. The draft was approved by Lloyd's Agency Committee on the 28th July 1891. Negotiations then took place in the hope that the draft would be acceptable to all concerned. A measure of success was achieved but the ISU of Copenhagen refused to agree the arbitration provisions it contained. Their view was that, in the event of a dispute, Lloyd's and the contractual salvors should each appoint their own arbitrator who would have power to appoint an umpire if they were unable to reach agreement on the appropriate salvage remuneration. The ISU were, however, prepared to accommodate Lloyd's on one point. They were willing to agree not only that the fixed price need not be paid at termination of the services but that, in the event of an objection to the price, it would be sufficient for the underwriters concerned to provide security to Lloyds for the payment of the amount awarded by arbitration. Lloyd's concluded a separate agreement with the ISU on this basis in December 1891 and, shortly afterwards, agreed a similar arrangement with another prominent salvor, Berging Maatschappij of Maasluis. Nevertheless, the fact that it had not been possible to agree a single form of contract acceptable to all concerned was recognised as being unsatisfactory and, during 1892, various amendments were made to the draft prepared in July 1891 in the hope that this would improve the form's acceptability. Unfortunately this resulted in complaints from Mr Grech and others that the form had become too lengthy. Waltons then drafted a shortened form and both the long and short versions were published in "Lloyd's Seamans Almanac". Nevertheless Lloyd's were still keen to establish one standard form and in November 1892 Waltons prepared the first so-called "Lloyd's salvage agreement". Its material provisions are set out in the report of the Court of Appeal's decision in "The City of Calcutta" (1898) 8 Asp. 442 which was the first case to come before the Courts involving a "Lloyd's salvage agreement". In that case, the salvors had chosen to sue for salvage in the Admiralty Court despite the arbitration provisions in the salvage agreement. The shipowners applied for a stay of the Court action. This was refused by the Admiralty Court and the owners appealed. But they were also unsuccessful in the Court of Appeal which had "grave doubt " that the Master had authority to bind his owners to arbitration. Moreover, the ISU were probably encouraged by the finding that the salvors should not be compelled to go to arbitration under an agreement which enabled the Committee to object to a fixed price as being too large and then to act as arbitrators when they would be "judges in their own cause". By 1898 the contract wording of November 1892 had gained widespread support except from the ISU of Copenhagen and Berging Maatschappij which continued to use the separate forms agreed with them in 1891. However, in 1897, Lloyd's had made a further effort to bring the ISU into the fold. They proposed an amendment to the arbitration clause which would give the salvor the option either of accepting arbitration by the Committee or its arbitrator or to have the remuneration assessed by a panel comprising arbitrators appointed by the salvors and ship owners respectively with an umpire to be appointed by the Committee if those two arbitrators could not agree. Unfortunately, these suggestions did not prove acceptable to the ISU. Consequently, in December 1904, Lloyd's concluded that it would be necessary to publish two versions of a standard form, one for general use which would contain the arbitration clause Lloyd's preferred and another which would contain the more complex arbitration provision on which the ISU was insistent. It was not in fact until 1907 that the position between Lloyd's and the ISU was resolved. Matters came to a head on 3rd June 1907 when a meeting took place at Lloyd's with ISU representatives. This was held in the context of a suggestion that "a permanent Court of arbitration" should be established (possibly in Hamburg) to resolve salvage claims involving Lloyd's and other marine underwriters in London. It was envisaged that this Court would consist of a tribunal comprising :-
However in the course of this meeting on 3rd June 1907 the ISU representatives indicated that they were prepared to disregard the proposal to create an arbitration Court if the standard form of salvage agreement which Lloyds were promoting, could be amended to meet their concerns which related mainly to the arbitration process. Little is known about the way salvage arbitrations were conducted at that time but it is a reasonable inference from the information which exists that:
Lloyd's were not unsympathetic to the proposals to reform the arbitration process and the meeting concluded on the basis that a new draft of a standard form would be prepared with a view to its replacing all existing forms Lloyd's had agreed. There was however an objection to the proposal that interest should be awarded on salvage claims and, in the course of discussion, this was withdrawn by ISU. The drafting of the new form was entrusted to Sir Henry Johnson of Waltons, who had attended the meeting, and this became the first Lloyd's Standard Form of Salvage Agreement published in January 1908. This provided that, whether or not the contract stipulated for the payment of a lump sum, the salvors were required to notify Lloyd's, on completion of the services, of the amount for which they required security. This reflected the objective that, regardless of whether or not the agreement was a fixed price contract, the final remuneration payable should be determined by arbitration by the Committee or its appointed arbitrator unless, following a period for reflection, all parties were satisfied that any price agreed was fair. Also, in an attempt to meet the ISU's criticisms of the Lloyd's arbitration system, provisions were included to give all parties the right "to be heard or to adduce evidence". It was hoped that this would allay the salvors' concern that an arbitrator with no practical experience of salvage and no relevant technical expertise might not fully appreciate the risks and dangers to which the casualty had been exposed and the real merit of the services rendered. However, subsequent events indicate that this was not entirely successful since, in 1925, Lloyd's received a deputation from the ISU (which then included Smit) when they again proposed the creation of an arbitration tribunal at least one member of which would be a technical expert. But the suggestion was declined and, so far as is known, it has not since been revived. |
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