Lloyd's of London
London, historically pre-eminent as a global centre for shipping, retains through Lloyd's of London a leading role in marine insurance, salvage law and the arbitration of salvage cases.

Lloyd's modern form of salvage agreement - universally known as 'Lloyd's Open Form' or LOF - dates from 1892, and internationally it remains the preferred contract. It is designed to encourage quick action to save ships and cargoes by avoiding delays that might otherwise arise from commercial haggling. The resolution of disputes is deferred, together with the assessment of the salvage award, until the salvage task is completed.

The salvage award
LOF is administered in London by Lloyd's Salvage and Guarantees Department. In return for salvage services, the salvor receives a 'salvage award': a proportion of the 'salved value' - that is, the value of the salvaged ship, its fuel bunkers and cargo.

Traditionally, the reward depended on success and the recovery of property - if there was no recovery, there was no payment, whatever the expense of the operation. The International Salvage Union (ISU) is an association representing the interests of 46 salvors based in 30 countries and operating worldwide, with membership restricted to companies with records of successful salvage and pollution prevention. Between 1978 and 1998, members of the ISU performed nearly 4,000 salvage operations, of which some 60% were carried out under LOF's 'no cure, no pay' contracts. The salved value of ships, bunkers and cargoes involved in these operations totalled US$24 billion.

However, things have changed in recent years. Now, whenever there is a threat of environmental damage, the salvor can expect a fair return for its efforts even if it impossible to save the ship and/or cargo.

How awards are determined
There are around 120 LOF cases a year. The majority are settled commercially on an amicable basis; the rest are arbitrated. The salvage award is fixed by an arbitrator appointed from a panel of Lloyd's salvage arbitrators. The criteria that the arbitrator uses to fix the award include:

• the degree of danger involved.
• the value of the property salved.
• the skill and effort in preventing damage to the environment.
• the expenses incurred.
• the level of the service provided.
• the salvor's long-term investment in tugs and other vessels and equipment that may be required only infrequently.

An industry in trouble
The salvage industry has passed through difficult times in recent years. Shipping has become safer and, as a result, the demand for salvage services has declined.

In 1998 (the last year for which figures are available), 220 ships were salvaged, recovering property to the total value of just over US$1 billion - the lowest figure for 10 years and a fall of more than 40% on 1997. Revenue for the salvors from these cases fell by 30% - from US$94.8 million in 1997 to US$66.6 million in 1998.

The figures from Lloyd's provide a similar picture. There were 30 Lloyd's awards published in 1998 as against 33 the preceding year. Total awards amounted to US$20.9 million, compared to US$24.7 million in 1997.

Nevertheless, great emphasis is still placed by salvors on operational success, given the current importance placed on preventing spills. The growth in revenue from wreck removals - an activity increasingly undertaken on environmental grounds - offers them some hope.