SALVAGE – SCOPIC CLAUSE DUBLIN IMCC 2005 SALVAGE – SCOPIC CLAUSE HULL & MACHINERY UNDERWRITERS’ PERSPECTIVE

INTRODUCTION The Salvage Industry, Liability Insurers, and to a lesser extent Property Underwriters wanted to simplify the salvage process after having encountered many difficulties with the Art 14 “special compensation”. In March 99, SCOPIC was launched after protracted negotiations between ISU, International Group of P&I Clubs and the London Market Property Underwriters. The SCOPIC clause was then slightly revised in 2000 and incorporated in the Lloyd’s Standard Form of Salvage, “LOF 2000” which was published on 1 September 2000. → 6 years after, what are the effects of the introduction of SCOPIC on the salvage process? → How does it affect our role from a H & M Underwriter’s perspective? BTH Good morning Ladies & Gentlemen, Let’s come now to the H&M Underwriter’s point of view. The Salvage Industry, Liability Insurers, and to a lesser extent Property Underwriters wanted to simplify the salvage process after having encountered many difficulties with the Art 14 “special compensation”. In March 99, SCOPIC was launched after protracted negotiations between ISU, International Group of P&I Clubs and the London Market Property Underwriters. The SCOPIC clause was then slightly revised in 2000 and incorporated in the Lloyd’s Standard Form of Salvage, Lloyd’s Open Form 2000 (“LOF 2000”) which was published on 1 September 2000. 6 years after, what are the effects of the introduction of SCOPIC on the salvage process? How does it affect our role from a H & M’s Underwriter’s perspective? ------------------------ SCOPIC is relatively new and it may be too early to fully assess the pros & cons of this provision. However, based on cases we experienced as Claims Leader, we may express the following:

The main changes with the implementation of SCOPIC are: 1. the SCOPIC fixed & agreed rate 2. the SCOPIC remuneration : - tariff rates + 25% uplift - the 25% discount in favour of Property Underwriters in case Art 13 exceeds Scopic tariff 3. the need to be invoked expressly by Salvors 4. the absence of requirement of threat to the environment 5. the SCR, H&M and Cargo Special Representatives appointment 6. the US$ 3 M guarantee issued in favour of Salvors Let’s first come back quickly to the main changes with the implementation of SCOPIC.

SCOPIC, a step forward for the Maritime Industry : SCOPIC clause was designed to improve article 14 of the Salvage Convention, 1989 and the numerous difficulties encountered in the past. SCOPIC clause has worked as an incentive to salve vessels for Salvors, irrespective of potential environmental damages. It allows salvage remuneration even when salvage values are low or prospects of success are poor. → All the Maritime Community benefits from this measure. SCOPIC is a flexible provision as both Owners and Salvors are entitled to terminate the SCOPIC service by giving written notice. SCOPIC, A STEP FORWARD FOR THE MARITIME INDUSTRY : - SCOPIC clause was designed to improve article 14 of the Salvage Convention, 1989 and the numerous difficulties encountered in the past such as the definition of the threat to environment, the assessment of the special compensation (what is a “fair rate”), the lack of security for Salvors, the lack of information for the P&I Insurers, the delay in payment for Salvors etc. - SCOPIC clause has worked as an incentive to salve vessels for Salvors, irrespective of potential environmental damages. It allows salvage remuneration even when salvage values are low or prospects of success are poor. When before, Salvors would refrain from offering their services on salvage terms and wait until the liability Insurers are ready to negotiate for a fixed price contract; Now, under SCOPIC, Salvors cannot fail to recover their expenses, plus a mark up of 25%. → All the Maritime Community benefits from this measure. - The flexibility as the salvors shall be entitled to terminate the services by giving written notice to Owners. This last is also entitled to terminate their obligation

On H & M Underwriters side, a progress to be balanced : 1- The possibility to appoint a Hull Special Representative to monitor the salvage operation on our behalf However : we do not use this possibility that often as : H & M underwriters appoint already a Surveyor SCR is already appointed by the Shipowner and his duty is to perform his functions on behalf of all parties and their insurers. His final report shall be forwarded to the interested persons. In practice, we regret not to receive more daily information/SITREPS from the SCR. In any case, should a major casualty occur, then with no doubt we would appoint a H & M special representative + our H & M Surveyor. Let’s focus now on the H1M Underwriters position towards SCOPIC. We may say that SCOPIC is a step forward, but a little step, as the main advantages have to be balanced : The first important point to us is : 1- The possibility to appoint a Hull Special Representative to monitor the salvage operation on our behalf – However : Appointment not that used as H&M underwriters appoint already a Surveyor to monitor the casualty ( and the salvage operations) on our behalf. Moreover, as a SCR is already appointed by the Shipowner we do not see the point of appointing a Hull Special Representative as the SCR’s duty is to perform his functions on behalf of all parties and their insurers. His final report shall be forwarded to the interested persons. In practice, we regret not to receive more daily reports/SITREPS from the SCR. In any case, should a major casualty occur, in particular in a place where our Surveyor cannot attend, then with no doubt we would appoint a H&M special representative.

On H & M Underwriters side, a progress to be balanced : 2 - the 25% discount on Art 13 if the Salvor triggers the SCOPIC remuneration inappropriately However : to have the advantage of the 25% discount we must know the amount of the SCOPIC remuneration, ie only when receiving the SCR final report. Therefore, should we wish to negotiate a case swiftly with Salvors, we may have to renounce to the 25% discount. (unless we are sure the case will give rise to a SCOPIC remuneration i.e. SCOPIC Tariff ≥ Art 13). In this sense, we may say that we may not get the advantage of the 25% discount each and every time. The second positive point for us is : 2- the 25% discount : If the Salvor triggers the SCOPIC remuneration inappropriately and the SCOPIC remuneration ends up for an amount lower than the Art 13 award, Property underwriters will receive a discount of 25% of the amount by which the Art 13 exceeds the SCOPIC remuneration. However: to have the benefit of the 25% discount you must know the amount of the SCOPIC remuneration, that is to say only when receiving the SCR final report. And we will see later on that it may take a long time. Therefore, should we wish to negotiate a case swiftly with Salvors, we may have to renounce to the 25% discount. (unless we are sure the case will give rise to a SCOPIC remuneration, ie SCOPIC Tariff ≥ Art 13). In this sense, we may say that we may not get the advantage of the 25% discount each and every time. Let’s develop this idea and by focusing on the disadvantages of SCOPIC :

A step backward on a H & M Underwriter' perspective : 1 – The negotiation process may be slower : We are not in a position, as we said to get the advantage of the 25% discount nor to accept an offer from Salvors until we know the exact SCOPIC tariff assessed by the SCR. As the process of issuing the final SCOPIC assessment can be long (several months after completion of services), the costs & interests can accrue. Moreover, the security given by the P&I Insurers in the ‘ISU 5’ form may give the P&I Insurer the right to be consulted, and to approve/disapprove any negotiated settlement of the Art 13 The disadvantages we noticed on a H&M’s perspective could be the following : 1 – The negotiation process may be slower : We are not in a position, as we said to have the benefit of the 25% discount nor to accept an offer from Salvors until we know the exact SCOPIC tariff assessed by the SCR. As the process of issuing the final SCOPIC assessment can be long (several months after completion of services), it would accrue costs & interests. Moreover, the security given by the P&I Insurers in the ‘ISU 5’ form may give the P&I Insurer the right to be consulted, and to approve/disapprove any negotiated settlement of the Art 13.

A step backward on a H & M Underwriter' perspective : 2 - we may not negotiate with Salvors directly in certain cases : For instance, we had a case in which the P&I Insurer settled the entire SCOPIC tariff to Salvors and several months after contacted H&M & Property underwriters to get the Art 13 contribution from them. (It was a situation in which art 13 was very low as there was almost no salved fund). 3 - the lack of information from SCR although SCR has the duty to report to the Leading Hull Underwriter in case no Hull Special Representative has been appointed. (SCR Guidelines). However, we do not receive this reporting. We also were never asked to settle the SCR fees ! 2 - We may not negotiate directly with Salvors in certain cases : For instance, we had a case in which the P&I Insurer settled the entire SCOPIC tariff to Salvors and several months after contacted H&M & Property underwriters to get the Art 13 contribution from them. (It was a situation in which art 13 was very low as there was almost no salved fund). 3- As mentioned, we noticed a lack of information from SCR although he has the duty to report to the Leading Hull Underwriter in case no Hull Special Representative has been appointed. (as per SCR Guidelines) However, we do not receive this reporting. We also never were asked to settled the SCR fees !

A step backward on a H & M Underwriter' perspective : Before SCOPIC, in salvage cases, H&M Underwriters were the only “pilot on board” and managed all the salvage aspects from the beginning up to the remuneration process. Now, this salvage management has been transferred to the P&I Insurer and to some extent H&M underwriters have lost control on the handling of salvage cases. We therefore may have to rely on P&I Insurers on certain aspects whereas our interests may differ. These ideas illustrate the main changes with the implementation of SCOPIC. Before SCOPIC, in Salvage Cases, H&M Underwriters were the only “pilot on board” and managed all the Salvage aspects from the beginning to the remuneration. Now, this salvage management has been transferred to the P&I Insurer. H&M have lost control on the handling of salvage cases and as everyone knows, loosing control on a claim may involve extra expenses. If the salvage is being handled by the P&I Insurer, we may have to rely on them with interest which may differ. For instance, a P&I Insurer main interest may be to salve a vessel at all costs to avoid the wreck removal whereas a Property Insurer main interest main interest may be to agree the CTL/ATL in the shortest terms. Also, we have made agreements with the main Salvors and we may have to renounce to them in case of SCOPIC process.

CONCLUSION SCOPIC is very effective for high risk and/or low values situation. However improvements need to be balanced at least from Property Underwriters' point of view. A first measure on which we may be working on could be to set up a deadline for the SCOPIC assessment to be published, for instance 2 months after termination of services. What is making our situation difficult is that, contrary to the SCOPIC remuneration, Art 13 award is a “volatile” amount, difficult to assess. Reaching a fair agreement with Salvors may be a difficult exercise and we have to resort to Arbitration in numerous cases. What about the shipping community re-considering the Art 13 opportunity and working on a standard pre-agreed remuneration for all sorts of salvage services ? SCOPIC is very effective for high risk and/or low values situation. However the improvements need to be balanced at least from Property Underwriters point of view. A first measure on which we may be working on could be to set up a deadline for the SCOPIC assessment to be published, for instance 2 months after termination of services. What is making our situation difficult is that, contrary to the SCOPIC remuneration, Art 13 award is a “volatile” amount, difficult to assess. Reaching a fair agreement with Salvors may be a difficult exercise and we may have to resort to Arbitration in numerous cases. What about the shipping community re-considering the Art 13 opportunity and working, as we made with the SCOPIC, on a standard pre-agreed remuneration for all types of salvage services ?

SALVAGE – SCOPIC CLAUSE H & M UNDERWRITERS’ VIEW DUBLIN IMCC 2005 SALVAGE – SCOPIC CLAUSE H & M UNDERWRITERS’ VIEW THANK YOU!