Capt.

Sarin’s Notes – ASM

LOF 2011 - September 2011

The revisions to the face of LOF 2011 may be relatively few, but changes to the Important
Notices on the reverse and the accompanying LSSA clauses will have significant impact on
the way the contract will operate between salvors, ship owners, property owners and
underwriters.

The changes have been introduced in an attempt to reverse the decline in the use of the form
and to address concerns from some quarters that awards were excessive.

An update was considered to be overdue; changes were necessary to facilitate a modern

The main changes are set out below:

Important Notices 3 - Awards

The Council of Lloyd's is entitled to make available the Award, Appeal Award and Reasons
on www.lloydsagency.com subject to the conditions set out in Clause 12 of the LSSA
Clauses.

The first important change concerns the publication of awards to be made available via the
Lloyds agency website (by subscription). Introducing the publication of salvage awards will
hopefully allow for greater transparency in the assessment of awards and, most importantly,
removes the private nature of arbitration hearings and LOF awards. It is hoped that
publishing awards and accompanying reasons will provide greater transparency and
understanding of LOF salvage awards and allow for market scrutiny.

Clause 12 of the LSSA Clauses allows either party to apply to the LOF Arbitrator / Appeal
Arbitrator to for an order deferring or withholding publication, but good reasons would have
to be submitted. It is hoped these changes will encourage greater use of the contract and
provide greater understanding as to how salvage awards are assessed.

Important Notices 4 - Notification to Lloyd's

The Contractors shall within 14 days of their engagement to render services under this
agreement notify the Council of Lloyd's of their engagement and forward the signed
agreement or a true copy thereof to the Council as soon as possible. The Council will not
charge for such notification. Traditionally salvors have not been required to notify Lloyd's
when salvage services have been performed under the LOF contract and many cases have
been settled without the involvement of Lloyd's, which has led to the uncertainty of use of the
contract and its overall administration. Under the new provisions all LOF 2011 agreements
must be notified to Lloyd's. This requirement is a necessary change which aims to provide
salvors and ship owners with assistance in the administration of the contract by Lloyd's.

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Lloyd's Standard Salvage and Arbitration Clauses - Arbitrator's Security for Fees

Under provisions 6 and 10 Arbitrators will be entitled to security for their fees and expenses
from either party to the LOF, rather than the previous requirement of providing an
undertaking in respect of the Arbitrator's appointment and fees:

6. Arbitration Procedure and Arbitrators Powers

6.6. The Arbitrator shall be entitled to satisfactory security for his reasonable fees and
expenses, whether such fees and expenses have been incurred already or are reasonably
anticipated. The Arbitrator shall have the power to order one or more of the parties to provide
such security in a sum or sums and in a form to be determined by the Arbitrator. The said
power may be exercised from time to time as the Arbitrator considers appropriate

10. Appeals and Cross Appeals

10.8 The Appeals Arbitrator shall be entitled to satisfactory security of his reasonable fees
and expenses, whether such fees and expenses have been incurred already or are reasonably
anticipated. The Appeal Arbitrator shall have the power to order one or more of the parties to
provide security in a sum or sums and in a form to be determined by the Appeal Arbitrator.

Lloyd's Standard Salvage and Arbitration Clauses - Special Provisions 13, 14 and 15

These special provisions only apply to salved cargo in respect of casualties involving laden
containers. The below provisions provide a welcome change to the increasing nature and
complexity of the use of the contract in large scale casualties and the problems associated
with dealing with "un-represented" cargo, such as in APL Panama and MSC Napoli
casualties.

13. The parties agree that any correspondence or notices in respect of salved cargo which is
not the subject of representation in accordance with Clause 7 of these Rules may be sent to
the party or parties who have provided salvage security in respect of that property and that
this shall be deemed to constitute proper notification to the owners of such property. The
contract is engaged by salvors and salved property owners rather than insurers of the salved
cargo, it was necessary to introduce a provision to notify property insurers. The requirement
is based on the failure of insurers to be notified due to lack of understanding of such notices
by property owners. The proviso allows insurers the opportunity to assess and defend a claim.

14. Subject to the express approval of the Arbitrator, where an agreement is reached between
the Contractors and the owners of the salved cargo comprising at least 75% by value of
salved cargo represented in accordance with Clause 7 of these Rules, the same agreement
shall be binding on the Owners of all salved cargo who were not represented at the time of
the said approval

15. Subject to the express approval of the Arbitrator, any salved cargo with a value below an
agreed figure may be omitted from the salved fund and excused from liability for salvage
where the cost of including such cargo in the process is likely to be disproportionate to its
liability for salvage.

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Clauses 14 and 15 allow an agreement to be reached with 75% of the represented cargo to
bind the remaining unrepresented cargo interests; this avoids the costs associated with going
to full arbitration. Under the new LOF 2011 LSSA clauses, low value salved cargo is
protected and can be excused from liability where the costs of including the salved cargo is
likely to be disproportionate to its overall liability for salvage.

The publication of LOF 2011 is a result of continuing co-operation between salvors and
shipping industry and seeks to promote its use in the modern shipping environment. Whist
the core features of LOF have been retained, the drive towards greater openness and
transparency in the publication of awards may ultimately serve to promote wider use of LOF
2011.

York-Antwerp Rules 2004

The concept and principles of general average date back thousands of years and are based on
the notion that ship, cargo and freight form part of a common maritime adventure. Two main
principles have been derived on this basis.

Firstly, if the common adventure is exposed to a common danger during a voyage, the costs
of extraordinary sacrifices and expenditures necessary to protect the involved interests from
the peril shall be apportioned according to the value of the interests (the common safety
principle). Examples of such costs include the following:

 Salvage expenses;

 Damage from beaching a leaking ship to prevent sinking; and

 Jettisoning cargo to refloat a grounded ship.

Secondly, expenses incurred for the common benefit of the common maritime adventure may
also be allowed in general average despite their not being necessary to avoid the peril (the
common benefit principle). Examples of such costs include expenses for unloading and
storing cargo while the ship is being repaired in a port of refuge so that the voyage can be
completed.

York-Antwerp Rules and Norwegian Maritime Code (An example)

The primary legal source for general average rules is the York-Antwerp Rules, which were
first drafted and adopted by the International Maritime Committee in 1877 and revised in
1890, 1924, 1950, 1974 and 1994. The rules are not part of any international convention.
They are legally binding by way of incorporation into bills of lading, charter-parties and, in
some instances, national law. In Norway, the York-Antwerp Rules 1994 have binding force
through the provisions of Section 461 of the Maritime Code, unless the parties agree
otherwise.

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2004 Revision of York-Antwerp Rules 1994

Since the adoption of the York-Antwerp Rules 1994, cargo insurers have advocated further
reductions in the scope of allowable recoveries in general average, with the insurers' trade
association (the International Union of Marine Insurers) taking a leading role. Although the
union would prefer the general average concept to be abandoned altogether, to date it has
suggested only a radical reform of the rules based on, among other things, restricting general
average to common safety expenses, thereby excluding recovery based on the common
benefit principle. At the International Maritime Committee's 2004 conference in Vancouver,
the proposed changes were subject to extensive debate.

The committee adopted a revision of the rules in 2004. To a certain extent, allowance was
made for the union's suggestions, making the York-Antwerp Rules 2004 less favourable to
Ship-owners compared with the 1994 edition of the rules.

One of the most important and contentious changes in the York-Antwerp Rules 2004 is the
amendment to Rule VI, which disallows salvage remuneration in general average. Thus,
salvage payment will lie where it falls, except where one party to the salvage has paid all or
part of the salvage due from another party. In such case the unpaid contribution to salvage
due from the other party shall be credited in the general average adjustment to the party that
has paid it and debited from the party on whose behalf the payment was made.

Furthermore, the York-Antwerp Rules 2004 narrow the scope of the common benefit
principle by amending Rule XI, which disallows the wages and maintenance of the master,
officers and crew in general average while the vessel is in a port or place of refuge
undergoing repairs recoverable in general average. However, fuel and stores consumed will
continue to be allowable expenses.

Rule XIV of the York-Antwerp Rules 1994 provides for allowance in general average for,
among other things, temporary repairs of damage to a ship caused by general average
sacrifice. In the 2004 edition of the rules, the allowable amount was capped with the addition
of the 'Bailey clause', which restricts the advantage of the owner where temporary repairs
make it possible to effect permanent repairs in a place where such repairs can be made more
cheaply. Recovery will be limited to the difference between (i) the costs of temporary repairs
plus the permanent repairs actually carried out, and (ii) the estimated costs of the permanent
repairs at the port of refuge.

Other departures from the York-Antwerp Rules 1994 include the following:

 The 2% commission on general average disbursements (Rule XX) has been abolished;

 The set 7% rate of interest has been replaced with a rate to be decided by the
International Maritime Committee Assembly each year (Rule XXI);

 New time bar rules have been established, which in broad terms correspond with the
time bar rules in Section 501 of the Maritime Code (Rule XXIII); and

 General modernizing and further consistency in terminology have been implemented

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Outlook in Norway (An example)

A comment period on this issue closed on May 14 2005. Before receiving comments, the
Department of Justice suggested that the York-Antwerp Rules 2004 should replace the York-
Antwerp Rules 1994.

During the comment period, the Norwegian Ship-owners' Association pointed out that the
York-Antwerp Rules 2004 reduce Ship-owners' prospects of recovering allowances from the
cargo interests in general average. The changes to the York-Antwerp Rules 2004 were hotly
debated. Although the 2004 edition of the rules has been available since January 1 2005,
there are still no signs that it is being used in practice. Furthermore, the Ship-owners'
Association referred to a published circular by the Baltic and International Maritime Council
recommending against general average adjustments pursuant to the York-Antwerp Rules
2004. The council has already decided that all new and revised charter-parties will refer only
to the York-Antwerp Rules 1994 and that the additional text in the general average clauses
(reading "or any subsequent modification thereto") will no longer be used. Therefore, the
Ship-owners' Association urged the Ministry of Justice to wait until the market accepts the
York-Antwerp Rules 2004 before incorporating them into Norwegian law.

While the ministry has not yet taken an official position, there are strong indications that it
will adhere to the request of the Ship-owners' Association and postpone the incorporation of
the York-Antwerp Rules 2004.

Latest info on YA 2004 (Amendments)

Since shortly after the 1994 revision of the York Antwerp Rules cargo underwriters, through
the International Union of Marine Insurers ("IUMI") had been pressing for a further review.
In particular, the restriction of General Average to common safety issues and excluding
allowances for General Average in respect of the common benefits approach.

Reform of the York Antwerp Rules 1994 was discussed at the June 2004 meeting of the
Comite Maritime International ("CMI"). Prior to the June Conference, and in the face of
opposition from the shipping industry through the International Chamber of Shipping, IUMI
amended its position from radical change to one of incremental change. The following
changes were agreed and the revised rules will be known as the York Antwerp Rules 2004.

Rule VI - Salvage Remuneration

The York Antwerp Rules 1974 and 1994 provide for salvage claims to be recoverable in
General Average. York Antwerp Rules 2004 will exclude salvage from allowable General
Average recoveries.

Rule XI - Wages and Maintenance of Crew and Other Expenses putting into a Port of Refuge
These costs will no longer be allowed during the period the vessel is in port or place of refuge
undergoing repairs recoverable in General Average. Fuel and stores consumed will continue
to be allowable expenses.

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 Capt. Sarin’s Notes – ASM

Rule XIV (b) - Temporary Repairs

A new clause will be introduced to restrict the advantage to the ship-owner where temporary
repairs make it possible to effect permanent repairs at a place where such repairs can be made
more cheaply than at or near the place of refuge.

Rule XX

The payment of a commission of 2% on General Average disbursements will be abolished.

Rule XXI

Interest will no longer accrue at a fixed rate of 7% but will be set on an annual basis by the
CMI.

Rule XXIII

If permitted by domestic law a time bar provision will be inserted extinguishing rights to
claim General Average contributions one year after an adjustment has been issued, or six
years after the termination of the "Common Maritime Adventure".

The York Antwerp Rules 2004 are not mandatory but (i) may be incorporated into contracts
of affreightment, and therefore applied to the adjustment of claims in General Average, from
31st December, 2004, and (ii) are a new set of rules and not merely an amendment to the
1994 Rules. Therefore, specific reference to the new rules must be set out in a bill of lading if
the York Antwerp Rules 2004 are to apply. Bills of lading that refer to ". York Antwerp
Rules 1994 and amendments thereto ...", or use similar words, will apply the York Antwerp
Rules 1994.

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