Special Compensation P&I Clause (SCOPIC) is an optional supplement to LOF. It was introduced in 1999 and is now a well-established means of remunerating salvors when there is insufficient value in salved property to ensure a conventional salvage award. LOF is a simple contract format containing only a few boxes to complete. One of these asks, “Is the SCOPIC clause incorporated into this agreement? State alternative: Yes/No.”
The first point to note is that SCOPIC was introduced to enable parties to contract out of the problematic special compensation provisions of Article 14 of the Salvage Convention of 1989. It then sits dormant until notice is given by the contractor (salvor) that SCOPIC is invoked. In many cases, it may be unnecessary, strictly speaking, either to incorporate SCOPIC or for the contractor to consider invoking SCOPIC. The salvor is unlikely to go unrewarded for his work.
If hull damage is extensive, the contractor may have to struggle after incurring heavy expenses to realise any net reward. In the worst case, it may be weeks before it becomes apparent that the value of the vessel and cargo will be less than the expense of salvage and it may prove impossible to obtain security for the claim. This could represent financial disaster for a salvor.
Schedule A to SCOPIC sets out agreed tariff rates for tugs and a wide range of equipment and the meter starts running for craft, equipment and personnel only from the moment of invocation.
On top of that, the salvor is entitled to a standard bonus of 25%. Invocation gives rise to a right to initial security of US$3M, and the exposure is covered by the vessel’s P&I.
From the shipowner’s perspective, when asked to agree that SCOPIC be incorporated, there is little downside to this. It will ensure, if all goes wrong, that the salvor remains incentivised to complete the operation and minimise the environmental threat and engages P&I insurers in covering the cost. Moreover, it can, in limited circumstances, be terminated independently to the LOF.
Finally, to discourage a contractor (salvor) from invoking SCOPIC unnecessarily (i.e. in cases where the fund is adequate to allow for a proper salvage award without the need for any SCOPIC payment), a penalty applies to reduce his salvage award by 25% of the difference between the final SCOPIC tariff figure and the salvage award.
Payment of Salvage Award
(a) SCOPIC Clause 6: If the amount SCOPIC exceeds the salvage award under Article 13
If SCOPIC tariff amounts to US$ 1,500,000 and the Article 13 salvage award is assessed at US$ 1,000,000/, then SCOPIC actual amount due is:
US$ 500,000/.
(b) SCOPIC Clause 7: Penalty
If the Article 13 Award or settlement under the Main Agreement is greater than the assessed SCOPIC remuneration (in which case SCOPIC not payable), then, even if SCOPIC has not been invoked on the first day of services, the Article 13 Award or settlement is discounted by 25% of the difference between the said Article 13 Award or settlement and the amount of SCOPIC remuneration that would have been assessed had the SCOPIC remuneration provisions been invoked on the first day of the services.
If SCOPIC tariff amounts to US$ 1,000,000 and the Article 13 salvage award is assessed at US$ 1,400,000, then SCOPIC actual amount due is:
US$ 0
And the salvage award under Article 13 is reduced to US$ 1,300,000.
[USD (1,400,000 – 1,000,000) X 0.25 = 1,00,000]
[USD (1,400,000 – 1,00,000 = 1,300,000)]
SCOPIC Clause 9 – Salvor can terminate
The Contractor shall be entitled to terminate the services under the SCOPIC clause and the Main Agreement by written notice to owners of the vessel with a copy to the SCR (if any) and any Special Representative appointed if the total cost of his services to date and the services that will be needed to fulfill his obligations hereunder to the property [calculated by means of the tariff rate but before the bonus conferred by sub-clause 5(iii) hereof] will exceed the sum of:
(a) The value of the property capable of being salved; and
(b) All sums to which he will be entitled as SCOPIC remuneration.
SCOPIC Clause 9 (ii) – The owner can terminate
The owners of the vessel may at any time terminate the obligation to pay SCOPIC remuneration after the SCOPIC clause has been invoked by giving at least 5 clear days’ notice of such termination.
In the event of such termination, the assessment of SCOPIC remuneration shall take into account all monies due under the tariff rates set out in Appendix A including time for demobilisation.
But...
SCOPIC Clause 9 (iii): Can you really terminate?
The termination provisions contained in sub-clause 9 (i) & 9 (ii) only apply if:
The Contractor is not restrained from demobilising his equipment by the Government, Local or Port Authorities or any other officially recognised body having jurisdiction over the area where the services are being rendered.
Case Study: The Nagasaki Spirit 1997 AC 455 HL
Facts
The case involved a collision in 1992 between the oil tanker Nagasaki Spirit, laden with 40,000 tons of crude oil, and the container ship Ocean Blessing in the northern part of the Malacca Straits. After the collision, some 12,000 tons of crude oil escaped into the sea and caught fire; both vessels were engulfed in flames. All the crew of the Ocean Blessing perished and only two crew on the Nagasaki Spirit survived. Professional salvors agreed to salve the Nagasaki Spirit under LOF 1990 (which included Articles 13 and 14 of the convention). Using several tugs, the fire was extinguished, the cargo transhipped and the vessel safely redelivered to her owners.
Judgments
The award arbitrator fixed special compensation, stressing the need to encourage environmental salvage.
The appeal arbitrator increased the Art. 13 award, and since that was higher than the Art. 14 award, he held that no special compensation was available.
On appeal, the admiralty judge held that although “fair rate” imported the idea of remuneration, which would normally include a profit element, the appeal arbitrator was right to reject this.
The Court of Appeal agreed with the judge, so that “fair rate” was not to be a “salvage reward”. In the House of Lords, Lord Mustill also agreed that “fair rate” meant “fair rate of expenditure” and did not include any element of profit.
(Because it was interpreting an international convention, the House of Lords had felt constrained to interpret its provisions “literally”, rather than “purposively”.)
[Article compiled and contributed by Adv. (Capt.) Ashwani Jhingan, Director of Malaxar ShpgLogistix Law & Solutions Pvt. Ltd. He is an Advocate at Mumbai High Court and Member of Supreme Court Bar Association. Adv. (Capt.) Jhingan can be contacted at legal@malaxar.com. You can visit www.malaxar.com. Views expressed are his own.]