Salvage and LOF Contracts: Award, Expenses, and Key Risks

In maritime practice, “salvage” is often associated with dramatic scenarios—preventing a vessel from sinking or saving cargo from total loss. In reality, salvage is triggered by a wide range of incidents: grounding, machinery failure, fire, flooding, steering breakdown, heavy-weather drift, container loss, imminent pollution risk, or the need for emergency towing under hazardous conditions. When salvage begins, the legal dispute is rarely limited to “who saved what.” The core issues are salvage award, recoverable expenses, security (guarantees), and the commercial and legal risks that follow.

One of the most widely used instruments in international salvage is the LOF (Lloyd’s Open Form). Its commercial logic is simple: act first, value and allocate later. That speed can save lives, ships, cargo, and the environment. But if LOF is signed or managed without a clear legal strategy, it can also create severe exposure: urgent security pressure, arbitration costs, insurer disputes, and a long tail of liabilities.

This article explains the essentials of salvage under Turkish maritime law and LOF practice, focusing on how awards are calculated, what counts as expenses, where the major risks lie, and how to avoid the most common mistakes.

1) What is “salvage” under Turkish law?

The Turkish Commercial Code (TCC / Türk Ticaret Kanunu – TTK) regulates salvage within its maritime commerce provisions. The concept is broad: any act or activity performed to save a vessel or other property in peril in navigable waters qualifies as salvage activity. Turkish law defines the scope expansively, covering not only ships but also other property at sea and certain maritime economic interests.

Two practical implications follow:

• Salvage is not only about “saving a ship.” It can concern cargo, containers, bunker fuel, equipment, and sometimes interests connected to the voyage.

• A salvage incident quickly becomes multi-party: shipowner/operator, cargo interests, charterers, freight interests, and insurers (hull, cargo, and P&I) may all be drawn into the same legal and financial framework.

2) Who can sign a salvage contract in an emergency?

A critical question in real incidents is authority: who can bind the shipowner and cargo interests to a salvage contract—especially LOF—under time pressure?

Under Turkish law, the master (captain) typically has legal authority to conclude a salvage contract on behalf of the vessel’s owner when the vessel is in peril. Importantly, this authority is generally understood to include agreeing on the competent forum (court jurisdiction) or arbitration, which is highly relevant for LOF.

In addition, Turkish law recognizes that, in urgent circumstances, the master (and in certain settings the owner) may also act in a way that affects cargo interests, because salvage must be arranged without delay and cannot wait for a full chain of approvals from multiple stakeholders.

Practical note

Speed is often decisive. Delay can multiply risk, cost, and environmental consequences. However, the master’s broad emergency authority also means that companies should establish pre-incident internal protocols, including:

• a 24/7 escalation route to management and insurers,

• a predefined legal contact (correspondent/attorney),

• a security strategy template (who provides what security and when),

• clear guidance on LOF/SCOPIC decisions.

3) When does a salvage award arise? The “useful result” principle

At the core of salvage is the classic idea: salvage is rewarded when it produces a beneficial outcome.

Turkish law follows the “useful result” approach: if the salvage operation produces a beneficial result, the salvor earns a right to claim a salvage award. Conversely, as a general rule, if no useful result is achieved, no salvage award is payable.

This aligns with the internationally recognized principle often summarized as “no cure – no pay.”

The cap: award cannot exceed saved value

Another essential rule: the salvage award is capped. Under Turkish law, the award generally cannot exceed the post-salvage value of the property saved. In international law, the Salvage Convention 1989 also reflects the logic that the award is limited by the salved value.

4) How is the salvage award calculated? Key criteria (TCC approach)

If parties do not agree the amount (or if adjustment is sought), the award is assessed by reference to criteria designed to encourage salvage while remaining proportionate and reasoned. Turkish law lists factors that function like an “award matrix.” In practice, tribunals and experts look at:

• Value of property saved (ship + cargo + other interests),

• Degree of success achieved,

• Nature and extent of the danger (how close to loss/pollution),

• Skill and efforts of the salvors in saving property,

• Skill and efforts to prevent or minimize environmental damage,

• Time used and expenses incurred,

• Risks run by salvors and their equipment,

• Responsibility risks assumed during the operation,

• Promptness of services rendered,

• Availability and efficiency of salvage vessels/equipment,

• State of readiness and value of the salvor’s assets deployed.

Practical takeaway

A salvage award is not merely a reimbursement of invoices. It is a legally structured reward reflecting success + risk + value + environmental effort + operational capability.

This is why salvage files are evidence-heavy. The winning party is usually the one with the best operational record: logs, daily reports, AIS tracks, meteorological data, photographs, engine/bridge records, safety and pollution measures, and a coherent narrative tied to objective facts.

5) Award vs expenses vs “special compensation”: don’t mix the concepts

A) Salvage award is not the same as “cost reimbursement”

Although expenses and losses are relevant to the award assessment, the award itself is not a simple “cost plus” calculation. Expenses help justify the award; they do not automatically translate into full reimbursement.

B) Pollution risk and “special compensation” logic

Classic no cure–no pay creates a policy gap: what if a salvor takes major action to prevent a catastrophic pollution event, but ultimately cannot save the ship/cargo? If no award is payable, salvors might be disincentivized from costly pollution-prevention operations.

Modern salvage law addresses this with the concept commonly known as special compensation—a mechanism that may allow salvors to recover certain expenses when the operation is aimed at preventing or minimizing environmental damage, even if traditional “useful result” is not achieved. Turkish law includes a special-compensation-type approach in its salvage framework, reflecting international trends.

C) LOF + SCOPIC: contractual stabilization of special compensation

In LOF practice, the internationally known SCOPIC clause (Special Compensation P&I Club Clause) is often used to create a more predictable compensation mechanism where environmental risk is high. SCOPIC is closely connected to P&I arrangements and can substantially change the economics and security profile of a LOF salvage.

6) What is LOF (Lloyd’s Open Form) and why is it so common?

LOF is a standardized salvage contract form developed within the Lloyd’s market and widely used globally. Its main strength is speed: it allows parties to commence salvage immediately without negotiating the final price on the spot.

LOF’s commercial logic

• Immediate action: salvage begins without delay.

• Price later: the award is determined later, commonly through the LOF arbitration framework.

• Neutral structure: it is designed for high-pressure, time-sensitive situations.

Why this matters

When a vessel is hard aground or a fire threatens cargo, every hour may increase:

• hull damage,

• cargo loss,

• port/agency and delay costs,

• pollution exposure,

• crew and third-party safety risk.

LOF minimizes negotiation friction at precisely the moment negotiation is most dangerous.

7) Security and the “maritime lien” pressure: the most sensitive LOF risk

In practice, the most acute LOF issue is often security.

Salvors typically require security for their claim—sometimes urgently—because salvage creates strong rights against the saved property. Internationally, it is standard to treat salvage claims as supported by a maritime lien (a privileged right) over the salved property. That legal pressure can translate into operational leverage: the vessel or cargo may not be released until acceptable security is posted.

A frequent misconception: GA security ≠ salvage security

In major casualties, parties also discuss General Average (GA) security. A crucial point in LOF operations is that GA security does not substitute salvage security. They are separate financial mechanisms with separate purposes.

Practical impact

If a company is not prepared to provide salvage security quickly, consequences can include:

• prolonged detention of ship/cargo,

• rapid accumulation of port and handling costs,

• increased commercial damages (missed delivery windows),

• insurer disputes about which policy responds first.

A well-run salvage response includes a security plan on day one, mapping:

• hull underwriters’ role,

• cargo underwriters’ role,

• P&I’s role (especially where pollution risk/SCOPIC is involved),

• the practical form of security (LOU, guarantee, cash deposit, etc.).

8) Awards, arbitration, and cost exposure: procedural risks after the emergency

LOF disputes are typically resolved via a specialized arbitration framework. This offers global familiarity and structure, but it also creates risks, especially for companies that sign LOF primarily for speed and do not anticipate the downstream process.

Key procedural risk areas include:

1. Forum and language: arbitration venue and procedural rules may be unfamiliar, requiring specialist counsel.

2. Expert-driven valuation: award calculation relies heavily on technical and valuation evidence.

3. Cost build-up: arbitration fees, expert reports, legal representation, and associated expenses can become substantial.

4. Evidence asymmetry: the party with better documentation often dominates the narrative and the numbers.

Bottom line: LOF ends the emergency quickly—but it may begin a complex, high-value dispute that lasts far longer than the rescue itself.

9) Critical mistakes in practice (and how to avoid them)

Mistake 1: Confusing salvage with towage (ordinary towing)

Not every tow is salvage. Towage is commonly a service with pre-agreed pricing; salvage is tied to peril and reward principles. Misclassification can distort liability, insurance response, and payment logic.

Avoidance: early legal characterization of the incident—peril level, risk to property/environment, nature of the service.

Mistake 2: Authority gaps and internal approval chaos

Turkish law typically empowers the master to act in emergencies, but corporate governance failures lead to later disputes: “Who authorized LOF?” “Was the arbitration clause accepted knowingly?” “Did cargo interests consent?”

Avoidance: pre-agreed emergency authority matrix + insurer notification protocol + legal hotline.

Mistake 3: Late security planning

Security is not a post-operation detail. In LOF cases, it is often the central commercial pressure point.

Avoidance: on day one, align hull/cargo/P&I positions; prepare drafts for LOUs; plan salved value documentation; identify cargo split and who provides cargo security.

Mistake 4: Underestimating environmental risk and SCOPIC implications

Where pollution risk exists, compensation mechanisms and security needs change dramatically. Documentation of environmental measures becomes award-relevant.

Avoidance: create a dedicated pollution-prevention evidence file: fuel quantities, risk assessments, containment actions, equipment deployed, authorities contacted, and timeline.

Mistake 5: Treating expenses as automatically recoverable

Salvage awards are not just invoice reimbursement. Expenses matter, but success/risk/value/environmental effort heavily influence the final outcome.

Avoidance: combine expense records with a structured “risk and success narrative,” supported by objective data.

10) The first 24 hours: a practical salvage response checklist

For shipowners/operators

• Classify incident: salvage vs towage, and level of peril.

• Decide LOF vs negotiated terms; align with insurers immediately.

• Start security plan (hull/P&I/cargo coordination).

• Preserve evidence: bridge logs, engine logs, AIS tracks, photos, daily reports.

For cargo interests

• Confirm cargo ownership distribution and values (salved value evidence).

• Coordinate cargo underwriters early (security and claims handling).

• Track releases and delivery impact; document delay consequences.

For salvors

• Standardize reporting from the first hour: manpower, equipment, hazards, progress, environmental actions.

• Keep precise time records and decision logs.

• Build a coherent technical narrative of the peril and the success achieved.

Conclusion

Salvage disputes are a unique blend of crisis response and high-value commercial litigation. Turkish maritime law provides a structured framework: salvage is broadly defined, the master has emergency contracting authority, awards are tied to useful results and capped by saved value, and award criteria emphasize success, risk, value, and environmental protection. LOF accelerates the operational phase but introduces security pressure and arbitration-driven valuation issues that must be managed from the outset.