Semco Salvage & Marine Pte Ltd v. Lancer Navigation (Nagasaki Spirit)

The House of Lords held that Article 14.3 of the International Convention on Salvage 1989 (as incorporated into Lloyds Open Form 1990) defines "salvor's expenses" as a fair rate of expenditure and reimbursement, not a rate of remuneration including a profit element. The uplift under Article 14.2 is the mechanism by which any additional incentive or reward (up to the limits set in that paragraph) may be provided where the salvor has prevented or minimised environmental damage. The Court relied primarily on the text and context of Article 14 read with Article 13 and the Convention's structure, and found the travaux preparatoires supportive of the narrower construction. The House also rejected the Owners' cross-appeal on timing: the salvor's recoverable expenses are referable to the whole salvage operation, not only to the period while an environmental threat subsists.

The dispute arose after the collision of the tank vessel Nagasaki Spirit and the container ship Ocean Blessing causing release and fire to crude oil cargo. Semco undertook salvage under Lloyds Open Form 1990 (which incorporates certain Articles of the International Convention on Salvage 1989) and conducted prolonged operations including firefighting, transhipment and towing. The arbitrator awarded substantial special compensation under Article 14 (including a large "fair rate" for equipment and personnel) but the appeal arbitrator reduced the Article 14.3 expenses and increased the Article 13 salvage award; subsequent judicial reviews in the Commercial Court and the Court of Appeal produced conflicting assessments on the proper construction of Article 14.3. The House of Lords was asked to decide (i) whether the phrase "a fair rate for equipment and personnel actually and reasonably used in the salvage operation" in Article 14.3 includes an element of profit or remuneration beyond reimbursement of expenditure; and (ii) whether recoverable expenses under Article 14.3 are referable to the whole salvage operation or only to the period while a threat to the environment exists.

The Lords framed the principal issue as a question of interpretation of Article 14.3 and its place within the Convention and LOF 1990. They analysed the wording (contrasting "expenses" and "reward/compensation"), the internal structure of Article 14 (noting the separation of out-of-pocket expenses and the "fair rate"), the cross-reference to Article 13 criteria (h),(i),(j), and the travaux preparatoires. The court concluded that "expenses" denotes amounts disbursed or borne (including overheads and standby costs) but not a profit element: any incentive beyond reimbursement is effected by the limited uplift authorised by Article 14.2. On the second issue the Lords agreed with Clarke J. that expenses should be measured by reference to the whole salvage operation. The House therefore dismissed both the appeal and the cross-appeal.

Nature of relief sought: determination of entitlement to special compensation under LOF 1990 by reference to Article 14 of the Convention; quantification of recoverable "expenses" and period to which they apply.

Issues decided: (i) construction of Article 14.3 (scope of "fair rate"); (ii) temporal scope of recoverable expenses under Article 14.3. Reasoning: textual and contextual interpretation of Article 14, supported by travaux preparatoires and the Convention's scheme; distinction between reimbursement of expenses and reward under Article 13; uplift under Article 14.2 reserved for environmental benefit.

This was an appellate judgment. The House of Lords dismissed both the appeal and the cross-appeal. The Lords held that Article 14.3's "fair rate for equipment and personnel" denotes a fair rate of expenditure and does not include a profit or remuneration element; any additional incentive is provided by Article 14.2's uplift. They also held that recoverable expenses under Article 14 refer to the entire salvage operation.

Arbitral award by Mr R.F. Stone Q.C.; appeal arbitration by Mr J.F. Willmer Q.C.; appeal to the Commercial Court (Clarke J.) [1995] 2 Lloyd's Rep. 44; Court of Appeal [1996] 1 Lloyd's Rep. 449 (majority decision); final appeal to the House of Lords [1997] UKHL 2.