House of Lords
Session 1996-97
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Judgments - Semco Salvage & Marine Pte. Ltd. v. Lancer Navigation


  Lord Chancellor   Lord Goff of Chieveley   Lord Mustill   Lord Lloyd of Berwick
  Lord Hope of Craighead







My Lords,

    I have had the advantage of reading in draft the speech to be given by my noble and learned friend, Lord Mustill. I agree with him for the reasons that he has given that the appeal and the cross-appeal should be dismissed, in each case with costs.

    In relation to the appeal I would in particular emphasise the importance of the interpretation of the relevant words in their context. Although no doubt an interpretation clause defining expenses could specifically include an item or items that were not expenses it would more naturally be concerned with identifying particular heads or types of expenses. When the expenses as defined are repeatedly spoken of as incurred this appears to me to preclude the view that expenses as defined includes remuneration or profit. The use of the term rate is explained by the need to do more than identify a particular figure. The circumstances require a judgment of how much of the total expense incurred for equipment and personnel is fairly to be taken as applying to the equipment actually and reasonably used in the salvage operation in question taking into consideration the criteria referred to.

    For my own part I would not have found it necessary to examine the travaux preparatoires in order to reach a decision on the central issue in this appeal. However out of respect for the very full and detailed arguments to which your Lordships were treated, I am glad and grateful to my noble and learned friend that he has done so in such an admirable way, in an area of the law in which he is such an eminent authority and has reached the conclusion that this analysis strongly reinforces the view formed on the words themselves read in their context.


My Lords,

    I have had the benefit of reading in draft the speech to be given by my noble and learned friend, Lord Mustill. I agree with it, and for the reasons which he gives I would dismiss both the appeal and the cross-appeal.


My Lords,

    The law of maritime salvage is old, and for much of its long history it was simple. The reward for successful salvage was always large; for failure it was nil. At first, the typical salvor was one who happened on a ship in distress, and used personal efforts and property to effect a rescue. As time progressed, improvements in speed, propulsive power and communications bred a new community of professional salvors who found it worth while to keep tugs and equipment continually in readiness, and for much of the time idle, waiting for an opportunity to provide assistance and earn a large reward. This arrangement served the maritime community and its insurers well, and the salvors made a satisfactory living. It was however an expensive business and in recent years the capital and running costs have been difficult for the traditional salvage concerns to sustain. A number of these were absorbed into larger enterprises, less committed perhaps to the former spirit, and unwilling to stake heavy outlays on the triple chance of finding a vessel in need of assistance, of accomplishing a salvage liable to be more arduous and prolonged than in the days of smaller merchant ships, and of finding that there was sufficient value left in the salved property at the end of the service to justify a substantial award. At about the same time a new factor entered the equation. Crude oil and its products have been moved around the world by sea in large quantities for many years, and the risk that cargo or fuel escaping from a distressed vessel would damage the flora and fauna of the sea and shore, and would impregnate the shoreline itself, was always present; but so long as the amount carried by a single vessel was comparatively small, such incidents as did happen were not large enough to attract widespread attention. This changed with the prodigious increase in the capacity of crude oil carriers which began some three decades ago, carrying with it the possibility of a disaster whose consequences might extend far beyond the loss of the imperilled goods and cargo. Such a disaster duly happened, at a time when public opinion was already becoming sensitive to assaults on the integrity of the natural environment. Cargo escaping from the wreck of the Torry Canyon off the Scillies caused widespread contamination of sea, foreshore and wild life. The resulting concern and indignation were sharpened when the Amoco Cadiz laden with 220,000 tons of crude oil stranded on the coast of France, causing pollution on an even larger scale, in circumstances which rightly or wrongly were believed to have involved a possibly fatal delay during negotiations with the intended salvors.

    To this problem the traditional law of salvage provided no answer, for the only success which mattered was success in preserving the ship, cargo and associated interests; and this was logical, since the owners of those interests, who had to bear any salvage award that was made, had no financial stake in the protection of anything else. This meant that a salvor who might perform a valuable service to the community in the course of an attempted salvage, by for example moving the vessel to a place where the escape of oil would be less harmful, would recover nothing or only very little, if in the end the ship was lost or greatly damaged. Something more was required to induce professional salvors, upon whom the community must rely for protection, to keep in existence and on call the fleets necessary for the protection of natural resources in peril. Some new form of remuneration must be devised. It is with an important aspect of the scheme worked out during long and hard-fought negotiations between the shipowning and cargo interests and their insurers on the one hand and representatives of salvors on the other, with participation by governmental and other agencies, that the present appeal is concerned.

    It is important to make clear at the start that the solution devised in the 1980's was not to create a new institution: a kind of free-standing "environmental salvage." The services performed remain, as they have always been, services to ship and cargo, and the award is borne by those standing behind ship and cargo. The difference is that the sum payable to the salvor may now contain an additional element to reflect the risk to the environment posed by the vessel for which the services are performed. This element of "special compensation" is based on the salvor's "expenses" (as defined) and may be enhanced in cases where the salvage operations have actually prevented or minimised environmental damage. The reward for the salvage itself is assessed and apportioned between the vessel and other property interests as before, and the difference if any between the amount so awarded (or nil, if there is no award) and the amount of the special compensation is due to the salvor from the shipowner alone. Two issues are now before the House about the principles on which the special compensation should be assessed. Of these, one is much the more difficult. I will concentrate on this, leaving over the second point for a brief reference at the end.

    The events which have led successively to hearings before Mr. R.F. Stone Q.C. as salvage arbitrator, Mr. J.F. Willmer Q.C. as appeal arbitrator, Clarke J., sitting in the Commercial Court on appeal from the award of Mr. Willmer, the Court of Appeal [1996] 1 Lloyd's Rep. 449, and finally your Lordships were summarised by Clarke J. [1995] 2 Lloyd's Rep. 44, 46-47 in terms which I am glad to adopt. At about 23.20 hours on 19 September 1992 Nagasaki Spirit collided with the container ship Ocean Blessing. The collision occurred in the northern part of the Malacca Straits. At the time of the collision Nagasaki Spirit was part laden with a cargo of 40,154 tonnes of Khafji crude oil. As a result of the collision, about 12,000 tonnes of Nagasaki Spirit's cargo were released into the sea and caught fire. Both ships were engulfed by the fire. Only two members of the crew of Nagasaki Spirit survived the fire. All the crew of Ocean Blessing lost their lives. At about 09.00 hours on 20 September the appellants, Semco Salvage and Marine Pte. Ltd. ("Semco"), agreed to salve Nagasaki Spirit and her cargo on the terms of Lloyds Open Form 1990 (hereafter "L.O.F. 1990"). Later that day they agreed to salve Ocean Blessing on the terms of the same form.

    On the same day Semco mobilized a number of tugs, which proceeded to the position of the casualty. Semco fought the fire on Nagasaki Spirit. They succeeded in extinguishing it at about 12.20 on 26 September. At about 17.00 hours on 26 September the Malaysian police expressed concern that the casualty might cause pollution. They ordered Semco to tow Nagasaki Spirit away from the Malaysian coast. At about 14.03 hours on 3 October Nagasaki Spirit was anchored in a position off Belawan in Indonesia. She remained at this anchorage until 24 October.

    On 22 October the Indonesian authorities granted Semco permission for a ship to ship transfer of the cargo remaining on board Nagasaki Spirit. On 24 October, Semco moved Nagasaki Spirit to a new position in order to transfer her cargo. Transhipment of the cargo from Nagasaki Spirit to Pacific Diamond was commenced at 00.25 hours on 29 October. Nagasaki Spirit remained at the anchorage position until about 14.00 hours on 25 November when a tow to Singapore commenced. At 15.40 hours on 12 December Nagasaki Spirit was redelivered to her owners afloat alongside the shipyard quay in Singapore.

    Before turning to the relevant provisions of L.O.F. 1990 a little of its history must be given. The move towards the evolution of what has been called a "safety net," designed to provide an additional incentive for salvors to keep fleets on station, began during the late 1970's with two parallel initiatives. These first bore fruit in the 1980 revision of the Lloyds Open Form, so as to make clause 1(a) read as follows:

     "The Contractor agrees to use his best endeavours to salve the . . . and/or her cargo bunkers and stores and take them to . . . or other place to be hereafter agreed or if no place is named or agreed to a place of safety. The Contractor further agrees to use his best endeavours to prevent the escape of oil from the vessel while performing the services of salving the subject vessel and/or her cargo bunkers and stores. The services shall be rendered and accepted as salvage services upon the principle of 'no cure-no pay' except that where the property being salved is a tanker laden or partly laden with a cargo of oil and without negligence on the part of the Contractor and/or his Servants and/or Agents (1) the services are not successful or (2) are only partially successful or (3) the Contractor is prevented from completing the services the Contractor shall nevertheless be awarded solely against the Owners of such tanker his reasonably incurred expenses and an increment not exceeding 15 per cent of such expenses but only if and to the extent that such expenses together with the increment are greater than any amount otherwise recoverable under this Agreement. Within the meaning of the said exception to the principle of 'no cure-no pay' expenses shall in addition to actual out of pocket expenses include a fair rate for all tugs craft personnel and other equipment used by the Contractor in the services and oil shall mean crude oil fuel oil heavy diesel oil and lubricating oil."

    The history of this revision to the common form of salvage contract does not appear from the materials before the House, but it is possible to give an account of the contemporaneous efforts to reach an international solution, in the shape of a replacement for the Salvage Convention of 1910. Within a few months of the Amoco Cadiz disaster the International Maritime Organisation ("I.M.O.") had taken the matter in hand and prepared an initial report (not before the House). The problem was also addressed by the Comite Maritime International ("C.M.I.") which agreed to co-operate in a study of the private law principles of salvage. The outcome was the establishment of sub-committee under the chairmanship of Professor E. Selvig, which prepared a draft convention accompanied by a report. These documents were placed before a conference of C.M.I. in Montreal during May 1981, by which time L.O.F. 1980 with its safety net provision had come into force. The debates at Montreal led to a final draft, together with a report by Mr. B. Nielsen. For a time there was little further progress, but eventually a diplomatic conference led to the agreement of the International Convention on Salvage, 1989 ("the Convention"). This did not come into force internationally until July 1996, when the necessary ratifications were achieved. So far as English domestic law is concerned the Convention was given the force of law in the United Kingdom by the Merchant Shipping Act 1995, section 224. But the Act did not affect rights and liabilities arising out of operations started before 1 January 1996. Accordingly, the claim now under consideration is a private law claim, based on L.O.F. 1990. The Convention is relevant only because having partly been inspired by LOF 1980 it is now incorporated by reference into L.O.F. 1990.

    It is appropriate next to quote the relevant terms of L.O.F. 1990 and the Convention. The former provides as follows:

     "1. (a) The Contractor shall use his best endeavours:-

       (i) to salve the '. . .' and/or her cargo freight bunkers stores and any other property thereon and take them to . . . or to such other place as may hereafter be agreed either place to be deemed a place of safety or if no such place is named or agreed to a place of safety and

       (ii) while performing the salvage services to prevent or minimize damage to the environment.

      (b) Subject to clause 2 incorporating Convention Article 14 the services shall be rendered and accepted as salvage services upon the principle of 'no cure--no pay.'

      (c) The Contractor's remuneration shall be fixed by Arbitration in London in the manner hereinafter prescribed and any other difference arising out of this Agreement or the operations thereunder shall be referred to Arbitration in the same way. . . .

     "2. Articles 1(a) to (e), 8, 13.1, 13.2 first sentence, 13.3 and 14 of the International Convention on Salvage 1989 ('the Convention Articles') set out hereafter are hereby incorporated into this Agreement. The terms 'Contractor' and 'services'/'salvage services' in this Agreement shall have the same meanings as the terms 'salvor(s)' and 'salvage operation(s)' in the Convention Articles."

    As regards the Convention the following are material:

    Article 1


    For the purpose of this Convention: . . .

      (d) Damage to the environment means substantial physical damage to human health or to marine life or resources in coastal or inland waters or areas adjacent thereto, caused by pollution, contamination, fire, explosion or similar major incidents.

      (e) Payment means any reward, remuneration or compensation due under this Convention. . . . "

    Article 8

     "Duties of the salvor and of the owner and master

     "1 The salvor shall owe a duty to the owner of the vessel or other property in danger:

      (a) to carry out the salvage operations with due care;

      (b) in performing the duty specified in subparagraph (a), to exercise due care to prevent or minimize damage to the environment; . . .

     "2 The owner and master of the vessel or the owner of other property in danger shall owe a duty to the salvor:

      (a) to co-operate fully with him during the course of the salvage operations;

      (b) in so doing, to exercise due care to prevent or minimize damage to the environment; . . . "

    Article 12

     "Conditions for reward

     "1 Salvage operations which have had a useful result give right to a reward. . . . "

    Article 13

     "Criteria for fixing the reward

     "1 The reward shall be fixed with a view to encouraging salvage operations, taking into account the following criteria without regard to the order in which they are presented below:

      (a) the salved value of the vessel and other property;

      (b) the skill and efforts of the salvors in preventing or minimizing damage to the environment;

      (c) the measure of success obtained by the salvor;

      (d) the nature and degree of the danger;

      (e) the skill and efforts of the salvors in salving the vessel, other property and life;

      (f) the time used and expenses and losses incurred by the salvors;

      (g) the risk of liability and other risks run by the salvors or their equipment;

      (h) the promptness of the services rendered;

      (i) the availability and use of vessels or other equipment intended for salvage operations;

      (j) the state of readiness and efficiency of the salvor's equipment and the value thereof. . . .

     "3 The rewards, exclusive of any interest and recoverable legal costs that may be payable thereon, shall not exceed the salved value of the vessel and other property."

    Article 14

     "Special compensation

     "1 If the salvor has carried out salvage operations in respect of a vessel which by itself or its cargo threatened damage to the environment and has failed to earn a reward under article 13 at least equivalent to the special compensation assessable in accordance with this article, he shall be entitled to special compensation from the owner of that vessel equivalent to his expenses as herein defined.

     "2 If, in the circumstances set out in paragraph 1, the salvor by his salvage operations has prevented or minimized damage to the environment, the special compensation payable by the owner to the salvor under paragraph 1 may be increased up to a maximum of 30 per cent. of the expenses incurred by the salvor. However, the tribunal, if it deems it fair and just to do so and bearing in mind the relevant criteria set out in article 13, paragraph 1, may increase such special compensation further, but in no event shall the total increase be more than 100 per cent. of the expenses incurred by the salvor.

     "3 Salvor's expenses for the purpose of paragraphs 1 and 2 means the out-of-pocket expenses reasonably incurred by the salvor in the salvage operation and a fair rate for equipment and personnel actually and reasonably used in the salvage operation, taking into consideration the criteria set out in article 13, paragraph 1(h), (i) and (j).

     "4 The total special compensation under this article shall be paid only if and to the extent that such compensation is greater than any reward recoverable by the salvor under article 13."

    It is also necessary to set out the preamble to the Convention, which although not directly incorporated in L.O.F. 1990 is plainly relevant to a proper understanding of the provisions just quoted:

     "The States Parties to the present Convention,

      Recognizing the desirability of determining by agreement uniform international rules regarding salvage operations,

      Noting that substantial developments, in particular the increased concern for the protection of the environment, have demonstrated the need to review the international rules presently contained in the Convention for the Unification of Certain Rules of Law relating to Assistance and Salvage at Sea, done at Brussels, 23 September 1910,

      Conscious of the major contribution which efficient and timely salvage operations can make to the safety of vessels and other property in danger and to the protection of the environment,

      Convinced of the need to ensure that adequate incentives are available to persons who undertake salvage operations in respect of vessels and other property in danger . . ."

    The principal issue in the present appeal concerns the definition of "expenses" in article 14.3, and in particular that part of it which includes in the expenses "a fair rate for equipment and personnel actually and reasonably used in the salvage operation." Four elements have been identified as possible components of the "fair rate." The direct costs to the salvor of performing the service; the additional costs of keeping the vessels and equipment on standby; a further element to bring the recoverable "expenses" up to a rate capable of including an element of profit; and, a final element bringing the recovery up to the level of a salvage award. The respondent owners of ship and bunkers (whom I will call "the Owners") accept that the first two elements are properly included. For their part, the appellants Semco concede that the fourth element cannot be included. In my opinion this understanding is plainly right, for reasons too plain to call for elaboration. The dispute revolves around the third element. Semco asserts, and the Owners deny, that this too should feature in the calculation under article 14.3.