|Judgments -- Semco Salvage & Marine Pte. Ltd. v. Lancer Navigation continued
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In a compressed form, which does less than justice to the
reasoning, the opinions on this issue expressed by successive tribunals have been as follows.
Much of the long and careful award of Mr. Stone Q.C. was concerned with a traditional
salvage reward under article 13. This need not be described here. When he came to the
"special compensation" the arbitrator stressed the need for encouragement. A
professional salvor who had done his best but had in the event failed to avert damage to the
environment would not be encouraged to stay in the business or try again if he merely
received his expenditure even if that took account of idle time. To arrive at a "rate"
which it is "fair" it is necessary to have in mind as a broad classification the type of
work done; the scale of the job; whether the towage was to a large or small vessel, whether or
not there were crew and machinery to assist, but not to the risks experienced and the benefit
conferred. It must be a rate which makes some contribution to future investment; but this
must be tempered by the fact that there will be further encouragement in the event of success.
It is of great assistance in assessing a fair rate to know the actual cost and basic market rates,
but a fair rate is none of these rates or a straight mathematical computation of those
The arbitrator's opinion is exemplified by the figures set out in
the award. As an example one may take the figures for the tug Salvenus. The basic
daily cost averaged over a full year including overheads was $ 1,990. On a basis of 50
per cent. utilisation the figure was $ 3980 per day. A further uplift of 50 per cent.
reflecting a minimum actual service performed increased the figure to $ 5970. Finally, a
figure was shown of $ 7000 per day for a tug of that size engaged in a straightforward
commercial ocean towage of a vessel of a similar size without taking into account specialist or
extraordinary services. From these figures the arbitrator built upwards to a fair rate of $
16000 per day. Applying a similar approach to the other vessels and to personnel and
equipment the arbitrator arrived at a figure for "expenses" under article 14.3 of
$ 3,623,180, equivalent in Singapore Dollars to S$ 5,967,671. After adding out-
of-pocket expenses the total allowed under article 14.3 was S$ 7,658,117.
Since in the present case the salvage resulted in benefit to
the environment the arbitrator was required to apply the strange formula for enhancement of
the "expenses" contained in article 14.2. The difficulties caused by this formula,
the outcome of an unresolved conflict between the states and interests taking part in the
drafting of the Convention, will no doubt have to be resolved before long, but they do not arise
on this appeal and need not be addressed now. It is enough to record that the arbitrator
applied an increment of 65 per cent. The resulting figure was S$ 12,635,893, which
exceeded the salvage awarded under article 13 by S$ 3,135,893. This was the special
compensation, which now remains in dispute.
The Appeal Arbitrator disagreed with Mr. Stone in several
respects. First, and of great significance in financial terms, he concluded that the award of
traditional salvage under article 13 was too low, by S$ 1,250,000. Secondly, on the
award of special compensation under Article 14 he took a different line from Mr. Stone, as
Applying these and other considerations the appeal arbitrator
concluded that the total amount awarded by Mr. Stone was much too high. He then
performed three assessments, on each of which he differed from Mr. Stone. The first was to
reconsider the salvage award, which he regarded to be insufficiently encouraging; and he
increased it to S$ 10,750,000. Your Lordships are not troubled with this question.
Secondly, he arrived at his own figures for the expenses under article 14.3. For example, in
respect of the Salvenus he awarded a rate of S$ 7,500 per day, as against the
arbitrator's figure of $ 16,000. Finally, as to the increment under article 14.2 he agreed
with the arbitrator's basic approach. On the figures for expenses under article 14.3, the
appeal arbitrator would have regarded the arbitrator's uplift of 65 per cent. as too much. But
on the appeal arbitrator's own approach to expenses this increment seemed fair and
reasonable. The result was to increase the grand total under article 14.3 of S$
5,216,404 to S$ 8,607,067. This was less than the salvage award, so that no special
compensation was payable.
On appeal to Clarke J.  2 Lloyd's Rep. 44 four principal
questions were discussed, two relating to salvage and two to special compensation under
article 14. As to the latter, the learned judge broadly accepted the arguments which the
owners were later to repeat before this House, and accordingly upheld the general principles
which the appeal arbitrator had sought to apply. But the learned judge did not agree with the
way in which the appeal arbitrator had arrived at the figures which he had substituted for those
of the arbitrator. As to salvage under article 13, the judge concluded that the Appeal Arbitrator
was entitled in principle to differ from the award of the arbitrator, and that he was also entitled
to cross-check between the amounts which he proposed to grant as salvage and as special
compensation; but that since the figures for the latter were wrongly assessed the Appeal
Arbitrator's salvage award might thereby have been distorted. He therefore remitted the
matter to the Appeal Arbitrator to reconsider the quantification of salvage.
In the Court of Appeal a majority (Staughton and Swinton
Thomas L.JJ.) agreed with Clarke J. As Staughton L.J. put it  1 Lloyd's Rep. 449, 455:
Evans L.J. took a different view, which I describe at a later stage. In the result the appeal
on this aspect of the dispute was dismissed, since it was accepted that on the view of the
majority no award of special compensation would ensue. Semco now appeal.
My Lords, leaving aside for the moment the interpretation
preferred by Evans L.J., the rival contentions on the meaning of "fair rate," as
summarised in the parties' Agreed Statement of Facts and Issues, were as follows:
My Lords, whichever alternative your Lordships prefer will not
leave the parties and arbitrators in salvage disputes with any precise guidance on how to
arrive at the special compensation. The fact is, however, that the assessment of salvage has
never been an exact science, and the embellishment added by article 14.3 is well known to
have been an uneasy compromise. At all events, although the possibilities are not exhausted
by the two alternatives quoted they are, in my view, more plausible than any others. On the
choice between them, although weight has rightly been given to the history of the Convention I
prefer to begin with its words, read in the general context of the new regime. As to the words
themselves, I feel little doubt that they support the narrower interpretation. The concept of
"expenses" permeates the first three paragraphs of article 14. In its ordinary
meaning this word denotes amounts either disbursed or borne, not earned as profits. Again,
the computation prescribed by article 14.3 requires the fair rate to be added to the "out-
of-pocket" expenses, as clear an instance as one could find of a quantification which
contains no element of profit; and it surely cannot have been intended that the "salvors'
expenses" should contain two disparate elements. It is moreover highly significant that
article 14.2 twice makes use of the expression "expenses incurred" by the salvor,
for in ordinary speech the salvor would not "incur" something which yields him a
profit. The idea of an award of expenses as a recompense, not a source of profit, is further
reinforced by the general description of the recovery as "compensation", which
normally has a flavour of reimbursement. I acknowledge that this word has long been used to
denote the amount recoverable as conventional salvage: see for example Abbott on
Merchant Ships 5th ed. (1827) at p. 610. Nevertheless it is significant that a clear
distinction is drawn in paragraphs 1 and 4 of article 14 between compensation and reward,
and the same contrast appears in article 1(e), quoted above.
This purely textual account of the text must now be measured
against the aims of the Convention. For Semco Mr. Brice Q.C. emphasises that the explicit
purpose of the new salvage regime is, in the words of the Preamble, to provide
"adequate incentives" to keep themselves in readiness to protect the environment,
and contends that a level of compensation which will furnish in cases where the efforts fail
without the salvor's fault no more than direct and standby costs is not adequate for this
purpose. My Lords, as to the purpose of the Convention this is plainly right, but the careful
submissions of counsel have not persuaded me that this "teleological" method (as
he described it) enables profitability to be written into expenses. I say this for two
In the first place I do not accept that salvors need a profit
element as a further incentive. Under the former regime the undertaking of salvage services
was a stark gamble. No cure -no pay. This is no longer so, since even if traditional salvage
yields little or nothing under article 13 the salvor will, in the event of success in protecting the
environment be awarded a multiple not only of his direct costs but also the indirect standby
costs, yielding a profit. Moreover, even if there is no environmental benefit he is assured of an
indemnity against his outlays and receives at least some contribution to his standing costs.
Lack of success no longer means "No pay," and the provision of this safety net
does suffice, in my opinion, to fulfil the purposes of the new scheme.
Secondly, although Mr. Brice disclaimed any intention to
revive the method adopted by the arbitrator, which was to treat article 14 as creating a
salvage regime parallel to that of article 13, the argument for Semco was in essence the
same. The omission from article 14.3 of paragraphs (a) to (g) of article 13.1 shows that
expenses are not to be calculated on the same generous scale as an award for a successful
salvage. If such considerations enter the assessment of special compensation at all, this is
through the uplift under article 14.2. As Clarke J. said  2 Lloyd's Rep. 44, 51:
Furthermore, and in my view decisively, the promoters of the
Convention did not choose, as they might have done, to create an entirely new and distinct
category of environmental salvage, which would finance the owners of vessels and gear to
keep them in readiness simply for the purpose of preventing damage to the environment.
Paragraphs 1, 2 and 3 of article 14 all make it clear that the right to special compensation
depends on the performance of "salvage operations" which, as already seen, are
defined by article 1(a) as operations to assist a vessel in distress. Thus, although article 14 is
undoubtedly concerned to encourage professional salvors to keep vessels readily available,
this is still for the purposes of a salvage, for which the primary incentive remains a traditional
salvage award. The only structural change in the scheme is that the incentive is now made
more attractive by the possibility of obtaining new financial recognition for conferring a new
type of incidental benefit. Important as it is, the remedy under article 14 is subordinate to the
reward under article 13, and its functions should not be confused by giving it a character too
closely akin to salvage.
My Lords, the materials on which these opinions are founded
are confined to the instruments themselves, without the recourse to the travaux preparatoires,
permissible where the meaning of an international agreement is found to be unclear: see
Fothergill v. Monarch Airlines Ltd.  A.C. 251. Nevertheless, reference was made
to them in argument without objection, and they are a useful means of testing the tentative
opinions already formed. Some caution is however required. The documentary antecedents
of the Convention are incomplete, and there is nothing before the House to indicate the origins
of the new safety-net provisions in L.O.F. 1980. This is understandable, since that Form is
neither the document sued upon, nor incorporated into it. Nevertheless, it is plain from
Professor Selvig's report that the first draft of the Convention was influenced by L.O.F. 1980,
and a full account of L.O.F. 1990 cannot be given without knowing the history of its
Subject to these reservations, I find in the travaux
preparatoires strong reinforcement for the Owners' interpretation of article 14. In particular:
The sub-committee rejected this proposal, and it is significant that whilst items a), b), and
c), are broadly reflected in the ultimate text there is no counterpart to item d).
Such preliminary documents as are available thus support the
narrower construction which I propose. Two other matters call for mention. First, your
Lordships were pressed with a submission that the meaning given to article 14.3 by the judge
and the Court of Appeal would be unworkable in practice. I cannot accept this, for it seems to
me that the ascertainment of the fair rate must necessarily be performed with a fairly broad
brush, albeit not so broad as the fixing of the reward under article 13, and the uplift under
article 14.2. Quite sufficient information for such purposes could be derived from the salvor's
books, as indeed became clear when reference to materials from that source was made in the
course of argument.
Secondly, Miss Selvaratnam addressed the House on certain
authorities concerning the assessment of a fair rate of hire or other remuneration for services
performed in the absence, or outside the terms, of a binding contract. These decisions would
indeed have been germane if the purpose of article 14.3 had been to give the salvor a reward,
not directly defined by the contract, but generally referable to a fair rate of remuneration. In
the present case however I have concluded for the reasons given that article 14.3 is not
concerned with remuneration, but with a more restricted basis of recovery, and the authorities
cited therefore do not assist.
These authorities do however point the way to an alternative
argument for Semco, which did not form part of their submissions in the Court of Appeal and
which was first proposed in the dissenting judgment of Evans L.J. It is best seen in the
following passages from the judgment  1 Lloyd's Rep. 449, 457, 459:
My Lords, the difficulty which I find with this interpretation is
two-fold. First, the proposition gives no weight to the context which, for the reasons already
given, point directly away from anything resembling the kind of remuneration which the salvor
could expect, if not exactly in the open market, at least in some approximation to it. There are
elements in such remuneration which the safety net was not in my opinion meant to embrace.
Secondly, I believe that the Lord Justice attached undue importance to the word
"rate", which was understood as reflecting a notional periodical payment, to be
multiplied-up to a figure forming part of the expenses. It would, I can see, be only a short step
from this to look for a periodical basis of payment which could only be ascertained by
reference to the market for vessels or equipment of this kind. For my part however I believe
the word "rate" has sent the enquiry in the wrong direction. Whatever its ordinary
meaning I believe that in the context of article 14 it simply denotes an amount attributable to
the equipment and personnel used, just as the expenses include an amount attributable to
out-of-pockets. This view is wholly consistent with the French language version of the
Convention, where we find in article 14.4 the words ". . . les debours raisonnablement
engagés par l'assistant dans les opérations d'assistance ainsi qu'une somme
équitable pour le matériel et le personnel . . ." We were informed that the
Spanish version of the text is to similar effect. I believe that if there had been an opportunity
to deploy before the Lord Justice the arguments which your Lordships have heard he might
well have come to a different conclusion. At all events, I must respectfully dissent from it.
Finally, whilst the French text is still in mind I would draw
attention to the word "indemnité" which appears in article 14 in the same
places as "compensation" in the English version. Mr. Brice correctly warned that
this may be a "false friend" with indemnity in the English language, since one of its
meanings does correspond to a salary or other payment for work done. Nevertheless I think
that there is still a flavour of reimbursement for outlays, which accords with the meaning I have
My Lords, I have explored the matter at length in deference to
the practical importance of the question, the differences between the opinions expressed, and
the thoughtful argument of Mr. Brice. Otherwise I would have been content simply to express
my agreement in every respect with the economical and convincing judgment of Clarke
There remains a contingent cross-appeal by the Owners,
contingent because the figures are such that it will arise only if Semco prevail on the principal
issue under article 14.3, which in my opinion they do not. The question is whether the
expenses comprise those incurred during the whole of the salvage operation, or only during
the times when a threat to the environment is still in existence. Clarke J. and all members of
the Court of Appeal preferred the former opinion. In a spirited argument Mr. Thomas Q.C.
supported the latter view, but your Lordships did not think it necessary to invite a response
from Mr. Brice. I think the matter plain, and am content to adopt the reasons given by Clarke
J. for deciding that it is to the entirety of the operation that the expenses should be referred.
I therefore propose that the appeal and the cross-appeal should be dismissed, in each case with costs.
LORD LLOYD OF BERWICK
I agree that the appeal and cross-appeal should each be
dismissed for the reasons given by my noble and learned friend, Lord Mustill. Since Mr. Brice
Q.C., for Semco, described the appeal as a test case of international importance on a point
which has not so far been considered elsewhere, I underline what seem to me to be the
1) ". . . fair rate for equipment and personnel actually and reasonably used in
the salvage operation" in article 14.3 means a fair rate of expenditure, and does
not include any element of profit. This is clear from the context, and in particular from the
reference to "expenses" in article 14.1 and 2, and the definition of "salvors'
expenses" in article 14.3. No doubt expenses could have been defined so as to include
an element of profit, if very clear language to that effect had been used. But it was not. The
profit element is confined to the mark-up under article 14.2, if damage to the environment is
minimised or prevented.
2) The first half of article 14.3 covers out-of-pocket expenses. One would expect to
find that the second half of the paragraph covered overhead expenses. This is what it does.
If confirmation is needed, it is to be found in the reference to sub-paragraphs (h) to (j) of article
13.1, (which are apt to cover overhead expenses) and the omission of sub-paragraphs (a) to
3) Mr. Brice argued that the word "rate" indicated more naturally a rate
of remuneration rather than a rate of expenditure. But, as Lord Mustill points out, rate is the
appropriate word when attributing or apportioning general overheads to the equipment and
personnel actually and reasonably used on the particular salvage operation.
4) Mr. Brice argued that if fair rate means rate of expenditure it would require
"a team of accountants" in every salvage arbitration, where the environment has
been at risk. Mr. Thomas's answer was that the basic rates in the present case (not a
straightforward one) were agreed without difficulty by the two firms of solicitors. In any event
accountants are nowadays, as he says, a part of ordinary life.
5) Although the meaning of article 13 is clear enough, and resort to the travaux
preparatoires is therefore not strictly justified, I have never known a case where the travaux
point so strongly in favour of one party rather than another. The commentaries on the draft
documents show conclusively what the salvors' representatives' were seeking to achieve
during the international negotiations leading up to the 1989 Convention, and how it was that
sub-paragraphs (h) to (j) found their way into that Convention.
6) Mr. Brice made out a strong case that professional salvors of today need encouragement by way of remuneration over and above their expenses if they are going to stay in business. But that is not what they were seeking to achieve during the negotiations. Nor is it what was in fact agreed. I would dismiss the appeal.
LORD HOPE OF CRAIGHEAD
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 too would dismiss both the appeal and the cross-appeal.
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