## Facts

- The tanker *Nagasaki Spirit*, laden with crude oil, collided with the container vessel *Ocean Blessing* in the northern Malacca Straits (Sept. 1992), causing a major fire and large oil spill and creating a continuing pollution risk to the Malaysian coast.
- Semco Salvage & Marine Pte. Ltd. (Semco), a professional salvor, agreed to provide salvage services under Lloyd’s Open Form 1990 (LOF 1990), incorporating Articles 13 and 14 of the 1989 Salvage Convention by contract.
- Semco deployed tugs and equipment, extinguished the fire, towed the casualty away from the coast at Malaysian authorities’ request, facilitated cargo transfer at an anchorage off Belawan, and ultimately towed the vessel to Singapore; the vessel was redelivered to the owners in Dec. 1992.
- Remuneration under LOF 1990 was to be determined by London arbitration; the dispute concerned “special compensation” under Article 14 in addition to a conventional salvage award under Article 13.
- The arbitrator made an Article 13 award and calculated Article 14 special compensation; on appeal within the arbitral process the Article 14 figure was reduced and no additional payment was due because the Article 13 award exceeded Article 14 expenses.
- The High Court and Court of Appeal upheld that (i) “fair rate” in Article 14(3) meant a fair rate of expenses, not profit, and (ii) special compensation was not confined to a narrowly defined portion of the operation.
- Both sides appealed to the House of Lords: Semco sought a profit component within Article 14 “fair rate,” and the owners sought to narrow the compensable period for Article 14 expenses.

## Issues

1. Whether “a fair rate for equipment and personnel actually and reasonably used” in Article 14(3) permits inclusion of a profit/remuneration element within “expenses.”
2. Whether recoverable Article 14 “expenses” are confined to periods of immediate environmental threat or may extend across the salvage operation undertaken under LOF 1990, subject to Article 14’s conditions.

## Decision

- Both the appeal and cross-appeal were dismissed.
- “Fair rate” in Article 14(3) was held to calculate expenses actually incurred for equipment and personnel (including proper allocation of overhead and standby costs), but it does not include any profit or remuneration element.
- The House declined to restrict Article 14 expenses to a narrow time window of acute environmental threat; the lower courts’ approach to the period and mechanics of Article 14 was not disturbed.
- Because the Article 13 salvage award exceeded the Article 14 expenses as calculated, no separate Article 14 payment was ultimately payable on the facts.

## Legal Principles

- Article 14 special compensation under LOF 1990/Salvage Convention 1989 functions as a cost-recovery “safety net” where a qualifying environmental threat exists and the Article 13 reward is inadequate relative to the salvor’s expenses.
- “Expenses” in Article 14 are limited to amounts that can properly be characterized as incurred; profit is not “incurred” and is not recoverable under Article 14(3).
- “Fair rate” is a method for fair attribution and valuation of the costs of equipment and personnel actually and reasonably used, including appropriate overhead and standby components, rather than a gateway to a commercial profit margin.
- The Convention maintains a separation between Article 13 “reward” (success-based salvage remuneration) and Article 14 “special compensation” (expense-based compensation, potentially subject to an uplift under the Article 14 scheme).

## Conclusion

The House of Lords confirmed that Article 14 special compensation is confined to recovery of properly incurred salvage expenses—fairly calculated for equipment and personnel, including overhead and standby allocation—but excludes profit, and it rejected an attempt to confine compensable expenses to an artificially narrow segment of the salvage operation.


Semco Salvage & Marine Pte. Ltd. v. Lancer Navigation Co. Ltd. (The Nagasaki Spirit), [1997] 1 Lloyd’s Rep. 323 (H.L. 1997)