News / 17-10-2022 / London

Argentum Exploration Ltd v. The Silver and all persons claiming to be interested in, and/or have rights in respect of, the silver (SS Tilawa) [2022] EWCA Civ 1318

The Court of Appeal, by a majority, has upheld the Admiralty Court decision that the Republic of South Africa (RSA) was not entitled to assert a claim of state immunity in respect of in rem proceedings brought by salvors concerning a cargo of silver bars recovered from the seabed 75 years after the sinking of the carrying vessel.

The decision makes it clear that state immunity will not be a successful defence to a claim that relates to a state’s commercial, as opposed to sovereign, activities and reflects the restrictive approach to state immunity adopted in the State Immunity Act 1978, common law and customary international law.

The background facts

The silver bars were sold by the Indian Government to the RSA in 1942 on fob terms and were destined to be made into coin by the South African mint. The cargo was shipped on a vessel that was privately owned and was carrying other cargo on board when she was torpedoed and sank to the bed of the Indian Ocean.

In 2014, the claimant engaged salvors to recover the silver. In 2017, the silver was carried to the UK and declared to the Receiver of Wreck and remains held to the Receiver’s order. Having discovered that the silver belonged to the RSA, the claimant sought a salvage award against the RSA but the Receiver stated that she had no power to decide the amount of salvage. The claimant, therefore, commenced an in rem action, which the RSA defended on the basis that it had immunity in respect of the claim for salvage.

The statutory provisions

The State Immunity Act 1978 (the 1978 Act) provides foreign states with immunity from the English courts’ adjudicative and enforcement jurisdictions with certain carve-outs. Broadly speaking, a state will not be immune in respect of proceedings relating to a commercial transaction that it has entered into, pursuant to s.3(1). S.10 deals with ships used for commercial purposes and provides that:

“(4) A State is not immune as respect—

(a) an action in rem against a cargo belonging to that State if both the cargo and the ship carrying it were, at the time when the cause of action arose, in use or intended for use for commercial purposes, or

(b) an action in personam for enforcing a claim in connection with such a cargo if the ship carrying it was then in use or intended for use as aforesaid."

S.10 was intended to give effect to the International Convention for the Unification of Certain Rules Concerning the Immunity of State-Owned Ships 1926 (Brussels Convention), which severely limits the immunity of state-owned or operated ships and state-owned cargoes.

S.17 defines commercial purposes to essentially include commercial transactions that a state enters into or in which it engages otherwise than in the exercise of its sovereign powers.

English common law, which follows customary international law at the relevant time on this issue, adopts a restrictive theory of immunity and the 1978 Act’s provisions must be construed in that context. The restrictive theory of immunity makes a clear distinction

between the acts of a State which are an exercise of sovereign authority and transactions of the type normally undertaken by private individuals, particularly those done in the course of trading or commercial activities.

The Admiralty Court decision

The Admiralty judge decided that the RSA could not rely on state immunity because at the time the cause of action for salvage arose, both the vessel and the silver were in use for commercial purposes. The vessel was in commercial use before she sank in 1942. The silver was also then in commercial use because it was being carried on a merchant ship pursuant to a contract of sale with the Indian Government and a contract of carriage with the shipowner. In the judge’s view, the status of the cargo did not change between 1942 and 2017.

The Court of Appeal decision 

The majority of the Court of Appeal upheld this decision. They clarified that the point of time at which the use and intended use of the vessel and cargo had to be assessed was not when the cause of action for salvage was complete in 2017, but when the cargo of silver became a recognised subject of salvage at the time of the sinking in 1942. 

It was common ground that the use of the vessel in 1942 was for commercial purposes.  In the majority’s view, the RSA’s use of the cargo of silver was also for commercial purposes when it was on board the vessel because the relevant activity involved was: (i) entering into a contract of purchase on fob terms for the silver to be delivered on board the vessel; and (ii) entering into the contract of carriage with the owners of the vessel for it to be carried by sea to South Africa. Both aspects were non-sovereign activity under customary international law, and both were activity for commercial purposes within the relevant provisions of the 1978 Act.   

The majority thought that, applying the restrictive doctrine of state immunity, there was no principled reason why a state owner of cargo which had been salvaged after a marine casualty to a merchant ship on which it was carried on a commercial voyage should be treated any differently from a private owner of such cargo, nor why the cargo itself should be immune from an action in rem brought in the jurisdiction in which it was located.   

In this case, the silver was on board the vessel for the purpose of being transported from India to South Africa pursuant to two inter-related commercial contracts, a contract of sale and a contract of carriage. It was there to serve the purposes of those commercial contracts. The RSA was a party to the former and the latter was arranged by the sellers for its benefit. The silver became cargo and was at the risk of the RSA after it crossed the ship's rail. Nothing that the RSA did in respect of this cargo was any different from the actions of a private owner involved in similar commercial arrangements. 

The majority dismissed the argument that the relevant question was the intended use of the cargo on completion of the voyage (in this case, for the sovereign purpose of making coins). The correct inquiry was why the cargo was on board at the time the cause of action in salvage arose. The answer was not that it was intended for coinage but that it was put on board for carriage to South Africa under commercial contracts of purchase and carriage. That was what was meant by being carried for commercial purposes.  

The dissenting judge took a different view, stating that a cargo would rarely be in use, whether for commercial or other purposes, while it was being carried on board. Therefore, she considered that the key issue was whether or not, when the casualty occurred, the state-owned cargo was intended for use by the RSA for commercial purposes (in this case, for coinage).

However, the dissenting judge did confirm the Court of Appeal’s unanimous view that the Receiver of Wreck did not have an implied statutory power under the Merchant Shipping Act 1995 to decide whether salvage was due.

Comment 

It would certainly seem surprising if a foreign state successfully argued immunity in such circumstances, allowing it to seek delivery up of a salved cargo without any liability to pay salvage. However, as noted by the dissenting judge, an in personam claim can be brought under s.10(4)(b) to enforce a claim against a state-owned cargo carried on a merchant ship regardless of the use or intended use of that cargo. Indeed, the claimant has also commenced in personam proceedings against the RSA, although it appears to have concentrated its efforts on the in rem claim. 

It remains to be seen whether the RSA will seek leave to appeal to the Supreme Court.