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Court finds state had no immunity in respect of salvage claim

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Argentum Exploration Limited v. The silver and all persons claiming to be interested in and/or to have rights in respect of the silver [2020] EWHC 3434 (Admty)

The Court has held that the Republic of South Africa, the owner of silver bars salved from a shipwreck, was not entitled to state immunity in respect of the salvors’ in rem claim against the cargo for any salvage reward. This was because, at the relevant time, the silver bars were intended for use for commercial purposes. Therefore, state immunity did not apply.

The background facts

The SS Tilawa sank in the Indian Ocean on 23 November 1942, along with its cargo which included 2364 bars of silver. In 2017, the Claimant arranged for the cargo to be recovered from the wreck. The cargo was subsequently taken to Southampton and declared to the Receiver of Wreck.

The Claimant initially contended that it was entitled to the cargo as an unclaimed wreck, alternatively to a salvage reward if ownership was claimed. The Republic of South Africa (the RSA) subsequently claimed that it owned the silver bars, but denied that it was liable for salvage on the grounds that it had state immunity. The Claimant commenced in rem proceedings and, having accepted that the RSA was the owner, sought a salvage reward in respect of its salvage services.

The Admiralty Court decision

S.1 of the State Immunity Act 1978 (the SIA) grants a state immunity from the jurisdiction of UK courts with certain exceptions. S.10 of the SIA applies to Admiralty proceedings and provides at s.10(4) that a state is not immune in respect of:  

(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;…

S.3(3) of the SIA defines commercial transactions, which include at s.3(3)(a) any contract for the supply of goods or services”.

The cause of action in salvage accrued in 2017. The essential question for the Court was whether, at that time, the bars of silver were in use or intended for use for commercial purposes. In deciding this issue, it was relevant to consider the status of the vessel and cargo in 1942, when the vessel sunk.

The parties offered extensive and conflicting evidence on the vessel’s activities and the intended use of the silver bars. On the evidence, the Court found that, in 1942, the vessel was in use for commercial services. Further, the South African government had purchased the silver bars pursuant to an fob contract of sale and they were being carried on board the vessel from India to South Africa pursuant to a contract of carriage. Therefore, the silver bars were the subject both of a contract for the supply of goods and of a contract for the supply of services.

Reference was made to the only decision on the SIA in the context of a claim for salvage against cargo interests, the Altair [2008] 2 Lloyd's Reports 90. In that case, the Court thought that the cargo in question was a commercial cargo in use for commercial purposes because it had been bought and shipped commercially, notwithstanding that it was intended for public distribution in Iraq as part of the Iraqi Government’s Public Distribution System. In that Court’s view, there was no unfairness in a state, having enjoyed the benefit of salvage services, becoming liable to pay for them subject to any enforcement issues.

In this case, the silver was bought and shipped on board a merchant ship pursuant to a fob contract of sale and a contract of carriage contained in or evidenced by a bill of lading; two ordinary commercial contracts. The Court concluded that both the vessel and the silver bars were in commercial use when the wreck was salved and nothing had happened between 1942 and 2017 to alter the status of either.  

The Court stated that those who entered such contracts could find themselves subject to liabilities in salvage which were ordinary commercial liabilities. It would be surprising if a state which, like any private entity, entered into such contracts, were immune from actions in rem against its cargo in respect of salvage. Therefore, the RSA was not immune from proceedings in rem claiming salvage.

The Court, however, appeared to leave open the question of whether it could exercise the enforcement aspect of an in rem action against the RSA, namely if the Claimant sought to arrest and sell the cargo. At this stage, however, the silver bars remained with the Receiver of Wreck and the Court was required only to determine the amount of salvage due.

Comment

This decision affirms the inclination of the English courts to limit a foreign state’s reliance on immunity in circumstances where it has acted as a commercial entity and engaged in commercial activities. In those circumstances, it is arguably acting as a private entity and should be treated as such.

This decision will be of particular interest to offshore and sub-sea contractors engaged in the recovery of high value cargo such as the many cargoes of precious metals known to have been lost particularly in times of war. The Court’s approach may well encourage such salvage operations in the future where there is a possibility that the owner of the cargo might turn out to be a state or state-controlled entity.

Christian Dwyer

Christian Dwyer Global Head of Admiralty

Donal Keaney

Donal Keaney Senior Marine Manager

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Maritime