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In this post, David McKie, Partner, and Dany Bitar, Associate in the litigation team at CMS, preview the decision awaited from the Supreme Court in Argentum Exploration Ltd (Respondent) v Republic of South Africa (Appellant).

Factual Background

In 1942, a commercial vessel, SS TILAWA, chartered for the carriage of a cargo of 2,364 bars of silver (the “Silver”) for use by the South African Mint to produce coinage in Egypt and South Africa, was torpedoed and sank in international waters in the Indian Ocean at a depth of some 2½ kilometres. The cargo was regarded as unsalvageable, but in 2017 it was recovered by the Respondent (“Argentum”), a UK company formed for the purpose of the location and salvage of valuable shipwrecks at depth, and brought to the UK (in a mistaken belief that it was UK government property). In October 2017, Argentum declared the Silver to the Receiver of Wreck and it was subsequently held to the order of the Receiver pursuant to section 236 Merchant Shipping Act 1995 (“MSA”). The Silver was valued at around USD 43 million.

In September 2018, the Government of the Republic of South Africa (“RSA”) claimed ownership of the Silver. In October 2019, Argentum commenced an action in rem in the Admiralty Court for a declaration that it was the owner of the Silver, alternatively that it was entitled to a salvage reward against the owners.  RSA entered an acknowledgment of service, and applied to strike out or set aside the claim, or have it permanently stayed, on the grounds that the proceedings attracted State immunity pursuant to the State Immunity Act 1978 (“SIA”) and the International Convention on Salvage 1989, art 25.  RSA also resisted paying salvage in the event that it was not entitled to immunity.  Argentum subsequently accepted RSA’s ownership of the Silver at all material times.

Argentum also commenced a claim for salvage against RSA in personam, for which it was granted permission to serve out of the jurisdiction on a without notice application. The validity of the claim form in that action was extended without it yet having been served or expired.

The High Court Decision

In the words of Sir Nigel Teare (sitting as a judge of the High Court), RSA’s application engaged “two conflicting interests, the interest of the Claimant in access to justice and the interest of the RSA in being immune from the jurisdiction of this court. Those two interests are to be balanced by application of the State Immunity Act 1978.”

The SIA, s 1, sets down the general principle that a State is immune from the jurisdiction of the courts of the UK subject to certain exceptions, including those in SIA, s 10. The relevant exception considered by the court was contained in section 10(4)(a) which provides that a State is not immune in respect of, “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.”

The SIA, s 17, defines commercial purposes as meaning purposes of such transactions or activities as mentioned in s 3(3), which in turn states that commercial transaction means:

“a) any contract for the supply of goods or services… and c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority”. 

Consequently, it fell to the court to assess whether the Silver and the SS TILAWA, as the vessel carrying the Silver, were, “in use, or intended for use, for commercial purposes” in 2017, being the time at which Argentum’s cause of action arose against RSA.

RSA argued that neither the SS TILAWA nor the Silver were in use or intended for use for any commercial purpose since both were at the bottom of the Indian Ocean and had been for over 70 years and were not being used at all.  Argentum argued that both the SS TILAWA and the Silver retained the same status that they had when sunk in 1942.  RSA responded that the position in 1942 was irrelevant but if it was, the Silver was not in use by RSA’s predecessor but intended for use by the then government for the production of coinage which was a governmental purpose. 

The court had no difficulty in finding that the SS TILAWA had been used for commercial purposes, this being the purpose for which it had been built.  As regards the use of the Silver, although the determination was not an easy feat, the court also found that the Silver had been in use for commercial purposes because the use to which it was being put was being carried on a merchant ship, being carried pursuant to a contract of sale with the Government of India and a contract of carriage with the shipowner. In particular, the court considered that:

“If a state contracts for its goods to be carried by sea, a classic example of a commercial contract, there is no reason, pursuant to the restrictive theory of state immunity, why it should not be exposed to the same liability in salvage as a private owner of goods”. 

It was unnecessary to decide whether in 1942 the Silver was intended for use for commercial purposes, but its partial use for Egyptian coinage was a commercial purpose and its more substantial use for South African coinage was a sovereign purpose, such that the court would have held that it was intended to be used substantially for a sovereign purpose.

The court also found that there was no reason to conclude that the character or status of the Silver in 1942 had changed by 2017, when the cause of action in salvage had accrued. This was because the contract of carriage of the Silver had ended because the Vessel and Silver sunk to a depth at which salvage had not been practicable at that time. These events did not affect the circumstances in which RSA could claim immunity pursuant to the SIA, s 10(4)(a).

The court concluded that RSA was not immune in respect of the claim in rem against the Silver. This conclusion was “consonant with justice” because “it enables the Claimant to have access to justice whilst ensuring that the RSA’s immunity […] is consistent with the restrictive theory of sovereign immunity to which the SIA gives effect.”

The Court of Appeal decision

RSA appealed the High Court decision to the Court of Appeal. 

The arguments raised by RSA were largely the same as at first instance.  However the parties agreed that in 1942 SS TILAWA was being used for commercial purposes, and that in 1942 the Silver was intended for a predominantly sovereign use. 

By a majority, the Court of Appeal dismissed RSA’s appeal.

The majority held that RSA had chosen to have its cargo carried by sea pursuant to a commercial contract of carriage just like any private owner of cargo and had therefore exposed itself to claims for salvage like any private owner of cargo.  When a cargo is purchased under a FOB contract and shipped pursuant to a commercial contract of carriage contained in or evidenced by a bill of lading, the cargo is used for commercial purposes.  That was the ordinary and natural meaning of the phrase “in use … for commercial purposes” when regard was had both to the context of cargoes on board ships and to the restrictive theory of state immunity which is the background against which the SIA is to be interpreted.

As an aside, the Secretary of State for Transport and the Receiver of Wreck intervened at the Court of Appeal stage to seek rulings on whether the Receiver has the power to determine the amount of salvage, and has an obligation only to release property against a payment of salvage or provision of security, even if the owner can invoke state immunity in court proceedings.  The Court of Appeal held unanimously that the relevant provisions of the legislation do not confer any power on the Receiver to decide whether salvage is due, or how much salvage is due, and do not require the Receiver to continue to detain a wreck if a State successfully invokes state immunity in response to a claim for salvage.

RSA appealed the state immunity issue to the Supreme Court. The hearing took place on 28 and 29 November 2023 and a decision is now awaited.

Comments

As technology develops, it becomes increasingly practicable and economic to salvage previously inaccessible historic wrecks and valuable cargoes, many of which will have been government owned.  Where the vessel or cargo is the property of a State questions arise as to how the law of State immunity interacts with admiralty law principles of salvage and wreck. 

This is believed to be the first case to consider the meaning and scope of SIA, s 10(4)(a).  The case is significant in the marine context because it means that a State is not immune from an action in rem for salvage in respect of its cargo, or from an action in personam, just because the vessel carrying the cargo has become a wreck. Subject to the Supreme Court’s judgment, State property which is on board commercial vessels, and sinks, may result in a loss of immunity from salvage and other maritime claims. 

The drafting of the SIA is not without difficulties. The restrictive theory of state immunity from jurisdiction has its critics. The exception for commercial activity is well recognised but there is often a tension as to where to draw the line on the facts of each case between commercial and governmental activities and, as this case shows, as to what constitutes use.  The case therefore has potentially wider implications and it will be interesting to see the extent to which the Supreme Court addresses these.