ENGLISH HIGH COURT HOLDS THAT THE REPUBLIC OF SOUTH AFRICA IS NOT IMMUNE IN CARGO SALVAGE CASE

In the case of Argentum Exploration Limited v. The Silver [2020] EWHC 3434 (Admlty) the English High Court held on 16 December 2020 that the Republic of South Africa (the "RSA") was not immune from the Court's adjudicative jurisdiction, despite RSA’s argument that it had state immunity. As such, the RSA was required to pay the Claimant, Argentum Exploration Limited ("Argentum"), the costs which it had incurred in salvaging 2,364 silver bars in which the RSA has an ownership interest.

Background

In 2017, Argentum salvaged 2,364 silver bars from the wreck of the SS TILAWA (the “Vessel”), which was sunk in the Indian Ocean in 1942. Argentum declared the silver bars, the current value of which is estimated at around US$ 43 million, to the UK Receiver of Wreck pursuant to the UK Merchant Shipping Act 1995. The Government of the Republic of South Africa (the "RSA") subsequently claimed ownership of the silver bars.

In October 2019, Argentum commenced an action initially seeking a declaration that it was the owner of the silver bars, or alternatively its costs of salvage. It subsequently recognised the RSA's ownership of the silver bars and focused on its salvage claim. The RSA claimed immunity pursuant to the State Immunity Act 1978 (the "Act"), and issued an application notice seeking an order that Argentum's action be struck out or stayed on state immunity grounds.

The Court's decision and reasoning

The application engaged two conflicting interests: (i) that of Argentum in access to justice; and (ii) the interest of the RSA in immunity from the jurisdiction of the Court. The High Court (in the judgment given by Sir Nigel Teare) sought to balance these interests by applying the Act.

Section 1 of the Act sets down the general principle that a State is immune from the jurisdiction of the courts of the UK subject to certain exceptions. The relevant exception considered by the court was contained in section 10(4)(a) of the Act. Under that section, 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". Consequently, it fell to the Court to assess whether the silver bars and the SS TILAWA, as the vessel carrying them, were, at the time the cause of action arose, in use, or intended for use, for commercial purposes.

To consider this question, the court assessed a range of detailed facts and evidence submitted by both parties. The RSA argued that, at the time the cause of action of salvage arose, in 2017, neither the silver bars, nor the Vessel, were in use, or intended for use, for any purpose, given that they had been at the bottom of the Indian Ocean for over 70 years. For its part, Argentum claimed that, at the time the cause of action for salvage arose, the silver bars and the Vessel retained the status they had in 1942.

The relevant time for the determination of purpose

To determine the relevant time at which the purpose of the silver bars should be analysed for the determination of state immunity, the High Court relied on the case of SerVaas Inc v. Rafidain Bank [2012] 3 WLR 545. In that case, Lord Clarke had ruled, albeit in the context of section 13 of the Act, that "what must be established is that property is "currently" in use or intended for use "for a commercial transaction."" The Court held that it would be appropriate to take this approach in the context of section 10, and that the use of the word "currently" meant "for the time being". As such, the relevant time for the determination of the purpose of the Vessel and silver bars was 2017, which was when the cause of action arose.

However, the Court determined that the position in 1942 must be considered as well. The Court held that the RSAs argument was unsustainable, as it implied that any time a ship runs aground, the state would be immune from an action in rem and in personam, even if the vessel had been used, or intended for use, for commercial purposes. He stated that "Parliament cannot not have intended that, in applying section 10 of the [Act], the Court was to ignore the status of vessel and cargo when the vessel was carrying the cargo". As such, the status of the Vessel and the silver bars in 1942 were to be considered in deciding whether they had been used, or intended for use, for commercial purposes, albeit that this consideration might not determine their status in 2017.

Was the cargo in use or intended for use for commercial purposes?

To determine whether the Vessel and silver bars were "in use or intended for use for commercial purposes", the Court turned to section 17 which defines "commercial purposes" as those transactions or activities mentioned in section 3(3)(a). The latter section, in turn, defines a "commercial transaction" as including "any contract for the supply of goods or services".

The Court had no difficulty in finding that the Vessel had been used for commercial purposes, this being the purpose for which it had been built. However, the determination of the purpose of the cargo of silver bars was not an easy feat, as cargoes are not used for the purpose for which they have been grown/manufactured during carriage, but rather after the carriage has been completed.

Following a detailed consideration of the arguments, the court concluded that “when a cargo is sold under an fob contract and shipped on board pursuant to a contract of carriage contained in or evidenced by a bill of lading it is used for commercial purposes”. In this case, since the silver bars had been bought from the Bombay Mint and shipped commercially, the Court found that the silver bars had been in use for commercial purposes. In particular, it considered that: "When a state contracts for its goods to be carried by sea, a classic example of a commercial contract, there is no reason why, […] it should not be exposed to the same liability in salvage as a private owner of cargo." The Court saw no unfairness in a state which has enjoyed the benefit of salvage services becoming bound to pay for them.

The purpose of the Vessel and silver bars in 2017

The purpose of the Vessel was determined to be the same as in 1942, given the purpose for which the Vessel had been built. The Court also found that there was no reason to conclude that the character or status of the cargo 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 bars had ended because the Vessel and silver bars sunk to a depth at which salvage had not been practicable at that time. These events did not affect the circumstances in which the RSA could claim immunity pursuant to the restrictive theory of sovereign immunity and section 10(4)(a) of the Act.

Having found that the silver bars were “in use” for commercial purposes, the court did not need to reach a finding regarding their intended use for the purposes of section 10(4)(a). After weighing the relevant evidence, the court considered that the bars of silver were most likely destined to be used for the production of coinage mainly for the Government of the Union of South Africa, and on that basis were intended to be used substantially for a government or sovereign purpose. However it was not necessary to decide that matter and the court expressly did not do so.

As such, the Court concluded that the RSA was not immune in respect of the claim in rem against the silver bars. 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".

Comment

While this case arises from an unusual and narrow factual matrix, it is of interest, as it provides welcome clarification in relation to the status of high value state-owned cargoes, and especially in relation to the time and other factors relevant for determining whether a vessel and cargo had a commercial purpose in cases involving the salvage of wreckage. The judgment also considers and applies many previous English cases on the law of state immunity, illustrating the English courts’ application of the restrictive theory in public international law, whereby states will only be accorded immunity for truly sovereign (rather than commercial) activities.

For further information, please contact Andrew Cannon, Partner, Helin Laufer, Associate, or your usual Herbert Smith Freehills contact.