Sovereign Immunity Prevails: UK Supreme Court Rules in Favour of South Africa in Silver Salvage Case

In the recent case of Argentum Exploration Ltd (Respondent) v Republic of South Africa (Appellant) [2024] UKSC 16, the UK Supreme Court ruled in favour of the Republic of South Africa, affirming its immunity from an action in rem under Section 10(4)(a) of the State Immunity Act 1978. The case centred around a cargo of silver, primarily purchased for coinage. The Supreme Court held that at the time the cause of action arose, the cargo was not in use or intended for use for commercial purposes, thus entitling South Africa to immunity.

Background

The case dates back to 1942, when a commercial private vessel (the SS Tilawa, the Vessel) transporting a cargo of silver (the Silver) from Bombay (now Mumbai) to Durban was hit by two torpedoes fired from a Japanese submarine, sinking some 2.5 kms off the coast of Maldives. The Silver had been purchased by the Union of South Africa (now the Republic of South Africa) from the Government of India for use in the South African Mint.

In 2017, Argentum recovered the Silver from the seabed and claimed to be the salvor, asserting a salvage claim under maritime law. The claim was made in rem, i.e., against the Silver itself.

South Africa contested the claim on the grounds of immunity, which it said attached both to itself and the Silver. The immunity claim primarily turned on whether the Silver was "in use or intended for use for commercial purposes" when it was being carried at sea in 1942, as per section 10(4)(a) of the State Immunity Act 1978 (the SIA).

The immunity claim was rejected both at first instance (see our blog post here) and then by the majority of the Court of Appeal, on the basis that at the time the Vessel was sunk, both the ship and the Silver were held to be “in use…for commercial purposes”. South Africa subsequently appealed to the Supreme Court.

Decision

The Supreme Court unanimously allowed South Africa’s appeal, ruling that the Silver was neither in use nor intended for use for commercial purposes at the time when the cause of action arose. Consequently, South Africa was entitled to immunity from Argentum’s in rem claim against the Silver.

Reasoning

The Court's decision hinged on the interpretation of section 10(4)(a) of the SIA, 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 Supreme Court agreed with the Court of Appeal that it was appropriate to consider the use or intended use of a vessel and cargo at the time when such vessel was carrying the cargo, in cases where the cause of action (in this case - salvage) arises later in time, to determine if there has been a change in use. The Supreme Court concluded that there was no such change in use in this instance.

While it was agreed between the parties that the Vessel was used for commercial purposes, the Silver was predominantly intended for the non-commercial purpose of minting coins. Despite this, the majority in the Court of Appeal had concluded that the Silver was in use for commercial purposes as it was being carried pursuant to a commercial contract of carriage and purchased under a commercial contract of sale, thus it could not enjoy immunity.

The Supreme Court disagreed with this interpretation, noting that it was an "unduly technical approach", as the Court of Appeal had focused on how the Silver became cargo instead of determining how it was used. The Court cited Alcom Ltd v Republic of Columbia [1984] AC 580 and SerVaas Incorporated v Rafidain Bank and others [2012] UKSC 40, stating that in both cases, the court considered the intended purpose of the property. On this reasoning, the fact that the Silver was purchased for coinage was relevant for determining its use or intended use under section 10(4)(a) of the SIA. 

The Court reasoned that cargo sitting in the hold of a ship is not being used for any purpose, commercial or otherwise. The focus of the Court’s inquiry should instead be on South Africa's intended use for the Silver. In this case, such use was the non-commercial purpose of coinage, thus South Africa was immune with respect to the action in rem. The Court highlighted that proceedings in rem are far more intrusive into the rights of a state over its property than proceedings in personam, providing compelling reasons why more stringent criteria should be satisfied before a state is denied immunity.

The Court also referred to the Brussels Convention of 1926 relating to the Immunity of State-owned Vessels and noted that the SIA was, among other reasons, enacted to enable the UK to ratify the Brussels Convention. Under Article 3(3) of the Brussels Convention, state-owned cargos carried on board commercial vessels shall not be subject to any proceedings in rem. The Supreme Court concluded that the provisions of the Convention conformed with section 10(4)(a) of the SIA and that South Africa was entitled to immunity accordingly.

Comment

The Supreme Court's decision underscores the importance of the principle of state immunity and its application in in rem actions. It provides clarity on the interpretation of the State Immunity Act 1978, particularly in relation to the use or intended use of cargo under section 10(4)(a).

This decision has significant implications for future salvage operations involving state-owned property. Salvage companies and practitioners should be aware of the potential for state immunity and seek advice on the appropriate position including in the light of this ruling, and consider seeking prior agreements with the state owners of property as to ownership and salvage costs, where possible.