In an appeal concerning the interpretation of s.10(4)(a) of the State Immunity Act 1978, the Supreme Court in Argentum Exploration Ltd v Republic of South Africa [2024] UKSC 16 has denied salvage to the Claimant, rejecting its contention that cargo onboard a sunken vessel was in use or intended for use for commercial purposes.
The precious cargo of the SS TILAWA ("the Vessel") lay marooned at depths of 2.5km in the Indian Ocean for nearly 75 years before its rescue by the Claimant salvor, Argentum Exploration Ltd ("Argentum"), in 2017. The freight, comprised of 2364 bars of silver purchased by South Africa for the predominant purpose of being made into coin, was making its way from Bombay to Durban prior to the Vessel's sinking in 1942 by enemy forces. As of 2020, the Silver had an estimated value of approximately $43 million.
Without agreement or contract in place, Argentum used a specialist salvage vehicle to recover the silver and delivered it to the Receiver of the Wreck. Expectedly, it subsequently claimed salvage by issuing in rem against the silver. South Africa, as the owner of the silver, disputed the court's jurisdiction under the principle of state immunity.
The proceedings
Argentum's claim for voluntary salvage under section 12(1) of the Salvage Convention 1989 gave rise to a maritime lien over the silver, imposed as a matter of public policy for the advantage of trade upon the owner of the property salved. Argentum sought to carry the lien "into effect" through its action in rem [44 – 49].
South Africa argued that the court had no power to hear the claim as it benefited from immunity from suit, i.e. it could not be sued due to its sovereign status as a foreign state. This was challenged by Argentum which asserted that the exception to immunity for state owned cargos under section 10(4)(a) of the State Immunity Act 1978 ("SIA 1978") applied.
Under section 10(4)(a), a state is not immune as respects:
"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".
In contrast, a party wishing to establish that a state is not immune from an in personam claim under section 10(4)(b) need simply to establish that the ship carrying the cargo was in use or intended for use for commercial purposes, whereas a party wishing to establish that a state is not immune from an in rem claim under section 10(4)(a) needs to establish that both ship and cargo were either in use or intended for use for commercial purposes.
It was common ground between the parties that during its voyage, the Vessel was in use for commercial purposes. It later became common ground between the parties that the silver on board the Vessel was not intended for use for commercial purposes, the judge having found that its intended use was predominantly the sovereign purpose of being made into coin by the South African mint. The key issue, therefore, was whether the silver was "in use or intended for use for commercial purposes" when the cause of action accrued [66].
In the decisions below, both the High Court and the Court of Appeal found for Argentum, holding that the silver had been "in use" for commercial purposes because of the commercial arrangements under which it was shipped. Sir Nigel Teare (sitting as a High Court Judge) held a state contracting for its goods to be carried by sea to be a "classic example" of a commercial contract, there being no reason that it should not be exposed to the same liability in salvage as a private owner of goods, see [154], [157] and [163]. Popplewell LJ (giving the lead judgment of the Court of Appeal) added that the question of intended use demanded an inquiry as to the use of the cargo at the time of the voyage, the intended use on completion being "legally and logically" irrelevant to the claim which arises before the voyage is complete [97].
Laing LJ disagreed. In her dissenting judgment, she viewed the fact that the cargo was subject to commercial arrangements for its transportation as irrelevant to the question of its intended use. As a matter of ordinary language, she reasoned, the silver sitting in the hold of the ship was not being used by South Africa for any purpose, commercial or otherwise. The approach of the judge and the majority of the Court of Appeal was in her opinion, "counter intuitive", and meant that section 10(4)(a) could never apply to a state-owned cargo carried on a commercial vessel, because such a cargo will always be carried pursuant to commercial arrangements [142] – [157].
The Supreme Court's Decision
The Supreme Court unanimously allowed South Africa's appeal. The Court of Appeal had been "led into error by their concentration on the cause of action in salvage which they permitted to dominate their interpretation of section 10(4)(a)" [77]. An "unduly technical" approach had been taken by Popplewell LJ to the meaning of "cargo" in section 10(4)(a), mistakenly focussing on the contractual means by which the silver became cargo and then asking whether those transactions were commercial:
"In section 10(4)(a) it is the use or intended use to which the state has decided to put the property concerned and not the transactions or activities from which the property originated which determine whether there is immunity" [76].
The Justices agreed with Laing LJ that cargo sitting in the hold of a ship is not being used for any purpose, commercial or otherwise. To say that the silver was "in use" while it was being carried on board the Vessel does not accord with the ordinary and natural meaning of those words [69].
Further, a claim in rem is far more intrusive into the rights of a state over its property than proceedings in personam: the mere issue of a claim in rem gives the Claimant the status of a secured creditor; gives rise to a maritime lien; allows jurisdiction to be established by the presence of the property within the jurisdiction; gives the Defendant a choice between defending the claim or losing its property; and gives rise to a right to arrest the property. This justifies the additional imposition in paragraph (a)that both ship and cargo were in use or intended for use for commercial purposes. Argentum's reading of "in use" would mean that "the additional test in paragraph (a) would be satisfied" every time cargo was carried on a commercial vessel. This would negate the distinction between the two limbs in section 10(4) [78].
The Court therefore held South Africa to be entitled to state immunity under section 1 of the SIA 1978. The silver was not in use or intended for use for commercial purposes at the time when the cause of action arose. As non-commercial cargo owned by the state, it was "entitled, at the time of salvage operations, to sovereign immunity under generally recognised principles of international law" [117].
Conclusion
It was not just the silver salved in this case. The UK's status as a global commercial hub has also been preserved following a perceived "erosion" of state immunity resulting from the decisions below.
In addition, the judgment provides useful guidance on the interpretation of section 10 SIA 1978 and of the application and development of a restrictive theory of state immunity in international law. It serves as a cautionary tale for salvors in respect of voluntary salvage of state-owned property.
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