English High Court rules South African government does not have immunity from salvage payment action

Argentum Exploration Ltd had originally sought a declaration that it was the owner of the silver bars. A competing claim was made by the Republic of South Africa, which sought to strike out the action for salvage on the grounds that it was entitled to immunity from it.

The case was heard in the High Court of Justice (Queen’s Bench Division) by Sir Nigel Teare.

Sold to South Africa

The silver bars were salvaged by the claimant in 2017 from the wreck of the SS Tilawa, which was sunk in the Indian Ocean by the Japanese during the Second World War. The silver had been sold by the Government of India to the Government of the Union of South Africa for use by its Mint in 1942. The current value of the bars was stated to be around US $43 million.

The claimants brought the bars to Southampton, where they were declared to the Receiver of Wreck. The South African government claimed ownership of the silver in September 2018. Following correspondence between the parties the claimant commenced an action in rem seeking a declaration that it was the owner of the silver bars, or alternatively payment of salvage, in October 2019.

In March 2020, the RSA entered an acknowledgment of service for the purpose of asserting its interest in the silver and for claiming immunity pursuant to the State Immunity Act 1978 and Article 25 of the Salvage Convention. It issued an application notice seeking an order that the action be struck out or stayed on the grounds that the RSA was entitled to immunity from it. Alternatively, they resisted paying salvage to the claimant.

The claimant accepted that the RSA and its predecessor government were at all material times the owner of the silver. However, the RSA was still required to pay salvage before the Receiver of Wreck could release the silver to it. It was submitted for the claimant that the 1978 Act did not extend state immunity to cargo intended for commercial purposes. The original purpose of the cargo was for commercial purposes, and the fact that the silver had lain on the bottom of the Indian Ocean for 70 years did not lead to a change in this status.

It was submitted for the RSA that when the claimant’s cause of action arose in October 2017 neither the silver nor the SS Tilawa were in use or intended for use by it for any purpose. Whilst it was aware of the silver and that one or more salvors were interested in recovering it, it had not taken any steps with regard to it.

Ordinary commercial liabilities

In his decision, Sir Nigel Teare noted that the submissions for both parties had merit. However, in exploring the arguments of the RSA further he said: “It is difficult to see why the fact that the vessel becomes a wreck should determine whether a state is immune from an action in rem for salvage in respect of its cargo. [That suggests] Parliament cannot have intended that, in applying section 10 of the SIA, the court was to ignore the status of vessel and cargo when the vessel was carrying the cargo.”

He continued: “The RSA’s argument seeks, I suggest, to apply [the 1978 Act] mechanically, rather than intelligently having regard to its consequences and the restrictive theory of sovereign immunity. I therefore consider that it is appropriate to have regard to the status of the vessel and cargo in 1942 when deciding whether the vessel and cargo were, at the time the cause of action for salvage arose in 2017, in use or intended for use for commercial purposes.”

Acknowledging that the SS Tilawa was undoubtedly in use for commercial purposes in 1942, he said of its cargo: “As a matter of the ordinary use of language a cargo on board a ship is typically not spoken of as being in use. Rather, it is spoken of as being carried from one port to another pursuant to a contract of carriage. It will of course be used by the receiver but that is only after it has been discharged from the vessel at the port of discharge.”

However, he went on to say: “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. Those who enter such contracts can find themselves subject to liabilities in salvage which are ordinary commercial liabilities. It would be surprising if a state which, like any private entity, enters into such contracts, were immune from actions in rem against its cargo in respect of salvage.”

Sir Nigel concluded: “Counsel suggested that the contract of carriage had come to an end and therefore the status of the cargo in 1942 no longer applied. But the contract of carriage came to an end because the vessel and cargo had sunk to a depth at which salvage was not practicable at the time. Such events have nothing to do with the circumstances in which foreign states are entitled to claim immunity pursuant to the restrictive theory of sovereign immunity and so I do not consider that this circumstance can affect the status of the cargo for the purposes of [the Act] which must be construed against the background of the restrictive theory of sovereign immunity.”

For these reasons, Sir Nigel concluded that the RSA was not entitled to immunity. The case proceeded to assessment of salvage under the court’s adjudicative jurisdiction.