South Africa (SA) owned silver which was being carried on the SS Tilawa from Bombay to Durban in 1942 for minting into coinage by the SA Government. The vessel was hit by Japanese torpedoes and sank with its cargo. In 2017 the silver was salvaged and brought to Southampton, where it was delivered to the Receiver of Wreck. Argentum Exploration Ltd (Argentum) brought an in rem salvage claim against the silver in the Admiralty Court. SA entered an acknowledgment of service, and applied to strike out or set aside the claim, or to have it permanently stayed, on the basis of state immunity. Teare J dismissed this application, holding that the proceedings fell within the exception to state immunity in s 10(4)(a) of the State Immunity Act 1978 (the SIA): see Argentum Exploration Ltd v The Silver [2020] EWHC 3434 (Admlty) (CMI1134).

SA argued on appeal that the silver and the vessel were not in commercial use in 2017 when they were salvaged, and therefore were subject to state immunity under the SIA. SA also relied on art 25 of the Salvage Convention 1989 as providing immunity. Argentum argued that the SIA must be construed in accordance with customary international law and the Convention for the Unification of Certain Rules relating to the Immunity of State-Owned Vessels 1926 (the Brussels Convention). Teare J was correct in his conclusions on the application of s 10(4) of the SIA, as the vessel and silver were in commercial use in 1942.

Held (Popplewell, Andrews LJJ; Elisabeth Laing LJ dissenting): Appeal dismissed.

Popplewell LJ: It is common ground that s 10 of the SIA was intended to give effect to the Brussels Convention. The Brussels Convention does not, however, itself establish customary international law, not having been ratified by more than a small proportion of States engaged in international trade by sea. Article 3.3 governs 'State-owned cargoes carried on board merchant vessels'. Its first paragraph confers immunity but only: (1) in respect of seizure, attachment, or detention by legal process, or proceedings in rem; and (2) where the cargo is carried for Governmental and non-commercial purposes. Unlike art 3.1, it does not use the language of 'use' of the vessel, nor does it refer to the use for non-Governmental and commercial purposes being assessed at the time the cause of action arises. Its second paragraph carves out from immunity the enumerated classes of actions which are equivalent to those carved out in art 3.1, but in this instance the immunity is removed for such actions 'brought before the Court which has jurisdiction under Article 2', that is to say actions which could be brought in courts which would have jurisdiction if they were privately-owned cargoes, which extends to courts other than those of the State owning the cargo.

The nature of the carve-out in art 3.3 of the Brussels Convention was disputed. Argentum argued that it was a complete withdrawal of immunity in respect of claims of this kind. SA contended that it left in place immunity from in rem proceedings, but provided for a loss of immunity for in personam claims. The structure of s 10(4) of the SIA indicates that the latter is how the drafters interpreted the Brussels Convention if, as is to be presumed, they were intending s 10 to give effect to that Convention. Section 10(4)(a) does not remove immunity altogether in respect of salvage, one of the enumerated types of claim; on the contrary, s 10(4) draws a distinction between in rem and in personam proceedings, and for in rem salvage proceedings, which are the subject matter of s 10(4)(a), it provides that immunity may be preserved by reference to non-commercial use/intended use of the cargo. The drafters have also implemented the intention in the second paragraph of art 3.3 of the Brussels Convention to exclude altogether immunity from in personam claims for the specified categories of claim, but has done so by using different language.

Since 1995 a salvage claim arises in English law pursuant to the Salvage Convention 1989, which is given the force of law by s 224(1) of the Merchant Shipping Act 1995 (the MSA). However, the Convention right is not exhaustive, as is apparent from s 20(2)(j) of the Senior Courts Act 1981. The cause of action for salvage under maritime law existed for many centuries prior to 1995. When the SIA was enacted, salvage could only be claimed under maritime law. Section 10(4) of the SIA must therefore be interpreted on the basis that it was addressed to the maritime law of salvage. There are two aspects of the cause of action for salvage in maritime law which are of importance in interpreting s 10(4). The first is the place of 'cargo' within such cause of action. The second is the right to salvage of wreck. Derelict ships and cargoes have historically been a major subject of maritime claims for salvage, and were not intended by the drafters of s 10(4) of the SIA to be excluded from the scope of that subsection. Derelict ships and derelict cargoes remain ships and cargoes for the purposes of that subsection.

Against this background, it is necessary to identify the point of time at which the use or intended use of vessel and cargo is to be assessed, which turns on the correct interpretation of the governing phrase 'at the time when the cause of action arose'. It must be referring to the point of time at which the relevant aspect of the cause of action for salvage in maritime law arises, not when the cause of action is complete with the occurrence of the last ingredient. The ingredient of the maritime law salvage cause of action to which use of ship or cargo is relevant comprises the maritime circumstances which make the property a recognised subject matter of salvage. This is necessarily directed to the circumstances before the salvage services were required and rendered. In the case of salvage of goods, the relevant ingredient is that the goods involved should have had the status of 'cargo', which depends upon use of a vessel, and of goods connected to it, prior to the commencement of salvage services. Accordingly, the inquiry as to use for the purposes of s 10(4) of the SIA focuses on the point of time when the goods have their status as 'cargo', before salvage takes place, so as to make them a recognised subject matter of salvage at the later time when the salvage services are rendered. In cases of wreck, it is meaningless to inquire for what purpose the cargo owner is using the vessel at the time the salvage services are rendered; if the vessel is a wreck, it has been abandoned without any hope of recovery. The inquiry into use or intended use of the vessel must be addressed to a point of time before the cause of action is complete, before salvage services are rendered.

Article 3.3 of the Brussels Convention does not contain any temporal phrase equivalent to 'when the cause of action arises'. It simply addresses the subjection to seizure, attachment, detention, or judicial proceedings of 'cargoes carried on board merchant vessels for Governmental and non-commercial purposes'. However, vessels will usually have acquired their status as merchant ships by reference to the use being made of the vessel before they are in danger and can benefit from salvage services.

The Salvage Convention was not concluded until 1989 and not given effect in domestic law until 1995; it cannot therefore inform the proper interpretation of the SIA. Nevertheless, art 25 does not apply a different temporal point to the inquiry. It provides:

Unless the State owner consents, no provision of this Convention shall be used as a basis for the seizure arrest or detention by any legal process of, nor for any proceedings in rem against, non-commercial cargoes owned by a state and entitled, at the time of the salvage operations, to sovereign immunity under generally recognised principles of international law.

The customary international law principles are to be applied to 'non-commercial cargoes', which necessarily focuses on their status as 'cargoes' before they became wreck; and the question is whether the State is entitled to immunity under customary international law 'at the time of the salvage operations', which must focus on the status of the cargo as a non-commercial cargo when the salvage operations commence, not when the cause of action is complete by the completion of the salvage services. Its status as a non-commercial cargo (or otherwise) will be determined by reference to the circumstances in which it came to be a cargo.

As to the use of the vessel in 1942, it was common ground that it was for commercial purposes. As to the use of the cargo by SA in 1942, Teare J was correct in finding that the silver was in use by SA for commercial purposes when it was on board the vessel. The use consisted of SA making arrangements for the silver to be put on board the vessel and carried by sea. That was the use which gave it its status as 'cargo' for the purposes of a maritime law claim in salvage.

Andrews LJ: The problems appear to stem from the fact that instead of transposing the language of art 3.3 of the Brussels Convention directly into the SIA, the drafters have chosen to paraphrase it. As the proviso to art 3.3 of the Brussels Convention makes clear, even in a situation in which the exception applies for State-owned cargoes carried on merchant ships for Governmental and non-commercial purposes, a tribunal having jurisdiction under art 2 would still have jurisdiction over an in personam claim against the State for salvage of such a cargo. Therefore, the exception under art 3.3 is a restricted one, which does not prevent the courts of an otherwise competent jurisdiction from determining the liability of the State to pay salvage. It merely protects the State-owned property from being arrested in order to found jurisdiction over the claim. However, an action in rem has many advantages, and where the limitation period is relatively short, and it may take time (and even legal proceedings) to ascertain the identity of the owner of the salvaged cargo, the salvor is likely to wish to avail itself of the option of commencing proceedings in rem if it can. The fact that the salvor might have the alternative of pursuing a claim in personam against the State is not a good reason to interpret the Brussels Convention (or the SIA) in a way that artificially constrains the circumstances in which actions in rem can be brought for salvage of State-owned cargoes on merchant ships.

Although an action in rem for salvage involves the assertion of a maritime lien (a form of charge by way of security) over the property of the State, the claim is not a claim to property. It is a claim for services rendered (which necessarily involves activity) in respect of cargo which was placed in peril by reason of being carried on a seagoing vessel. Without the activity of saving the cargo from danger there would be no claim. If those services were rendered pursuant to a contract for salvage, the claim would concern a transaction as well.

The Brussels Convention was concerned mainly with acts of a kind which would generally not attract immunity under the restrictive doctrine of state immunity at common law. Its provisions are consistent with that doctrine (although by the time the SIA was enacted, they had been largely superseded by developments in the common law). The key principle of international law which governs issues of sovereign immunity is the distinction between claims arising out of acts undertaken in the exercise of sovereign authority, and claims arising out of transactions which might appropriately be undertaken by private individuals. That distinction depends on the nature or character of the act rather than the State's motive or purpose in engaging in that act, though the latter may assist in determining the former.

In this case, the silver was on board the vessel for the purpose of being transported from India to South Africa pursuant to two inter-related commercial contracts, a contract of sale and a contract of carriage. It was there to serve the purposes of those commercial contracts. SA was a party to the former and the latter was arranged by the seller for its benefit. The silver became cargo and was at the risk of SA after it crossed the ship’s rail. Nothing that SA did in respect of this cargo was any different from the actions of a private owner involved in similar commercial arrangements.

If the question were governed by the Brussels Convention, SA could not have relied on art 3.3 to contest the jurisdiction of this Court to determine the action in rem. Nor could it have done so had the question been governed solely by the principles of customary international law. The SIA was intended to give effect to restrictive theory of sovereign immunity as well as to implement the provisions of the Brussels Convention into domestic law. That means that an interpretation of s 10(4) of the SIA which leads to a different result from the one which would have been reached at common law or under the Brussels Convention cannot have been what Parliament intended.

Elisabeth Laing LJ: The temporal focus of the inquiry under s 10(4)(a) of the SIA is the time when the maritime circumstances giving rise to the claim for salvage arose. However, when the ship sank, the cargo, that is, the silver, was not 'in use' by SA for commercial purposes. On the contrary, it was not in use for any purpose, and it was intended for use for a non-commercial purpose. As a matter of ordinary language, a cargo (and this is so whether or not it is owned by a State) will rarely be 'in use' for any purpose of its owner, commercial or otherwise, while it is being carried. The answer to the first question posed by s 10(4)(a) is that the cargo was not in use while it was being carried. When it sank, the ship was in use for commercial purposes. However, as a matter of ordinary language, the cargo of silver which was sitting in the hold of the ship was not being used by SA for any purpose, commercial or otherwise. It was being carried, and that is all. It was the subject of commercial arrangements for its carriage, but that is not the relevant inquiry.

The second key question is whether, when the casualty occurred, the State-owned cargo was intended for use by the State for commercial purposes. The silver was being carried to South Africa in order to be minted into coinage, and substantially for a Governmental and non-commercial purpose, as Teare J found. Teare J held that the silver was not intended for use for commercial purposes. It follows that, pursuant to s 10(4)(a) of the SIA, the silver is immune as respects an action in rem.

This is not a surprising or unjust outcome. The focus of s 10(4)(b) of the SIA is the use or intended use of the ship, not of the cargo. It therefore permits an in personam claim in the UK to enforce a claim against a State-owned cargo carried on a merchant ship, regardless of the use or intended use of that cargo. Argentum could therefore have issued in personam proceedings in the UK against SA within the limitation period. That course is also permitted by art 3.3 of the Brussels Convention. We were also told in the hearing (for what it is worth) that Argentum could have issued in personam proceedings in SA within the relevant limitation period.