The appellants were the owners of sugar laden on board the ships Playa Larga and Marble Islands respectively. The contract for the sale of sugar was between Iansa, a Chilean company, as buyer, and Cubazucar, a Cuban state-trading enterprise, as seller. The Playa Larga, in which part of the sugar was dispatched to Chile, was owned by Cuba and chartered by Cubazucar from Mambisa. The Marble Islands, in which the rest of the sugar was shipped, was owned by a Liechtenstein company and was under demise charter to Mambisa. The cargo on board the Playa Larga was sold in Cuba. The cargo on board the Marble Islands was sold in Vietnam. On 5 September 1975, Mambisa, acting on behalf of the Republic of Cuba, took delivery in Sunderland of a new vessel, the I Congreso Del Partido (Congreso)​, an ordinary trading vessel registered in the name of the Republic of Cuba. On 9 September 1975, the appellants brought an action in rem against the owners of the Congreso, claiming that Mambisa would be liable to them in an action in personam for, inter alia, the return of the cargo shipped on board the Marble Islands or its value, and alleging that Mambisa was the beneficial owner of the Congreso pursuant to s 3(4) of the Administration of Justice Act 1956 (UK). The Congreso was arrested at Sunderland on 12 September 1975. Following a notice of motion by the Republic of Cuba alleging that the Congreso was its property and invoking sovereign immunity, the appellants commenced a second action in rem against the owners of the Congreso similar to the first action but alleging that the Republic of Cuba would be liable to them in an action in personam. In December 1975 a third action in rem against the owners of the Congreso was field by the appellants in respect of the cargo on board the Playa Larga, alleging a claim in personam against either Mambisa or the Republic of Cuba.

The Republic of Cuba filed motions to set aside the writs and subsequent proceedings in all three actions. Both the first instance Court and the Court of Appeal found in favour of the Republic of Cuba.

The appellants appealed to the House of Lords on the ground that this was a case of a commercial transaction relating to a ship owned by the Republic of Cuba carrying goods under normal commercial arrangements and that any claim arising out of it was one of private law. Reliance was placed on the Convention for the Unification of Certain Rules concerning the Immunity of State-Owned Vessels 1926 (Immunity of State-Owned Ships Convention 1926), particularly arts 1, 2 and 3. The appellants alleged that, the Convention was relevant because: (1) it was concerned with the immunity of state-owned ships; (2) it was an early and authoritative statement of international consensus; (3) it had aided and informed the international development of the restrictive doctrine as a whole; and (4) it had led directly to the enactment of s 10 of the State Immunity Act 1978 (UK). In addition, the Convention contained a precise definition of the scope and conditions of the doctrine of sovereign immunity through the use of particular words and phrases. Therefore, the restrictive doctrine expressed in the Convention should prevail and Cuba could not plead state immunity.

The respondent alleged that Cuba had, in effect, declared economic war on Chile and that all trade had ceased since then. Therefore, the act of Cuba was a classical act of one sovereign state against another. As to the Immunity of State-Owned Ships Convention 1926, Cuba was not a party to it and should not be bound by it. Article 1 of the Convention was not a statement of international law. Articles 6 and 11 of the Convention made it clear that it was not a part of general international law. It was also not a part of the law of the United Kingdom. Therefore, Cuba should enjoy state immunity.

Held: Appeals allowed.

The Immunity of State-Owned Ships Convention 1926 was only ratified by the United Kingdom in 1979 and has never been accepted by the Republic of Cuba. The number of States bound by it had always been limited and has not included States important in maritime commerce. The Immunity of State-Owned Ships Convention 1926 was a limited agreement between a limited number of States. Therefore, this Convention was irrelevant in this case.

The Court concluded that, according to English law, the restrictive doctrine should be applied to the present case. The Court held that in considering, whether state immunity should be granted or not under the restrictive theory, the Court must consider the whole context in which the claim against the State was made, with a view to deciding whether the relevant act(s) upon which the claim was based, should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the State had chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity.

Everything done by the Republic of Cuba in relation to the Playa Larga could have been done, and, so far as evidence goes, was done as owners of the ship. Cuba did not exercise sovereign powers. It invoked no governmental authority. Therefore, the appeal of the owner of the cargo on board the Playa Larga was allowed.

In addition, the majority held that the restrictive doctrine of sovereign immunity also applied to the case of the Marble Islands, since the right asserted by the master to sell the perishable cargo in Vietnam was based on the contractual terms of the bills of lading and the laws of Cuba. The discharge and sale of the cargo to Vietnam were deliberately treated by the Cuban government as being effected under private law and not in the exercise of any sovereign powers. Therefore, the appeal of the owner of the cargo on board the Marble Islands was also allowed.