Argentum Exploration Ltd (Respondent) -v- Republic of South Africa (Appellant) (SS Tilawa) [2024] UKSC 16
Treasure hunter’s pursuit of salvage award falls at final hurdle
Argentum Exploration Ltd (Respondent) -v- Republic of South Africa (Appellant) (SS Tilawa) [2024] UKSC 16
The Supreme Court has ruled on the Republic of South Africa’s (the Government) quest to avoid payment of a salvage award to Argentum Exploration Ltd (the Salvors) regarding a cargo of silver bars (the Silver), recovered from the seabed.
Finding for the Government, the Supreme Court affirmed the Government’s entitlement to rely on section 10(4)(a) of the State Immunity Act 1978 (SIA), holding that it was not, therefore, liable to pay salvage remuneration to the Salvors.
While the parties had reached an amicable, confidential settlement prior to judgment being given, it was agreed that the Supreme Court would nonetheless hand down its decision.
The background facts
(recapping our earlier article on the Admiralty Court Decision):
On 23 November 1942, the SS TILAWA was sunk in the Indian Ocean when torpedoed by the Japanese submarine I-29. At the time of the incident, the vessel was carrying 2,391 bars of silver from India to South Africa, destined to be struck as coinage.
In 2017, the Salvors, a UK company formed for the purpose of locating and salving valuable shipwrecks lying at depth, recovered 2,364 bars of silver from the wreck of the SS TILAWA. On 2 October 2017, the Silver was declared to the UK Receiver of Wreck and was subsequently held to the order of the Receiver pursuant to section 236 of the UK Merchant Shipping Act 1995.
The Government claimed to be the owner of the Silver. The Salvors were made aware that a claim to ownership had been made but were unaware of who had made the claim. The Salvors advised the Receiver of Wreck that they were entitled to the Silver as unclaimed wreck, alternatively, if a claim to ownership were proven, the Salvors sought a salvage award. On 31 January 2019, the Salvors were advised that the Government had claimed ownership and thereafter correspondence ensued between the Salvors, the Government and the Receiver.
On 1 October 2019, the Salvors commenced an action in rem seeking a declaration that they were the owners of the Silver or, in the alternative, that they were entitled to a salvage award. In response, on 3 March 2020, the Government entered an acknowledgment of service. The Government asserted its interest in the Silver and claimed immunity from the jurisdiction of the UK courts pursuant to the SIA and Article 25 of the Salvage Convention. Subsequently, on 25 March 2020, the Government issued an application seeking an order that the action be struck out, or stayed, on the grounds that it was entitled to immunity. The Government also resisted paying salvage to the Salvors, in the event that it was not entitled to that immunity.
The Salvors later accepted that the Government was at all material times the owner of the Silver. The issues that, therefore, remained to be determined by the Supreme Court were: (a) the Salvors’ claim for a salvage reward in respect of its salvage services and; (b) the validity of the Government’s claim to immunity.
The lower court decisions
Section 10(4)(a) of the SIA provides that:
“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”.
The Admiralty Court held that the Silver was “in use” for commercial purposes, because it was being carried pursuant to a commercial contract of carriage, having been purchased under a commercial contract of sale and, therefore, there was no state immunity.
The majority of the Court of Appeal agreed with the above finding. The dissenting judge, Laing LJ, held that, as a matter of ordinary language, the Silver, which was sitting in the hold of the Vessel, was not “in use” by the Government for any purpose, whether commercial or otherwise, but that it was “intended for use” for a non-commercial purpose. She concluded that section 10(4)(a) of the SIA did apply and the Government was entitled to claim immunity.
The Supreme Court decision
Five issues arising out of the earlier judgments formed the basis of the Government’s appeal:
Issue 1: Did the Court of Appeal err in interpreting the phrase “at the time when the cause of action arose” in section 10(4)(a) of the SIA solely by reference to the time when the maritime circumstances which made the Silver a recognised subject matter of salvage arose?
The Government had initially argued that the cause of action arose in 2017 when the salvage of the Silver occurred, therefore, the Silver’s use or intended use in 2017 was crucial. However, this argument was dismissed as it would effectively grant blanket immunity to states against claims for salvage.
The Court of Appeal had concluded that the phrase “when the cause of action arose” refers to the point in time when the relevant aspect of the cause of action for salvage arises, which includes the maritime circumstances that make the property a recognised subject matter of salvage.
The Supreme Court agreed with the Court of Appeal in this regard but decided that, although the cause of action arose in 2017, it is appropriate to assess the Vessel and cargo’s status at the time of carriage to ascertain if they were in use or intended for commercial purposes when the cause of action for salvage arose. If there have been no changes in use or intended use since then, the status at the time the cargo was in transit is determinative.
Issue 2: In holding that the Silver was in use for commercial purposes in 1942, did the majority in the Court of Appeal err in its interpretation and application of the phrase “in use or intended for use for commercial purposes” in section 10(4)(a)?
Section 10(4)(a) of the SIA provides that 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.
Section 10(4)(b) precludes immunity in respect of actions in personam for enforcing a claim in connection with such a cargo if the ship carrying it was then in use or intended for use as aforesaid.
The Government argued that the majority in the Court of Appeal effectively ignored the words “intended for use” in section 10(4)(a) and that by doing so, the majority removed the distinction between sections 10(4)(a) for in rem claims and 10(4)(b) for in personam claims.
Considering the wording of the SIA, together with Article 3(3) of the 1926 Brussels Convention (to which Section 10 of the SIA is intended to give effect), the Court stated that if the distinction between (a) and (b) was not recognised, a state could not claim immunity in respect of any cargo carried on any merchant ship. This distinction must be acknowledged in order for section 10(4) to align with the wording of the 1926 Brussels Convention.
Consequently, the Government was immune, as the cargo was intended for non-commercial purposes.
Issue 3: Did the majority in the Court of Appeal err in holding that the intended use of the Silver in 1942 was not relevant to the application of section 10(4)(a) in the context of the cargo?
The Supreme Court found that the approach of the majority in the Court of Appeal was erroneous for several reasons, including that the nature of the cause of action in salvage should not dictate the interpretation of the SIA. The SIA allows actions in rem for condemnation of goods or droits of Admiralty, not just salvage actions. Thus, the focus should not solely be on salvage.
Furthermore, the majority’s understanding of the distinction between sovereign and non-sovereign activities in customary international law was overly simplistic. In cases concerning a state’s property, both the use and intended use of the property are integral. This approach is consistent with the Brussels Convention.
In this case, the Supreme Court was satisfied that the Silver’s intended use was for sovereign purposes and the Government retained immunity under section 1(1) of the SIA.
Issue 4: If, applying the ordinary rules of construction to section 10(4)(a), the Government is entitled to immunity, then must section 10(4)(a) be read down under section 3 of the Human Rights Act 1998 because the Government’s immunity would exceed that required by customary international law?
The Salvors argued that such immunity would violate the right of access to the courts under Article 6 of the European Convention on Human Rights (ECHR). The European Court of Human Rights (ECtHR) has previously indicated that state immunity should be justified under Article 6 as it restricts access to the courts. However, there remains a debate over whether Article 6 is applicable in cases where immunity is required by customary international law.
The Supreme Court concluded that even if Article 6 did apply, the restriction imposed by Section 10(4)(a) of the SIA is justified. The restriction is considered proportionate because it does not completely bar access to court; it only applies to proceedings in rem, not in personam. Additionally, granting immunity aligns with general principles of international law and is necessary to prevent interference with a foreign state’s public property.
Issue 5: Is the Government entitled to immunity from this in rem claim under section 1 of the SIA and article 25 of the Salvage Convention?
The Supreme Court held that the Government is indeed entitled to immunity under section 1 of the SIA because the exception under section 10(4)(a) does not apply, as the Silver in question was not intended for commercial purposes at the time of the claim. This conclusion also aligns with Article 25 of the International Convention on Salvage, which recognises sovereign immunity for non-commercial cargo owned by a state.
Comment
Whilst it is rare for salvage matters to come before the Supreme Court, this was the first time any court in England and Wales had been asked to consider 10(4)(a) of the SIA.
Salvage of this nature is high-risk with potentially high rewards. Significant outlay is required to research, locate and ultimately recover lost cargoes of significant value and salvors must rely on the subjectivity of a court to fix a reward based on the International Convention on Salvage 1989 and/or applicable local salvage statutes.
Many lost cargoes remain under the ownership of sovereign states and this case should serve as a warning to would-be salvors of another barrier to a reward which would make their efforts worthwhile.
The judgment also serves as a reminder of the importance of acting against the appropriate or proper entity, a dilemma often presented to litigators in collision actions, where actions may be brought in rem claim or in personam.
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