Sunken silver and state immunity

‘In November 1942 SS Tilawa was sunk in the Indian Ocean by enemy action. On board was a cargo of 2,364 bars of silver being carried from Bombay to Durban.’ These opening lines from the recent UK Supreme Court judgment in Argentum Exploration Ltd (Respondent) v Republic of South Africa (Appellant) preface its unanimous decision to overturn a majority decision by the Court of Appeal in favour of Argentum, a salvage company which recovered the silver from the ocean floor in 2017. Whatever the legal status of the silver on the SS Tilawa, her being torpedoed by a submarine of the Imperial Japanese Navy was also a human tragedy; 280 lives were lost. 

This is the first case to consider the exception to immunity under section 10(4)(a) of the State Immunity Act 1978.  

Following the Supreme Court decision, South Africa is entitled to immunity from Argentum’s claim to be the voluntary salvor (rescuer) of the silver, which had an estimated value of $43m in 2020. A salvage claim can be made in personam (against a specific person: in this case, South Africa) or in rem (against the thing itself –that is, the silver). Argentum brought its claim in rem against the silver.

Previously, a majority Court of Appeal decision had dismissed the argument that South Africa was effectively entitled to the silver without being susceptible to a claim for the cost of the salvage, as the SS Tilawa and her cargo of silver were in commercial use when she sank. The Court of Appeal rejected South Africa’s claim to be entitled to immunity from any proceedings in rem given both the State Immunity Act 1978 and the International Maritime Organization International Convention on Salvage 1989.

Central to the Court of Appeal’s analysis, section 10(4)(a) of the 1978 act provides that a state is not immune in respect of actions in rem against 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 Court of Appeal majority felt that the fact the silver had been sold to South Africa under a commercial contract with a fob (free on board) clause, and shipped pursuant to a contract of carriage contained in or evidenced by a bill of lading is ‘in use for commercial purposes’, led to the conclusion that section 10(4)(a) was applicable and South Africa was not entitled to immunity from claims in rem.

The court majority further noted that even if it had not dismissed the appeal under ordinary principles of statutory construction, South Africa would not be immune from a claim for salvage under customary international law. As a result, section 10(4)(a) would need to be ‘read down’ under the Human Rights Act 1998 given the UK Supreme Court’s ruling in Benkharbouche v Embassy of the Republic of Sudan [2017] UKSC 62.

When the case reached the Supreme Court, it was common ground between the parties that, in assessing the use and intended use of the ship and its cargo, it was necessary to consider the position in 1942 when SS Tilawa was sunk. It was also common ground that the ship was in use for commercial purposes and that the silver was intended for the purpose of making South African coins.

The argument between the parties in the Supreme Court primarily turned on whether the silver was ‘in use or intended for use for commercial purposes’ while it was being carried. In unanimously allowing South Africa’s appeal, the court held that the silver was ‘not in use nor intended for use for commercial purposes at the time when the cause of action arose’.

In doing so, the Supreme Court had to consider the distinction between in rem and in personam claims, and the development of the restrictive theory of immunity in English law. Outlining reasons in their judgment, lords Lloyd-Jones and Hamblen pointed to section 10(4)(a), noting that an in rem claim has a higher threshold than for an action in personam.

On the central issue between the parties – whether the silver was ‘in use… for commercial purposes’ within section 10(4)(a) when it was carried on board SS Tilawa – the Supreme Court rejected Argentum’s submission. The court found that to suggest that the silver was ‘in use’ while on board ‘does not accord with the ordinary and natural meaning of those words. Cargo sitting in the hold of a ship is not being used for any purpose, commercial or otherwise’.

The Supreme Court concluded that if Argentum’s interpretation was correct, it would defeat parliament’s intention to make separate provision for state immunity from actions in rem against state-owned cargoes compared with actions in personam for enforcing a claim in connection with such a cargo.

According to the judgment, to bring an action in rem, parliament has imposed additional threshold criteria that the cargo in question must also be in use or intended for use for commercial purposes. The judgment added that: ‘If it were right to say that when a cargo is carried on a commercial vessel it is in use for commercial purposes, the additional threshold criteria for actions in rem would become redundant.’

The Supreme Court found that the majority of the Court of Appeal’s approach to the relevance of the intended use of the cargo in the application of section 10(4)(a) was ‘erroneous’, and interpreted section 10 as ‘a hybrid provision making specific provision concerning immunity from both adjudicative and enforcement jurisdiction in Admiralty proceedings’.

By doing so, the Supreme Court found that both section 10 and in rem proceedings are an exception to the restrictive theory of state immunity: ‘There are compelling reasons why more stringent criteria should be satisfied before immunity is denied in the case of actions in rem.’ Ultimately, the judgment proved to be more relevant for the guidance of future cases. Before judgment was handed down, the parties told the Supreme Court that they had reached a settlement – perhaps suggesting that both sides wanted to strike a bargain on their terms, rather than depend on what the judgment would deliver.

Tom Snelling is a partner at Signature Litigation, London