In Argentum Exploration Ltd v Republic of South Africa [2024] UKSC 16, the UK Supreme Court held that South Africa was entitled to state immunity in respect of an in rem (i.e., property based) claim by salvors of a World War II shipwreck on the basis that, when the silver was being carried, it was not in use or intended for use for commercial purposes.

Although the judgment is Admiralty-specific, it is a significant consideration of the State Immunity Act 1978.

The Claim

In November 1942, the SS Tilawa was sunk by a Japanese submarine in the Indian Ocean carrying 2,364 silver bars belonging to South Africa. In 2017, 75 years later, a UK exploration company, Argentum Exploration (“Argentum”), voluntarily (i.e., without any prior agreement with South Africa) recovered the silver, which had an estimated value of US$43 million, from the wreck at a depth of 2.5km. Once recovered, Argentum transported the treasure to the UK (mistakenly believing it belonged to the UK Government), declared a wreckage find to the Receiver of Wreck and, in October 2019, commenced an in rem claim against the silver. The claim sought a declaration that Argentum was the owner, or in the alternative, salvage (i.e., payment for recovering the silver from the seabed). Argentum subsequently accepted that South Africa was the owner and so only the claim for salvage remained.

An in rem claim (against the property) has a number of procedural advantages over an in personam claim (against the owners), including that: (i) the claim form may be served by fixing it to the property itself rather than serving it on the owner (who, as here, may be out of the jurisdiction), thus establishing jurisdiction; and (ii) the claims confer a right of arrest over the property and give the claimant the status of a secured creditor. However, as discussed below, an in rem claim is more susceptible to state immunity arguments. Although not the subject of these Supreme Court proceedings, a year later, the claimant did in fact bring an in personam claim against South Africa, although this claim would likely face challenges on the grounds of jurisdiction and time bar (any in personam action for salvage must be commenced within two years of the day on which the salvage operations are terminated).

South Africa contested Argentum’s in rem claim, claiming that it was subject to immunity under the State Immunity Act 1978 and Article 25 of the Salvage Convention. Argentum disagreed and claimed that the exception in Section 10 of the State Immunity Act applied, which provides that state immunity does not apply in in rem claims against cargo belonging to a state if both the cargo and its ship were “in use or intended for use for commercial purposes” when the cause of action occurred. An in personam claim only requires the claimant to show that the ship carrying the cargo was “in use or intended for use for commercial purposes” for state immunity not to apply. It was common ground that the ship was in such use. Both the first instance judge, Sir Nigel Teare (sitting as a Judge of the Admiralty Court), and later the majority of the Court of Appeal held that South Africa was not entitled to state immunity. These decisions found that, at the time of the sinking, the silver was also in use for “commercial purposes”, as it was being carried under a commercial contract of carriage, having been purchased by South Africa under a commercial contract of sale.

The UK Supreme Court Judgment

Following the Supreme Court hearing, the claim was settled, but the Supreme Court decided (and the parties agreed) that the Supreme Court judgment should be handed down nonetheless.

The Supreme Court unanimously rejected the majority decision of the Court of Appeal (and approved the reasoning in the Court of Appeal dissenting judgment of Elisabeth Laing LJ).

It was common ground between the parties in the Supreme Court that the intended use of the silver was for minting coins, which was for a sovereign (not a commercial) purpose. The Supreme Court held that the exception in Section 10 of the State Immunity Act did not apply, and South Africa could rely on state immunity. It held that:

• The silver was not “in use for commercial purposes” while being shipped because the ordinary and natural meaning of being “in use” did not accord with cargo sitting in the hold of a vessel.
• There would be no purpose of the additional state immunity exemption requirement for an in rem claim (that the property must be in use or intended for use for commercial purposes) if Argentum’s argument was correct that cargo being carried on a commercial vessel always satisfied this test.
• As proceedings in rem are more intrusive into the rights of a state over its property than proceedings in personam, the commercial purpose criteria in in rem claims should be stringently upheld before denying state immunity.
• The grant of state immunity from proceedings in rem based on the intended use of the property for sovereign purposes conforms with and is required by general principles of customary international law.

The judgment is the first decision handed down on Section 10(4)(a) of the State Immunity Act and helpfully considers the distinction between in rem and in personam claims. It is also an important reminder that salvors might be wise to try to identify the owner of the cargo and make contractual arrangements before proceeding with their salvage.

Nafeesa Deen, London Trainee Solicitor, contributed to the drafting of this alert.

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