Tsavliris Salvage v. Grain Board of Iraq
DMC Category Rating: Confirmed
Tsavliris were unable to obtain security from the cargo interests for their proportion of the salvage. They proceeded to arbitration as provided by the LOF but the cargo interests declined to take part in those proceedings. The salvage arbitrator concluded that The Grain Board of Iraq ("GBI") was the owner of the cargo at the time of the salvage services; that it was party to the LOF; that he had jurisdiction to determine whether it was liable to Tsavliris for salvage and, if so, in what amount and that it was a separate legal entity, distinct from the executive organs of the Government of Iraq and, accordingly, capable of suing and being sued. The arbitrator held the GBI liable in the amount of US$496,511, together with interest and costs.
The GBI appealed to the High Court on the grounds that it was not bound by the LOF and therefore not subject to the jurisdiction of the salvage arbitrator. Further, it was not an entity separate from the Iraqi Ministry of Transport, so that the Ministry, rather than it, was the owner of the cargo. But whether the owner of the cargo was the Ministry or the GBI, both were entitled to succeed in a claim for immunity under the State Immunity Act 1978.
The judge rejected the argument that the reference in s.9(1) of the State Immunity Act to an agreement in writing required something more specific than the signature of the LOF by others on cargo’s behalf, as happened in this case. In this regard, the judge had in mind the "broad and permissive view of the requirement that an arbitration agreement should be in writing", exemplified in s.5 of the Arbitration Act 1996.
The relevant provisions of the State Immunity Act were as follows:
14. (1) The immunities and privileges conferred by this Part of this Act apply to any foreign or commonwealth State other than the United Kingdom; and references to a State include references to –
(b) the government of that State; and
but not to any entity (hereafter referred to as a ‘separate entity’) which is distinct from the executive organs of the government of the State and capable of suing or being sued.
(2) A separate entity is immune from the jurisdiction of the
courts of the United Kingdom if, and only if –
As regards s.14(1) of the Act, the issue was whether the GBI was to be regarded as a department of the Ministry of Transport and, hence of the Iraqi government, or as a separate entity. After considering the authorities, particularly Czarnikow Ltd v Rolimpex  AC 351, the academic sources, the evidence and the expert evidence, the judge concluded that the GBI was indeed a ‘separate entity’. It may have been established, owned and capitalised by the state of Iraq – and not required to make a profit - but it nevertheless had financial and administrative independence. Its relationship to the Ministry was closer to that of autonomous subsidiary and head office than to that of a branch office and head office, and was analogous to that of Rolimpex in the case mentioned above. In addition, it possessed separate legal personality.
Was, however, the GBI - as a separate entity under s.14(1) of the Act – nevertheless entitled to immunity under s.14(2) of the Act, in that the proceedings related to "anything done by it in the exercise of sovereign authority"? The relevant test here was the character, not the motive or purpose, of the relevant act, namely, the entry into the LOF agreement in the context of the acquisition and carriage of the cargo. In the judge’s view, the act of entry into the LOF "did not have the character of and was not a governmental act." (at para.80). As such, GBI was not entitled to rely on the immunity available under this sub-section.
In the light of his conclusions under s.14 of the Act, the judge dealt only briefly with the Respondent’s arguments under s.10(4)(b). Adopting the assumption most favourable to the Respondent, namely that the section applied only if both ship and cargo were "in use or intended for use for commercial purposes" (see Comment 2 below), he concluded that both ship (which was not contested) and cargo were in such use. The cargo was not an "aid" cargo and, even if it was destined for some form of subsidised distribution in Iraq, the evidence did not establish that it was to be donated to Iraqi recipients free of charge. In any event, its intended distribution at some time in the future could not affect its status at the time of the salvage services. At that time, it was clearly a commercial cargo; it had been purchased and shipped commercially. It was, in the judge’s view, "hopeless to contend otherwise" (para.82(i)). State immunity accordingly, did not apply.
the question of interpretation of s.10(4)(b) of the State Immunity Act, namely,
whether – in order to defeat immunity – both cargo and ship had to “be in
use or intended for use in commercial purposes, the judge expressed the view
obiter (by the way) that he preferred the argument presented by Mr Hill for the
salvors. That was to the effect that the words “such a cargo in (b)”
referred back simply to the words “a cargo belonging to that State” in (a)
and did not include reference to the later words in (a) “in use or intended
for use for commercial purposes”.
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