Case No:2006-1387, 2007 - 919
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
THE HON MR JUSTICE GROSS
Between :
Tsavliris Salvage (International) Limited | Claimant |
- and - | |
The Grain Board of Iraq | Defendant |
IN THE HIGH COURT OF JUSTICE 2007 Folio No.971
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
Between:
MINISTRY OF TRADE OF THE REPUBLIC OF IRAQ Claimant
and
TSAVLIRIS SALVAGE (INTERNATIONAL) LIMITED Defendant
AND IN THE MATTER OF THE ARBITRATION ACT 1996 SECTION 44
AND IN THE MATTER OF THE ARBITRATION ACT 1996 SECTION 67
AND IN THE MATTER OF AN ARBITRATION
BETWEEN:
TSAVLIRIS SALVAGE (INTERNATIONAL) LIMITED Claimant
and
THE GRAIN BOARD OF IRAQ Defendant
Timothy Hill (instructed by Clyde & Co LLP) for the Claimant
Mark Hoyle (instructed by Waterson Hicks) for the Defendant
Hearing dates: 15th & 16th October 2007
Judgment
The Hon Mr Justice Gross
INTRODUCTION
There are before the Court three applications.
The s.67 Application: First, an application, pursuant to s.67 of the Arbitration Act 1996 (“the AA 1996”), by The Ministry of Trade of the Republic of Iraq (“MOT”), together with The Grain Board of Iraq (“GBI”), challenging the award made in a salvage arbitration by Mr. Michael Howard QC published on the 16th May, 2007 (“the arbitration”, “the award” and “the arbitrator”). The award is challenged on the following grounds:
The arbitrator did not have jurisdiction as there was no valid arbitration agreement (“the jurisdiction ground”);
The GBI is part of the MOT and was therefore immune from the arbitration proceedings (“the immunity ground”).
For the avoidance of doubt, I have sought to describe the applicants for s.67 relief neutrally; my formulation is intended only to introduce the MOT and the GBI and is entirely without prejudice as to which (if either) was a party to the arbitration and as to the status of the GBI.
The application to enforce the award: Secondly, an application by Tsavliris Salvage (International) Limited (“Tsavliris”), pursuant to s.66 of the AA 1996, for leave to enforce the award in the same manner as a judgment or order of the court.
The application for a freezing injunction: Thirdly, an application by Tsavliris for relief by way of a freezing injunction against GBI.
It will be convenient to consider the applications in the order set out above.
In a nutshell, the case concerns a salvage operation successfully conducted by Tsavliris, pursuant to a salvage agreement entered into with the owners of the vessel salved, through their managers. It is the contention of Tsavliris that the salvage agreement in question bound the owners of the cargo laden on board the salved vessel and that the GBI was the owner of that cargo. The GBI is therefore liable for cargo’s proportion of salvage and, as a separate entity from the MOT, is not, in the circumstances, entitled to immunity under the State Immunity Act 1978 (“the Act”). Broadly speaking, the arbitrator found in favour of Tsavliris along these lines. Alternatively, even if the GBI is part of the MOT, one or more of the exceptions from immunity contained in the Act apply, so that Tsavliris would in any event be entitled to succeed.
For their part, the MOT/GBI submit that the arbitrator erred as to jurisdiction, in that the owners of the cargo laden on board the vessel were not bound by the agreement entered into between the owners of the vessel salved and Tsavliris. In any event, the GBI is not a separate entity from the MOT, so that the MOT, rather than the GBI, was the owner of the cargo on the vessel. But whether the MOT or the GBI be the owner of the cargo on the vessel, either is entitled to succeed in a claim for immunity under the Act. Depending on the precise outcome of the MOT/GBI challenge to the award – as is apparent, there are a number of possible permutations – there may be more or less complex questions to be considered when dealing with the application for leave to enforce the award and for a freezing injunction.
As will be seen, these disputes raise for consideration the correct balance to be struck between the important policy goal of encouraging those who undertake maritime salvage and the interest of sovereign states in preserving their immunity from legal proceedings before foreign courts or arbitration tribunals. In terms of principle, an illuminating guide to such issues in their wider context is furnished by Lord Wilberforce’s magisterial review of the “restrictive” theory of state immunity in I Congreso [1983] AC 244, at pp. 260 and following; it is indeed the “restrictive” theory of state immunity that is now substantially reflected in the Act. In the course of this review, Lord Wilberforce observed (at p.262) that, in the case of commercial transactions between states and individuals: (1) it was necessary in the interests of justice to allow such transactions to be brought before the courts; and (2) that to require a state to answer a claim based upon such transactions involved “neither a threat to the dignity of that state, nor any interference with its sovereign functions”. He expressed his conclusion in these terms (at p.267C):
“ The conclusion which emerges is that in considering, under the ‘restrictive theory’ whether state immunity should be granted or not, the court must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act(s) upon which the claim is 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 has 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.”
In the present case, echoes of these thoughts found recurring expression in the parties’ rival submissions.
I express at once my gratitude for the excellent arguments of both Mr. Hill, for Tsavliris and Mr. Hoyle, for (neutrally) the MOT/GBI.
THE FACTUAL HISTORY
The salvage: The factual background to the salvage and the arbitration can be shortly summarised. The salvage concerned the MV “ALTAIR” (“the vessel”) and her cargo of some 50,150.274 mt of wheat (“the cargo”). On the 28th August, 2006, in the course of a voyage from Rostock to Umm Qasr, in Iraq, the vessel grounded on sand and shingle, close to her destination but in Kuwaiti waters. Thereafter, various unsuccessful efforts were made to re-float the vessel, involving the use of her engines and local tugs.
On the 1st September, 2006, the owners of the vessel (“owners”), on any view, entered into a salvage agreement with Tsavliris. As between owners and Tsavliris that has never been in dispute; indeed, the Tsavliris claim for salvage against owners was settled at an early stage. As already foreshadowed, the same cannot be said as to the position of cargo interests.
I turn to the salvage agreement. By a Lloyd’s Standard Form of Salvage Agreement, 2000 edition (“the LOF”), headed “no cure – no pay”, Tsavliris, as contractors, agreed to use their best endeavours to salve the property specified, namely, the “vessel ‘ALTAIR’ her cargo freight bunkers stores….” and to take “the property” to the agreed place of safety, in the event Umm Qasr. The LOF was dated 1st September, 2006 and was signed at Piraeus by a representative of Tsavliris and, purportedly on behalf of the “property” to be salved, by an employee of Dilek Transporting Inc, the managers of the vessel (“the managers”), acting on behalf of owners.
The LOF provided, inter alia, as follows:
“I. Arbitration and the LSSA Clauses: The Contractors’ remuneration and/or special compensation shall be determined by arbitration in London in the manner prescribed by Lloyd’s Standard Salvage and Arbitration Clauses (‘the LSSA Clauses’) and Lloyd’s Procedural Rules. The provisions of the LSSA Clauses and Lloyd’s Procedural Rules are deemed to be incorporated in this agreement and form an integral part hereof. Any other difference arising out of this agreement or the operations hereunder shall be referred to arbitration in the same way.
J. Governing law: This agreement and any arbitration hereunder shall be governed by English law.
K. Scope of authority: The Master or other person signing this agreement on behalf of the property identified in Box 2 enters into this agreement as agent for the respective owners thereof and binds each (but not the one for the other or himself personally) to the due performance thereof.
….
IMPORTANT NOTICES
1. Salvage security. As soon as possible the owners of the vessel should notify the owners of other property on board that this agreement has been made. If the Contractors are successful the owners of such property should note that it will become necessary to provide the Contractors with salvage security promptly in accordance with Clause 4 of the LSSA Clauses referred to in Clause I…..
……..
LLOYD’S STANDARD SALVAGE AND ARBITRATION CLAUSES
3. DEFINITIONS
In the Agreement and unless there is an express provision to the contrary:
3.3 ‘Convention’ means the International Convention on Salvage 1989 as enacted by section 224, Schedule II of the Merchant Shipping Act 1995….
4. PROVISIONS AS TO SECURITY, MARITIME LIEN AND RIGHT TO ARREST
4.1 The Contractors shall immediately after the termination of the services or sooner notify ….where practicable the Owners of the amount for which they demand salvage security….from each of the respective owners.
4.6 The owners of the vessel….shall use their best endeavours to ensure that none of the property salved is released until security has been provided in respect of that property….
4.7 Until security has been provided as aforesaid the Contractors shall have a maritime lien on the property salved for their remuneration.
4.8 Until security has been provide the property salved shall not without the consent in writing of the Contractors (which shall not be unreasonably withheld) be removed from the place to which it has been taken by the Contractors ….
6. ARBITRATION PROCEDURE AND ARBITRATORS POWERS
6.2 The arbitration shall take place in London… ”
In the event, the vessel was successfully re-floated by Tsavliris on the 7th September, 2006. On the 9th September, the vessel berthed at Umm Qasr and a certificate of redelivery was signed (bringing the salvage services to an end).
As is to be expected, Tsavliris and their legal representatives were by now turning their attention to the provision of security for the salvage claim. Inquiries led Clyde & Co. (solicitors for Tsavliris) to make contact with an entity, Eksim Dis Ticaret A.S of Istanbul (“Eksim”), initially understood to be owners of the cargo, by virtue of an FOB purchase from the shippers. On the 7th September, 2006, Eksim responded as follows:
“We, as the buyer from the loading port, are also seller of the commodity on board of M/T Altair to ‘Grain Board of Iraq, Baghdad’ on FOB basis.
Therefore, all risks and responsibilities of the cargo together with the ownership of the cargo are passed to Grain Board of Iraq, Baghdad upon completion of shipment at Rostock, Germany. Please contact the owner of the cargo at the following contact address…..”
Various e-mail contact details, all of the GBI, were then provided. However, Clyde & Co.’s efforts to make contact with the GBI proved unavailing.
Consideration was next given to arresting the cargo in Iraq. On any view as to GBI’s true status, given that it is a public sector body, the cargo was “government” owned – or at least so perceived at the time. On this footing, Tsavliris was advised that the cargo could not be arrested. The prospect of interrupting discharge was next explored with owners but the possibility was in due course discounted as impractical. The response from owners’ solicitors, dated 15th September, 2006, was in the following (somewhat disconcerting) terms:
“We have discussed the matter with the Managers in Piraeus, and for the same reasons that your clients have concluded that they cannot enforce their lien in Iraq, our clients cannot interrupt discharge. It has been made very clear to Owners and their protecting agents by local interests that if they did so [i.e., interrupted discharge] it would be regarded as a hostile step; the cargo interests and the Iraqi authorities would compel the discharge to continue. They can and will put severe pressure on the Master and crew, and Owners cannot expose the crew to that or risk further consequences to the vessel and crew. We all recognise that it is an extremely hostile jurisdiction in which to attempt to put pressure on substantial local interests, particularly one controlled by the State/provisional government.”
Discharge therefore proceeded without the provision of security for the salvage.
Subsequently, Tsavliris proceeded to arbitration, pursuant to the provisions contained in the LOF. Following some initial confusion, the position of the GBI, as expressed by Waterson Hicks their London solicitors, was to seek a stay or adjournment of the arbitration; when the arbitrator declined either to stay or adjourn the arbitration, Waterson Hicks indicated that GBI would not participate in the arbitration. No security was provided, even on a “without prejudice” basis.
The arbitrator proceeded with understandable care. In broad terms, he was faced with two threshold questions: (1) Whether the GBI was the owner of the cargo at the time of the salvage? (2) If it was, whether it was protected by the provisions of the Act? The arbitrator decided that it was appropriate for him to proceed to determine his own jurisdiction, pursuant to s.30 of the AA 1996.
He reasoned, though not by reference to s.9 of the Act (see below) that there could be no question of state immunity in arbitrations to which states were parties:
“The reason….is simply that they have submitted by agreement to the jurisdiction of the arbitrator or arbitrators…. ”
The arbitrator went on to hold that the cargo was the property of the GBI and not of the State of Iraq; there was evidence, he concluded, that it was sold at subsidised prices but it was not distributed free of charge. It was, he said, a “commercial cargo”.
As to whether the GBI was a party to the LOF, the arbitrator had regard to Art. 6.2 of the International Convention on Salvage 1989 (“the 1989 Convention”), which provides as follows:
“ The master shall have the authority to conclude contracts for salvage operations on behalf of the owner of the vessel. The master or the owner of the vessel shall have the authority to conclude such contracts on behalf of the owner of the property on board the vessel.”
By s.224(1) of the Merchant Shipping Act 1995 (“the MSA 1995”), the provisions of the 1989 Convention have the force of law in the United Kingdom. Against this background, the arbitrator concluded: (1) that the LOF had been agreed by the agents for the owners; (2) that by virtue of Art. 6.2 of the 1989 Convention, they had authority as sub-agents for the GBI (the owner of the cargo) in making the LOF, to which the GBI was accordingly a party.
The arbitrator accordingly made the following declarations:
That the GBI was the owner of the cargo at the time of the salvage services;
That the GBI was a party to the LOF;
That he had jurisdiction to determine whether or not the GBI was liable to Tsavliris for salvage and if so in what sum;
That the GBI was a separate legal entity, distinct from the executive organs of the Government of Iraq and capable of suing and being sued.
In the event, as recorded in the award, the arbitrator went on to find that the GBI should pay US$496,510.87, together with interest and costs. No part of the award has been satisfied. For completeness, by a further award dated 24th August, 2007 (“the costs award”), the arbitrator ordered that a sum of £55,768.09 be paid to Tsavliris, representing their costs of the arbitration.
Legal personality: I turn to other aspects of the factual background, beginning with the GBI itself. It was common ground that the GBI enjoyed separate legal personality. Amongst the materials before the Court is a “Certificate of Incorporation of a Public Company” for the GBI, dated 15th December, 1997 (“the certificate”). The certificate states that the company was registered in accordance with the provisions of Art. 6 of the State Companies Law No. 22 of 1997 (“Law No. 22”), a Law to which I shall return.
The certificate provides, inter alia, as follows:
“DETAILS OF THE COMPANY
Two: The objects of the company: The object of the company is to participate in the support of the national economy in the field of grain supply, in accordance with the development plans and the planning resolutions.
Three: The activities of the company: To engage in the following:
…..
A. To import grain….
B. To purchase grain from peasants and farmers.
C. To market, store and clean the grain and prepare it for grinding, and to engage in all the works relating to the provision of grain to its own mills and those of the private sector who have contracts with the company.
In achieving its objects, the company may engage in the following:
2. To engage in commercial works by way of transporting and storing and insuring and marketing goods…..
7. It may invest its cash surpluses…..
12. It may engage in all legal transactions and enter into such contracts as it deems appropriate for its business.”
The acquisition of the cargo: As with the contractual arrangements for the carriage of the cargo, to which I shall come, there is some doubt as to the applicable contracts governing the acquisition of the cargo.
In the materials available to the Court, there is a “Contract for the supply of 150,000 MT +/- 10% (European Wheat)” dated 12th March, 2006 (“the supply contract”). It was headed “Ministry of Trade/ Grain Board of Iraq”. Assuming without deciding that this contract provided the framework for the acquisition by (neutrally) the Iraqi interests of the cargo, its terms provided, inter alia, as follows:
“THE REPUBLIC OF IRAQ/ MINISTRY OF TRADE/ GRAIN BOARD OF IRAQ (HEREINAFTER CALLED THE BUYER) AND EKSIM (HEREINAFTER CALLED THE SELLER) HAVE MUTUALLY AGREED ON THE FOLLOWING:
FIRST PARTY: (BUYER) MINISTRY OF TRADE/GRAIN BOARD OF IRAQ….
SECOND PARTY: (SELLER) EKSIM…
3. PRICE:
USD 190.00 per Metric Ton ….FOB
5. DELIVERY PERIOD:
April-May/2006
6. METHOD OF ANALYSIS:
The standard method of analysis….or a recognised equivalent to the satisfaction of the Grain Board…
9. PAYMENT:
The Iraqi Trade Bank will issue an irrevocable letter of credit in favour of the seller. Contractors whose supplies originate outside of Iraq shall be paid 95% of the contract value against presentation documents. The balance of 5% will be held pending until Grain Board of Iraq accepted the good compliance with contract specification……Any deviation in the payment terms must be approved by the Grain Board of Iraq….”
The contract was signed “For First Party Grain Board of Iraq Director General Khalil Assi Khadum”. It may be noted that the parties supplied various contact details, including e-mail addresses. Those e-mail addresses supplied for the “First Party” were all addresses of the GBI.
Finance: Turning to the financing of the transaction, an undated application for a “commercial import letter of credit” was before the Court. The applicant was described as “Ministry of Trade/grain board of Iraq”. The primary beneficiary was the seller under the supply contract, Eksim. The secondary beneficiary was “The Coalition Provisional Authority, acting for the benefit of the development fund of Iraq”. The application was signed “Ferial A. Al Ameer, For of Import Department (Applicant) (Address) Grain Board of Iraq”.
Carriage of the cargo: As will become apparent, there are some obvious puzzles concerning the applicable charterparty for the carriage of the cargo, allegedly the subject of the salvage.
On the materials before the Court, the head charterparty, dated 16th June, 2006, was made between Afrodite Seatrade SA, Monrovia, as Owners of the M/V ALTAIR (“the vessel”) and Brave Bulk Transport, as Charterers (“the head charterparty”). As to form, the head charterparty was an “Approved Baltimore Berth Grain Charter Party As Adapted by The Ministry of Trade for Wheat in bulk originating from Germany June 2006”. Leaving aside detail immaterial for present purposes, the vessel was to proceed to Rostock and there load a full and complete cargo of 50,000 mt 10% more or less at Owners’ option of milling wheat; being so loaded, the vessel was to proceed to Umm Qasr, Iraq and there deliver the cargo, on being paid freight at US$39.00 per mt, on Bill of Lading quantity. Various notices were to be communicated by Owners or their agents to Star Trading & Marine Inc, Washington DC.
In addition, the head charterparty included, inter alia, the following provisions:
“ 8. The Ministry of Trade guarantees that the commodity Letter of Credit shall be in good order and fully operative in all respects and provided to the Supplier…….so that loading operations can commence immediately after arrival respective ports….
21. SAILING NOTICE AND ESTIMATED TIME OF ARRIVAL
A. Sailing Notice indicating ….should be communicated by Owners or Owners’ Agents to:
(1) The Ministry of Trade. Attn: Mrs Feryal/ Mr Khalil…
(2) Star Trading & Marine Inc. Washington DC …..
(3) Star Trading & Marine Inc’s representative…Basrah. Iraq….
B. As vessel passes Gibraltar, and upon nomination of discharging port, Master is to communicate to Ministry of Trade Baghdad, Receivers and Port Authority……
24. Notification of vessel’s readiness to discharge must be delivered in writing at the office of the Receivers/The Ministry of Trade…..
29. FREIGHT PAYMENT
C.….90% of freight is collectible upon signing/releasing the original Bills of Lading marked ‘Freight payable as per Charter Party’ and the 10% balance of freight is collectible upon completion of discharge operations.
D. The …10%..balance of freight will be released upon completion of discharge and after final settlement of freight account against discharging laytime statements as prepared by Owners and approved by The Ministry of Trade, Baghdad….
36. Any claims, disputes arising from this contract and any damages, losses…occurring to the cargo or any similar cases to be settled either amicably or to be referred to arbitration or courts between The Ministry of Trade/Receivers and Owners/Disponent Owners.
40. Owners shall not ….sub-contract of sub-let the whole or any part of this contract of affreightment to another Owner or operator without first obtaining the written approval of the Charterers, the Ministry of Trade.”
With reference to cl. 21A of the head charterparty, it may be noted that:
Mrs Feryal, appears to be the same person who signed the application for the letter of credit and, as will be seen, the Letter of Indemnity, dealing with delivery of the cargo without production of the bills of lading;
Mr. Khalil, appears to be the same person who signed the supply contract;
The e-mail addresses supplied were all GBI e-mail addresses.
On the face of the documents, the sub-charterparty (“the sub-charterparty”) was concluded one month earlier than the head charterparty, on the 16th May, 2006. The sub-charterparty was agreed between Brave Bulk Transport as Owners and The Ministry of Trade of the Republic of Iraq, as charterers. It specifically named the M/V ALTAIR as the vessel. In terms of form, the charterparty was described in the same terms as the head charterparty. Indeed, the sub-charterparty appears to be in the same terms as the head charterparty, save that the rate of freight was US$38.00 (rather than US$39.00) per mt.
With regard to the chartering arrangements, two obvious puzzles are these. First, the conclusion of the sub-charterparty, one month before the head charterparty. While circumstances can readily be imagined where that fact, on its own, would not attract comment, it does so here because of the identification of the vessel – without any provision for a substitute. Secondly, the fact that the sub-charterparty was concluded at a lower rate of freight than the head charterparty is, at least at first blush, odd.
The bill of lading (“the bill of lading”) was dated Rostock 5th July, 2006 and was in respect of 50,150.274 mt of German Hard Milling Wheat Grade A, loaded on board the vessel. The Consignee was described as “to the order of Trade Bank of Iraq, Baghdad, Iraq”; the “Notify address” was “Ministry of Trade/Grain Board of Iraq”. Freight was payable as per the charterparty dated 16th June, 2006, which would appear to be the head charterparty.
There is at once another puzzle on the face of the documentation. The shipment date was the 5th July, 2006. Yet the supply contract related to April-May 2006. No explanation was available for this apparent discrepancy.
As already foreshadowed, there was in existence a Standard Form Letter of Indemnity (“the LOI”) to be given in return for delivering cargo without production of the original bill of lading. The LOI was addressed to Brave Bulk Transport – the charterers under the head charterparty and owners under the sub-charterparty. It related to the vessel and to the bill of lading cargo quantity. The LOI was given by “The Ministry of Trade Grain Board of Iraq, Baghdad, Iraq” and was signed by the same Mrs Feryal, to whom reference has already been made.
Pausing here, when considering the MOT/GBI claim to state immunity, the background, given the puzzles highlighted, is an underlying uncertainty as to the true purchase and carriage arrangements. That is hardly a satisfactory foundation for the claim and the uncertainty is one which lies within the sphere of the MOT’s/GBI’s knowledge, not that of Tsavliris. I certainly do not think it right to reject the claim to state immunity on this ground alone but it means that it can, at best, be considered on the assumption that the purchase and carriage arrangements are as reflected in the documentation before the court.
Tender documents: For completeness, I record that I was referred to a Tender Invitation for rice, dated 17th April, 2007. It therefore concerned a different commodity from that with which the present case is concerned and is, of course, later in time than the events here in issue. In the circumstances, I am not sure that this takes the debate any further forward. Similarly and again for completeness, I am not sure that I was assisted one way or another by references to various web sites.
THE s.67 APPLICATION
As already foreshadowed, the MOT and GBI challenge the award on both:
The jurisdiction ground; and
The immunity ground.
The challenge was advanced pursuant to s.67 of the AA 1996, no doubt to be read with ss. 66(3) and 72(2)(a) thereof. I shall take the two grounds in turn.
The jurisdiction ground: The argument here was that there was no valid arbitration agreement; the owners of the cargo were not parties to the LOF; they had not been bound by the agents of the owners. In any event, the GBI was not the owner of the cargo. It follows that the jurisdiction ground is itself conveniently considered under two broad headings:
Issue (I): Whether the owners of the cargo were bound by the LOF?
Issue (II): Whether the GBI was the owner of the cargo?
Issue (I): Whether the owners of the cargo were bound by the LOF? In my judgment, the owners of the cargo – whoever they might be – were parties to the LOF and bound by it. My reasons are these:
As already recorded, pursuant to s.224 of the MSA 1995, the provisions of the 1989 Convention have the force of law in the United Kingdom.
Art. 2 of the 1989 Convention provides as follows:
“ This Convention shall apply whenever judicial or arbitral proceedings relating to matters dealt with in this Convention are brought in a State Party.”
Cl. I of the LOF (set out above) provides for arbitration in London. The United Kingdom is a “State Party” to the 1989 Convention. Accordingly, that Convention applies to the LOF arbitration proceedings.
It is irrelevant that Iraq has neither ratified nor acceded to the 1989 Convention; insofar as the MOT/GBI sought to contend otherwise, that is not the test for the application of the provisions of the 1989 Convention.
Art. 6.2 of the 1989 Convention (the full terms are set out above) provides, inter alia that:
“….the master or the owner of the vessel shall have the authority to conclude….[contracts for salvage operations]…on behalf of the owner of the property on board the vessel. ”
As it seems to me, the provisions of Art. 6.2 are clear. They give to the master and owner express and wide authority to conclude salvage contracts on behalf of the owners of cargo; thereby, they effectively serve to reverse the decision of the Court of Appeal in The Choko Star [1990] 1 Lloyd’s Rep. 516 - confining the master’s authority to bind cargo interests to a contract of salvage within the limits of a true agency of necessity – and so to dispose of the practical difficulties to which that authority had given rise: Kennedy & Rose, The Law of Salvage (6th ed., 2002), at para. 832. It may be noted that the provisions of Art. 6.2 are reinforced or echoed by the terms of cl.K of the LOF (set out above).
In the present case, there is no reason to doubt that the employee of the managers who concluded the LOF on behalf of owners and purportedly on behalf of the owners of cargo, had the requisite authority from the owners to do so. In my judgment, Art. 6.2 of the 1989 Convention is applicable and the owners of the cargo are accordingly bound to the LOF.
I am unable to accept the MOT/GBI submission that Art. 6.2 only applies when the salvage contract is concluded by the master or owner personally, or by employees of the owners, rather than by an employee of the managers (as here) or by other agents acting on behalf of the owners. While it will of course be a question of fact in each case whether those purporting to act on behalf of owners have the necessary authority to do so, I do not think it can have been intended to limit the application of Art. 6.2 in the manner contended. Insofar as the contrary is suggested by Brice On Maritime Law Of Salvage (4th ed., 2003), at para. 5-41, I respectfully disagree. There will be many instances in practice where the master will not himself conclude the LOF (or other salvage contract). As to the ship owners, it must be most unusual to find an owner personally concluding such a contract. Still further, there are likely to be a good many one ship companies who will not have in-house employees; necessarily, employees of agents or managers will act on their behalf. The restriction on the application of Art. 6.2 advocated by the MOT/GBI would import a practical difficulty and an area of uncertainty into a beneficial provision of an international convention, designed to encourage certainty and remove or reduce delay and haggling. There can in any event be little attraction in a proposed construction of Art. 6.2 which would leave salvors potentially exposed to the vagaries of ship owners’ corporate structures.
For completeness, no conflict of laws problem arises, given that the putative proper law of the LOF is English Law: see cl. J, set out above.
In summary, I agree - and without any real hesitation – with the conclusion on this issue arrived at by the experienced arbitrator.
I add this. Tsavliris did not attempt to make good a case based on agency of necessity – and, as I have held, did not need to. But having regard to the absence of any or any sensible response from the GBI when Tsavliris sought to make contact after the salvage, there must be at least a reasonable possibility that the same silence would have been encountered had efforts been made to communicate with Iraqi cargo interests before the LOF was concluded. If that had happened, then it would have been open for Tsavliris at least to contend that the GBI had been bound to the LOF by way of an agency of necessity. But had that course been followed, further delay would have resulted. The wide authority conferred on the master and ship owners by Art. 6.2 of the 1989 Convention serves, as I have said, beneficially to reduce the risk of and from such delays. These reflections are of course speculative and I do not rest my decision on it; but they perhaps serve to illustrate the advantages underlying the construction of Art. 6.2 which I favour.
Issue (II): Whether the GBI was the owner of the cargo? Tsavliris submits that the GBI was the owner of the cargo and is, accordingly, a party to the LOF. The MOT and the GBI contend that the MOT was the owner of the cargo – so that even if the owner of the cargo was party to the LOF, the GBI was not that party. Instead, the buyer and owner of the cargo was the State of Iraq, albeit that various functions in connection with the purchase had been delegated to the GBI. For my part, I am satisfied that the GBI was the owner of the cargo. My reasons follow.
First, as was common ground, the GBI enjoyed separate legal personality. So much is clear from the certificate and the terms thereof already set out. I shall return in due course to the expert evidence adduced (or sought to be adduced) by the parties; for the moment, it suffices to record that Dr. Flwreda, the expert engaged by Tsavliris, said this. The GBI enjoyed the “capacity of a legal person”; it was “entitled to enter into a contract in its name as it is a judicial person eligible to do so”. There was, accordingly, no legal bar to the GBI entering into a contract in its own name for the purchase of the cargo and becoming the owner of the cargo.
Secondly, it is to my mind inherently probable that it was the GBI rather than the MOT which was the owner of the cargo. Having regard to the GBI’s “objects” and “activities” set out in the certificate, it would be natural for it to do so; indeed, the very first activity there listed is to “import grain”. As Dr. Flwreda put it:
“The main function and purpose of the ….[GBI]…is to purchase the grains (rice and flour) necessary for citizens after importing them from abroad or purchasing them from farmers inside Iraq…….”
Given both the existence of the GBI with separate legal personality and its function and purpose, it would strike me as surprising if nonetheless it was not the owner of the cargo and the MOT was.
Thirdly, I regard as significant the answer given by Eksim, in response to the inquiries made by Clyde & Co. It will be recalled that Eksim had bought the cargo FOB from the shippers and had on-sold to Iraqi interests. Eksim had no axe to grind; its answer was, however, unequivocal. It had sold the cargo to the GBI. Its understanding might of course be mistaken and could not by itself be conclusive; but it is noteworthy nonetheless. Eksim certainly had not formed the impression that its contractual counterparty was the MOT.
Fourthly, the supply contract (always assuming that it be the relevant contract for the acquisition of the cargo), the bill of lading, the LOI and the arrangements for a letter of credit are at least consistent with the GBI being the true purchaser of the cargo. In a nutshell, the contractual documentation does a good deal to strengthen and nothing to weaken the case that it is the GBI rather than the MOT which was the owner of the cargo. I accept that the matter is not free from ambiguity, given the MOT/GBI references. That said, I agree with Mr. Hill that the most plausible explanation of the wording in the supply contract (at least) is that it provides a description of “increasing specificity”: it moves from the Republic of Iraq to the MOT to the GBI. Moreover, the contact details set out in the supply contract relate to the GBI. Still further, there is the signature of the supply contract, namely, “For First Party Grain Board of Iraq Director General…” and the signature of the application for the letter of credit (as already set out). By themselves these matters would tip the scales, on the contractual documentation alone, in favour of the conclusion that the purchaser was the GBI rather than the MOT. They suggest that it was the GBI, not the MOT, which was in reality involved with the purchase of the cargo. But the contractual documentation is not to be considered in a vacuum or in isolation. When taken together with the other considerations to which reference has already been made, there is to my mind a clear pointer to the GBI being the purchaser and hence owner of the cargo. For completeness, whatever conclusion might be reached as to the identity of the charterer under the sub-charterparty, it does not alter my view as to the likely contracting party under the supply contract.
Finally, here, Tsavliris sought to rely on some initial indications from Waterson Hicks (solicitors for the MOT and/or GBI as the case may be) that the GBI was the owner of the cargo. I do not rest my conclusion on any such indications. There was ample scope in this case for a measure of confusion – illustrated by a similar element of confusion in some of the early material adduced on behalf of Tsavliris, pointing the other way. I was not persuaded that any of these matters advanced the argument one way or another.
For the reasons given, I conclude, in agreement with the arbitrator, that the GBI was, at the relevant time, the owner of the cargo and a party to the LOF. It follows that, subject only to the arguments as to state immunity, the arbitrator had jurisdiction to make an award for salvage against the GBI.
The immunity ground: (I) Introduction: I turn to the Act. It is at once convenient to set out certain of its provisions:
“ 1. (1)A State is immune from the jurisdiction of the courts of the United Kingdom except as provided in the following provisions of this Part of this Act.
9. (1)Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration.
10. (1) This section applies to –
(a) Admiralty proceedings; and
(b) proceedings on any claim which could be made the subject of Admiralty proceedings.
(2) A State is not immune as respects –
(a) an action in rem against a ship belonging to that State;
or
(b) an action in personam for enforcing a claim in connection with such a ship,
if at the time when the cause of action arose, the ship was in use or intended for use for commercial purposes.
(4) A State is not immune as respects –
(a) 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; or
(b) an action 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.
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
(c) any department of that government,
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 –
(a) the proceedings relate to anything done by it in the exercise of sovereign authority; and
(b) the circumstances are such that a State ….would have been so immune.”
As is apparent, s.1 of the Act gives rise to a presumption of immunity, subject to the specific exceptions set out elsewhere in the Act: Svenska Petroleum Exploration v Lithuania [2006] EWCA Civ 1529; [2007] QB 886, at [113]. Ss. 9 and 10 are amongst the exceptions to immunity. S.14 is to be found under the sub-title “Supplementary Provisions”.
The broad thrust of Mr. Hill’s argument for Tsavliris was this.
The GBI was a “separate entity” and therefore not entitled to immunity under s.14(1);
Furthermore, the GBI was not entitled to immunity under s.14(2), because the proceedings did not relate to “anything done by it in the exercise of sovereign authority”; it was the character not the purpose of the act in question which mattered;
If right so far, then that was an end to the GBI’s challenge to the award on the ground of state immunity, save only for any questions going to enforcement, dealt with below;
But if Mr. Hill was wrong on either argument under s.14, then in any event, Tsavliris was entitled to defeat any claim to immunity, indeed whether advanced by the GBI or the MOT, under either or both (1) s.9(1) or (2) s.10(4)(b). As to s.9(1), Mr Hill contended that the agreement which bound the GBI (as owners of the cargo to LOF) was an agreement in writing sufficient for the purposes of s.9(1). As to s.10(4)(b), the reference to “such a cargo” in that sub-section related only to the cargo “belonging to that State” in sub-section (a); it was irrelevant whether or not the cargo was “commercial” or not. Ex hypothesi, if s.10(4)(b) was reached, the cargo belonged to the state of Iraq. But, be that as it may, the cargo was a commercial cargo.
For the MOT/GBI, again in broad terms, Mr. Hoyle’s submissions proceeded as follows. First, the GBI was not a “separate entity” under s.14(1). There was a difference between the GBI having separate legal personality and constituting a separate free-standing commercial entity. The GBI was not a commercial company just having the state as a shareholder. Secondly and if wrong about that, then in any event, the GBI was entitled to immunity under s.14(2). Though not said to be an aid cargo, the cargo was intended for “public distribution” in Iraq – as part of the Public Distribution System (“PDS”). The cargo had not been acquired for commercial purposes and this was not a normal government commercial transaction. Thirdly, so far as concerned s.9, the Tsavliris argument proved too much and pointed to the need for a reconsideration of the premises on which it was based. If Tsavliris was right, then the conclusion of the LOF by the employee of the managers served to bind the GBI (or MOT) all the way through to enforcement. That could not be right. Something more was needed for the s.9 exception to immunity to apply. Otherwise, the effect of Art. 6.2 of the 1989 Convention would be to ride roughshod over the principle of state immunity. What was lacking here was express agreement on the part of either the GBI or the MOT to submit a dispute to arbitration. Fourthly, as to s.10, on its true construction s.10(4)(b) was only applicable if the cargo was “in use or intended for use for commercial purposes”. In Mr. Hoyle’s submission, the Act does not remove immunity for non-commercial cargoes carried on commercial vessels. Given that the cargo was (in Mr. Hoyle’s submission) clearly non-commercial – by reason of its destined use as part of the PDS – s.10(4)(b) was inapplicable.
(II) s.9(1) of the Act: For my part, I prefer to begin with a consideration of the arguments as to s.9(1) of the Act – a provision capable of providing a short answer to the dispute as to immunity. Moreover, it matters not for these purposes whether the GBI was a “separate entity” under s.14(1) or otherwise entitled to immunity under s.14(2). Still further, even if I was wrong in concluding that it was the GBI rather than the MOT which was a party to the LOF, then, if s.9(1) is applicable, the MOT would itself have submitted. It is beyond dispute that state immunity does not apply to proceedings relating to arbitration to which the state has agreed in writing to submit disputes: Mustill & Boyd, The Law and Practice of Commercial Arbitration in England (2nd ed., 1989), at p.151; Svenska (supra) at [117]. The only question therefore is whether the GBI (I say no more about the MOT) “agreed in writing” to submit to the arbitration.
As it seems to me:
There can be no or no real doubt that signature of a LOF, on behalf of a party bound by that signature, will amount to a submission to arbitration, serving to exclude state immunity: see, Kennedy & Rose, The Law of Salvage (6th ed., 2002), at para. 1174.
As I have already held, by virtue of the operation of Art. 6.2 of the 1989 Convention, the managers, as agents of the owners, concluded the LOF on behalf of the GBI (as owners of the cargo).
There can be no or no sensible dispute that the LOF was agreed in writing.
It follows that the GBI agreed in writing to arbitration in accordance with cl. I of the LOF – and to the other provisions contained in the LOF.
This agreement to submit the matters contained in cl. I of the LOF to arbitration was an express agreement, albeit an agreement made through others acting on GBI’s behalf.
It would be curious if the GBI was bound to the LOF and hence a party to the arbitration and yet somehow was held not to have “agreed in writing” to submit a dispute to arbitration for the purposes of s.9(1). I do not think there could be a half way house of this nature – in particular under English law, given its broad and permissive view of the requirement that an arbitration agreement should be in writing. In this regard, s.5 of the AA 1996 provides as follows:
“ (1) The provisions of this Part apply only where the arbitration agreement is in writing….
(2) There is an agreement in writing –
(a) if the agreement is made in writing (whether or not it is signed by the parties)
(c) if the agreement is evidenced in writing”
In coming to this conclusion, I have of course anxiously considered Mr. Hoyle’s submissions to the contrary. I am not, however, deterred by them from the conclusion to which I am attracted. While it may be right to say that Art. 6.2 of the 1989 Convention is capable of producing far-reaching consequences, those consequences reflect the strong maritime policy interest in rewarding salvors. The 1989 convention is, after all, a well established and well known international convention. There is no unfairness in a state, having enjoyed the benefit of salvage services, becoming bound to pay for them (subject to any particular questions as to enforcement), a fortiori, pursuant to an arbitration agreement to which it is a party. Indeed to require a state in such circumstances to honour an arbitration award, seems to me, to involve, in Lord Wilberforce’s words “neither a threat to the dignity of that state, nor any interference with its sovereign functions”: I Congreso (supra), at p.262. Of course if the true owner of the cargo was the GBI (as I have already held) and if (as is considered below) the GBI is a separate entity (within the meaning of s.14 of the Act), then even any lingering reservations very largely disappear.
For my part, I can see neither any basis for, nor any attraction in, reading into s.9(1) some additional requirement for a relevant agreement in writing; for instance, a requirement that for s.9(1) to “bite”, the agreement must be signed by the parties themselves (whatever that would entail) or that an agreement for the purposes of s.9(1) cannot be entered into by an authorised agent on behalf of the party in question. But that is where Mr. Hoyle’s argument would seek to drive s.9(1). With respect, I cannot agree.
In the circumstances, there was in my judgment a submission by the GBI, agreed in writing, to submit to arbitration under and in accordance with the LOF. It follows that the challenge to the award on the ground of state immunity must fail on this ground alone, regardless of my conclusion on the s.14 issues. I go on, nonetheless, to consider the s.14 issues, both because they were fully argued and also in case there might be consequences for enforcement turning on any difference between ss. 9 and 14 of the Act.
(III) s.14(1) of the Act: The question here is whether the GBI is to be regarded as a department of the MOT and, hence, of the Iraqi government or as a separate entity.
(1) The test: There is no single test for distinguishing between a department of government and a separate entity. However, helpful guidance is available from the authorities and at least one text book. In a case decided before the passing of the Act, Trendtex Trading v Bank of Nigeria [1977] 1 QB 529, Shaw LJ said this, at pp. 572-573:
“ The cardinal question is whether the Central Bank is properly to be regarded as a department of the Government of Nigeria in the guise of a bank, or whether it is in truth a bank to which the execution of specific aspects of government control of finance has been delegated. In the first case the Central Bank may be entitled to immunity from suit in the courts of this country; in the second case it can claim no such immunity….
Whether a particular organisation is to be accorded the status of a department of government or not must depend on its constitution, its powers and duties and its activities. These are the basic factors to be considered. The view of the government concerned must be taken into account but is not of itself decisive….; it does not relieve a court before which the issue of sovereign immunity arises of the responsibility of examining all the relevant circumstances….”
In another pre-Act case, Czarnikow Ltd v Rolimpex [1979] AC 351, the sellers (Rolimpex), a state trading organisation, sought to rely on the action of their own government as a defence to claims for non-performance of commercial contracts. It was held that as the sellers were not an organ or department of the Polish government but an independent state enterprise, they did indeed have a good defence to liability, consequent upon an export ban imposed by the Polish government. Viscount Dilhorne put the matter this way (at p.367 C-F):
“….The respondents [Rolimpex] are an organisation of the state. Under Polish law they have a legal personality. Though subject to directions by the appropriate minister who can tell them ‘what to do and how to do it’, as a state enterprise they make their own decisions about their commercial activities. They decide with whom they will do business and on what terms and they have considerable freedom in their day to day activities. They are managed on the basis of economic accountability and are expected to make a profit. They arbitrators …rightly found as a fact that the respondents were not so closely connected with the government of Poland as to be precluded from relying on the ban imposed by the decree as government intervention.
The appellants also asserted that the respondents bought and sold for the state. This while no doubt true, does not…help the appellants. The facts found by the arbitrators…..show that they were not a department of the government but have a separate identity. They were, it was found as a fact, employed as ‘a commission merchant’ to sell sugar intended for export on behalf of Sugar Industry Enterprises which were also state enterprises. ”
See too, per Lord Salmon, esp. at p.369G.
In the I Congreso (supra), Lord Wilberforce touched on the same theme (at p.258F-G):
“ State-controlled enterprises, with legal personality, ability to trade and to enter into contracts of private law, though wholly subject to the control of their state are a well-known feature of the modern commercial scene. The distinction between them, and their governing state, may appear artificial: but it is an accepted distinction in the law of England and other states: see Czarnikow v Rolimpex…..Quite different considerations apply to a state-controlled enterprise acting on government directions on the one hand, and a state, exercising sovereign functions, on the other.”
In Dickson, Lindsay, Loonam, State Immunity: selected materials and commentary (2004), the authors suggest (at para. 4.101) that the following principles can be derived from the authorities when considering whether a party to proceedings is a department of the government of a foreign state:
“ (a) The characterisation of a party to proceedings as department of the government of a foreign sovereign State depends not on any single factor, but on a consideration of all relevant circumstances.
(b) The status of the party under the law of its home state is one relevant factor but is not decisive. Nor is the presence of separate legal personality itself decisive against characterising a party as a department of government.
(c) A detailed analysis of the constitution, function, powers and activities of the party of its relationship with the state is likely to be essential. The existence of State control is not, however, a sufficient criterion.
(d) The courts are likely to exercise caution before treating a party having separate legal personality as a department of government…..”
The authors go on to say that there should not be a “judicial no-man’s land”; the principles to be applied in determining whether an entity is a “department of government” should mirror those for determining whether the entity is a “separate entity”. In that regard, the authors comment as follows (at para. 4.102):
“ As for the requirement that the entity be distinct from the executive organs of government, this would appear to require a careful examination of the entity’s constitution, functions, powers and activities and its relationship with the State in order to determine whether the required degree of separation exists…”
(2) The evidence: With such considerations in mind, I turn to what is known about the GBI. As already foreshadowed, Tsavliris produced a report from Dr. Flwreda, an Iraqi lawyer with, it can be said, extensive relevant qualifications and experience. There is no reason to doubt her independence and her report complied with the requirements of the Admiralty and Commercial Court Guide. For their part, the MOT/GBI produced a report from a Mr. Hadid. He is the Deputy General Manager of the Legal Department of the MOT and so, on the face of it, hardly independent of one of the parties involved in these proceedings. His report, apart from not disclosing his qualifications, also does not comply with the requirements of the Admiralty and Commercial Court Guide.
Mr. Hoyle accepted that Mr. Hadid’s report was not an expert’s report, complying with the requirements of the CPR; it was simply a statement of an MOT employee. That said, he contended that the report gave the court the benefit of Mr. Hadid’s practical experience, whereas Dr. Flwreda was a “theoretical” expert. Mr. Hill invited me to rule that Mr. Hadid’s report was inadmissible. I had much sympathy with Mr. Hill’s approach but, in the event, and de bene esse, I am content to take the Hadid report into account and to treat Mr. Hill’s criticisms of the report as going to weight rather than admissibility. For completeness, I record that all parties were content to deal with the evidence from Dr. Flwreda and Mr. Hadid on the documents and without calling either to give oral evidence. Each expert was posed the same questions and their answers (such as they were) are before the court.
Against this background, I can state my conclusions on the evidence as to the GBI, as follows:
There is or can be no realistic dispute that the GBI is a public, state owned, company incorporated pursuant to Art. 1 of Law No. 22. More specifically, the GBI is owned by the MOT. Its capital is determined by the Council of Ministers. Art. 1 refers to public companies in the following terms:
“ Public company: A self-financing economic unit which is fully owned by the State, has a juristic person [? personality] and financial and administrative independence, and operates in accordance with economic principles. ”
Pursuant to Art. 20 of Law No. 22, the GBI has a “board of management” (apparently akin to a board of directors, “the board”), with a “General Manager” as Chairman. According to Dr. Flwreda, whose evidence I accept:
“ The Board of Directors of the GBI is responsible for putting down the administrative, financial and regulatory policies and plans that are necessary to perform the duties of the company and achieve its objectives and to supervise and follow up the implementation thereof.
The Board of Directors enjoys the widest powers in this respect. Moreover, the Board of Directors has the right to vest in the Manager of the GBI all the powers that the Board deems fit in accordance with Art. 19 of …[Law No.22]…
The Board of Directors is free to set the budget of the GBI provided that the budget is aimed at achieving the objectives of the Company…. The Company remains under the supervision of the Board of Supreme Audit (article 42 of …[law No. 22]) ”
The main function and purpose of the GBI is, as already discussed, to purchase the “grains necessary for citizens after importing them from abroad or purchasing them from farmers inside Iraq”. It is fair to note that, according to Dr. Flwreda, the GBI is not “required” to make a profit.
Again as already discussed, it is not in dispute that the GBI enjoys separate legal personality. I therefore readily conclude (it is unclear whether or not Mr. Hadid disputes this) that the GBI is entitled to enter into contracts in its own name, as is indeed apparent from the terms of the certificate (set out above).
Subject to such limits on his authority as are imposed on him by the board, the General Manager of the GBI is entitled enter into contracts without referring to the MOT for approval. Again, Dr. Flwreda has said this and I seen no reason to doubt her evidence. Mr. Hadid’s position on this topic was unclear.
The experts were asked this question:
“What overall control does the Government of Iraq have over the GBI and how is this exercised?”
Mr. Hadid did not answer this question. Dr. Flwreda’s answer, with reference to various Articles of Law No.22, was as follows:
“(1) Given that the GBI is a public company, the Government’s control is found in the following:
(2) The GBI is fully owned by the state….
(3) The company’s capital is entirely financed by the Public Treasury…
(4) The incorporation of the GBI is pending the approval of the Council of Ministers…
(5) The company shall not be liquidated save by a resolution issued by the Council of Ministers…..
(6) The company’s activities are controlled by the Board of Supreme Audit….
However provided the GBI acts within the powers given to it, and performs the functions assigned to it, it is controlled by the General Manager and not the Government.”
In this review, I do not overlook one of Mr. Hadid’s answers, which requires mention, albeit not directed to the particular question posed. In dealing with the management of the GBI, he said it could be compared to the “management of private companies which have a specific administration headquarters in one location and open a number of branches and offices in other locations.” He went on to extend the analogy by reference to a “foreign company which opens a branch in some country and is issued a permit to register that branch which is given status as a legal entity”. With respect, however the analogy requires caution, as so much, whether domestically or internationally, depends on the precise arrangements made. For instance, there are countless examples of foreign subsidiaries or “branches” which are undoubtedly self standing to the extent that the holding company will not be liable for the acts of the subsidiary. Mr. Hadid’s example must therefore be taken as confined to such cases where the branch, even if enjoying separate legal personality, is not truly autonomous from “head office”. Whether that example meets the facts of the present case is another matter.
Dr. Flwreda’s conclusion may, I think, be summarised as follows. Though state established, capitalised and owned and though its employees are hired in accordance with the law governing the civil service:
“…the GBI possesses a separate identity as well as financial and administrative independence which is prescribed by the Articles of Association and Articles of Incorporation.”
(3) Decision: Though the matter is not entirely straightforward, I am satisfied that the GBI is a “separate entity” within the meaning of that term in s.14(1) of the Act.
First, as to the evidence, I have no hesitation in preferring Dr. Flwreda’s to that of Mr. Hadid, wherever they were in conflict. I say this, both because of the contrast in their status so far as concerns independence and because of the intrinsic and contrasting quality of the material placed before the court. Dr. Flwreda’s evidence gained from the fact that, along the way, she showed no reluctance to make concessions when appropriate (for example, the fact that the GBI was not required to make a profit). If I may say so, the fact that the MOT/GBI chose to rely on, with respect, Mr. Hadid’s unimpressive statement was itself telling.
Secondly, as will be apparent from my review of the evidence, I accept Dr. Flwreda’s coherent summary of the position of the GBI and her overall conclusion in this regard. I rely on the totality of her answers, set out above and do not repeat them. State establishment, ownership and capitalisation were one thing; but nonetheless, the GBI possessed a separate identity, together with financial and administrative independence.
Thirdly, viewed in this light, the relationship between the GBI and the MOT is much closer to that between an autonomous subsidiary and a parent company, rather than Mr. Hadid’s suggestion of a head office and branch office. I of course have regard for the fact that Mr. Hadid may be expressing the “in-house” MOT view – but, even if he is, as the authorities make clear, the views of the “home” state are not and cannot be decisive.
Fourthly, in my judgment, there is a close analogy between the position of the GBI and that of Rolimpex, as discussed in Czarnikow v Rolimpex (supra). The analogy is not exact – notably in that Rolimpex was expected to make a profit. But notwithstanding that significant difference, the telling likeness between the two is the control each had over their day to day business activities.
Fifthly, though not in itself decisive, the fact is that the GBI does possess separate legal personality. As observed by Dickson et al (supra), caution would need to be exercised before treating a party with separate legal personality as a department of government.
Sixthly, pulling the threads together, the analyses contained in Czarnikow v Rolimpex, I Congreso and in Dr. Flwreda’s evidence, reinforced by the fact of the GBI’s separate legal personality, point strongly to the conclusion that the GBI is a “separate entity”. Put another way, with reference to Shaw LJ’s observations in Trendtex (supra), the GBI is in truth a “separate entity” to which, at most, the execution of certain specific state objectives (as to the purchase and distribution of grain) may have been delegated.
(IV) S.14(2) of the Act: In the light of my conclusion that the GBI is a “separate entity” within s.14(1) of the Act, it remains to consider whether the GBI is nonetheless entitled to immunity under s.14(2) of the Act. The threshold question is whether (s.14(2)(a)) “the proceedings relate to anything done by it in the exercise of sovereign authority”. The proceedings here relate to the entry by the GBI (as already discussed) into the LOF.
Untutored by authority, it would instinctively seem to me hopeless to contend that the entry into the LOF was “done…in the exercise of sovereign authority” – any more than was the purchase of the cargo from Eksim.
Mr. Hoyle, however, submitted that as the acquisition and transport of the cargo was part of the PDS:
“ The actions of the GBI in acquiring grain had a clear and pure governmental interest, as opposed to a commercial interest, considering the food distribution in place for the grain. In fact, both the nature and motive of the actions of GBI were such that had the MOT….directly carried out the same actions and transactions it would have done so in a public function with sovereign authority and not like a private person under private law. Therefore the GBI should be entitled to the same immunity which would be afforded to MOT in the circumstances. ”
With respect, I cannot agree. Even assuming (without deciding) in Mr. Hoyle’s favour that the motive or purpose of the acquisition and carriage of the cargo had a governmental interest, that is not the test. The relevant test goes to the character of the act rather than its motive or purpose.
It is unnecessary in this regard to look further than the speech of Lord Goff of Chieveley, in Kuwait Airways Corpn. v Iraqi Airways Co. [1995] 1 WLR 1147, at pp. 1159 – 1160:
“ ….in considering whether acts done by a separate entity are or are not acts done by it in the exercise of sovereign authority under section 14(2)(a), it would….be appropriate to have regard to the English authorities relating to the distinction between acta jure imperii and acta jure gestionis as adopted from public international law, including the statement of principle by Lord Wilberforce in the I Congreso del Partido [1983] 1 AC 244…..
It is apparent from Lord Wilberforce’s statement of principle that the ultimate test of what constitutes an act jure imperii is whether the act in question is of its own character a governmental act, as opposed to an act which any private citizen can perform. It follows that, in the case of acts done by a separate entity, it is not enough that the entity should have acted on the directions of the state, because such an act need not possess the character of a governmental act. To attract immunity under section 14(2), therefore, what is done by the separate entity must be something which possesses that character……
….in the absence of such character, the mere fact that the purpose or motive of the act was to serve the purposes of the state will not be sufficient to enable the separate entity to claim immunity under section 14(2) of the Act.”
See too, for interest, Lord Hope, Voices from the past, [2007] 123 LQR, at pp.566-568, including a fascinating account of Lord Wilberforce’s contribution to the passage of the (then) State Immunity Bill.
To my mind, it is plain that the act of entry into the LOF did not have the character of and was not a governmental act. It follows that the GBI is not entitled to rely on the immunity available under s.14(2) of the Act. It follows further, that GBI’s challenge to the award on the ground of state immunity must fail, having regard to s.14 of the Act, in addition to s.9 of the Act.
(V) S.10(4)(b) of the Act: In the light of the decisions to which I have come, s.10(4)(b) is of academic interest only; indeed, no question relating to this section arises. I can therefore take this topic very briefly indeed.
I have already set out the terms of s.10(4) of the Act and outlined the rival contentions. I begin with the assumption most favourable to the MOT/GBI – namely, that s.10(4)(b) only applies if both ship and cargo were “in use or intended for use for commercial purposes”.
As I understood Mr. Hoyle’s submissions, he, very properly, did not dispute that the vessel was in use for commercial purposes. Furthermore and equally properly, he disclaimed any suggestion that the cargo was an “aid” cargo; there was simply no evidence to such effect. As it seems to me, it follows that at the time of the salvage, the cargo was “in use” for commercial purposes; it was at that time a commercial cargo. It had been bought from Eksim (and for that matter, shipped) commercially; it seems hopeless to me to contend otherwise. State immunity accordingly does not apply.
As to Mr. Hoyle’s submission that the cargo was intended for use as part of the PDS, even if well-founded, that cannot affect the cargo’s “status” as a commercial cargo at the time of the salvage. But in any event – and though it is unnecessary to reach a conclusion – I am far from persuaded that intended subsidised distribution in the future, would entitle the MOT/GBI to succeed in a claim for immunity under this sub-section. The evidence does not go so far as to suggest intended donation of the cargo to Iraqi recipients free of charge. It is also perhaps noteworthy that there is, I think, no evidence as to what actually happened to the cargo after its discharge.
Accordingly, had it been necessary to decide this point, the GBI’s challenge to the award on the ground of state immunity, would have failed under s.10 of the Act in addition to ss. 9 and 14.
For completeness, I revert to the question of whether s.10(4)(b) is only applicable if the “cargo was in use or intended for use for commercial purposes”. Given the conclusion to which I have already come as to the commercial nature of the cargo, it is unnecessary for me to decide this additional point and, given its potentially wider ramifications, I do not do so. But my inclination would have been to accept Mr. Hill’s submissions to the effect that s.10(4)(b) does not impose this requirement.
First, I have regard to the language of s.10(4). As a matter of first impression, the words “such a cargo” in s 10(4)(b) appear to relate back to the words “a cargo belonging to that State” in s. 10(4)(a). If that is right, then the only requirement for the application of s.10(4)(b) would be that the cargo “belonged to that State”. On the hypothesis that s.10 needs to be considered at all (i.e., that the MOT/GBI have had some success under s.14), that requirement would be satisfied.
Secondly, as a matter of the language of s.10(4) considered with s.10(2), Mr. Hill’s construction would fit in neatly with the obvious construction to be given to the words “such a ship” in s.10(2)(b). In s.10(2)(b), the words “such a ship” plainly relate back to the words “ship belonging to that State” in s.10(2)(a).
The rationale for Mr. Hill’s construction is not unattractive – if not, if I may say so, conclusive. Whereas a state enjoys immunity from an action in rem unless the cargo is a “commercial cargo” (s.10(4)(a)), it has no need for an immunity in respect of an action in personam even against a “non-commercial” cargo. An action in personam could proceed, without delay to the cargo but without the claimant being in a position to obtain security by way of an arrest.
Accordingly, as I have said, my inclination would have been to favour the submissions advanced by Mr. Hill. But a decision on a matter such as this is best left to a case in which it is necessary. I therefore express no concluded view on this point.
(VI) Art. 25 of the 1989 Convention: For completeness, I record that Mr. Hoyle, for the MOT/GBI raised the question of reliance on Art. 25 of the 1989 Convention but, in the event, stated that he would not pursue it. I say no more of it.
THE APPLICATION TO ENFORCE THE AWARD
Given my conclusions thus far, it seems plain that Tsavliris is entitled in principle to enforce the award in the same manner as a judgment or order of the court. Moreover, it appears to me that Tsavliris has complied with the procedural requirements under the CPR for doing so – and indeed I am not aware of any extant objection to enforcement on this ground. I say “in principle” only because there remains the need to agree or otherwise determine the appropriate interest calculation.
Certainly, so far as concerns my decision adverse to the MOT/GBI under s.9 of the Act, it follows that:
“…if a state has agreed to submit to arbitration, it has rendered itself amenable to such process as may be necessary to render the arbitration effective.”
Svenska (supra), at [117]. As observed by Moore-Bick LJ (ibid), an application for leave to enforce an award as a judgment is the final stage in rendering the arbitral procedure effective; however, enforcement by execution on property belonging to the state is another matter, as s.13 of the Act makes clear. For his part, Mr. Hill made it plain that he was not, at least for the moment, seeking execution, so that (even had Tsavliris been confined to reliance on s.9 alone) no question under s.13 arose on this application.
I record that the parties placed before the court detailed arguments dealing with the possible issues which might arise had I decided some but not other points concerning state immunity in favour of the MOT/GBI. In the event, my conclusions on s.14 of the Act render it unnecessary to deal with those arguments.
Finally under this heading, Tsavliris further seeks leave to enforce the costs award. As it seems to me, an application to do so is bound to succeed in principle – but, there has been no separate application. I invite counsel for the parties to indicate the up to date position when this judgment is handed down. Absent agreement, it may well be that this matter must follow its own procedural course, though, inevitably, if it does so, further costs will be incurred.
THE APPLICATION FOR A FREEZING INJUNCTION
The position here is, at least at first blush, somewhat tangled. As I understand it, pursuant to previous orders of this court, including an application on notice for a freezing injunction, some US$900,000 remains in court pending the final determination of the Tsavliris application for a freezing injunction. On the face of it, that sum of money would suffice (or nearly suffice) to protect Tsavliris against any risk by the GBI of dissipating its assets but given the terms on which it remains in court, it is still necessary to determine this application. Moreover, Mr. Hoyle contends that the US$900,000 belongs to the MOT (not the GBI, if they are separate entities) so that Mr. Hill cannot have it both ways. Having succeeded in establishing that the GBI is the relevant party to these applications and an entity separate from the MOT, Tsavliris cannot now “freeze” the assets of the MOT. For his part, Mr. Hill submitted both (i) that Tsavliris did not need to establish that the GBI had assets within the jurisdiction and (ii) that, in any event, there was at least a good arguable case that the sum paid into court did represent GBI assets; Tsavliris did not need to prove on a balance of probability that the sum did represent assets of the GBI. The real issue, Mr. Hill submitted, was whether there was a risk of the GBI dissipating its assets; as to that, he submitted that there was plainly such a risk. Mr. Hoyle, pointing to the fact that the initial hearing was on notice, submitted that there was no risk of the GBI’s assets being dissipated and that it was a strong thing to conclude that a body such as the GBI would conduct itself in such a manner.
To my mind, the correct approach involves separating out these different strands of the argument. First - and to get one matter out of the way - on the basis of my conclusions adverse to the MOT/GBI under s.14 of the Act, s.13(2)(a) of the Act does not stand in the way of the grant of such an injunction, whatever the position otherwise might have been.
Secondly, with the award and my conclusions thus far in its favour, Tsavliris manifestly has a sufficient case on the merits to warrant the grant of a freezing order.
Thirdly, so far as concerns the risk of dissipation, I regret that I am amply satisfied that there is a very real risk that, without such an injunction, the award would go unsatisfied: see Ninemia v Trave [1983] 1 WLR 1412, as discussed in Civil Procedure, Vol. 1, 2007, at para. 25.1.27. I have in mind, in particular:
The resolute refusal of the GBI to furnish security pursuant to the LOF, either before or after discharge of the cargo – even on a without prejudice basis.
The GBI’s refusal to participate in the arbitration.
The absence prior to the hearing before me of any offer by the GBI to honour the award on a basis which protected its position for the purposes of the hearing.
The absence, throughout the hearing before me, of any offer of an undertaking to honour the award in the event that the GBI failed in its arguments before this court.
In expressing these views, I have not lost sight of Mr. Hoyle’s point that the initial hearing was on notice; but matters have moved on since then and the reality of enforcement is now upon the parties. In the circumstances, I have come to the conclusion already outlined as to the risk of dissipation.
Fourthly, I think Tsavliris is correct in its argument that it need not link its claim for a freezing injunction to the assets currently held in court or otherwise in this jurisdiction. There is no doubt as to this court’s jurisdiction and there can be no doubt that the GBI does have assets. It follows that, for present purposes, it is unnecessary to determine whether the sums held in court are or are arguably the assets of the GBI – and I do not do so.
I therefore conclude that in principle it is right to grant Tsavliris the freezing order which it seeks, subject to an appropriate ceiling on the sums frozen. I leave the parties to refine the terms and to seek from me any order that may be needed in the event of dispute. Of course, such an order leaves it open to the GBI to provide alternative security or to designate the assets held in this jurisdiction as available to satisfy the award and so to minimise any disruption which might otherwise flow from the freezing order.
I shall be grateful for the assistance of counsel in drawing up the appropriate order and as to all questions of costs.