Wilhelm Finance Inc v Ente Administrador Del Astillero Rio Santiago

This is an application by the Defendant to set aside an order made by Flaux J. on 25 November 2008 permitting substituted service on the Defendant. The grounds of the application are that the Defendant “is a State-owned entity (within the definition of a State for the purposes of the State Immunity Act 1978) and service on a State is only permitted via the method prescribed in s.12 of the State Immunity Act 1978 and rule 6.44 of the CPR, and accordingly the court has no jurisdiction either to make the Order or hear the proceedings unless and until validly served.”

By his order Flaux J. ordered that the Claimant was not obliged to adhere to the procedural requirements of s.12 of the State Immunity Act 1978 and rule 6.44 of the CPR. He gave the Claimant permission to serve the Claim Form by the alternative method of sending it by first class post to the Defendant’s solicitors Eversheds LLP pursuant to CPR 6.15. The basis upon which that order was made appears from the witness statement of Mark Terence O’Neil dated 18 November 2008. Mr. O’Neil informed the court that Field J. had granted permission for the service of proceedings on the Defendant out of the jurisdiction at its address in Buenos Aires, Argentina and that the Defendant’s solicitors Eversheds had taken the point that the Claimant was obliged to serve the proceedings only through diplomatic channels in accordance with s.12 of the State Immunity Act 1978 and/or CPR 6.44. He referred to s.14 of the State Immunity Act 1978 which excluded from the definition of State “any entity (hereinafter referred to as a separate entity) which is distinct from the executive organs of the government of the State and capable of suing and being sued” and submitted that the Defendant is a separate entity. He said that it is “a shipyard which entered into a shipbuilding contract with a private purchaser. It is not on any sensible view one of the executive organs of the government of the State”. By making his order Flaux J. accepted that submission but, because the application was ex parte, stated that the Defendant had the right to apply to set aside or vary the order.

The claim in this action is for a declaration that two Deeds arising out of a contract for the construction and sale of a ship are void. The shipbuilding contract described the Defendant as “a corporation organised and existing under the laws of Argentina” and the vessel to be built as a bulk carrier of about 27,000 DWT. Notwithstanding that the contract contains a condition precedent that the contract be approved by the Government of the Province of Buenos Aires the contract has every appearance of being a standard commercial contract.

S.12(1) of the State Immunity Act provides that any writ or other document required to be served for instituting proceedings against a State shall be served by being transmitted through the Foreign and Commonwealth Office to the Ministry of Foreign Affairs of the State. S.14(1) provides that references to a State

“include references to

a)

the sovereign or other head of that State in his public capacity;

b)

the government of that State;

c)

any department of that government,

but not to any entity (hereinafter referred to as a separate entity) which is distinct from the executive organs of the government of the State and capable of suing and being sued.”

The question for the court to determine is therefore whether the Defendant is “a State” or a “separate entity”. The Act refers to two qualities which a separate entity must possess, namely, that it is distinct from the executive organs of the government of the State and is capable of suing or being sued. Before examining the evidence on this question it is necessary to refer to the guidance in the authorities as to the nature of a separate entity in section 14 of the State Immunity Act.

In Kuwait Airways Corporation v Iraqi Airways [1995] 1 WLR 1147 at p.1158 Lord Goff expressed the view that it was probable that the expression “separate entity” was intended to refer to an entity “of a state” and that such construction was reinforced by the description of a separate entity being “distinct from the executive organs of the government of the State”. In Propend Finance v Sing [1997] EWCA Civ 1433 the Court of Appeal followed this view. Thus the fact that an entity may be created by the state does not by itself cause the entity not to be a separate entity.

In I Congresso del Partido [1983] 1 AC 244 Lord Wilberforce referred (at p.262) to the difference in international law between acta iure imperii and acta iure gestionis. The former are sovereign or public acts and the latter are acts of a private law character such as a private citizen might have entered into. The distinction is between “an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage” and activities outside that area and “within the sphere of governmental or sovereign activity” (at p.267). Lord Wilberforce observed (at p.258) that “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”. In that case a state trading enterprise was not a department of the Cuban state notwithstanding that it was subject to direction and control by the state which provided all the funds necessary for its operation.

In Propend Finance v Sing the Court of Appeal said that the concept of acta iure imperii was relevant to a determination of what bodies were part of the “State” and the “government” for the purposes of s.14(1) of the State Immunity Act. “Government” should be given a broad meaning commensurate with the concept of acta jure imperii. (Footnote: ¹) I therefore approach the phrase “department of government” and the phrase “executive organs of government” in s.14(1) with that guidance in mind.

In Trendtex Trading v Bank of Nigeria [1977] 1 QB 529 at pp.564 and 575 it was observed by the Court of Appeal that where an entity has been created by the state the absence of a clear expression of an intent to confer the status of a government department was said to be a pointer to the conclusion that such status was not the intent of the state.

Finally, in The Altair [2008] 2 Lloyd’s Rep. 90 Gross J. had to consider whether the Grain Board of Iraq was a department of the Ministry of Trade of the Republic of Iraq or was a separate entity. At paragraph 64 he cited the following principles from Dickson, Lindsay and Loonam, State Immunity: Selected Materials and Commentary:

Gross J. added:

“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’.”

Both parties adduced written evidence as to how the Defendant is viewed as a matter of Argentine law, in particular, whether the Defendant was “autarchycal” or economically independent. There was a considerable and lengthy dispute between the parties’ Argentine lawyers on this point. However, it is to be noted that whether or not the Defendant is “autarchycal” or economically independent according to Argentine law will not necessarily determine the question whether, in English law and for the purposes of s.14 of the State Immunity Act 1978, the Defendant is to be regarded as a department of government or a separate entity.

As from 1953 there was a shipyard known as Astilleros y Fabricas Navales del Estado (AFNE). Decree No.10.627 of 1953 created AFNE as a state enterprise, “dependent” on the Naval Department of the Argentine state and directed by a board of directors led by a senior official of the Navy. Article 2 of the decree provided that it was to construct both merchant and naval vessels. Decree No.10.874 of 1953 provided that Astillero Rio Santiago, which was also “dependent” on the Naval Department, was to form part of AFNE. Article 2 provided that it was to be involved in the Navy’s activities relating to the construction of war ships and merchant vessels. It was to be directed by a senior official or engineer of the Navy. (Footnote: ²)

It was however common ground that the Defendant was created in 1993. In that year the employees and assets of AFNE were transferred from the Ministry of Defence to the Province of Buenos Aires in preparation for privatisation of the shipyard. Article 4 of the Transfer Agreement provided that the Province of Buenos Aires “agreed to go ahead with the privatisation of the assets transferred.” Article 4.2 provided that once “the said privatisation is implemented, the Province State shall require and control that the capacity of the Shipyard or Productive Unit are effectively maintained for the construction and repairs of War Ships.”

It appears that the Transfer Agreement was approved by National Decree No.1787/93 and ratified by Law No.11.615 of the Province of Buenos Aires. Article 11 of that law provided that “any operative expenses as well as those of the transferred assets, including the costs of the personnel to be paid from this date will be borne by the Province of Buenos Aires.”

The Transfer Agreement having been approved both nationally and provincially it was necessary for the Governor of the Province of Buenos Aires to maintain the shipyard until privatisation. He did so by means of a Decree No.4538 dated 20 December 1993. The preamble to that decree stated that “it is necessary immediately to support actions leading to the maintenance of the productive continuity of the Shipyard until its definitive privatisation, due to the social importance of the company” and that it was “essential to give the Shipyard adequate capacity for this purpose by conferring on it economic independence until privatisation is completed.”

The decree provided as follows:

“Article 1: The creation of Ente Administrador del Astillero Rio Santiago in the jurisdiction of the Province of Buenos Aires as a State-Owned Economically Independent Entity.

Article 2: The Entity created shall have sufficient power to act either in public or private areas, within the areas of competence defined by this Decree. The Entity shall be domiciled in the city of Ensenada and shall be responsible to the Executive Power through the Ministry of Production.

Article 3: The objects of the Entity will be: (a) the faithful observance of the National Agreement signed on 26 August 1993, by which the Government transferred to the Province of Buenos Aires the personnel and assets of ASTILLEROS Y FABRICAS NAVALES DEL ESTADO SA (AFNE SA); and (b) the development, exploitation and marketing of its activities and those connected with the shipping industry, as well as performing any other activity within the basic-metal industries and in general; machinery and equipments, and the respective complements related to the categories indicated above.

Article 4: The Administration of the Economically Independent Entity will be exercised by a Board of Directors which – as proposed by the Ministry of Production – will be nominated by the Executive Power, and will be made up as follows:

(a)

A President whose remuneration will be equivalent to the pay of the Under-Secretary.

(b)

Four (4) Directors whose remuneration will be equivalent to the pay of the Province Director.

Article 5: The Entity shall administer and exploit the assets transferred by the National State, until the time it is privatised.

For the fulfilment of its objectives, the Entity will have the following attributions:-

(a)

To determine and carry out the commercial policy of the transferred Shipyard.

(b)

To sign agreements with local, provincial, national, international companies, persons or public or private entities for the compliance of the objectives indicated in this decree, notwithstanding the observance of the measures required by the legislation in force in this respect.

(c)

To contract the purchase of assets, construction of works or services, with adjustment to the provincial laws applicable in this subject.

(d)

To practice and perform the General Inventory of each of the assets transferred by the National State, with adjustment of the general provisions in this subject.

(e)

To administer the resources resulting from its activity, and apply them to the exploitation following the norms and subject to the Control Bodies.

(f)

To request a complete health examination to the transferred personnel in order to determine the possible labour incapacity of workers.

Article 6: The Shipyard shall submit to the Executive Power a draft copy of the Functional Organisation Chart required for the fulfilment of the entrusted functions.

Article 7: On the basis of strategic and political aspects derived from the Executive Power, the Shipyard shall submit an annual report of management, without prejudice to the audit and management control tasks carried out by the Ministry of Production.

Article 8: Each contract by the Shipyard will be made in accordance with the Accountancy Law and its regulations.

Article 9: Create the PROVINCIAL FUND OF ASTILLERO RIO SANTIAGO to be administered by the Shipyard and used for the financing of the expenses required for the fulfilment of the basic objectives that this decree imposes upon the Shipyard.

The PROVINCIAL FUND OF ASTILLERO RIO SANTIAGO will be formed from the following resources:

(a)

Those arising from the exercise of the attributions granted by this Decree.

(b)

Those stated by special legal acts.

(c)

Contributions and donations made by the Nation, the Province, municipalities and citizens.

(d)

Those arising from the credit use in accordance with the laws applicable to each case.

Article 10: The Executive Power will make all the modifications to the Budget and the budgetary system that are required for the fulfilment of this decree.

………………”

Thus the Defendant was created in 1993 to manage or administer the shipyard until it was privatised. I am told that the shipyard has not yet been privatised. However, the Defendant has carried on business as a shipyard. A schedule of contracts between the Defendant and Argentine government bodies to which I was referred shows that it builds and repair vessels for the Argentine Navy. But the shipbuilding contract dated 15 April 2003 which has given rise to the present dispute suggests that it also builds commercial vessels (the yard number of the hull being Hull No.075) as does the contract dated 12 March 1996 to build a 27,000 DWT bulk carrier which gave rise to a dispute between Milantic Trans SA (a Panamanian company owned by the Dutch shipping group Orient Shipping) and the Defendant.

The characteristics of the Defendant as revealed by the 1993 decree which created the Defendant may be summarised as follows. It is a state owned entity responsible to the Ministry of Production (article 1). Whilst it has a board of directors the board is proposed by the Ministry of Production and nominated by the Executive Power, which appears to be a reference to the government either of Argentina or of the Province of Buenos Aires (article 4). The Ministry of Production also carries out audit and management control tasks (article 7) and the Executive Power has power to modify the Defendant’s budget (article 10). The objects or purposes of the Defendant include the objects of the Transfer Agreement (managing the shipyard pending privatisation and preserving its capacity for building and repairing war ships) and the development, exploitation and marketing of the shipyard’s business (article 3). It has power to act in both the public and private sectors (article 2) and to determine and carry out the commercial policy of the shipyard (article 5(a)). It has power to sign agreements with public or private entities, including international companies, and to purchase assets or services (article 5(b) and (c)) The expenses required to fulfil its objectives come from the Provincial Fund of Astillero Rio Santiago which is funded by the income earned from managing the shipyard (article 9(a)) and by contributions from the state (article 9(c)).

Thus, whilst the Defendant is owned and to a significant extent controlled and financed by the state, its functions and activities appear to be those of a commercial shipyard which builds and repairs ships for both the Argentine Navy (and other governmental or public bodies) and private shipowners.

If the 1993 Decree were the only evidence as to the nature of the Defendant one would conclude that although it is a state owned shipyard controlled and financed to a significant extent by the state it appears to be an entity which is distinct from the executive organs of the government of the state in that it carries on the business or activity of a shipyard. That business or activity is such as a privately owned company might conduct and is not typically recognised as governmental or sovereign activity. That business or activity, together with the fact that the Defendant has power to sign agreements with public and private entities, indicates that it has the capacity to sue and be sued. The 1993 Decree is thus cogent evidence that the Defendant is, within the meaning of s.14(1) of the State of Immunity Act 1978, a separate entity and not a department of government.

However, the 1993 Decree is not the only evidence as to the nature of the Defendant. In 2006 an Argentine court was called upon to decide whether, in circumstances where Milantic Trans SA (a purchaser of a vessel built by the Defendant) had obtained a London arbitration award against the Defendant, that award could be enforced against the Province of Buenos Aires. It was held that it could be, notwithstanding that Counsel for the Province had argued that, having regard to the terms of the 1993 decree, the Defendant was “an entity separate from the provincial state, that the Yard has legal capacity and its own assets (Article 9), and accordingly cannot be equated with the province”. The court held that although the Defendant was “formally conferred with economic independence until privatisation could be effected (decree No.4583/93)…. the legal reality shows that in fact the said “independence” of [the Defendant] never materialised.” The reasoning underlying this conclusion centred upon the question whether the Defendant had the quality of “autarchy” or economic independence which the state intended to confer by article 1 of the 1993 decree. It was held that it did not and that in those circumstances the arbitration award could be enforced against the Province. The reasoning of the court may be summarised as follows:

This decision is plainly cogent evidence that the Defendant lacks the quality known in Argentine law as autarchy. The actual decision permitting the arbitration award to be enforced against the Province has been set aside on appeal but for reasons which do not affect the reasoning of the court on the question of autarchy.

The question therefore for this court is whether the Milantic decision means that the Defendant is not, as matter of English law, a separate entity within the meaning of s.14(1) of the State Immunity Act 1978.

The Defendant adduced expert evidence of Argentine law from Professor Ruben Miguel Citara, an Argentine lawyer who successfully argued in the Milantic case that the Defendant was not independent or autarchycal. One of the matters he addresses in his first witness statement is whether the Defendant “has the legal capacity to sue or be sued in its own name.” This is an essential quality of a separate entity as provided in s.14(1) of the State Immunity Act 1978.

Professor Citara dealt with this topic in several places in his first witness statement. He stated that because the Defendant is not an autarchycal entity it lacks legal personality and the capacity to sue or to be sued in its own name; see paragraph 14 of his first witness statement. He said that the Defendant was established by the State without legal capacity; see paragraphs 56-59. He said that the Defendant had no capacity to sue or be sued because (i) it must be represented by the Fiscalia de Estado (translated as Attorney General) and (ii) it has no legal standing and is therefore not autonomous or separate from the Province of Buenos Aires; see paragraphs 60-65.

The other essential quality of a separate entity mentioned in s.14 of the State Immunity Act is that it must be “distinct from the executive organs of the government”. Conversely it must not be a “department of that government”. This topic is dealt with by Professor Citara in his second witness statement. He refers to the Defendant as “a department” which “performs functions which are sovereign in nature”. It remains “no less a governmental organ or department of the Federal Republic of Argentina”; see paragraphs 9-11.

Professor Citara’s first reason for saying that the Defendant lacks the capacity to sue and be sued is that it is a conclusion which flows from the decision in Milantic that the Defendant is not autarchycal; see paragraph 14 of his first witness statement. Whilst this conclusion may at first sight seem to follow it is necessary to be cautious in drawing such a conclusion because the court in Milantic did not expressly deal with the question whether the Defendant had “the capacity to sue or be sued” in its reasoning. Indeed, the court referred to the argument of counsel for the Province being that the “joint and several responsibility of the Provincial State should be dismissed.” The use of that phrase suggests that the argument to be met was not that the Defendant was not liable to be sued but that the Province could also be sued for the debts of the Defendant. However, other language used, for example, whether the Province is “the holder of the legal relation on which the claim is based” and a reference to the opinion of the legal writer Miguel Marienhoff as to what “status” enables an entity to do (acquire rights and obligations and dispute a lawsuit) suggest that the argument was that the Province was liable and the Defendant was not. This lack of clarity makes it appropriate to exercise caution in drawing conclusions from the decision and to focus upon the reasoning for decision.

The court held that the Defendant lacked status because it “continues to be hierarchically dependant on the Executive Power.” This was because the functional organisational chart (or memorandum of association) had not been approved, the board of directors was nominated or designated by the Executive Power (article 4 of the 1993 Decree) and subsequent decrees (nos. 1045/04 and 1987/04) stated that “matters pertinent to the President would come under the responsibility of the Minister of Government and later of the Chief of the Under-Secretary of Co-Ordination of Public Policy of the Chief of Cabinet of the Province”. Thus the court was relying upon the circumstance that the Executive Power had a significant degree of control over the Defendant. However, it is not an obvious conclusion from the fact that the Defendant is hierarchically dependant on the Executive Power in the sense explained by the court that the Defendant lacks the capacity to sue or be sued. The circumstance that the Executive Power has control over the Defendant does not lead logically or necessarily to the conclusion that the Defendant lacks the capacity to sue or be sued.

It could be argued, based upon the reference made to the opinion of Marienhoff in the Milantic judgment, that if an entity lacks status and so lacks a capacity to acquire rights and obligations and to dispute a lawsuit it therefore lacks a capacity to sue and be sued. I am not however convinced that this argument is correct. (a) An argument based upon this extract from the opinion of Marienhoff has not been put in precisely these simple terms by Professor Citara. (Nor does the relevant passage from Marienhoff appear to have been translated in exhibit 6 to Professor Citara’s his first statement, although it is set out in the judgment.) By contrast other reasons (with which I shall deal) were put forward in his witness statement to support the proposition that the Defendant lacked the capacity to sue and be sued. (b) It is not apparent that Marienhoff was considering an entity such as the Defendant, namely, one which was created by decree and was intended to be autarchycal or economically independent but was not so in fact. (c) The reasoning in support of the conclusion that the Defendant lacks status, namely, that it is hierarchically dependant on the Executive Power, does not lead logically or necessarily to the conclusion that it lacks the capacity to sue and be sued. (d) I am sceptical that the argument can be right in circumstances where a capacity to sue and be sued is to be expected of the entity created by the 1993 decree, even if the intended quality of autarchy or economic independence was not in fact achieved. It is to be noted that the Defendant has a domicile and power to enter agreements.

The court also held that the Defendant lacked patrimony or assets because the Executive Power was required by statute 11.837 to act as guarantor of the Defendant in connection with bank guarantees issued in connection with the construction of vessels by the Defendant. It does not logically or necessarily follow from the absence of patrimony or assets in the sense explained that the Defendant lacks the capacity to sue or be sued. Indeed, the notion of the Executive acting as guarantor of the Defendant’s obligations to a bank suggests that the Defendant has the capacity to incur obligations.

I am therefore not persuaded by Professor Citara that it follows from the decision in Milantic that the Defendant lacks the capacity to sue or be sued.

Mr. Ruggiero, the Argentine lawyer instructed by the Claimant, has drawn attention to two decisions of higher courts in Argentina in which the Defendant has been sued as an independent entity. One was in June 2001 and the other was in August 2006; see paragraph 5 of his witness statement. Professor Citara does not dispute that the Defendant was sued as an independent entity in these cases. He merely describes them as “highly irregular” and decided before Milantic (which was decided in November 2006); see paragraphs 66-68 of his first witness statement. In his second statement at paragraph 41 he states that no issue as to the capacity to sue or be sued was raised in them. Nevertheless they are evidence that the Defendant can be sued. They are not commented upon in the reasoning in Milantic.

Professor Citara’s second reason for saying that the Defendant lacks the capacity to sue and be sued is that that the Defendant was established by the State without “legal capacity”; see paragraphs 56-59. But again, I am not convinced by his reasoning.

In paragraph 57 he relies on the Defendant being owned by the Provincial State and on all decisions being taken by the Province. However, it is not a logical or necessary inference from state ownership that the Defendant lacks the capacity to sue or be sued. Further, the court in Milantic did not say in terms that “all decisions [are] taken by the Province”. This appears to be a somewhat loose reference to the circumstance that the Defendant is hierarchically dependant on the Executive Power. It is not a necessary consequence from that that the Defendant lacks capacity to sue or be sued.

In paragraph 58 he says that the Defendant cannot conclude contracts in its own name and refers to the condition precedent in the shipbuilding contract in the present case that Government approval must be given to the contract. But that condition precedent does not indicate that the Defendant cannot conclude contracts in its own name. Indeed, the contract itself shows that the Defendant does conclude contracts in its own name.

Finally, Professor Citara’s says that the Defendant had no capacity to sue or be sued because (i) it must be represented by the Fiscalia de Estado (translated as Attorney General) and (ii) it has no legal standing and is therefore not autonomous or separate from the Province of Buenos Aires; see paragraphs 60-65.

As to the requirement that the Fiscalia de Estado represent the Province, its autarchycal entities and any other form of administrative decentralised body, I do not understand why it logically follows from that requirement that the Defendant cannot sue or be sued. No explanation is given by Professor Citara as to why that conclusion follows. If the conclusion were correct it would follow that the Province also had no capacity to sue or be sued since it too must be represented by the Fiscala de Estado.

As to the Defendant having no legal standing and being not autonomous or separate from the Province, reliance is placed on the fact that the Province “pays lawsuits brought against Astillero” and that “the Province is responsible for the payment of judgments”. Again, it is not a logical or necessary consequence of such matters that the Defendant cannot sue or be sued. On the contrary, the notion of “lawsuits brought against Astllero” suggests that the Defendant can be sued.

Reliance is also placed by Professor Citara upon the Law of Ministries No.13.757. However, that provides that the Ministry of Agrarian Affairs and Production is “responsible for the management control and promotion of port activities, construction industry and shipping repairs, as well as the intervention in the relations with the [Defendant].” That perhaps reflects Article 2 of the 1993 decree but does not indicate that the Defendant lacks the capacity to sue or be sued. Reliance is also placed on the Budget Statute but it is not explained why. Finally, reliance is placed on the fact that in order to pay salaries and judicial decisions the Defendant must apply to the Provincial State. But it does not follow from that that the Defendant lacks capacity to sue or be sued. (Footnote: ³)

I am therefore unconvinced by Professor Citara’s witness statements that the Defendant lacks the capacity to sue or be sued. I consider, on the balance of probabilities, that the Defendant has the capacity to sue and be sued:

I therefore find on the balance of probabilities that the Defendant is an entity which has the capacity to sue and be sued. I do not consider that the decision or reasoning in the Milantic case compels a different conclusion.

In reaching this conclusion I have not found it necessary to rely upon the expressions of opinion by Mr. Ruggiero. It is clear that his opinion supports the conclusion which I have reached but I did not feel able simply to accept his opinion. The manner in which he put the Milantic decision to one side on the grounds that it was a first instance decision which had been set aside on appeal without considering the reasoning in the decision at first instance or the reasons for the appellate decision dissuaded me from placing compete confidence in the views he expressed.

The second essential quality of a separate entity mentioned in s.14 of the State Immunity Act is that it must be “distinct from the executive organs of the government.”

Professor Citara refers to the Defendant as “a governmental organ or department of the Republic of Argentina”. However, the Defendant is not described as such in the 1993 decree which created it. On the contrary it is described as a state-owned economically independent entity. The Argentine court in the Milantic case found that the said “independence” (or autarchy) was not in fact created but did not consider the nature of the entity otherwise created by the 1993 decree beyond saying that there was “just decentralisation …………..a form of organisation consisting in the assignment of functions of the central authority to an organ or an officer to exercise them freely, but they continue to be hierarchically subject to the central organ…”. Importantly, there was no analysis by the court of the nature of the functions of the Defendant, in particular whether they are of a sovereign nature or distinct from the executive organs of the government of the state. No doubt that was because such issue was not a matter which had to be determined by the court. It is however an issue which must be addressed by this court because it is relevant to the application of s.14(1) of the State Immunity Act; see Propend Finance v Sing [1997] EWCA Civ 1433.

Professor Citara appears to say that, shorn of the characteristic of autarchy, the Defendant “remains” a department of government. Consistently with the decision in the Milantic case he describes the Defendant as a “decentralised body”. He then expresses his opinion that the Defendant performs “functions which are sovereign in nature” and is not a commercial shipyard. It is striking that his opinion as to the character of the Defendant’s functions makes no reference to the construction of merchant ships; see paragraphs 9-11 and 26-33 of his second witness statement. However, the shipbuilding contract in this case and the shipbuilding contract in the Milantic case show that this must be a significant part of the Defendant’s work. That is the normal work of a commercial shipyard. Indeed, in his argument in the Milantic case he explained that the shipyard was required to look for purchasers of its ships abroad because the economic situation in the 1990s, including the liquidation of state companies, left it without clients. Yet Professor Citara says there is no basis for Mr.O’Neil’s description of the Defendant as a commercial shipyard. This firm dismissal of Mr.O’Neil’s description of the Defendant in circumstances where there is, at the very least, a basis for it does not encourage me to place confidence in the opinion expressed by Professor Citara as to functions of the Defendant being “sovereign in nature”.

In any event, his opinion does not seem to me to be right, at any rate as a matter of English law. As I have said earlier in this judgment the functions of the Defendant do not appear to me to fall within Lord Wilberforce’s description of sovereign or public acts. In Kuwait Airways Corporation v Iraqi Airways [1995] 1 WLR 1147 at p.1160 B Lord Goff said:

“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.”

Whilst the Defendant does work pursuant to contracts with the Argentine government which is of benefit to the Argentine government and which the government requires as a sovereign, for example, the building or repair of warships, it does not follow that the construction or repair work which the Defendant does pursuant to contract with the government is sovereign in nature or not “distinct from the executive organs of the government of the state”. On the contrary the work of the Defendant both for the Argentine Navy and for commercial shipowners appears to me to be that which a private shipyard does.

It was submitted on behalf of the Defendant that the commercial nature of the specific transaction between the parties was “completely irrelevant” because states and state entities engage in commercial activities without altering their status as sovereign entities. However, the nature of the Defendant’s functions have to be examined in order to decide whether the Defendant is, within the meaning of s.14 of the State Immunity Act 1978 as explained by the English authorities to which I have referred, a department of government or an entity distinct from the executive organs of the government of the state.

For these reasons I am unconvinced by Professor Citara’s opinion that the Defendant is a department of government, at any rate in the sense in which that expression is used in s.14(1) of the State Immunity Act 1978. On the contrary I consider, on the balance of probabilities, that it is not a department of government and is an entity distinct from the executive organs of the government of the State, for these reasons:

I have not overlooked the facts that the Defendant is owned by the state, that the government nominates the board of directors, that the Chief of Cabinet of the Province of Buenos Aires was assigned the responsibilities of the President of the board (Footnote: ⁴), that the Defendant is responsible to the government through the Ministry of Production or that financial support is provided by the government. These factors show that the entity is “of the state” but the English authorities to which I have referred make clear that such characteristics are insufficient to make the Defendant a department of government or an entity which is not distinct from the executive organs of government of the state in circumstances where its functions or activities are those which a private company might have in trade or commerce.

Having considered, as best I can on the material placed before the court, the constitution, function, powers and activities of the Defendant and of its relationship with the state I have concluded that the Defendant is a separate entity within the meaning of s.14 of the State Immunity Act 1978. It follows that the order made by Flaux J. for alternative service on Eversheds was not in conflict with s.12 of the State Immunity Act 1978.

At the hearing it was submitted on behalf of the Defendant that the order made by Flaux J. should also be set aside on the grounds that there had been a failure to disclose to the judge that, although the Claimant asserted that the Deeds in question contained English jurisdiction clauses, the Claimant did not inform the judge that there was a dispute between the parties as to whether the Deeds in fact contain a English jurisdiction clause of the type alleged (as opposed to an agreement to London arbitration with the English court having supervisory jurisdiction). This ground was not relied upon in the Application Notice. Although the witness statement in support of the application said that full disclosure of the background to the parties’ disputes had not been made to the judge, the particular complaint now relied upon was not identified as such. The complaint in the witness statement was understood to be a complaint that the Claimant had not informed the judge of the arbitration under the shipbuilding contract and of the Defendant’s intention to seek a stay of this claim on the grounds that it should be referred to an existing arbitration. A witness statement of Mr. O’Neil responded to that complaint.

It was submitted on behalf of the Claimant that if there was any force in the complaint now made that would be a ground for challenging the order made by Field J. for service out of the jurisdiction rather than the order made by Flaux J. permitting alternative service on Eversheds. There seems to me to be force in this submission. First, the question whether there was an English jurisdiction clause was relevant to the application before Field J. It was not relevant to the application before Flaux J. Secondly, paragraph 8 of the witness statement of Mr. O’Neil which is the subject of complaint states that that the ground of jurisdiction relied upon before Field J. was that the Deeds contained an English jurisdiction clause. That was indeed the ground relied upon before Field J.

I therefore do not accede to the submission that the order made by Flaux J. should be set aside on the grounds of non-disclosure. No application was made before me that the order of Field J. should be set aside on the grounds of non-disclosure.

Conclusion

For the reasons which I have endeavoured to express I must dismiss the application to set aside the order of Flaux J.