The Altair [2008] EWHC 612
This is not an attempt to open a political debate as to the independence or otherwise of the Iraqi government! Instead it is a discussion of the recent UK Commercial Court decision in Ministry of Trade of the Republic of Iraq and Another v. Tsavliris Salvage (International) Ltd (“The Altair”) [2008] EWHC 612 (Comm), which decided some interesting questions concerning a shipowner’s right to bind owners of cargo to salvage agreements and whether the defence of state immunity is available in that context.
The case involved a challenge by the Ministry of Trade of the Republic of Iraq and the Grain Board of Iraq of an arbitration award on the grounds that: (1) there was no valid arbitration agreement that bound them; and (2) that the Grain Board, the cargo interest under the award, was immune from arbitration proceedings as it was part of the Ministry of Trade, and was entitled to claim state immunity.
The salvage agreement
On 28 August 2006 the Altair, laden with a cargo of wheat, grounded in Kuwaiti waters close to Umm Qasr. On 1 September 2006 the Owner of the vessel entered into a salvage agreement with Tsavliris on a Lloyd’s Open Form (“LOF”). The LOF was signed at Piraeus by a representative of Tsavliris and by an employee of the vessel’s Managers acting on behalf of the Shipowners. The salvage services were successfully carried out and the vessel was refloated on 7 September 2006.
The arbitration proceedings
In the arbitration proceedings in relation to the LOF, Tsavliris asserted that the salvage agreement bound the Owners of the cargo laden onboard the salved vessel and that the Grain Board was the owner of that cargo and was liable for cargo’s proportion of salvage.
It was held by the Tribunal that the cargo was the property of the Grain Board, that the Grain Board was a separate entity from the Government of Iraq, that the cargo was a commercial cargo, and that the Grain Board had agreed to arbitration because it was a party to the LOF by virtue of Article 6.2 of the 1989 Salvage Convention, which provided:
“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.”
The Arbitrator went on to find that the Grain Board should pay US$496,510.87, plus interest and costs, in respect of cargo’s contribution to the cost of salvage services.
The Commercial Court: arguments on jurisdiction
The Judge found that they were, and reasoned as follows. Section 224 of the Merchant Shipping Act 1995 incorporates the provisions of the Salvage Convention into UK law. As the LOF provided for arbitration in London and the UK is a State Party to the Salvage Convention, the Salvage Convention applies to LOF arbitration proceedings. The Court noted that it was irrelevant that Iraq has neither ratified nor acceded to the Salvage Convention, as this is not the test for the application of the provisions of that Convention to this matter.
Article 6.2 of the Salvage Convention gave the Master and Owner express authority to conclude salvage contracts on behalf of the Owners of cargo carried onboard the vessel. It was not necessary (as was argued by the Iraqi appellants), that the contract must be concluded by the Master or Owner personally, or by the Owners’ employees, rather than the Managers’ employees. The Owners of the cargo were therefore bound by the LOF. On the evidence the Judge went on to find that the Grain Board was the Owner of the cargo and, as a consequence, a party to the LOF. Therefore, subject to any argument about state immunity, the Arbitrator did have jurisdiction to make an award against the Grain Board for a contribution to the Salvor’s reward for their services.
The Commercial Court: arguments on immunity
The second issue of interest was whether the Grain Board was immune from arbitration proceedings on the basis of state immunity. The Judge began by considering s.9(1) of the UK’s State Immunity Act 1978, which provides:
“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.”
By virtue of the operation of article 6.2 of the Salvage Convention, the Managers, as agents of the Shipowners, concluded the LOF on behalf of the Grain Board. There could be no dispute that the LOF was agreed in writing. Accordingly, it followed that the Grain Board agreed in writing to arbitration in accordance with the LOF, as a result of which the challenge on the ground of state immunity failed.
The Judge commented that this finding reflected the strong maritime policy interest in rewarding salvors: there is no unfairness in a State, having enjoyed the benefit of salvage services, being required to pay for them. In the words of Lord Wilberforce in an earlier case on state immunity, to require a state in such circumstances to honour an arbitration award is “neither a threat to the dignity of that state, nor any interference with its sovereign functions” (I Congreso [1983] AC 244, 262).
The challenge to the arbitration award ended there but the Judge went on to consider the position under s.14 of the State Immunity Act in case there was a different result, which might have had an effect on enforcement. Under s.14, if the Grain Board was a ‘separate entity’ distinct from the Ministry of Trade, it would be immune from jurisdiction if the proceedings related to anything done by it in the exercise of sovereign authority and the circumstances were such that a state would have been immune. On this issue, it was argued that, although it was not an aid cargo, the cargo was intended for “public distribution” in Iraq, that it had not been acquired for commercial purposes and that this was not a normal government commercial transaction. The Judge confirmed that, even if the motive or purpose of the acquisition of the cargo had a governmental interest, that is not the test. The relevant test for immunity under section 14(2) went to the character of the act, rather than its motive or purpose. The act of entry into the LOF did not have the character of a governmental act.
Finally, the Judge found that Tsavliris was entitled to enforce the award in the same manner as a judgment and succeeded in its application for a freezing injunction. On the latter application, the judge held that on the evidence there was a real risk that in the absence of a freezing injunction the award would go unsatisfied: the Grain Board had refused to provide security pursuant to the LOF, had refused to participate in the arbitration, had failed prior to the hearing to make any offer to honour the award on a basis which protected its position for the purposes of the hearing, and had failed throughout the hearing to make any offer of an undertaking to honour the award in the event that its arguments were unsuccessful.
Conclusions
What, then, are the lessons to be learned from this case? It underlines the authority of Shipowners, their employees and agents, to enter into LOF contracts on behalf of cargo interests, no matter who they may be, including State parties. Consistent with the trend in public international law towards a restrictive approach to sovereign immunity, it also confirmed that a state entity, such as the Iraqi Grain Board, cannot shelter behind the cloak of state immunity (even, as in this case, where the purpose of the shipment was for distribution to the Iraqi population, rather than profit), where the character of the act in respect of which it claims immunity is not a governmental one. As the act of entering into a salvage agreement is not governmental in character (put another way, it is an act which any private citizen can perform), state entities cannot claim state immunity in respect of that act. Finally, the Judge in this case had no hesitation in granting an injunction to freeze State assets where the State had previously shown no intention to pay up voluntarily.