Tsavliris Salvage (International) Ltd v The Grain Board of Iraq

Under State Immunity Act 1978, a state-owned entity with separate legal personality, financial and administrative independence, and control over its day-to-day business may be a separate entity rather than a government department. Whether conduct is sovereign depends on its character, not its governmental purpose or motive. A salvage agreement made by the master, owner or an authorised agent may bind cargo owners under article 6.2 of the 1989 Salvage Convention. Where the cargo owner is thereby party to a written arbitration agreement, section 9 removes immunity from proceedings relating to the arbitration. A commercial cargo remains commercial for the purposes of section 10(4), despite intended subsidised distribution.

Tsavliris conducted salvage services for the vessel Altair and its wheat cargo. The arbitrator found that the Grain Board of Iraq owned the cargo, was party to the Lloyd’s salvage agreement, and was liable for salvage remuneration. The Ministry of Trade and the Grain Board challenged the award under sections 67 and 72 of the Arbitration Act 1996 on jurisdiction and state-immunity grounds.

Tsavliris also sought enforcement of the award under section 66 and a freezing injunction. The central issues were whether the cargo owners were bound by the salvage agreement, whether the Grain Board was the cargo owner and a separate entity, whether any statutory immunity applied, and whether enforcement protection and a freezing order should be granted.

1. Jurisdiction. The cargo owners were bound by the salvage agreement. Article 6.2 of the International Convention on Salvage 1989, having force of law through section 224 of the Merchant Shipping Act 1995, gives the master or vessel owner authority to conclude salvage contracts on behalf of cargo owners. That authority may be exercised through authorised employees of managers or other agents. The provision displaced the narrower agency-of-necessity approach in The Choko Star [1990] 1 Lloyd’s Rep. 516.
2. The Grain Board was the owner of the cargo. Its separate legal personality, functions, contractual documents, communications and commercial role supported that conclusion. It was therefore a party to the salvage agreement and the arbitrator had jurisdiction.
3. Section 9. The Grain Board had agreed in writing to submit disputes to arbitration. Its agreement was made through authorised agents and satisfied the broad writing requirement in section 5 of the Arbitration Act 1996. No additional requirement of personal signature or direct agreement by the state was warranted. The immunity challenge therefore failed under section 9 alone.
4. Section 14. Applying the guidance in Trendtex Trading v Bank of Nigeria [1977] 1 QB 529, Czarnikow Ltd v Rolimpex [1979] AC 351 and I Congreso del Partido [1983] AC 244, the Grain Board was a separate entity. State ownership and control did not make it a government department. Its entry into the salvage agreement was not an act done in the exercise of sovereign authority. The relevant question was the character of the act, not its governmental purpose, consistently with Kuwait Airways Corpn v Iraqi Airways Co [1995] 1 WLR 1147.
5. Section 10. Although academic, the cargo was in use for commercial purposes when salvaged. Its purchase and shipment were commercial, and intended subsidised distribution did not alter that status.
6. The award could in principle be enforced as a judgment. A freezing injunction was granted in principle because there was a very real risk of non-payment, applying Ninemia v Trave [1983] 1 WLR 1412. The precise terms and interest calculation remained to be settled.

First-instance decision. The judgment records no prior appellate decision in this litigation.