A-576-84
Owners and all those interested in the cargo ex the
ship Atra, Satkab Co., Ministry of Energy, Islamic
Republic of Iran (Appellant) (Defendant)
v.
Lorac Transport Ltd. (Respondent) (Plaintiff)
INDEXED AS: LoRAC TRANSPORT LTD. V. ATRA (THE)
Court of Appeal, Pratte, Urie and Hugessen JJ.—
Fredericton, June 4; Ottawa, June 30, 1986.
International law — Sovereign immunity — Appeal from
trial judgment denying Iran's claim to sovereign immunity —
Sale of goods to Iranian government — Transport not com
pleted due to warlike conditions in Persian Gulf — Action for
extra costs incurred by carrier pursuant to bill of lading —
Absolute doctrine of sovereign immunity discredited in Eng-
land — Supreme Court of Canada not adopting restrictive
doctrine of sovereign immunity, but leaving-question open —
Immunity limited to cases where foreign state's involvement in
subject-matter of suit of truly public law nature as integral
part of exercise of sovereign governmental functions — Trans
actions herein of ordinary commercial, private law nature —
Iran also not able to claim immunity by virtue of State
Immunity Act — State Immunity Act, S.C. 1980-81-82-83,
c. 95, s. 7(2).
Construction of statutes — State Immunity Act adopted
after institution of proceedings, but prior to assertion of claim
of sovereign immunity — No transitional provisions —
Applies to any claim of sovereign immunity made after coming
into force — Presumption against retrospective application of
statutes not applicable where statute attaching consequences to
status existing prior to enactment and continuing afterwards
— Sovereignty is status — State Immunity Act, S.C. 1980-
81-82-83, c. 95, s. 7(2).
This is an appeal from the trial judgment, refusing to give
effect to the appellant's claim to sovereign immunity. Domtar
Inc. sold utility poles to the Ministry of Energy of the govern
ment of Iran. Carriage under the contract of affreightment was
never completed due to warlike conditions in the Persian Gulf.
The poles were offloaded in Saint John. The action claims extra
costs alleged to have been incurred by the carrier, and owed to
it by the holder of the bill of lading and the owner of the cargo
pursuant to the terms of the bill of lading. The Trial Judge held
that the doctrine of sovereign immunity could not apply since
the underlying subject-matter of the action possessed all the
attributes of a private commercial or trading transaction and
fell outside the sphere of governmental or sovereign activity.
The issues are whether sovereign immunity is absolute or is
restricted to acts having a governmental or State function, and
whether the transaction underlying the respondent's claim has
that function.
Held, the appeal should be dismissed.
Traditionally, the doctrine of sovereign immunity operated as
an absolute bar to any proceedings taken against a State in the
courts of another State. The doctrine of absolute sovereign
immunity is now wholly discredited in England. English courts
have adopted the restrictive doctrine of sovereign immunity,
which limits immunity to those cases where the foreign State's
involvement in the subject-matter of the suit is truly of a public
law nature as an integral part of the exercise of its sovereign
governmental functions. In Canada, the case law has not come
quite as far. In two cases, the majority of the Supreme Court of
Canada, although offered the opportunity to adopt a restrictive
view, declined to do so, but left the question open. Laskin J., as
he then was, speaking for the minority, was strongly of the view
that Canada should adopt the restrictive view of sovereign
immunity. The Quebec Court of Appeal has also opted for the
restricted doctrine. Both authority and reason dictate the adop
tion of a restrictive view of sovereign immunity. To determine
whether the transaction was a commercial activity one should
refer to the nature of the State transaction or the resulting legal
relationships, and not to the motive or purpose of the State
activity: Claim against the Empire of Iran Case (1963), 45
I.L.R. 57 (F.R.G. F.C.C.). The agreement of purchase and
sale, as well as the contract of affreightment and the bill of
lading, are all ordinary commercial, private law transactions.
The poles were to be delivered to State-owned electrical utility
companies for use in the distribution of electrical energy.
Nothing in this is of other than a strictly private law character.
This litigation does not put in question the authority or dignity
of the government of Iran or interfere with its sovereign or
governmental functions. Iran cannot claim immunity.
Subsequent to the institution of proceedings, but prior to the
assertion of the claim of sovereign immunity, the State
Immunity Act was adopted. Subsection 7(2) provides that a
foreign state is not immune from the jurisdiction of a court in
any proceedings in an action in rem if, at the time the proceed
ings were commenced, the cargo and the ship carrying it were
being used in a commercial activity. The statute applies in
respect of any claim of immunity made after it has come into
force. The presumption against retrospective application of
statutes does not apply where the statute attaches consequences
to a status which may have existed prior to the enactment, but
which continues to exist afterwards. Sovereignty is a status. If
the status continues, but the immunity is declared no longer to
attach, it is gone absolutely and not only with respect to
matters subsequently taking place. The Act applies and Iran is
not immune from the Court's jurisdiction.
CASES JUDICIALLY CONSIDERED
APPLIED:
Philippine Admiral (Owners) v. Wallem Shipping (Hong
Kong) Ltd., [1977] A.C. 373 (P.C.); Trendtex Trading
Corporation v. Central Bank of Nigeria, [ 1977] 1 Lloyd's
Rep. 581; [1977] Q.B. 529 (C.A.); I Congreso del Par-
tido, [1981] 3 W.L.R. 328; [1981] 2 All ER 1064 (H.L.);
Claim against the Empire of Iran Case (1963), 45 I.L.R.
57 (F.R.G. F.C.C.).
CONSIDERED:
Compania Naviera Vascongado v. Steamship "Cristina",
[1938] A.C. 485 (H.L.); Dessaulles v. The Republic of
Poland, [ 1944] S.C.R. 275; Flota Maritima Browning de
Cuba S.A. v. Republic of Cuba, [1962] S.C.R. 598;
Gouvernement de la République Démocratique du Congo
v. Venne, [1971] S.C.R. 997.
REFERRED TO:
Zodiak International Products Inc. v. Polish People's
Republic (1977), 81 D.L.R. (3d) 656 (Que. C.A.).
COUNSEL:
M. Robert Jette and Frederick A. Welsford
for (appellant) (defendant).
Gerald M. Lawson and Christopher M.
Correia for (respondent) (plaintiff).
SOLICITORS:
Clark, Drummie & Company, Saint John, for
(appellant) (defendant).
Lawson & Lawson, Saint John, for (respon-
dent) (plaintiff).
The following are the reasons for judgment
rendered in English by
HUGESSEN J.: This is an appeal from a judg
ment of McNair J. in the Trial Division [[1985] 1
F.C. 459], by which he refused to give effect to
appellant's claim to sovereign immunity.
The action as originally framed was in rem
against a cargo of utility poles. The poles had been
sold by Domtar Inc. pursuant to a contract for
their supply and delivery. The purchaser under
that contract is described as follows:
The Ministry of Energy, Sherkate Sahami Sakht Va Tahiehe
Kalaye Bargh (SATKAB CO) hereunder called "SATKAB
COMPANY".
It is common ground that the Ministry of
Energy referred to is a ministry of the government
of Iran.
Pursuant to the terms of the contract for the
purchase and sale of the poles, Domtar arranged to
have them transported in the respondent's ship
under a contract of affreightment evidenced by the
issuance of a bill of lading. Carriage under that
contract was never completed. Before the ship (the
Atra) ever left the port of Saint John, warlike
conditions in the Persian Gulf caused respondent
and its master to form the opinion that delivery
could not safely be made to the designated port of
discharge. After some time, the parties having
failed to agree on an alternate port of discharge,
the poles were offloaded the Atra still in Saint
John. The action claims extra costs and expenses
alleged to have been incurred by the carrier and
owed to it by the holder of the bill of lading and
the owner of the cargo pursuant to the terms of the
bill of lading.
By order of Walsh J. dated May 22, 1981, leave
was given to "Satkab Co., Ministry of Energy,
Islamic Republic of Iran" to file a conditional
appearance for the purpose of objecting to the
jurisdiction of the Court and the style of cause was
amended so as to add "Satkab Co., Ministry of
Energy, Islamic Republic of Iran" as named
defendants. Subsequently, on January 7, 1982, the
defendant cargo, which had been arrested at the
time of the commencement of the suit, was
released on the posting of security in the form of a
bank guarantee. Much later, on May 9, 1983, a
conditional appearance was filed, to be followed,
on August 9, 1983, by a notice of motion seeking
the dismissal of the action on, amongst others, the
grounds that
... the cargo ex the Ship "Atra" which was placed under arrest
and which is the subject matter of the within action is the
property of the sovereign state of the Islamic Republic of Iran
and is, therefore, immune from the jurisdiction of this Honour
able Court.
In the judgment presently under appeal,
McNair J. bases his dismissal of the appellant's
motion on two grounds, the first being that the
doctrine of sovereign immunity could not apply in
the circumstances since the underlying subject-
matter of the action [at page 479]:
... possesses all the attributes of a private commercial or
trading transaction and falls clearly outside the sphere of
governmental or sovereign activity.
As an alternate basis for his decision, McNair J.
examined the corporate status of Satkab Co. and
concluded that its role was not that of a mere
functionary of the State of Iran. Nor, in his view,
was Satkab the alter ego or emanation of the
government of Iran.
Although the question of the precise relationship
of Satkab Co. to the government of Iran was the
subject of a good deal of evidence and argument
both here and below and formed, as I have indicat
ed, one of the grounds upon which McNair J.
decided as he did, it is, in my opinion, irrelevant to
the outcome. Whether Satkab be independent or
an integral part of the Iranian Ministry of Energy,
it is quite clear, both from the terms of the con
tract with Domtar and from the designation of the
defendants in the amended style of cause, that the
Ministry of Energy was itself a party to the con
tract and is presently a party to the action. Wheth
er or not Satkab is a part of the government of
Iran, the Ministry of Energy is, and is entitled to
assert whatever rights to sovereign immunity that
government may have.
As the matter appears to have been viewed by
the parties and argued before us, the principal
question arising on this appeal was, accordingly,
the correctness of McNair J.'s view that the com
mercial nature of the transaction operated to fore
close any claim to sovereign immunity on the part
of the government of Iran. That question, in its
turn, has two components, namely, whether sover
eign immunity is absolute or is restricted to acts
having a governmental or State function and,
secondly, whether the transaction underlying the
respondent's claim has that function.
While it is nowhere expressly so stated, both
McNair J. and the parties appear to have been of
the view that these questions had to be answered
as at the time of the issuance of the writ and the
arrest of the cargo. Assuming for the moment that
this view is correct, I am satisfied that McNair J.
reached the right conclusion.
The doctrine of sovereign immunity is one which
has undergone a rapid transformation both in
international law and, by the incorporation or
adoption of the latter, in the domestic law of most
of the countries of the western world.
The traditional view of sovereign immunity was
that it operated as an absolute bar to any proceed
ings taken against a State in the courts of another
State. It finds its classic expression as lately as
1938 in the proposition enunciated by Lord Atkin
in Compania Naviera Vascongado v. Steamship
"Cristina", [ 1938] A.C. 485 (H.L.), as follows [at
page 490]:
... the courts of a country will not implead a foreign sovereign,
that is, they will not by their process make him against his will
a party to legal proceedings whether the proceedings involve
process against his person or seek to recover from him specific
property or damages.
That view of the law finds an echo in this
country, equally eloquent and equally absolute, in
the words of Taschereau J. speaking for the Court
in Dessaulles v. The Republic of Poland, [1944]
S.C.R. 275 [at page 277]:
[TRANSLATION] It is beyond question that a sovereign State
cannot be sued in a foreign court. This rule is based on the
independence and dignity of States and has always been
observed as a matter of international comity. It has also been
adopted by the courts as the domestic law of all civilized
countries.
Notwithstanding the authority of Lord Atkin
and the apparent inflexibility of the rule he enun
ciated, the doctrine of absolute sovereign immuni
ty is now wholly discredited in England. Without
tracing the full history of the process by which the
courts of that country have brought themselves
into step with most of the rest of the world, it is
enough to note that, in succession, the Privy Coun
cil (Philippine Admiral (Owners) v. Wallem Ship
ping (Hong Kong) Ltd., [1977] A.C. 373), the
Court of Appeal (Trendtex Trading Corporation
v. Central Bank of Nigeria, [1977] 1 Lloyd's Rep.
581; [1977] Q.B. 529), and the House of Lords
itself (I Congreso del Partido, [1981] 3 W.L.R.
328; [1981] 2 All ER 1064) have now unreserved
ly adopted what is called the restrictive doctrine of
sovereign immunity. That doctrine, briefly stated,
limits immunity to those cases where the foreign
State's involvement in the subject-matter of the
suit is truly of a public law nature as an integral
part of the exercise of its sovereign governmental
functions.
In this country, the case law has not as yet come
quite as far. I have previously mentioned the Des-
saulles case, in which the Supreme Court
appeared to embrace unreservedly the absolute
doctrine. In two subsequent cases, Flota Maritima
Browning de Cuba S.A. v. Republic of Cuba,
[1962] S.C.R. 598, and Gouvernement de la
République Démocratique du Congo v. Venne,
[1971] S.C.R. 997, the Court, although offered
the opportunity to adopt a restrictive view of sover
eign immunity, declined to do so and decided the
case on other grounds. In each case, however, the
majority of the Court was careful to leave the
question open. Thus in the Flota Maritima case,
Ritchie J. said [at page 608]:
With the greatest respect for those who hold a different view,
I do not find it necessary in the present case to adopt that part
of Lord Atkin's judgment in The Cristina, supra, in which he
expressed the opinion that property of a foreign sovereign state
"only used for commercial purposes" is immune from seizure
under the process of our Courts, and I would dispose of this,
appeal entirely on the basis that the defendant ships are to be
treated as (to use the language of Sir Lyman Duff) "the
property of a foreign state devoted to public use in the tradi
tional sense", and that the Exchequer Court was, therefore,
without jurisdiction to entertain this action.
In the same vein, the same learned Judge said,
in the République Démocratique du Congo case
[at page 1008]:
Similarly in the present case, with the greatest respect for those
who hold a different view, I am of opinion that the contract
here sought to be enforced to which the appellant's diplomatic
representative and one of its departments of government were
parties, was a contract made by a foreign sovereign in the
performance of a public act of state and that whatever view be
taken of the doctrine of sovereign immunity, it was a matter in
respect of which the Republic of the Congo cannot be implead-
ed in our courts. I would allow this appeal on that ground.
By contrast with the caution expressed by the
majority, Laskin J., as he then was, speaking for
the minority in the République Démocratique du
Congo case, was strongly of the view that this
country should now adopt the restrictive view of
sovereign immunity. Quoting the same words as I
have reproduced above from Taschereau J.'s deci
sion in Dessaulles, he went on to point out why the
rule there enunciated could no longer be justified
[at pages 1016-1017]:
I make two observations on this statement. First, it is clear
that the absolute doctrine is not today part of the domestic law
"de tous les pays civilisés". Second, neither the independence
nor the dignity of States, nor international comity require
vindication through a doctrine of absolute immunity. Indepen
dence as a support for absolute immunity is inconsistent with
the absolute territorial jurisdiction of the host State; and
dignity, which is a projection of independence or sovereingty,
[sic] does not impress when regard is had to the submission of
States to suit in their own courts. The Supreme Court of the
United States has exposed the fraily [sic] of these consider
ations by allowing a counterclaim to be pursued against a
sovereign State which invoked the jurisdiction of a domestic
court: see National City Bank of New York v. Republic of
China, supra, at p. 364. Nor is comity any more realistic a
foundation for absolute immunity, unless it be through treaty.
It is not correct to say, as did Lord Wright in The Cristina,
supra at p. 502, that international comity or courtesy has
ripened into a general principle of international law that sup
ports absolute immunity. The former rule of practice and
reciprocity in this respect has been abandoned. I should observe
that another former prop of absolute immunity, that of
extraterritoriality, which was in the main used to exclude
domestic jurisdiction over foreign public ships, has long been
recognized as a spent fiction ....
Those words themselves find echo in the leading
speech of Lord Wilberforce in I Congreso del
Partido, supra [at pages 336 W.L.R.; 1070 All
ER]:
The relevant exception, or limitation, which has been
engrafted upon the principle of immunity of states, under the
socalled "restrictive theory," arises from the willingness of
states to enter into commercial, or other private law, transac
tions with individuals. It appears to have two main foundations:
(a) It is necessary in the interest of justice to individuals having
such transactions with states to allow them to bring such
transactions before the courts. (b) To require a state to answer
a claim based upon such transactions does not involve a chal
lenge to or inquiry into any act of sovereignty or governmental
act of that state. It is, in accepted phrases, neither a threat to
the dignity of that state, nor any interference with its sovereign
functions.
Finally, I would note that, in the most recent
appellate Court pronouncement on this subject in
this country of which I am aware, the Quebec
Court of Appeal has opted strongly and unequivo
cally for the restricted doctrine (Zodiak Interna
tional Products Inc. v. Polish People's Republic
(1977), 81 D.L.R. (3d) 656).
In my view, it would be presumptuous for me to
attempt to add anything to the passages I have just
quoted from Laskin J. and Lord Wilberforce. They
establish to my satisfaction that both authority
and reason dictate the adoption of a restrictive
view of sovereign immunity in Canada.
Assuming that I am right in this opinion, the
question is then to know whether the involvement
of the government of Iran in the present suit
results from an activity of a commercial or trading
nature (jure gestionis) or one of governmental
function (jure imperii). One of the clearest state
ments of the test is in the decision of the Federal
Constitutional Court of the German Federal
Republic in the case of the Claim against the
Empire of Iran Case (1963), 45 I.L.R. 57, quoted
with approval in I Congreso del Partido, supra, as
follows [at page 80]:
As a means for determining the distinction between acts jure
imperii and jure gestionis one should rather refer to the nature
of the State transaction or the resulting legal relationships, and
not to the motive or purpose of the State activity. It thus
depends on whether the foreign State has acted in exercise of
its sovereign authority, that is in public law, or like a private
person, that is in private law.
The Iranian government comes into the present
case as the holder of the bill of lading and the
owner of the cargo of poles. It acquired property in
the poles and title to the bill of lading pursuant to
the agreement for purchase and sale entered into
with Domtar. That agreement, as well as the
contract of affreightment and the bill of lading,
are all ordinary commercial, private law transac
tions. The utility poles themselves were, on the
material before the Court, destined to be delivered
to a number of State-owned electrical utility com
panies in Iran and their evident purpose is for use
in the distribution of electrical energy. I can see
nothing in any of this which is of other than a
strictly private law character. In no way does the
present action put in question the authority or the
dignity of the government of Iran or interfere with
its sovereign or governmental functions. I accord
ingly conclude that it is not open to Iran, in the
circumstances, to assert a claim immunity.
I have reached the foregoing conclusion on the
basis of the case as it was argued before us and,
quite obviously, before McNair J., that is to say
that the claim to sovereign immunity must be
tested as at the time of the issuance of the writ and
the arrest of the cargo, early in 1981. I have,
however, considerable doubt as to whether that is
the correct approach. As I have indicated earlier,
the conditional appearance was not produced until
May of 1983 and the motion to dismiss followed
some three months later. McNair J.'s judgment
was given in April 1984.
Subsequent to the institution of proceedings but
prior to the assertion of the claim of sovereign
immunity, this country adopted the State
Immunity Act (S.C. 1980-81-82-83, c. 95), which
came into force on July 15, 1982. The relevant
portion of that statute for our purposes is subsec
tion 7(2):
7....
(2) A foreign state is not immune from the jurisdiction of a
court in any proceedings that relate to
(a) an action in rem against any cargo owned by the state if,
at the time the claim arose or the proceedings were com
menced, the cargo and the ship carrying the cargo were being
used or were intended for use in a commercial activity; or
(b) an action in personam for enforcing a claim in connection
with such cargo if, at the time the claim arose or the
proceedings were commenced, the ship carrying the cargo
was being used or was intended for use in a commercial
activity.
The statute contains no transitional provisions
and appears, on its terms, to be applicable in
respect of any claim of immunity made after it has
come into force. I am, of course, well aware of the
presumption against retrospective application of
statutes; that presumption, however, normally
applies only where a statute attaches new conse
quences to an event which happened prior to its
enactment; it does not apply where the statute
attaches consequences to a status or characteristic
which may have existed prior to the enactment but
which continues to exist afterwards. (See, in this
respect, Driedger, Elmer A., Construction of Stat
utes, 2nd edition, Toronto, 1983, at pages 185 to
203.)
Sovereignty is, of course, a status and it is that
status alone which can give rise to a claim of
immunity. If the status ceases, so does the
immunity. By the same token, if the status contin-
ues but the immunity is declared no longer to
attach, it is gone absolutely and not only with
respect to matters subsequently taking place.
Although it is sometimes expressed in jurisdic
tional terms, sovereignty is not strictly speaking a
question of jurisdiction in the sense that the Court
lacks any power to deal with either the subject-
matter or the person before it. Jurisdiction can
never be acquired by consent, but even the most
absolute theory of sovereign immunity admits that
it may be waived.
Accordingly, I am inclined to the view that the
State Immunity Act should apply to the present
case; if I am right, the result, although the same as
the one I have reached above, can be arrived at by
a much shorter route. The action is in rem against
cargo owned by Iran. When the claim arose and
when proceedings were commenced, both the
cargo and the ship were used and were intended
for use in a commercial activity, the cargo for the
distribution and sale of electrical energy and the
ship for the conduct of ordinary maritime trans
portation. By the operation of subsection 7(2)
quoted above, Iran is thus not immune from the
Court's jurisdiction.
However, since the application of the State
Immunity Act was not argued and since it does not
in any event, in my view of the law, change the
outcome, I am content not to express any final
view on the question and to rest my decision on the
basis that the law of Canada at the time of the
institution of the suit and the arrest of the cargo
did not permit Iran to assert a claim of sovereign
immunity in respect thereof.
I would dismiss the appeal with costs.
PRATTE J.: I agree.
URIE J.: I agree.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.