This appeal arose from alleged breaches of lease purchase agreements formed between the appellant, the Republic of Cuba, and the respondent, Flota Maritima Browning de Cuba, for the hire and use of the vessels owned by the appellant. The respondent was a Cuban entity created on the initiative of the State-owned Banco Cubano del Comercio Exterior (the Cuban Bank of Foreign Commerce) (Banco). Banco approached Browning Lines Inc, a corporation based in Michigan, United States, with a view to having it operate vessels owned by Banco. As a result, the respondent was incorporated under the laws of Cuba on 8 April 1958, its main purpose being the operation of vessels owned by Banco. Almost all the shareholders of the respondent were US citizens. The respondent entered into lease purchase agreements with Banco regarding the operation of several vessels. The respondent subsequently arrested some of these vessels at the Port of Halifax, Nova Scotia, Canada. The appellant filed an application protesting the arrest of the vessels and seeking their release. This application was dismissed. The appellant appealed.

Held: The appeal is allowed. The writs, warrants of arrest, and their service is set aside.

The main issue is that of sovereign immunity. It is not disputed that the Republic of Cuba is a sovereign State. The question that arises is whether Cuba is impleaded in these proceedings. The action is in rem, and while Cuba is not named as a defendant, the writ is directed to 'the owners and all others interested in the defendant vessels'. Sovereign immunity protects a foreign State not only when it is directly sued in personam, but also against indirect proceedings.

In Compania Naviera Vascongado v SS Cristina [1938] AC 485, 512 (HL), Lord Wright said:

This modern development of the immunity of public ships has not escaped severe, and, in my opinion, justifiable criticism on practical grounds of policy, at least as applied in times of peace. The result that follows is that Governments may use vessels for trading purposes, in competition with private ship-owners, and escape liability for damage, and salvage claims. Various international conventions have discussed this problem and have culminated in the International Convention for the Unification of Certain Rules concerning the Immunity of State-owned ships, of April 10, 1926. The general purport of the Convention was to provide that ships owned or operated by States were to be subject to the same rules of liability as privately-owned vessels; ships of war, State-owned yachts, and various other vessels owned or operated by a State on Government and non-commercial service were excepted. There was power for a State to suspend the operation of the Convention in time of war. Great Britain, along with the majority of modern States, signed the Convention, but has not yet ratified it or enacted any legislation to bring it into effect in this country. But even if the provisions of the Convention were made law here, it is not clear that it would affect the position in the present case, because its effect is apparently limited to claims in respect of the operation of such ships or in respect of the carriage of cargoes in them. Thus it would affect claims in rem for collision damage such as the claim in The Parlement Belge, 5 PD 197 or for salvage as in The Broadmayne [1916] P 64 and The Porto Alexandre [1920] P 30 or for cargo damage as in The Pesaro 271 US 562, but it may be, not claims for possession such as that in the present case or The Gagara [1919] P 95 or The Jupiter [1924] P 236.

In the same case, Lord Maugham (522) said:

My Lords, I am far from relying merely on my own opinion as to the absurdity of the position which our Courts are in if they must continue to disclaim jurisdiction in relation to commercial ships owned by foreign Governments. The matter has been considered over and over again of late years by foreign jurists, by English lawyers, and by business men, and with practical unanimity they are of opinion that, if Governments or corporations formed by them choose to navigate and trade as ship-owners, they ought to submit to the same legal remedies and actions as any other shipowner. This was the effect of the various resolutions of the Conference of London of 1922, of the Conference of Gothenburg of 1923 and of the Genoa Conference of 1925. Three Conferences not being deemed sufficient, there was yet another in Brussels in the year 1926. It was attended by Great Britain, France, Germany, Italy, Spain, Holland, Belgium, Poland, Japan and a number of other countries. The United States explained their absence by the statement that they had already given effect to the wish for uniformity in the laws relating to State owned ships by the Public Vessels Act, 1925 (1925, c 428). The Brussels Conference was unanimously in favour of the view that in times of peace there should be no immunity as regards State-owned ships engaged in commerce; and the resolution was ratified by Germany, Italy, Holland, Belgium, Estonia, Poland, Brazil and other countries, but not so far by Great Britain. (Oppenheim, International Law, 5th edn, vol I, p 679.)

In the present case, while the respondent does not admit that the appellant is the owner of the defendant vessels, the evidence is sufficient to prove that Cuba is, in fact, the owner.

While the matter is perhaps not entirely free from doubt, the rule as laid down in The SS Cristina should be followed, and which has been cited with approval by the well-known textbook writers. It was also followed in a Canadian case, that of Thomas White v The Ship Frank Dale [1946] Ex CR 555, by Sir Joseph Chisholm DDJA. Reference may also be made to the opinion of Duff CJC in Reference as to Power to Levy Rates on Foreign Legations and High Commissioners' Residences [1943] SCR 208, 229-30; and to the judgment of Locke J in Municipality of Saint John v Fraser-Bruce Overseas Corp [1958] SCR 263, 280-1.

The reservations of Lords Thankerton, Macmillan, and Maugham in The SS Cristina appear to be limited to ships engaged in ordinary commerce or trading. If that is so, it would seem that in general they were inclined to adopt the principles set forth in the Immunity of State-Owned Ships Convention 1926.

Having examined the text of that Convention, it would seem that its effect is limited to claims in respect of the operation of such ships or in respect of the carriage of goods in them. In the present case, the respondent's claim did not arise from the operation of the defendant vessels, but rather from a contract respecting the operation of the vessel. The fact was that while the vessels were originally equipped and used for the carriage of freight and passengers, they had been put to no commercial purposes since about 1956 or 1957 and have never been used for commercial or any other purposes by either Banco or the Republic of Cuba. They were strike-bound at first, and since the purchase by Banco, have remained idle at the Port of Halifax. Moreover, there was no evidence that Cuba intended to use them for commercial purposes.

Having reached the conclusion that Cuba's ownership claim to the vessels is well founded, and not illusory, nor founded on a title manifestly defective, the action has to be stayed.

[For the unsuccessful appeal to the Supreme Court, see Flota Maritima Browning de Cuba SA v Republic of Cuba [1962] SCR 598.]