On 27 October 1981, the Soviet submarine U 137 grounded in a military protection area southeast of Karlskrona at the entrance to Gåsefjärden. Ships from the Swedish Navy arrived at the scene, including the Naval vessel Smyge, and the tugboats Hero and Hermes. Police and Customs vessels also arrived during the day. On 29 October, the port director of Karlshamns Kommun (the Municipality), was contacted by the Navy. It was agreed that the Municipality's tugboat Karlshamn would be made available to the Navy to free the submarine. The Karlshamn towed away the submarine to an anchorage further into Gåsefjärden.

The Municipality brought an action against the State in the Stockholm District Court for the payment of SEK 2.5 million as salvage remuneration under s 224 of the Maritime Code 1891 (the Code). The State argued that the salvage rules of the Code were not applicable. The State engaged the Municipality's tugboat, not to salvage the U 137, but to remove the submarine from Swedish internal territory where it had entered illegally. The Municipality had received compensation according to the current tugboat tariff for towing services. The question whether the U 137 was in danger due to the grounding was irrelevant.

The District Court relied on the expert evidence of Professor Sjur Brækhus, who noted that if the U 137 were a privately-owned merchant vessel, and the Karlshamn a tugboat that came to assistance at the request of the casualty, there would be no doubt that the operation was salvage in the maritime sense, and that the Karlshamn would be entitled to salvage remuneration. However, the fact that the casualty was a Soviet warship, and that the Karlshamn took part in the rescue at the request of the Swedish military authorities, and under their leadership, complicated the legal situation.

The immunity rules of international law prevented the Soviet Union from being sued in the Swedish courts and Soviet State ships being arrested in Swedish waters. Certain exceptions had to be made. According to the Immunity of State-Owned Ships Convention 1926, and the corresponding Swedish Law of 17 June 1938, State merchant vessels are exempt from this immunity. Questions might also be raised as to whether the immunity rules applied fully to State ships that had entered the territorial waters of a foreign State in clear violation of the rules of international law and the State in question. However, none of these exceptions was relevant in the present case.

The fact that a foreign State and its warships are immune to lawsuits, arrests, etc does not mean that the State is without responsibility for its ships. Immunity provides procedural protection, not substantive legal discharge. Under international law, the flag State must be liable to the coastal State for its ships to the same extent as a private shipowner will be liable for its ships. But this responsibility must be asserted through diplomatic channels, in the flag State's own courts, or, possibly, in international courts.

Pursuant to art 3.2 [sic: 3.1 para 2] of the Immunity of State-Owned Ships Convention 1926, a person rescuing a foreign warship may file a salvage case before the competent courts of the flag State without 'cet Etat puisse se prévaloir de son immunité' ('that State being permitted to avail itself of its immunity').

What substantive rules should govern the assessment of salvage liability? This is a question of conflicts rules. These rules may also differ from country to country. However, a court will always build on its own legal system's choice of law rules; a Soviet court thus on Soviet choice of law rules. This can complicate the issues considerably from the coastal State's point of view.

In the present case, however, the problems are not so great. The choice can only be between the law of the flag State and the coastal State, ie between Soviet and Swedish law. It may be assumed that the vast majority of States, including the Soviet Union, would apply the lex loci, ie Swedish law, to a salvage operation such as the present one: the salvage took place in its entirety in inland Swedish waters, under the leadership of the Swedish authorities, and all salvage vessels were Swedish.

It will not be particularly important if Swedish or Soviet law were used as a basis. Both States have ratified the Salvage Convention 1910. Article 14 of the Salvage Convention 1910 provides: 'This Convention does not apply to ships of war or to Government ships appropriated exclusively to a public service.' The provision has partly been understood to mean that a warship can neither be the object of salvage, nor even act as a salvor with the right to demand salvage remuneration. However, this view is clearly incorrect. The fact that an issue falls outside the scope of a Convention only means that the contracting States are free to regulate the issue in question, in other words the warship's salvage legal position. With regard to the domestic legal regulation of these issues, there has been some uncertainty regarding a State's right to demand salvage remuneration for salvage performed by a State's warship. However, it seems generally accepted that warships can be salvage objects. States must pay salvage remuneration according to the usual salvage rules where one of the State's warships is salvaged. Even under Soviet law, it is clear that a warship can be a salvage object. The Soviet Maritime Code 1968, art 260 states:

The rules of the present Chapter shall apply to the salving of oceangoing vessels in peril, as well as to the salving by oceangoing vessels or vessels of internal navigation or any floating or towed objects irrespective of the waters in which the salvage took place.

The rules of the present Chapter also shall apply to vessels sailing under a Naval flag of the USSR.

The salvage of the U 137 took place under the command of the Swedish Navy, and was carried out with the participation of vessels that the Navy had engaged, as well as one of the Navy's own vessels. Against this background, it was unsurprising that the question of the Navy's right to demand salvage remuneration was raised. Older jurisprudence denied the Navy such a right: the Navy has a general duty of assistance to distressed vessels; the fact that it fulfills its duty in this field does not entitle it to any reward. However, the legal perception in this area has changed radically after the Second World War. Partly as a result of changes in the law, partly through a change in case law, the Navy's right to demand salvage remuneration has been recognised in most States.

The District Court found in favour of the Municipality. The State appealed to the Svea Court of Appeal. The Court of Appeal confirmed the District Court's judgment. The State appealed to the Supreme Court.

Held: Appeal dismissed.

It is now undisputed that the submarine was in danger and that the Karlshamn's measures to free and tow the submarine in themselves constituted a salvage operation. The State has testified that the Karlshamn's action was carried out skilfully under difficult conditions, and brought the submarine to safety.

In the case of, among other things, public activities of various kinds, it may happen that operations that appear to the outsider to be salvage do not solely or even mainly have salvage as their purpose. In the light of the main aim of the salvage rules - to encourage rescue measures - in principle salvage remuneration should still be paid. The opportunities for salvage remuneration can effectively contribute to a company being planned and effected with increased efforts to save ships and cargo. The State has not stated any circumstance which gives rise to a deviation in this case from that principle.

The State is responsible for salvage remuneration to the Municipality.