Wallem Shipping (Hong Kong) Ltd, Telfair Shipping Corp (Telfair), and Liberation Steamship Co Inc (Liberation) (the plaintiffs) appealed against the orders made by the Chief Justice setting aside writs of summons and all subsequent proceedings on the ground that the Philippine Admiral, which was the subject of the actions, was the property of the Government of the Republic of the Philippines.

The vessel was built in Japan and given to the Republic of the Philippines as part of a treaty which required Japan to make reparations for damage done to Philippines property during World War II. It was agreed that under the treaty, products supplied by Japan were not to be re-exported from the territories of the Republic of the Philippines.

The use of goods acquired under the provisions of the treaty was governed in the Philippines by the Republic Act 1789 (the Act) which declared that anything acquired under the treaty should be utilised 'in such manner as shall assure the maximum possible benefit to the Philippine people and in as equitable and widespread a manner as possible'.

In 1959 Liberation successfully applied to the Reparations Commission (which was established to administer the acquisition, utilisation and distribution of the reparations goods and services) for the grant of an ocean-going ship. The Reparations Mission in Japan then entered into a contract on behalf of the Government of the Republic of the Philippines with the Toyo Trading Co Ltd for the construction of a vessel. The vessel was initially called The Dagahoy and then renamed the Philippine Admiral. There was a contract between Liberation and the Reparations Committee which provided that Liberation would pay the price paid by the Reparations Commission by instalments to the Reparations Committee.

In 1963 a dispute arose between Liberation and the Reparations Commission regarding the chartering of the vessel by Liberation to an Indian corporation, and Liberation was ordered to pay PHP 30,000 per month. This was not paid and a debt accrued to an amount in excess of PHP 5 million.

The vessel was operated by Liberation until 1972. On 21 December 1972, Telfair chartered the vessel. At that time the vessel was under repair in Hong Kong. Those repairs remained unpaid and there was a dispute between Liberation and Telfair as to which of them was liable. On 4 June 1973 the vessel was arrested upon the application of Telfair. On 8 October 1973, Pickering J made an order for the vessel's appraisement and sale.

On 29 October 1973, the Government of the Republic of the Philippines (the Government) filed a notice of motion in the Telfair action to apply for an order that the writ of summons, the order for appraisement and sale, and all subsequent proceedings be set aside on the basis of sovereign immunity.

The Chief Justice was satisfied on the affidavits that the applicant was an independent sovereign State. His Honour further found that the Commission was the registered owner of the vessel and that it was not in dispute that the Commission was an organ of the Government. His Honour took the view that Liberation was in default and that the Commission's right to immediate possession of the vessel accrued from 10 October 1973. His Honour held that no special rules applied to ships and that the vessel was not being used for 'public purposes', but that it was enough to sustain the claim to sovereign immunity that the applicant was the registered owner and had an immediate right to possession at the date of application to set aside.

Held: Appeal allowed.

Ships are not subject to special rules. The principle of sovereign immunity applies to all classes of property. The State interest should be shown not to be illusory. The vessel has not been fully paid for by Liberation, and the Commission says that it retains title to, and ownership of, the vessel until all the payments have been made. However, a Certificate of Inspection issued by the Philippine Coastguard, and a Certificate of Stability issued by the Bureau of Customs (both being Government authorities), name Liberation as the owner of the vessel. This is of some consequence, but more importantly a Certificate of Registration, a Certificate of Ownership, and a Certificate of Change of Name all state that the Commission is the owner, although these are not documents of title.

At the time of arrest the vessel was clearly in the possession of Liberation, and although Liberation has been asked to deliver up possession to the Commission, there is no suggestion the Government has sent a crew to retake possession in Hong Kong.

In The Porto Alexandre [1920] P 30, Lord Wright spoke of the Immunity of State-Owned Ships Convention 1926, which has never been ratified by the United Kingdom, although it was one of the signatories. One of the arguments on the part of the Government is that if immunity were declined, the Court would be applying the Immunity of State-Owned Ships Convention 1926, and doing something Parliament has declined to do. This argument is not sound, as all the Court is doing is applying the common law of England as applicable in Hong Kong, which is that immunity should not be granted in respect of vessels not destined for public use. The vessel is a trading vessel and has been used as such for many years. Although the vessel was repossessed to protect the Government's interests, the overwhelming balance of probability is that it will be used for trading. The evidence adduced does not establish that the vessel is destined for public service and therefore the appeal is allowed.

[For the unsuccessful appeal to the Privy Council, see Philippine Admiral (Owners) v Wallem Shipping (Hong Kong) Ltd [1977] AC 373 (CMI2174).]