Ship arrest in South Africa- be precise

In the recent judgment Mediterranean Shipping Company SA v Cape Town Iron & Steel Works (Pty) Ltd [case no: A55/2007] the applicant applied to Kwazulu-Natal High Court for a ‘security arrest’ in terms of section 5(3) of the Admiralty Jurisdiction Regulation Act 105 of 1983 ( the “AJRA”) and prayed for an order as follows:

“The Sheriff for the district of Durban central or other such Sheriff having jurisdiction be and is hereby authorised and directed to arrest the property of [the respondent], the said arrest to be in terms of s 5(3) of the [AJRA] …for the purposes of providing security for the applicant’s claim of R317 481 …being pursued by the applicant against the respondent in the KwaZulu-Natal High Court…”

Essentially, what the applicant was seeking was a security arrest without having to (1) identify the property sought to be arrested and (2) having to prove the respondent’s ownership in the said property. This was indeed an ambitious undertaking!

In brief, the applicant viewed a security arrest as a civil procedure similar to that of a writ in execution (the latter can be addressed to any sheriff of the High Court for the purposes of attaching property and executing on a judgment). This argument is wholly incorrect which is readily evident from reading section 5(3). It reads,

“A court may in the exercise of its admiralty jurisdiction order the arrest of any property for the purpose of providing security for a claim which is or may be the subject of an arbitration or any proceedings … if the person seeking the arrest has a claim enforceable by an action in personam against the owner of the property concerned or an action in rem against such property …”

The Court stated that s5(3) postulates, in case of a claim enforceable by an action in personam, that the party seeking the arrest has a claim against an identifiable person and that such person is the owner of the property to be arrested. The Court confirmed that the applicant is burdened with the onus of proving, on a balance of probabilities, that the property to be arrested belongs to the respondent.

It is only upon the identification of the property in the arresting papers (affidavit) that the court will be in a position to satisfy itself that the property exists and is owned by the person against whom the claim in personam lies. Furthermore, the Court acknowledged the applicants right to resist the arrest at the stage of the arrest, on the grounds that it is not the owner of the identified property.

In reaching its decision the Court confirmed the nature of a security arrest and held that it is a “special institution under the South African [AJRA]” and – it is neither one of the action in rem or an action in persomum (attachment). The security arrest is a “stand alone” procedure. Although a security arrest may be similar to the process of execution in that both procedures may lead to the property being sold, the Court reiterated that such similarities do not do away with the requirement of identification of the property and ownership thereof.

The Court found that the order requested by the respondent sort to license the Sheriff to engage in a fishing expedition! After reading the judgment, one can only conclude that the applicant was on a similar expedition in approaching the Court.

As always, enjoy shipping law and everything that goes with it!
(ship arrest in Cape Town; ship arrest in Durban; ship arrest in Richards Bay)

Ship arrest and attachment… NO! says the Court

Consent or Submission to jurisdiction

In Transnet Limited v The Owners if the MV Alina II & Others AC40/10, the Applicant had previously arrested the vessel in rem which in turn led the vessel owner’s P&I club to provide a letter of undertaking (“LOU”). The relevant LOU expressly stated “… [W]e [the P&I Club] hereby confirm that we have irrevocable instructions and authority from the vessel owner to do so, and further agree that any claim of each party against the other,…shall be exclusively determined by the Court”.

The amount of the LOU was limited to the value of the vessel. Thereafter, the arresting claimant realised that its claim of ZAR 45 million would far exceed the value of the vessel and sought to attach the vessel (in which event it would be entitled to security for the full value of its claim in exchange for the release of the property attached). The Court held that if the vessel owner consents or submits to the jurisdiction of the court by way of an LOU in respect of in rem arrest proceedings, then the subsequent attachment of the vessel is neither necessary nor permissible. The Court confirmed that the consent to jurisdiction is a wide concept, which does not have to take any particular form and is a unilateral act that does not require the consent of the party seeking attachment of the vessel.

In view of the Court’s decision, in the event that vessel owner wishes to proceed on the merits in South Africa it is advisable that an LOU issued in respect of an in rem arrest should contain a “consent to jurisdiction” clause to fend off any further attachment proceedings.

Nature of modern day in rem arrest:

Further arguments raised by the parties to the proceedings raised fundamental questions as to the nature of the action in rem The Court stated that once the vessel owner has intervened after it’s vessel has been arrested in rem it would be artificial not to treat the owner as a party, at least for certain purposes. In the view that the Court took the matter it acknowledged that “it is in any event unnecessary for the purposes of this judgment [due to the fact that the vessel owner having submitted to the Court's jurisdiction as discussed above] to make any firm findings regarding the true nature of the action in rem in modern times.” Therefore, the Courts comments on the nature of in rem arrest must be regarded as obiter (none binding but merely persuasive).

Within this context, the Court noted that the earlier actions in rem and attachment application (the action in personam) before the Court arose out of the same facts and give rise to the same cause of action. Furthermore, the damages to be claimed by Transnet in the proposed attachment application were the very same damages being claimed in the pending action in rem . In the end the Court found the effective defendant in each case-and the party potentially liable to pay-is the owner of teh vessel. The Court further held that there are powerful policy considerations militating against a multiplicity of actions which would be the case if the Court gave effect to the attachment proceedings.

Application of section 3(8)

The Court further relied on the provisions of section 3(8) of the Admiralty Jurisdiction Regulation Act which reads “Property shall not be arrested and security shall not be given more than once in respect of the same maritime claim by the same claimant.” The Court concluded that to allow the attachment of the vessel would seek to enforce the same maritime claim and based on the same cause of action by the same claimant would amount to an abuse of process.

Conclusion

I respectfully agree with the Courts approach in respect of consent or submission to jurisdiction issue. However, in view of the Court’s conclusion on that issue, I feel that the Court adopted an unnecessary contentious approach in commenting on the nature of the modern day action in rem. Indeed the ramifications of the Court findings could lead to the degradation of the distinction between the action in rem and the action in personam (attachment proceedings) which are distinguishable in the Admiralty Jurisdiction Regulation Act. Without going into the matter, one must appreciate that legal history has created these defined proceedings and the Admiralty Court should seek to protect them in order to protect its admiralty jurisdiction. On a literal interpretation of section 3(8), with respect the Court is incorrect. The section refers to an arrest and author cited by the Court was contemplating a scenario in which both in rem and attachment proceedings were commenced by the claimant.

As always, enjoy shipping law and everything that goes with it!

The contents of this blog do not constitute legal advice. For specific professional assistance, always ensure that you consult an attorney.

The Mariner’s Role in Collecting Evidence-vitally important

On 12th and 13th of November 2010 I will attend a seminar on The Mariner’s Role in Collecting Evidence in Newcastle,United Kingdom hosted by the Nautical Institute. Topics at the seminar will include “Recording Evidence-what we keep and how we keep it“;”Collecting Evidence“; “Sifting Evidence” and “Recalling Trauma“. The collection of evidence in a professional and efficient manner is vital to dispute resolution following a maritime casualty. Simply put, if the facts are clearly put out on the table, unnecessary litigation can be avoided because the guilty party is more likely to be exposed and admit defeat.

By way of example, in a previous matter that concerned the sinking of a vessel the insurer sent out their representative who quite frankly botched the job. The deplorable manner in which he obtained crew statements led him to “fill the gaps”. His tactics were exposed in the trial that followed. His crew statements were so corrupt and contradictory that the insurer did not even call him to testify. This is an extreme example but it makes the point- collection of evidence in a professional and efficient manner is vital to dispute resolution.

As always, enjoy shipping law and everything that goes with it!

Shipwatch service for Ship Arrest

A shipwatch service in invaluable for claimants who want to arrest a ship. Sure everybody knows that South Africa is an arrest-friendly jurisdiction but not everyone knows when the ship will be in South African waters. And this is where a shipwatch service offered by a law firm such as mine is absolutely essential. South Africa has a number of ports (Durban; Cape Town; Saldanha; Richards Bay; Port Elizabeth, East London and Coega) in which a vessel may berth at. In offering this service (free of charge!) I liaise with the respective Port Control of each port.

I do, however, point out that the shipwatch service relies upon information provided by port control and on its daily port list and by the local shipping press in publishing liner schedules. The liner schedules only reflect the calls of vessels on regular lines whilst the port list only registers vessels on main berths in port and at the outer anchorage at the time the daily port list is issued.

Consequently, those vessels with a very quick turnaround time by reason of, for example, stemming bunkers only will not be reflected on either the port list or the liner schedules published by the local press if their call does not span the time of the drawing up of the port daily port list.

A further service that I offer for vessels that have called at South Africa before is by way of our subscription to an AIS service for all major South African ports ) excluding Saldanha Bay. However, in respect of vessels that have not previously called whilst the service has been operating are not yet registered on the service and, consequently, no search is able to be set for them on the AIS service. Assuming the vessels have called before and a particular port is anticipated, I can activate a warning for the vessels at that port. I set the service to trigger an sms message to us when the vessel arrives in the approaches to any port covered.

The timing of a ship arrest is essential. By way of example, in a recent matter the shipowner was selling his vessel. This vessel had a trail of debtors following it. The place of delivery of the vessel was Durban. My client employed the shipwatch service and we came to know that the vessel was taking on bunkers in Cape Town. Anyone in the shipping industry knows that the taking on of bunkers is a fairly quick procedure. We decided to arrest the vessel in Cape Town before the shipowner was able to give the Notice of Delivery to the Buyer alongside berth. Remember, once that Notice is delivered ownership in the vessel changes and our client would not be able to arrest the vessel.

It just goes to show, using an effective shipwatch service ( and efficient attorney!) can be extremely helpful to a claimant.

As always, enjoy shipping law and everything that goes with it!
(ship arrest in Cape Town; ship arrest in Durban; ship arrest in Richards Bay)

Ship arrest…and the Banks can’t mess with us!

In my earlier post “Ship arrest in practice…don’t mess with the banks!” the Bank had arrested the “guilty ship” it had not arrested the “associated ship”. This is simply because a Bank (as a “Mortgagee”) is prohibited from using the associated ship arrest provisions and arresting the associated ship- in such circumstances the Bank is limited to the “guilty ship”. This prohibition extends to “any any claim for, arising out of or relating to any mortgage, hypothecation, right of retention, pledge or other charge on or of a ship, and any bottomry or respondentia bond.”

One can therefore see that the benefits of the associated ship arrest provisions are not unduly limited or endangered by the Bank’s claim simple because the ability of the Bank to arrest a Vessel is restricted.

As always, enjoy shipping law and all that goes with it.

Ship arrest…don’t mess with the banks!

Whether we like it or not, ship arrests can come with very short notice. About a day or two ago we assisted a time charter who was owed outstanding hire. The Time Charter had come to an end and the ship delivered back to the Shipowner. Needless to say that  the Time Charterer was delighted when he found out that an “associated ship” belonging to the Shipowner (who was also the owner of the “guilty ship” that was subject to the Time Charter Party) was sailing full steam ahead into South African waters.

We set to work through the night and prepared security in rem arrest papers so that we could instruct the Sheriff to pounce on her once she berthed. Port Control confirmed her arrival…the Judge was waiting in his Chambers….Counsel, attorney all waiting to be heard on an urgent basis…and then comes the news- the Bank has just arrested the vessel for mortgage claim in excess of  EUROS 15 000 000.00!

Such a move by the Bank ( the “Mortgagor”) is catastrophic to an associated ship claimant. The reason being due to the operations of the ranking provisions set out in section 11 of the Admiralty Juridiction Regulation Act (“AJRA”). To cut a long story short, the crux of the problem is that all direct claims against the “guilty ship” rank above all claims that are lodged through association ( such as was the case with our client). To add to this was the reality that the Banks claim would dry up any Fund created out of the proceeds of the Vessel’s sale by judicial auction in terms of the AJRA.

This is a risk that claimants who rely on the associated ship provisions in the AJRA take. In most cases you will only know what claims will lay against the Vessel once she is sitting at berth and exposed herself to arrest.

In order to save legal costs we did not arrest the Vessel but rather had a Caveat issued against her. This basically means that the Vessel cannot be released from arrest unless our client gives the go head. One never knows, the Bank’s claim may be defective or the Shipowner may (somehow) be able to put up security for its claim and have the Vessel released.

This matter also brought up some interesting legal issues like when is there actually a “dispute” between the parties for the purposes of commencing arbitration proceedings in London? And what is the  affect of the Shipowner going into provisional liquidation or being declared provisionally insolvent  on the associated ship provisions which require the Shipowner to be in “control”?

I will discuss these further in later blogs… think I should first prepare a presentation on associated ship arrest for my readers.

Enjoy shipping law and everything that goes with it!

Ship arrest in practice…

Recently I assisted a ship agent in arresting a vessel for outstanding amounts owed to him. The ship in question was a rust bucket, one of many that goes around the  Cape of Good Hope, otherwise referred to as the Cape of Storms on their way to the scrap yards of the Indian sub-continent. The ship owner had sold the guilty ship (the actual ship that the ship agency services were rendered to) shortly after using the services of the ship agent. Obviously he thought that he could escape his debtors in doing so.

Fortunately for the ship agent ( the “Claimant”), the ship owner attempted to sail another vessel ‘indirectly’ owned by him (an “associated ship“) around the Cape in South Africa.

South Africa is an “arrest-friendly” jurisdiction. Our associated ship provisions allow the claimant to “pierce the corporate veil” of the ‘one-ship owning companies’ and go up the pyramid scheme in order to find the true owner of the “guilty ship”- the person or entity which exercises real control over the vessel or fleet of vessels. The effect of these provisions is that the ‘one-ship company owner’ is suddenly exposed as an Owner of a fleet of vessels, all of which are deemed to be an “associated ship” of the guilty ship and all are accordingly subject to arrest. In future blogs or presentations I will explain the associated ship provisions, not now. I want to highlight the predicament of a ship owner whose vessel is under arrest.

 If you are a dodgy Owner you are at a huge bargaining disadvantage when it comes to the release of your ship. First of all, the risk of the news of your ship being arrested will spread like wild fire and other claimants will scramble to lay further arrests against your ship. Therefore, your bargaining time for the release of the ship is limited- and the Claimant knows that and he will most certainly use it to his advantage.

Secondly, if the ship owner is under financial constraint he will find it more difficult to obtain a P&I letter of undertaking or a bank guarantee that could be used as security for release of the ship. In these circumstances, his lawyer will ask whether the claimant will be willing to accept other arrangements such as a letter of undertaking from the ship owner’ lawyers law firm. Once the Claimant gets wind of this type of request he knows that he is in a stronger bargaining position- the Owner will be more likely to accede to his demands.

 And then you have the actual commercial pressure of your ship being under arrest. When an arrested vessel sits in port, port charges and other charges start to snow ball against the Owner (…I know that the Sheriff and possible the arresting creditor will be liable for preservation costs but we are talking about practice not theory). The implications of an arrest on a charter party relationship can be horrendous.

In the case at hand the ship owner was attempting to sell his vessel to an Indian scrap dealer. The implication of the arrest was simple-the buyer refused to sign the MOU until the vessel was released from arrest. The ship owner has two options, 1. sell your vessel for a couple of million USA Dollars and release your company from its financial woes or, 2. haggle over settlement  or the amount  for lodging security. Once again the choice is simple and the Claimant knows that!

All these practical aspects place a ship owner in financial distress at a huge disadvantage when negotiating a release of his vessel. A ship owner who has been involved in dodgy dealings and has created a string of debtors is in a far worst position.

On the other hand, a ship owner who is in a financially strong position and who has conducted his business in a commercial sound manor and paid his debtors will be able to simply put up security, have his vessel released and appoint a team of lawyers to dispute the claim against the vessel.
Peter Lamb