Ship Arrests in South Africa, by Mark van Velden
Shepstone & Wylie
Durban PO Box 205
4051 Durban, South Africa
Tel: 00-27-31-3020111
Fax: 00-27-31-3042862
www.wylie.co.za
There are essentially three ways one can arrest or attach a ship (or other asset) in South Africa, namely by:
1. an attachment in personam;
2. an arrest in rem;
3. a security arrest.
Arrests in rem and security arrests are by far the more common methods and are therefore dealt with first.
1. Actions in rem
A maritime claim (which is very broadly defined by the Admiralty Jurisdiction Regulation Act of 1983 “the Admiralty Act”) may be enforced by an action in rem :
-if the claimant has a maritime lien over the property to be arrested (the claims that will give rise to a maritime lien are those arising from salvage, damage caused by a ship, seamen’s wages, master’s wages, master’s disbursements and bottomry and respondentia - as the law stands at present, foreign maritime liens not falling within the above categories are not recognised); or
- if the owner of the property to be arrested (the res) would be liable to the claimant in an action in personam in respect of the cause of action concerned (in other words that party would be personally liable in a direct action against it).
An action in rem is instituted by the arrest within the area of jurisdiction of the court concerned of a vessel (or other asset, including cargo, freight, bunkers, containers) in respect of which the claim lies.
The procedure for instituting an action in rem is the issue of a summons and writ of arrest and the subsequent arrest of the res. However, the action is commenced (and any time bar interrupted) with the issue of the process at Court (i.e. the summons and writ of arrest), provided that the action in rem is subsequently served on the vessel (or res) within a further 12 months (failing which the proceedings will lapse if not extended by the court prior to expiry).
In practical terms, the issue of proceedings in rem is a simple and speedy process which requires simple allegations to support a prima facie cause of action without any need for substantiation on the papers although, of course, it is necessary to be able to substantiate any allegations made if the owner seeks subsequently to set the arrest aside or to attack it as being wrongful.
It is also possible to arrest a vessel associated with the ship concerned for security (see the requirements for association under the Admiralty Act below).
2. Security Arrests
Where claimants already have proceedings underway in South Africa or other jurisdictions (e.g. London arbitration) or intend proceeding here or elsewhere, it is open to them to arrest in South Africa any property belonging to their adversaries in order to obtain security for the claim, whether or not the substantive proceedings are subject to the law of South Africa.
The person seeking security must have a “maritime claim” enforceable by an action in personam against the owner of the property or an action in rem against the property, or one which would be so enforceable but for the arbitration or other substantive proceedings.
As with arrests in rem, it is also possible to arrest a vessel associated with the ship concerned for security (see below).
A point to note is that, by bringing a security arrest, the claimant does not thereby submit to South African jurisdiction for the merits of the claim in respect of which security is sought. However, the court will have jurisdiction over all matters pertaining to the arrest itself and any security furnished in relation to it. In particular, the Admiralty Act vests the Court with wide power, in its discretion, to order that security or counter-security be furnished for claims and counterclaims, and this discretion should not be unduly circumscribed.
The procedure when bringing a security arrest is to bring a substantive application before a judge in which the claimant must establish :
- that he has a prima facie case with reasonable prospects of success in the substantive proceedings;
- that the property to be arrested on a balance of probabilities is owned by the defendant in the other proceedings;
-why the claimant requires the assistance of the South African court; and
-that the claimant has a genuine and reasonable need for security. In this regard, he would need to establish that he does not already have any or sufficient security and that he is unable to obtain security in the other pending or contemplated arbitration or proceedings. Case law provides that the fact that the owner of arrested property has significant fixed assets in another jurisdiction, does not mean that there can be no genuine and reasonable need for security.
3. Actions in personam
Any maritime claim may be enforced by an action in personam, provided the Defendant (natural or juristic) is:
- a person resident or carrying on business at any place in South Africa;
- a person whose property within the court’s area of jurisdiction has been attached by the claimant to found or to confirm jurisdiction;
- a person who has consented or submitted to the jurisdiction of the court;
- a company, if the company has a registered office in South Africa.
If the prospective defendant is resident or carrying on business in South Africa, it is generally not necessary (and usually not possible) to attach his/her property in order to found or confirm jurisdiction, the court having inherent jurisdiction over that person. In those circumstances, all that is needed is to issue and serve a summons.
If the prospective defendant is a foreigner and he has not consented or submitted to the jurisdiction of the court, it is necessary to attach property owned by that defendant which is within the area of jurisdiction of the court in order to found or confirm jurisdiction. The value of the property attached need bear no relation to the quantum of the claim. Proceedings are deemed to commence with the making of the application for attachment.
In order to make an attachment to found or confirm jurisdiction, it is necessary to bring a substantive application before a judge alleging both a prima facie case on the merits and, on a balance of probabilities, that the property to be attached belongs to the prospective defendant.
Following service of the attachment order (which is the act that confers jurisdiction on the court), a summons may be served on the prospective defendant. It should be noted, however, that if the defendant is not in South Africa, summons may only be served outside the jurisdiction with the leave of the court.
Associated Ship arrests
Special mention should be made of “associated ship” arrests. Where the maritime claim arises in respect of a ship, it is possible to bring an action in rem (or a security arrest) by arresting an “associated ship” instead of the ship in respect of which the maritime claim arose. In the Admiralty Act the term “associated ship” includes the concepts of a “sister” ship but goes considerably further.
There is precedent to the effect that it is not possible to arrest an associated ship as well as the ship concerned e.g. if a judgement is not satisfied against the ship concerned in proceedings elsewhere, but this decision is in our view wrong and should be capable of challenge.
An associated ship is a ship, other than the ship in respect of which the maritime claim arose (”the ship concerned”) which is :
- owned, at the time when the action is commenced, by the person who owned the ship concerned at the time when the maritime claim arose (a “sister” ship);
- owned, at the time when the action is commenced, by a person who controlled the company which owned the ship concerned when the maritime claim arose; or
- owned, at the time when the action is commenced, by a company which is controlled by a person who owned the ship concerned, or controlled the company which owned the ship concerned, when the maritime claim arose.
Ownership is deemed when a majority of shares (either in number or of voting rights or value) in the ships is owned by the same person(s).
Furthermore, a person is deemed to control the company if he has power, directly or indirectly, to control the company. This latter provision has not been fully judicially tested and so there is still considerable speculation as to what control actually means. In its narrower sense it would be restricted to beneficial ownership of the vessel, but in a broad sense it could extend to directors of companies or possibly even managers. Until we have some further judicial guidance, our attitude is that the narrower view is the correct one.
However, in a recent divided Supreme Court of Appeal decision the majority held that the Admiralty Act distinguishes between direct and indirect power (de jure or de facto control) and that either form of control can bring the relevant subsection into operation. This decision will undoubtedly be subjected to further judicial testing as it has far-reaching consequences for the associate ship provisions. In effect this means that vessels can be caught up under the associate ship net even where there is no direct connection with a guilty ship, e.g. where a third party appointed the same person as nominee of his company as the company which owns the guilty ship.
In order to establish an association between vessels, it is often not possible to obtain direct evidence of share-holdings of holding and owning companies. In those cases, a picture must be created of the association to satisfy the Court on a balance of probabilities that the guilty ship and vessel to be arrested are associated. Some typical evidence other than common share-holders which can assist to create such a picture would include:
- Cross-collateralisation of vessels
- Common signatories to financing or security documentation
- Common signatories to important agreements (e.g. M.O.A.’s)
- Common attorneys-in-fact
- Similar or related ship names
- Common guarantors of mortgage finance obligations
- Fleet entries with P&I Clubs
- Common managers
- Common operators
- Common directors and officers
- Common funnel or fleet markings
- Public statements about ownership or group financial results
- Common nominee share-holders
- Shared street business addresses and telephone numbers
- Public data-base information (e.g. Lloyds, Fairplay, etc.)
- Investigators’ evidence (e.g. MRC reports)
- State-owned enterprises
- Same-fleet vessels substituted in charter-parties
None of these on its own would necessarily be sufficient to discharge the onus of proof, but the more that are available the greater the probabilities of association. There is no hard and fast rule about what is sufficient and each case will depend on its own facts.
It is not sufficient in order to obtain an associated ship arrest to show that the managing agents handle the day to day management and administration of the various one-ship companies. The term “control” envisaged by the Admiralty Act relates to overall control of the assets and destiny of the companies.
Typical maritime investigation agencies such as Lloyds, IMB, MRC and the like are often able to provide valuable information to prove an association. Mortgage registers of those flag states which retain documentation on file (such as Cyprus) can be the source of useful evidence like a declaration of beneficial ownership of a fleet of vessels legally owned by one-ship companies.
Finally where a ship was at any time the subject of a charter party, the charterer or sub-charterer is deemed to have been the owner of the ship concerned in respect of any maritime claim for which he is alleged to be liable. The effect of this is that a ship owned by a company which in turn is controlled by the same person who also controls the company which was the charterer or sub-charterer of the ship concerned may be arrested in an action in rem.
Security
It is not a requirement under South African law for an arresting party to lodge advance security with the court to cover either the costs of the arrested party or a potential wrongful arrest claim. However, the court does have wide powers to attach conditions to any arrest order and may be asked by the ship owner in subsequent proceedings to make the continued arrest (or continued security) conditional upon counter security being given for the owners’ costs or counter-claims in the same proceedings.
The usual form of security furnished by the ship owners in order to obtain release of the vessel is a first class South African bank guarantee or a P&I Club Letter of Undertaking. The latter may only be provided by agreement between the parties (which is of course frequently the case) but the arresting party may not be compelled to accept anything other than a first class South African bank guarantee (or cash lodged with the Registrar).
In the case of an arrest in rem or a security arrest, the amount of security required (including any claim for interest and costs) is limited to the value of the property arrested. In the case of an attachment (in personam proceedings), however, security may be demanded for the full value of the claim, irrespective of the value of the property attached.
There is deemed to be an arrest still in place where the vessel has been released from arrest against the provision of security.
In terms of a recent decision of the Supreme Court of Appeal, the bank guarantee or LOU need not be given to the Registrar of the court (as has been the practice recently) but may be exchanged between the parties, with the South African court retaining jurisdiction over matters relating to the arrest (or the deemed arrest once security is furnished) or to the security itself (e.g. the reduction or increase of the level of security or the return of the security).
Wrongful Arrest
The Admiralty Act provides that an arrest will be wrongful (and damages may be awarded) if it is obtained without reasonable and probable cause or if the arresting party has made an excessive claim or sought excessive security. The courts have indicated that an arrest will be wrongful unless the arresting party believed on reasonable grounds that the arrest was justified, and where it relied on legal advice, a reasonable person would have believed that such advice was probably correct.
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For further details on this topic and the provisions of South African Maritime Law generally, please visit our website www.wylie.co.za. Our detailed booklet on maritime law in South Africa can be accessed there, as can details of our partners and contact numbers.