Supreme Court of Appeal in MV Seaspan Grouse case provides protection to shipowners trading to South Africa

Introduction

We are often asked whether it is possible, under South African law, to issue “protective writs” where the defendant ship is not yet within the jurisdiction of the South African courts. The answer is, and has always been, that we can. Inevitably, we would then be asked whether the protective writ could be served in circumstances where the defendant vessel has changed ownership and the claim itself was not a traditional maritime lien (claims relating to collisions, wages, salvage and certain bonds). Our view has always been that, since 1983, our law did not recognise the English approach set out in The “Monica S” [1967] 2 Lloyds Rep (QB Adm) – but this was not universally accepted (especially with regard to associated ships) and maritime lawyers have been waiting for appropriate guidance from our Courts. Unhelpfully, the High Courts in Durban and Cape Town came to diametrically opposite views.

The position has become a little clearer following the majority decision by the Supreme Court of Appeal in MV Seaspan Grouse: Seaspan Holdco 1 Ltd v MS Mare TravellerSchiffahrts GmbH [2019] ZASCA 02 In rejecting the Monica S principle that the issue of a summons in rem in effect creates a maritime lien which allows the claimant to subsequently arrest the ship notwithstanding a change in ownership, the majority of the court held that a shipowner could safely call at South African ports without fear of an arrest for debts incurred by any previous shipowner. This may not be the final chapter in this long-running saga as the losing claimant has applied for leave to appeal to the Constitutional Court.

But, for now, the South African courts have rejected the notion that the issue of an in rem summons effectively creates a maritime lien.

The decision is not uncontroversial as the anomalous wording of the Admiralty Jurisdiction Regulation Act,1983 (Act) required some linguistic acrobatics to resolve what, on the face of it, was a conflict between the position that applied to the wrongdoing ship and that which applied to an associated ship. The effect of these acrobatics may have resolved the Monica S debate but has also opened up hitherto unavailable options to attack protective writs. Both of these aspects of the case will be of interest to both foreign shipowners and maritime claimants. Didcott J described the latter in Katagum Wholesale Commodities Co Ltd v the MV Paz 1984(3) SA 261 (N) as the “wandering litigants of the world” who regarded the far-reaching arrest provisions of the Act as making South Africa a haven for maritime litigants.

Monica S and South African law

Prior to the promulgation of the Act in 1983, South African Admiralty jurisdiction in South Africa was derived from England via the late nineteenth-century Colonial Courts of Admiralty Act. As a result, the decisions of the English courts on Admiralty issues applied in South Africa. This included the decision of Brandon J in the The Monica S, who held that in English Admiralty law an admiralty action was commenced by the issue of the writ. The right of a claimant to assert a statutory right of an action in rem arose from that time and was enforceable by the arrest of the named vessel. A change in ownership of the vessel after the issue of the writ did not affect the claimant’s entitlement to arrest the vessel and to enforce its claim against that vessel.

As a result of this decision, a practice developed for claimants to issue in rem writs in countries that accepted the mv Monica S principle.

Protective writs would be issued to protect claims from prescribing and where the claimant was concerned that the shipowner might sell the vessel in order to prevent claimants proceeding in rem against it either because the claim was financially significant and uninsured or because the parent company was in financial difficulty or liquidation. The protective writs could then be held pending the vessel’s arrival in a port covered by the writ whereupon the defendant vessel could then be arrested notwithstanding any change in ownership.

The justification for imposing liability on an innocent third party for the debts of another is not clearly expressed in the judgments dealing with this issue but appears to be a combination of two propositions. The first is that the purchaser of a ship is deemed to be aware of the mv Monica S principle and, as a prudent purchaser, should carry out a writ search in the relevant jurisdictions. The second is that maritime law recognises certain maritime claims as attaching to a ship regardless of any change of ownership and a protective writ was accordingly not unique in creating a maritime lien. Neither of these contentions could be accepted by the proponents of the sanctity of property rights and, with respect, lack commercial sense.

In many jurisdictions it is simply not possible to carry out writ searches. In other jurisdictions it is not practical to do so. In South Africa a prospective purchaser would have to appoint lawyers to scour through the admiralty registries in four High Courts to carry out writ searches.. That number would rise into the thousands if writ searches were to be carried out globally.

Insofar as the maritime lien argument is concerned, although some countries, the US perhaps unsurprisingly in the lead, recognise numerous maritime liens, the common law countries effectively only recognise the traditional, or “true” maritime liens referred to above. Those liens are all claims intimately tied to either services to the ship herself or damage caused by the ship herself.

Officially bottomry and respondentia bonds are also maritime liens which were introduced by the code of Hammurabi of Mesopotamia in about 1754 BC. They survived into the nineteenth century but are now only of interest to legal historians.

There appears to be no basis in logic to allow a simple trade creditor to acquire the special rights attaching to a maritime lien by virtue of simply issuing an in rem summons quickly.

Facts of the case in brief

The Respondents were German registered companies who owned the MV Mare Tracer and MV Mare Traveller and had chartered them to Hanjin Shipping Company Limited (Hanjin). The Respondents had claims for unpaid charter hire against Hanjin arising out of those charters. Being one of the world’s top ten container carriers in terms of capacity did not prevent the Seoul Central District Court granting an order on September 1, 2016 commencing liquidation proceedings against Hanjin. On September 2, 2016 (and prior to Hanjin being liquidated) the German owners caused summonses in rem and warrants of arrest to be issued, inter alia, out of the High Courts in Durban and Cape Town in the exercise of their admiralty jurisdiction.

Those summonses reflected various allegedly associated ships as defendant vessels which included the MV Seaspan Grouse, formerly the MV Hanjin Gdynia and MV Mount Meru, formerly MV Hanjin Cape Lambert.

At the time the protective writs were issued the potentially associated ships were owned by one-ship companies, the sole shareholders of which were employees of Hanjin. In terms of the associated ship provisions of the Act, the Respondents would be entitled to proceed against the associated ships on the basis that they fell under the common control of Hanjin.

The MV Hanjin Gdynia was sold and delivered to an independent third party in December 2016 and the MV Hanjin Cape Lambert was sold and delivered on February 13, 2017 and again on March 1, 2017 as a result of action taken by banks that held mortgages over the vessels. Hanjin was finally declared insolvent on February 17, 2017.

The third party purchasers of the vessels had no knowledge of the protective writs.

On August 23, 2017, the Respondents arrested the MV Seaspan Grouse in Durban pursuant to the protective writ at that port. The arrest was discharged after security was provided. On September 18, 2017, the Appellants applied to set aside the arrest on the basis of the change of ownership. The Durban High Court dismissed this application accepting that the Monica S principle applied in South African law. Having learnt of the protective writ in Cape Town, the Respondents then also applied for an Order setting aside the issue of that summons and, in contrast to the position in Durban, that Order was granted by the Cape Town Court. By agreement between the parties, the judgment of the Durban High Court was taken on appeal to the Supreme Court of Appeal (SCA).

Findings on appeal

In terms of the Act, a maritime claim can be enforced by way of an action in rem if the claimant has a maritime lien over the ship concerned or if the owner of the ship concerned would be liable in personam. Section 3(6) of the Act further provides that an action in rem may be brought by the arrest of an associated ship instead of the ship concerned. Section 3(7) provides that an associated ship means a ship other than the wrongdoing ship which is “owned, at the time when the action is commenced” by the person who owned or controlled the wrongdoing ship or by a company which is controlled by the person who owned or controlled the wrongdoing ship when the maritime claim arose.

The critical issue and one which led, in part, to the debate as to whether or not the Monica S principle should be recognised is this: insofar as associated ships are concerned, the relevant time for determining association (ie, the joint control of the shipowning companies) is the time when the action was commenced. In this case there was no dispute that the claimants had claims in personam against Hanjin and that all of the Hanjin vessels named as associated ships in the writs were at that time controlled by Hanjin.

If the claimants’ actions commenced when the writs were issued then they would be entitled to arrest the vessels notwithstanding the subsequent change in ownership. If however the actions were only commenced when the summons and warrant of arrest were served, then the claimants were not entitled to arrest the vessels because the vessels were no longer under the control of Hanjin, but had been sold by bona fide means to third parties ...

This entailed an examination by the SCA of section 1(2) of the Act which, after its amendment in 1992, provided that:

“(a) an admiralty action shall for any relevant purpose commence –

(i) by the service of any process by which that action is instituted;
(ii) by the making of an application for the attachment of property to found jurisdiction;
(iii) by the issue of any process for the institution of an action in rem;
(iv) by the giving of security or an undertaking as contemplated in section 3(10)(a).”

The court accepted that prior to its amendment in 1992, section 1(2) was concerned only with the commencement of an admiralty action in the context of statutory time bars and limitation periods. The amendment introduced the notion that the alternative commencement periods were for any “relevant” purpose.

Having considered arguments advanced in relation to cases decided before and after the amendment, the SCA held that the section did not fix a single commencement date for every admiralty action being the first date occurring amongst the four alternatives in section 1(2). It held that there was a choice of commencement dates depending on the purpose for which the date of commencement of the action was relevant. This finding has important ramifications as it attempts to prevent shipowners opening a new line of attack on protective writs. Whether that attempt is successful will be discussed further below.

The underlying issue that the SCA had to consider was that it appeared on the face of it that the Act would allow the arrest of associated ships that had changed ownership after the issue of a protective writ, but would not allow for the arrest of the wrongdoing ship should her ownership change after a protective writ was issued. This is because section 3(5) of the Act provided that an action in rem is instituted by the arrest of a ship against which the claim arises and section 3(4) provides that an action in rem only lies if the claimant has a maritime lien or if the owner of the property would be liable in personam. If the wrongdoing ship’s ownership changed the claimant would no longer have a claim in personam against her owner and could no longer arrest the ship.

The associated ship provision however specifically provides that for the purposes of association one has to look at the ownership of control of the guilty ship at the time when the action is commenced which is when the protective writ is issued. The principal drafter of the Act, Douglas Shaw QC, conceded that this was anomalous and would require either the amendment of the Act or the intervention of the court.

The SCA has now intervened and held that the first and third alternatives offered by section 1(2) as to when an admiralty action commences have to be read with purpose due to the introduction of the requirements of “relevance”. It cannot be said simply that the first alternative relates only to actions in personam where service of the process is required. The fact that actions in rem are specifically mentioned in the third alternative did not prevent the first alternative also governing actions in rem.

In support of this argument they relied on section 3(4) of the Act which states that an action in rem can be effected if the claim in pesonam lies against the owner of the property to be arrested. In passing, the court also relied on the fact that it would be anomalous if actions in rem could be effected by the arrest of property after a change of ownership, but it was clear from the wording of the Act that attachments to found and confirm jurisdiction and so called security arrests could not be effected after change of ownership.

In conclusion the majority held that the decision in Monica S simply did not apply under South African law. As a result unless a Plaintiff enjoyed the special protection offered by the limited category of maritime liens, a Defendant vessel could only be arrested if the owner of the vessel would be liable to the Plaintiff in personam. This is regardless of whether the Defendant is the wrongdoing ship or an associated ship.

The minority decision by Makgoka JA agreed with the findings of the Durban High Court for a number of reasons none of which will, in our view, find favour with the Constitutional Court should that court eventually hear this matter. The dissenting Judge asserted that prior to amendment of the Act in 1992, the Monica S principle applied in South African law due to its import via the provisions of section 6(1) of the Act which enjoined South African courts in the exercise of their admiralty jurisdiction to apply English law in respect of any maritime claims over which the Colonial Courts of Admiralty would have exercised jurisdiction at the commencement of the Act. A judgment handed down shortly before the amendment of the Act accepted that this was the case and, the Judge held that Parliament could, if it disagreed with the judgment, have amended the Act to make it clear that Monica S did not apply. In failing to do so, the implication is that Monica S did apply.

In addition, the dissenting Judge held that consideration should be given to the peculiar and unique difficulties which maritime claimants face in seeking to enforce their claims and to the novel procedures which have developed to assist maritime claimants in this regard. This is particularly in light of the far reaching arrest provisions of the Act. The Judge was of the view that the provisions of the Act should be given a generous interpretation consistent with its purpose to assist maritime claimants to enforce maritime claims.

Finally, the Judge was of the view that it would be artificial to hold that admiralty actions commence at various times depending on what purpose was being looked at by the claimants.

Effect on shipowners and future of protective writs

The clear and immediate effect on shipowners and on claimants is the fact that any protective writs currently issued in South Africa and any issued prior to a possible reversing of the Supreme Court of Appeal’s decision by the Constitutional Court will not survive a change of ownership either of the wrongdoing ship or of any associated ships named in those protective writs. In circumstances where the Plaintiff knows, or ought reasonably to know, that there has been a change of ownership, any arrest of the ship would probably be held to be wrongful and would expose the Plaintiff to a claim for damages for wrongful arrest. On the basis of this judgment the arrest would, in any event, be set aside.

The judgment turned in part on the fact that there may be a number of dates on which an admiralty action may commence. The relevant date will be determined by the purpose behind the commencement of the action. This would accordingly affect which of the four possibilities listed in section 1(2) would apply in any given situation.

The majority judgment closes with sentences designed to comfort claimants that have issued protective writs in order to protect against not a change of ownership of the Defendant vessel(s) but against the effluxion of time and accordingly the prescription of the claim. Those sentences provide that:

“That does not mean that protective writs cannot be issued in South Africa and served when the vessel comes within the jurisdiction. It merely means that such a writ gives no protection to a claimant against an intervening bona fide change of ownership.”

These sentences were designed to deal with the anticipated argument that if an admiralty action in rem only commences when it is served on the ship then, as with an action in personam, prescription is only interrupted when the summons is served. This argument would undermine the significant percentage of protective writs that are issued in South Africa and other maritime jurisdictions in order to prevent a maritime claim prescribing and in the hope that the defendant vessel(s) calls at one of the ports before that summons lapses in order for the vessel to be arrested and proceedings instituted.

Typically those summonses are issued in order to protect against one year time bars contained in contracts of carriage evidenced by bills of lading, two year time bars in respect of collisions governed by the Collision Convention and six year time bars in respect of contracts, particularly charterparties, governed by English law.

Although the court has specifically stated that the judgment is limited to holding that a writ gives no protection against intervening bona fide change of ownership, there is nothing preventing defendant shipowners from raising the same arguments in respect of protective writs where the purpose of the writ was to protect against prescription. As with protective writs designed to protect against change of ownership, an owner typically has no knowledge of the issue of the prescription protective writs and cannot realistically carry out a search in all maritime courts to determine whether such a writ has been issued.

The owner clearly cannot rely on the private property law and sympathy argument that he or she has nothing to do with this claim, but we have little doubt that in an appropriate case the arguments raised in this judgment will be raised in respect of protective writs commenced for other relevant purposes.

Possible Constitutional Court outcome

The Respondents have applied for leave to appeal to the Constitutional Court. A decision on that application is expected within a few months and, if granted, the application will be heard during the course of this year.

The primary constitutional debate will be whether or not the arrest of a ship constitutes a breach of section 25(1) of the Bill of Rights which provides that:

“No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.”

This provision is found in Chapter 2 of the Constitution against which all legislation is tested.

It had been anticipated that this issue would already have been tested against the associated ship provisions contained in the Act, but surprisingly that issue has not yet reached the court. The associated ship provisions allow the claimant to arrest property owned by shipowner B on the basis of a claim against shipowner A simply because shipowner A and B fall under common control. There are good grounds for this reflecting as they do, an extension of the common ownership principles contained in the Arrest Convention of 1952 and reflecting the reality of international shipping where large fleets of vessels are isolated within one ship companies in order to protect each of those ships against arrest for claims against one of the others even though the person ultimately responsible for operating the ships is the same one.

The argument is that depriving shipowner B of her property because of a debt owed by shipowner A is a breach of section 25(1) and accordingly the associated ship provisions are unconstitutional. The response of course is that the layers of nominee owners are merely a legal device to avoid liability and that in fact A and B are beneficially owned by the same person so an associated ship arrest does not arbitrarily deprive B of its property for a debt incurred by A. An associated ship arrest deprives controlling or owning interest C of its property for a debt incurred by other property owned or controlled by C.

That response of course does not extend to the bona fide purchaser of a ship (that is not controlled by C). A bona fide purchaser of a ship arrested for claims about which that owner knows nothing and for which that owner is not liable is probably contrary to the Constitution and on that basis alone any possible appeal by the Respondents is likely to fail.