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South Africa: Claims against bareboat charterers and effects of insolvency

10 March 2023
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On 14 March 2018, Mr Van Niekerk arrested the passenger ferry ‘Madiba I’ in Table Bay Harbour while operating between Cape Town and Robben Island. He had been closely involved in the construction of the ship and had part-financed its conversion from an offshore supply vessel to a ferry. The financing took the form of a loan to the ship’s bareboat charterer, Meltt (Pty) Ltd; a company contracted by the Robben Island Museum to operate a passenger ferry service.

After Meltt defaulted on repaying the loan, Van Niekerk commenced an admiralty action in rem against the Madiba I based on, among other things, his claim against Meltt, as bareboat charterer, under the loan agreement.

The claim was premised on section 1(3) of the Admiralty Jurisdiction Regulation Act (Admiralty Act), which provides that a charterer by demise (ie, bareboat charterer) is deemed to be, or to have been, the owner of the ship for the period of the charter by demise for the purposes of an action in rem.

Following the arrest, the owner of the Madiba I, Isocorp Investments (Pty) Ltd, stepped in and provided security by way of cash in an escrow account so that the ship could be released from arrest and continue trading. Isocorp then proceeded to defend the claim in the main action.

The litigation proceeded in the ordinary course until it came to the attention of the parties that another of Meltt’s creditors had, in fact, filed an application for the winding up of Meltt about a week before the commencement of the in rem proceedings.

This realisation prompted Isocorp to apply to the court for leave to introduce special defences (or special pleas) on the grounds that Van Niekerk’s arrest of the Madiba I null and void. The essence of the argument was that when an application for the winding up of a bareboat charterer is filed at court, the ship that is the subject of the charter (and is deemed to be owned by the bareboat charterer) falls into the insolvent estate of the bareboat charterer and under the control of the charterer’s liquidator. Thus, any subsequent arrest or attachment by a maritime creditor is void as per section 359(1)(b) of the Insolvency Act.