South Africa’s Supreme Court of Appeal handed down an important judgement on protective writs. The decision represents a departure from the English law principle in The Monica S and cements South African admiralty law as being one which departs from the international norm. 

The decision confirms that the mere issuing of a writ at court is not sufficient to protect against legitimate changes in ship ownership.

The judgment will have an impact on maritime creditors, ship owners and insurers alike.

Background

As reported in our Shipping and Logistics newsflash dated 25 July 2017, Craig Cunningham and Lana Jacobs represent the purchasers of several vessels formerly controlled by Hanjin Shipping in challenging the enforceability of protective writs issued shortly before the bankruptcy of Hanjin Shipping, by creditors Mare Tracer Schifferhrts GMBH & Co KG and Mare Traveller Schifferhrts GMBH & Co KG.

In an attempt to protect their claims against anticipated changes in ownership of Hanjin controlled vessels, these plaintiffs (claimants) sought to rely on the problematic provisions of South Africa’s Admiralty Jurisdiction Regulation Act 105 of 1983 (AJRA) which, on one view, appear to provide claimants with a statutory maritime lien on the mere issuing of the arrest papers at court.

The existence of these ‘protective’ writs has created an ongoing risk of arrest to all purchasers, should their vessels trade into or near South African ports, while under the threat of a writ.

A further complication in the context of proceedings in South Africa is that the scope of the target vessels is widened by the liberal ‘associated’ ship provisions, which make it possible for a claimant to arrest any of the vessels in a fleet, if those vessels are owned or controlled by the same beneficial owner as the vessel against which the underlying claim lies. In the case of the claims asserted in the Mare cases mentioned above, the writ cited over 70 vessels as possible defendants in the action in rem issued in South Africa.

The protective writs were issued on 1 September 2016, after the initial Hanjin rehabilitation order was granted by the Korean courts but before the vessels were sold, and named a number of vessels as defendants, including the MV ‘Hanjin Cape Lambert’ and the MV ‘Hanjin Gdynia’.

Both of these vessels were sold on a commercial basis by private treaty as Hanjin Shipping’s mortgagee banks exercised their rights in terms of the loan security and resolved to dispose of these assets. The MV ‘Hanjin Cape Lambert’ was sold to Tebtale Marine Inc. and the MV ‘Hanjin Gdynia’ to Seaspan Corporation. Bowmans represented both purchasers in the South African proceedings.

The Tebtale decision in the Western Cape

In March 2017, Tebtale brought an application to have its vessel (Hanjin Cape Lambert, renamed Mount Meru) struck out of the writ as a defendant on the basis that a legitimate transfer of ownership had taken place prior to the arrest of the vessel and that the commencement of proceedings for the purposes of the enforcement of a claim arose only upon physical service of the writ of summons on the vessel and not simply on the issue of the protective writ at court.

This argument stood in contrast to the principle set out by Brandon J in the case of The Monica S [1967] LR 113 in terms of which the court held that a change of ownership after the issue of a protective writ but prior to arrest, does not defeat a plaintiff’s claim in rem against the vessel.

On 21 July 2017 Burger AJ handed down judgment in the matter of Tebtale Marine Inc. v MS Mare Traveller Schiffarhrts GMBH & CO KG.

The court accepted that, on the basis of an interpretation of the wording of the AJRA, the ‘Monica S principle’ does not apply in South Africa and that the issue of a protective writ without a physical arrest is not sufficient to protect against changes in ownership of a defendant vessel where the sale is conducted on a legitimate arms-length basis. On the facts of the case, the judgment is confined to the Mount Meru owned by the applicant in the matter.

The principle to be distilled from the decision is that where there has been a legitimate change in ownership after the issue of a protective writ, but prior to an actual arrest, an arresting creditor cannot lawfully proceed with an arrest.

This principle was successfully applied in the Western Cape to have other vessels previously owned by Hanjin Shipping removed from the protective writ issued by the same creditors.

Given that the decision of Burger AJ was confined to the jurisdiction of the Western Cape High Court, it was not binding on other divisions of the South African High Courts.

The Seaspan Grouse decision in KwaZulu-Natal

In August 2017, following the judgment of Burger AJ in the Western Cape, the same creditors arrested the MV ‘Seaspan Grouse’ (ex MV ‘Hanjin Gdynia’) in Durban under the same protective writ, issued out of the Durban High Court.

Seaspan Corporation, the owners of the vessel at the time of her arrest, challenged the arrest on the same grounds as advanced in the Western Cape proceedings before Burger AJ, but the Durban High Court found in favour of the claimant creditors who had arrested the MV ‘Seaspan Grouse’ under the protective writs. 

The obvious result of the Durban judgment was that it gave rise to contradictory legal precedents in different admiralty divisions of the High Court, creating a highly undesirable situation.

Given the conflict and the importance of the legal issue sought to be determined, the matter was ripe for an appeal to the apex civil court, South Africa’s Supreme Court of Appeal (SCA).

Seaspan Corporation successfully sought leave to appeal to the SCA.

The Seaspan Grouse decision before the SCA

The matter was heard by the SCA on 12 November 2018, before a formidable bench consisting of the President of the SCA, Maya JA, Wallis JA a well-respected shipping law expert and Judges of Appeal, Schippers, Molemela and Makgoka.

The SCA handed down judgment on 1 February 2019 in which it found in favour of Seaspan and upheld the appeal. (MV Seaspan Grouse: Seaspan Holdco 1 Ltd vs Mare Traveller Schiffahrts GmbH [2019] ZASCA)

Wallis JA and Schippers JA delivered a comprehensive judgment canvassing the legal issue at hand, which concentrated on the proper interpretation and construction of the AJRA.

Reviewing the wording, context, policy and intention of the legislature, the SCA determined that:

“…the arrest provision of the AJRA are incompatible with the decision in the Monica S and therefore that judgment cannot apply in South African admiralty law, whether in relation to the arrest of the ship concerned or an associated ship.  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”.

Where to from here?

It is not clear whether this is the final word on the issue of protective writs. It remains open to the unsuccessful respondents to apply to the Constitutional Court to hear the matter if the Court is satisfied that the case raises an arguable point of law of general public importance. We await further developments on this aspect.

For now, at least, bona fide purchasers of ships can breathe a sigh of relief when trading to or near South African ports, without the threat of arrest for debts incurred by previous owners hanging over their heads. For their part, maritime creditors are obliged to establish a link between the claim and the owner at the time of physical service of the papers on the vessel in the jurisdiction.

A copy of the judgment is available here.