Summary of Judgment

1. Introduction

The proceedings took the form of an application to set aside an admiralty arrest. The applicant, Borne Logistics CC, asserted ownership of funds held in a bank account that had been arrested by the respondent pursuant to the institution of an action in rem in the KwaZulu-Natal Local Division, Durban, exercising its admiralty jurisdiction.

The respondent, Zvoimpex a.s (a Slovakian company, trading as Valasaha a.s), had issued an admiralty summons in rem in which the cited defendant was described as “The Freight Advanced to Borne Logistics CC” held in a specified First National Bank account. A warrant of arrest was executed by the sheriff, who recorded that “all funds” held in the account as per the warrant were arrested.

The central procedural history relevant to the decision was that the respondent proceeded under the Admiralty Jurisdiction Regulation Act 105 of 1983 on the basis that its claim was a maritime claim, and Borne Logistics challenged this characterisation. The court treated the classification of the claim as determinative: if it was not a maritime claim as defined, the matter could not proceed in admiralty and would have to continue in the court’s ordinary civil jurisdiction.

The general subject-matter of the dispute concerned payments made under CIF sale agreements for timber logs, alleged non-delivery, cancellation, and a claim for restitution of monies paid, with the respondent attempting to frame part of the payments as freight to bring the dispute within admiralty jurisdiction.

2. Material Facts

The claim arose from written agreements for the sale of timber logs by Borne Logistics to Zvoimpex. The agreements were attached to the summons and were described as CIF contracts, with delivery to take place at the ports of Shanghai and Nansha in China. Three contracts were concluded, each providing for payment of a deposit and payment of the balance against delivery of copies of shipping documents.

On the respondent’s version, it made a number of payments to Borne Logistics under the first two agreements and received delivery of some timber in partial fulfilment. It alleged that Borne Logistics thereafter failed to deliver the remaining timber, leading Zvoimpex to cancel the contracts and seek repayment of money in respect of which it contended timber had not been received.

It was not in issue that the respondent’s summons in rem and the ensuing warrant of arrest targeted funds in a bank account, described in the process as “freight” advanced and held at First National Bank. The sheriff’s return recorded the arrest of “all funds” currently held in the identified account.

The key factual dispute relevant to the outcome concerned the proper characterisation of the respondent’s claim. Borne Logistics characterised the claim as restitution under contracts of sale (non-maritime). The respondent contended that part of what it had paid constituted freight, and that the claim to that extent fell within the statutory definition of a maritime claim.

3. Legal Issues

The central legal question was whether the respondent’s claim, properly characterised, constituted a “maritime claim” as defined in the Admiralty Jurisdiction Regulation Act 105 of 1983, such that an action in rem and arrest in terms of admiralty procedure was competent.

This primary question was one of application of law to fact: the court had to classify the claim arising from CIF timber sale contracts and decide whether it fell within any statutory category of maritime claim, including the category relied on in argument relating to claims “arising out of or relating to the carriage of goods in a ship, or any agreement for or relating to such carriage” (s 1(1)(h)).

Although other issues were raised on the papers and in argument—namely whether the funds were capable of being arrested in rem, and whether an arrest could stand as a form of security for an action in personam absent a valid action in rem—the court treated those issues as non-determinative once the maritime-claim question was resolved, and accordingly did not decide them.

4. Court’s Reasoning

The court approached the matter by first determining the nature of the underlying claim, because the existence of a maritime claim was foundational to admiralty jurisdiction and the validity of the arrest. The court accepted that if the claim was not a maritime claim as defined, the remaining debates concerning the mechanics or effects of the arrest would fall away and the matter would have to proceed in the ordinary civil jurisdiction.

In explaining the CIF context, the court noted that under a CIF (Cost, Insurance and Freight) contract, the contract price includes, as a lump sum, the cost of the goods together with insurance and freight to the named destination. The court further described that in such arrangements the seller bears obligations to place the goods into the possession of a carrier for shipment, obtain a negotiable bill of lading, obtain a receipt showing freight has been paid or provided for, procure insurance, and forward the documents necessary for shipment and contractual compliance. On this footing, the contracts relating to carriage, freight, and insurance are concluded between the seller and the carrier/insurer, and the buyer is not a party to those contracts.

Applying these principles to the facts, the court reasoned that the payments made by the respondent to Borne Logistics were part payments of the purchase price for timber. Critically, there was no obligation on the respondent to pay freight or insurance premiums as separate obligations. The court held that the mere fact that the CIF purchase price included the seller’s expenses in respect of freight and insurance did not transform the buyer’s payment into a claim “for freight” or otherwise convert a sale dispute into a carriage dispute.

The respondent’s principal submission was that the claim fell under s 1(1)(h) of the Act, dealing with claims arising out of or relating to the carriage of goods in a ship or an agreement for such carriage. The court rejected this submission on the basis that the respondent’s claim arose out of and related to the purchase of timber, not the carriage contract, and that carriage (and any agreement for carriage) was a matter between the seller and the carrier, not between the respondent and the carrier.

The court also addressed other potential definitional routes raised in argument and found them inapplicable. It held that reliance on subsection (i) was misplaced because the claim had nothing to do with a container. Subsection (p) was held not to apply because there was no involvement of any of the persons mentioned in that subsection. Subsection (ee) was also found not to assist because the claim remained one for restitution under a contract of sale, and therefore not a marine or maritime matter as contemplated.

Having determined that the claim was not a maritime claim, the court stated that this conclusion was consistent with decisions in the same division, namely Vidal Armadores SA (Owner of the MFV Galaecia) v Thalassa Export Co Ltd and Minesa Energy (Pty) Ltd v Stinnes International AG. The court’s finding rendered it unnecessary to decide the additional points concerning, among other things, the arrest of an unquantified part of an indivisible fund or the possibility of treating the arrest as a security arrest for an action in personam.

The court then applied s 7(2)(b) of the Act, holding that the matter should proceed in the ordinary civil jurisdiction of the court rather than in admiralty.

5. Outcome and Relief

The court held that the respondent’s (plaintiff’s) claim was not a maritime claim as defined in the Admiralty Jurisdiction Regulation Act 105 of 1983.

The registrar was directed to allocate a case number to the matter in the ordinary civil jurisdiction of the court, and the plaintiff was granted leave to amend its summons in accordance with the Uniform Rules.

The court set aside the arrest of the funds in the bank account referred to in the warrant of arrest.

The respondent was ordered to pay the costs of the application, including costs reserved on 31 January 2022 (as reflected in the amended order).

Cases Cited

The judgment referenced the following authorities: Lendalease Finance (Pty) Ltd v Corporation De Mercadeo Agricola and Others 1976 (4) SA 464 (AD); Vidal Armadores SA (Owner of the MFV Galaecia) v Thalassa Export Co Ltd 2006 JDR 0379 (D); Minesa Energy (Pty) Ltd v Stinnes International AG 1988 (3) SA 903 (D).

Legislation Cited

The judgment applied the Admiralty Jurisdiction Regulation Act 105 of 1983, including reference to the definition of “maritime claim” in s 1(1) (with specific mention of subsections (h), (i), (p) and (ee)) and the direction to proceed in ordinary civil jurisdiction in s 7(2)(b).

Rules of Court Cited

The judgment referred to the Uniform Rules of Court in granting leave to amend the summons in accordance with those rules.

Held

The court found that, notwithstanding the CIF character of the sale agreements and the inclusion of freight and insurance components in the lump-sum purchase price, the respondent’s cause of action was properly characterised as a claim for restitution under contracts of sale arising from alleged non-delivery and cancellation. Because the buyer was not obliged to pay freight as a distinct obligation and was not a party to the carriage contract, the claim did not fall within the statutory definition of a maritime claim, including the category dealing with carriage of goods by ship.

As a result, the admiralty action in rem could not competently be pursued on this cause of action, and the arrest of the bank-account funds effected under the warrant of arrest was set aside. The matter was directed to continue under the court’s ordinary civil jurisdiction, with leave granted to amend the summons accordingly, and costs were awarded against the respondent.

LEGAL PRINCIPLES

A claim must fall within the statutory definition of “maritime claim” in the Admiralty Jurisdiction Regulation Act 105 of 1983 to ground admiralty jurisdiction and to justify admiralty process such as an action in rem and arrest.

Under a CIF sale contract, although the price includes cost, insurance, and freight, the buyer’s payment remains payment of the purchase price for the goods; the contracts of carriage, freight, and insurance are concluded between the seller and the carrier/insurer, and the buyer is not, merely by paying a CIF price, transformed into a party to a carriage agreement.

A dispute framed as restitution arising from non-performance and cancellation of a contract of sale, even where performance contemplated shipment by sea, does not without more become a claim “arising out of or relating to the carriage of goods in a ship” within the meaning of the maritime-claim definition. Where the claim is not a maritime claim, the matter must proceed in the court’s ordinary civil jurisdiction and admiralty arrest based on such a claim is not sustainable.