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[2010] ZASCA 118
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MV IRAN DASTGHAYB Islamic Republic of Iran Shipping Lines v Terra-Marine SA (19/2010) [2010] ZASCA 118; 2010 (6) SA 493 (SCA) ; [2011] 1 All SA 468 (SCA) (23 September 2010)
Links to summary
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 19/ 2010
NAME
OF SHIP:
MV IRAN
DASTGHAYB
ISLAMIC
REPUBLIC OF IRAN SHIPPING LINES
.................................
Appellant
and
TERRA-MARINE
SA
..........................................................................
Respondent
____________________________________________________________
Neutral citation:
MV IRAN
DASTGHAYB Islamic Republic of
Iran Shipping Lines v Terra-Marine SA
(19/10)
[2010] ZASCA 118
(23 September 2010)
BENCH:
HARMS DP, LEWIS, PONNAN and MHLANTLA JJA and
K
PILLAY AJA
HEARD: 6 SEPTEMBER 2010
DELIVERED: 23 SEPTEMBER 2010
SUMMARY:
Admiralty Jurisdiction Regulation Act 105 of 1983 –
associated ship – s 7(1)(b) – stay of proceedings for any
other sufficient reason.
______________________________________________________________________
ORDER
______________________________________________________________________
On
appeal from
:
The KwaZulu-Natal High Court
(Durban) (Exercising its Admiralty Jurisdiction) (Patel J)
1 The appeal is upheld with costs.
2 The order of the court below is set aside and substituted with an
order in the following terms:
'(a) The respondent's action
in rem
against the
MV Iran
Dastghayb
under case number A148/2005 is stayed in terms of
section 7(1)(b) of the Admiralty Jurisdiction Regulation Act 105 of
1983 pending
determination of the respondent's claims in the
arbitration proceedings in London.
(b) The order for the stay of the
in rem
action in paragraph
(a) hereof is made subject to the second applicant providing security
to the respondent for any final and un-appealable
arbitration award
in the arbitration proceedings (and also in the
in rem
proceedings should the stay of the action be lifted). Such security
shall be restricted to the claims identified in paragraph 59
of the
founding affidavit of Mr Reddy at pages 43-45 of the record as
arising after 13 December 2000 and limited to the capital
sum of
USD830 420.43 in respect of:
(i) Unpaid management fees in the sum of USD632 100.00;
(ii) Steel work and repairs in respect of the
MV Eco Elham
in
the sum of USD11 000.98;
(iii) Steel work and repairs in respect of the
MV ECO Ekram
in
the sum of USD156 044.45;
(iv) P & I Insurance reimbursement in relation to the
MV ECO
Ekram
in the sum of USD15 315.00;
(v) Bunkers at Karachi USD15 960.00,
together with USD99 650.45 in respect of security for interest and
USD25 000.00 in respect of legal costs; and
(c) Upon the provision of such limited substitute security the
security previously provided by the second applicant shall be
cancelled
and the respondent is directed to return all and any
letters of undertaking furnished in that regard to the applicants'
attorneys
for cancellation.
(d) The respondent is ordered to pay the second applicant's costs,
such costs to include the qualifying fees of the expert witness
Dr
Iraj Babaei.’
____________________________________________________________________________________
JUDGMENT
______________________________________________________________________
PONNAN JA (HARMS DP, LEWIS and MHLANTLA JJA and K PILLAY AJA
concurring):
[1] During 1995 Eco Shipping Company PJS (ESC), a
private joint stock company was registered and incorporated in the
Islamic Republic
of Iran with a view to providing a vehicle to ten
Asian Islamic countries
1
to enable them to engage in shipping as a joint
venture. On the formation of ESC, the appellant, the Islamic Republic
of Iran Shipping
Lines (IRISL), a ship owner incorporated and
registered according to the laws of the Islamic Republic of Iran,
bareboat chartered
two vessels, the
Eco
Elham
and the
Eco
Ekram
, to ESC.
[2] By written agreement dated 27 January 1997 the respondent,
Terra-Marine SA (Terra-Marine), a company duly registered and
incorporated
with limited liability in accordance with the laws of
Switzerland, was contracted to manage and administer the vessels on
behalf
of ESC. In terms of the written Ship Management Agreement
between ESC and Terra-Marine, the latter had inter alia the following
responsibilities:
(a) to employ and recruit personnel to crew the vessels;
(b) to maintain the vessels;
(c) to supply the vessels with provisions; and
(d) to generally manage the vessels in accordance with the usual
applicable international practice and to thereafter account to
ESC.
[3] Clause 6.9 of the Agreement provided:
'In case of any controversy arising out of the
interpretation or enforcement thereof, it should at the first place
be settled through
mutual negotiation. If the parties fail to reach
an agreement in this way, then the matter shall be submitted for
arbitration in
London to be adjudged under the provisions of English
laws.'
Disputes did indeed arise between Terra-Marine and ESC resulting in
the former commencing arbitration proceedings against the latter
in
London. A sole arbitrator was appointed during November 2003.
Terra-Marine, as the claimant, delivered its points of claim during
October 2004 and ESC its defence and counter-claim during December
2004. On 10 January 2005, by resolution of its members, ESC
was
placed in liquidation and Mr Syrious Khakpour was appointed its
liquidator. ESC is now represented by its liquidator in those
proceedings.
[4] On 23 December 2005 and whilst the London arbitration proceedings
were still pending, Terra-Marine commenced an action
in
rem
against some 92 vessels including the
MV Iran
Dastghayb
by
the issue of an
in rem summons
. On 6 March 2006 the
Iran
Dastghayb
was arrested pursuant to that action in terms of an
order granted by the Durban and Coast Local Division of the High
Court in the
exercise of its admiralty jurisdiction in terms of the
Admiralty Jurisdiction Regulation Act 105 of 1983.
[5] The order for the arrest of the
Iran
Dastghayb
was sought and obtained on
the basis that the
Iran Dastghayb
on the one hand and the
Eco
Elham
and the
Eco
Ekram
on the other are associated ships
within the meaning of that expression as defined in s 3(7) of the
Act. The
Iran Dastghayb
was
thereafter released from arrest after security was furnished by its
owner IRISL in the total sum of USD 1 999 220,
2
with the result that the vessel remained subject
to a deemed arrest.
[6] On 6 October 2006 IRISL launched an
application for an order inter alia: staying the
in
rem
proceedings in terms of s 7(1)(b)
of the Act pending determination of Terra-Marine’s claims in
the arbitration, subject to
it providing security for the claims,
interest and costs in the arbitration in substitution of the security
already furnished;
and directing Terra-Marine to furnish counter
security for IRISL’s counterclaims, interest and costs in the
arbitration.
3
The thrust of IRISL’s case was that: (a) the
claims which Terra-Marine sought to enforce against the
Iran
Dastghayb
in the
in
rem
action were claims arising out of a
contract between ESC and Terra-Marine that contained an express
provision requiring all such
claims to be submitted to and determined
by arbitration; and (b) those claims were already the subject of
pending arbitration proceedings
instituted by Terra-Marine against
ESC in London in terms of that agreement.
[7] By the time the application came to be argued
in the court below IRISL had abandoned its primary relief relating to
Terra-Marine
furnishing counter security. It also no longer sought,
as presaged in its replying affidavit, an order that the court simply
decline
in terms of s 7(1)(a)
4
to exercise jurisdiction in the
in
rem
action, with a consequential
dismissal of the action with costs and the return to IRISL of the
security furnished. In addition to
its claim that the action should
be stayed, it also persisted in its contention both in this court and
the one below that a number
of the claims sought to be advanced in
the
in rem
action,
whilst permissible claims in the arbitration proceedings against ESC,
were not claims enforceable
in rem
against the
Iran
Dastghayb
because it was not an
associated ship in relation to any claim that arose prior to 13
December 2000.
[8] Patel J, who heard the application, accepted Terra-Marine’s
submission that because IRISL was not a party to the agreement
giving
rise to the claims sought to be advanced
in
rem
against
its vessel the
Iran Dastghayb
, it could not invoke the
arbitration clause. He accordingly held that there was no basis upon
which IRISL could seek a stay of
the
in rem
action. Finding
that conclusion to be dispositive of the application in its entirety,
the learned judge dismissed the application
with costs but granted
leave to IRISL to appeal to this Court.
[9] Under s 3(4) a maritime claim may be enforced by an action
in
rem
in two circumstances, namely where the claimant has a
maritime lien over the property to be arrested or where the owner of
that
property would be liable to the claimant in an action
in
personam
in respect of that claim. In terms of s 3(4)(b) a
maritime claim may be enforced by an action
in rem
: 'If the
owner of the property to be arrested would be liable to the claimant
in an action
in personam
in respect of the cause of action
concerned'. Section 3(4) thus identifies the necessary conditions for
bringing an action
in rem
. Section 3(5) deals with the manner
in which such an action is to be brought, namely by the arrest:
'within the area of jurisdiction of the court concerned
of property of one or more of the following categories against or in
respect
of which the claim lies:
(a) the ship, with or without its equipment, furniture,
stores or bunkers;
(b) the whole or any part of the equipment, furniture,
stores or bunkers;
(c) the whole or any part of the cargo;
(d) the freight . . . , '
[10] Two issues thus arise on appeal: first, was
the court below correct in refusing to stay the
in
rem
proceedings in terms of s 7(1)(b)
of the Act pending determination of the claims in the arbitration;
and, second, is the
Iran Dastghayb
an
associated ship in relation to maritime claims that arose prior to 13
December 2000?
[11] Before those issues are examined, it will be
expedient, I consider, for a proper understanding of the matter, to
first record
some general observations. A useful starting point is s
3 of the Act, which sets out the circumstances in which a maritime
claim
may be enforced by an action
in
personam
or by an action
in
rem
. In
The
Berg
,
5
Milne JP
analysed the
nature of an action
in rem
in
these terms:
'I think it is also important to bear
in mind that the Act does not refer to claims
in
personam
and
claims
in
rem
,
but to claims which may be enforced either by an action
in
personam
or an
action
in rem
.
Once a claim is a maritime claim, then there are two
methods
of enforcing that claim where the
Court exercises its admiralty jurisdiction. One is by means of an
action
in personam
and the other is by means of an
action
in rem
.
In other words, it is not so much the nature of the cause of action
that is affected by whether the action is
in
personam
or
in
rem
, but the means
by which the same cause of action is enforced. This distinction is
clearly brought out in considering the historical
origins of actions
in rem
in British law.'
6
According to the learned Judge President:
'What does appear to be clear in both
British and American admiralty law is that the essence of the action
in rem
is the right to arrest a ship, and
the right to satisfy any judgment from the proceeds of the sale of
the ship or bail or security
provided in respect thereof.'
7
[12] Section 3(6) of the Act gives to a claimant
with a maritime claim the right to bring an action
in
rem
by the arrest of an associated ship
instead of the ship in respect of which the maritime claim arose. It
provides: ‘[a]n action
in rem
,
. . . may be brought by the arrest of an associated ship instead of
the ship in respect of which the maritime claim arose’.
An
associated ship is defined in s 3(7)(a) and (b) of the Act. What is
required is the existence of a 'ship in respect of which
the maritime
claim arose' and an associated ship which is either ‘owned, at
the time when the action is commenced, by the
person who was the
owner of the ship concerned when the maritime claim arose’ (s
3(7)(a)(i)); or a ship owned ‘by a
person who controlled the
company which owned the ship concerned when the maritime claim arose’
(s 3(7)(a)(ii)); or a ship
owned ‘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’ (s 3(7)(a)(iii)).
[13] Some five weeks after that ‘novel
procedure’
8
was introduced into our maritime law, it was
invoked by a claimant, Euromarine, in an application for the arrest
of the
Berg
,
a vessel owned by a South African company, in order to furnish
security for an arbitration in London. The validity of the arrest
was
challenged. Euromarine had time-chartered a vessel called the
Pericles
from
its owners, the second respondents in the high court application.
During the subsistence of that charterparty an explosion
occurred on
board the
Pericles
,
which was then berthed in Durban harbour. Euromarine alleged that the
explosion was due to the unseaworthiness of the
Pericles
in breach of the obligations of its owners under
the charterparty. It had suffered substantial damages in consequence
of the explosion,
which it was seeking to recover from the owners of
the
Pericles
in
arbitration proceedings in London. The purpose of the arrest of the
Berg
was
to enable Euromarine to obtain security for those proceedings.
Section 5(3)
9
of the Act made that possible. The owners accepted
that Euromarine had a claim that was enforceable by an action
in
rem
against the
Pericles
.
They also accepted that the
Berg
was an associated ship in relationship to the
Pericles
and
accordingly that the claim could have been pursued in an action
in
rem
in South Africa instituted by the
arrest of the
Berg
as
an associated ship. However, they contended that such an action
remained an action
in rem
against the
Pericles
and was not an action
in
rem
against the
Berg
itself. Milne JP disposed of that argument in
these terms:
'As that action would be commenced by
the arrest of the
Berg
,
and as any judgment in that action would be satisfied from the
proceeds of the
Berg
,
I cannot conceive that the action could be said to be anything other
than an action
in
rem
against the
Berg
.
'
10
[14] Later the learned Judge President stated:
'As I have already mentioned,
however, there is a vital distinction between an action commenced by
arresting the
Berg
in terms of s 3(5) and an action
commenced by arresting the
Pericles
in terms of that section. It is,
quite simply, this, that the action is against a different defendant.
This is not a mere matter
of form. If the
Berg
is arrested in terms of s 3(5) read
with ss (6) and (7), then, at any rate, if the action is undefended,
and is successful, it is
only the fund derived from the sale of the
Berg
which can be used to satisfy the
judgment. In what sense can it be said, one might ask, that the
action instituted by arresting
the
Berg
would remain one against the
Pericles
?
If the American approach is adopted to actions
in
rem
, then the
Berg
is the defendant and not the
Pericles
.
If the British approach is adopted, then the only sense in which it
can be said that an admiralty action
in
rem
is against a
particular vessel is in the sense that it is the proceeds of that
vessel that are used to satisfy the judgment, and
in this sense
clearly the action commenced by arresting the
Berg
remains one against the
Berg
.'
11
On appeal
12
that was endorsed by Miller JA in these terms:
'Such a provision, it was said, in effect provided the
legal machinery by which a claim could be enforced. It is true that s
3(6)
read with s 5(3) describes a method for recovery of money due to
one who has suffered injury or loss for which he has a maritime
claim, but it does much more than that; it gives to the claimant a
right which he never had before, namely to recover what is due
to him
from a party who was not responsible for the damage suffered by him.
It provides the claimant not only with a method of
recovery but with
an additional or alternative defendant. And by that token, it is
creative of new liabilities or obligations in
owners of ships, or the
potential thereof'.
[15] That reasoning, according to M J D Wallis
The
Associated Ship and the South African Admiralty Jurisdiction
13
is not only compelling but inescapable. He adds:
‘
[i]f one accepts, as English
courts have accepted from at least the latter part of the 19
th
Century, that the action
in
rem
has
the effect of “impleading the owner of property to answer to
the judgment of the court to the extent of his interest in
the
property”, then it is the owner of the associated ship who is
impleaded by the arrest of that vessel, not the owner of
the ship
concerned. If the American approach is adopted the fact is that the
action is directed at a different vessel. It necessarily
follows that
the proper characterisation of the action instituted by the arrest of
the associated ship is that it is an action
in
rem
against
the associated ship, not an action
in
rem
against the ship concerned.’
14
[16] The judgments in the
Berg
thus established from the very inception of the
Act that an action
in rem
against
an associated ship is something separate and distinct from an action
in rem
against
the ship concerned. Thus, whilst the action
in
rem
traditionally impleads the owner of
the ship concerned it can now be used to implead a third party,
albeit one closely connected
to the owner of the ship concerned.
15
[17] The decks have now been cleared for a consideration of the first
issue, namely the stay application. Section 7(1)(b) of the
Act
provides:
'A court may stay any proceedings in terms of this Act
if it is agreed by the parties concerned that the matter in dispute
be referred
to arbitration in the Republic or elsewhere, or if for
any other sufficient reason the court is of the opinion that the
proceedings
should be stayed.'
[18] In
MV Achilleus
v Thai United Insurance Company Ltd & others
16
Howard JP
17
considered himself bound by the decision of the
full bench of that division in
MV
Spartan-Runner v Jotun–Henry Clark Ltd
18
to hold,
conformably to
English law, that a plaintiff who sues in this country in breach of
an agreement to refer disputes to a foreign court
bears the onus of
showing why the court should not stay the proceedings and thereby
give effect to the agreement. The court referred
in this regard to
the following summary of the relevant principles by Brandon J in
The
Eleftheria,
19
which was adopted by the Court of Appeal in
The
El Amri
a:
20
'(1) Where plaintiffs sue in England in breach of an
agreement to refer disputes to a foreign Court, and the defendants
apply for
a stay, the English Court, assuming the claim to be
otherwise within its jurisdiction, is not bound to grant a stay but
has a discretion
whether to do so or not.
(2) The discretion should be exercised by granting a
stay unless strong cause for not doing so is shown.
(3) The burden of proving such strong cause is on the
plaintiffs.
(4) In exercising its discretion, the Court should take
into account all the circumstances of the particular case.
(5) In particular, but without prejudice to (4), the
following matters, where they arise, may properly be regarded:
(a)
In what country the evidence on the issues of
facts is situated, or more readily available, and the effect of that
on the relative
convenience and expense of trial as between the
English and foreign Courts.
(b)
Whether the law of the foreign Court applies
and, if so, whether it differs from English law in any material
respects.
(c)
With what country either party is connected,
and how closely.
(d)
Whether the defendants
genuinely desire trial in the foreign country, or are only seeking
procedural advantages.
(
e
)
Whether the plaintiffs would be prejudiced by having to sue in the
foreign Court because they would: (i) be deprived of security
for
that claim; (ii) be unable to enforce any judgment obtained; (iii) be
faced with a time-bar not applicable in England; or (iv)
for
political, racial, religious or other reasons be unlike to get a fair
trial.'
[19] Thus in principle, where claims arise out of
an agreement which requires that they be determined in some other
jurisdiction,
a party resisting a stay of those proceedings bears the
onus of showing why it should be permitted nevertheless to pursue
those
claims here. As it was put in
The
Rhodesian Railways Ltd v Mackintosh
21
the discretion of the court to refuse arbitration,
where such an agreement exists, was to be exercised judicially, and
only when
a ‘very strong case’ had been made out. The
court was there dealing with a different statute, but the comments
are
no less apposite, because, for, to borrow from Colman J, it is
‘based upon general principles’.
22
[20] These principles, to the extent that the
issue arises between the parties themselves to an arbitration
agreement, are well
settled. The question here is whether they apply
to a third party in the position of IRISL, who is not a party to the
arbitration
agreement. In arriving at his conclusion that IRISL could
not invoke the arbitration agreement, Patel J relied on
Freight
Marine Shipping Ltd v S Wainstein & Co (Pty) Ltd & othe
rs,
23
a case involving a claim for damage to cargo
carried on board a vessel. Three parties were cited, of whom two were
said (in the
alternative) to be the carriers of the cargo under the
bill of lading. The third was the agent of the carrier cited in terms
of
the provisions of the Merchant Shipping Act 57 of 1951. The bill
of lading contained an arbitration clause. The agent brought
proceedings
under the
Arbitration Act 42 of 1965
to have the action
stayed pending arbitration to resolve the question of liability on
the claim. That application was dismissed
on the basis that the agent
was not a party to the arbitration agreement. There the court held
that only a party was entitled under
that Act to seek a stay for the
purposes of enforcing an arbitration agreement.
[21] Of
Freight
Marine Shipping Ltd v S Wainstein,
Wallis
24
states:
‘
The case is relevant because
it identifies the basic problem facing the owner of an associated
ship in seeking a stay of an action
in
rem
properly
instituted in South Africa by way of the arrest of an associated
ship. Such owner is not a party to the arbitration agreement
(or the
contract embodying the exclusive jurisdiction clause) and the problem
it faces is therefore that its situation is not encompassed
by the
language of section 7(1)(b), because it has not been agreed “by
the parties concerned” that they will submit
their dispute to
arbitration or to determination by another court.'
[22] That reasoning formed the bedrock upon which
Terra-Marine’s opposition to the stay application rested. But
it approaches
the section as if it ends with the word ‘elsewhere’.
It ignores the disjunctive ‘or’ and all that comes
thereafter. The effect of the disjunctive 'or' is to differentiate
clearly between two situations when a court may grant a stay
in terms
of the section. The first where the parties concerned have agreed
that the matter in dispute be referred to arbitration
and the second
if for any other sufficient reason the
court is of the opinion
that the
proceedings be stayed.
[23] It follows that Patel J appeared not to
appreciate that he was empowered by the legislature to grant a stay
in two different
circumstances and that in relation to the second he
had a far wider discretion. He accordingly limited himself to the
first circumstance.
Even there he appears to have restricted himself
to whether IRISL could 'rely on', in the sense of enforce, the
arbitration provision.
In respect of that enquiry he concluded that
‘in my view there is no basis upon which the plaintiff could
commence arbitration
proceedings against IRISL and therefore there is
no basis on which IRISL can ask for a stay of the proceedings in this
forum’.
But that may have been to improperly fetter his
discretion in respect of the first circumstance and certainly in
respect of the
second circumstance he failed to exercise a discretion
at all. It thus becomes necessary to consider the second circumstance
which,
if applicable, will render it unnecessary to resolve whether
the first part of the sub-section does indeed encompass a party in
the position of IRISL or to determine whether
Freight-Marine
Shipping Ltd v S Wainstein
was
correctly decided.
[24] In support of its contention that the court should refuse to
stay the proceedings, Terra-Marine submits that if the liquidator
of
ESC formed the view that its claims are good and ESC's counter claims
bad, he could simply dissolve the latter mid arbitration
thereby
bringing those proceedings to an end. Were that to happen, so the
contention goes, the prejudice to Terra-Marine would
be enormous in
terms of wasted time, effort and money. The matter is dealt with
fully in IRISL’s replying affidavits. IRISL’s
expert, Dr
Iraj Babaei, an attorney and Professor of Law at the Allameh
Tabatabaii University of Teheran, points out that Article
208 of the
Iranian Commercial Code provides that a company in liquidation will
remain in existence until the liquidation is completed.
That, in
turn, so he states, expressly requires the 'settlement of all dues
and liabilities, collecting of amounts due to the company
and the
distribution of assets of the company'. The liquidator, according to
Dr Babaei, has no power at all to cause a company
in liquidation to
be de-registered until all claims against the company in liquidation
have been resolved or admitted and dealt
with in the liquidation and
distribution account.
[25] The liquidator confirms that this is and always has been his
understanding of the position. In his affidavit he states:
‘
I have been advised that
Terra-Marine SA have suggested that there exists a risk that I would
frustrate their pursuing of their
claims in the current arbitration
proceedings in London by purporting to finalise the liquidation of
ESC without reference to that
claim and thereafter proceeding to
deregister ESC.
I can categorically state that I have no such intention
and, indeed, that course of action had not occurred to me.
I appreciate (and have always appreciated) that the
finalising of the liquidation of ESC requires that all claims,
whether in favour
of or against ESC, be resolved and dealt with in
ESC's liquidation account.
My understanding is that I cannot lawfully purport to
finalise the liquidation of ESC whilst the claims of Terra-Marine
remain in
dispute.'
[26] Terra-Marine advanced no other factual circumstance in support
of its contention that the court should refuse to stay the
proceedings. Properly analysed the only ground advanced by
Terra-Marine amounted, absent any factual foundation as I have shown,
to little more than a speculative hypothesis. Moreover, since
December 2004 when ESC filed its defence and counter claim, no
further
steps have been taken by Terra-Marine in the arbitration
proceedings commenced by it in London. Sufficient time one would have
imagined for it to have tested its hypothesis should it have been so
inclined. But even if the hypothesis sought to be advanced
by it were
to have some validity, it needs be remembered that the court is not
being asked to decline jurisdiction in terms of
s 7(1)(a), but rather
to grant the less drastic relief of a stay of proceedings. Thus in
time, were Terra-Marine’s fear of
a dissolution of ESC at the
hands of the liquidator to materialise, it could always return to the
high court for that order to
be lifted or varied to the extent
necessary to address that exigency.
[27] Significantly, Terra-Marine, unlike ESC, was
not without an alternative remedy. Terra-Marine appears, on its own
version, not
to be in a position to meet any award that may issue
against it in favour of ESC by virtue of the latter's counter claim
in the
arbitration proceedings. It thus appears to be intent on
having its claims dealt with in South Africa, where it has secured
security
for itself by means of the
in
rem
arrest of the
Iran
Dastghayb.
ESC on the other hand will
have to proceed to arbitration in London without security. On
Terra-Marine’s approach, ESC, not
being a party to the suit in
South Africa, cannot avail itself of a claim in reconvention against
Terra-Marine. It thus has to
forfeit the procedural advantages
accruing to a plaintiff in reconvention, namely, that convention and
reconvention are usually
dealt with together and that the plaintiff
in convention is bound to recognise the jurisdiction of the court in
respect of the
claim in reconvention (
LTA
Engineering Co Ltd v Seacat Investments (Pty) Ltd
).
25
[28] The answer to that conundrum, so it was
submitted, was that ESC could always cede its claim to IRISL.
However, any such agreement
concluded for that purpose would, in and
of itself, show that ESC could never have genuinely intended to make
a cession of its
claims. Rather it would have been entered into to
enable IRISL to do something for the ultimate benefit of ESC, that
the latter
could not itself do, namely to prosecute a counter claim
and hand any proceeds that may be secured from it to ESC. Our courts
will
refuse to recognise such an agreement on the basis that the
parties had no real intention to enter into an agreement of cession
and that it therefore is not a true reflection of the real agreement
between the parties (
Skjelbreds Rederi
A/S & others v Hartless (Pty) Ltd
).
26
IRISL will thus be precluded from suing on it. It
follows that unlike Terra-Marine, ESC will be remediless in this
country.
[29] The alternative remedy available to
Terra-Marine is a security arrest afforded by s 5(3) of the Act to a
maritime claimant
in the position of Terra-Marine. Before us counsel
conceded that had Terra-Marine adopted that course, IRISL would have
had no
answer to it. That procedure though would have required a
comprehensive application by Terra-Marine setting out on oath, inter
alia, that it has (a) a claim enforceable by an action
in
rem
against the
Iran
Dastghayb
; (b) a prima facie case in
respect of such claim; and (c)
a genuine
and reasonable need for security in respect of the claim.
27
Here the vessel was arrested pursuant to a writ
issued in the
in rem
action.
Terra-Marine therefore had a much lower threshold to satisfy. All
that Admirality Rule 4(3) required was a certificate by
it as the
claimant (or its attorney) setting out only the barest detail. The
practice appears to be that on the strength of that
certificate it is
usually for the Registrar (who may refer the question whether a
warrant should be issued to a judge) to issue
the arrest warrant (
The
Galaecia
).
28
[30] When IRISL launched the stay application all
it had to go on was the
in rem
summons and particulars of claim. That contained
little in support of the proposition that there existed the requisite
association
or why it was permissible for Terra-Marine to pursue
proceedings in South Africa in the face of the arbitration clause in
the agreement
and the pending arbitration proceedings that it had
already commenced in London. It was therefore unsurprising that as
the matter
progressed, IRISL amended the relief it had originally
sought and filed additional affidavits when confronted by the fuller
allegations
that first saw the light of day in Terra-Marine’s
answering affidavit. The course the proceedings had taken appears to
have
led the learned judge astray. He held:
'I might in passing mention that the applicants have
sought a stay of the action instituted by the plaintiff by motion
proceedings
and to have certain issues which would otherwise be
determined at the trial to be determined in these application
proceedings.
Although nothing is irregular about this, the plaintiff
is only expected to justify the arrest to the extent that the arrest
is
challenged in their founding papers in motion proceedings. The
procedure adopted by the applicants in seeking to determine certain
of the issues between the parties in application proceedings carries
with it the risk to the applicants in the event that those
issues
cannot be determined in these proceedings because of disputes of
facts then the applicants must lose on those issues which
will then
have to be determined at the trial in due course.'
His approach overlooks the principle in our law
‘that a party cannot by obtaining
ex
parte
an order in his favour secure a
more advantageous position than he would have been in if the other
party had, consequent upon notice,
had an opportunity of opposing’
(
Weissglass NO v Savonnerie
Establishment
)
.
29
[31] It may well have been entirely inappropriate
for Terra-Marine to enforce its claims in South Africa by way of
in
rem
proceedings in circumstances where
not only was it contractually obliged to enforce its claims by
arbitration in London but was
already doing so. But one need not go
that far. It suffices to state that it should be fairly obvious that
to permit parallel proceedings
to commence and run in different fora
at the same time and in respect of essentially the same dispute is
undesirable. In
Universiteit van
Stellenbosch v JA Louw (Edms) Bpk
30
this court stated:
‘
As to the undesirability of
allowing two different proceedings in two separate tribunals, the
dicta
in the English Court of Appeal
in
Taunton-Collins
v Cromie and Another
31
are very apposite. At 333 Lord
Denning said:
"It seems to me most undesirable that there should
be two proceedings in two separate tribunals – one before the
official
referee, the other before an arbitrator – to decide
the same questions of fact. If the two proceedings should go on
independently,
there might be inconsistent findings. The decision of
the official referee might conflict with the decision of the
arbitrator.
There would be much extra cost involved in having two
separate proceedings going on side by side; and there would be more
delay.
Furthermore, as counsel for the plaintiff pointed out, if this
action before the official referee went on by itself – between
the plaintiff and the architect – without the contractors being
there, there would be many procedural difficulties. For instance,
there would be manoeuvres as to who should call the contractors, and
so forth. All in all, the undesirability of two separate proceedings
is such that I should have thought that it was a very proper exercise
of discretion for the official referee to say that he would
not stay
the claim against the contractors."
At 334 Lord Pearson said:
"It can be said in support of
the application here that that is what the parties have agreed and
that, when the question is
brought before the Court, the Court should
be willing to say by its decision what the parties have already said
by means of their
own contract. That is one principle. The other
principle is that a multiplicity of proceedings is highly undesirable
for the reasons
which have been given. It is obvious that there may
be different decisions on the same question and a great confusion may
arise.
Counsel for the plaintiff also was able to point out the
serious procedural difficulties which might arise if one had an
arbitration
between two parties and an action between different
parties"
'
There would thus ordinarily be much to be said for staying one or
other of the two proceedings to allow the merits of the claim
to be
determined in a single forum.
[32] Moreover, here the result of the
in
personam
proceedings
must necessarily determine the result of the
in
rem
proceedings. Counsel for
Terra-Marine was constrained to concede that. Thus if Terra-Marine’s
claim in the arbitration were
to be dismissed, the foundation of the
in rem
action
would of necessity fall away. In this case the court was dealing with
a genuine contract of submission. Had Patel J adopted
a less
technical approach he might have been disinclined to deny IRISL its
stay application. It would have been permissible for
him, I think, in
the exercise of his equitable discretion, to have given effect to the
substance of the agreement to arbitrate.
Thus the mere existence of
the arbitration clause coupled with the concurrent proceedings,
irrespective of whether or not the arbitration
clause could have been
invoked by IRISL ought to have caused Patel J, to paraphrase from
Lord Pearson, ‘to be willing to
say by his decision what
Terra-Marine had already said by means of its contract’.
[33] Section 3(7)(a) of the Act differentiates
between a true sister ship and an associated ship. John Hare
32
describes the latter provision as a novel one
33
‘
of South African law that sets it apart
from the arrest practice of all other maritime states’. Terra-
Marine had commenced
an
in rem
action
against 92 vessels including the
Iran
Dastghayb.
Had any of the other 92
vessels entered South African waters prior to the
Iran
Dastghayb
it, like the
Iran
Dastghayb
, would also have been liable
to arrest. If that vessel had been a true sister ship as opposed to
an associated ship as occurred
here, then the main contention now
advanced by Terra-Marine, namely that the agreement to arbitrate
cannot be invoked by one not
a party to it, would not have been
available to Terra-Marine. The effect of invoking the associated ship
provision in this case
is that Terra-Marine has been able to garner
for itself a benefit in this country that it could not secure in any
other maritime
state. But, although permitted by the Act, its
successful invocation is dependent on chance and happenstance, namely
whether the
associated ship that first finds itself in South African
waters happens to be an associated ship as opposed to a true sister
ship.
[34] It is well established that effect must be given, if the terms
of the contract permit, to the obvious intention and agreement
of the
parties. That applies no less to choice of law and chosen forum
clauses in contracts. Here the arbitration proceedings that
are
currently extant are subject to the English
Arbitration Act and
the
other laws of England. It would obviously be preferable that such
disputes as exist be determined in England under the auspices
of an
English arbitrator as opposed to the inconvenient and expensive
alternative of South African courts having to decide such
questions
on the basis of expert evidence. There are certain advantages as
well, such as finality, that a claimant in an arbitration
enjoys over
a litigant who has to pursue its rights in a court. And one who has
contracted to allow the other contracting party
those advantages
should not be readily absolved from that undertaking.
[35] Courts should generally be slow to encroach
upon a decision to refer a dispute to private arbitration, for to do
so would be
to disregard the principle of party autonomy.
34
That ought to apply with greater force in a
situation such as this, for as Wallis points out:
'However, there seems to be no escape
from the conclusion, however unsatisfactory, that by bringing an
action
in rem
against an
associated ship a claimant can defeat the provisions of both an
arbitration clause and an exclusive jurisdiction clause
in the
contract underlying the claim.'
35
Were that to be so, as indeed it must be on that
analysis, a cynical litigant could with impunity circumvent the terms
of a bargain
that the other party to it may have thought had been
earnestly struck. The other contracting party’s rights could
thus be
rendered nugatory by a maritime claimant by invoking the
associated ship jurisdiction, thereby imperilling the important
principle
of party autonomy. More importantly it could encourage a
practice that should be deprecated, namely forum shopping.
36
[36] In my judgment the cumulative effect of the factors that I have
alluded to, constitute sufficient reason for a stay of the
action in
terms of
s 7(1)(b)
and Terra-Marine has failed to show any cause for
the court to exercise its discretion against the granting of it. I am
thus satisfied
that the judgment of the court below refusing a stay
was wrong.
[37] I now turn to the second issue, namely
whether the
MV Iran Dastghayb
is an associated ship in respect of claims that
arose prior to 13 December 2000. The only claims that the court has
jurisdiction
to entertain are those which could properly be enforced
in rem
against
the
Iran Dastghayb
.
Although IRISL was the applicant in the stay application,
Terra-Marine bore the onus of proving that its original application
for the arrest of the
Iran Dastghayb
was correctly granted.
37
Terra-Marine thus retained the onus of justifying
the arrest in relation to each claim. In so far as the discharge of
the onus involved
matters of fact, these had to be proved on a
balance of probabilities.
38
[38] Since the
Iran
Dastghayb
was arrested
in
rem
on the basis that it is an
'associated ship' in relation to the
Eco
Elham
and the
Eco
Ekram
and liable to arrest in their
stead in terms of section 3(6) and (7) of the Act, it was for
Terra-Marine to establish on a balance
of probabilities that in
relation to each claim the former was an associated ship of the ship
concerned.
[39] It is common cause that 10 states were party
to the formation of ESC and that it was intended that each would
subscribe for
an equal 10 per cent shareholding in ESC. There is no
dispute that at an extraordinary general assembly meeting of ESC held
on
13 December 2000 a decision was taken to amend the Articles of
Association with regard to the shareholding. Captain Khan,
Terra-Marine’s
principal witness, was present at that meeting
and signed the minute as a representative of Pakistan. The amendment
of the Articles
of Association reflected the acquisition by IRISL (on
behalf of the government of Iran) of the shares of five
39
of the original 10 member states. The net result
was that with effect from that date IRISL acquired 60 per cent of the
shares. IRISL
contends that the
Iran
Dastghayb
cannot be an associated ship
save in respect of any claim that arose after that date.
[40] The original agreement
40
establishing ESC provided that each of the 10
member states would subscribe for the initial shares in equal
proportions as stipulated
in the Articles of Association provided
that, if any member state did not effect payment of the share capital
subscribed, such
state would be allotted one symbolic share and, if a
state did not subscribe, its shares would be entrusted to the general
assembly
or a nominee.
[41] Iranian law required that 35 per cent of the
share capital of a company be paid in advance as a requirement of
incorporation
and this amount was paid in full by IRISL during 1995.
It was paid on behalf of all 10 member states by IRISL with the
result that
each of them was regarded in relation to ESC as having
subscribed 'and paid' the advance subscription. Captain Khan disputes
this
contending that as the sole shareholder which had made any
payment, IRISL was in fact the sole shareholder in ESC until the
shareholder
restructuring which occurred in 2000. The original
Articles of Association of ESC
41
(albeit prepared in advance of the payment)
records that: (a) the whole of the shares have been subscribed by the
founder states
at equal rates; (b) all groups of shareholders shall
enjoy equal rights in all respects; and (c) 35 per cent of the
capital has
been paid in advance by the subscribing states at equal
rates.
[42] The official announcement of the establishment of ESC on 16
August 1997 identifies the original directors of ESC. Each was
a
representative of a member state. The general meetings of ESC reflect
that representatives of various member states attended
and voted
without any indication that the shareholding between them was
anything other than equal. The meeting of 13 December 2000
was
preceded by an earlier extraordinary meeting which could not proceed
'due to non-attendance of majority members'. That is consistent
with
the notion that each of the 10 member states was at that time an
equal 10 per cent shareholder.
[43] Capt Khan’s evidence does not survive scrutiny. The
overwhelming evidence to the contrary is that until 13 December
2000
IRISL (on behalf of the Iranian State) held 10 per cent of the shares
in ESC. Moreover, his country, Pakistan objected to
the change in
shareholding that occurred on 13 December 2000 on the basis that all
member states were required, through the Council
of Ministers, to
approve an amendment to the Articles of Association. It follows that
Terra-Marine has failed to discharge the
onus resting upon it and
that on this leg as well it must fail.
[44] In the result the appeal must succeed. In that event the parties
were agreed that the following order that identifies the
claims that
arose after 13 December 2000 should issue. It is accordingly ordered
as follows:
1 The appeal is upheld with costs.
2 The order of the court below is set aside and substituted with an
order in the following terms:
'(a) The respondent's action
in rem
against the
mv Iran
Dastghayb
under case number A148/2005 is stayed in terms of
section 7(1)(b) of the Admiralty Jurisdiction Regulation Act 105 of
1983 pending
determination of the respondent's claims in the
arbitration proceedings in London.
(b) The order for the stay of the
in rem
action in paragraph
(a) hereof is made subject to the second applicant providing security
to the respondent for any final and un-appealable
arbitration award
in the arbitration proceedings (and also in the
in rem
proceedings should the stay of the action be lifted). Such security
shall be restricted to the claims identified in paragraph 59
of the
founding affidavit of Mr Reddy at pages 43-45 of the record as
arising after 13 December 2000 and limited to the capital
sum of
USD830 420.43 in respect of:
(i) Unpaid management fees in the sum of USD632 100.00;
(ii) Steel work and repairs in respect of the
MV Eco Elham
in
the sum of USD11 000.98;
(iii) Steel work and repairs in respect of the
MV ECO Ekram
in
the sum of USD156 044.45;
(iv) P & I Insurance reimbursement in relation to the
MV ECO
Ekram
in the sum of USD15 315.00;
(v) Bunkers at Karachi USD15 960.00,
together with USD99 650.45 in respect of security for interest and
USD25 000.00 in respect of legal costs; and
(c) Upon the provision of such limited substitute security the
security previously provided by the second applicant shall be
cancelled
and the respondent is directed to return all and any
letters of undertaking furnished in that regard to the applicants'
attorneys
for cancellation.
(d) The respondent is ordered to pay the second applicant's costs,
such costs to include the qualifying fees of the expert witness
Dr
Iraj Babaei.’
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: S R Mullins SC
Instructed
by:
Shepstone
& Wylie
Durban
Matsepes
Inc
Bloemfontein
For
Respondent: A M Stewart SC
Instructed
by:
Cox Yeats
Attorneys
Durban
McIntyre &
Van Der Post
Bloemfontein
1
The
ten states, all parties to the treaty of Izmir of 1992, were the
Islamic Republics of Iran, Pakistan and Afghanistan and the
Republics of Turkey, Azerbaijan, Kazakhstan, Turkmenistan,
Uzbekistan Kyrgyzstan and Tajikistan.
2
Being
USD 1 592 113 in respect of capital claims, USD 382 107 in respect
of interest and USD 25 000 in respect of costs.
3
Being
USD 2 391 405.90 in respect of capital claims,
USD 286 968.70 in respect of
interest and USD 25 000 in
respect of costs.
4
The
section provides:
'A court may decline to
exercise its admiralty jurisdiction in any proceedings instituted or
to be instituted, if it is of the
opinion that any other court in
the Republic or any other court or any arbitrator, tribunal or body
elsewhere will exercise jurisdiction
in respect of the said
proceedings and that it is more appropriate that the proceedings be
adjudicated upon by any such other
court or by such arbitrator,
tribunal or body.'
5
Euromarine
International of Mauren v The Ship Berg
1984
(4) SA 647
(N).
6
At
653B-D.
7
At
654I-655A.
8
Cargo
Laden and Lately Laden on Board the MV Thalassini Avgi v MV Dimitris
1989 (3) SA 820
(A)
at 824C-D.
9
Section
5(3) of the Act provides: '(
a
)
A court may in the exercise of its admiralty jurisdiction order the
arrest of any property for the purpose of providing security
for a
claim which is or may be the subject of an arbitration or any
proceedings contemplated, pending or proceeding, either in
the
Republic or elsewhere, and whether or not it is subject to the law
of the Republic, if the person seeking the arrest has
a claim
enforceable by an action
in
personam
against the owner
of the property concerned or an action
in
rem
against such property
or which would be so enforceable but for any such arbitration or
proceedings.
(
a
A)
Any property so arrested or any security for, or the proceeds of,
any such property shall be held as security for any such
claim or
pending the outcome of any such arbitration or proceedings.
(
b
)
Unless the court orders otherwise any property so arrested shall be
deemed to be property arrested in an action in terms of
this Act.’
10
At
654F-G
11
At
655H-656A.
12
Euromarine
International of Mauren v The Ship Berg
1986 (2) SA 700
(A) at
712C-E.
13
Unpublished
PhD Thesis, University of KwaZulu-Natal (2010) p 145.
14
Wallis
p 145.
15
Wallis
p 146.
16
1992
(1) SA 324
(N) at 334C-J.
17
Galgut
and Combrinck JJ concurring.
18
1991
(3) SA 803
(N).
19
[1969]
2 All ER 641
(PDA) at 645.
20
[1981]
2 Lloyd's Rep 119 (CA) at 123-4.
21
1932
AD 359
at 375.
22
Metallurgical
and Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd
1971 (2) SA 388
(W) at 391F-G.
23
1984
(2) SA 425
(D).
24
Page
519.
25
1974
(1) SA 747
(A) at 764B.
26
1982
(2) SA 710
(A).
27
The
MV Thalassini Avgi v
at 832I-833A;
Bocimar
NV v Kotor Overseas Shipping Limited
[1994] ZASCA 5
;
1994
(2) SA 563
(A) at 579B-E.
28
The
Galaecia: Vidal Armadores SA v Thalassa Export Co Ltd
(2006)
SCOSA D252 (D).
29
1992
(3) 928 SA (A) at 936F-G.
30
1983
(4) SA 321
(A) at 335H-336A.
31
[1964]
2 All ER 332.
32
Shipping
Law & Admirality Jurisdiction in South Africa
2
ed (Juta) p107.
33
Prof
H Booysen 'South Africa’s New Admirality Act: A Maritime
Disaster
?'
1984
MBL
75 at
83 describes it as a revolutionary idea.
34
Lufuno
Mphaphuli & Associates (Pty) Ltd v Andrews
2009
(4) SA 529
(CC);
Telcordia Technologies
Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) para 4; R H Christie 'Arbitration: party autonomy or curial
intervention: the historical background'
(1994) 111
SALJ
143.
35
Page
520.
36
Gcaba
v Minister for Safety and Security
2010
(1) SA 238
(CC) para 57.
37
Bocimar
NV
at
578G.
38
Bocimar
NV
at 582B.
39
Turkey,
Azerbaijan, Kyrgyzstan, Tajikistan and Uzbekistan
40
The
agreement provided:
'III
SHARE CAPITAL
It was agreed that the
share capital of the Company will be US Dollars Ten Million (US $10
000 000) consisting of US Dollars Ten
Thousand (US $10 000)
individual shares of US Dollars One Thousand (US $1 000) and parties
to this Agreement shall subscribe
their initial shares in equal
proportion as stipulated in the Articles of Association.
. . . . .
V
NON-PAYMENT OF ADVANCE SHARE CAPITAL
Where any Member States
for any reason do not effect payment of the share capital so
subscribed by them in advance will be allotted
one symbolic Share
and their share of profits will be ploughed back for their share
capital.
VI
NON-SUBSCRIPTION OF SHARE CAPITAL
Those Member States who
do not subscribe for the Company's share, their shares would be
entrusted to the General Assembly or a
nominee. The General Assembly
may decide upon the above as per current ECO regulations in its
future Meetings.'
41
It
provided:
'
Company's
capital : Nominal value of each Share:
Nominal capital of the
company is US $ 10 million which is divided into 10 000 shares of US
$1 000, each.
Each Member Country
and/or its nominees will hold 1 000 shares all groups of
shareholders shall enjoy equal rights in all respects.
The Company
shall not at any time issue any bearer shares nor shall the Company
at any time convert any existing registered shares
into bearer
shares.
. . .
ARTICLE 7
Subscribing of Shares
The whole of the shares
have been subscribed to by the Founder States at equal rates 35 per
cent of the capital has been paid
in advance by the subscribing
states at equal rates. The remaining amount will again be paid by
Founder States as equal rates
in accordance with the decision of the
General Assembly.'