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[2008] ZASCA 111
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Asiatic Shpping Services Inc. v Elgina Marine Company Ltd (487/07) [2008] ZASCA 111; 2009 (1) SA 246 (SCA) ; [2009] 1 All SA 423 (SCA) (23 September 2008)
Links to summary
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case no: 487/07
NAME OF SHIP: MV
'ORIENT
STRIDE'
In the matter between:
ASIATIC SHIPPING SERVICES INC
APPELLANT
and
ELGINA MARINE COMPANY LTD
RESPONDENT
Neutral citation
:
Asiatic
Shipping Services Inc v Elgina Marine Company Limited
(487/07)
[2008] ZASCA 111
(23 September 2008)
_____________________________________________________________
Coram
: SCOTT, STREICHER,
HEHER, COMBRINCK JJA
et
LEACH
AJA
Date of hearing
: 25 AUGUST
2008
Date of delivery
: 23
SEPTEMBER 2008
Corrected :
Summary
: The origin and
meaning of the requirement in a security arrest in terms of s 5(3) of
Act 105 of 1983 that there be a 'genuine
and reasonable need for
security'.
____________________________________________________________
ORDER
______________________________________________________________
On appeal from the High Court, Durban (Patel J sitting
as court of first instance).
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
SCOTT JA (STREICHER, HEHER, COMBRINCK JJA et LEACH
AJA concurring):
[1] On 24 March 2006, Elgina Marine Company Ltd (to
which I shall refer as Elgina) sought and obtained ex parte in the
Durban High
Court an order in terms of s 5(3) of the Admiralty
Jurisdiction Regulation Act 105 of 1983 ('the Act') for the arrest of
the bunkers
on board the MV
Orient Stride
and of the right to certain freight held by agents on behalf of
Asiatic Shipping Services Inc (to which I shall refer as Asiatic).
The purpose of the arrest was to provide security for Elgina's claims
against Asiatic in arbitration proceedings in London.
[2] Elgina is a company registered according to the laws
of Cyprus and carries on business as a ship owner in Limassol,
Cyprus.
Asiatic is a Panamanian registered company and carries on the
business of ships' charterers in Kuala Lumpur, Malaysia. Elgina's
claims against Asiatic are for a total of US$ 404 228.47, including
costs and interest, and arise out of the charter to Asiatic
of the MV
Columbine Express.
[3] On 4 April 2006 security by way of a guarantee was
furnished on behalf of Asiatic to procure the release of the property
arrested
and to permit the
Orient Stride
to continue on her voyage. The guarantee was conditional on its being
of no force and effect in the event of the court ordering
that Elgina
was not entitled to arrest the property in question.
[4] In the meantime, on 31 March 2006 Asiatic launched
an application for an order setting aside the arrest. The application
was
opposed by Elgina and on 5 February 2007 it was dismissed by
Patel J with costs. The appeal is with the leave of this court.
[5] Although Elgina was the respondent in that
application it was common cause that it bore the onus of justifying
the arrest. (See
eg
Cargo Laden and Lately
Laden on Board the MV Thalassini Avgi v MV Dimitris
1989 (3) SA 820
(A) at 834C-F.) In seeking to do so, it was not
confined to the allegations made in its ex parte application. It was
entitled to
rely on all the information properly placed before the
court in the subsequent application to set aside the arrest.
(
Weissglass NO v Savonnerie Establishment
[1992] ZASCA 95
;
1992 (3) SA 928
(A) at 936H.) For reasons which are no longer
relevant, material correspondence and other documents came to light
at a late stage
and after the court a quo had given judgment. By
agreement between the parties these were placed before this court and
admitted
as part of the record.
[6] In
Thalassini Avgi
at 832I-833A this court set out what was required to be established
by a party seeking to justify an arrest for the purpose of
obtaining
security. However, the court was then concerned with the Act before
its amendment in 1992 which broadened the scope of
s 5(3). The
requirements, as modified by the amendment, are now conveniently
listed in Hofmeyr
Admiralty Jurisdiction
Law and Practice in South Africa
at 92. In
the present case it was ultimately common cause, or not in dispute,
that the bunkers were the property of Asiatic and
that Elgina had
established a prima facie case against Asiatic. The only issue that
remained was whether Elgina had discharged
the burden of establishing
on a balance of probabilities that it had a genuine and reasonable
need for security.
[7] The requirement that the need for security must be
'genuine and reasonable' does not appear in the Act. The formulation
is that
of
Didcott J in a separate but concurring judgment in
Katagum Wholesale Commodities Co Ltd v The MV
Paz
1984 (3) SA 261
(N) at 270A. It was
subsequently endorsed by this court in
Thalassini
Avgi
at 833A and in
Bocimar
NV v Kotor Overseas Shipping Ltd
1994 (2) 563
(A) at 583E-F the appropriate standard of proof was held to be a
balance of probabilities. It is important to observe,
however, that
the requirement does not mean that in every case it must be proved
that the party whose property is arrested has
or will have
insufficient assets to meet a judgment granted against it in the main
proceedings. Indeed, more often than not the
asset arrested is a ship
which has a value far in excess of the claim. What, I think, must be
established is a genuine and reasonable
apprehension that the party
whose property is arrested will not satisfy a judgment or award made
in favour of the arresting party.
That apprehension may be founded
upon actual knowledge of the extent of the assets of the party whose
property has been arrested,
or, as would more likely be the case, it
may be founded on factors giving rise to an inference either that the
party in question
will be unable to meet the judgment or that it will
seek to conceal its assets or otherwise prevent the judgment from
being satisfied.
The circumstances may also be such, whether for
geographic reasons or otherwise, that it would be extremely difficult
for the successful
party to enforce the judgment. Different
considerations will also arise where the party seeking security
already has security but
arrests property to increase its security
(
Bocimar NV v Kotor Overseas Shipping Ltd,
supra). Whether a need for security has been
shown to exist or not will depend therefore upon a consideration of
the particular
facts of each case.
[8] Against this background, I turn to the facts. They
are largely common cause. By a charterparty dated 6 September 2001
made between
Cyprus Maritime Co Ltd, acting according to Elgina on
its behalf as owner of the
Columbine Express
,
and Asiatic, the former chartered the vessel to the latter for a
round trip of a maximum of 40 days. Clause 45 of the charterparty
made provision for arbitration in London before two arbitrators, one
to be appointed by each party. In pursuance of the charterparty
the
vessel was delivered on 9 September 2001. Redelivery was to take
place at the latest on 19 October 2001. In the event the vessel
was
redelivered on 5 December 2001.
[9] In February 2002 Elgina commenced arbitration
proceedings, claiming US$ 12 916.83 in respect of the balance of hire
claimed
to be due and US$ 194 005.64 as damages for the late
redelivery of the vessel. Elgina's points of claim were filed in July
2002
and on 20 September 2002 London solicitors, Stephenson Harwood,
applied to join Pacific Inter-Link Sdn Bhd ('PIL') in the
proceedings.
In October 2002 a defence and counterclaim were filed in
which Asiatic asserted that it was the chartering arm of PIL and that
it had entered into the charterparty as agents for PIL as undisclosed
principals. The relevant part of paragraph 3 of the defence
reads:
'Asiatic Shipping Services Inc ('the Charterers')
entered into the . . . Charterparty as agents for Pacific Inter-Link
Sdn Bhd ('PIL')
as undisclosed principals. The Charterers are the
chartering arm of PIL and regularly enter into charterparties as
agents for PIL.
Both companies are operated from the same business
address and have common directors. PIL paid hire due under the . . .
Charterparty.
PIL are, consequently, a party to the arbitration
agreement through their agents, the Charterers.'
Elgina subsequently filed its reply on 27 February 2003.
[10] In the joinder application leave was sought for PIL
to be joined for the purposes of the counterclaim only. The
solicitors
then acting for Elgina, Ince & Co, took up the
attitude that PIL should also be joined as a co-respondent for the
whole arbitration
on the basis that as the undisclosed principal of
Asiatic it should be a party to the arbitration reference and
therefore be bound
by any award made by the tribunal. They advised
Stephenson Harwood, who acted for both PIL and Asiatic, that Elgina
would agree
to the joinder but required security for its claim.
Subsequently, on 9 June 2003 Ince & Co wrote to Stephenson
Harwood pointing
out that the question of PIL's joinder as a
co-respondent remained outstanding and requested that they confirm
PIL's consent to
be joined in the arbitration reference on the terms
Ince & Co had proposed. In a curt response Stephenson Harwood
wrote on
the same day that their clients were not prepared to consent
to the terms of the joinder proposed by Ince & Co.
[11] On 17 June 2003 Ince & Co responded by
referring to the apparent inconsistency between the allegations made
in para 3 of
the defence (quoted in para 9 above) and the attitude
then being adopted by PIL and Asiatic. They wrote:
'[It] appears to us that, on the one hand your clients
are happy to wade in as Charterers in order to put forward their
Counterclaim
yet, on the other they are reticent to confirm that, as
Charterers, they will also be bound by any Award made by the
Tribunal
in respect of Owners' principal claim. Your clients cannot
have their cake and eat it.'
They accordingly called on Stephenson Harwood to confirm
inter alia that PIL considered itself as an undisclosed principal and
charterer
bound by the arbitration agreement contained in the
charterparty and agreed to be bound by any arbitration award made by
the tribunal
in respect of Elgina's principal claim.
[12] Stephenson Harwood responded by letter dated 23
June 2003, which reads in part:
'We refer to your fax dated 17 June 2003 in connection
with whether or not PIL should be joined as a party to the current
arbitration
reference. In light of your client's unreasonable demands
for security for the claim, Asiatic and PIL have decided not to join
PIL to the arbitration. Asiatic, as agents for undisclosed
principals, can bring the counterclaim themselves. The Defence and
Counterclaim
have already been pleaded to reflect the relationship
between Asiatic and PIL and therefore only minor amendments will be
needed.'
Elgina's reaction was on 18 March 2004 to send to PIL a
notice of appointment of an arbitrator with the object or pursuing
its claims
against PIL. The latter's Malaysian solicitors, Sativale
Mathew Arun, responded in a letter dated 23 April 2004, in which they
declined to appoint an arbitrator, saying:
'It is our client's stand that there is no arbitration
agreement between your client and our client.'
[13] At about this time and, no doubt, in the light of
what had transpired, Elgina's P and I club advised that it was no
longer
prepared to finance the prosecution of the claim in the
absence of security being put up by Asiatic as there appeared little
prospect
of Elgina otherwise recovering the amount of any award that
may be made in its favour. In May 2004 Elgina decided not to continue
incurring the costs of employing Ince & Co but to employ its own
legal staff. It accordingly terminated that firm's mandate
and paid
its fees. This ultimately led to a misunderstanding which in turn
became an issue which gained much prominence in the
affidavits
exchanged between the parties. In short, on 5 February 2005 Ince &
Co advised one of the arbitrators, Mr George
Lugg, that they were no
longer acting for Elgina which had passed the matter on to Cyprus
Maritime Co Ltd, its managers, for future
handling. In June 2005,
when clarification as to the status of the arbitration was sought by
the other arbitrator, Mr Robert Gaisford,
Ince & Co mistakenly
advised on 9 June 2005 that the matter was closed. As a consequence
of this Asiatic sought to set aside
the arrest on the grounds that
Elgina had failed to disclose that the arbitration was no longer
extant and for this reason alone
it did not have a prima facie case
against Asiatic. In the light of the explanation put up by Elgina the
point was abandoned by
Asiatic when the matter was argued in the
court a quo. I should add that subsequently on 18 June 2007 a
declaratory award was made
by the arbitrators in which they ruled
that the reference had not been terminated and that the tribunal
accordingly remained extant.
[14] In the meantime, in January 2005 Elgina had decided
to engage another firm of solicitors, Davies, Johnson & Company,
to
act on its behalf. In the absence of security, however, it was
considered that no purpose would be served by taking active steps
to
pursue the arbitration. Mr Johnson of that firm did some
investigation to ascertain the activities of Asiatic. This ultimately
resulted in the arrest which forms the subject matter of this appeal.
[15] It is clear from the aforegoing that PIL and
Asiatic are closely associated companies. The latter is the
'chartering arm' of
the former. Both have the same business address
and they have common directors. Asiatic asserted in its defence that
it was merely
the agent of PIL and that PIL was accordingly a party
to the arbitration agreement. Yet PIL sought to be joined in the
arbitration
for the purposes of the counterclaim only. When it was
pointed out that as a party to the arbitration agreement it would be
liable
to Elgina in the event of the latter succeeding in its claim,
it abandoned its application to be joined and, notwithstanding the
stance adopted in the defence that it was an undisclosed principal
and hence a party to the arbitration agreement, distanced itself
from
the arbitration. It was clearly anxious to ensure that in the event
of an adverse award, that award would be made against
Asiatic and not
against it. The most likely inference that arises is that PIL holds
the assets of the enterprise and not Asiatic.
The inference is
supported by the assertion in the defence that PIL, and not Asiatic,
paid the hire under the charterparty. It
is further supported by the
fact that the security put up on 4 April 2006 emanated from PIL and
not Asiatic.
[16] In the application to set aside the arrest Asiatic
alleged simply that it had 'more than sufficient assets to satisfy
any judgment'.
In its answer, Elgina observed that no details of
those assets were given. Having regard to the nature of the
application and PIL's
change of stance, one would have expected that
if Asiatic had assets, it would in reply at least have given some
indication of
their nature and extent. Had it done so, its response
may well have put paid to the application for security. But it
declined to
do so. Instead, it contended that its financial standing
was 'now a moot point because [Asiatic] has in fact secured
[Elgina's]
claim'. This evasive response was in itself sufficient to
cause concern to a reasonable person in the position of Elgina,
particularly
when regard is had to the fact that it was PIL and not
Asiatic that had provided the security.
[17] In all the circumstances Elgina, in my view,
succeeded in establishing the existence of a reasonable apprehension
that Asiatic
would not satisfy an award made against it in Elgina's
favour. It accordingly discharged the burden of establishing that it
had
a genuine and reasonable need for security, and the appeal must
therefore fail.
[18] The appeal is dismissed with costs.
_____________
D G SCOTT
JUDGE OF APPEAL
Appearances:
For Appellant:
D Gordon SC
Instructed by:
Deneys Reitz
Inc Durban
Webbers Bloemfontein
For Respondent:
D J Shaw QC
Instructed by :
Shepstone &
Wylie Durban
Israel Sackstein Matsepe Inc Bloemfontein