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[2015] ZAKZDHC 90
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Nadella Corporation v Mv Falcon Traveller and Another (A74/2015) [2015] ZAKZDHC 90 (23 December 2015)
IN
THE HIGH COURT OF SOUTH AFRICA
KWAZULU
NATAL – DIVISION, DURBAN
(Exercising
its admiralty jurisdiction)
Case
No: A74/2015
DATE:
23 DECEMBER 2015
Name
of ship: mv ‘Falcon Traveller’
In
the matter between:
Nadella
Corporation
.................................................................................................................
Applicant
And
Mv
‘Falcon
Traveller’
..................................................................................................
First
Respondent
Newbrook
Shipping
Corporation
............................................................................
Second
Respondent
Judgment
[1]
On the 16
th
September 2015, and in chambers, I granted an ex parte order for the
arrest of the mv ‘Falcon Traveller’. The
arrest was
for the purpose of providing security for claims which the applicant,
Nadella Corporation (‘Nadella’), intends
to advance in
arbitration proceedings in Singapore against Falcon Shipping Limited
(‘Falcon’) for US$5 247 358,56
plus interest
and costs.
[2]
The arrest was granted pursuant to the provisions of s 5(3)(a) of the
Admiralty Jurisdiction Regulation Act, 1983 (‘the
Act’)
which provides :
‘
A
court may in the exercise of its admiralty jurisdiction order the
arrest of any property for the purpose of providing security
for a
claim which is or may be the subject of an arbitration or any
proceedings contemplated, pending or proceeding, either in
the
Republic or elsewhere, and whether or not it is subject to the law of
the Republic, if the person seeking the arrest has a
claim
enforceable by an action
in personam
against the owner of the property concerned or an action
in
rem
against such property or which
would be so enforceable but for any such arbitration or proceedings.’
[3]
The history of the dispute may be summarised as follows :
(a)
On the 1
st
November 2013 Falcon sold the mv ‘Falcon
Carrier’ to Nadella for a purchase price of US$ 5 601 114,24;
(b)
Clause 9 of the sale agreement provided :
‘
The
Sellers warrant that the Vessel [the Falcon Carrier], at the time of
delivery, is free from all charters, encumbrances, mortgages
and
maritime liens, or any other debts whatsoever. The Sellers
hereby undertake to indemnify the Buyers against all consequences
of
claims made against the Vessel which have been incurred prior to the
time of delivery.
’
(c)
Clause 16 of the sale agreement provided for the resolution of
disputes by way of arbitration in Singapore.
(d)
On the 5
th
November 2013 the agents of Nadella received a
notice from solicitors acting on behalf of Samchira CC (‘Samchira’),
the erstwhile charterer of the mv ‘Falcon Carrier’.
(e)
In the notice Samchira recorded charter claims which it had against
Falcon arising out of a previous charter of the mv ‘Falcon
Carrier’. Nadella was then placed on notice to satisfy
the claims in the sum of US$ 420 515,49, including
compound interest and costs of £68 500.
(f)
As a result of this threat, on the 11
th
November 2013
Nadella concluded an addendum to the sale agreement, which was signed
by Mr Nico Poons, a director of Falcon.
The amendment was in
the form of a certificate from Falcon certifying that on the 11
th
November 2013 the mv ‘Falcon Carrier’ was free of all
encumbrances, maritime liens and other debts and liabilities
of any
description whatsoever, and further indemnified Nadella against the
consequences of any claims which had been incurred prior
to the
delivery of the ship.
(g)
The mv ‘Falcon Carrier’ was then delivered to Nadella on
the 11
th
November 2013.
(h)
On the 17
th
December 2013 Nadella sold the mv ‘Falcon
Carrier’ to PHP Ship Broking & Re-cycling Industries Ltd
(‘PHP’),
and the ship was sold free from liens and
encumbrances.
(i)
The mv ‘Falcon Carrier’ then sailed for Chittagong where
she arrived on the 28
th
December 2013 to await delivery to
PHP.
(j)
On the 31
st
December 2013 Samchira instituted arrest
proceedings in the Supreme Court of Bangladesh for the arrest of the
mv ‘Falcon
Carrier’ in an action against the ship,
Falcon, her master and others for the recovery of the equivalent of
US$ 368 563,56.
(k)
Nadella brought an urgent application in the Supreme Court of
Bangladesh on the 31
st
December 2013 to set aside the
arrest of the mv ‘Falcon Carrier’. Nadella also
urgently requested the assistance
of Falcon by providing
documentation and information regarding the claim made by Samchira.
(l)
Despite various attempts by Nadella to avoid the arrest of the mv
‘Falcon Carrier’, it was eventually arrested on
the 3
rd
March 2014. Nadella could then not comply with its obligations
in terms of the PHP agreement, and Nadella cancelled the agreement
with PHP, which was terminated without liability.
(m)
On the 11
th
March 2014 PHP commenced proceedings in the
Bangladesh High Court against the mv ‘Falcon Carrier’ and
her owners seeking
damages and specific performance against Nadella.
(n)
As the actions of PHP were in direct breach of an arbitration clause
in the PHP agreement, on the 12
th
September 2014 Nadella
obtained an order from the English High Court restraining PHP from
continuing with its action in the Bangladesh
High Court, and
directing PHP forthwith to release the mv ‘Falcon Carrier’
from arrest. The dispute between Nadella
and PHP was
subsequently settled.
(o)
Nadella unsuccessfully sought to set aside the arrest of the mv
‘Falcon Carrier’ by Samchira, and on the 18
th
November 2014 was obliged to tender security for Samchira’s
claim to procure the release of the ship from arrest. In
addition an order had to be obtained from the Appellate Division of
the Supreme Court of Bangladesh on the 31
st
May 2015
directing that the ship be released. That was necessary because
Samchira had alleged that it had a maritime claim
without notifying
the court that ownership of the ship had changed.
(p)
The mv ‘Falcon Carrier’ is in the process of being
scrapped.
(q)
Nadella sought the arrest of the mv ‘Falcon Traveller’ in
this Court on the basis that it was an associated ship
of the mv
‘Falcon Carrier’ in terms of the provisions of s 3(6) and
(7) of the Act. Nadella claims that it has
suffered damages as
a result of the breach by Falcon of the warranty provision in Clause
9 of the sale agreement. Those damages
are in the sum of US$
5 247 358,56, and are :
(i)
Loss on the sale of the mv ‘Falcon
Carrier’ – US$ 1 808 202,50
(ii)
Claims of PHP paid by Nadella –
US$
209 007,90
(iii)
A guarantee provided by Nadella to Samchira
US$
368 564,00
(iv)
Interest on the capital sums above at
eight per cent per annum – US$
950 286,53
(v)
Legal
expenses
US$ 158 181,79
(vi)
All expenses incurred with respect
to
the ship –
US$
1 753 115,84
Total
damages to be claimed in the arbitration :
US$
5 247 358,56
[4]
In addition, Nadella sought security for interest of US$ 950 286,53
(to date, calculated at five per cent per annum), and
costs in the
sum of US$ 450 000, totalling US$ 6 647 645,09.
[5]
The second respondent, Newbrook Shipping Corporation (‘Newbrook’)
is a corporation registered in the Netherlands,
and is the registered
owner of the mv ‘Falcon Traveller’. Newbrook
opposes the arrest and affidavits to set aside
the arrest order
granted by me on the 16
th
September 2015, are currently being finalised.
[6]
In the meantime, and on the 16
th
October 2015 Newbrook
delivered an application seeking security for a counter-claim in
terms of s 5(2) of the Act. It also
seeks security for its
costs. The security for its counter-claim is stated in the
application to be in the sum of US$ 1 247
573, and security for
costs is sought in the sum of R900 000. The application
for security for its counter-claim is
brought in terms of the
provisions of s 5(4) of the Act which provides :
‘
Any
person who makes an excessive claim or requires excessive security or
without reasonable and probable cause obtains the arrest
of property
or an order of court, shall be liable to any person suffering loss or
damage as a result thereof for that loss and
damage.’
In
addition, s 5(2) of the Act provides :
‘
A
court may in the exercise of its admiralty jurisdiction –
…
(b)
order any person to give security for costs or for any claim.’
[7]
Mr
Harpur
SC who appeared for Newbrook submitted that a constitutionally
compliant interpretation of the Act, as applied to the present facts,
offends the notion of equality if Newbrook is not to be afforded
counter-security. He points out that the counter-security
would, after all, be a fraction of the security Newbrook is obliged
to provide to Nadella to secure the release of the mv ‘Falcon
Traveller’. Mr
Harpur
submits that Nadella’s arrest was without any notice to the
respondents in circumstances where the arrest of a ship remains
a
serious matter, as referred to by Didcott J in
Katagum
Wholesale Commodities Co Ltd v The mv
Paz
1984 (3) SA 261
(N) at 268 H – I.
[8]
Mr
Harpur
submitted that the reliance by Nadella on the provisions of Clause 9
is misplaced. This is because upon a proper interpretation
of
Clause 9 it comprises two parts, firstly a warranty, and secondly an
indemnity. He submitted that, ex facie the arrest
application,
Nadella relied upon the warranty contained in the first part of
Clause 9. That much is stated in paragraph 10
of the founding
affidavit in the arrest application.
[9]
The provisions of Clause 9 of the sale agreement have been the
subject of judicial comment. I was referred to
Athens
Cape Naviera SA v Deutsche Dampfschiffahrtsgesellschaft “Hansa”
Aktiengesellschaft and another
[1985] 1
Lloyd’s Rep 528 (CA), referred to as ‘the Barenbels’.
The appellants had sold the mv ‘Barenbels’
and the buyers
continued to trade using the ship. She was arrested in Qatar by
a local agent who had previously acted for
the sellers, and who were
owed a considerable sum of money by the sellers. The sale
agreement, which had been on the Norwegian
Sale Form, contained
Clause 9 which was in almost identical terms to Clause 9 of the sale
agreement between the parties in this
matter. An arbitration
had held that the seller was under no obligation to the buyer for the
debts of the agent. The
arbitration panel rejected the buyer’s
claim for damages for breach of the guarantee (the warranty in this
case) contained
in the first sentence of Clause 9. The
arbitration panel had held that the buyers could not bring their case
within the second
sentence of Clause 9 because they could not show
that the claim was one against the ship itself, because the claim was
against
the sellers.
[10]
The buyers appealed to Sheen J in the Queen’s Bench Commercial
Court, who held that the owners of the ship were the buyers,
and as
they were not indebted to the agents, a claim
in
personam
against them must fail.
In Qatar, however, the agents were entitled to proceed against any
ship which was owned by the debtor
at the time when the debt arose.
In those circumstances the sellers were in breach of Clause 9 and
liable to indemnify the
buyers against all consequences of the claims
made against the ship.
[11]
The sellers then appealed to the court of appeal, which held that
they were concerned only with the construction of Clause
9. The
court of appeal held that there were two different concepts contained
in Clause 9. The first was concerned with
a guarantee (or
warranty) relating to the vessel at the time of delivery.
The second sentence contains an indemnity
in respect of claims made
against the ship, and refers to claims made after the delivery of the
ship, even though they were incurred
prior to the delivery thereof.
As the debts owed to the agent at Qatar were clearly neither an
encumbrance nor a maritime
lien, the court had to consider whether it
fell within the ambit of ‘any other debts whatsoever’.
An interpretation
that that phrase intended to refer to debts
incurred by the seller in respect of the ship which is the subject
matter of the agreement,
was dismissed by the court of appeal because
it could lead to the extravagant result that a seller who owned
a fleet of ships,
and who sold one of them in terms of Clause 9,
would be in breach of his obligations under the first sentence of the
clause if
any debts were owed to any sister ship. The
court held that the words ‘free from … any other debts
whatsoever’
should be read as relating to any other debts
which, at the time of delivery, have given rise to actual existing
rights affecting
the property in, or the use of, the ship. They
do not include debts which were capable of rendering the ship liable
to be
arrested in the future. That, the court held, is
legislated for in the second sentence of the clause.
[12]
The Court of Appeal then considered whether the claim of the Qatar
agent was wide enough to be included in the second sentence
of Clause
9 – the indemnity. The Court of Appeal was satisfied that
the claim of the Qatar agent was indeed a claim
against the ship.
The whole purpose of the proceedings in Qatar was to force the buyers
to provide security for the agent’s
claim against the sellers.
If security was not provided, the agents could seek to have the ship
sold in Qatar. The
Court of Appeal concluded that even though
the sellers committed no breach of the guarantee in the first
sentence of the clause,
they were obliged to indemnify the buyers
under the second sentence.
[13]
Clause 9 of the Norwegian Sale Form again became the focus of the
attention of the court of appeal in
Rank
Enterprises Ltd and Others v Gerard
[2000]
1 Lloyd’s Rep 403 (CA). Here the court of appeal held
that the second sentence of Clause 9 addressed claims made,
which
stemmed from pre-delivery events, whether the liability asserted by
those claims might prove to exist or not. The buyers
would be
entitled to be indemnified against all consequences of those claims,
and under the guarantee, to recover any loss, expense
or damage,
sustained, arising out of, or in connection with the claims.
The demand or assertion of a claim as referred to
in the second
sentence of Clause 9 had to be a claim or assertion made against the
ship, but did not mean that the ship actually
had to have been
arrested.
[14]
For any such claim there must be a demand which carried with it a
‘real and present threat of seizure of the vessel’.
The ordinary consequences for the buyers are that they would have to
respond to a claim or demand arising from pre-delivery events,
and
involving a real and present threat of seizure of the ship, as would
have to be done by way of procedural or formal steps.
If, in
responding, the buyer sustained adverse consequences there was no
reason in logic why he should not be indemnified for those
under
Clause 9.
[15]
Mr
Harpur
submitted that it was not open to Nadella to sue on the indemnity,
and at the same time to aver that it was under no obligation
to pay
the claim of Samchira. Any such claim would be premature.
What Nadella had to do was to pay Samchira, and then
claim an
indemnity from Falcon. No claim under the indemnity has yet
fallen due, because Nadella has not paid the claim,
and it can only
sue once it has done so. In those circumstances there was no
reasonable and probable cause for the arrest
of the mv ‘Falcon
Traveller’. Mr
Harpur
submitted that in the circumstances Newbrook has a prima facie case
for damages for wrongful arrest based upon a lack of
reasonable and
probable cause.
[16]
Mr
Harpur
submitted that the claim based on the association between the mv
‘Falcon Carrier’ and the mv ‘Falcon Traveller’
was devoid of any direct evidence and relied solely on conjecture and
speculation. He submitted that Nadella relied upon
hearsay
information contained in trade journals and the information relied
upon was equivocal. He submitted that the principal
reliance of
Nadella was on the existence of cross-mortgages between the two
ships, a fact which was readily admitted by Newbrook.
Newbrook’s explanation for the cross-mortgages has nothing to
do with common ownership or control, but for commercial reasons,
and
the recognition of a previously good relationship which had existed
between the owners of those two ships, prior to their relationship
breaking down. They had in fact been a father and son team.
Mr
Harpur
submitted that in order to establish reasonable and probable cause,
Nadella was obliged to have put up more information which would
have
established association.
[17]
Mr
Harpur
submitted that the assumptions made by Nadella are tantamount to
allegations of a presumption of fraud on the part of Newbrook,
and
that had the representative of Newbrook bothered to make preliminary
enquiries from Newbrook, the true position could have
been
ascertained without the need for an arrest. The position which
would have been disclosed by Newbrook would have satisfied
Nadella
that the ships were not in fact associated. In this regard Mr
Harpur
referred to the constitutional presumption of innocence and the right
of parties to civil proceedings to have a fair public hearing.
This, he submitted, has been denied by the ex parte application and
the arrest order which I granted on the 16
th
September 2015.
[18]
Mr
Harpur
submitted that in any event Newbrook is able to establish that
Nadella had made an excessive claim or required excessive security
at
the time that the order was taken. This is because an amount of
US$950 286,53 has been claimed as the ‘cost
of capital’
and as interest on the capital sum owed, awaiting the outcome of the
arbitration.
[19]
In addition, Nadella had claimed the sum of US$ 577 571,90 in
respect of its settlement with PHP. This amount had
not in fact
been paid to PHP but a guarantee had merely been provided. That
settlement amount did not arise as a consequence
of the claim by
Samchira, but rather out of negotiations between PHP and Nadella in
circumstances where, on Nadella’s own
version, it was entitled
to cancel the PHP agreement without liability. The amount
referred to by Mr
Harpur
appears to be both the sum of US$ 209 007,90 paid to PHP, and
the guarantee of US$ 368 564, provided to Samchira.
[20]
With regard to the amount claimed of US$ 1 808 202,50 for
the loss realised on the sale to PHP, this was an election
made by
Nadella not to accept specific performance, and had nothing to do
with the arrest of the mv ‘Falcon Carrier’.
[21]
Mr
Harpur
also submitted that the claim for US$ 1 753 115, 84,
allegedly expenses whilst the ship was under arrest, were in fact
expenses incurred because Nadella had failed promptly to provide a
guarantee of only US$ 368 564. He submitted that
it would
have been far less financially onerous had Nadella merely provided a
guarantee than to incur and pay an amount in excess
of US$ 1.7M for
ongoing expenses.
[22]
Mr
Harpur
also submitted that the claims of Nadella for legal expenses in the
sum of US$ 158 181,79 far exceed the rand amount claimed
by
Newbrook as counter-security for costs. Mr
Harpur
submitted that Newbrook has demonstrated a prima facie basis for
contending that those legal expenses claimed were excessive and
that
counter-security should be awarded in favour of Newbrook.
[23]
Mr
Mullins
SC, who appeared for Nadella, submitted that it is
incumbent upon an applicant for counter-security in terms of s 5(2)
of the Act
for an alleged claim in terms of sub-s 5(4) to satisfy the
court that :
(a)
it has a prima facie case in respect of its
alleged s 5(4) claim sought to be secured; and
(b)
on a balance of probabilities, that it has
a ‘genuine and reasonable need’ for security.
[24]
Mr Mullins submitted that although those requirements must be met for
an order in terms of sub-s 5(2), a court retains a discretion
to
decline an order for counter-security. Demonstrating the
necessary requirements required that Newbrook show that there
was
evidence which, if accepted, would establish that Nadella did not
have sufficient information to lead a reasonable person to
conclude
that it had met the requirements for a security arrest of the mv
‘Falcon Traveller’. Newbrook therefore
had to
establish that Nadella had no prima facie case in respect of its
claim against Falcon, that its claim could not be enforced
against
the mv ‘Falcon Traveller’ as an associated ship, and that
it had a genuine and reasonable need for security.
[25]
As the basis for Nadella’s claim, Mr
Mullins
pointed out that Samchira had, prior to the delivery of the ship to
Nadella, advanced claims in arbitration, and asserted that
the claims
would be registered against the ship, in respect of arrest
proceedings which had been instituted. This is why
the addendum
to the sale agreement had been completed and a certificate issued by
Falcon. Evidence that this was so is to
be found in the fact
that the mv ‘Falcon Carrier’ was arrested
in
rem
at Chittagong, and Nadella’s
claim is for expenses and losses incurred as a result of that arrest.
[26]
Mr
Mullins
submitted that Nadella’s claim is clearly covered by the
indemnity in Clause 9, and in the certificate provided where Falcon
contractually indemnifies Nadella against ‘all consequences’
of the claim. Mr
Mullins
submitted that it was unrealistic to suggest that the reference to
‘warranty’ in the founding affidavit to lead the
arrest
of the mv ‘Falcon Traveller’ indicated unequivocally that
Nadella only wished to rely upon the first half of
Clause 9 –
i.e. the warranty provision, and placed no reliance on the indemnity
provision. What was clearly being relied
upon was the
provisions of the sale agreement, and in particular Clause 9
thereof. The reference to ‘warranty’
in the
affidavit was no more than the loose use of a term in circumstances
where the affidavit made it abundantly clear that Nadella
intended to
rely upon Clause 9 in its entirety.
[27]
Mr
Mullins
referred to the reliance of Newbrook on
Post
Office v Norwich Union
Fire Insurance Society Ltd
[1967] 1 All ER
577
(CA) for the proposition that the right to an indemnification
requires that the third party’s claim be one in respect of
which the validity of the claim has been finally established in
court, and that the claim had actually been paid. Mr
Mullins
submits that this is an incorrect interpretation of
Post Office
because it dealt with the interpretation of a clause which read :
‘
The
[defendants] will indemnify the insured against all sums which the
insured shall become legally liable to pay as compensation
in respect
of loss of or damage to property.’
Mr
Mullins
submitted that this interpretation is inconsistent with the judgment
of the court of appeal in
Rank
.
It was made clear in
Rank
that the obligation to indemnify arises even where the claim made
proves to be a spurious one. Mr
Mullins
submitted that the claims made by Nadella are ones which have already
been established. The suggestion that losses could
have been
mitigated by Nadella does not detract from the requirement for the
establishment of a prima facie case.
[28]
With regard to the matter of association of the two ships, Mr
Mullins
submitted that there is, in these cases, inevitably little or no
direct evidence of the control which is required to establish
association. The evidence relied upon by Nadella justifies the
conclusion that the owners of the mv ‘Falcon Carrier’
and
the mv ‘Falcon Traveller’ were controlled by the same
person at the relevant times. He relied to a large
extent on
the cross-mortgaging of the two ships. He submitted that the
cross-mortgaging alone provided justification for
the conclusion of
the requisite common control.
[29]
With regard to the suggestion that Nadella should have given Newbrook
prior notice of the fact that it intended to arrest the
mv Falcon
Traveller, Mr
Mullins
dismissed this as being unrealistic. Almost all security
arrests are brought on an ex parte basis, and the reason for doing
that is that it is all too simple for a ship owner, who has advance
notice of a pending arrest, to re-direct the direction of travel
of
the ship sought to be arrested.
[30]
In response to the suggestion that the claims by Nadella are
excessive, and that excessive security was requested, Mr
Mullins
submitted that Nadella was entitled to be secured to the extent of
its best arguable case. Mr
Mullins
pointed out that Newbrook has confused the claim for security for
costs which Nadella sought (which was for the legal costs of
the
pending arbitration proceedings) with the South African costs of
litigation. That is not what Nadella sought to secure.
[31]
Mr
Mullins
pointed to the fact that Newbrook had now conceded that it had
overstated part of the quantum of its claim. Mr
Mullins
submitted that if the mv ‘Falcon Traveller’ was to be
chartered out at less than its running costs as suggested by
Newbrook, then it is the charter rate only which is lost, which,
together with fuel costs, could be claimed.
[32]
Mr
Mullins
submitted that Newbrook had not established a genuine and reasonable
need for counter-security, and that this was not dealt with
by
Newbrook in its founding papers. Mr
Mullins
submitted that it was impermissible for Newbrook to attempt to do so
in its replying affidavits. The establishment of a genuine
and
reasonable need was the only issue to be decided in Newbrook’s
claim for security for costs. In this regard it
was appropriate
that the Registrar determine the amount of security to be awarded.
[33]
In reply Mr
Harpur
submitted that a more equitable approach to arrests in a
post-constitutional era is required. Mr
Harpur
submitted that unless Nadella objectively and subjectively considered
that it had a claim under the warranty in Clause 9, then
it had no
reasonable and probable cause to arrest the mv ‘Falcon
Traveller’.
[34]
Mr
Harpur
submitted that in assessing the relative claims of the parties, the
version of the respondents should be accepted as it forms
the basis
of the claim for security.
[35]
With regard to the value of the ship, Mr
Harpur
submitted that at no stage has Nadella indicated that a lesser amount
than the security which it originally demanded would be acceptable.
The damages which are being suffered by Newbrook are the costs of
maintaining the ship under arrest, of approximately R100 000
per
day. The offer of security which was recently made by Newbrook
(in the amount of US$ 368 564,00) remains one that
was rejected
by Nadella.
[36]
Finally Mr
Harpur
submitted that the applicant had to establish the association of the
mv ‘Falcon Carrier’ and the mv ‘Falcon Traveller’
on a balance of probabilities. Viewing the facts on the basis
as alleged by Newbrook, it is entitled to security on the basis
that
there was no reasonable and probable cause established for the
association.
[37]
I now turn to consider whether Newbrook has established a basis for
me to make a finding that it has satisfied the three requirements
for
counter-security, namely :
(a)
a prima facie case in respect of the claim
to be secured;
(b)
that I have jurisdiction for that purpose;
and
(c)
Newbrook has a genuine and reasonable need
for security.
[38]
I do not accept that the submission by Mr
Harpur
that a more equitable approach to ship arrests in a constitutional
era is required, which would lead to the conclusion that Newbrook
was
entitled to security, simply because Nadella had forced it in turn to
put up security if it wished to obtain the release of
its ship.
I am aware of the approach of Wallis JA in
Imperial
Marine Co v Deiulemar Compagnia di Navigazione Spa (the mv ‘Pasquale
Della Gatta’)
2012 (1) SA
58
(SCA) at paragraph 22 where Wallis JA indicated that there is much
to be said, in deciding whether an applicant has established
a prima
facie case, for taking into account facts in the opposing affidavit
that are not contradicted by the applicant. As
he stated,
disregarding such evidence seems inconsistent with the constitutional
requirement that both parties are entitled to
a fair hearing, and it
may confer an unjustifiable advantage on the arresting party.
[39]
I do not understand that judgment to be authority for the proposition
that simply because a security arrest has been granted
to an
arresting applicant, that a respondent who wishes to obtain
counter-security should also be granted such security.
One is
not, as I understand it, a quid pro quo for the other. What is
required is that each party establishes the facts necessary
to
entitle it to the legal relief which it claims.
[40]
At paragraph 56 of the
Pasquale Della Gatta
, Wallis JA dealt
with counter-security as follows :
‘
The
parties approached the application for counter-security on the basis
that an applicant for such security must satisfy the same
requirements as an applicant for an arrest, namely a prima facie case
in respect of the claim to be secured; that the tribunal
before which
the claim is to be debated has jurisdiction for that purpose; and
that the applicant for counter-security must show
a genuine and
reasonable need for such security. This is in accordance with
what was said by this court in
MV Wisdom
C : United Enterprises Corporation v STX Pan Ocean Co Ltd
[2008] ZASCA 21
;
2008
(3) SA 585
(SCA) para 26.’
Wallis
JA then went on to deal with the function of the court in making such
an order at paragraph 58 where he stated :
‘
In
determining the quantum of any counter-security the court may also
have to exercise a discretion. A litigant is entitled
to
security in an amount determined on the basis of its reasonably
arguable best case. That requires the existence of the
claim to
be established on a prima facie basis and the quantum of security to
be determined on the basis of the amount representing
the reasonably
arguable best case in respect of that claim. The need for
security in the amounts claimed must be established
on a balance of
probabilities. However, the computation of those amounts may
not always be straightforward and may require
the court to exercise a
discretion in determining the quantum of the counter-security to
which the litigant is entitled.’
(Footnotes
omitted.)
[41]
With regard to the submission by Mr
Harpur
that Nadella sought only to rely upon the first part of Clause 9, I
am not persuaded that that is a correct analysis of its case.
In my view it is clear that Nadella sought to rely on Clause 9
in its entirety and that it would be an altogether too narrow
interpretation of Nadella’s case to hold that I should consider
only the warranty portion of the clause. It is clear
from the
history of the matter that prior to delivery of the mv ‘Falcon
Carrier’, claims had been made by Samchira,
coupled with a
threat that those claims would be against the ship. It was on
that basis that the further addendum was concluded
between Nadella
and Falcon. In my view Nadella was entitled to, and purports to
rely upon the provisions of Clause 9 and
the certificate, albeit that
it may loosely have referred to the ‘warranty’ in the
affidavit to lead the arrest, when
in fact it should really have
referred to the ‘indemnity’ contained in Clause 9.
[42]
I have considered the reliance by Mr
Harpur
on the judgment in
Post Office
for
the proposition that where a right to indemnification is claimed, it
is necessary for the validity of the claim to be
firstly and finally
established by a court and actually paid. That case concerned
an action by a third person against an
insurer, in circumstances
where the insured was allegedly liable for the claim, but had gone
into liquidation, and the third party
sought to recover directly
against the insurance company. It was a claim in terms of the
Insurance Act, 1930. The Court
of Appeal held that the claim
could only be made against the insurance company once the liability
of the insolvent company had
been established together with the
amount due.
[43]
Mr
Harpur
submitted that similarly, in this application, Nadella’s claim
was premature insofar as it relied on an indemnity, which
it could
only enforce once judgment had been granted against it. Mr
Harpur
submitted that Nadella could not claim not to be liable for the
charterer’s claim and refuse to pay it on the one hand, and
on
the other hand, to sue Falcon for security in order to enable that
claim to be paid.
[44]
Mr
Mullins
referred to the judgment in
Rank
and
submitted that it is clear from that judgment that an indemnity may
be sought in terms of Clause 9 even if the claims ultimately
turn out
to be spurious. The claim for an indemnity in respect of
Samchira’s claim against Nadella is the only part
of Nadella’s
claims which have not already been suffered.
[45]
Mr
Mullins
pointed out that having put up security for the release of the mv
‘Falcon Carrier’ for the debts of Samchira, it had
no
knowledge the merits of the charter and was unable to defend the
claim.
[46]
I am by no means persuaded that Newbrook has established, even at a
prima facie level, that the mv ‘Falcon Traveller’
was
arrested without reasonable and probable cause. The long
standing dispute between the parties regarding the agreement
of the
sale of the mv ‘Falcon Carrier’ evidences that Nadella
has a subjectively honest belief that it was entitled
to arrest the
ship as security for its claim.
[47]
That, however, is not the end of the enquiry. What also falls
to be considered is whether the security claimed by Nadella
was
excessive.
[48]
In my view the authority relied upon by Mr
Harpur
in
Post Office
is distinguishable because the decision was based upon the relevant
legislative provision, and depended upon an interpretation
of that
provision for the decision reached by the court.
[49]
With regard to the evidence of association, I am satisfied that Mr
Mullin’s
reliance
upon the cross-mortgaging of the ships is evidence which may be
viewed as strongly indicating association. The whole
concept of
the formation of single ship companies was intended by the business
world to protect assets within a defined corporate
entity, and to
prevent the debts of a ‘bad egg’ in a fleet of ships,
from contaminating the others. To cross-mortgage
ships in such
a structure undermines the whole concept. Accordingly it is
reasonable to believe that companies doing so are
probably under
common control.
[50]
The reasons advanced by Mr
Harpur
that there had previously been a strong bond between father and son
which induced the cross-mortgaging strengthens the argument,
rather
than watering it down. This is more particularly so where the
relationship has now allegedly soured between father
and son, but
they may not yet have had time to undo their relationship.
[51]
With regard to the apparently duplicated amounts of US$378 680,71
(cost of capital and interest) by Nadella, Mr
Mullins
submitted that one was for past interest, and one for future interest
until the arbitration is decided. The interest claimed
by
Nadella on the capital sum is for three years at five per cent per
annum, compounded quarterly. Is it a coincidence then,
that the
‘cost of capital’ incurred by Nadella on its expenses is
in exactly the same amount? That cost is approximately
18.11
per cent of the capital claim. As the sale agreement was
concluded on the 1
st
November 2013, and as expenses started being incurred thereafter, the
figure seems too much of a coincidence and appears to be
a
duplication by Nadella. No details are provided in the founding
papers as to how the ‘cost of capital’ was
calculated.
[52]
In addition, how the settlement between Nadella and PHP on a ‘without
liability’ basis was achieved, seems somewhat
unclear.
The suggestion of an indemnity having been provided also makes the
obligation to pay PHP somewhat unclear.
[53]
In the circumstances I am of the view that Newbrook has established a
prima facie case that excessive security was requested.
[54]
No point has been taken regarding the jurisdiction of this Court to
grant counter-security or to hear the counter-claim under
s 5(4).
I am satisfied that I have jurisdiction.
[55]
I have also borne in mind what was stated by Hurt J in
The
Yu
Long Shan
: Guangzhou Maritime Group Co v Dry Bulk SA
1997 (2)
SA 454
(D) at 463 B – D where the learned judge dealt with the
suggestion that security should only be granted to a
peregrinus
sparingly stated :
‘
In
my view where there is a counterclaim, in circumstances where a
defendant has effectively been forced to litigate in South African
Courts because of the procedure of attachment or arrest, the
requirement that the plaintiff give security against the event that
he or she might be unsuccessful as to the claim, and have a judgment
granted against him or her in the counterclaim, is a healthy
one and
enforces the principle of effectiveness.’
[56]
With regard to the need for a ‘genuine and reasonable need’
for security is concerned, Hurt J continued at page
463 E :
‘
As
long as a defendant and prospective plaintiff-in-reconvention
satisfied the Court that he has a
prima
facie
claim on which he could not
execute if successful, it seems to me that the need for security in
respect of a peregrine plaintiff
is established and follows as a
matter of course.’
[57]
I am in respectful agreement with the approach of Hurt J In the Yu
Long Shan that once a prima facie case is established upon
which the
counter-applicant cannot execute, the need for security is
established. That Newbrook attempted to establish the
need for
security in reply then, is of no importance. Nadella is a
peregrinus
with no known assets within the Republic of South Africa, and
Newbrook has established a prima facie case for counter-security.
The fact that Newbrook may have had to amend the amount of
counter-security is also, in my view, of no moment. Obvious
errors made in the calculations necessitated such amendments.
No prejudice results to Nadella as a result of such amendments.
[58]
In setting out the prima facie case of Newbrook for counter-security,
Mr
Harpur
submitted that the security required was :
(a)
Operating costs whilst under arrest : US$ 669 330
Less
difference in hire :
US$
17 480
Sub-total
: US$ 651 850
Plus
:
(b)
Interest for three years @ 9 % per annum : US$ 175 999
(c)
Costs :
US$ 90 000
Total
counter-security :
US$ 917 849
[59]
This amount is somewhat less than that previously sought by Newbrook
in the sum of US$ 1 247 573. With regard
to the costs
of this application, the application stands independently of the
arrest itself and any proposed action for damages
by Newbrook.
The costs should, accordingly, follow the result.
[60]
In the circumstances I make the following order :
(a)
the applicant is directed to provide security for the claims by the
second respondent in the sum of US$ 827 849;
(b)
the Registrar of this Court is directed to determine the amount of
security for legal costs appropriate for the second respondent’s
defence of the applicant’s application under case number
A74/2015;
(c)
the applicant is directed to provide security to the satisfaction of
the Registrar of this Court, for the amounts referred to
above,
within seven days of this order or such determination;
(d)
the costs of this application for counter-security are to be paid by
the applicant, including the costs of senior counsel.
Date
of hearing : 18
th
November 2015.
Date
of judgment : 23
rd
December 2015.
Counsel
for the Applicant : S R Mullins SC (instructed by Clyde & Co).
Counsel
for the Second Respondent : G D Harpur SC (instructed by Norton Rose
Fulbright South Africa Inc).