Brief Summary

Admiralty Jurisdiction — Action in personam — Jurisdiction of KwaZulu-Natal High Court — Applicant sought to declare action null and void based on alleged lack of jurisdiction and improper enforcement of a letter of undertaking — Respondent contended that the letter of undertaking constituted a deemed attachment of property, thereby conferring jurisdiction — Court held that the letter of undertaking was sufficiently broad to encompass attachment, and that the KwaZulu-Natal High Court had jurisdiction to hear the action in personam.

Comprehensive Summary

Summary of Judgment

1. Introduction

This judgment concerns interlocutory admiralty proceedings in the KwaZulu-Natal High Court, Durban, exercising its admiralty jurisdiction. The principal application was brought by Pacific International Lines (PTE) Ltd (“PIL”) as applicant against Capewinds Trading 33 CC (“Capewinds”) as respondent, arising from litigation instituted by Capewinds against PIL for damages allegedly caused during the carriage of refrigerated containers of apples.

The procedural history was central to the dispute. After the cargo damage, Capewinds demanded security and threatened to arrest a PIL vessel. Security was ultimately furnished by PIL’s P&I Club in the form of a letter of undertaking (“LOU”). Thereafter Capewinds issued in personam summons against PIL in Durban. PIL responded by launching an application seeking, among other relief, a declaration that the action was null and void, alternatively that the court should decline to exercise admiralty jurisdiction under section 7 of the Admiralty Jurisdiction Regulation Act 105 of 1983 (“the Act”), and further relief relating to the continued operation of the LOU and the “deemed arrest”.

Capewinds opposed PIL’s application and brought a counter-application for joinder of another vessel (mv “Kota Bunga”) as a second defendant and consequential amendment. At the hearing, Capewinds indicated it would not persist with joinder if PIL failed on the “null and void” attack, and the parties agreed that the section 7 jurisdictional discretion would only arise if the action was not declared null and void.

The general subject-matter of the dispute was therefore twofold. First, whether the LOU had the legal effect required to ground admiralty jurisdiction for an in personam action in Durban (through a “deemed attachment” under the Act). Second, whether, despite jurisdiction being available, the court should decline to exercise it because the parties’ bill of lading contained an exclusive Singapore jurisdiction clause and Singapore law as governing law.

2. Material Facts

It was common cause that in March or April 2011 Capewinds contracted with PIL for the carriage of four reefer containers of apples from Cape Town to Douala, Cameroon, aboard a PIL-operated vessel. On arrival the apples were damaged and were not marketable or salvageable. Capewinds’ claim, as later pleaded, was for €238 354,33, alleged to arise from breach of contract, namely delivery not within a reasonable time and/or insufficient electricity supply to the reefer containers.

The security history was not materially disputed. In October and December 2011 Capewinds’ attorneys demanded that PIL put up security, failing which Capewinds would arrest a PIL ship in South Africa to obtain security for proceedings in Durban. PIL’s attorneys sought clarification and requested that Capewinds not arrest vessels pending consideration. By February 2012 Capewinds reiterated that security had not been forthcoming and stated concern about a “fast approaching time bar”. Draft LOU wording was exchanged; PIL proposed amendments; and on 9 March 2012 an LOU was issued by PIL’s P&I Club, The Standard Steamship Owners’ Protection and Indemnity Association (Asia) Ltd (“the Club”).

The LOU’s material terms, as relied upon by the court, included that it was given in consideration of Capewinds releasing from arrest or refraining from arresting or re-arresting and/or “interfering in any other way with the use or trading of” the named ship or any other ship or property or asset in the same or associated ownership or management. The Club undertook to pay sums adjudged (without appeal) by a competent court or arbitration tribunal, subject to a monetary cap, and submitted to the jurisdiction of the KwaZulu-Natal High Court, Durban, for payment claims under the LOU, choosing a domicilium address in Durban.

On 19 April 2012 Capewinds instituted an action in personam in Durban against PIL. On 10 May 2012 PIL’s attorneys wrote to Capewinds’ attorneys contending the summons was defective, including because it did not plead a basis for jurisdiction, and expressly recorded that PIL’s rights and defences remained reserved, “specifically” including a right to challenge the Durban court’s jurisdiction. Capewinds then amended its summons to plead that the claim was a maritime claim under section 1(1) of the Act (including paragraphs (d), (h), (i), and/or (ee)) and that Durban had jurisdiction under section 2 read with section 3(2)(a)–(c).

The parties were agreed (and the court proceeded on that basis) that the bills of lading contained an exclusive jurisdiction clause providing that the contract was governed by Singapore law, that any claim against the carrier “shall be determined by the Singapore courts to the exclusion of the jurisdiction of the courts of another country”, and that the carrier reserved a right to sue the merchant in Singapore or elsewhere where the merchant had assets.

For the section 7 inquiry, PIL relied on a Singapore lawyer’s opinion that the Singapore courts would exercise jurisdiction, and Capewinds did not dispute that. It was also accepted in argument that the claim would be met in Singapore by a time-bar defence, whereas it would not be time-barred if litigated in South Africa. The judgment treated this time-bar contention as a significant practical prejudice to Capewinds if forced to sue in Singapore.

3. Legal Issues

The first central legal question was whether Capewinds had satisfied the jurisdictional requirements under the Act to institute its Durban in personam action against PIL. This required determination of whether the LOU constituted security to prevent attachment, with the consequence that PIL’s property was deemed to have been attached under section 3(10)(a)(i), thereby satisfying section 3(2)(b), or alternatively whether PIL had consented or submitted to jurisdiction under section 3(2)(c).

That issue was primarily a matter of interpretation of the LOU (a question of law applied to the text and context) and the application of statutory deeming provisions to the established security arrangement (application of law to largely common-cause facts).

The second central legal question was whether, even if jurisdiction existed, the court should in its discretion under section 7(1)(a) of the Act decline to exercise its admiralty jurisdiction because the parties agreed to exclusive Singapore jurisdiction and Singapore law. This required a discretionary evaluation (“value judgment”) of appropriateness of forum, applying established principles for stays/declining jurisdiction where proceedings are brought in breach of an exclusive foreign jurisdiction clause, including whether “strong cause” existed to allow the South African proceedings to continue.

A further issue arose as to whether, if declining jurisdiction, the court could or should impose conditions proposed by Capewinds, namely that PIL be precluded from raising the Singapore time-bar and that PIL furnish security equivalent to the LOU for Singapore proceedings. This was treated as a question of the court’s power under the Act (in particular section 5(2)) and the appropriateness of conditions affecting foreign litigation.

4. Court’s Reasoning

Interpretation of the LOU and deemed attachment (sections 3(10)(a)(i) and 3(2)(b))

The court approached the LOU by applying contextual interpretation principles, expressly referring to Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA). PIL contended that the LOU was provided solely to prevent the arrest of a ship, not to prevent attachment of property, and that section 3(10)(a)(i) did not create both a deemed arrest and a deemed attachment in the circumstances. Capewinds argued that the LOU’s language was wide enough to encompass attachment and thus triggered a deemed attachment.

In assessing the competing contentions, the court treated the wording “interfering in any other way with the use or trading of” not only the named ship but “any other ship or property or asset” as text requiring substantive meaning within the LOU’s overall purpose and context. PIL’s attorney had characterised the LOU as driven by commercial necessity to avoid interruption of PIL’s business and also argued that the wording was “standard” and not crafted for the specific circumstances. The court considered that these positions could not support a narrow construction confined to formal arrest only.

The court accepted Capewinds’ submission that an attachment would constitute interference with use or trading and would interrupt business as much as an arrest or informal detention. While acknowledging that Capewinds’ earlier correspondence threatened arrest rather than attachment, the court held that given the breadth of the undertaking and PIL’s own characterisation of its standardised purpose to avoid “any” business interruption, there was no valid reason to construe the LOU as excluding attachment.

Having found that the LOU provided security to prevent attachment, the court applied section 3(10)(a)(i) of the Act, which addresses the situation where security is put up prior to arrest or attachment to prevent that arrest or attachment. On that basis, the court concluded that property was deemed to have been attached, satisfying section 3(2)(b). The consequence was that Capewinds was entitled to institute an action in personam against PIL in Durban, and PIL’s application to declare the action null and void could not succeed.

Because the court found section 3(2)(b) satisfied, it considered it unnecessary at that stage to decide PIL’s separate contention that PIL had not consented or submitted to jurisdiction under section 3(2)(c), although it indicated that consent/submission would be relevant later in relation to section 7.

Declining admiralty jurisdiction (section 7(1)(a)) in light of an exclusive Singapore jurisdiction clause

Turning to section 7(1)(a), the court identified the two statutory requirements: it must be of the opinion that the Singapore court will exercise jurisdiction, and that it is more appropriate for the dispute to be adjudicated there than in South Africa. The first requirement was treated as satisfied on the papers, given PIL’s Singapore legal opinion and the absence of dispute by Capewinds.

For the appropriateness inquiry, the court applied principles binding in the division, referring to the full bench decisions in mv Spartan-Runner v Jotun-Henry Clark Ltd 1991 3 SA 803 (N) and mv Achilleus v Thai United Insurance Co Ltd and Others 1992 (1) SA 324 (N), which in turn adopted the approach summarised in The Eleftheria [1969] 1 Lloyd’s Rep 237. The court also referred to mv Iran Dastghayb v Terra-Marine SA 2010 (6) SA 493 (SCA) for the proposition that where parties have agreed to an exclusive foreign forum, the party seeking to litigate elsewhere bears the onus to show a “very strong case” or “strong cause” for not holding them to their bargain.

Applying those factors, the court evaluated the likely evidence and witness locations. It accepted that some evidence concerning the state of the fruit at packing and loading and the contract formation would be South African. However, it regarded the principal disputed issues as likely to concern delay in delivery and reefer container performance, with material evidence and witnesses located across multiple jurisdictions (Singapore for planning evidence; Ghana for trans-shipment delay evidence; crew members from outside South Africa and Singapore; the United Kingdom for seaworthiness-related evidence; Cameroon for survey evidence). Because witnesses would have to travel in any event and many key witnesses were not in South Africa, the court concluded it could not be said that evidence was more readily available in Durban than Singapore.

On governing law, the court noted the bill of lading’s express choice of Singapore law. The parties agreed there was no evidence that Singapore law differed materially from South African law, but the court nevertheless treated it as a relevant consideration that it is generally more satisfactory for the courts of the chosen foreign law to decide that law, consistent with the reasoning cited from The Eleftheria.

The connection factor was treated as neutral because Capewinds was South African and PIL Singaporean.

As to whether PIL sought procedural advantage, Capewinds argued that PIL’s reliance on Singapore was opportunistic because the claim would be time-barred there. The court accepted that Capewinds would suffer prejudice if compelled to sue in Singapore because of the likely successful time-bar defence, and it accepted that this prejudice would not arise in South Africa. However, it considered that the relevance and weight of this prejudice depended on whether Capewinds had acted reasonably to preserve its claim in the agreed forum.

The court examined the chronology against the one-year time bar referred to in the evidence (by reference to Article III Rule 6 of the Hague-Visby Rules), noting the claim would have prescribed in Singapore by 31 May or 1 June 2012. It then compared this case to The “Nantai Prince” 1996 SCOSA A 12, where the Durban court declined to allow local proceedings to continue when the claim was time-barred in the agreed jurisdiction and the claimant had given no information showing it acted reasonably in failing to take protective steps in the contractual forum.

On the papers, the court found Capewinds was aware of the “fast approaching time bar” by February 2012 yet gave no explanation why it did not institute protective proceedings in Singapore. Importantly, the court rejected Capewinds’ attempt to attribute its omission to PIL’s conduct. It held that PIL’s letter of 10 May 2012 clearly reserved PIL’s right to challenge jurisdiction, and that this was received while the claim was still within time in Singapore, leaving Capewinds with approximately three weeks to take protective steps. No explanation was provided for its failure to do so.

On that basis, notwithstanding the prejudice of the Singapore time bar, the court concluded that Capewinds had not shown “strong cause” to proceed in Durban in breach of the exclusive jurisdiction clause. It therefore exercised its discretion under section 7(1)(a) to decline to exercise its admiralty jurisdiction in the Durban action.

Proposed conditions: waiver of time bar and provision of security

Capewinds sought conditions if the court declined jurisdiction: that PIL be precluded from raising the time bar in Singapore and that PIL furnish security equivalent to the LOU for the Singapore litigation. The court noted that Capewinds could not identify reported authority where such a condition (waiver of a foreign time bar) had been imposed, relying only on obiter remarks in The Spiliada [1987] 1 Lloyd’s Rep 1.

The court held that section 5(2) of the Act did not confer power to make an order dictating the conduct of litigation in a foreign court, and it therefore refused to impose a condition preventing PIL from raising the Singapore time-bar defence.

On security, the court relied on evidence in reply describing PIL’s substantial financial standing and the absence of any suggestion (or plausible basis) that PIL would not satisfy a Singapore judgment. It held that if Capewinds wished to dispute that, it could have sought to do so in a further affidavit but did not. It therefore refused to order PIL to furnish security equivalent to the LOU for Singapore proceedings.

Costs

The court applied the general principle that costs follow success but recognised that the outcome was divided. Capewinds succeeded in resisting the application to declare the action null and void, while PIL succeeded in obtaining the order declining jurisdiction. In the circumstances, the court considered the appropriate order was no order as to costs in both applications and in the joinder application.

5. Outcome and Relief

The court dismissed PIL’s application to declare Capewinds’ in personam action null and void, holding that the LOU constituted security preventing attachment and thus created a deemed attachment under section 3(10)(a)(i), satisfying section 3(2)(b).

The court nonetheless granted PIL’s alternative relief under section 7(1)(a) by declining to exercise admiralty jurisdiction in the Durban proceedings, effectively preventing the matter from being adjudicated in that forum notwithstanding the existence of jurisdiction.

The court ordered that the original LOU dated 9 March 2012 be returned to PIL’s attorneys, Bowman Gilfillan Incorporated, within seven days.

The court made no order as to costs in the application(s) and in the joinder application.

Cases Cited

Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA)

mv Iran Dastghayb v Terra-Marine SA 2010 (6) SA 493 (SCA)

mv Spartan-Runner v Jotun-Henry Clark Ltd 1991 3 SA 803 (N)

mv Achilleus v Thai United Insurance Co Ltd and Others 1992 (1) SA 324 (N)

The Eleftheria [1969] 1 Lloyd’s Rep 237

The Spiliada [1987] 1 Lloyd’s Rep 1

The “Nantai Prince” 1996 SCOSA A 12

Legislation Cited

Admiralty Jurisdiction Regulation Act 105 of 1983 (in particular sections 1(1), 2, 3(2), 3(10)(a)(i), 5(2), and 7(1)(a)–(b))

Article III Rule 6 of the Hague-Visby Rules (as referred to in the judgment)

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the LOU’s wording, properly interpreted in context, was sufficiently wide to cover not only the arrest of a vessel but also attachment (as a form of interference with the use or trading of ships or assets). Accordingly, by operation of section 3(10)(a)(i) of the Admiralty Jurisdiction Regulation Act 105 of 1983, PIL’s property was deemed to have been attached, and Capewinds satisfied section 3(2)(b), entitling it to institute an action in personam in Durban. PIL’s attempt to have the action declared null and void therefore failed.

The court further held that, despite the availability of jurisdiction, it should decline to exercise its admiralty jurisdiction under section 7(1)(a) because the bill of lading contained an exclusive Singapore jurisdiction clause and Singapore law was the chosen governing law. Applying the “strong cause” approach, the court found Capewinds failed to justify proceeding in South Africa, particularly given the absence of explanation for not taking protective steps in Singapore before the claim became time-barred there.

The court refused to impose conditions preventing PIL from raising the time-bar defence in Singapore or requiring PIL to provide substitute security for Singapore proceedings, and it made no costs order given the divided success.

LEGAL PRINCIPLES

The judgment applied the principle that contractual documents, including letters of undertaking, must be interpreted contextually and purposively, attributing meaning to the words used and considering the document as a whole and the circumstances of its creation, consistent with Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA).

It affirmed that where security is furnished to prevent arrest or attachment, section 3(10)(a)(i) of the Admiralty Jurisdiction Regulation Act 105 of 1983 can operate to create a deemed attachment (where the security is construed as preventing attachment), which in turn may satisfy the jurisdictional basis for an in personam action under section 3(2)(b).

In relation to exclusive foreign jurisdiction clauses, the judgment applied the approach that a South African admiralty court retains a discretion under section 7(1)(a) to decline to exercise jurisdiction, and that where proceedings are brought in breach of an exclusive foreign jurisdiction clause, the party seeking to proceed locally bears the burden to show “strong cause” (or a “very strong case”) for not holding the parties to their chosen forum, with reference to mv Iran Dastghayb v Terra-Marine SA 2010 (6) SA 493 (SCA) and the factors articulated in The Eleftheria [1969] 1 Lloyd’s Rep 237 as adopted locally in mv Spartan-Runner v Jotun-Henry Clark Ltd 1991 3 SA 803 (N) and mv Achilleus v Thai United Insurance Co Ltd and Others 1992 (1) SA 324 (N).

The judgment further applied the principle that the existence of prejudice arising from a time bar in the contractual forum does not, without more, constitute strong cause where the claimant fails to explain why it did not take reasonable protective steps in the agreed forum before prescription, consistent with the approach in The “Nantai Prince” 1996 SCOSA A 12.

Finally, the judgment applied the limitation that the court will not, on the basis relied upon in this matter, make orders purporting to control a party’s conduct in foreign litigation (such as directing that a time-bar defence not be raised), and it declined to treat section 5(2) of the Act as conferring such power in the circumstances.

Pacific International Lines (PTE) Ltd v Capewinds Trading 33 CC (A45/2012) [2013] ZAKZDHC 50 (26 September 2013)