Bridge Oil Limited v Fund constituting the proceeds of the sale of the MV "Mega S" (formerly the MV "Aksu") and Others (AC 58/2002) [2003] ZAWCHC 24; 2007 (3) SA 202 (C) (12 June 2003)

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[2003] ZAWCHC 24
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Bridge Oil Limited v Fund constituting the proceeds of the sale of the MV "Mega S" (formerly the MV "Aksu") and Others (AC 58/2002) [2003] ZAWCHC 24; 2007 (3) SA 202 (C) (12 June 2003)

IN THE HIGH COURT OF
SOUTH AFRICA
(CAPE OF GOOD HOPE PROVINCIAL DIVISION)
Case
no.: AC 156/2002 +
AC 58/2002
In the matter between:
BRIDGE OIL
LIMITED
Applicant
and
THE FUND CONSTITUTING THE PROCEEDS OF
First
Respondent
THE
SALE OF THE MV “MEGA S” (FORMERLY
THE MV “AKSU”)
G.
O. VAN NIEKERK SC, N.O. Second Respondent
HAMBURGISHE LANDESBANK-GIROZENTRALE Third Respondent
JUDGMENT GIVEN THIS
THURSDAY, 12 JUNE 2003
­­­­­­­­­­
CLEAVER
J:
[1] This is an application set down and argued
before this court exercising its admiralty jurisdiction under the
Admiralty Jurisdiction Regulation Act 105 of 1993
(“the act”).
[2] The issue in this matter is whether the
applicant has a claim ranking above the third respondent’s claim
against the first respondent
which
was established pursuant to the sale by judicial auction of the MV
“Mega S” (“the vessel”), notwithstanding that the
vessel had,
after the applicant’s claim had arisen, been sold by judicial sale
in Denmark
“free from all charges,
liens and other encumbrances”
.
[3] The vessel was initially registered in Turkey
under the name MV “Aksu”. The applicant’s claim arises from
the supply of
bunkers sold and delivered to the vessel in Singapore
and China in January and February 2000 by
the plaintiff. In April 2000 the
applicant obtained an order from the Tuzla Civil Court of the First
Instance in Turkey granting
a pledge right of USD 298 000,00 on the
vessel in favour of the applicant. It was also accepted by the
Turkish court that the applicant
was entitled to interest calculated
at the rate of 2% per month on the capital sum. In August 2000, the
applicant caused the pledge
to be registered in the vessels’
registry in Turkey. During September 2000, the Hamburgische
Landesbank-Girozentrale, the third
respondent, the mortgagee in terms
of a mortgage granted over the vessel caused the arrest and sale of
the vessel in Denmark. According
to an affidavit filed by one
Michael Villadsen, a qualified lawyer who specialises in maritime law
and who deposed to his affidavit
as an independent expert on Danish
law, the title deed relating to the sale in execution in Denmark
reflects that the auction was
final and not open to appeal. His
affidavit then proceeds as follows:
“
When a vessel is sold in Denmark by way of a forced sale, then
in terms of section 76, sub-section 1 of the Danish Merchant Shipping
Act (of 20 January 1998), all maritime liens, mortgages and other
encumbrances cease to attach to the vessel.
This section of the Danish Merchant Shipping Act is based on
article 11 of the International Convention for the Unification of
Certain
Rules Relating to Maritime Liens and Mortgages, Brussels
1967.”
[4] The sale in execution in Denmark was to Barrington Enterprises
SA. This company did not register the vessel in its name but
on-sold
it to Mega Navigation Limited (“Mega Navigation”), a Maltese
Company. The vessel was then registered in the Ships’
Registry in
Malta, which reflects Mega Navigation as the owner.
[5] The vessel traded again and in 2002 was arrested in Cape Town at
the instance of the third respondent and subsequently sold in
execution in terms of an order of this court. The auction having
elicited a highest bid which was less than the valuation of the
vessel, the sale for the amount bid was confirmed by this court on 13
June 2002 and upon payment of the purchase price the first
respondent
came into existence. The second respondent is the referee appointed
to receive, examine, consider and report to this court
on the
validity and ranking of claims against the respondent.
[6]
The second respondent declined to
accept the applicant’s claim, which had been filed with him after
the expiry of the period within
which it was to have been filed. The
second respondent does not oppose this application and abides the
decision of the court.
[7] The case for the applicant is that its claim, being a pledge
right, constituted a charge on the vessel falling within the
provisions
of section 11(4)(d) of the act. As such the applicant
contends that
its ranking as against the third respondent’s
mortgage is to be determined according to the law of the flag of the
ship within the
meaning of section 11(5)(d) of the act. This
subsection reads:
“
(5)
The claims mentioned in paragraphs
(b)
to
(f)
of subsection (4) shall rank after any claim referred to in paragraph
(a)
of that subsection, and in accordance with the following
rules, namely—
…
(d)
claims mentioned in paragraph
(d)
of subsection (4) shall, among themselves, rank according
to the law of the flag of the ship;”
Section 11(4) lists the claims contemplated against a fund which has
been established by the sale of a vessel and 11(4)(d) reads:
“
a
claim in respect of any mortgage, hypothecation or right of
retention of, and any other charge on, the ship, effected or valid
in
accordance with the law of the flag of the ship, and in respect of
any lien to which any person mentioned in paragraph
(o)
of the definition of ‘maritime claim’ is entitled;”
[8] The vessel’s registration in Turkey has not been cancelled,
notwithstanding the subsequent sale in execution of the vessel
in
Denmark and for that reason Mr
Burger
, who appeared for the
applicant, submitted that the registration in Turkey continued to
determine the law which is to be applied
in order to determine the
ranking of the applicant’s claim. According to an affidavit filed
on behalf of the applicant, the law of Turkey would give
precedence to the applicant’s claim over that of the third
respondent.
Mr
Burger
conceded that the applicant’s case
was not based on it having a maritime lien within the meaning of
section 3(4)(a) of the act
and since immediately prior to the sale of
the vessel of the vessel in Cape Town she was owned by a Maltese
company and not the applicant’s
debtor, section 3(4)(b) also has no
application.
[9] Mr
Burger
submitted that once perfected in the Turkish
register, the applicant’s claim became a
“pledge of right”
or
“pledge right”
. This, being somewhat akin to a
vindicatory right, was accordingly to be classified as
“any
other charge on, the ship effected or valid in accordance of the law
of the flag of the ship”
referred to in section 11(4)(d) of the
act. However, as pointed out in
Oriental Commercial and Shipping
Co Ltd v MV Fidias
1986 (1) SA 714
(D) at 718B, section 11 of the
act is merely a ranking clause. It deals with the consequences and
not the nature of claims. Accordingly,
Mr
Stewart
, who
appeared for the third respondent, submitted that it was first
necessary to have regard to the nature of the applicant’s claim
in
order to establish whether it was entitled to proceed
in rem.
Mr
Burger
took a rather simple line to this, contending that
once the applicant had established that the pledge right was akin to
a right
in rem
, the onus was on the third respondent to show
that that right had been destroyed in some way.
[10] It is clear from the papers that the underlying basis for the
applicant’s claim as secured by the registration of a maritime
lien
in Turkey is the sale of three orders of bunkers to the then owners
of the vessel. On the clear authority of
Transol Bunker BV v MV
Andrico Unity and Others
1989 (4) SA 325
(A), maritime liens
recognised under South African law do not include the claim of a
bunker supplier. (p354 at F-I)
[11] Mr
Stewart
submitted that the judgment in
Andrico
Unity
effectively disposed of the matter, since what had been
registered in Turkey was a maritime lien based on the supply of
bunkers.
Therefore, even if the applicant’s
“pledge right”
is valid under Turkish law and Turkish law is the law of the flag of
the ship, a claim against the first respondent is invalid.
[12] Since Mr
Burger
sought to avoid labelling the applicant’s
claim as a maritime lien (notwithstanding the use of this
nomenclature in the Turkish
registry), it is necessary to consider
the applicant’s claim in greater detail, for Mr
Stewart
challenged its validity, even according to Turkish law. The basis
for first the lien and then the
“pledge right”
which the
applicant claims is article 1235 of the Turkish Commercial Code.
According to an article by a Professor Unan of the University
of
Istanbul attached to the papers, such a right would accrue
“only
if the purchase agreement is concluded by the Master who entered into
the agreement as the legal representative of the owner.
Agreements
made directly by the owner do not grant any lien.”
The
relevant article of the Turkish Commercial Code follows the wording
of article 2(5) of the International Convention for the
Unification
of Certain Rules Relating to Maritime Liens and Mortgages of 1926 to
which Turkey is a contracting state. Article 2
which lists claims
which give rise to maritime liens records the following in
sub-paragraph 5:
“
Claims resulting from contracts entered into or acts done by
the Master, acting within the scope of his authority, away from the
vessel’s
home port, where such contracts or acts are necessary for
the preservation of the vessel or the continuation of its voyage,
whether
the Master is or is not at the same time owner of the vessel,
and whether the claim is in his own or that of ship chandlers, and
whether the claim is his own or that of ship chandlers, repairers,
lenders, or other contractual creditors.”
It is clear that in the case of each of the bunker suppliers, the
agreements were made directly with the owners, Merktan Denizeilik
AS
(“Merktan”) or the managers, Beste Denizeilik Ltd Sti (“Beste”),
and not with the Master:
In respect of the first stem, the quote was made by the applicant to
Merktan and was accepted by Merktan;
In respect of the second stem, the quote was made by the applicant
to Beste and was accepted by Beste; and
In respect of the third stem, the quote was made by the applicant to
Beste and was accepted by Beste.
The only answers that the applicant has offered are
The granting of the pledge right and registration thereof were
ordered by the Turkish courts and are binding (i.e.
res
judicata
); and
The letters of confirmation and the invoices reflect the master of
the vessel, amongst others, as the buyer of the bunkers; and
the
delivery notes bear the vessel’s stamp and the master’s
signature.
[13] In my view, this is not a question of
res judicata
. It
appears from the judgment of the Tuzla court of first instance that
there was no appearance on behalf of the vessel – only
the ship’s
managers appeared and declared that the amount claimed by the
applicant was correct. They took no part in the proceedings
relating
to the grant of a pledge right which was left to the court. In the
result, the judgment effecting the pledge right was
a judgment by
default and evidence justifying the judgment may be required by the
first respondent. (Section 10A(3)(a)). As to
the second answer, it
is required that the agreement be concluded with the Master, not that
some other person should agree that the
Master shall be a party to
the agreement or that the Master should
acknowledge receipt of
the supplies. On the papers before me, the agreement was not
concluded with the Master and I accordingly conclude
that the
applicant has not established the validity of the pledge right.
[14] In passing, I would mention that I am also not convinced that
the pledge right establishes a right
in rem.
Even if it is a
quasi
-vindicatory right, it would appear to me to be something
less than a right
in rem
and something which does not
necessarily attach to the vessel. However, it is not necessary to
make a finding on this issue.
[15] If I should be wrong in concluding that the applicant has failed
to establish the validity of its contended for pledge right
in
Turkish law, it will be necessary to consider the law of the flag of
the ship, about which I heard considerable argument. The
question of
course only arises because of the provisions of section 11(4)(d) and
11(5)(d) of the act. As previously indicated,
in terms of the
Fidias
judgment section 11(4) cannot be interpreted to mean
that the claims mentioned therein are maritime claims or have assumed
the characteristics
of maritime liens.
[16] The section only comes into play once the applicant can
establish that it had a valid claim recognised in South African law
against the vessel immediately prior to the judicial sale in Cape
Town. As I have already indicated, the applicant has in my view
failed to establish this. If on the other hand it should be held
that notwithstanding the fact that the applicant’s claim would
not
be valid against the vessel prior to the sale in Cape Town, but
nevertheless valid against the Fund in terms of the law of the
flag
of the ship, it will be necessary to establish what the law of the
flag of the ship is. In my view there can be no doubt that
only the
law of Malta can be considered to be the law of the flag of the ship
when she was arrested and sold in Cape Town the proper
law and for
the following reasons:
The ship had been sold by judicial sale in Denmark, thereby giving
valid title to the buyer free of all charges, liens and
encumbrances.
A South African court exercising its admiralty
jurisdiction in terms of the act is required to apply English
admiralty law, including
the relevant principles of English private
international law, in terms of which governing transfer of moveable
property (including
ships) is the
lex situs
, that is the law
of the place where the property is to be found at the time of the
transaction in question. (
Marcard Stein & Co v Port Marine
Contractors (Pty) Ltd
1995 (3) 663 (A) at 667 A-G) Thus, full
and valid title of the vessel passed to Barrington Enterprises SA
pursuant to the judicial
sale in Denmark.
The ship was properly and validly registered in the Maltese
Registry. This registration did not require a certificate of
deletion
from the Turkish Registry as the registration was effected
pursuant to a sale by judicial auction.
Article 9 of the 1926 Convention referred to recognises that liens
such as that claimed by the applicant can cease to exist following
a
sale if the sale is
“accompanied by formalities of publicity
which should be laid down by the national law”.
All the
formalities of publicity laid down by Danish law were complied with.
It is clear that the applicant was given notice of
the sale in
Denmark. It was represented in the Danish proceedings, made no
objection to the sale and failed to submit a claim
against the fund
created from the Danish sale, notwithstanding the opportunity to do
so.
Article 5(1) of the 1958 Geneva Convention on the High Seas, to
which convention South Africa acceded on 9 May 1963, provides
“ships
have the nationality of the state whose flag they are entitled to
fly”
. The Mega S flew the Maltese flag and was clearly
entitled to fly that flag. Since Mega Navigation is not a Turkish
company
the vessel
would not be entitled to fly the
Turkish flag. Furthermore, it would also appear that pursuant to
the sale in Denmark the vessel
lost its right to fly the Turkish
flag as per a decision of the Istanbul 3
rd
Court Judge
and Decree on Behalf of the Turkish Nation, relating to the sale of
the MV “Eliki”, a judgment which was confirmed
on appeal and
referred to in the papers.
[17] Mr
Burger
sought to overcome these obvious difficulties
by contending that
(a) until the registration in the Turkish registry was cancelled, it
applied;
(b) the registration in Malta was only provisional; and
although the vessel was entitled to fly the Maltese flag, the
Turkish registration was the primary registration and the Maltese
registration should be regarded as a secondary registration.
[18] In my view there is no merit in any of these submissions. The
Turkish register is clearly out of date. According to the expert
who
testified on Maltese law, it is an irrelevant consideration that the
former registry in Turkey had not been closed when the vessel
was
registered in Malta, the reason being that proof of such closure was
irrelevant because the vessel was sold by judicial auction.
No
clearer reason for recognising the title obtained by the buyer of the
ship sold in execution can be given than that stated by
Hewson
J in
The Acrux
[1962] 1 Loyd’s Report 405 quoted by John
Hare in Shipping Law and Admiralty Jurisdiction in South Africa at
p111:
“
Were such a clean title as given by this court to be challenged
or disturbed, the innocent purchaser would be gravely prejudiced.

Not only that, but as a general proposition the maritime interest of
the world would suffer. Were it to become established, contrary
to
general maritime law, that a proper sale of a ship by a competent
Court did not give a clean title, those whose business it is
to make
advances of money in their various ways to enable ships to pursue
their lawful occasions would be prejudiced in all cases
where it
became necessary to sell the ship under proper process of any
competent Court. It would be prejudiced for this reason,
that no
innocent purchaser would be prepared to pay the full market price for
the ship, and the resultant fund, if the ship were
sold, would be
minimised and not represent her true value.”
The author then goes on to highlight the very problem which has
recurred in this case in the following manner:
“
Unfortunately, obtaining deletion from a foreign register may
not always be quite as clear-cut as Dr Lushington suggests. There
are
certain jurisdictions in which the registry itself is appointed
the collector of fiscal charges levied against the ship or her
owners.
In Cyprus, for example, there is a tax levied upon the
employment of seamen which is collected by the register. Before the
Cypriot
registrar will issue a certificate of deletion, all
outstanding taxes are required to be paid, and it matters not to the
registrar
by whom payment is made.”
Quite clearly to uphold the applicant’s claim on this basis would
undermine the comity of nations and would be contrary to both
international and South African public policy. As to the point that
the registration in Malta was provisional, that is merely a
procedural step in the process of securing registration. The fact is
that the vessel is now registered in Malta and flies the Maltese
flag. The applicant’s reliance on the possibility of a primary and
secondary registration in order to support its submission that
the
Turkish registration remains effective is ill conceived. The
provisions of such registrations are to record the positions of
the
owner on the one hand (the primary user) and a user, for example, a
bare boat charterer. In the present case, we are concerned
only with
ownership and not with the use of the vessel. Since the law of the
flag is not Turkish law, the applicant’s
“pledge right”
cannot be recognised
in South Africa.
[19] For all these reasons the application must fail. It is
dismissed with costs, including the qualifying fees of the expert
witnesses
Sema Yerlikaya, Michael Villadsen and Louis Cassar
Pullicino.
_________________
R B CLEAVER