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[1993] ZASCA 167
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Shipping Corporation of India Ltd v Evdomon Corporation and Another (686/91) [1993] ZASCA 167; 1994 (1) SA 550 (AD); [1994] 2 All SA 11 (A) (12 November 1993)
CASE NO 686/91
IN THE SUPREME COURT OF SOUTH AFRICA
(
APPELLATE
DIVISION
)
In the matter between:
THE SHIPPING CORPORATION OF INDIA LTD
APPELLANT
versus
EVDOMON CORPORATION
FIRST RESPONDENT
and
THE PRESIDENT OF INDIA
SECOND RESPONDENT
CORAM
: Corbett CJ, Botha, Milne, Goldstone, et Van den Heever JJA.
DATE OF HEARING
: 27 August 1993
DATE OF JUDGMENT
: 12 November 1993
JUDGMENT
/
CORBETT
CJ:
2
CORBETT
CJ:
The first respondent, Evdomon Corporation of Liberia
("Evdomon"), carries on business, inter alia, as the owner and charterer of
ships.
In terms of a charterparty signed by the charterer in New Delhi, India
and dated 30 September 1988 second respondent, the President
of India, acting on
behalf of the Government of India, chartered the vessel MV "Kavo Peiratis" from
Evdomon, the latter acting as
the disponent owner thereof. The purpose of the
charter was to carry a cargo of bagged rice from Thailand to India. The vessel
duly
completed this voyage and fully discharged the cargo on 25 December 1988.
The Government of India failed to pay portion of the freight
due under the
charterparty and despite continuous pressure by the managers of the "Kavo
Peiratis" remained in default in the sum
of US$109 962,47.
3 In September
1990 Evdomon ascertained that the MV "Vallabhbhai Patel" ("the vessel") was
berthed in the port of Saldanha Bay, where
she had been undergoing repairs.
Claiming that the vessel belonged to the Government of India and in the belief
that the vessel was
imminently due to depart Saldanha Bay Evdomon on 9 September
1990 brought an urgent ex parte application before the Cape of Good
Hope
Provincial Division, exercising its admiralty jurisdiction ("the CPD"), for the
attachment of the vessel and certain property
aboard the vessel in order to
found or confirm the jurisdiction of that Court to entertain an action in
personam to be instituted
by Evdomon against the Government of India for payment
of the freight still due under the charterparty relating to the "Kavo Peiratis".
The application was brought in terms of sec 3(2)(b) of the Admiralty
Jurisdiction Regulation Act 105 of 1983 ("the Act").
In the founding affidavit filed in support of
4 the application it was alleged, inter alia, that although the charterparty
provided for all disputes thereunder to be settled by
arbitration in India, the
Government of India had employed what may be described as delaying tactics; that
the arbitration proceedings
were likely to take "several years"; that in terms
of a recent decision of the Supreme Court of India the arbitrators were not
empowered
to order the payment of interest on the sum awarded; and that it was
improbable that any favourable award which might eventually
be made in first
respondent's favour would be "speedily settled" by the Indian Government. For
these reasons, so Evdomon averred,
it had no confidence in obtaining "true
commercial justice" should it proceed with an arbitration in India, whereas it
was confident
that should the matter proceed before the CPD both parties would
be afforded a "fair and expeditious trial".
On this application the Court made an order of
5 attachment as prayed and ordered, inter alia, that a rule nisi should issue
calling upon all persons interested to show cause why
the attachment should not
be confirmed. The order also authorised the release of the vessel and other
property attached upon the
furnishing of security to the satisfaction of the
Registrar of the CPD. Such security was indeed furnished and a release warrant
was issued on 12 September 1990.
The Government of India did not respond to
the rule nisi, but appellant did: it intervened as an interested party.
Appellant is the
Shipping Corporation of India Limited ("SCI") and it intervened
on the basis that the vessel was owned "as to all of its 64 shares"
by it, and
not by the Government of India. It accordingly asked for the discharge of the
order of attachment, the effect of which
would be the release of the security
lodged, and the costs of its intervention.
The matter was heard by King J. Before him it
6 was common cause that SCI was a private company registered under the Indian
Companies Act, 1956 and that the vessel was duly registered
in the name of SCI
and was its property; but that SCI's entire issued share capital was actually or
beneficially owned by the Government
of India. It was Evdomon's basic contention
that by reason of the fact that SCI was a wholly-owned subsidiary of the
Government of
India and of the degree of control exercised by the Government of
India over the policies, operations and business activities of
SCI, the latter
was in truth an "organ, department or instrumentality" of the Government of
India, with the result that SCI's property
belonged to the Government of India
and was, therefore, attachable in order to found or confirm jurisdiction for an
action in personam
against the Government of India in terms of sec 3(2)(b) of
the Act.. SCI disputed these averments and legal conclusions. King J found
in
favour of Evdomon on its basic
7 contention and made an order confirming the
attachment and ordering SCI to pay the costs of its intervention. With the leave
of
the Judge of first instance SCI now appeals to this Court.
It is clear, and not in dispute, that in order to obtain confirmation by the
Court of the order of attachment Evdomon had to establish
on a balance of
probabilities that the vessel and other goods were at the time of attachment the
property of the Government of India
(
Lendalease Finance (Pty) Ltd v
Corporacion De Mercadeo Agricola and Others
1976 (4) SA 464
(A), at 489 B-C;
cf
Cargo Laden and Lately Laden on Board the MV Thalassini AVGI v M V
Dimitris
1989 (3) SA 820
(A), at 834 D-F) . In this connection, no
distinction is to be drawn between the vessel and the other property attached
and so for
the sake of brevity I shall henceforth refer merely to the
vessel.
The evidence placed before the Court on
8 affidavit by both parties canvassed in considerable detail the political
and constitutional background to the formation of SCI and
the nature of its
relationship with the Government of. India. The facts are for the most part
common cause, but where they are not,
there having been no resort to oral
evidence, I shall apply the well-known principles enunciated in
Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A), at 634 E -
635 C. The facts are fully set forth in the careful judgment of King J and I
shall endeavour to give merely a precis
thereof.
The State of India, was founded in 1947. From the outset the Government of
India pursued a policy of active State participation in
industrial and economic
development. Certain industries were earmarked as State monopolies; other "basic
industries of importance"
were subjected to a large measure of central
ownership, regulation and control. The latter included sea
9 transport.
In
1956 the Companies Act, 1 of 1956, was passed by the Indian Parliament. Sec 396
of this Act empowered the Central Government, whenever
it was satisfied that
this was essential in the public interest, to order the amalgamation of two or
more companies into a single
company. In 1961 and in the exercise of this power
the Government of India ordered the amalgamation of the Eastern Shipping
Corporation,
a public company incorporated under the Indian Companies Act of
1913, and the Western Shipping Corporation Limited, a private company
incorporated under the Companies Act of 1956, both of which companies were
engaged in the business of shipping goods to and from
India. The order stated
that the Central Government was satisfied that for "the purpose of securing
co-ordination in policy and the
efficient economical expansion and the carrying
on of the shipping business in the public sector in India" it was
10
essential in the public interest that the amalgamation take place. SCI was the
company which came into existence as a result of
this amalgamation.
SCI is a
wholly-owned subsidiary of the Government of India. All but 204 of the
approximately 7 000 000 issued shares in SCI are held
by the Government of
India, through the President of India. These 204 shares are held by executives
of SCI in their capacity as government
servants. In terms of the articles of
association (as amended) invitation to the public to subscribe for shares in SCI
is prohibited.
The allotment of shares by the board of SCI is made subject to
the directions of the President of India; and shares may be transferred
only to
persons approved by the President. The articles entitle the President to have a
representative at any meeting of the company
and this representative is
empowered to vote on his behalf. The President is further given wide powers in
regard to the
11
appointment, removal and substitution of directors and alternate directors of
SCI and of the chairman of the board and the managing
director. He also fixes
their remuneration.
The general management of the company is placed in the hands of the managing
director, subject to the control and supervision of the
board; certain matters
relating to the working of the company may, on the initiative of the chairman or
the managing director, be
reserved for the consideration of the President of
India; and the latter's prior approval must be obtained in regard to, inter
alia,
certain appointments to posts within the company, schemes involving
capital expenditure above a stipulated amount, the disposal of
property other
than ships for scrapping purposes over a certain value, the formation of
subsidiaries and proposals for the raising
or reduction of capital. The articles
also give the President powers of approval of company budgets and
12 there is
a general article (no 37) commencing:
"Notwithstanding anything contained in any of these Articles, the President
may from time to time issue such directions or instructions
as he may consider
necessary in regard to the affairs or the conduct of the business of the Company
or Directors thereof and in like
manner may vary and annul any such directions
or instructions."
In practice, according to the company secretary of SCI, Mr S Ramamurthy, the
company, together with other wholly-owned Government
of India undertakings, are
subject to the general supervisory control of their financial functioning by the
Government ministry concerned
(in the case of SCI the Ministry of Surface
Transport). But, explains Mr Ramamurthy -
"Exercise of such control is done by the concerned Ministries by issuing
guidelines, from time to time, with regard to the procedure
the wholly owned
13
Government of India undertakings should, as far as practicable, follow with
regard to matters of financial importance and particularly
in respect of matters
that may be conveniently referred to as concerning 'policy decisions'. Beyond
such general supervision the
concerned Ministries have hardly had any role to
play. The day to day administration of SCI is attended to by its various
departments,
under an overall control of its Board of Directors. The Board of
Directors of SCI enjoys full autonomy as far as the decision making
powers
vested in it under the Articles of Association is concerned. In exceptional
instances the Board of SCI refers some matters
to the Ministry, for its general
advice, but such instances are few and far
between."
In his affidavit Mr
Ramamurthy also rejected suggestions in an affidavit filed on behalf of Evdomon
that the board of SCI is not entitled
to take decisions regarding the
repair
of ships and generally that all significant
14 decisions of the board require
approval of the Government of India. Mr Ramamurthy reiterated that the board of
SCI enjoyed full
autonomy and that all decisions with regard to the day-to-day
functioning of SCI were taken by the board itself.
Finally, it should be noted that in terms of the first paragraph of the
objects clause in SCI's memorandum of association, the company
is empowered,
inter alia, to -
"...purchase, charter, hire or otherwise acquire... ships or vessels, of any
description with all equipment and furniture.....".
The fundamental question raised by this appeal is whether, given the fact
that the shareholding in SCI is wholly owned by the Government
of India and
given the degree of control exercisable and actually exercised over the
policies, operations and business activities
of SCI
15 by the Government of
India (as indicated above), SCI should be regarded as an organ, department or
instrumentality of the Government
of India and for that reason property
belonging to SCI should be treated as being the property of the Government of
India for the
purpose of attachment to found or confirm jurisdiction.
Before I consider this fundamental question there is a preliminary point with
which I must deal. At the hearing of the appeal the
Court raised with counsel
the question of the application of sec 6(1) of the Act to this case and more
particularly whether in terms
thereof the validity of the attachment of the
vessel should be determined in accordance with the law applied by the High Court
of
Justice of the United Kingdom in the exercise of its admiralty jurisdiction
(which I shall for convenience call "English admiralty
law") or in accordance
with the Roman-Dutch law applicable in the Republic. Counsel were not adequately
prepared to deal with this
point and asked
16
permission to file additional heads of argument thereon. This was
granted and additional heads have been filed. The Court is indebted
to counsel
for the comprehensive and helpful nature of these heads.
Section 6(1) of the Act provides as follows:
"Notwithstanding anything to the
contrary in any law or the common law
contained a court in the exercise of its
admiralty jurisdiction shall
-
(a)
with regard to any matter
in respect of which a court of admiralty of the Republic referred to in the
Colonial Courts of Admiralty
Act, 1890, of the United Kingdom, had jurisdiction
immediately before the commencement of this Act, apply the law which the High
Court of Justice of the United Kingdom in the exercise of its admiralty
jurisdiction would have applied with regard to such a matter
at such
commencement, in so far as that law can be applied;
(b)
with regard to any other matter, apply the Roman-Dutch law
applicable in the Republic."
17 In applying this
subsection to the present case, the question which arises is whether this appeal
relates to a matter in respect
of which a court of admiralty of the Republic had
jurisdiction immediately before the commencement of the Act, i e 1 November
1983.
If it does, then English admiralty law applies. If it does not, then we
must apply "the Roman-Dutch law applicable in the Republic";
in other words the
modern Roman-Dutch law administered by our Courts.
The first question which one asks is: what is the "matter" in the present
case? To my mind the answer is clear. The matter is an application
for the
attachment of property alleged to belong to the Government of India in order to
found or confirm the jurisdiction of the
Court a quo to entertain an action in
personam against the Government of India; and on appeal the particular issue is
the correctness
of the order of attachment granted by the Court a quo. The
18
action in personam itself, for the recovery of freight due under the
charterparty, constitutes a related, but separate, proceeding.
It is related in
that without such an attachment the Court a quo would not have jurisdiction to
entertain the action; but its separateness
is demonstrated by the fact that at
the time when the order of attachment was granted the action had not yet been
commenced, and
indeed the order of attachment directed that the action in
personam be instituted by the issue of process within 30 days. Consequently
in
considering whether the "matter" is one in respect of which a South African
court of admiralty had jurisdiction before 1 November
1983, the action in
personam itself may be disregarded. (Cf
Transol Bunker BV v M V Andrico Unity
and Others; Grecian-Mar SRL v MV Andrico Unity and Others
1989 (4) SA 325
(A), 334 H - 335 A.)
The next question is whether a South African
19 court of admiralty did have such jurisdiction prior to 1 November 1983.
The jurisdiction of such a court was governed by the Colonial
Courts of
Admiralty Act, 1890, a statute of the British Parliament. In terms of sec 2(2)
of this Act the jurisdiction of a colonial
court of admiralty was stated to be
-
" over the like places, persons,
matters, and things, as the Admiralty jurisdiction of the High Court of
England, whether existing by virtue of any statute or otherwise,
and the
Colonial Court of Admiralty [might] exercise such jurisdiction in like manner
and to as full an extent as the High Court
in England..."
It has been authoritatively held that the effect of sec 2(2) was that the
jurisdiction of a court of admiralty was governed by the
admiralty jurisdiction
of the English High Court as it existed in 1890. The sources of such
jurisdiction included English statutes
passed before
20 1890, notably the
Admiralty Court Act, 1840 and the Admiralty Court Act, 1861, but not subsequent
legislation. (
Beaver Marine (Pty) Ltd v Wuest
1978 (4) SA 263
(A), at 274
C-D;
Malilanq and Others v MV Houda Pearl
1986 (2) SA 714
(A), at 722 J -
723 B. The suggestion in LAWSA, vol 25, par 114, note 8 that the true date was 1
July 1891 is, in my view, incorrect.
According to
The Yuri Maru; The
Woron
[1927] AC 906
(PC), at 915, the critical time was "when the Act
passed", which was 25 July 1890; and it does not seem to me that this is
affected
by the provision in sec 16 that generally the Act was to come into
force on 1 July 1891.) Furthermore the proceedings in a court
of admiralty were
regulated by the rules in force in 1890 under the Vice-Admiralty Courts Act,
1863 (see
Tharros Shipping Corporation SA v Owner of the Ship "Golden
Ocean"
1972 (4) SA 316
(N), at 319 A). I shall refer to these as "the
Rules".
English admiralty law recognised two
21 procedures: actions in rem and actions in personam. The origin and nature
of the action in rem, which was peculiar to admiralty
law, is thus described in
Halsbury's Laws of England, 4 ed reissue. Vol I, par 305:
"Originally a suit in Admiralty was commenced by the arrest
either of the person of the defendant or of his goods, whether or not
the ship
or goods in question constituted the subject matter of the offence, the purpose
being to make the defendant put up bail
or provide a fund for securing
compliance with the judgment, if any, when it was obtained against him. The
result of the conflict
between the Court of Admiralty and the, common law courts
was that this method of procedure became obsolete, but the Admiralty Court
succeeded in establishing a right to arrest property which was the subject
matter of a dispute, and to enforce its judgments against
the property so
arrested, on the theory that a maritime lien to the extent of the claim attached
to the property from the moment
of the
22
creation of such claim. Such an action became known as an action in rem. The
right to enforce a maritime lien by an action in rem
was confined to the
property by which the damage was caused or in relation to which the claim arose,
and was enforceable against
the property in the hands of an innocent
purchaser."
In regard to the action in
personam Halsbury, ibid, par 306 has this to say:
"The inherent jurisdiction possessed by the Court of Admiralty was exercised
not only by proceedings in rem brought to enforce the
maritime liens attaching
to the res in each case, but, where the ship was lost or for some other reason
could not be arrested, a
plaintiff having a claim cognisable by the court, other
than a claim on a bottomry or respondentia bond or to the possession of the
ship, might take proceedings in personam against the owners of the property
which would have been arrested if the proceedings had
been in rem. Subsequently,
in 1854, the High
23
Court of Admiralty was empowered by-statute to institute proceedings by
personal service of a monition upon owners of the property
the subject matter of
the dispute, without the necessity of issuing a warrant to arrest the
property."
The statute in question, the Admiralty Court Act of 1854, provided, in sec
13, that -
"In all cases in which a party has a cause or right of action in the High
Court of Admiralty of England against any ship, or freight,
goods, or other
effects whatever, it shall not be necessary to the institution of the suit for
such person to sue out a warrant for
the arrest thereof, but it shall be
competent to him to proceed by way of monition, citing the owner or owners of
such ship, freight,
goods, or other effects to appear and defend the suit, and
upon satisfactory proof being given that the said monition has been personally
served upon such owner or owners, the said Court may proceed to hear and
determine the suit, and may make
24
such order in the premises as to it shall seem right."
A "monition" was in admiralty practice the process, similar to a writ of
summons, whereby an action was commenced (see Walker,
The Oxford Companion to
Law
, sv. "monition"). For reasons which are not clear to me the Admiralty
Court Act of 1854 was repealed in 1892, but since this was
legislation
subsequent to 1890 it may be disregarded.
Moreover, in the various text-books on English admiralty law and practice
published towards the end of the last century and at the
beginning of the
present century, to which counsel referred us, there is no suggestion that
arrest or attachment to found jurisdiction
was then part of the procedure
relating to actions in personam before the English courts of admiralty (see e g
Roscoe,
A Treatise on the Jurisdiction and Practice of the Admiralty
Division
, 3 ed (1903), pp
25 297-317;
Williams' and Brace's Admiralty
Practice
, 3 ed (1902), 321-30). The same conclusion is to be drawn from the
Rules which refer specifically to both actions _ in rem and actions
in personam,
but which make provision for the issue of a warrant for the arrest of property
only in the case of an action in rem
(see Rules 29 to 38).
Finally, this conclusion receives strong support from the decision of the
Court of Appeal in
The Beldis
[1935] All ER Rep 760
(CA). This case
actually dealt with the statutory admiralty jurisdiction conferred upon county
courts by the County Courts (Admiralty
Jurisdiction) Amendment Act, 1869. The
plaintiff had instituted proceedings in rem, by arrest, against the steamship
Beldis
in order to enforce an arbitration award in its favour arising
from a claim under a charter-party of the steamship
Belfri
. Both ships
belonged to the same owner. One of the questions which arose was
26
whether an action in rem in the county court could be
based
upon the arrest of property of the defendant owner
other than that in respect of which the cause of action
arose. The Court of Appeal held that it could not. In
the course of their judgments (with both of which Swift
J
agreed) Sir Boyd Merriman P and Scott LJ traced the
history of arrest of
the person and the property of the
defendant in order to found jurisdiction
and concluded
that it had become obsolete in the High Court of
Admiralty
before the beginning of the 19th century and
that the only type of arrest
recognized was that of the
vessel (and freight, goods or other effects) in
relation
to which the cause of action arose, in an action in rem;
and that
the same position obtained in the county court.
Scott LJ put it thus (at 775
D-I):
"In many continental systems of law and procedure (e.g., in Germany, Sweden,
Belgium, and to a certain extent in France) there is
a right of arrest for
founding
27
jurisdiction and obtaining bail in respect of any ship or other property of a
defendant, although wholly unconnected with the cause
of action sued on. But in
England I have never heard of such an arrest, and I do not believe any attempt
has ever been made here
to exercise such a right in practice within the memory
of any living practitioner in the Admiralty Court, until the plaintiffs in
the
present action made it. In my view, there is no such right
in English law to-day , There
is little doubt that historically the jurisdiction of the Admiralty Court was
originally exercised by employing either of two methods
of procedure for
bringing the defendant before the court: (i) The arrest of his person; (ii) the
seizure of his goods. There is more
than one case in MARSDEN'S SELECT PLEAS OF
THE COURT OF ADMIRALTY which illustrates the arrest of goods other than the
goods or ship
concerned in the particular cause of action for the purpose of
founding jurisdiction. But it seems to be equally clear that both
methods had
fallen into disuse before the beginning of the
28
nineteenth century, probably as a result of the incessant war of jurisdiction
waged by the common law courts on the Admiralty Court
in the sixteenth and
seventeenth centuries."
(See also
Merriman P at 771 C-E;
The "Monica S"
[1967] 2 Ll.L Rep. 113, at 123,
127-8; Wiswall,
The Development of Admiralty Jurisdiction and Practice since
1800
, 40.) The attachment procedure provided for by sec 3(2)(b) of the Act
in the case of actions in personam is obviously derived from
our common law,
which in general, unlike English law, allowed a peregrine defendant in a
personal action to be sued and process to
be served by edictal citation provided
that property of the defendant was attached to found or confirm jurisdiction
(
T.W. Beckett & Co Ltd v H Kroomer, Ltd
1912 AD 324
, at 336). The
detailed principles and rules relating to attachment to found jurisdiction
(which is distinct from arrest in _ an action
in rem - see The Owners, Master
and Crew of the
29
SS "Humber" v The Owners and Master of the SS
"Answald"
1912 AD 546
, at 556-7) are discussed in
Siemens Ltd
v
Offshore Marine Engineering Ltd
[1993] ZASCA 87
;
1993 (3) SA 913
(A); see
also
Pollak on Jurisdiction
, 2 ed, pp 82 ff. In
passing, it may be
mentioned that in conferring
jurisdiction on the Court by attachment of
property in an
action in personam where both parties are peregrini
and
where the cause of action has no connection with this
country, sec
3(2)(b) goes well beyond the jurisdictional
grounds recognized at common law
(see
"SS Humber"
case,
supra;
Siemens
case, supra;
Mediterranean Shipping Co v
Speedwell Shipping Co Ltd and
Another
1986 (4) SA 329
(D), at 335 F-J and cases there cited) . It
was
different in the case of an action in rem. There, even
before the
passing of the Act, a South African court
sitting as a court of admiralty had
jurisdiction by
virtue of the arrest of the ship, even though the
parties
were peregrini and the cause of action arose outside the
30 Court's area of jurisdiction (see
Kandagasabapathy and Others v MV
Melina Tsiris; Hethumuni and Others v MV Antigoni Tsiris
1981 (3) SA 950
(N), at 952 C-D;
Magat
-
and Others v MV Houda Pearl
1982 (2) SA 37
(N), at 39 A-B).
For these reasons I conclude that prior to 1 November 1983 a South African
court of admiralty would not have had jurisdiction to make
the kind of order of
attachment sought and obtained in this case. It follows that, in terms of sec
6(1) of the Act, the Roman-Dutch
law must be applied. This was also the
conclusion reached by counsel in their additional heads of argument.
I might add that even if, contrary to what I have held, regard be had to the
action in personam itself in applying the provisions
of sec 6(1) of the Act, the
position would be no different. I say this because it is clear that as at 1890
the High Court of
31 Admiralty in England did not have jurisdiction in
respect of charterparties (
The Yuri Maru; The Woron
, supra, at 909;
The Beldis
, supra, at 771 F-G;, 772 F;
Brown and Sons v The Russian
Ship Alina
(1880) 127 LT 494
(CA); Wiswall, op cit, 40;
Tharros Shipping
Corporation SA v Owner of the Ship "Golden Ocean"
, supra, at 322A).
I return now to what I have called the fundamental question. In the case of
Banco De Mozambique v Inter-Science Research and Development Services (Pty)
Ltd
1982 (3) SA 330
(T) the Court was concerned with an application to set
aside an order of attachment granted in order to found or confirm jurisdiction
in an action which the respondent (Inter-Science Research and Development
Services (Pty) Ltd) proposed to bring against the Goverment
of Mozambique for
payment of certain moneys and damages. (For the judgment ordering the attachment
see
Inter-Science Research and Development Services (Pty) Ltd v Republica
Popular De Mozambique
1980 (2) SA 111
32
(T).) The assets ordered to be attached consisted of moneys standing to
the credit of the applicant (the Banco de Mozambique, of Maputo)
in the books of
the Bank of Lisbon in Johannesburg. In the application for the order of
attachment it had been alleged that the applicant
was a "State Bank" and that
its "assets were owned by the Republic of Mozambique". In the application to set
aside the order of attachment
this allegation was challenged and applicant's
case was that it had not been established, on a balance of probabilities, that
the
moneys in question belonged to the Government of Mozambique or that the
Government had an attachable interest therein. The Court
(Goldstone J) granted
the application and set aside the attachment. The respondent sought to justify
the attachment on three grounds:
(i) that the applicant, though a corporation
established by decree, was actually an organ or department of the Government and
that
its assets in
33
reality belonged to the Government; (ii) that
applicant's
corporate veil should be lifted and its
assets dealt with as being those of
the Government; and
(iii) that in fact the moneys attached belonged to
the
Government. The Court rejected all three grounds. In
dealing with the
first ground and having remarked that
there was no South African authority on
the question
whether and, if so, in what circumstances the assets of
a
public corporation might be attached in satisfaction of a
debt of the
Government which created it, the learned
Judge referred to an article by Mr
Mr V K Moorthy in 30
(1980) International and Comparative Law Quarterly
638,
entitled "The Malaysian National Oil Corporation - Is it
a Government
Instrumentality?". In this article a number
of decisions in England,
Australia, New Zealand and
Canada are referred to. The author states (at
640-1):
"The Courts have evaluated the relationship between the
Government and a
34
statutory corporation for the purpose of determining whether or not the
corporation is a Government instrumentality by the application
of various
tests.
The tests are as follows:
(1) Whether the body has any
discretion of its own; if it has,
what is
the degree of control by the
Executive over the exercise of
that
discretion;
(2)
Whether the property vested
in the corporation is held by it for and on behalf of the
Government;
(3)
Whether the corporation has
any financial autonomy;
(4) Whether the functions of
the
corporation are Governmental
functions."
For the purposes of the case before him Goldstone J accepted these tests for
determining whether a corporation should be classed as
an instrumentality,
servant or organ of the Government or State concerned and accepted, too, that
where the corporation was so to
be classified it would follow that property
entrusted to
35
such a corporation belonged in fact to the Government or State (see
judgment at 333H - 335D). Having considered in detail the nature
and status of
the applicant and its relationship with the Government of Mozambique the learned
Judge concluded that the respondent
had failed to establish that the applicant
was the alter ego or an organ of the Government. He further held that no grounds
had been
advanced for piercing or lifting the corporate veil; and that there was
no proof that the moneys in question belonged to the Government.
In the present appeal what was stated in regard to the law in
Banco De
Mozambique
formed the corner-stone of Evdomon's case. As appears from the
judgment of Goldstone J and Mr Moorthy's article, the vast majority
of the cases
in which the question has arisen as to whether a body or corporation should be
regarded as an organ, instrumentality
or department of the Government concerned
have related to the doctrine of sovereign
36 immunity, i e the rule of
international law, which is applied by the domestic courts of many countries,
that "a sovereign state
should not be impleaded in the courts of another
sovereign state against its will" (per Denning MR in
Trendtex Trading
Corporation Ltd v Central Bank of Nigeria
[1977] 1 All ER 881
(CA), at 888
b-c). As Lord Denning pointed out in the case just referred to, the courts of
individual countries differed in their
definition and application of the
doctrine and the bounds of sovereign immunity had changed greatly in the 30
years prior to the
Trendtex
case (at 888 c-e, 889 g-h). Originally
England and most other countries adopted the so-called doctrine of absolute
immunity, which
protected the sovereign in all situations; but lately there had
developed a doctrine of restrictive immunity (at 890 b-f). Lord Denning
described this latter concept thus (at 890 f-h):
"In the last 50 years there has been a
37
complete transformation in the functions
of a
sovereign state. Nearly every
country now engages in
commercial
activities. It has its departments of
state - or creates its
own legal entities
- which go into the market places of the
world. They
charter ships. They buy
commodities. They issue letters of
credit. This
transformation has changed
the rules of international law relating
to
sovereign immunity. Many countries have
now departed from the rule of
absolute
immunity. So many have departed from it
that it can no longer be
considered a rule
of international law. It has been
replaced by a doctrine
of restrictive
immunity. This doctrine gives immunity
to -acts of a
governmental nature,
described in Latin as jure imperii, but no
immunity
to acts of a commercial nature,
jure gestionis."
In the,
Trendtex
case the majority of the Court (Denning MR and Shaw
LJ) opted for the doctrine of restrictive immunity and this decision was
approved
by the House of
38
Lords in
I Conqreso del Partido
[1981] 2 All ER 1064
(HL). In
the meanwhile the British Parliament had passed the State Immunity Act 1978
(which was not applicable to the facts in the
I Conqreso del Partido
case) . In general this Act draws the same distinction between acts of a
governmental nature and commercial transactions, and restricts
sovereign
immunity to the former (see e g
Alcorn Ltd v Republic of Colombia (Barclays
Bank plc and another, garnishees
)
[1984] 2 All ER 6
(HL) ).
The legal position in this country regarding the doctrine of sovereign
immunity was carefully and comprehensively surveyed by the
full bench of the
Transvaal Provincial Division in the case of
Inter-Science Research and
Development Services (Pty) Ltd v Republica Popular De Mozambique
, supra. As
this survey shows. South African courts initially applied the doctrine of
absolute immunity, but in the
Inter-Science
39 case the Court (Margo
J, Franklin and Preiss JJ concur-ring) decided to follow the world-wide trend
and to apply the restrictive
doctrine. Shortly thereafter the Legislature
stepped in and passed the
Foreign States Immunities Act 87 of 1981
, which,
modelled on the English Act, also does not accord immunity to a foreign state in
respect of commercial transactions.
Over the years another area of uncertainty in the application of the doctrine
of sovereign immunity has related to the bodies or institutions
entitled to
claim such immunity on the ground that they were to be regarded as organs or
departments or instrumentalities of the
State. Illustrative of debate about this
in the English courts are, inter alia,
Krajina v The Tass Agency and
Another
[1949] 2 All ER 274
(CA);
Baccus SRL v Servicio Nacional Del
Triqo
[1956]3 All ER 715 (CA);
Rahimtoola v H E H The Nizam of Hyderabad
and Others
[1957] 3 All ER 441
(HL);
Mellenger and another v New
Brunswick
40
Development Corporation
[1971] 2 All ER 593
(CA); the
Trendtex
case, supra. It is not necessary to analyse these cases. In some
of them the body or corporation concerned was held to be an organ,
or department
or instrumentality of a foreign State and, therefore, entitled to sovereign
immunity; in others not. Some cases gave
rise to sharp differences of judicial
opinion. It was clearly a mobile area of the law in which conflicting
considerations arose.
As Shaw LJ put it in the
Trendtex
case (supra, at
907 b) -
"A consequence of the doctrine of immunity is that in protecting sovereign
bodies from the indignities and disadvantages of adverse
judicial process, it
operates to deprive other persons of the benefits and advantages of that process
in relation to rights which
they possess and which would otherwise be
susceptible of enforcement."
And in deciding these matters the accent fell not so much
41 on the extent
to which the separate legal personae of corporation and state could and should
be merged, but rather on the extent
to which one should extend the protective
cloak of sovereign immunity. With the wide-spread adoption of the restrictive
immunity
doctrine, however, the scope for the application of the instrumentality
principle has been greatly limited since in most such cases
the cause of action
relates to a commercial transaction entered into by the body or corporation
concerned.
In the present case the issue is an entirely different one and different
considerations arise. The issue is whether, because of the
status of SCI and its
relationship with the Government of India, its property should be treated as
being the property of the Government.
Here one immediately encounters the basic
rule spelt out by Innes CJ in
Dadoo Ltd and Others v Krugersdorp Municipal
Council
1920 AD 530
, at 550-1:
42
"A registered company is a legal persona distinct from the members who
compose it. In the words of LORD MACNAGHTEN (
Salomon v. Salomon &
Co
., 1897, A.C., at p 51), 'the company is at law a different person
altogether from the subscribers to its memorandum; and though it
may be that,
after incorporation, the business is precisely the same as it was before, and
the same persons are managers, and the
same hands receive the profits, the
company is not in law the agent of the subscribers or a trustee for them.' That
result follows
from the separate legal existence with which such corporations
are by statute endowed, and the principle has been accepted in our
practice. Nor
is the position affected by the circumstance that a controlling interest in the
concern may be held by a single member.
This conception of the existence of a
company as a separate entity distinct from its shareholders is no merely
artificial and technical
thing.
It is a matter of substance; property vested
in the company is not, and cannot be, regarded as vested
43
in all or any of its members
." (My emphasis.)
(See also the judgment of Solomon JA at 556-7;
Francis
George Hill Family Trust v South African Reserve
Bank
and Others
1992 (3) SA 91
(A), at 102 F-H.) It seems to
me
that generally it is of cardinal importance to keep
distinct the property
rights of a company and those of
its shareholders, even where the latter is a
single
entity, and that the only permissible deviation from this
rule
known to our law occurs in those (in practice) rare
cases where the
circumstances justify "piercing" or
"lifting" the corporate veil. And in this
regard it
should not make any difference whether the shares be held
by a
holding company or by a Government. I do not find
it necessary to consider,
or attempt to define, the
circumstances under which the court will pierce
the
corporate veil. Suffice it to say that they would
generally have to
include an element of fraud or other
44 improper conduct in the establishment or use of the company or the conduct
of its affairs. In this connection the words "device",
"stratagem", "cloak" and
"sham" have been used (see the discussions in
Lateqan and Another NNO v Boyes
and Another
1980 (4) SA 191
(T), at 200 E - 202 A;
Dithaba Platinum (Pty)
Ltd v Erconovaal Ltd and Another
1985 (4) SA 615
(T), at 624 B - 625 J; and
the recent decision of the English Court of Appeal in the case of
Adams and
others v Cape Industries plc and another
[1991] 1 All ER 929
(CA), at
1022b-j, 1024d -1025f) . In my view, no ground has been shown for piercing the
corporate veil in the present case.
Nor do I think that there is any other basis upon which the vesting of
ownership of the vessel in SCI can be ignored and the attachment
thereof upheld
by treating the Government of India as the lawful owner thereof. It does not
take much imagination to visualize the
chaos that could arise from such a
blurring of the
45
principles relating to the ownership of property in this, or any other,
field.
In the judgment of King J reference is made to several decisions of the
Courts of India, and more particularly to the monumental judgment
of Madon J in
the Supreme Court case of
Central Inland Water Transport Corporation Ltd v
Brojo Nath Ganguly and Another
1986 Company Cases vol. 60, p 797. This case
concerned Article 12 of the Indian Constitution which contained the following
definition
of the term "the State":
"'the State' includes the Government and Parliament of India and the
Government and the Legislature of each of the States and all
local and other
authorities within the territory of India or under the control of the Government
of India."
The Central Inland Water Transport Corporation Ltd ("the Corporation") was a
"Government company" in that all its shares were held
by the Central Government
of India and
46 two State Governments. The question which arose was whether
the Corporation fell within the definition of "the State", for upon
the answer
to this question depended whether the Corporation was bound by the guarantee of
fundamental rights contained in the Indian
Constitution. The Court held that for
the purposes of applying Article 12 -
"... one must necessarily see through the corporate veil to ascertain whether
behind that veil is the face of an instrumentality or
agency of the State."
It further held that the Corporation -
".... squarely falls within these observations and it also satisfies the
various tests which have been laid down.
It is nothing but the Government
operating behind a corporate veil, carrying out a governmental activity and
governmental functions of vital public importance. There
can thus be no doubt
that the Corporation is 'the State' within
47
the meaning of article 12 of the Constitution."
This case was thus concerned essentially with the interpretation to be placed
on Article 12 of the Constitution, which in turn determined
the scope of
application of the guarantee of fundamental rights. It is far removed from the
issue in the present appeal which relates
to the ownership of property legally
vested in a corporation which is a wholly-owned subsidiary of a government. I
consequently do
not find the decision in the
Central Inland Water
case to
be of any persuasive assistance in this case.
In support of the contention that by virtue of the instrumentality principle
ownership of the vessel vested in the Government of India,
counsel for Evdomon
cited the English decision of
Perry v Eames; Salaman v Eames; Mercers'
Company v Eames
[1891] 1 Ch. 658
and that of the High Court of Australia in
The Repatriation
48
Commission v Kirkland
(1923) 32 CLR 1.
In my view, neither case
advances Evdomon's case.
Perry v Eames
related to claims by the
plaintiffs to servitudes of light over the property of the defendant, situated
in the city of London, by
virtue, inter alia, of an Act of Parliament, the
Prescription Act, which came into operation in 1832 and which shortened the term
of acquisitive prescription in certain cases to 20 years. The relevant section
of the Act (the 3rd section), which dealt with the
right to light, did not bind
the Crown. The defendant acquired the property in 1886. Prior to this, i e from
1820 to 1886 the property
had been vested in trustees, in terms of various
successive Acts, in trust for the Crown, and the building thereon had been used
to house the Bankruptcy Court. During this period, therefore, according to
Chitty J (at 664) -
"...the legal estate was vested in
49
trustees who were subjects and mere depositories of the legal estate, but the
sole equitable ownership was in the Crown for the public
purposes of the
Acts;...."
Later in his judgment the learned Judge summed up the position as follows (at
669):
"Now in the cases before me the Crown's absolute beneficial ownership for the
purposes of the Act is expressly manifes-ted by a public
statute, and it is
obvious that the bare legal estate was vested in trustees merely for the
purposes of more convenient administration
by a department of the Queen's
Government. I am of opinion, then, that the prerogative of the Crown takes these
cases out of the
operation of the 3rd section."
The plaintiffs' actions were dismissed. This case is clearly distinguishable
from the present one. It dealt with the application of
a particular statutory
provision, the 3rd section of the Prescription Act, to a trust
50 situation,
whereunder the bare legal estate in the property in question was vested in
trustees and the sole equitable ownership
in the Crown for the purposes of the
more convenient administration of a department of government. It is no authority
for ignoring
the separate identity of a company and treating its property as
belonging to a government by virtue of it being the sole beneficial
shareholder.
In the Australian case referred to above the appellant, the Repatriation
Commission, was a statutory corporation established by an
Act dealing with the
repatriation and re-establishment in civil life of soldiers after World War I.
One Cheevers, a returned solder,
acquired certain furniture in terms of a
hire-purchase agreement with the Minister of State for Repatriation. A creditor
of Cheevers
for rent levied distress on the furniture and caused it to be
impounded, but soon after the distress the Commission, in whom
51 ownership
vested, forcibly removed the goods. The issue which arose was whether the
furniture had been validly distrained, property
of the Crown being exempt from
distress. The Court held, according to the headnote, that the Commission, being
a statutory corporation
charged with the duty of carrying out objects peculiarly
within the province of the Commonwealth Government and whose administration
was
subject to the control of a Minister of State, was entitled in respect of
property vested in it to the same privileges and immunities
as the Crown would
have had if the property had been vested in it; and that, therefore, goods
vested in the Commission were not liable
to be distrained. In the judgment of
Knox CJ and Starke J the position was enunciated as follows (at 8):
"The provisions of the Act taken
generally establish that the
Commission is in the strictest sense a department of
Government, or at all events
52
so practically identified with it as to be indistinguishable. It is a statutory
corporation charged with the administration of an
Act designed to carry out two
objects which are peculiarly within the province of the Government, namely, the
re-establishment in
civil life of persons who have served in the defence forces,
and the provision of pensions and benefits for persons incapacitated
and the
dependants of persons killed or incapacitated as a result of active service in
those forces. Adopting the words of O'CONNOR
J. in
Sydney Harbour Trust
Commissioners v Wailes (2)
, it is 'a corporation .... to which is handed
over the administration of what is really a Government department.'
If so,
the Commission is entitled, in our opinion, in respect of the property vested in
it pursuant to the Act, to the same privileges
and immunities as the Crown
itself would have had if the property had been vested in it
." (My
emphasis.)
It is clear that the
Commission fulfilled a very different function from that in which SCI is
engaged;
53 but, apart from that, this case (i) dealt with the ambit of Crown
immunity to the distress of property and (ii) did so on the basis
that the
property in question was not legally vested in the Crown, but in the Commission.
(See also Higgins J at 15, Rich J at 21-2.)
In view of this, the case is no
authority for Evdomon's contention in the present appeal.
For these reasons, I am of the view that the property of SCI cannot, for the
purposes of attachment to found or confirm jurisdiction
under sec 3(2)(b) of the
Act, be regarded as the property of the Government of India. It follows that the
original order of attachment
was not validly granted and ought to have been
discharged by the Court a quo.
At the hearing of the appeal, appellant made application for the condonation
of the late filing of its notice of appeal. This was
granted. For the sake of
completeness I include such condonation in the order
54
which I now make.
It is ordered:
(1)
Appellant' s application
for the late filing of its notice of appeal is granted. Appellant must pay the
costs occasioned by this application.
(2)
The
appeal is allowed with costs and
the
order of the Court a quo is
altered to
read:
"(a) The order for the attachment of the MV "Vallabhbhai Patel" granted on 9
September 1990 is discharged.
(b) The applicant (Evdomon Corporation) is ordered to return forthwith to the
attorneys of the intervening party (The Shipping Corporation
of India Ltd) the
original of the P & I club letter of security furnished in respect of the MV
"Vallabhbhai Patel"
55
and dated 11 September 1990.
(c) The applicant is ordered to pay the costs of the intervening party's
intervention."
MM CORBETT
BOTHA JA)
MILNE JA)
GOLDSTONE JA) CONCUR
VAN DEN HEEVER JA)