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[2019] ZASCA 67
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Afgri Grain Marketing (Pty) Ltd v Trustees for the time being of Copenship Bulkers A/S (in liquidation) and Others (797/2018) [2019] ZASCA 67; [2019] 3 All SA 321 (SCA); 2024 (1) SA 373 (SCA) (29 May 2019)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
no: 797/2018
Name of
ship:
MV ‘FONARUN NAREE’
In the
matter between:
AFGRI
GRAIN MARKETING (PTY)
LTD APPELLANT
and
TRUSTEES
FOR THE TIME BEING
OF
COPENSHIP BULKERS A/S
(IN
LIQUIDATION) FIRST
RESPONDENT
TRUSTEES
FOR THE TIME BEING
OF
COPENSHIP MPP A/S
(IN
LIQUIDATION)
SECOND
RESPONDENT
TRUSTEES
FOR THE TIME BEING
OF
COPENSHIP MANAGEMENT A/S
(IN
LIQUIDATION)
THIRD
RESPONDENT
ABSA
BANK
LTD FOURTH
RESPONDENT
Neutral
citation:
Afgri Grain Marketing
(Pty) Ltd v Trustees for the time being of Copenship Bulkers A/S (in
liquidation) and Others
(797/2018)
[2019] ZASCA 67
(29 May 2019)
Coram:
Wallis, Van der Merwe, Mocumie and Schippers JJA
and Mokgohloa AJA
Heard
:
14 May 2019
Delivered
:
29 May 2019
Summary:
Security arrest in terms of s 5(3)
(a)
of the Admiralty Jurisdiction
Regulation Act 105 of 1983 – such restricted to property
existing at the time the arrest order
was made –
reconsideration of arrest order granted
ex
parte
in terms of Uniform Rule 6(12)
(c)
– procedure – where party
seeking reconsideration delivers an affidavit dealing with the merits
and the applicant replies
reconsideration takes place on basis of all
material then before the court – onus remains on applicant to
establish a genuine
and reasonable need for security on a balance of
probabilities – whether onus discharged.
ORDER
On
appeal from:
Gauteng Division of
the High Court, Johannesburg (Weiner J, sitting as court of
first instance):
1
The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2
The
order of the High Court is set aside and replaced by the following
order:
‘
(a)
The application for reconsideration of this court’s order dated
21 February 2018 succeeds and the order is set aside.
(b) The applicants are to pay the costs of the application in terms
of s 5(3) of the Admiralty Jurisdiction Regulation Act
105 of
1983, including the costs of the application for reconsideration of
the order of 21 February 2018 and the costs of
the application
in terms of
s 18(3)
of the
Superior Courts Act 10 of 2013
, such
costs to include the costs of two counsel where two counsel were
employed.’
JUDGMENT
Wallis
JA (Mocumie and Schippers JJA and Mokgohloa AJA concurring)
Introduction
[1]
Section 5(3)
(a)
of the Admiralty Jurisdiction Regulation Act 105 of 1983 (‘the
AJRA’) makes provision for security arrests. It provides
that 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 other proceedings, whether domestic or international
and whether
or not the claim is subject to the law of South Africa. For present
purposes the person seeking the arrest must satisfy
the court that
(a) it has a maritime claim enforceable by an action
in
personam
in the chosen forum against
the owner of the property concerned; (b) that it has a
prima
facie
case in respect of that claim,
which is
prima facie
enforceable
in the chosen forum; and (c) that it has a genuine and reasonable
need for security in respect of the claim.
[1]
[2]
Relying on this provision, on 21 February
2018, the first to third respondents, to which I shall refer
collectively as Copenship,
[2]
sought and obtained from the Gauteng Division of the High Court,
Johannesburg (Mashile J) the following order:
‘
2 The Sheriff for the district
of Sandton South is hereby authorised and directed to arrest the
first respondent’s right,
title and interest in and to all
monies presently held, and if necessary for the purposes of obtaining
the full security set out
herein, all future monies to be deposited
to the credit of the first respondent in the following Absa Capital
accounts held by
Absa Bank Limited, the second respondent:
Name:
Afgri Grain Marketing (Pty) Limited …
Bank:
Absa Bank Limited
Branch:
Large Public Sector
Account Numbers:
4066574289 and 4074951807
(the ‘Afgri Funds’)
The said arrest to be in terms of section 5(3) of the
Admiralty Jurisdiction Regulation Act 105 of 1983 as amended (“the
Act”)
for the purpose of providing further security for claims
that the applicants have advanced in arbitration proceedings in
London
against the first respondent in the amount of USD 4 713 622.61
plus interest in the amount of USD 1 178 405.65
and costs
in the amount of USD 480 626.90.
3 The Sheriff is hereby authorised and directed to
release the Afgri funds from arrest upon provision of further
security to the
satisfaction of the Registrar or the applicants’
attorneys in the amount of USD 6 372 593.78 or the value of
the
property, whichever is the lesser.
4 Any security lodged in terms of paragraph 3 above
shall be held by the applicants or its attorneys, pending the
determination
of the proceedings referred to in paragraph 2 above.
5 – 8 . . .
9 The first respondent is prohibited
from taking steps to stop any pending transaction or divert[ing] any
funds which are in the
ordinary course paid, or will be paid into the
accounts identified in paragraph (2) above, until such time as full
security has
been provided.’
[3]
The order was obtained
ex
parte
and without notice to the
appellant, Afgri Grain Marketing (Pty) Ltd (Afgri). Its aim was to
provide Copenship with security for
claims under a charter party
being pursued in London arbitration proceedings.
[3]
On 27 February 2018 Afgri applied for the reconsideration and setting
aside of the arrest order in terms of Uniform Rule 6(12)
(c)
.
It contended that the application was an abuse of process and that
there had been material non-disclosures by Copenship. On the
merits
it accepted that Copenship’s claim was a maritime claim capable
of being pursued in the chosen forum and that it had
been established
on a
prima facie
basis.
It denied that Copenship had established that it had a genuine and
reasonable need for security. Furthermore, and in any
event, it
attacked the provisions of paragraph 9 of the order as being both
inappropriate and beyond the powers of the court under
s 5(3).
[4]
The application for reconsideration came
before Weiner J, who dismissed it, thereby confirming the original
order. Afgri brought
an application for leave to appeal. A dispute
then arose between the parties concerning its impact upon the arrest.
That led Copenship
to bring an urgent application, in terms of
s 18(3)
of the
Superior Courts Act 10 of 2013
, for an order
declaring that the arrest order remained of full force and effect,
notwithstanding the application for leave to appeal,
alternatively
for an order that it be given effect pending any appeal. It also
sought an order that Afgri re-open the two bank
accounts and repay
into it any funds diverted contrary to the provisions of the order.
[5]
By the time the application for leave to
appeal was heard by Weiner J it transpired that the two accounts had
not been closed. Two
amounts, a deposit of some R8 million held
separately, and further amounts totalling nearly R19 million
standing to the
credit of Afgri in the accounts, were regarded by
Afgri as being covered by the arrest order. Weiner J granted leave to
appeal
to this court. She dealt with the suspension of the original
order by making the following orders:
‘
3 Pending the appeal, the
amount of R 18 777 151.38 is to remain under arrest in
the first respondent’s accounts
held at the second respondent,
Absa Bank;
4 The first respondent is to repay the Rand equivalent
of US$ 6 372 593.78 (less the sum of R18 777 151.38)
into account number 4066574289 within 7 days hereof;
5 The first respondent is to pay the
costs of this application on the attorney and client scale, including
the costs consequent
upon the employment of two counsel.’
[6]
Although the judge thought that paragraph 4
of her order might render the appeal moot insofar as it related to
paragraph 9 of the
original order, both parties accepted that it was,
like paragraph 3, an interim order pending the outcome of the appeal
and was
not therefore moot. The arguments that the proceedings
constituted an abuse of process, or were tainted by non-disclosure,
were
not pursued when new counsel were briefed to argue the appeal
and, with the leave of the court, filed supplementary heads of
argument.
Accordingly, the substantive issues before us in this
appeal were whether Copenship established that it had a genuine and
reasonable
need for security and, if so, whether the terms of the
arrest order, and in particular paragraph 9 thereof, were
appropriate. But
first it is necessary briefly to outline the facts.
The
facts
[7]
On 21 August 2008, Copenship and Afgri
[4]
concluded a charter party on the GENCON form, in respect of a vessel
or vessels to be nominated by Copenship, for three voyages
during
September, October and November 2008 respectively, from either a
Mozambican (Matola or Maputo) or South African (Durban
or Richards
Bay) port to Mombasa, Kenya. The cargo in respect of each voyage was
to consist of 20 000 metric tons, three percent
more or less in
carrier’s option, of bulk maize. Copenship nominated the
Fonarun Naree
as the vessel to perform its obligations under the charter party in
respect of the November fixture. That vessel was owned by Precious
Trees Limited (Precious Trees), a Thai company, which had time
chartered the vessel to Copenship.
[8]
The
Fonarun
Naree
arrived at Maputo on 4 November
2008 to take on the third consignment of maize. The cargo required
fumigation and, as it was entitled
to do, Afgri arranged for a
fumigation team to attend on board the vessel. They left the ship
early in the morning. In mid-afternoon
an explosion occurred in No 3
hold. This caused damage to the hold, which had to be repaired. The
Master inspected the cargo and
concluded that it was still in good
order and condition. On that basis a clean bill of lading was signed,
for and on behalf of
the Master, acknowledging shipment of the cargo
in apparent good order and condition. The bill of lading named Afgri
as the shipper
and National Cereals & Produce Board (NCPB) of
Nairobi as the consignee.
[9]
On arrival in Mombasa it was found that the
top layer of the cargo in hold No 3 had become discoloured and some
27 metric tons were
removed by skimming. This was insufficient to
satisfy the NCPB and in due course they rejected the whole of the
cargo in hold No
3. Basing their claim on the clean bill of lading
they caused the vessel to be arrested in admiralty proceedings before
the Kenyan
courts. Those proceedings were delayed for lengthy periods
and ultimately settled by way of a settlement agreement concluded in
May 2017 between Precious Trees and NCPB and their respective
insurers.
[10]
While those proceedings were ongoing two
sets of arbitration proceedings were being pursued in London. The
one, between Precious
Trees and Copenship, concerned which of them
was liable for the claim by NCPB in terms of the Inter Club
Agreement, governing the
liability
inter
se
of owners and charterers under time
charter parties on the NYPE form. The other, between Copenship and
Afgri, concerned the latter’s
liability to indemnify Copenship
for any claims successfully made against it by Precious Trees. The
two arbitrations were run in
tandem. The security arrest that was in
issue in these proceedings was in respect of Copenship’s claim
in the latter arbitration
that Afgri indemnify it against any
successful claims by Precious Trees and for damages.
The
reconsideration application
[11]
There was some debate before us as to the
proper approach to a reconsideration application in a case of this
nature. Afgri’s
counsel contended that the founding affidavit
on behalf of Copenship failed to make out a case that Copenship had a
genuine and
reasonable need for security. He criticised the argument
on behalf of Copenship as amounting to an endeavour to make its case
in
reply. Counsel for Copenship submitted that the high court was
entitled to have regard to all the affidavits that had been filed
and
if there was new material in the replying affidavit that Afgri
objected to, or regarded as factually incorrect, its remedy
was
either to apply to strike it out or to apply for leave to file a
further affidavit to deal with that material.
[12]
Rule 6(12)
(c)
does not prescribe how an application
for reconsideration is to be pursued. The absence of prescription was
intentional and the
procedure will vary depending upon the basis on
which the party applying for reconsideration seeks relief against the
order granted
ex parte
and
in its absence. A party wishing to have the order set aside, on the
ground that the papers did not make a case for that relief,
may
deliver a notice to this effect and set the matter down, for argument
and reconsideration, on those papers. It may do the same
if it merely
wishes certain provisions in the order to be amended, or qualified,
or supplemented. The matter is then argued on
the original papers. It
is not open to the original applicant, save possibly in the most
exceptional circumstances, or where the
need to do this has been
foreshadowed in the original founding affidavit, to bolster its
original application by filing a supplementary
founding affidavit.
[5]
[13]
The party seeking reconsideration is not
confined to this route. It may file an answering affidavit, either
traversing the entire
case against it, or restricted to certain
issues relevant to the reconsideration. In many instances such an
affidavit will be desirable.
[6]
Even if an affidavit is filed, however, it does not preclude the
party seeking reconsideration arguing at the outset, on the basis
of
the application papers alone, that the applicant has not made out a
case for relief. That is a well-established entitlement
in
application proceedings
[7]
and there is no reason why it should not be adopted in
reconsideration applications.
[8]
[14]
If an affidavit is filed in support of the
application for reconsideration then the party that obtained the
order is entitled to
deliver a reply thereto, subject to the usual
limitations applicable to replying affidavits. When that is done, and
the party seeking
reconsideration does not argue a preliminary point
at the outset that the founding affidavit did not make out a case for
relief,
the case must be argued on all the factual material before
the judge dealing with the reconsideration proceedings.
[9]
That material may be significantly more extensive and the nature of
the issues may have changed as a result of the execution of
the
original
ex parte
order.
[10]
[15]
Afgri delivered an answering affidavit and
Copenship a reply. When the application for reconsideration was
argued before the high
court this was done on the basis of all the
affidavits and all the factual material then available to the court.
Whilst it is apparent
from counsel’s submissions before us
that, had they been briefed at that stage, they would have argued as
a preliminary point
that the application papers did not make out a
proper case for a security arrest, their predecessor did not adopt
that approach.
In the circumstances that particular horse has bolted
and it is not open to counsel on appeal to retrieve it.
[16]
The proper approach to this appeal is,
therefore, to have regard to the factual material that was placed
before the high court for
the purposes of reconsidering the order
originally granted by Mashile J. As a result of the various
interlocutory proceedings arising
as a result of the application for
leave to appeal, as described above in paragraph 4, a good deal of
additional factual material
was before Weiner J when she dealt with
the application for leave to appeal and the
s 18(3)
application,
and all of this is contained in the record before us. It was not,
however, the material on which the reconsideration
decision was made
and it should not be referred to for the purposes of determining this
appeal. Against that background I turn
to deal with the merits.
The
terms of the security arrest
[17]
It is convenient to deal first with the
ambit of the arrest order, albeit that in the light of my conclusion
on the main issue it
becomes academic. Paragraph 2 ordered the arrest
not only of the funds standing to Afgri’s credit in the two
identified bank
accounts, but also ‘if necessary for the
purposes of obtaining the full security set out herein, all future
monies to be
deposited to the credit of’ Afgri in those
accounts. This was reinforced by the provisions of paragraph 9 of the
order prohibiting
Afgri from preventing funds from being deposited in
that account or diverting such funds, until full security had been
obtained.
[18]
The order for the arrest of funds not in
the two accounts at the time the order was granted was not an order
sanctioned by
s 5(3)
(a)
of
the AJRA. The section permits the arrest of property owned by the
person against whom, or which, the
in
personam
claim lies. The property to be
arrested must be clearly identified.
[11]
The relevant portion of the section
provides that the court may:
‘
…
order the arrest of any property for the purpose of
providing security for a claim … 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…’.
The reference to the parallel provision where the party seeking the
arrest has an action
in rem
against
the property makes this clear. An action
in
rem
cannot be instituted against
property not yet in existence. The AJRA recognises that sometimes an
arrest may not result in a claimant
obtaining full security and makes
provision in
s 5(2)
(d)
of the AJRA for an application for additional security. Such an
application is brought against property in existence at the time
it
is brought. The process cannot be shortened, and the need for a
further application avoided, by providing that an existing arrest
will encompass assets not yet in existence. Copenship said that these
provisions ‘obviate the need repeatedly to approach
the court
for top-up security’. In other words its purpose was to
circumvent the provisions of the AJRA directed to obtaining
top-up
security. That was impermissible.
[19]
Counsel accepted that this portion of
paragraph 2, as well as paragraph 9, of the order could not be
justified in terms of
s 5(3)
(a)
.
Nor did he seek to justify their inclusion on the basis that
paragraph 9 was a condition imposed under
s 3(5)(2)
(c)
of the AJRA. He submitted, timorously
to use his own description, that these provisions were a form of
interdict or injunction against
Afgri dissipating funds with a view
to defeating Copenship’s entitlement to security.
[12]
His hesitance was fully justified because that was not the case made
in the founding affidavit. There the provisions of paragraph
9 were
justified on the basis that otherwise Afgri might prevent any further
funds from being deposited in the two accounts. There
was not the
slightest suggestion that the funds might be dissipated or concealed
with a view to defeating any legitimate claim
that Copenship might
have to them.
[20]
This portion of paragraph 2 and the whole
of paragraph 9 of the order for a security arrest should not have
been granted. This renders
it unnecessary for us to consider the
appropriateness of the judge in the high court ordering Afgri to
restore funds removed from
the accounts and if necessary increasing
them so as to give full security, when granting leave to appeal.
A
genuine and reasonable need for security
The
test
[21]
There was no debate concerning the
requirements that must be satisfied in order for an applicant to have
a genuine and reasonable
need for security. They were set out in the
matter of the
MV Orient Stride
.
[13]
The applicant does not have to show that the respondent has
insufficient assets to meet a judgment granted against it, although
that may in appropriate circumstances justify an order for a security
arrest. It was pointed out in that judgment that often ships
of far
greater value than the claim are arrested by way of security, and
conversely an insufficiency of assets is not essential
to a claim for
security. What must be demonstrated is a genuine and reasonable
apprehension that the party whose property is arrested
will not
satisfy a judgment or award made in favour of the arresting party.
That apprehension may arise from actual knowledge of
the extent of
the assets of the party whose property has been arrested or other
factors that legitimately justify an inference
that they will seek to
conceal assets or otherwise prevent the award from being satisfied.
The enquiry is a factual one and the
onus of proof on a balance of
probabilities rests upon the applicant.
[14]
The
case made in the founding affidavit
[22]
Copenship’s South African attorney
set out in the founding affidavit the basis for Copenship’s
alleged genuine and reasonable
apprehension that Afgri would not
satisfy any award in its favour. First, he drew attention to the fact
that Copenship’s
English solicitors had requested their
counterparts for Afgri to provide security and this had been refused.
Second, he pointed
out that this left Copenship financially exposed
in the sense that it had no certainty that any award would be
satisfied. Third,
he said that the shipping industry as a whole was
under financial strain and that the movements of the market were
unpredictable,
particularly as regards freight and hire rates.
Related to this he said that a number of charterers had recently
experienced financial
difficulties or been placed in liquidation.
Fourthly, in regard to Afgri’s assets he said that a search had
been done some
two and a half years previously and had not discovered
any movable physical assets that could be attached or arrested in
South
Africa.
[23]
In the light of this evidence, Copenship’s
case was summarised in the following paragraphs of the affidavit:
‘
89.9 In the circumstances and
considering that a number of substantial group companies have
collapsed over the past few years, Copenship
has a genuine and
reasonable apprehension that Afgri may cease to exist or may have
insufficient assets against which Copenship
will be able to execute
any award in its favour.
89.10 This apprehension is confirmed by the delay and/or
refusal to voluntarily provide security.
89.11 In summary, there is a genuine and reasonable
concern on the part of Copenship that it will not be paid, and that
no assets
otherwise exist against which it could execute, in the
event of obtaining an award in its favour.’
The
reference in paragraph 89.9 to ‘a number of substantial group
companies’ collapsing was not explained and was correctly
described in the answering affidavit as ‘vague and
meaningless’.
[24]
The case rested on the four points set out
above. As to the first it was entirely neutral. The rejection of a
demand for security
is not, without more, evidence of an intention
not to honour a judgment or award. Nor is it evidence of an inability
to do so once
an award is made. An obvious reason for such a refusal
is that the party demanding security is not entitled thereto. That
was the
reason Afgri gave. Unless the refusal to furnish security can
be plausibly linked to an unwillingness or inability to satisfy the
award or judgment, it does not support a claim for security. No
plausible link to such an inability or unwillingness was suggested
in
this case. That also disposed of the second point that Copenship was
exposed to a risk of non-payment as a result of not having
security.
It would only be exposed to any risk if there was plausible evidence
of an inability or unwillingness to pay an award.
Here there was
none. In those circumstances, the complaint that a demand for
security had been rejected was akin to attempting
to lift oneself by
one’s own bootlaces.
[25]
The third point about financial uncertainty in the
shipping industry likewise did not support Copenship’s case.
The primary
and obvious reason was that Afgri is not a participant in
the shipping industry in the sense of a business whose financial
well-being
is subject to the vagaries of that industry. It is a
commodity trader operating primarily in the grain market. It is not a
shipowner
and its involvement in the chartering market arises, as it
did in this case, because it sometimes sells commodities on CIF terms
that require it to conclude contracts of carriage in respect of those
goods. Those contracts may involve it, as here, in chartering
in
tonnage, for the purpose of carrying the cargo it has sold to its
destination in terms of the sale agreement. But such charters
are
contracts of carriage. They do not make the charterer a participant
in the business of chartering in a way that renders its
financial
viability vulnerable to the problems of charter markets. In fact, if
freight and hire rates decline, because the chartering
industry is in
the doldrums, that is beneficial to Afgri because it is able to
arrange shipping at competitive rates.
[26]
One other point that should be made is that
the allegation of strain in the shipping industry was not supported
by any facts. In
the replying affidavit two chartering businesses,
Hanjin Shipping, a Korean company and one of the largest charterers
in the world,
and Copenship itself, were identified as having gone
into liquidation. Otherwise the statement in the affidavit was
entirely general
and no endeavour was made to link it in any way to
Afgri’s business. That was true of most of the evidence
tendered by Copenship.
It amounted to vague generalities that had
little or no application to the issue of whether there were grounds
to found an apprehension
that Afgri would not be able or willing to
satisfy an award. It must be stressed that the apprehension needs to
be both genuine,
that is, actually entertained by the party claiming
security, and reasonable, that is one that can on the basis of the
facts reasonably
be entertained.
[27]
The fourth point had little, if any,
weight. One would not expect a commodity trader such as Afgri to be
possessed of ‘vehicles,
trailers, boats, aeroplanes or
helicopters’ suitable for attachment to satisfy an arbitration
award or judgment. Its primary
assets are likely to be claims against
the parties with which it trades and various financial instruments.
And that was precisely
what Afgri’s accounts showed. Its
largest current asset for the financial year ended 31 March 2017
was trade and other
receivables of some R533 million, an amount
far in excess of Copenship’s claim.
[28]
A number of other factors were relevant to
the assessment whether Copenship entertained a genuine and reasonable
apprehension that
any award would not be satisfied. The first,
highlighted by the fourth point, was that there had been a very
substantial delay
in bringing proceedings to obtain security. The
events in question occurred at the end of 2008 but the application
for security
was only launched in 2018. The investigation into
Afgri’s movable assets was undertaken in 2015. No explanation
was proffered
for this delay. In the replying affidavit it was
suggested that under the Inter Club Agreement there was no claim
until the claim
by the NCPB had been satisfied. That was incorrect.
In fact the claim to an indemnity was already being advanced in the
arbitration
and could have been conceded, subject only to its
quantification in due course. Furthermore, this court has sanctioned
the grant
of an attachment
ad fundandam
et confirmandam jurisdictionem
in
relation to an indemnity claim, where the party seeking the
attachment was denying liability for the claim made against it and
neither the validity nor the quantification of that claim had yet
been determined.
[15]
[29]
The second point is that the furnishing of
security is always a costly business. Either a guarantee must be
obtained from a financial
institution or an insurer in respect of the
claim, for which substantial charges will be levied, or the party
concerned must, as
occurred here, isolate a portion of its own funds
and sterilise them indefinitely while the process of arbitration or
litigation
proceeds. In either case the party providing security will
incur significant costs as a result of doing so. These may disrupt
its
ordinary business operations or require it to secure costly
banking facilities to finance a portion of its trading activities.
The fact that such costs must be incurred over a potentially
protracted period puts significant pressure on that party to settle
the dispute in favour of the other party irrespective of its merits.
The court asked to order a security arrest must therefore
be alert to
the possibility that it is being sought for purposes other than the
applicant’s genuine and reasonable apprehension
that a future
award may not be satisfied.
[30]
The third point is that no evidence was
placed before the high court dealing with the nature and extent of
Afgri’s business.
All that the court could distil from the
affidavits and annexures was that it was a commodity trader involved
in the grain market.
The charterparty related to three shipments of
maize in bulk totalling some 60 000 tons – a not
insignificant quantity.
It required payment of freight of US$ 44
per metric ton for cargoes shipped from Maputo, amounting to some US$
880 000
per consignment and nearly US$2.5 million for all three
shipments. There was no suggestion that Afgri was not good for these
amounts
and it was not alleged that it had failed to pay the freight
in respect of this and the other consignments. The maize was provided
to an entity, the NCPB, the name of which proclaimed that it was a
national board established to deal with cereals and produce
in Kenya
and apparently responsible for the importation of maize to meet that
country’s needs for a staple foodstuff. On
the basis of the
figures in the settlement agreement with Precious Trees, which
related to a claim in respect of 6 250 tons
out of a 20 000
ton consignment of maize carried in one of the four holds on the
Fonarun Naree
,
the NCPB must have agreed to pay Afgri in excess of $10 million for
the whole shipment and over $30 million for all three shipments.
None
of this suggested that Afgri was a small business operation incapable
of meeting an arbitration award estimated as amounting
to some
$6 million, or that it was inclined to try and avoid its
commercial obligations.
[31]
Had Copenship wished to make a proper case
of Afgri’s potential inability to pay the award, or to lay some
foundation for
the proposition that it was a business of such a
character that it would take measures to avoid paying the award, by,
for example,
liquidating the company and transferring its activities
elsewhere in the group, it needed to produce evidence pointing in
that
direction. No such evidence was produced. In an age when
information is readily available about entities such as Afgri and the
NCPB by way of an internet search, the absence of any such
information leads to the inference that there was none that would
assist
the applicant’s case.
[32]
Pausing at this point, there was
considerable force in the submission by Afgri’s counsel that
the original order should not
have been granted and that a
reconsideration on the basis of the allegations in the founding
affidavit justified its being set
aside. But, as I have said, that is
not the basis upon which the case was argued in the high court and
the issue must be addressed
in the light of the evidence in all the
affidavits. On this point counsel for Copenship said that he was
grateful that Afgri had
chosen to file an affidavit. This was
reflected in his argument, which focused entirely on the answering
affidavit and an analysis
of the contents of Afgri’s financial
statements annexed to those affidavits. It is to this that I now
turn.
The
answering affidavit
[33]
Mr Badenhorst, who identified himself as
the Director: Legal of the Afgri Group of Companies, of which Afgri
is a member, deposed
to the answering affidavit. That is a reference
to a group of companies of which the ultimate holding company is
Afgri (Pty) Ltd,
which includes Afgri Operations (Pty) Ltd, the
direct holding company of the appellant. There was nothing to
indicate that Mr Badenhorst
had anything to do directly with the
trading operations of Afgri. His affidavit dealt with two matters
namely whether Copenship
had established a genuine and reasonable
need for security and Afgri’s objections to the orders in
paragraphs 2 and 9.
[34]
Mr Badenhorst responded to the allegations
on behalf of Copenship that were considered in the previous section
of this judgment.
He first drew attention to the unexplained delay in
seeking security for Copenship’s claim since the commencement
of the
arbitral proceedings in 2010. In those proceedings there had
been an interim settlement concluded in January 2013 resolving all
aspects of the claim, save what was then expressed as an indemnity
claim in respect of any liability incurred by Copenship arising
out
of the explosion on board the
Fonarun
Naree
. That claim was already the
subject of the head arbitration between Precious Trees and Copenship.
The existence of that settlement
was not disclosed in the founding
affidavit.
[35]
The settlement required Afgri to pay
Copenship amounts totalling around US$ 1 million plus some
costs. It was correctly submitted
that the settlement should have
been disclosed
[16]
and the contention by Copenship that it was irrelevant because it was
unrelated to the issues still in dispute in the pending arbitration
was wrong. The conclusion in the high court that its non-disclosure
was not material was incorrect. The settlement demonstrated
Afgri’s
willingness and ability to settle all its obligations arising from
the charterparty with Copenship. The claim by
NCPB was known at the
time of the settlement to be equivalent to about US$ 3.6 million,
so that it was not vastly greater
than the amount of the interim
settlement. It was well within the range of revenues enjoyed by Afgri
from its trading operations
as this very transaction demonstrated. It
was not suggested that Afgri’s financial position had
deteriorated since the settlement
or that its approach to discharging
its commercial obligations had changed. All of this was highly
material to the issue of the
existence of a genuine apprehension that
Afgri might not honour an award in respect of the indemnity claim.
The settlement undermined
Copenship’s claim that it entertained
such an apprehension.
[36]
The next point made by Mr Badenhorst was
that Copenship had made no endeavours to ascertain Afgri’s
financial position before
launching the application for security. He
said that had they done so they would have realised that they could
not establish the
requisite of a genuine and reasonable need for
security. To that end he attached a copy of the most recent audited
financial statements
for the year ended 31 March 2017 and drew
attention to the fact that they reflected a profit from continuing
operations of
over R57 million and current assets in excess of
R639 million. He added that the financial position of the
company had
not changed.
[37]
The financial statements painted a picture
of a profitable company in robust financial health. They were
prepared on a going concern
basis and the auditors reported that they
fairly presented, in all material respects, the financial position of
Afgri. Sales for
the year exceeded R100 million and, together
with substantial finance income, profit before tax was over
R80 million.
After tax of R22 million, net profit
attributable to shareholders was R57 million. At the end of the
year the company
held cash and cash equivalents of nearly
R43 million. That was after payment of a dividend of
R66.5 million to its holding
company. There was not, and could
not have been, any question on the basis of those financial
statements of Afgri’s ability
to satisfy any award made against
it.
[38]
As regards any apprehension that Afgri
might nonetheless try to avoid its obligations under an award, the
accounts set out in some
detail the financial risk management policy
of the Afgri Group. This revealed, as is common financial practice in
large enterprises
with multiple subsidiaries, that management of the
Group’s financial resources was centralised through what was
referred
to as Group Treasury. The objective of this on the part of
the Group as a whole was:
‘…
to ensure that all
foreseeable funding commitments can be met when due, and that funding
market access is co-ordinated and cost-effective.
It is the Group’s
objective to maintain a stable funding base comprising institutional
funding facilities with the objective
of enabling the Group to
respond quickly and smoothly to any unforeseen liquidity
requirements.
The Group strives to maintain a
strong liquidity position and to manage the liquidity profile of its
assets, liabilities and commitments
with the objective of ensuring
that cash flows are appropriately balanced and
all
obligations are met when due
.’
(Emphasis added.)
[39]
Accordingly the accounts contained a clear
and public statement by the directors of the ultimate holding company
that the Group
would ensure that all obligations were met when due.
This was an important consideration for it meant that Afgri was not
limited
to its own resources in satisfying any arbitration award made
against it, but could look to the backing of the Group as a whole
if
that was necessary. Indeed it was Group Treasury’s function to
ensure that any such obligation would be met when due.
The size and
stability of the Afgri Group was not put in issue. An indication of
its size was that the Group Audit, Risk and Credit
Committee to which
the Board of Directors had delegated theses issues regarded large
exposures as those in excess of R100 million
ie more, subject to
fluctuations in exchange rates, than Copenship’s claim for
security.
[40]
Mr Badenhorst claimed that the accounts
demonstrated that the company was in a healthy financial situation
and that this showed
that Copenship did not have a genuine and
reasonable need for security. Taking the accounts at face value that
was an entirely
justifiable claim. It followed that Copenship could
only discharge the onus resting on it if that case could be
satisfactorily
controverted in reply.
The
reply
[41]
The problem facing Copenship was recognised
in the replying affidavit. The deponent, once again one of its South
African attorneys,
sought to argue, on the basis of certain
provisions of the financial statements, that the picture was not as
rosy as Mr Badenhorst
claimed. It is important to have regard to what
was said in that regard. The relevant portion of the replying
affidavit reads as
follows:
‘
50.1 The purported reliance by
Badenhorst on the financial statements is misguided.
50.2 First, it is apparent from the balance sheet …
that Afgri owns no immovable property.
50.3 Second, it is apparent … that “
the
group’s activities expose it to a variety of financial risks”
and, the directors’ report … emphasises
the
unpredictability of financial markets”
and the attempts
thus “
to minimise potential adverse effects on the group’s
financial performance”
.
50.4 Third, the net cash generated from operating
expenses [
sc
operations] in the year ended 31 March 2017
was a negative [72558] as opposed to a positive 98895 in respect of
the previous
financial year.
50.5 Notwithstanding this – which prima facie
indicates revenue from some other source – in the year in
question a dividend
in the amount of ZAR 66508 million was
declared as opposed to a declaration of “ZAR NIL” in the
2016 year. I assume
no such dividend was in fact distributed.
50.6 For what it is worth, the bank overdraft which was
said to be NIL in 2016 is now a negative [10499] for the year ending
2017.
50.7 In summary, with regard to the financial
statements, it appears that Afgri is dependent upon the goodwill of
its holding company
and as aforesaid Afgri has no immovable property.
50.8 It follows in my submission that the financial
statements do not provide an answer to Afgri’s inability to
secure the
claim in question.
50.9 to 50.16 …
50.17 In the circumstances, Copenship is of the
reasonable view that Afgri may not have sufficient assets in the
future to satisfy
a claim [
sc
an award] made in favour of
Copenship. …
50.18 This much is borne out by a review of the
financial statements of Afgri as I have stated above.
50.19 Indeed should Copenship obtain the arbitration
award in its favour, it will be executable against an entity whose
assets are
highly fluid and moveable and which may be diverted
quickly and easily so as to avoid it having to meet the award.
50.20 Nothing contained in [the
financial statements] dispels Copenship’s apprehension that
Afgri will not meet any award
voluntarily; it is a wholly owned
subsidiary which could be wound up quickly and effortlessly by the
holding company after its
highly fluid assets had been transferred to
another entity.’
[42]
I have quoted this portion of the replying
affidavit at some length, because nowhere in that analysis was there
the slightest suggestion
that the accounts were not properly audited,
or did not accurately reflect the financial position of Afgri at the
relevant date.
It was not gainsaid that its financial position at the
time the application was brought had not materially altered since the
date
of those accounts. Nor was there any suggestion that they were
inconsistent with anything Mr Badenhorst had said in his answering
affidavit. More particularly, there was no suggestion that they were
inconsistent with what he said in relation to the provisions
of
paragraphs 2 and 9 of the order and their effect on the business not
only of Afgri, but of its immediate holding company Afgri
Operations
(Pty) Ltd and the Afgri Group generally.
[43]
The short supplementary heads of argument
lodged by Afgri’s new counsel dealt with and sought to refute
the analysis by Copenship’s
attorney quoted at length above.
This was a response to Copenship’s initial heads of argument,
which repeated the analysis
in the replying affidavit in support of
its case. Up until that stage there was no challenge by Copenship to
the accuracy of the
financial statements. The supplementary heads of
argument on behalf of Afgri were the catalyst that changed that
stance. In Copenship’s
supplementary heads of argument it was
submitted for the first time that the financial statements ‘are
misleading and do
not accurately record the affairs of the
Appellant’. What followed was an endeavour to show by reference
to one paragraph
of Mr Badenhorst’s answering affidavit and
certain paragraphs in affidavits filed in the
rule 18(3)
proceedings
that ‘the factual circumstances described by Badenhorst …
demonstrate the obvious inaccuracy of the financial
statements’.
The oral argument followed the same course.
[44]
These contentions, raised for the first
time in argument at the appellate stage of the case, when Afgri had
been afforded no opportunity
to respond to them, were not open to
Copenship. Had it raised the supposed inconsistency between Mr
Badenhorst’s affidavit
and the financial statements in the
replying affidavit, Afgri would plainly have been entitled to address
the issue by way of a
fourth set of affidavits. As it was not raised
there was no need for it to do so. What is more, it was sought to
bolster the argument
by reference to affidavits of Mr Badenhorst that
were not before the high court in the reconsideration application,
but were filed
in the
s 18(3)
application after the high court
had delivered its judgment. This appeal involves a challenge to the
high court’s judgment
and like any other appeal, unless leave
is sought and granted to lead further evidence on appeal, it must be
decided on the record
as it stood before the high court. I understood
Mr Fitzgerald SC for Copenship to accept this when it was put to him
from the bench.
[45]
In point of fact the replying affidavit
accepted the accuracy of the accounts and, in the portions quoted
above, sought, by pointing
to other features of them, to show that
they justified Copenship’s alleged apprehension that an award
would not be met. In
my view that attempt failed because it involved
a misreading and misunderstanding of those accounts. In the first
place it is hardly
surprising that a commodity trader would not own
immovable property. It would have no reason to do so, any more than
it would have
had a reason to own vehicles, ships or planes. None of
that detracted from Mr Badenhorst’s point that it had current
assets
in excess of R639 million and had generated profits of
around R57 million in 2017. Those current assets would be
available
for execution and could be attached in the same way as the
debtors’ book of any business can be attached in execution.
Unless
Afgri’s trading position materially altered to its
detriment, and there was no evidence to suggest that it might, its
current
assets were likely at any given time to far exceed the amount
of any potential award. The fact that there were also current
liabilities
was irrelevant, as execution is levied against assets
without regard to liabilities.
[46]
The quoted extracts from the financial risk
statements misunderstood the nature and purpose of such statements.
They are obligatory
in financial reporting and will be found in all
major companies’ accounts. The existence of risks does not mean
that there
is any expectation or likelihood that those risks will
materialise. The purpose of risk statements is for the company to
identify
the risks facing the business and to inform shareholders and
others reading its annual report of the steps being taken to minimise
those risks. That is apparent from a full reading of the entire
directors’ report under the heading of financial risk
management,
which extends over four pages and covers a wide variety
of potential risks. The accounts of an international commodity trader
will
always, even in relatively benign economic times, refer to the
financial risks that are inherent in that type of trade. Businesses
are never entirely risk free. For example, the accounts of a major
farming business would always mention the risk of drought or
other
adverse weather conditions affecting the business.
[47]
The comments about the cash flow statement
similarly misunderstood the purpose of that statement. It is to
explain the reasons behind
the changes from year to year in the cash
and cash equivalents held by the company at the end of the financial
year. The primary
reasons for the change between 2016 and 2017 were
twofold, namely, a modest increase in working capital, explained
elsewhere in
the notes to the financial statements, and the payment
of the dividend to which Copenship referred. The assumption that this
had
not in fact been distributed was remarkable and unfounded. Had
that been so, not only would it not have affected the cash flow
statement, but it would have resulted in Afgri Operations having to
account for and pay tax on a dividend that it did not receive.
The
assumption of non-payment was unwarranted.
[48]
It is unclear what inference the deponent
sought to draw from the existence of a bank overdraft in 2017. A
business such as Afgri’s
would require working capital and that
would ordinarily be obtained by way of a bank overdraft or
inter-company borrowings. The
accounts reflect both sources. In the
light of the fact that Afgri Operations performed the treasury
function for Afgri and had
banking facilities, by which was meant a
line of credit from its bankers, it may be that this was an
accounting allocation of portion
of its overdraft to Afgri, but the
fact that the accounts reflected an overdraft was not questioned in a
way that called for an
explanation, so that remained unexplained.
[49]
Finally, in dealing with what was said in
the replying affidavit, the accounts did not show that Afgri was
dependent upon its holding
company to meet its obligations under an
award. Its profitable trading position indicated otherwise.
Furthermore the financial
statements provided firm evidence that it
would, if need be, have the support of its immediate holding company
and the Afgri Group.
The damage to the trading reputation of the
Group, were it to do what Copenship suggested and cynically liquidate
Afgri so as to
avoid paying an arbitration award, would be enormous.
Who would be willing to trade with it if it could not be trusted to
honour
its obligations? International commodity trading and maritime
disputes are probably more often resolved by arbitration than by
litigation. A major company that resorted to underhand tactics to
avoid paying an award would be shunned by many participants in
the
areas of commerce in which Afgri operated and still operates, because
it could not be trusted to meet its obligations under
an arbitration
award. Copenship did not address this obvious issue.
The
bank sweeping arrrangement
[50]
Overall therefore, the arguments advanced
in the replying affidavit did not strengthen Copenship’s case.
On the allegations
summarised in the discussion thus far it had not
made out a case that it had a genuine, much less a reasonable,
apprehension that
Afgri would not satisfy any award made against it.
Therefore their case stood or fell on the basis of the arguments
surrounding
Mr Badenhorst’s affidavit. This was an enquiry
restricted to three paragraphs in Mr Badenhorst’s answering
affidavit.
Virtually all the oral argument revolved around the first
of these, as does the dissenting judgement of my colleague, Van der
Merwe
JA. They read as follows:
‘
5 The first respondent is a
wholly owned subsidiary of Afgri Operations (Pty) Ltd (“Afgri
Operations”). The business
of the Group is structured in such a
manner that Afgri Operations finances the business operations of
several of its subsidiaries,
including the first respondent. Afgri
Operations has general banking facilities (“banking
facilities”) with the second
respondent (“Absa”).
The first respondent does not in its own name have banking facilities
with Absa and relies on
Afgri Operations to provide it with money in
the ordinary course of its business. Afgri Operations utilises the
banking facilities
to on lend the money to the first respondent, as
and when it is required. The indebtedness of the first respondent
towards Afgri
Operations, so created, is settled on a continuous
basis in terms of a “sweeping arrangement” with the
second respondent,
in terms whereof cleared funds standing to the
credit of the first respondent’s account with Absa are
automatically transferred
to Afgri Operations’ account with
Absa on a daily basis, in settlement of first respondent’s loan
indebtedness. It
must be stressed that all the funds in the
applicable account is in fact not due to the first respondent as a
result of the aforesaid.
6 In terms of paragraph 9 of the Order, the first
respondent is prohibited from:
“
taking steps to stop any
pending transaction or divert funds which are in the ordinary course
paid, or will be paid into the accounts
identified in paragraph (2)
above, until such time as full security has been provided.”
7 The Order materially affects not
only the business of the first respondent, but also the business of
the whole Group. I am advised
that, in law the applicants were not
entitled to such an order. The correctness of this advice is a matter
for argument which will
be dealt with at the hearing of the
application.’
[51]
Mr Badenhorst was explaining the banking
arrangements within the Afgri Group, insofar as they related to Afgri
Operations and its
subsidiaries, including Afgri. He did so in the
context of the objection to paragraph 9 of the arrest order. He said
that its provisions
interfered with the business operations of the
entire Afgri Group, not simply Afgri. This was because it interfered
with the arrangements
Afgri Operations had with Absa, with which it
had general banking facilities. This meant that Absa had extended a
line of credit
to Afgri Operations enabling it to borrow money on
overdraft; or through money market overnight and term loans; or by
way of foreign
currency loans, which one would expect to be a
significant element given that Afgri’s business was that of an
international
commodities trader; and other foreign currency
accounts. He explained that Afgri itself did not have general banking
facilities.
It had the bank accounts that featured in the order, but
no overdraft or other loan facilities. If it had need of such
facilities,
for working capital or the like, Afgri Operations would
provide the necessary funds by drawing down against its own
facilities
with Absa and lending the necessary sums to Afgri. It was
in this context that the sweeping arrangement operated.
[52]
The pattern Mr Badenhorst described is typical of
the way in which large groups of companies, like the Afgri Group,
manage the group’s
finances through a single central treasury.
The treasury company negotiates with the group’s bankers for
the grant of general
banking facilities on behalf of the group as a
whole. The individual group companies do not have such facilities in
their own right
or in relation to their own bank accounts. The group
treasury manages and controls the overall finances and indebtedness
of the
group. From the bank’s perspective the group’s
obligations are centralised in one company, subject to any security
to secure the overall indebtedness required from other companies in
the group. When a group company needs funds, it borrows the
amounts
it requires from the treasury company, which in turn borrows them
from the bank as part of its general banking facilities.
The group
companies thereby become indebted to the group treasury. This was
reflected in the financial statements, which showed
under the heading
‘trade and other payables’ an amount of some R295 million
as owing to Afgri Operations. This
represented the bulk of the trade
and other payables of R390 million in the balance sheet.
[53]
Where group companies have surplus funds in
their bank accounts, while the group treasury is running an
overdraft, keeping the funds
separate makes no commercial sense,
because it results in the group paying more by way of interest than
is necessary if all the
available funds in the group are
consolidated. Accordingly, the group treasury causes those surplus
funds to be paid to itself
in order to reduce its overdraft. If the
company from which the surplus funds emanate owes money to the group
treasury, the accounting
treatment of these payments is that they
constitute partial repayment of the amounts previously borrowed. If
it does not owe the
group treasury anything (which was not the case
here), then the funds will constitute a loan by it to group treasury
that can be
used to reduce the group’s overall indebtedness to
the bank.
[54]
With the advent of computers these
transactions are carried out electronically, by way of a sweeping
agreement with the Group’s
bank. At the end of each business
day, the bank’s computers identify the amount and location of
surplus funds and these amounts
will be swept to the group treasury
account. Sometimes a small balance will be left behind as a cushion
for contingencies. The
following day funds can be drawn by group
treasury against its facilities and furnished to those group
companies requiring it for
the purposes of their business.
[55]
The sweeping arrangement described by Mr
Badenhorst followed this pattern. It was in that context that he
completed his description
in paragraph 5 of the affidavit by saying
that the funds in Afgri’s accounts were not due to it. That was
because under the
sweeping arrangement they became due each day to
Afgri Operations. My colleague suggests that Afgri ‘attempted
to distance
itself from the funds in its Absa accounts, without
providing any legal basis therefor.’ With respect, that ignores
the context
of this paragraph. Mr Badenhorst was dealing with the
implications for the operations of the group’s business of the
orders
that both my colleague and I agree were not properly made.
There was no call for him to go further into the legal basis for the
group’s financial arrangements or to provide a statement of the
legal basis upon which they rested. All that he was doing
was
explaining the reasons why paragraphs 2 and 9 of the order improperly
– as we are agreed – interfered with the
business of the
Afgri Group.
[56]
But the sweeping arrangement did not mean,
as contended by Copenship, that Afgri was thereby deprived of funding
or financial resources
if it needed them in order to satisfy an
arbitration award. The replying affidavit said that this arrangement
confirmed Copenship’s
fear that the funds could be transferred
and held to the credit of a different entity within the Group. But
the financial viability
of any group of companies with a central
treasury system is dependent upon the group treasury establishing
lines of credit sufficient
for the group’s needs, including
contingencies, and making funds available to the group companies as
and when required. This
is what the financial statements reflected in
regard to the Afgri Group. If the group treasury does not do this
then the entire
system fails and the viability of the group as a
whole is imperilled. Conversely, if as a result of a court order such
as that
contained in paragraph 9, the flow of funds to the group
treasury is interrupted, that has potentially serious consequences
for
the group as a whole, as explained by Mr Badenhorst in the
portion of the answering affidavit quoted above.
[57]
It follows that no inference adverse to
Afgri’s ability and willingness to discharge any liability
arising in due course under
an arbitration award could be drawn from
the fact that Afgri Operations and its subsidiaries managed their
banking arrangements
in this way. The fact that at the end of each
day all bank accounts of all the companies would be swept to the
central account,
did not mean that, if and when an award was made,
funds would not, if needed, move in the opposite direction from Afgri
Operations
to Afgri, using the former’s general banking
facilities, to enable Afgri to satisfy the award. That is how the
banking operations
worked.
[58]
Counsel argued that there was no record in
the financial statements reflecting transactions along these lines.
But that was incorrect.
The accounts showed a significant bank
balance of some R53 million and an overdraft of R10.5 million
at 31 March
2017. Given Mr Badenhorst’s explanation, this
suggested that the accounting treatment used by the group was to
apportion
funds held by, and overdrafts of, Afgri Operations among
the subsidiaries. The accounts also showed that there were no short
term
borrowings from Afgri Operations, but a significant amount owing
in respect of trade and other payables. Even this amount
(R295 million)
was substantially less than the trade receivables
(R534 million). On any basis therefore, even if all the amounts
in Afgri’s
bank accounts were swept to the Afgri Operations
account there would be a substantial surplus in Afgri’s favour,
either held
in its own bank accounts or held on its behalf by and
obtainable from Afgri Operations.
Conclusion
[59]
The primary issue before the high court on
the reconsideration application was whether Copenship had discharged
the onus of proof
on a balance of probabilities of showing that it
had a genuine and reasonable need for security. That in turn depended
on whether
it had shown that it had a genuine and reasonable
apprehension that Afgri would be unable to satisfy an award made
against it in
the arbitration or would, either on its own or at the
instance of its immediate or ultimate holding company, take steps to
avoid
satisfying it.
[60]
The facts upon which Copenship sought to
discharge the onus have been fully analysed above. For the reasons
emerging from that analysis
the position is that at every stage of
these proceedings the evidence it produced consisted of very few
facts and a good deal of
speculation and submission lacking any
plausible basis. The picture emerging from all the papers was that
Afgri was and is a substantial
company with a significant trading
record. It is a profitable entity forming part of a very large
agri-business group, which is
itself extremely profitable. The latter
is engaged in trading commodities, especially grain and maize, and
Afgri is a significant
component of that trading. No evidence was led
to suggest that the holding company would think it appropriate to
‘cut it
loose’ in the event of an adverse arbitration
award being made in its dispute with Copenship. All the evidence in
fact pointed
in the opposite direction.
[61]
The judge’s reasons for refusing to
reconsider and set aside the arrest are not wholly clear. Most of the
judgment is a recitation
of the facts, submissions and contentions of
the parties. It appears that her concerns arose from the centralised
treasury operations
of Afgri Operations and the fact that the bank
accounts of Afgri were, in terms of those arrangements, swept on a
daily basis.
With respect, when the overall picture is examined,
there was no reason to conclude that there was any basis upon which
Copenship
could entertain a genuine and reasonable apprehension that
Afgri might be unable to satisfy an award or try to avoid satisfying
it. Both the arguments advanced by it, and the judgment, appear not
to have appreciated the relatively commonplace nature of the
manner
in which the financial affairs of Afgri were conducted. The proper
conclusion is that it failed to discharge the onus of
proving that it
had a genuine and reasonable need for security. Therefore it was not
entitled to the arrest and the order to that
effect should have been
set aside on reconsideration.
Result
[62]
For those reasons the appeal must succeed.
The following order is made:
1.
The
appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel.
2.
The
order of the High Court is set aside and replaced by the following
order:
‘
(a)
The application for reconsideration of this court’s order dated
21 February 2018 succeeds and the order is set aside.
(b) The applicants are to pay the costs of the application in terms
of s 5(3) of the Admiralty Jurisdiction Regulation Act
105 of
1983, including the costs of the application for reconsideration of
the order of 21 February 2018 and the costs of
the application
in terms of
s 18(3)
of the
Superior Courts Act 10 of 2013
, such
costs to include the costs of two counsel where two counsel were
employed.’
____________________________
M J D WALLIS
JUDGE OF APPEAL
Van
der Merwe JA dissenting
[63]
I have had the benefit of reading the eloquent and comprehensive
judgment of Wallis JA. However, I find myself in respectful
disagreement with his conclusion that Copenship failed to show a
genuine and reasonable need for security for its claim against
Afgri.
[64]
As I see it, the essential question was whether, on the evidence
before it at the time of the reconsideration of the arrest
order, the
court a quo correctly concluded that Copenship had demonstrated a
genuine and reasonable need for security on a balance
of
probabilities. For the reasons that follow, I am not convinced that
it erred in doing so and in refusing to set aside the arrest
order.
[65]
Copenship’s claim amounted to USD 6 372 593. As at 27 February
2018 the rand equivalent of this amount was approximately
R75
million. The question was thus whether there was a real apprehension
that Afgri would be unable to or unwilling to pay an award
in that
amount when it became due and payable.
[66]
It was correct that according to Afgri’s financial statements
as at 31 March 2017, it had trade and other receivables
in the amount
of approximately R533 million. But that was but one part of the
picture presented by the financial statements. On
31 March 2017 Afgri
had current liabilities amounting to approximately R613 million. Its
non-current assets (consisting of deferred
income tax assets,
computer software and furniture and fittings) were valued at only
R7.6 million and its current assets exceeded
its current liabilities
by less than R20 million.
[67] In
this regard it is important to repeat what was stated by the
Director: Legal of the Afgri Group of Companies in his affidavit
in
the reconsideration application. He said:
‘
The first respondent is a
wholly owned subsidiary of Afgri Operations (Pty) Ltd (“Afgri
Operations”). The business of
the Group is structured in such a
manner that Afgri Operations finances the business operations of
several of its subsidiaries,
including the first respondent. Afgri
Operations has general banking facilities (“banking
facilities”) with the second
respondent (“Absa”).
The first respondent does not in its own name have banking facilities
with Absa and relies on
Afgri Operations to provide it with money in
the ordinary course of its business. Afgri Operations utilises the
banking facilities
to on lend the money to the first respondent, as
and when it is required. The indebtedness of the first respondent
towards Afgri
Operations, so created, is settled on a continuous
basis in terms of a “sweeping arrangement” with the
second respondent,
in terms whereof cleared funds standing to the
credit of the first respondent’s account with Absa are
automatically transferred
to Afgri Operations’ account with
Absa on a daily basis, in settlement of first respondent’s loan
indebtedness. It
must be stressed that all the funds in the
applicable account is in fact not due to the first respondent as a
result of the aforesaid.’
[68]
That was all that he had to say about the sweeping arrangement. He
did not say that the sweeping arrangement had any other
purpose than
to settle the indebtedness of Afgri in terms of the loans made to it
by Afgri Operations. He did not say that surplus
funds of Afgri were
transferred to Afgri Operations and accounted for as loans by Afgri
to Afgri Operations. He did not say what
the amount of Afgri’s
‘loan indebtedness’ to Afgri Operations was, nor that it
formed part of Afgri’s liabilities
set out in the financial
statements. The financial statements do not reflect a loan payable by
Afgri to Afgri Operations. Even
if the suggestion was accepted that
the indebtedness to Afgri Operations amounted to approximately R295
million on 31 March 2017
(which was far from clear), the effect of
the sweeping arrangement would be to provide significant preference
to Afgri Operations
over Copenship’s claim. I agree with
Copenship that Afgri’s affidavit in terms of
rule 6(12)
(c)
raised more questions than it provided answers.
[69]
But that was not the end of the matter. In the last sentence of the
quoted passage, the deponent emphasised that the monies
paid into
Afgri’s Absa accounts ‘… is in fact not due to’
Afgri. This at least reasonably conveyed that
Afgri’s position
was that its trade receivables belonged to Afgri Operations. The
deponent did not provide any legal basis
for this proposition. (It
appears from the judgment of the court a quo in the application for
leave to appeal that in his answering
affidavits in the urgent
application in terms of
s 18(3)
of the
Superior Courts Act, the
deponent relied on a cession, but that must be disregarded for
present purposes.) The point is that Afgri attempted to distance
itself from the funds paid into its Absa accounts, without providing
any legal basis therefor. Coupled with the fact that there
was no
evidence and no argument that the Afgri Group of Companies would
ensure payment of an arbitration award against Afgri, I
believe that
Copenship demonstrated a real and genuine apprehension that an award
in its favour might not be paid. I can conceive
of no warrant for
going behind the plain meaning of the words of the Director: Legal.
[70] I
fully agree with my Colleague that the portion of paragraph 2 of the
arrest order that dealt with future monies to be deposited
in the
Absa accounts, as well as paragraph 9 thereof, were impermissible.
Both counsel accepted, however, (correctly in my view)
that this
issue had been rendered moot by the order of the court a quo in the
application for leave to appeal. That order had the
practical effect
of arrest of funds in the Absa accounts up to the rand equivalent of
USD 6 372 593. For these reasons I would
have dismissed the appeal
with costs including the costs of two counsel.
________________________
C H G van der Merwe
Judge of Appeal
Appearances:
For
appellant: S R Mullins SC (with him P J Wallis and M Thessner)
Instructed
by: Van Greunen Inc, Centurion;
Noordmans
Attorneys, Bloemfontein
For
respondent: M J Fitzgerald SC (with him R Fitzgerald)
Instructed
by: Bowman Gilfillan Inc, Cape Town;
Matsepes,
Bloemfontein.
[1]
Cargo
Laden and Lately Laden on Board the MV Thalassini Avgi v MV
Dimitris
1989
(3) SA 820
(A)
at 832J-833A. That judgment dealt with a claim
in
rem
against
an associated ship and the relevant passage must be adapted as above
to deal with the situation where the claim lies
in
personam
against
the owner of the property to be arrested.
Bocimar
NV v Kotor Overseas Shipping Ltd
[1994] ZASCA 5
;
1994
(2) SA 563
(A) at 579D-E.
[2]
Copenship A/S was a Danish company the business
operations of which were divided among the first to third
respondents, which were
subsequently liquidated and are represented
in these proceedings by their trustees. The appellant accepted that
the first to
third respondents jointly succeeded to any rights of
Copenship A/S.
[3]
The several references in the order to ‘further
security’ appear to have been taken from a precedent. It was
common
cause that Copenship held no security for its claims.
[4]
Under its former name of Afgri Trading (Pty) Ltd.
[5]
Basil Read (Pty) Ltd v Nedbank Ltd and Another
2012 (6) SA 514
(GSJ) para 37.
[6]
ISDN Solutions (Pty) Ltd v CSDN Solutions CC
and Others
1996 (4) SA 484
(W) at
487C-D.
[7]
Bader and Another v Weston and Another
1967
(1) SA 134
(C) at 136B-C;
Aspek Pipe Co
(Pty) Ltd and Another v Mauerberger and Others
1968
(1) SA 517
(C) at 519E-F;
Hart v
Pinetown Drive-Inn Cinema (Pty) Ltd
1972
(1) SA 464
(D) at 465E-G.
[8]
It was adopted in
Lourenco
and Others v Ferela (Pty) Ltd and Others (No 1)
1998 (3) SA 281
(W) at 291B-G.
[9]
Oosthuizen v Mijs
2009
(6) SA 266
(W) at 269H-J.
[10]
The Reclamation Group (Pty) Ltd v Smit and
Others
2004 (1) SA 215
(SE) at 218D-F.
[11]
MSC Gina: Mediterranean Shipping Co SA v Cape Town Iron and Steel
Works Pty Ltd
2011 (2) SA 547
(KZD) para 17.
[12]
Relying on
Knox
D’Arcy Ltd and Others v Jamieson and Others
[1996] ZASCA 58
;
1996
(4) SA 348
(A) at 371G-373H.
[13]
MV Orient Stride: Asiatic Shipping Services Inc v Elgina Marine
Company Limited
[2008] ZASCA 111
;
2009 (1) SA 246
(SCA) para 7.
[14]
Bocimar NV v Kotor Overseas Shipping Ltd
op cit
fn 1 at 583E-F.
[15]
MT Tigr: Owners of the MT Tigr and Another v
Transnet Ltd t/a Portnet (Bouyges Offshore SA and Another
intervening)
1998 (3) SA 861 (SCA).
[16]
The proposition in the replying affidavit by
Copenship’s attorney that the point of material non-disclosure
was ‘arrant
nonsense’ was incorrect and inappropriately
expressed by an officer of the court.