Brief Summary

Maritime Law — Admiralty Jurisdiction Regulation Act — Meaning of 'security' — Appellant's vessel arrested to provide security for claims against it — Appellant sought reduction of bank guarantee given for vessel's release — High Court dismissed application — Respondent not pursuing claims in arbitration — Appeal allowed to clarify legal questions despite lack of practical effect — Court held that a guarantee constitutes 'security' under the Act, and the power to reduce excessive security applies to guarantees as well.

Comprehensive Summary

Summary of Judgment

Introduction

These proceedings concerned an appeal to the Supreme Court of Appeal from a judgment of the Durban and Coast Local Division of the High Court. The High Court (Niles-Dunér J) had dismissed an application brought in the exercise of the court’s admiralty jurisdiction for, first, a reduction in the amount of a bank guarantee furnished to procure the release of an arrested vessel and, second, an order compelling the arresting party to furnish counter-security for the applicant’s intended claims.

The appellant was Sea Melody Enterprises SA, the owner of the vessel mv “Merak S” (identified in the proceedings as the “Name of Ship: ‘Merak S’”). The respondent was Bulktrans (Europe) Corporation, which had chartered the vessel from the appellant under a time charter and had caused its arrest.

Procedurally, the respondent obtained an arrest under section 5(3) of the Admiralty Jurisdiction Regulation Act 105 of 1983 to provide security for claims it intended to pursue in London arbitration. The appellant then approached the High Court for relief directed at the security that had been provided and for counter-security. After the High Court dismissed that application, leave to appeal was granted.

By the time the appeal was heard, the respondent was no longer proceeding with its arbitration claims, and the appellant had obtained an order for the return of the bank guarantee. The appeal therefore no longer had practical effect in the ordinary sense, but the Supreme Court of Appeal nevertheless entertained it in the exercise of its discretion under section 21A of the Supreme Court Act 59 of 1959, given the importance and recurrence of the legal questions raised. Mr Wallis SC, previously counsel for the respondent in the court a quo, was appointed as amicus curiae to present argument in support of the High Court’s reasoning.

The general subject-matter of the dispute was the meaning of “security” in the Admiralty Jurisdiction Regulation Act, and the scope of the court’s powers to reduce security and to order counter-security, particularly in the context of a security arrest for foreign arbitration under section 5(3).

Material Facts

The material facts were largely procedural and were treated as sufficient without a full recital of the underlying charterparty disputes, because the Supreme Court of Appeal considered that, in light of subsequent events (including the return of the guarantee), it was unnecessary to summarise the detailed facts giving rise to the application.

It was undisputed that the respondent had chartered the vessel from the appellant under a time charter and that the respondent intended pursuing claims against the appellant in London arbitration proceedings arising from that charter. In order to obtain security for those claims, the respondent caused the vessel to be arrested pursuant to an order granted under section 5(3) of the Admiralty Jurisdiction Regulation Act 105 of 1983.

It was also undisputed that, to procure the vessel’s release from arrest, the appellant furnished a bank guarantee. The appellant then sought relief in the High Court to reduce the amount of that guarantee and to compel the respondent to provide security for the appellant’s own claims against the respondent, which the appellant stated it proposed to bring and submit to arbitration in London arising from the same charter.

After leave to appeal had been granted, the respondent ceased pursuing its claims in the arbitration and the appellant obtained an order for the return of the guarantee. As a result, any appellate order directing reduction of the guarantee or requiring counter-security would not have had direct practical effect, which led to the appellant seeking declaratory relief on appeal instead.

Legal Issues

The central legal issues were questions of statutory interpretation and the scope of admiralty powers under the Admiralty Jurisdiction Regulation Act 105 of 1983, as amended. The dispute was primarily a matter of law, and specifically the meaning and application of statutory terms and powers, rather than a dispute of fact.

The first principal question was whether a bank guarantee furnished to obtain the release of an arrested vessel constitutes “security” for purposes of the Act, and in particular whether it is security as contemplated in section 5(2)(d) such that a court has jurisdiction to order that the security be increased, reduced, or discharged.

The second principal question was whether, and on what basis, a court has power to order counter-security against a party who has obtained a security arrest under section 5(3) (for claims to be pursued in arbitration or proceedings elsewhere). This included whether section 5(3), or the Act generally, contemplated that counter-security could be imposed as a condition under section 5(2)(c) and whether a security arrest under section 5(3) is immune from such conditions.

A further issue, arising from subsequent events, concerned the appellate court’s discretion to hear an appeal that would have no practical effect, under section 21A of the Supreme Court Act 59 of 1959.

Court’s Reasoning

The Supreme Court of Appeal first addressed whether it should decide an appeal that had become moot in practical terms. It accepted that, because the respondent was no longer proceeding with its arbitration and the guarantee had been returned, the appeal would have no direct practical effect. However, the Court considered that the legal questions were important, arose frequently, and were “live issues” at the time of the High Court’s decision and the grant of leave to appeal. On that basis, it exercised its discretion under section 21A to hear and determine the appeal, with reference to the approach reflected in Coin Security Group (Pty) Ltd v SA National Union for Security Officers and Others 2001 (2) SA 872 (SCA) and Natal Rugby Union v Gould 1999 (1) SA 432 (SCA).

On the meaning of “security” in the Admiralty Jurisdiction Regulation Act, the Court held that the High Court’s conclusion—that the guarantee did not constitute security for purposes of section 5(2)(d)—was incorrect. The Court reasoned that, in ordinary language, a guarantee can constitute security, at least in the sense of personal security, and that it also constitutes an “undertaking” in an ordinary sense. The statutory scheme, however, uses both “security” and “undertaking” in a way that requires a distinction between them, meaning that the ordinary meaning of one or other term must be qualified.

The Court observed that the legislation did not explicitly distinguish between different forms of security such as personal security by a third party’s undertaking and an undertaking by the debtor, which contributed to the interpretive difficulty. It drew support from English admiralty practice as described in Halsbury’s Laws of England, noting that a guarantee acceptable to the plaintiff was regarded as “security” and was, in effect, treated as equivalent to bail in its practical consequences. The Court also referred to the pre-Act position in which a court could reduce excessive bail, and treated that power as extending, in principle, to a guarantee provided instead of bail, given the functional equivalence in maritime practice.

The Court gave weight to the prevailing South African maritime practice at the time of the enactment of the 1983 Act, namely that arrested vessels were almost invariably released on the furnishing of P & I Club letters or bank guarantees, with bail bonds and cash deposits being rarely encountered. Against that practical background, it considered there to be no compelling basis to restrict the statutory term “security” so as to exclude guarantees, particularly given other provisions (such as section 3(8)) that would be difficult to reconcile with an interpretation that excluded common forms of contractual security.

Having concluded that a guarantee of the kind furnished in the matter constitutes “security” for purposes of the Act, the Court then explained the correlative interpretive implication: the term “undertaking” in the Act must refer to undertakings that do not constitute personal security, such as undertakings to provide security in future, to satisfy a judgment, or undertakings forming part of exceptional arrangements for conditional release without conventional security.

Turning to counter-security, the Court rejected the High Court’s first ground for refusal, which depended on the premise that the guarantee was not “security” and that there was no longer anything “done” or “to be done” in terms of the Act to which the court could attach a condition under section 5(2)(c). Given the Court’s conclusion that the guarantee was security, it further held—by reference to mv the Alam Tenggiri 2001 (4) SA 1329 (SCA)—that the arrest was deemed to be continuing. The amicus curiae’s contention that the Tenggiri decision was clearly wrong and should be overruled was not accepted, the Court stating that the same submissions had been made in Tenggiri and had been correctly rejected there.

The Court also rejected the High Court’s second ground for refusing counter-security, namely that section 5(3) (or the Act) did not contemplate that a security arrest for foreign arbitration could be made conditional on counter-security for the other party’s counterclaim, particularly where it was not related to the arrest. The Court noted that there was nothing in the language of section 5(3) to indicate that a party whose property had been arrested under section 5(3) must itself comply with that subsection to obtain counter-security. It accepted that by seeking a security arrest, the respondent rendered itself amenable to the court’s power to require counter-security, consistent with Devonia Shipping Ltd v mv Luis (Yeoman Shipping Co Ltd Intervening) 1994 (2) SA 363 (C) and mv Rizcun Trader (4) 2000 (3) SA 776 (C).

In addressing the scope of section 5(2)(c), the Court stressed that there was no basis to treat arrests under section 5(3) as immune from conditions that may be imposed under section 5(2)(c). It emphasised the breadth of the language—referring to “any arrest or attachment”—and applied the interpretive approach to the word “any” described in S v Wood 1976 (1) SA 703 (A). It further located this construction within the broader purpose of the Act, namely to confer wide powers on admiralty courts to achieve a “high degree of commercial convenience,” as expressed in The ‘Yu Long Shan’ 1997 (2) SA 454 (D).

Finally, because the guarantee had been returned and the respondent’s arbitration was no longer proceeding, the Court considered it appropriate to grant declaratory relief rather than orders that would be ineffectual in practice.

Outcome and Relief

The Supreme Court of Appeal allowed the appeal with costs.

It set aside the order of the court a quo and replaced it with a declaratory order declaring, first, that the guarantee furnished on behalf of the applicant by virtue of which the vessel mv “Merak S” was released from arrest is security for purposes of section 5(2)(d) of the Admiralty Jurisdiction Regulation Act 105 of 1983 (as amended), and that the court therefore has jurisdiction to order that such security be reduced.

It further declared that it is within the powers of the court to order that the respondent give security for the applicant’s claim against the respondent, to be submitted to arbitration in London, and to impose appropriate conditions for the enforcement of such an order.

Cases Cited

Coin Security Group (Pty) Ltd v SA National Union for Security Officers and Others 2001 (2) SA 872 (SCA).

Natal Rugby Union v Gould 1999 (1) SA 432 (SCA).

mv the Alam Tenggiri 2001 (4) SA 1329 (SCA).

Devonia Shipping Ltd v mv Luis (Yeoman Shipping Co Ltd Intervening) 1994 (2) SA 363 (C).

mv Rizcun Trader (4) 2000 (3) SA 776 (C).

S v Wood 1976 (1) SA 703 (A).

The ‘Yu Long Shan’ 1997 (2) SA 454 (D).

The Duchesse de Brabant (1857) Sw 264.

The Christiansborg [1885] 10 P.D. 141 (CA).

The ‘Tjaskemolen’ [1997] 1 Lloyd’s Rep 476 (Q.B. (Adm. Ct.)).

Legislation Cited

Admiralty Jurisdiction Regulation Act 105 of 1983, sections 1(2)(a)(iv), 3(8), 3(10)(a), 5(2)(b), 5(2)(c), 5(2)(d), and 5(3), and section 11(9) (later renumbered 11(12) after amendment).

Supreme Court Act 59 of 1959, section 21A.

Admiralty Jurisdiction Regulation Amendment Act 87 of 1992 (as the amending statute referred to in relation to amendments to the 1983 Act).

Rules of Court Cited

No specific rules of court were cited by name or number in the judgment.

Held

The Court held that a bank guarantee furnished to procure the release of an arrested vessel constitutes “security” for purposes of the Admiralty Jurisdiction Regulation Act 105 of 1983, including for purposes of section 5(2)(d), with the consequence that an admiralty court has jurisdiction to reduce such security.

The Court further held that a party who obtains a security arrest under section 5(3) renders itself amenable to the court’s powers under section 5(2)(c) to impose conditions, including an order requiring that party to furnish counter-security for the arrested party’s claim to be pursued in arbitration, and that section 5(3) arrests are not immune from the imposition of such conditions.

The Court also held that, notwithstanding that the appeal had become moot in practical terms due to the return of the guarantee and the abandonment of arbitration claims, it was appropriate to decide the appeal and to grant declaratory relief because of the importance and recurrence of the issues.

LEGAL PRINCIPLES

A statutory reference to “security” in the Admiralty Jurisdiction Regulation Act 105 of 1983 includes a guarantee furnished to obtain the release of arrested property, particularly in light of ordinary language, established admiralty practice, and the functional equivalence between contractual security and bail in maritime procedure.

Where the Act uses both “security” and “undertaking”, a distinction must be drawn between them. On the Court’s approach, “undertaking” in this context refers to undertakings not amounting to personal security, such as undertakings to provide security in the future or other non-security promises accepted in exceptional circumstances.

The admiralty court’s power under section 5(2)(c) to subject “any arrest” to conditions is of wide import and extends to arrests under section 5(3). The word “any” is to be given its ordinary broad meaning in the absence of contextual limitation, and the Act is to be construed to confer broad remedial powers aimed at commercial convenience.

A party that approaches the court for a security arrest may be required, as part of the court’s control over the arrest and its consequences, to furnish counter-security for the opposing party’s claim, and the court may impose appropriate conditions for enforcement of such an order.

An appellate court may, in an appropriate case, entertain and determine an appeal that has no practical effect, granting declaratory relief where warranted, in the exercise of its discretion under section 21A of the Supreme Court Act 59 of 1959, particularly where the legal issues are important and recurrent.

"Merak S" (Name of Ship) Sea Melody Enterprises SA v Bulktrans (Europe) Corporation (178/2000) [2002] ZASCA 18 (27 March 2002)