THE ADVANTAGES OF A MARITIME CLAIM
One of the most prevalent practical disadvantages to litigation is the risk of there being insufficient assets available to satisfy the claim once a favourable judgment is eventually obtained against the debtor in default.
This can be a very disappointing outcome to what will often have been a lengthy, costly and hard fought process. In terms of ordinary litigation principles, pre-judgment security for payment of a claim (e.g. a bank guarantee securing payment in the event of a favourable judgment) is usually not a viable option from the outset of a matter unless the claim is against a foreign party. In those instances, attachments of property are in fact necessary in order to “found” or “confirm” the court’s jurisdiction. The reason for this is to render judgments against foreign parties effective, thereby avoiding the risk of the granting of co-called hollow judgments which achieve no practical result. While under attachment, the property may not be transferred or liquidated, and will accordingly remain available to satisfy any judgment which is awarded against the foreign party in due course. This procedure is not ordinarily available where the claim is against a local party, which is somewhat unfortunate given difficulties which are often encountered when it comes to local enforcement of judgments. As many players in Durban’s local maritime industry will appreciate, pursuing a legal claim in terms of admiralty jurisdiction can, where applicable, offer several tangible advantages to maritime creditors.
At the risk of oversimplifying matters, admiralty jurisdiction exists as a sort of parallel system of court rules and procedure which differs from the ordinary jurisdiction of our courts in many respects. It also comes with some serious benefits in comparison, even in the case of local defendants.
Admiralty jurisdiction includes a unique procedural mechanism known as a “security arrest”, in terms of which a court may order the arrest of any property owned by the debtor / defendant for purposes of obtaining security for a maritime claim which is or may be the subject of an arbitration or other legal proceedings in South Africa or somewhere else in the world. In terms of the relevant legislation, there is nothing which precludes an arrest of property belonging to a local South African party and an arrest may be sought either before or after the relevant court action has commenced. Moreover, the type of property which may be arrested is not limited to property which is maritime in nature (e.g. a ship). In order to succeed with an application for a security arrest it must be established that the creditor has a maritime claim lying against the owner of the property or against the property itself and further that the creditor has a genuine and reasonable need for the pre-judgment security.
Associated ship arrest
South Africa is one of the only jurisdictions in the world which permits the arrest of an ‘associated’ ship instead of the ship in respect of which the relevant claim arose. The term “ship” is not limited to vessels over a particular tonnage and includes any vessel which is capable of being used on the sea or internal watersincluding, for example yachts and floating docks. An associated ship arrest goes further than sister-ship arrest, which is common the world over and allows a maritime creditor to arrest a vessel which is directly owned by the same entity or person (usually a company) that owns the ship in respect of which the claim arose (otherwise known as the “guilty ship”). In response to these broad powers of arresting and detaining sister ships, vessel owners and managers often take steps to avoid such arrests by using a multitude of so-called ‘one ship-owning companies’ to creatively restructure their corporate affairs so as to limit exposure (the one ship registered in its name would be the company’s only asset, thereby avoiding the arrest of other ships in the same beneficially owned fleet which are technically owned by different corporate entities). The associated ship arrest is designed to cut through this façade, and essentially allows creditors to arrest vessels which are controlled, but not necessarily directly owned, by the same person or entity which owns or controls the guilty ship in question. Provided that the criterion of “control” can be established in accordance with the relevant legal principles, this essentially permits a “piercing of the corporate veil” by the arrest of a vessel which is not directly owned by the person liable on the claim. This is contrary to the usual protection of the assets of one registered company from the debts of another, even where they are related or part of the same group of companies.
Speedy Judicial Sales
Where property is arrested in terms of admiralty jurisdiction, it is possible for a creditor to apply for the judicial sale of that property at any time, even where the main proceedings have not yet been completed. This is to cater for situations where the high costs of preserving the arrested property stands to jeopardise the creditors’ security for enforcement purposes. Another important benefit of arrest, is that, should a debtor file for bankruptcy after his or her property has been arrested in terms of admiralty jurisdiction, the property will not vest in any trustee, liquidator or judicial manager who is appointed to administer the debtor’s insolvent estate. Should the court order that the property be sold in due course, the proceeds will be distributed between those maritime creditors (for claims related to the vessel itself) whose claims have been successfully proved.
In order to be in a position to benefit from the procedures outlined above, it is necessary for the claimant to have a ‘maritime claim’ as a “gateway” to making use of the court’s admiralty jurisdiction. The types of claims falling within this definition are not as narrow as one might think. The applicable legislation contains an expansive list of 32 different maritime claims which are formulated in very broad terms, including claims relating to carriage of goods and containers, the supplying goods or services to a ship (as well as clearing and forwarding services) and marine pollution.
In view of the significant benefits which may be derived from admiralty as opposed to ordinary court procedure, it would always be useful to consult your lawyer regarding these possibilities in instances where you suspect that your claim may have a shipping or maritime angle.
This Article first appeared in the Sunday Tribune.