VICTORY IN PROTECTIVE WRIT MATTER

By Lana Stockton,Craig Cunningham Tuesday, July 25, 2017
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Despite the widespread distress created by the announcement of Hanjin Shipping’s rehabilitation application in late 2016, the rehabilitation and subsequent bankruptcy of Hanjin Shipping had initially produced minimal court action in the South Africa Admiralty jurisdiction. In an effort to take advantage of the South African associated ship provisions and the fact that South Africa is an arrest friendly jurisdiction, three creditors took steps to attempt to protect their claims against changes in ownership of Hanjin owned vessels by issuing so-called ‘protective writs in rem’ against more than 70 Hanjin Shipping beneficially owned vessels in South Africa. The Plaintiffs in these actions sought to rely on the statutory lien potentially created by such a protective writ.

Following the private treaty sales of formerly Hanjin owned vessels by the mortgagee banks, the risk of arrest in South Africa became real for the new owners.

After the formal order of rehabilitation in Korea and defaults in payments by the borrowers, mortgagee banks, which held security over some Hanjin Shipping beneficially owned vessels, exercised their rights in terms of the share pledges and other security documentation and obtained de facto control of the ship-owning entities, which directly owned Hanjin vessels. Once the mortgagee banks had obtained the requisite control, these ship-owning companies resolved to sell the formerly Hanjin controlled vessels on the open market in terms of private sale agreements.

The existence of these protective writs represents an ongoing risk of arrest to all purchasers of such vessels should the vessel trade into or near a South African port. The risk is that the plaintiffs in the actions in rem already commenced (or another Hanjin creditor) may arrest any one of the 70 odd vessels listed in the writ as a defendant (by virtue of the fact that it is an associated ship as defined in the South African Admiralty Jurisdiction Regulation Act (“AJRA”)).

With the knowledge of these protective writs issued in South Africa, the sellers have sought to carve out any liability for a subsequent arrest in the agreement of sale, eschewing any liability for any claim arising from the arrest that may be affected should the vessel trade into South Africa.

Craig Cunningham and Lana Jacobs represent a number of purchasers of formerly Hanjin Shipping controlled vessels. (“Tebtale”), the purchaser of the “Hanjin Cape Lambert” renamed “Mount Meru”, listed as a defendant in the writs on the basis it was an associated ship took  issue with the legality and effect of the writs.

One of the three Plaintiffs subsequently withdrew the writ issued by it in its entirety, the remaining two refused to.

In March 2017, Tebtale brought an application inter alia to have their vessel struck out of the writ as a defendant on the basis that a legitimate transfer of ownership had taken place prior to the arrest of the vessel and that the commencement of proceedings for the purposes of the enforcement of a claim arose upon service of the writ of summons and not the issue of the (protective) writ. This is a direct challenge to principle as set out by Brandon J in the case of the Monica S [1967] LR 113 in terms of which the court held that a change of ownership after the issue of a protective writ but prior to arrest does not defeat a plaintiff’s claim in rem against the vessel.

On 21 July 2017 Burger AJ handed down judgment in the matter of Tebtale Marine Inc. v MS Mare Traveller Schiffarhrts GMBH & CO KG (WC) 21 July 2017 (unreported). The court accepted that, on the basis of an interpretation of the wording of AJRA, the Monica S principle does not apply in South Africa and that the issue of a protective writ without a physical arrest is not sufficient to protect against changes in ownership of a defendant vessel where the sale is conducted on a legitimate arms-length basis. On the facts of the case, the judgment is confined to the MV “Mount Meru” owned by the applicant in the matter.

The court’s decision is the first judicial pronouncement on this highly contentious issue of South African admiralty law and will have extensive consequences for claimants and ship owners alike in the future in terms of limiting the reach of the ship arrest provisions. In light of the importance of the decision, it is likely that the decision of Burger AJ may be appealed to South Africa’s Supreme Court of Appeal (the apex civil court) to pronounce finally on this fundamental interpretation of South African Admiralty Law