Judicial Sales of Vessels in South Africa Pendente Lite – The MV “Silver Star”

By Wesley Wood, Partner in the International Transport, Trade & Energy department

The MV “Silver Star” (“the vessel”) was arrested in rem pursuant to the provisions of section 3(6) and 3(7) of the Admiralty Jurisdiction Regulation Act (“the Act”) at Port Elizabeth as an associated ship of the MV “Sheng Mu”.  The owners of the vessel (“the Owners”) unsuccessfully applied to set aside the arrest of the vessel, contending, inter alia, that the provisions of section 3(6) and 3(7) of the Act can find no application to the facts of the present matter (a legal argument in which the Owners claimed that the arbitration award was a novation of the original cause of action with the effect that the connection to the “ship concerned” could not be drawn for the purposes of an associated ship arrest) and, even if it could, it was denied that the vessel was an associated ship to the MV “Sheng Mu” (“the ship concerned”), a factual argument.  The Owners applied for leave to appeal the Court’s decision to dismiss the application to set aside the arrest of the vessel and the judge a quo dismissed that application as well.

The arresting party then applied, in terms of section 9 of the Act, for the sale of the vessel pendente lite, at the hearing of which, Counsel for the Owners indicated that the Owners would be petitioning the Supreme Court of Appeal (“the SCA”) for leave to appeal the decision to dismiss the application to set aside the arrest of the vessel.

The Court noted that the sale of a vessel may be ordered pendente lite but that the point of departure must be that the court will exercise its discretion to order a sale pendente lite sparingly, unless the owner consents to the sale or is in default of appearance.

The Court noted further that the object of an arrest is, inter alia, to give a maritime claimant a form of security in advance of the adjudication of his claim.  For this reason, a Court will in appropriate cases authorise the sale of a vessel pendente lite in order to preserve the security, for the benefit of all creditors, where the prolonged arrest serves to deplete such security.  The continuing deterioration of the vessel (and the creditors’ security) was a factor which will weigh heavily with the Court.

In dismissing the application for the sale of the vessel, the Court recognised that it is not uncommon for leave to appeal to be granted on petition and refused to fall back on its own finding as authority for the proposition that the Owners’ defences hold no reasonable prospect of success.  The Court noted that, notwithstanding the fact that it had dismissed the application to set aside the arrest and the application for leave to appeal, the defences raised by the Owners were seriously made.  The Court also found that the fact that the ownership of the vessel itself was in dispute, militated against the sale of the vessel at that stage.

The Court referred to the Unicorn Lines case in which it was stated:

If therefore the claims are equal to, or in excess of the value of the ship and the costs of maintaining the ship under arrest, and the deterioration caused by the arrest are such as to materially reduce the security held by the claimants, that would be a valid and indeed weighty consideration in favour of a sale.  In such a case the wishes of the owner may well have to yield to the policy underlying the Act.  On the other hand, where the claims are materially less than the value of the ship, and the costs and deterioration are not such as to materially diminish the value of the security, then the views of the owners must, it seems to me, be given greater weight.

The only claim formally advanced against the vessel was that of the arresting party, which claim was relatively modest in comparison to the value of the vessel.  The Court took the view that the arresting party’s claim was firmly secured even in the event that the preservation costs over a lengthy period of time were substantial and even if the claim of the charterer at the time of the arrest was to be taken into account.  The Court then hypothesised that if the claim of the mortgagee, which vastly exceeded the value of the vessel, was to be taken into account, then the arresting party would not receive any sum out of the Fund as the mortgagee’s claim (which ranks above that of the arresting party) would exhaust the residue of the Fund left after payment of preservation costs and the charterer’s claim.  The Court ultimately disregarded the potential claim of the mortgagee for the purposes of the application for the sale of the vessel as it concluded that the mortgagee was the best judge of how to protect its own security.

The Court held that in the event that the petition for leave to appeal was granted and the appeal succeeded, the Owners would suffer enormous and irrecoverable prejudice from the premature and untimely sale of the vessel.  The Court therefore dismissed the application for the sale of the vessel.

The petition to the SCA for leave to appeal the dismissal of the application to set aside the arrest was granted but almost a full year to the day after the court a quo delivered judgment in the application for the sale of the vessel, the appeal was dismissed and the arresting party applied for the sale of the vessel pendente lite again.  An interim order for, inter alia, the sale of the vessel was granted but after limited opposition by the Owners, the parties ultimately settled the matter and the vessel was released from arrest.

In summary, a South African Court will balance a number of factors before countenancing the judicial sale of a vessel pendente lite, including the quantum of the claim(s) in relation to the value of the vessel; the costs of preserving the vessel during the subsistence of the arrest; the interests of the general body of creditors; and the potential prejudice to the owners to name but a few.

For more information contact:

Wesley Wood, Partner

+27 31 575 7203

wood@wylie.co.za