The Supreme Court of Appeal has recently addressed a very important point in our Admiralty Law. Specifically, whether or not a protective writ can protect a creditor’s maritime claim where there has been a valid change in ownership of a vessel between the time when the writ is issued and when the writ is served on the vessel. In what is undoubtedly great news for vessel owners, the Court found that merely issuing a writ will not protect the creditor’s claim in these instances.
The question arose in respect of claims against Hanjin Shipping Co Ltd. Hanjin was previously South Korea’s largest container line and one of the world’s top ten container carriers in terms of capacity. Hanjin’s entering receivership in 2016 followed by the Company’s collapse into bankruptcy in 2017 sent shockwaves through the industry. Several creditors, fearing the looming end of the company, took whatever measures they could to try to protect their claims against Hanjin, prior to bankruptcy being declared.
South Africa was an attractive jurisdiction for creditors to pursue their claims against Hanjin, as South African law allows for a writ to be issued before the vessel identified as the arrest target is actually physically present in South African waters. The writ therefore protects the claim until such a time as the target vessel calls in South Africa, at which point the writ may be served on the vessel and the vessel arrested. It has generally been useful in instances where a claim will prescribe prior to a vessel calling in South Africa, in which case the creditor may issue the writ “in time” before the claim prescribes, and serve the writ thereafter when it is physically possible to do, which would be when the target vessel calls in South Africa.
After certain creditors took the step of issuing writs in South Africa, naming some seventy two vessels as targets for arrest- all Hanjin owned, or beneficially owned or controlled by Hanjin at the time the writs were issued – some of the vessels which were named in the writs were sold by the mortgagee of those vessels. These sales were independently conducted in good faith by the mortgagee in terms of the mortgagee’s rights under the respective vessel mortgage agreements. The purchasers, or new owners of the vessels, were not affiliated with, or owned or controlled by Hanjin in any way.
Two such vessels which changed ownership from Hanjin were thereafter arrest targets when calling in Cape Town and Durban respectively, because of the protective writs obtained prior to the vessels calling in South Africa. Both the High Courts in Durban and Cape Town (the Ports where the respective vessels were calling), were seized with the issue of whether, in terms of our law, the issuing of the writ was sufficient to commence an admiralty action, consequently protecting the creditor’s claim against a change in ownership; or alternatively, whether physical service of the writ on the target vessel was necessary to commence the action. Ultimately, due to the Cape Town and Durban Court’s decisions on the issue conflicting, the matter arrived before the Supreme Court of Appeal.
The SCA endorsed a flexible approach to be taken in determining when an action commences, depending primarily on the relevant purpose of that action. Here, the Court found that the underlying purpose in this type of instance is that liability should be imposed on the party where it properly lies by virtue of common ownership or control. In this case, Hanjin was the potentially liable party, and not the new vessel owners. The Court also interestingly referred to the Constitution and Bill of Rights – particularly the section which safeguards against arbitrary deprivation of property.
It remains to be seen whether the unsuccessful creditors will apply to the Constitutional Court to potentially take the matter further. As things currently stand in South Africa, however, a creditor must establish a connection between their claim and the owner of the vessel when the ship arrest is effected; while a vessel with a bona fide new owner cannot be arrested for debts which the previous vessel owner may be liable for, which must cheer owners enormously.
Goscelin has a BCom, LLB and LLM and was admitted as an attorney in 2013. In 2014 she joined Bowmans as an associate doing shipping, logistics and international trade work. Goscelin joined Caveat in 2019.