Part 1 South Africa: Protecting maritime creditors against defaulting shipowners
The benefits of South Africa’s admiralty procedures
South African admiralty procedures provide a powerful protection mechanism for local and foreign creditors who have claims against shipowning interests. These mechanisms are becoming increasingly important in the context of the global shipping crisis whose most recent casualties include Hanjin Shipping and OW Bunker. The collapse of these entities has resulted in costly multijurisdictional litigation and has left a large number of creditors high and dry.
South Africa has seen 14 ships arrested and sold within its jurisdiction in the past two years and the Namibian High Court has also granted several sale orders in the past few months. In this two part blog we highlight the benefits, and note some key features of, South Africa’s admiralty procedures. In Part 1, we explain why South Africa is an attractive admiralty arrest jurisdiction.
Broad definitions of claims
Firstly, South Africa has an extremely broad definition of what constitutes a “maritime claim” which is the gateway to accessing its admiralty procedures. A maritime claim allows parties such as importers, exporters, bunker suppliers, vessel’s agents, stevedores, financial institutions, insureds and insurers to make use of the bespoke admiralty procedures for enforcing their claims. These creditors can make use of the various admiralty mechanisms to obtain pre-judgment security, to require the early production of information and documents, and to preserve evidence for trial.
Secondly, the procedure for arresting a ship for South African litigation is quick and cost-effective. A ship can be arrested within a few hours and often the threat of an arrest can be sufficient for a shipowner to put up security if the liability is covered by their P & I Club. The costs of litigating in South Africa are also significantly less than, for example, a London arbitration, although it can take significantly longer to obtain a trial date in the South African courts than to run an arbitration.
Associated ship arrest
Thirdly, South Africa’s associated ship provisions allow a creditor to arrest or attach a ship within the same shipowning group as the guilty ship (i.e. the ship against which or in respect of which the claim arose). While most foreign jurisdictions allow for the arrest of a sister ship (i.e. another ship owned by the owner of the guilty ship), South Africa’s Admiralty Jurisdiction Regulation Act goes significantly beyond this. The Act allows a creditor to pierce the corporate veil and look to the person who ultimately owns or controls the guilty ship, If the same person ultimately owns or controls the guilty ship and another ship, then the creditor can arrest the other ship.
In Part 2, we will explore how the proceeds of maritime arrest and sale are dealt with and, how maritime creditors can benefit from the statutory priorities regime.