On 15 July 2018 the container ship Aeneas came to a halt in the southern section of the Suez Canal. It had suffered engine failure and lost propulsion. At the time, the Aeneas was at the head of a convoy of eight southbound vessels and its breakdown set in motion a chain of events which resulted in multiple ship collisions and, for a while, chaos in the canal.
On 5 October 2020 Admiralty Judge of the High Court of England and Wales J Teare found that the eighth and last vessel in the convoy, the Panamax Alexander, was wholly responsible for the collisions. Unlike the other vessels in the convoy, the Panamax Alexander had failed to moor in response to the breakdown up ahead and, in doing so, had collided with the seventh vessel in the convoy, the Sakizaya Kalon. In turn, these two vessels had collided with the next vessel in the convoy, the Osios David.
Unsurprisingly, the collisions in the Suez Canal generated multi-million-dollar claims. When the stakes are as high as they were in this case, it is inevitable that parties will turn their attention to South Africa in the hope of obtaining security for their claims. Those who are regularly engaged in shipping litigation in South Africa will be familiar with the arrest-friendly regime embodied in the Admiralty Jurisdiction Regulation Act. Among other things, the law provides for the arrest of property for purposes of providing security for a claim, either commenced or contemplated, which is or may be a subject of an arbitration or court proceedings anywhere in the world.
More often than not, the property arrested is not the ship which is the subject of the dispute, but rather an 'associated ship' (ie, a sister ship which is owned or controlled by the same beneficial owner as the ship related to the claim).
One of the requirements which a party must meet, when seeking to arrest for security for foreign proceedings, is a 'genuine and reasonable need' for security.
Not long after the incident in July 2018, the Osios David's owners obtained an order in the Durban High Court for the arrest of the Panamax Christina for the provision of security for proceedings to be held in London arising out of the collisions. The arrest was premised on the allegation that the Panamax Christina was an associated ship of the Panamax Alexander and that the Osios David's owners had a genuine and reasonable need for security. In the event, on 5 September 2018 the ship was arrested at Richards Bay Harbour and was released five days later against the provision of a protection and indemnity (P&I) letter of undertaking.
The Panamax Christina's registered owners (Wonder Shipping SA) set about challenging the arrest and sought to have it set aside by the Durban court.
A significant portion of the Durban High Court's judgment handed down on 11 January 2021 concentrated on the application of the facts of the case to the well-established legal test for the 'genuine and reasonable need' for security. The judgment provides another useful illustration of the balancing act performed by the courts in the exercise of their discretion and is worth revisiting.
The legal test finds its formulation in the Supreme Court of Appeal decision in Orient Stride, where the court held:
What, I think, must be established is a genuine and reasonable apprehension that the party whose property is arrested will not satisfy a judgment or award made in favour of the arresting party. That apprehension may be founded upon actual knowledge of the extent of the assets of the party whose property has been arrested, or, as would more likely be the case, it may be founded on factors giving rise to an inference either that the party in question will be unable to meet the judgment or that it will seek to conceal its assets or otherwise prevent the judgment from being satisfied. The circumstances may also be such, whether for geographic reasons or otherwise, that it would be extremely difficult for the successful party to enforce the judgment.
In a subsequent decision (Afri Grain Marketing v Copenship Bulkers, 2019), the Supreme Court of Appeal reconfirmed the test set out in Orient Stride, but at the same time expanded on its approach. Notably, the court expressed the views that:
- the rejection of a demand for security is not, without more, evidence of an intention not to honour a judgment or award and is not evidence of an inability to do so once an award is made. An obvious reason for such a refusal is that the party demanding security is not entitled to it. It follows that unless the refusal to furnish security can be plausibly linked to an unwillingness or inability to satisfy the award or judgment, it does not support a claim for security; and
- the claimant's apprehension must be both:
- genuine, in the sense that it is actually entertained by the party claiming security; and
- reasonable, in the sense that the apprehension can be entertained reasonably on the basis of facts.
Against that background, the court in the Panamax Christina arrest undertook an analysis of the facts surrounding the demands made for security and paid close attention to the content of the correspondence exchanged between the P&I clubs and the lawyers representing the respective vessels' owners in the weeks leading up to the arrest in Durban.
The Osios David's counsel argued that, notwithstanding the security negotiations, neither the club nor the lawyers representing the Panamax Alexander ever categorically stated that security would be provided and had repeatedly highlighted that they were waiting for instructions. He went on to highlight that the club and lawyers do not act unanimously, but make decisions based on instructions which they receive from those whom they represent. There had been a repeated demand for security on 29 August 2018 and the club was placed on terms to provide security or else the claimant would go to the court to seek security. Between that date and 4 September 2018, there had been no response to the demand.
Opposing counsel argued that there were only two explanations for the arrest of the Panamax Christina. It was either a tactical decision or an unreasonable fear, neither of which entitled the claimant to assert a genuine and reasonable need for security. He submitted that, in signing a collision jurisdiction agreement, all parties had agreed to put up security and that the approach of the lawyers and the club representing the Osios David had been unreasonable and excessively demanding.
On consideration of the issues, the court made the following findings:
- The correspondence demonstrated that the claimant was clearly of the view that the conduct of the club and lawyers for the Panamax Alexander was dilatory. The Osios David representatives had stated from the outset that they wished to deal with the matter of security expeditiously and their perception was clearly that they had received, in return, what may be described as a 'dragging of feet'.
- Pious expressions of cooperation are unhelpful when accompanied by obstructive delay. That, certainly, was the perception of the claimant's representatives.
- On a consideration of the correspondence, the court held that the perception was a fair one. The Osios David representatives made continual requests for security and threatened that they would resort to formal means of obtaining security if it was not provided. This was a clear reference to a possible arrest.
The court summed up the position as follows:
Whether the applicant had a genuine and reasonable apprehension that it would not be paid in due course, should be assessed on the particular facts of this case. Every case is different, considering what objectively appears to have been delaying tactics by the representatives of the [Panamax Alexander's owner] (albeit imposed on them by a need for instructions), and the persistent and reasonable demands of the applicant, I can conclude that the applicant had a genuine and reasonable need for security in the terms set out in Afri Grain.
This judgment highlights, once more, that the assessment of a genuine and reasonable need for security must be made on the careful analysis of all of the facts and circumstances of the particular case and that the reliance on generalised grounds can be dangerous. While the legal test for the genuine and reasonable need is unlikely to change in years to come, its application will vary from case to case and sound advice is essential before proceeding with an arrest.
