Claims against charterers

IN the South African context, claims against charterers arise in two main areas.

Firstly, where there is a dispute in terms of a charter party which is to be resolved by way of arbitration, usually in London or in New York. In such cases, South African attorneys very often become involved in obtaining security for the arbitration proceedings by way of a security arrest.

The second main area in which claims against charterers arise is where the charterer is the carrier under a bill of lading. In these cases, South African attorneys are instructed by the cargo interests to begin recovery actions against the charterer in the South African courts.

A major problem facing claimants where charterers refuse to put up security and consent to the court's jurisdiction in these two areas is that the charterer may not have any assets within the jurisdiction of the South African court. In the past, attorneys have proceeded against charterers by attaching bunkers on board the chartered vessel owned by the charterers.

There are a number of reported cases in South Africa turning on the wording of NYPE time charter parties and on whether wordings such as "shall take over and pay for bunkers on board" constitute a passing of ownership from owner to charterer.

The problems with attaching bunkers are twofold. The first is that the claimant is often not in possession of a copy of the charter party and it may later transpire that the wording is such that the bunkers remain the property of the owners. The second point is that, where the claim is substantial, the value of the bunkers may not be sufficient to adequately secure the claim.

The Admiralty Jurisdiction Regulation Act as amended in 1992 has addressed the above problems in Section 3 (7)(c). That section reads:

"if at any time a ship was the subject of a charter party, the charterer or sub-charterer, as the case may be, shall for the purposes of (the associated ship arrest provisions) be deemed to be the owner of the ship concerned in respect of any relevant maritime claim for which the charterer or the sub-charterer, and not the owner, is alleged to be liable".

A charterer's interest in a vessel can either be arrested for proceedings to be commenced in South Africa or as security for proceedings, including an arbitration in another country that has commenced or has yet to commence.

This provision effectively allows claimants to arrest any other (associated) ship owned or controlled by the charterer. The effect of this provision is best illustrated by way of example.

If the charterer of Ship A accepts responsibility as carrier and thereafter it damages a cargo, the cargo owner will have a claim against the charterer. In circumstances where the charterer does not own the bunkers aboard the chartered vessel, there would ordinarily be no right of recourse against the ship.

Section 3(7) alters this position and, where the charterer owns the majority of the shares in a company which owns Ship B, or controls Ship B, the cargo interest can arrest Ship B as an associated vessel of the chartered ship.

The problem remains where a charterer carries on business solely as a charterer and neither owns nor controls any other vessels. In such circumstances a claimant's remedy is to proceed against the charterer in the jurisdiction where it is incorporated or where it carries on business. This jurisdiction may be inconvenient, or impossible for a claimant to take action in. Furthermore, the charterer may be a brassplate company and not own any assets which can be located for the purposes of execution.

Recently, the South African courts extended a claimant's right to proceed against charterers. In the case of the Snow Delta (1998 3 SA 636 (C) the court allowed a claimant to attach the charterers' interest in the vessel chartered. The court held that "should the vessel find itself within the jurisdiction of this court at the relevant time, it would be ... open to the (claimants) to proceed by way of an action in personam against the owner in this court, provided, of course that the vessel had first been properly attached ad fundandum jurisdictionum in terms of Section 3 (2)(b) of the Act".
"Under its time charter party, the respondent has no title to the vessel or right to its possession or control: but it does have a right to the use or employment of the vessel to carry cargoes on voyages at its direction, subject, of course to the specific terms of the charter party, which may impose certain limitations in this regard".

An important question that naturally flows from this case is how to quantify the value of the charterer's interest in the vessel. There has been no judicial decision on this point. However, one view is that the value of the right is equal to the hire to be paid multiplied by the remaining duration of the charter party.

Thus, should the charterer not secure the claim, the claimant would be able to apply to the court for the sale of that charterers' interest in and to the vessel to a third party. The third party would acquire rights against the head charterer/owner and the charterer would be divested of its rights. The charterer would however be obliged to continue to pay the hire of the vessel to the owner/head charterer.

It has not been decided what the value of the interest is in cases where the charter party provides that the charterer is entitled to cancel the charter party in the event of there being an arrest.

A charterer's interest in a vessel can either be arrested for proceedings to be commenced in South Africa or as security for proceedings, including an arbitration in another country that has commenced or has yet to commence.

The Snow Delta decision is an important one as it plugs the gap of charterers' liability. That is the situation where shipowners are held to account for their transgressions but where charterers can commit similar transgressions with relative impunity.
The decision in the Snow Delta is being taken to the Supreme Court of Appeal.

The interest attached is not an ownership interest, nor a possessory interest, but "consists of the right which (the charterer) enjoys against the vessel owner to have the goods carried in that specific vessel ...".