The applicant, Credit Europe Bank NV, arrested the MV Tarik III to recover sums advanced to the demise charterer, Caliskan Ic ve Dis Tic San AS (Caliskan), a Turkish company, which was assigned the rights and obligations under a charterparty with the respondent shipowner, Garanti Finansal Kiralama AS, a Turkish financier. The sums were advanced to finance the purchase of coal which was subsequently discharged and fraudulently delivered to Caliskan instead of the applicant. The applicant applied for the sale of the ship pendente lite. Bunkernet Ltd, which had obtained a judgment for outstanding sums owed for marine gasoil supplied to the ship, intervened in the action and sought its sale to satisfy the judgment.

The applicant referred to s 1(3) of the Admiralty Jurisdiction Regulation Act no 105 of 1983 which provided that, for an in rem action, a demise charterer shall be deemed to be the owner for the charter period. The respondent opposed the sale on the basis that it would amount to an arbitrary deprivation of its property prohibited by the Constitution, because s 9(1) read with s 1(3) of the Act meant that an owner’s ship could be sold in satisfaction of claims against the demise charterer. It submitted that s 9 must be interpreted so that it does not permit the sale of the arrested ship unless the arrest was based on an in personam claim against the owner.

Held: Leave granted to intervene and sale of the ship and constitution of a fund ordered.

Right of arrest

The deeming provision in s 1(3) is not one that can be rebutted. It does not provide that the demise charterer is deemed to be the owner unless the contrary is proved. The respondent’s interpretation would be inconsistent with and negate the deeming provision, which is also found in the 1952 and 1999 Arrest Conventions (see arts 3.4 and 3.1.b respectively). There is a close commercial connection between the owner and the demise charterer. The owner allows the charterer to use the ship for the duration of the charter as if it is the owner. It is the charterer who (amongst others) contracts with the shippers of cargo and the suppliers of goods to the ship. Shipowners know that the ship can be arrested for certain liabilities of the demise charterer, which indemnifies the owner against this eventuality. The admiralty provisions are aimed at assisting creditors to obtain payment without difficulties relating to jurisdiction and security for their claims.

Order for sale

The court’s discretion in ordering a sale pendente lite is wide. On the present facts, the ship is the only security available for the applicant’s claim. Further, the demise charterer has effectively abandoned the ship and is bankrupt. The ship’s value will continue to diminish while it lies idle. The mounting cost of preserving the ship reduces the creditors' security for their claims. The applicant’s arbitral proceedings are unlikely to be finalized before the end of next year, by which time the cost of preserving the ship (which will be a first charge against her) will be substantial. In addition, the three other creditors who arrested the ship all support the ship’s sale.

The intervening party is in a different position. It does not seek the sale of the ship pendente lite. It seeks satisfaction of the judgment in its favour. The judgment was obtained pursuant to an action in rem where neither the ship nor its owner or the demise charterer entered an appearance. In those circumstances the judgment can only be enforced against the ship and the court has little choice but to order the sale.