Credit Europe Bank N.V v The an Admiralty Fund Comprising the proceeds of the sale of the mv Tarik III & Others

The Supreme Court of Appeal (SCA) handed down judgment in Credit Europe Bank N.V v The Admiralty Fund Comprising the proceeds of the sale of the mv Tarik III & Others on 13 October 2022. This case dealt with a number of important issues that are unique to admiralty law, namely, the lodgment of claims against the Admiralty Fund; the nature of a claim against the an Admiralty Fund; the role of a referee and the impact of its recommendations set out in the report; and the claimant’s onus of proof to prove its claim. The case answered the question of whether or not a claimant who has a claim against a demise charterer should arrest the vessel in rem after the High Court has ordered it to be sold by a judicial sale.

The mv Tarik III was arrested by Credit Europe Bank N.V (Credit Europe) on 26 May 2014. In effecting the arrest, Credit Europe relied on s1(3) (the deeming provision) of the Admiralty Jurisdiction Regulation Act of 1983 (AJRA), which states that for the purposes of an action in rem, a demise charterer will be deemed to be, or to have been, the owner of the ship (the guilty ship) for the period of the demise charterparty.

Credit Europe brought an application to have the vessel sold by a judicial sale. The High Court granted the order to sell the vessel in terms of s9 of the AJRA on 5 December 2014 (the Order of Sale).

The vessel was sold by judicial auction on 4 February 2015.

Credit Europe alleged that the demise charterparty had been terminated by the time of the Order of Sale. This position would result in the claims of various bunker suppliers who had supplied bunkers to the mv Tarik III, while the vessel was under demise charter to the demise charterer, Caliskan Ic Ve Dis Ticaret Sanayi A.S (the demise charterer), not being paid by the Admiralty Fund created by the proceeds of the sale of the mv Tarik III.

Two questions were before the SCA: Firstly, was it necessary for a claimant, in this instance, the opposing suppliers, to have arrested the vessel in rem in order to lodge a claim against the Admiralty Fund arising from its reliance upon the deeming provision? Secondly, did each individual claimant against the Admiralty Fund bear the onus of proving that its claim was valid and enforceable against the Admiralty Fund?

The SCA answered the first question in two parts. It first determined that the Admiralty Fund took the place of the vessel concerned, and that any claim against the vessel should be made against the an Admiralty Fund after the Order of Sale. The SCA determined that once the an Admiralty Fund had been established, all claimant proceedings were stayed, and would have to be determined in accordance with the procedure set out in the Order of Sale.

The Court held that when a ship is sold in terms of section 9(1) of the AJRA based on the arrest founded on the deemed ownership of the demise charterer. the Admiralty Fund that is created (in terms of ss 9(2) and 3(11(a)(ii)), read with the deeming provision, is a an Admiralty Fund that is deemed to be the property of the demise charterer in terms of s3(11)(b), in respect of claims that are capable of proof based upon the liability of the demise charterer.

The provisions of s 3(11)(a)(ii) that deem the Admiralty Fund to be the property that was sold, constitutes an important link in the process that ultimately allows claimants to obtain payment in satisfaction of their claims from the an Admiralty Fund. Absent the Admiralty Funds being deemed to be owned by the demise charterer, there would be no basis for the parties with claims based on the in personam liability of the demise charterer to receive payment from the an Admiralty Fund. The Court stated that the Admiralty Fund’s ability to satisfy the claims for payment founded on the in personam liability of the demise charterer goes to the very heart of the purpose of the order in the matter before the Court.

The Court held that by the operation of s 10A(1), read with 10A(2), all proceedings in respect of claims which are capable of proof for participation in the distribution of the Admiralty Fund were stayed on the day the High Court ordered that the vessel concerned should be sold by judicial auction in terms of s.9 of the AJRA (the Order of Sale); and that any proceedings which still needs to be instituted to prove such claims, could no longer be instituted by way of an arrest of the vessel, but by way of procedure set out in the Order of Sale.  Ponnan J quoted the following, with approval:

It is not necessary for a claimant to have to institute an action or, where property has been sold, to proceed against the Admiralty Fund or to proceed to judgment before being entitled to have its claim taken into account in the distribution of the fund.”

The Court continued:

“… It would be an equally purposeless technicality to insist that a vessel be arrested … after a sale has been ordered. … Once the order has been made for the sale of the vessel, with all the claims being stayed as at that date and the procedure prescribed as set out in the order for the proof of all claims against that vessel, the legislature could not have intended that after that point in time, the vessel still had to be arrested to prosecute a claim, let alone to bring the deeming provision into operation”.

In conclusion on this point:  The SCA has confirmed that it is not necessary to arrest a vessel in rem, once the sale of the vessel has been ordered by the Court exercising its admiralty jurisdiction in terms of the AJRA; all proceedings are stayed; and a claimant must thereafter follow the procedure, set out in the Order of Sale and AJRA and lodge a claim against the an Admiralty Fund. I agree with this conclusion.

In answering the second question, the SCA delved into the facts of the case, which for purposes of this commentary is not necessary.

The Court took into account the direct evidence put forward by the opposing suppliers that a demise charterparty existed at the time of the Order of Sale. There was no direct evidence or any basis on the papers put forward by Credit Europe on which the Court could disregard the opposing parties’ direct evidence that a demise charter was in existence at the time of sale. The Court described Credit Europe position on the papers as “conjectural hypothesis” which did not amount to a genuine dispute of fact.

The Court appeared to hold the position that if there was no dispute between a claimant (the opposing suppliers) and the deponent owner (demise charterer), or the owner of the vessel, as the case may be, in relation to the claim lodged against the an Admiralty Fund, then despite the argument made by another claimant (Credit Europe), there would be no dispute of facts that would be required to be determined.

The position of Credit Europe was seen as being akin to that of a defendant who alleges that a contract relied upon by the plaintiff is cancelled. In those circumstances, there is no comprehensive rule on the onus of proof in civil proceedings, which is inflexible and free from exceptions that may arise from practical considerations. Credit Europe bore the onus to put up facts to prove the allegations that it relied upon, namely, that the demise charterparty was terminated prior to the Order of Sale. If Credit Europe did not agree with the Referee’s report (which found that the demise charterparty had not terminated by the time of the Order of Sale), it was then burdened to prove its version on application to the Court. It was not for the opposing suppliers’ to be burdened with a negative, namely, that the demise charterparty had not terminated.

The Court also considered the role of the Referee’s report prepared in terms of the AJRA to support this position and readily acknowledged that the Court is not bound by the Referee’s report but in this instance “[could not] see how the reasoning of the Referee [could] be faulted.”

The Court took into account the procedure in terms of Admiralty Rule 21(8), and prescribed by the Order of Sale, in terms of which the Referee dealt with the respective parties’ claims. Each party had to lodge their claims against the Admiralty Fund with the Referee; each had an opportunity to object to each other’s claims; and that Credit Europe had indeed lodged an objection to the opposing suppliers’ claims, which was duly considered by the Referee.

The opposing suppliers had proven their claims in the ordinary manner as prescribed by the Order of Sale and Admiralty Rule 21(8). Credit Europe was unable to put up direct evidence of when the demise charterparty terminated or by what mechanism the charterparty was terminated. The competing expert opinions on the operation of Turkish law that could not be resolved on the papers. Credit Europe had not requested that the matter be referred to oral evidence.

A minority judgement highlighted the functions and role of the referee and the court, and that the court, or any of the interested parties, are not bound by the referee’s recommendations. Gorven JA relied on Admiralty Rule 21(8) (c) to support his position that it is the Court that makes orders concerning ‘the payment of any funds, proceeds or amounts…’ Gorven JA identified the Referee as the ‘initial sorting agent’, and summarised the function of the Referee as follows:

The reason for this role of the [R]referee is clear. It matters such as this there are often multiple claims. Along with this comes the need to sort and rank them for the purpose of payment out of a fund that cannot satisfy them all. …  If this was done in a number of actions brought by the various claimants separately, it would be extremely difficult to ensure that the claims of the claimants ranked appropriately.”

As to the nature of a claim lodge against the an Admiralty Fund Gorven JA  stated that:

A claim remains a claim and only a claim until it is pronounced on by a court of law. If claims are unchallenged, that operates as a kind of informal admission by the other claimants to the court of the provence of those claims. In those circumstances, the report of a [R]eferee recommending an order for payment of those claims generally results in the [C]ourt granting such an order.

However, where a claim is disputed, it must be proved in the normal course. …

The acceptance or otherwise by the [R]eferee did not mean that the claim has been proved. …”

Gorvan JA held in relation to the issue of who bore the onus:

This simply means that an applicant seeking an order that excludes the claim of a claimant bears no onus to disprove a claim, which the applicant disputes. The applicant whose claim is disputed bears the onus to prove the claim as would be the case if it instituted its own action against the an Admiralty Fund.

Having determined that opposing suppliers bore the onus to prove their claim, which included proving that the demise charterparty was not terminated at the time of lodging their claim against the an Admiralty Fund, Gorvan JA held that there was no way of determining the factual dispute on the papers, and noted that the opposing suppliers did not ask for the matter to be referred to oral evidence, and concluded that “[w]ithout evidence … the onus becomes decisive. This resulted in the opposing suppliers having failed to prove their claims against the [Admiralty] Fund…

The dissenting judgment of Gorvan JA concerning question 1 in relation to the role of a Referee; the nature of a claim lodged against the Admiralty Fund; and the onus on the claimant to prove its claim, even if agreed to by the Referee, in circumstances where another claimant opposes that claim, is correct. Gorven JA dissented to the majorities’ finding in question 1. Gorven JA held that when a claim is disputed by another claimant, the claimant whose claim is disputed needs to prove its claim. In these circumstances, the claimant with the disputed claim is not being asked to prove a negative, it is merely been asked to prove its claim.

Despite the Court’s decision of Ponann JA, we recommend that a claimant always be on its guard: it must lodge its claim against the an Admiralty Fund in compliance with the provisions of the AJRA and Order of Sale, and if opposed by another claimant on application to the High Court, defend its claim as if it bore the onus to prove its claim.

On my reading of the judgment of the SCA, there was sufficient direct evidence put forward by the opposing suppliers, without recourse to expert evidence on Turkish law, to establish that the demise charterparty was in existence at the time of the Order of Sale. The conclusion reached by the majority of the SCA on the facts is correct.

Another take-away from this judgment is that the SCA appeared to interpret the provisions of the AJRA in a manner that gives effect to the AJRA to deal with admiralty matters in an expeditious and efficient manner, free from undue formalism and technicalities. Claimants who participate in lodging their claims against an Admiralty Fund expect the referee to deal with its claim swiftly, and for the referee report to be dealt with by the Court without delay. Most, if not all claimants would be bewildered if they faced the prospect of extensive and protracted litigation in relation to the Admiralty Fund. The stance adopted by Credit Europe appeared to weigh on the Court that has sought to maintain South Africa as an efficient admiralty jurisdiction.