FISHING INDUSTRY NEWS – OCTOBER 2014


NEW WRECK REMOVAL REGIME FOR SOUTH AFRICA

 

Since vessels have had the ability to sail around the tip of Africa, the Southern African coast line has become the resting place for many a vessel, predominantly due to our traditionally dangerous seas.

As such the ability of South African authorities to prevent wreck situations or to efficiently remove ships wrecked or stranded on our coastline is of paramount importance to the preservation of our coastline, the marine environment and our marine resources.

It would therefore come as a surprise to the lay person that the existing legislative powers which SAMSA have with regard to wreck removal are contained only in one section of the Wreck and Salvage Act (WSA) which section comprises of only half a page. Section 18 of the WSA is the relevant section in question. Not only is it scant in detail regarding SAMSA’s wreck removal powers but it contains a glaring anomaly which seriously detracts from SAMSA’s powers of wreck removal.

For instance in a situation where a vessel loses dangerous cargo over board such as containers or heavy logs, according to Section 18(2) SAMSA may only take measures to remove such cargo from the sea if it has been unable to contact the owner of such cargo. In most cases SAMSA would be in a position to contact the owners and once contacted, SAMSA would therefore not have the legislative authority to remove such cargo from the water in order to prevent a hazard to navigation or a hazard to other users of our coastline.

Another element of our current legislation which is lacking is a uniform set of rules and procedures which clearly define and set out what constitutes a wreck/hazard, and exactly what process should be followed for its removal. More importantly being able to finance or recover the costs of such removal has often been a problem for SAMSA in the past. A prime example of this is the MV “Seli 1” which ran aground off Table View. SAMSA have been unable to recover their wreck removal costs from either the vessel owner or her insurers.

Enter the Nairobi International Convention on Removal of Wrecks (“NC”). The solution to the current hiatus in our wreck removal regime should hopefully come from the incorporation of the NC into South African Law. The NC was adopted by a diplomatic conference held in Kenya in 2007, and is an instrument to fill a gap in the existing international legal framework by providing the first set of uniform international rules ensuring prompt and effective removal of wrecks located beyond the territorial sea. Although its primary purpose was for wrecks located in the EEZ beyond the territorial sea, the convention provides that when ratifying or acceding to such convention, the NC can also apply to the territorial sea (up to 12 nautical miles).

The convention enters into force internationally 12 months from the date on which 10 states have signed or ratified the convention. In this regard the convention will enter into force on the 14th of April 2015 following Denmark’s ratification thereof on the 14th of April 2014. From a South African perspective a government press release dated the 7th of November 2013 has indicated Cabinet’s intention to ratify the convention and to give it effect within South Africa by incorporating it into our law. The most practical and expedient way of incorporation of the NC would be the amendment of the current WSA.

When incorporating the NC into our legislation it is vital that the NC is extended to apply in our territorial waters as this is predominantly where wreck removal situations arise.

The main advantages of incorporating the NC into South African Law are:

  •  Article 5 provides for a specific procedure for the reporting of wrecks by the Master or Operator of the vessel which includes information relating to the precise location of the wreck; the type, size and construction of the wreck; the nature of damage and the condition of the wreck; the nature and quantity of the cargo and whether or not it is hazardous or noxious and the amounts and types of oils, including bunker oil and lubricating oil on board;
  • Article 6 sets out detailed criteria for the coastal state to determine whether a wreck poses a hazard. These criteria include inter alia the types and size of the wreck; depth of water; currents in the area; proximity of shipping routes/traffic lanes; nature and quantity of wreck’s cargo; vulnerability of port facilities; proximity of offshore installations, pipe lines, etc and then a general criterion being any other circumstances that might necessitate the removal of the wreck.
  •  Articles 7 and 8 provide for the affected coastal state to warn mariners and states concerned of the nature and location of the wreck, and provides for reasonable steps to be taken to mark the wreck appropriately should it constitute a hazard.
  •  Article 9 is one of the most important sections of the NC as it sets out detailed measures to facilitate the removal of wrecks. It plugs the current lacuna in Section 18 of our WSA (referred to above). It specifically provides for the obligation of the registered owner to remove the wreck which constitutes a hazard and for the state to lay down conditions for such removal. If the removal is not affected then the state can intervene and remove the wreck to the extent necessary. The state however must give a reasonable deadline for compliance by the registered owner.
  •   Also of importance Article 10 makes provision for the liability of the owner for the costs of locating, marking and removing the wreck but also provide defences to such liability in the event of the wreck being:  “as a result of an act of war etc” … “or as a result of a natural phenomenon of an exceptional, inevitable and irresistible character” – this particular exception may be problematic as it appears extremely vague. A further defence would be if the wreck was wholly caused by the negligence or other wrongful act of any government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function – this may also be a problematic section for the state when incorporating into South African law.
  •  The most important article in the NC from a “Seli 1” perspective is article 12 which provides for compulsory insurance or other financial security. In terms of this article vessels which are entering or leaving a port in the state territory must have insurance or other security (i.e. a bank guarantee) to cover liability for wreck removal under the NC in an amount not exceeding the limitation of liability regime set out in the Convention on the Limitation of Liability for Maritime Claims of 1976. This provision is accordingly balanced in that it provides for much needed compulsory insurance/financial security for wreck removal in respect of vessels entering or leaving our ports (i.e. vessels which could potentially pose a threat to our coastline) and at the same time provides for a limit of liability for the ship owner. This may be a question which our government may have to debate as currently Section 18 does not have any limit of liability on the owner of wrecked vessels. We may also want to extend the need for security to other vessels who are entering our EEZ or territorial waters at least.

In summary, the NC does provide an essential tool which South Africa needs to incorporate into its legislative regime. The key will be to what extent amendments are made to the NC when incorporating into our law and whether or not these amendments will be acceptable to the P&I Clubs/Insurers of vessels which navigate our waters. It is ultimately the insurers and financial institutions who must put up security in terms of the NC in order to avoid a “Seli 1” scenario.



FISHING INDUSTRY NEWS – AUGUST 2014


FISHING INDUSTRY NEWS ARTICLE – AUGUST 2014

BEWARE OF HIDDEN CLAIMS WHEN PURCHASING A VESSEL

 

INTRODUCTION

It is a generally accepted principle of our law that in respect of moveable property such as a vessel, once the purchase price has been paid in full then on delivery of the vessel to the buyer ownership and risk passes to the buyer.

In order to protect the buyer against any encumbrances or charges against the vessel, it is usual to incorporate a warranty by the seller in the sale agreement. For instance the Norwegian sale form 2012 provides the following warranty:

“The sellers warrant that the vessel, at the time of delivery, is free from all charges, encumbrances, mortgages and maritime liens or any other debts whatsoever, and is not subject to port state or other administrative detentions. The sellers hereby undertake to indemnify the buyers against all consequences or claims made against the vessel which have been incurred prior to the time of delivery.”

As with any warranty it is only as strong as the financial strength of the seller unless (in the unlikely event) the buyer is able to obtain personal sureties from the directors or shareholders of the seller or some other financially strong parties. In addition, there may also be situations where the seller is not prepared to give such a warranty, for instance if the sale is in terms of business rescue or insolvency proceedings. Taking delivery and with it ownership of the vessel does not mean the buyer is home free.

As with the buying of a business or shares in a company, a proper due diligence needs to be undertaken. We discuss some of the dangers lurking under the surface which buyers should be aware of. The possible encumbrances vary in nature and “visibility”.

VISIBLE ENCUMBRANCES

Section 34

The first check a buyer should undertake is whether or not Section 34(1) of the Insolvency Act applies to the sale. This section provides for the publishing of a notice in the government gazette, and two issues of an Afrikaans and two issues of an English newspaper within the area, giving notice of the intended sale not less than 30 days and not more than 60 days before the date of such transfer. In the event that such notice is not published then the transfer of the vessel would be void as against creditors for a period of 6 months after such transfer, and in addition shall be void against the trustee of the seller’s estate, if his estate is sequestrated at any time within the said period.

The Insolvency Act further defines a trader as:

“any person that who carries on any trade, business, industry or undertaking in which property is sold, bought, exchanged or manufactured for purposes of sale or exchange…”

A fairly recent Supreme Court of appeal decision [McCarthy vs Gore 2007 (6) SA 366 (SCA)] has held that a transport company that sold 28 of its trucks without a Section 34 notice did not fall within the definition of a trader because it could not be said that its “core business” was that of selling property. Thus section 34 could not be applied by the liquidator of the transport company.

Whether or not a fishing company selling one of its vessel’s would fall within the definition of a trader is a delicate question. In some instances owners of fishing vessels do not have their own  fishing rights and merely act as a catching vessel for other rights holders. Accordingly their core business is not that of selling or manufacturing property but rather hiring out their catching services. However, what if the seller was a vessel owner with its own fishing rights or had contracted the fishing rights of others so that after the fish was caught on its vessel such fish was processed (manufactured) and sold. It could be argued that the core business of the fishing company was that of selling property and accordingly it could be seen to be a “trader” in terms of the Insolvency Act. Hence the sale of its vessel could be seen as a sale to which Section 34 applies with the protections set out therein being available to creditors / trustees.

Mortgage Bonds

In respect of vessels there are generally two types of mortgage bonds to look out for. Firstly, marine bonds registered in terms of the Ship Registration Act with the Registrar of Ships, and secondly special notarial bonds which are registered by a conveyancer in the Deeds Office. Marine bonds can only be registered over vessels which are registered on the ship registry whereas special notarial bonds are registered in the Deeds Office over vessels which are not registered on the South African ship registry.

Either way the prospective buyer can with relative ease establish whether there are such bonds registered by doing a search either at the Registrar of Ships or at the Deeds Office. If the vessel is delivered to the buyer with such charges still in place, then the bond holders will have recourse against the purchaser on the basis of the bonds over the vessel and in particular such bonds would empower the bond holder to take possession of the vessel and ultimately sell it in order to recover any outstanding debt which the bond was securing.

PARTIALLY VISIBLE ENCUMBRANCES

Pledge

A pledge is effectively a contractual security where a debtor pledges an asset to a creditor as security for a debt / obligation. The pledge requires an agreement between the debtor and the creditor and most importantly requires the creditor to take possession of the asset in order for the creditor to have a real right of pledge over the vessel. As such, in a sale situation the buyer would generally be able to identify that a third party other than the seller is in possession of the vessel and this would obviously raise a red flag for the purchaser prior to the paying of the purchase price in terms of the sale agreement.

Repairer’s lien

Where a repairer has carried out work on a vessel and has not been paid, such repairer would be entitled to exercise a repairer’s lien over the vessel until it was paid. The exercise of such lien requires the repairer to retain possession of the vessel. As such a buyer again should be able to identify that the vessel is in the possession of a third party other than the seller and that the seller would not be in a position to hand over delivery to the buyer.

INVISIBLE ENCUMBRANCES

These are claims or rights of third parties which are more difficult to identify as there is no public record of such charges / rights and there is no visible evidence for the buyer to pick up on. Having a look at the recent financial statements or management accounts of the vessel owning company may give an indication to a buyer that there are such claims, but this is not a fool proof due diligence enquiry.

Gear / equipment not owned by the seller

On board the vessel there could be equipment which is either subject to an instalment sale agreement or is in fact rented by the seller. Such equipment cannot form part of the sale as the seller (not being the owner thereof) would not be able to transfer ownership in these assets to the buyer. After the delivery of the vessel to the buyer, the third party owner of such equipment would have a right to vindicate the property on board the vessel.

Maritime liens

The maritime lien is a concept which is now well known by admiralty lawyers around the world with its origins officially having arisen in England in the mid nineteenth century. In essence a maritime lien is a claim which follows the vessel irrespective of ownership / possession of the vessel. This allows the creditor with amaritime lien recourse against the ship herself notwithstanding any change of ownership of the vessel. The danger for a prospective buyer of course, is that they are not aware of any such maritime liens when they pay the purchase price and take delivery of the vessel. Thereafter the vessel can be arrested by the maritime lien holder in respect of a debt due by the previous owner or perhaps an owner prior to that. The principle liens recognised under South African and English law are as follows:

  • The Damage Lien – this is a lien in respect of damage done by a ship which covers damage done to external property and injury to persons external to the vessel;
  • The Wages Lien – this is a lien in respect of seaman’s wages and also covers the master’s wages;
  • The Master’s Disbursement Lien – this is  in respect of payments made by the Master on behalf of or on an account of the ship;
  • The Salvage Lien – this is in respect of any salvage claim arising from the salvage of the vessel;
  • The Bottomry and Respondentia Lien – Bottomty and Respondentia historically is an arrangement by the Master of the ship who borrows money upon the security of the vessel where for example the ship needs urgent repairs during the course of a voyage and the Master is unable to contact the owner for funds. Where the ship.These forms of raising finance are no longer resorted to and as such these liens are irrelevant for the purposes of this advice.

As stated previously, these liens travel (like barnacles attached to the hull) with the vessel regardless of change of ownership. They can be extinguished inter alia by the discharge of the underlying indebtedness, the destruction of the ship, the underlying claim prescribing and/or by judicial sale.

What is important to note is that a judicial sale of a vessel in South Africa would be in terms of the Admiralty Jurisdiction Regulation Act and in terms of such sale all charges or debts against the vessel including liens are extinguished and the vessel is sold free of encumbrance to the purchaser. However, should the vessel be sold under insolvency or business rescue proceedings, this is not the case and such liens would continue to cling to the vessel even after such sale.

In rem maritime claims

Other than maritime liens, there are of course other claims which relate to the operation of vessels and which fall under the definition or maritime claims. In respect of such claims a maritime creditor can issue an in rem summons and arrest papers against the vessel itself. Based on the English case of the “Monica S” there is a strong view amongst South African admiralty lawyers that once proceedings in rem are commenced by merely the issue (and not service) of the in rem writ of summons, the claim then attaches to the vessel and action can proceed against the vessel by means of its arrest even after the subsequent delivery to a bona fide purchaser. A prudent buyer would carry out a writ search at the local Court adjacent to the port where the vessel operates from in order to see if any in rem papers have been issued. It is important to note that in rem papers once issued lapse after 12 months (unless extended by court order).

Regarding the above hidden claims, where one is purchasing a vessel in a foreign jurisdiction and delivery of such vessel is taking place in such jurisdiction, it is important to note that the laws relating to maritime liens, claims and potential charges against the vessel may and often do  differ from the South African and English law position. Hence a local lawyer may need to be engaged in order to advise and / or carry out a due diligence.

 CONCLUSION

Along with the inspection of the vessel to see that she is in a seaworthy condition, it is also advisable to carry out a due diligence to establish whether there are any visible or invisible charges which may prejudice the purchaser after payment of the purchase price and delivery of the vessel.