South Africa: Associated ships and the consequence of staying silent

Over the past decade or so, it has become popular for parties to challenge ship arrests by asking the court to ‘reconsider’ the original order for arrest. This procedural remedy may be utilised by any party on the receiving end of a court order granted in their absence in an urgent application.

The remedy is straightforward in that it permits the affected party to set the matter down, on notice, for reconsideration by the court as soon as the order has been handed down. The procedure lends itself to ship arrest applications for security, in particular, because invariably the application is brought on an urgent basis without notice to the vessel or her owners.

In certain instances, the ‘reconsideration’ application offers a distinct tactical advantage because the affected party is not obliged to file an answering affidavit to rebut the allegations put up in the arresting party’s founding affidavit. Instead, it is at liberty to attack the arrest simply on the grounds that the arresting party failed to meet the requirements for the arrest on its own papers.

The applicant for reconsideration is also fortified by the fact that it is settled law in South Africa that the court may not draw an adverse inference from the failure to file an answering affidavit. The burden of proving association between vessels remains on the arresting party throughout.

Issue for determination

The difficult question that arises in the case of associated ships, however, is how should the court assess the evidence put up by the arresting party in the founding papers in the absence of countervailing evidence in an answering affidavit?

Evidence of association

In the case of the mv Haralambos, Hengedeli Deyesion sought security for London arbitration proceedings in a claim against the owners of the mv Argentina arising from a breach of the charterparty between the owners and Hengedeli Deyesion (as charterers).

The arrest was premised on the common ownership and/or control of the two vessels by the Vafias Group, through its dry bulk arm, Brave Maritime Corporation Incorporated, which was alleged to be owned and/or controlled ultimately by Mr. Harry Vafias.

In support of the case for association, the founding affidavit presented an array of evidence to establish a connection between the Vafias Group/Brave Maritime and the vessels in question, such as:

• Shipping directories linking the two vessels to Brave Maritime, as well as a common address.

• Debit notes issued by the ship owning entities indicating a connection between the companies.

• Information contained in Lloyd’s List Intelligence Sea Searcher reports.

• The hire invoices for both vessels, which bore an identical signature.

• The charterparty for the mv Argentina being based on the mv Haralambos pro forma.

• Disclosures in documents filed by the Vafias Group with the Securities and Exchange Commission in the US stating that Brave Maritime is "a company controlled by members of the Vafias family."

• Email correspondence from the owner’s shipbroker describing the mv Argentina as the ‘sister vessel’ of the mv Haralambos.

Approach to the evidence

Faced with these and other allegations of fact in relation to association between the vessels, the ship owning entities cited in the arrest application set the matter down for reconsideration without filing an affidavit to challenge the factual assertions in the founding papers.

Accordingly, the Supreme Court of Appeal (SCA) was required to weigh up the evidence to determine whether proof of association had been established on a balance of probabilities in the absence of any countervailing evidence.

The SCA was also required to contend with the findings of the High Court, which had set aside the arrest at first instance. The High Court found, amongst other things, that although Harry Vafias played a significant part in the direction of the two entities, the evidence did not show that he had unilateral power to direct them. It also found that it was insufficient simply to allege that there is a family connection between different entities without establishing, as a matter of fact, that the family connection constituted common control.

By adopting the approach taken in the mv Heavy Metal and mv Silver Star cases, the SCA confirmed that proof of a single repository of power does not demand formal documentary proof of shareholding or directorship. Where the ship-owning companies are incorporated in a jurisdiction that does not require public disclosure of share registers, the controlling person may be identified through an accumulation of credible circumstantial evidence, without the production of the corporate records themselves.

Moreover, the SCA reiterated that the courts accept records from Lloyd’s List Intelligence and investigative reports to prove control. The Lloyd’s report in the present case reflected, for example, the Vafias Group as the beneficial owner of mv Haralambos.

The court also endorsed earlier SCA cases which held that that family control (of the kind prevalent in Greek shipping) constitutes a cognisable form of control, if established on the facts.

In summing up the position on the evidence, the SCA held:

"Our courts have consistently held that control may be inferred from a group of factors, including common management, shared corporate officers, fleet branding, financing arrangements, and the use of common ship managers. Where such evidence points to a unified commercial operation, the absence of direct rebuttal evidence from the shipowner may tip the balance in favour of association.’"

No countervailing evidence

An important backdrop to the mv Haralambos case was the finding in another SCA judgment two years earlier in a reconsideration application (mv New Endeavor), where the court held that a failure to file an answering affidavit was ‘not without consequences.’

In the mv Haralambos, the SCA gave content to those consequences. Where the facts bearing on association are exclusively within the knowledge of the respondent shipowner, less evidence is required of the arresting party to discharge its onus.

What this means is that where the respondent owner elects not to place any countervailing evidence before the court, the arresting applicant’s prima facie case is assessed at its full weight, undiminished by any competing version. In those circumstances, a prima facie case that is accepted by the court as credible and reliable will ordinarily constitute proof on a balance of probabilities.

Significant outcome

The judgment is a significant milestone in the evolution of the law on associated ship arrests in South Africa.

It provides litigants with clearer direction on how courts must assess evidence of association in the founding papers in a reconsideration application and will doubtless require parties to approach the tactical decision of whether to file an answering affidavit with caution when challenging an arrest.

Jeremy Prain is a Partner at African law firm Bowmans, which represented the successful applicant, Hengedeli Deyesion International Shipping Limited in this matter.