The Owners of the MV Silver Star v Hilane Limited

Hilane Limited (Hilane) was the owner of the ship Sheng Mu. On 6 July 2011, it concluded a voyage charterparty on the Gencon form with Phiniqia International Shipping LLC (Phiniqia) for the carriage of coking coal from Bandar Abbas, Iran to Vizag, India. Disputes arose when Phiniqia requested two sets of bills of lading and later requested delivery without production of bills of lading, both requiring letters of indemnity (LOIs). The first bill of lading remained with Golden Waves FZC (the shipper/unpaid seller). When Golden Waves was not paid, it arrested the Sheng Mu in New Zealand. Phiniqia failed to honour its indemnity obligations. Hilane obtained an arbitration award in London against Phiniqia. Hilane then sought to enforce its claims by arresting the Silver Star in Port Elizabeth as an associated ship to the Sheng Mu. Action Partner Limited, registered owner of the Silver Star, applied for release of the vessel. The application was dismissed by Eksteen J in the Eastern Cape High Court.

• Whether a claim based on an arbitration award can support an associated ship arrest under s 3(6) and (7) of the Admiralty Jurisdiction Regulation Act 105 of 1983
• Whether claims for indemnity under letters of indemnity given pursuant to charterparty obligations constitute maritime claims 'in respect of' a ship for purposes of associated ship arrest
• Whether on the facts the requisite association was established between the Sheng Mu and the Silver Star

The appeal was dismissed with costs, including costs of two counsel where employed. The arrest of the Silver Star as an associated ship was upheld.

An arbitration award relating to a maritime claim is itself a maritime claim under s 1(aa) of the Admiralty Jurisdiction Regulation Act 105 of 1983, and where the underlying claim arose in respect of a particular ship, the award remains a claim in respect of that ship for purposes of associated ship arrest. Claims for indemnity under letters of indemnity furnished pursuant to core charterparty obligations (such as issuing bills of lading and delivering cargo) are maritime claims against the charterer in respect of the chartered vessel. The deeming provision in s 3(7)(c) places charterers liable for maritime claims in the same position as owners for purposes of associated ship arrest. Association may be proved by circumstantial evidence showing common control of the relevant companies, and evasive or implausible denials will not create a genuine dispute of fact sufficient to defeat proof of association on the balance of probabilities.

Wallis JA observed that a constitutional challenge to the associated ship arrest provisions under s 25 of the Constitution (protection against arbitrary deprivation of property) could be raised but expressed the academic view (from his prior writing) that such a challenge should not succeed. However, he noted this was not the occasion to definitively determine that issue as no constitutional challenge was advanced. Wallis JA also noted that if Action Partner's argument were correct, claimants would lose the right to proceed in rem merely by complying with contractual arbitration obligations, which would be a strange and undesirable result that could lead to claimants resisting arbitration to preserve juridical advantages.

This case provides important guidance on the scope of associated ship arrests under the Admiralty Jurisdiction Regulation Act. It clarifies that: (1) arbitration awards relating to maritime claims remain connected to the ship concerned and do not lose their maritime character; (2) claims on indemnities given pursuant to core charterparty obligations (issuing bills of lading, delivering cargo) are maritime claims in respect of the chartered vessel; (3) the deeming provision in s 3(7)(c) places charterers in the same position as owners for association purposes; (4) courts will look through corporate structures to determine actual control, particularly where responses are evasive or implausible; and (5) the associated ship provisions are designed to make liability fall where it belongs by reason of common ownership or control, and should be interpreted to give effect to that purpose.