United Enterprises Corporation v STX Pan Ocean Company Limited

The first appellant, United Enterprises Corporation (a Marshall Islands company), owned the second appellant, the MV 'Wisdom C' (a Panamanian registered bulk carrier). The respondent, STX Pan Ocean Company Limited (a South Korean company), was a charterer of vessels. On 6 July 2006, the respondent obtained an ex parte order for the arrest of the MV 'Wisdom C' under s 5(3) of the Admiralty Jurisdiction Regulation Act 105 of 1983 to provide security for its counterclaim in London arbitration proceedings. The first appellant had instituted arbitration proceedings against the respondent claiming money due under a charterparty and damages for alleged repudiation of the charterparty and damage to the vessel's crane. The respondent filed a counterclaim in those proceedings. The first appellant provided a letter of undertaking and the vessel was allowed to sail but remained deemed under arrest. The vessel had previously been arrested in Italy in March 2006 by the respondent for the same purpose, but that arrest was revoked on 8 April 2006 by the Gorizia court on the basis that the facts were 'vague and unsubstantiated'. An appeal was dismissed without considering the merits because the vessel had left Italian waters.

• Whether the previous Italian arrest proceedings gave rise to an exceptio rei judicatae preventing the South African arrest
• Whether the respondent established a prima facie case in its founding affidavit for the arrest order
• Whether the respondent failed to make full disclosure of material facts in the ex parte application
• Whether the appellants were entitled to countersecurity under s 5(2)(b) and (c) of the Admiralty Jurisdiction Regulation Act

The appeal was dismissed with costs. The arrest of the MV 'Wisdom C' remained in place (deemed arrest) and no countersecurity was ordered.

The binding legal principles established are: (1) In admiralty arrest proceedings, where a foreign court has set aside a previous arrest without deciding the merits (equivalent to absolution from the instance), the exceptio rei judicatae does not prevent a subsequent arrest in South Africa; South African law (lex fori) applies to determine the effect of the foreign judgment. (2) Section 6(3) of the Admiralty Jurisdiction Regulation Act permits hearsay evidence, including double hearsay from undisclosed sources, in admiralty proceedings; courts should adopt a lenient rather than strict approach and generally admit such evidence, assessing its weight under s 6(4). (3) Deficiencies in a founding affidavit for an arrest order can be remedied by a replying affidavit where it would be wasteful to set aside the arrest when a sound basis for it exists. (4) An applicant for countersecurity under s 5(2)(b) and (c) of the Act must establish a genuine and reasonable need for such security; mere convenience or theoretical future enforcement difficulties are insufficient where the respondent is financially sound. (5) A party seeking to set aside an ex parte order for material non-disclosure must show how the non-disclosure might have influenced the court's decision.

Farlam JA acknowledged the different approaches to countersecurity adopted by the Durban High Court (in MV Gladiator) and the Cape High Court, preferring the Cape approach requiring genuine and reasonable need, but observed that 'the difference in approach may well be nothing more than one of semantics' and that 'it will be difficult to identify the difference in practice'. The court also noted, without deciding, that the shipping industry is 'notoriously volatile' in terms of financial stability, but held this was insufficient on the facts to establish need for countersecurity given the respondent's substantial assets.

This case is significant in South African admiralty law for: (1) clarifying the application of the exceptio rei judicatae in admiralty arrest proceedings where a previous arrest was set aside for failure to establish a prima facie case (such decisions are treated as absolution from the instance, not decisions on the merits); (2) confirming the lenient approach to hearsay evidence in admiralty proceedings under s 6(3) of the Admiralty Jurisdiction Regulation Act, including acceptance of double hearsay; (3) establishing that deficiencies in founding affidavits for arrest can be cured by replying affidavits to avoid wasteful re-litigation; (4) setting out the test for countersecurity, requiring genuine and reasonable need rather than mere convenience; and (5) applying lex fori (South African law) to determine the effect of foreign judgments in admiralty proceedings.