Jeremy Prain March 8 2023 Claims against bareboat charterers and effects of insolvency Bowmans | Shipping & Transport - South Africa Jeremy Prain Shipping & Transport IntroductionFactsDecisionCommentIntroductionWhen dealing with bankrupt ship owners, there is a fine line between the law of insolvency and admiralty in South Africa. While maritime creditors enjoy wide ranging rights to arrest and sell ships in the jurisdiction to satisfy their claims, as soon as an application is filed at court for the winding up of the ship owner, the property falls into the insolvent estate and under the control of a liquidator. Any arrest or attachment of a ship after the court filing for the winding up of the owner is void. The result is that the maritime claimant must stand in line with the general body of creditors without direct recourse to the vessel itself.Where then does that leave a maritime creditor who arrests a ship for a claim against an insolvent bareboat charterer? This question came before the High Court in Cape Town in the matter of Andre Van Niekerk v mv Madiba I.(1)FactsOn 14 March 2018, Mr Van Niekerk arrested the passenger ferry "Madiba I" in Table Bay Harbour while operating between Cape Town and Robben Island. He had been closely involved in the construction of the ship and had part-financed its conversion from an offshore supply vessel to a ferry. The financing took the form of a loan to the ship's bareboat charterer, Meltt (Pty) Ltd; a company contracted by the Robben Island Museum to operate a passenger ferry service.After Meltt defaulted on repaying the loan, Van Niekerk commenced an admiralty action in rem against the Madiba I based on, among other things, his claim against Meltt, as bareboat charterer, under the loan agreement.The claim was premised on section 1(3) of the Admiralty Jurisdiction Regulation Act (the Admiralty Act), which provides that a charterer by demise (ie, bareboat charterer) is deemed to be, or to have been, the owner of the ship for the period of the charter by demise for the purposes of an action in rem.Following the arrest, the owner of the Madiba I, Isocorp Investments (Pty) Ltd, stepped in and provided security by way of cash in an escrow account so that the ship could be released from arrest and continue trading. Isocorp then proceeded to defend the claim in the main action.The litigation proceeded in the ordinary course until it came to the attention of the parties that another of Meltt's creditors had, in fact, filed an application for the winding up of Meltt about a week before the commencement of the in rem proceedings.This realisation prompted Isocorp to apply to the court for leave to introduce special defences (or special pleas) on the grounds that Van Niekerk's arrest of the Madiba I null and void. The essence of the argument was that when an application for the winding up of a bareboat charterer is filed at court, the ship that is the subject of the charter (and is deemed to be owned by the bareboat charterer) falls into the insolvent estate of the bareboat charterer and under the control of the charterer's liquidator. Thus, any subsequent arrest or attachment by a maritime creditor is void as per section 359(1)(b) of the Insolvency Act.DecisionAs is apparent from the judgment, however, the court was not inclined to extend the boundaries of the ordinary language of section 1(3) in so far as it relates to the insolvency of the bareboat charterer. The judge held as follows.First, the factual context of the Madiba I was materially different from a case of the winding up of a ship owner. Meltt, as the demise charterer, was not the owner; it was only deemed to be the owner in the sense provided for in section 1(3) of the Admiralty Act (the deeming provision).The deeming provision had to be construed with due regard to the intended object of its enactment, this being the intention to give maritime creditors the right to arrest a ship for debts incurred by a party that appears to be the de facto owner. The provision should not be construed to treat a charterer by demise as if it were the real or actual owner in all respects. To do so would lead to unintended consequences.There is nothing in the Admiralty Act to support the notion that the subsistence of a demise charter-party displaces the owner's proprietary rights in the vessel while the contract is in place.The arrest of the vessel did not result in the attachment of the charterer's property. It was the real owner's property that was arrested and thereby rendered liable to be sold to provide a fund, not the charterer's. Moreover, the arrest of the vessel did not bring an end the charterparty under the Insolvency Act, but rather gave Meltt's liquidators an election to decide whether to continue with the contract or to determine it.The deeming provision was introduced to place a third party (ie, the actual owner of the chartered vessel) at risk for the charterer's maritime claim debts in relation to the chartered vessel. It was not put in place for the benefit of the general body of creditors in the charterer's insolvent estate should the charterer be wound-up through an inability to pay its debts.CommentIt can be concluded from the judgment that the winding-up of a bareboat charterer has no bearing on the rights of a maritime creditor to arrest the ship concerned (or an associated ship) for debts incurred by the charterer.The finding in Madiba I is an important addition to the jurisprudence on the extent to which the language of section 1(3) of the Admiralty Act can be stretched. The judgment should be helpful to maritime claimants and legal practitioners alike in framing the proper construction and meaning of the provision and right to pursue claims against bareboat charterers in South Africa.For further information on this topic please contact Jeremy Prain at Bowmans by telephone (+27 21 480 7800) or email ([email protected]). The Bowmans website can be accessed at www.bowmanslaw.com.Endnotes(1)  ZAWCHC 152.