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IN THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
In the matter
of:
BELFRY MARINE LIMITED
Appellant
and
PALM BASE MARITIME SDN
BHD.
NAME OF SHIP: MV “HEAVY
METAL” Respondent
CORAM: SMALBERGER, NIENABER,
MARAIS JJA,
MELUNSKY and FARLAM AJJA
DATE OF HEARING: 8 March 1999
DATE OF DELIVERY:
31 May 1999
/MARAIS JA:. . .
MARAIS JA:
[1] I have had the benefit of reading the
judgments of Smalberger JA and Farlam AJA. I agree with Smalberger JA that the
appeal
should be dismissed but I reach that conclusion for substantially
different reasons. However, I agree with Farlam AJA’s judgment
in all
respects other than his assessment of the facts (to which I shall return) and
his ultimate conclusion as to the fate of the
appeal. I commence by adding
some observations of my own. It will appear from them where I am in respectful
disagreement with
Smalberger JA.
[2] As regards the question of whether
there was a breach by the seller of the Sea Sonnet of its obligation under
clause 11 of the
memorandum of agreement before ownership of the vessel passed
to the buyer, I emphasise that the moment of delivery marked the expiration
of
the period of time which was available to appellant to fulfil the obligation.
Notification simul ac semel with delivery was not what the contract
required. Notification prior to delivery was required. If that did
not take place prior to delivery then ex hypothesi the failure to fulfil
the obligation occurred prior to delivery and before ownership of the vessel had
passed to the respondent.
[3] On the question of whether or not the owner of
a guilty ship has still to own it before an associated ship can be arrested, I
think a comparison with sec 3 (7)(a)(ii) is instructive. The plain language of
the provision shows that what is envisaged is a
person who had the power to
control at the time when the maritime claim arose (but does not necessarily
still have the power to control)
a company which owned the guilty ship, and that
he owns another ship at the time action is commenced. It follows that
notwithstanding
the fact that he no longer controls the company which owned the
guilty ship, his own ship may be arrested irrespective of when he
acquired it.
It seems quite plain that the words “who controlled the company which
owned the [guilty] ship . . . when the
maritime claim arose” cannot be
interpreted as meaning “who controlled and still controls the
company which owned the [guilty] ship . . . when the maritime claim
arose”. What warrant is there then for interpreting
sec 3 (7)(a)(i) as
meaning “who was and still is the owner of the [guilty] ship . . .
at the time when the maritime claim arose”? Surely none. In both
instances there is
no longer any existing bond between the two ships. If that
does not matter in a claim based on sec 3 (7)(a)(ii) I see no justification
for
saying that it matters in a claim based on sec 3 (7) (a)(i). I might add that
a close study of the provisions of subsections
(7)(a)(i), (7)(a)(ii) and
(7)(a)(iii) will show that they would make little sense if the owner of the
guilty ship had still
to own it before an associated ship could be
arrested.
[4] As to the interpretation of sec 3(7)(b)(ii), I supplement
Farlam AJA’s discussion of the problem with the following
comments.
When the legislature decided to provide the alternative remedy of
an action in rem against an associated ship with ownership as a criterion
for association, it realised that account would have to be taken of well-known
mechanisms whereby the benefits of ownership are retained but ownership itself
is not. That is why ownership is not the only criterion
for association and
power to control is also included as a determinant of association. The way in
which this was done was, first,
by describing in sec 3 (7)(a)(i), (ii) and
(iii) the circumstances in which ships were to be regarded as associated, and,
secondly,
by enacting certain deeming provisions in sec 3 (7)(b)(i), (ii) and
(iii) which are obviously designed not only to defeat defensive
stratagems which
ship owners might deliberately deploy to ward off potential arrests of
associated ships by disguising their ownership
or their control of such ships,
but also to allow it to be shown even in a case where no such motive existed
where power of control
really lay.
[5] Subparagraph (i) of sec 3
(7)(a) required the ship sought to be arrested to be owned at the time of
commencement of action by
a person who owned the guilty ship when the maritime
claim arose. Subparagraph (ii) required the ship sought to be arrested to
be
owned at the time of commencement of action by a person who controlled the
company which owned the guilty ship when the maritime
claim arose.
Subparagraph (iii) required the ship sought to be arrested to be owned at the
time of commencement of action by a
person who owned the guilty ship, or who
controlled a company which owned the guilty ship when the maritime claim
arose.
[6] The deeming provisions in sec 3 (7)(b)(i) enable a claimant to
equate the position of a person who holds, or persons who together
hold, the
majority of the shares in a ship, or the majority of voting rights attaching to
the shares in a ship, or the greater part
in value of the shares in a ship with
that of a sole owner of a ship. For example, if x was the sole owner of ship A
(the guilty
ship) and there is another ship, B, in which there are sixty-four
shares of which x owns thirty, y twenty, and z ten, ship B in
its entirety is
deemed to be owned by x even although it is not in fact so owned. It seems
clear that dominance of ownership in
a situation of divided ownership, or
dominance of control in such a situation, or dominance in the relative values of
respective
shareholdings, is considered to be the justification for equating the
situations.
[7] The deeming provision in sec 3 (7)(b)(ii) is obviously
intended to operate in tandem with sec 3 (7)(a)(ii) and (iii) and, for
that
matter, with sec 3 (7)(b)(iii) which provides that a company includes any other
juristic person and any body of persons irrespective
of whether or not any
interest therein consists of shares. Sec 3 (7)(b)(ii) provides that “a
person shall be deemed to control
a company if he has power, directly or
indirectly, to control the company”. Here again the legislature seems to
me to be
more concerned with where the power to control a company actually
resides than with where it may appear to reside. In my opinion,
the manifest
purpose of the provision is to enable claimants to penetrate protective facades
such as nominee shareholdings and demonstrate
that real power to control the
company lies in other hands where such is in fact the case. And if the real
situs of power to control is the criterion, as I consider it to be, I see
no justification for saying that it is only open to a claimant
to demonstrate
where it lies and that it is not open to the targeted ship’s owner to do
so.
[8] I think that the untenability of interpreting the provision as if it
was not concerned with the real situs of power to control and was
intended to permit a claimant to arrest even a third party’s ship which
was not consciously connected
in any way with the guilty ship appears when the
following example is considered. Assume it to be common cause between the
parties
to an application for arrest that the sole shareholder and director of a
company which owns an allegedly associated ship is a mere
nominee and that there
is a beneficial shareholder on whose instructions he acts. Which of them has
power to control the company
within the meaning and for the purposes of sec 3
(7)(b)(ii)? The answer cannot be both. If it can only be one of them, I fail
to see why it must or should or could be taken to be the nominee and not the
beneficial owner. The provision accords no arbitrary
priority to the nominee
in such a case. As I see it, the provision does not give the claimant a choice
as to which of the two it
best suits him to have regarded as having the power to
control the company. The purpose of the provision is not to create a fiction
which could place innocent third parties in jeopardy of having their ships
arrested to secure payment of claims brought against persons
or ships of whose
existence they were quite oblivious. That would be tantamount to naked
confiscation without compensation - a
purpose which one shies away from
attributing to the legislature unless that is unmistakably what it intended.
Its purpose is to
allow a claimant to pierce the veil of apparent or ostensible
power to control a company and so reveal the identity of the real holder
of
power to control the company.
[9] There is another consideration. If it is
so, as I consider to be the case, that the provision postulates that the direct
and
indirect power to control a company of which it speaks cannot co-exist
simultaneously, and if it were so, as Thring J held, that
as soon as it is shown
that there is a person who holds the majority of the shares in a company that
person is deemed, for the purposes
of the associated ship provisions, to control
the company directly irrespective of whether or not he is a mere nominee, it
would
mean that the question of indirect control could never arise for it would
be irrelevant. It would mean too that a claimant who
wished to prove that in
fact power to control the company lay with someone else,
would be
forestalled at the outset. That would defeat the very purpose of the
provision.
[10] It is of course so that the subsection distinguishes between
direct and indirect power to control a company. But that tells
one very
little. It begs the question which remains: was the legislature merely
distinguishing between two manifestations of real power to control,
either of which would suffice to trigger the operation of the deeming provision,
or was it saying that direct power
to control includes both real power to
control and apparent (but illusory) power to control, and that the existence of
either will
suffice to trigger its operation, but that in the case of indirect
power to control, only the existence of real power to control
will trigger its
operation? If the latter, the inconsistency of its approach is immediately
apparent.
[11] I am unable to appreciate why it is thought that the
distinction between direct and indirect power to control drawn by the
legislature
would be set at naught and fulfil no purpose if the beneficial owner
of the shares in a ship-owning company threatened with the arrest
of its vessel
as an allegedly associated ship were permitted to show that the registered owner
of the shares was merely his nominee.
On the contrary; it would be an
invocation of the distinction to show that what might appear to be direct power
to control is not
in fact real power to control because there is someone else in
whom power to control actually resides, namely, the beneficial shareholder
who
exercises it indirectly.
[12] I am equally unable to agree that it would
have been open to the beneficial owner of the shares in such a situation to show
that the registered shareholder is a mere nominee if the legislature had spoken
simply of the “power to control” in the
section, but that it is not
open to him to do so because the legislature speaks of “power, directly or
indirectly, to control”.
Had the words “power to control”
been used, it might well have been contended on the strength of the majority
decision
in Barclays Bank Ltd v Inland Revenue Commissioners [1961] AC
509 (HL) that the existence of a power behind the throne was irrelevant. In my
view, the inclusion of the words “directly
or indirectly” was
intended to emphasise that the true situs of power to control, whether it
be direct or indirect power, is what matters for the purposes of the provision.
However, I agree
with Smalberger JA that it is not power to manage the
operations of the company but the power to determine its direction and fate
which is what counts.
[13] I cannot subscribe to the proposition that, if
the interpretation of the provision favoured by Smalberger JA should result in
a
third party who has no connection whatsoever with the guilty ship other than
that he happened unwittingly to use as his nominee
to hold shares in his
ship-owning company a person who also holds as a nominee all the shares in the
company which owns the guilty
ship, losing his company’s ship, that is his
fault for “choosing to operate behind a cloak of secrecy.” There
is nothing inherently immoral, unethical, or reprehensible in nominee
shareholdings. The reasons why they may be resorted to in
good faith are
legion and the interpretation to be given to the provision cannot be grounded
upon an assumption that there must always
be some or other disreputable purpose
lurking behind their use.
[14] I do not think that anything can be learnt
from what is thought to be a contrast in the provision between the exercise of
power
de jure and its exercise de facto. To illustrate: to say
that power exists only de facto carries with it the implication that it
does not exist de jure. If it is a fact that a board of trustees is so
spellbound by the personality of the founder of a trust that they always do his
bidding even though they are not obliged to do so in law, then the founder has
power de facto, but not de jure, to control the trust. If, on
the other hand, a company’s shares are all held by a nominee who has
agreed with the beneficial
owner to always do his bidding, the beneficial
owner’s power to indirectly control the company does not exist merely
de facto; it exists de jure. In other words, it is an
enforceable power which he has in law and not merely in fact. Power de
jure to control a company can thus exist directly or indirectly and should
not be confused with the entirely separate and distinct rules
of law which
govern the relationship between a company and its registered shareholders and
delineate the powers of its shareholders.
As between the company and the
person who is registered as the holder of the majority of its shares, the person
so registered has
power de jure to control the company even although he
is a mere nominee. But non constat that the beneficial
shareholder’s power to control directly his nominee and thereby indirectly
the company is merely power
de facto. In short, it is fallacious, in
my opinion, to always equate indirect control with control de facto. I
think the truth of the matter is that, depending on the facts of each particular
case, indirect control may be exercised sometimes
de facto and sometimes
de jure. Whether the deeming provision must be read as extending to
indirect power which exists only de facto, but not de jure, it is
not necessary to decide. What seems to me to be plain is that it must extend
at least to indirect power which exists de jure.
[15] It is in the
assessment of whether there is adequate proof of the facts which must exist
before the existence of indirect control
can trigger the provisions which would
result in the Sea Sonnet and the Heavy Metal being taken to be associated ships
that I differ
from Farlam AJA. In the context of this case (in which it
ultimately became virtually common cause that Lemonaris was a mere nominee)
what
respondent had to prove on a balance of probability was that appellant company
(“Belfry Marine”) was controlled
indirectly when action was
commenced by the same person or persons who controlled indirectly the company
(Dahlia Maritime Limited)
(“Dahlia”) which owned the Sea Sonnet when
the maritime claim arose. It is not necessary to be able to name that person;
it would be sufficient to prove that, whoever he or she or it or they may be, it
is one and the same person. In the present case
respondent did attempt to
provide a name albeit in a highly speculative manner. And it is so, of course,
that inability to prove
who the person is may diminish the prospect of
ultimately succeeding in proving that the same person has power to indirectly
control
both companies. But, in a given case, it may yet be possible to prove
it. All will depend on the particular facts.
[16] In considering the
evidence contained in the affidavits one is of course bound to apply the
principles set forth in the case
of Plascon Evans Paints Ltd to which
Farlam AJA has referred. However, as the extract from the judgment quoted by
him shows, a court will not necessarily be
hamstrung by a respondent’s
denials of facts in motion proceedings. In my view a highly unusual
situation arises in this
case. There is a welter of circumstantial evidence
pointing very strongly indeed to Lemonaris, whether he knows it or not, being
subject in his capacity as majority shareholder and sole director of both
companies to the ultimate control and direction of the
same person or persons.
I say “whether he knows it or not”, because Lemonaris himself says
the instructions of beneficial
owners to nominees “are often given through
intermediaries”. There is the fact that both companies have the same
nominee
and sole director; that their addresses are the same; that both ships
were managed (if not operated) by Brave Maritime Corporation
Inc (“Brave
Maritime”); that the Greek Shipping Directory shows the operating
address for both vessels to be the address
of Brave Maritime; that the managing
director of Brave Maritime was said in a published list of Piraeus Shipping
Offices to be Mr
Nikolaos Vafias; that he is the registered holder of 10% of
the shares in Belfry Marine; that there is a fleet of vessels managed
by Brave
Maritime, many of which have musically related names such as the names of
popular rock music bands. Heavy Metal is such
a name. There are also two
vessels in the fleet named Sea Muse and Sea Concert. The “guilty”
ship is named Sea Sonnet.
[17] When one of the vessels in that fleet was
arrested in another jurisdiction in respect of a claim relating to another ship
in
the fleet on the ground that it was an associated ship, security was
established by Brave Maritime. When one examines the response
to this powerful
array of evidence pointing in the direction of commonality of control one is
struck by the evasiveness which permeates
it. The pattern consists of some
specific and, to my mind, selective and limited denials in instances where the
facts enabled denials
to be made but, for the rest, of either diversionary
strategies or argumentation as to what the value was of evidential material
placed before the court by respondent. Thus, the allegation that security had
been provided by Brave Maritime when an arrest of
a ship in the fleet was made
on the strength of it being an associated ship of another ship in the fleet, was
not denied; instead
it was met with a bald contention that it was inadmissible
evidence of similar facts. The allegations concerning commonality of
control
contained in certain well-known publications which circulate in the shipping
industry were dismissed as hearsay; some peripheral
allegations were singled out
as not being in accordance with the true facts but, for the rest, no attempt was
made to counter the
allegations by setting out fully the true state of
affairs.
[18] In appellant’s first answering affidavit Lemonaris
declined to name the beneficial owner of either Dahlia or Belfry Marine
but
failed to explain why his principals should have any objection to disclosure.
When respondent took him to task for doing so,
he filed a further affidavit in
which he claimed that he had been authorised since to disclose the name of the
principal (Mr Nikolaos
Tsavliris) in Dahlia but persisted both in refusing to
disclose the identity of his principal in Belfry Marine and in providing no
reason whatsoever for the insistence upon non-disclosure. All that he was
prepared to say was that it was not Tsavliris, the person
he had disclosed as
being his principal in Dahlia. This despite the fact that it was Belfry
Marine’s ship and not the Sea
Sonnet which had been arrested and was in
danger of being lost.
[19] No affidavit from Tsavliris was filed and no
explanation for the failure to file such an affidavit was given. No
explanation
was given of who holds the shares in Whichita Maritime and Trading
Inc which is said to own 48% of the shares in Dahlia. As to the
remaining 52%
of the shares in Dahlia, they were said to have been held at the time of the
sale of the Sea Sonnet by Lemonaris as
nominee for Carnation Finance Inc which
was owned by Nikolaos Tsavliris. It was said that Tsavliris had since (the
date is not
disclosed) sold his entire shareholding in Carnation Finance Inc to
an individual known to Lemonaris but whose identity he claimed
to be unable to
disclose. He asserted that Tsavliris had “no interest” in the
Heavy Metal “as owner or otherwise”.
However, he failed to
disclose who held the shares in Heritage Sea Carriers Ltd of Monrovia which in
turn held 30% of the shares
in Belfry Marine. Despite his admission that Brave
Maritime had managed the Sea Sonnet and his denial that it operated it, he
failed to disclose who did operate it.
[20] Finally, notwithstanding the
foreshadowing in correspondence which passed between the attorneys for the
parties while affidavits
were being prepared, of the production of documents
which would disprove the alleged association, virtually nothing in the way of
any such documentation was produced.
[21] I do not think that a litigant in
motion proceedings who resorts to this kind of response in the face of a
powerful circumstantial
showing that, on the probabilities, whoever ultimately
had the power to control the company which owned the guilty ship also has
the
power to control the company which owns the ship sought to be arrested as an
associated ship, can shelter behind the principles
laid down in the case of
Plascon-Evans Paints Ltd . In a few words, such an approach should not
be regarded as giving rise to a genuine dispute of fact.
[22] Accordingly,
I concur with the majority of the Court that the appeal should be dismissed with
costs, including the costs of
two counsel.
_____________________
R M MARAIS
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