THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

JUDGMENT

Case number: 222/07
Reportable

In the matter between:

UNITED ENTERPRISES CORPORATION
FIRST APPELLANT
MV “WISDOM C”

SECOND APPELLANT

and

STX PAN OCEAN COMPANY LIMITED                            RESPONDENT

CORAM:
SCOTT, FARLAM, CLOETE, COMBRINCK JJA et
HURT AJA

HEARD:
26 FEBRUARY 2008

DELIVERED:
27 MARCH 2008

SUMMARY:
Shipping – application to set aside arrest – exceptio rei judicatae not
available where previous arrest set aside because prima facie case not established –
application for countersecurity – applicant must show genuine and reasonable need for
security.

Neutral citation: This judgment may be referred to as United Enterprises
Corporation v STX Pan Ocean Company Ltd (222/07) [2008]
ZASCA 21 (27/03/08).

__________________________________________________

FARLAM JA

INTRODUCTION
[1] The first appellant, United Enterprises Corporation, a company
incorporated in accordance with the company laws of the Marshall Islands, is
the owner of the second appellant, the MV ‘Wisdom C’, a bulk carrier
registered in the Republic of Panama. The respondent is STX Pan Ocean
Company Limited, a company incorporated in accordance with the company
laws of South Korea, which carries on business as a charterer of vessels.

[2] The appeal is from a judgment of Cleaver J, sitting in the Cape High
Court, who dismissed an application brought by the appellants for orders (i)
setting aside the arrest of the second appellant at the instance of the
respondent and (ii), in the alternative, directing that the respondent furnish
counter-security in respect of the first appellant’s claim against the respondent
in arbitration proceedings in London. The judgment of the court a quo has
been reported: see MV Wisdom C: United Enterprises Corporation v STX Pan
Ocean Co Ltd 2008 (1) SA 665 (C).

[3] On 6 July 2006 the respondent obtained an ex parte order for the
arrest of the second appellant in terms of s 5 (3) of the Admiralty Jurisdiction
Regulation Act 105 of 1983 (which I shall call in what follows ‘the Act’). The
arrest was for the purposes of providing security for the respondent’s
counterclaim in arbitration proceedings in London. In those proceedings the
first appellant is claiming from the respondent payment of money allegedly
due to it in terms of a charterparty and damages suffered by it (a) in
consequence of the alleged repudiation of the charterparty by the respondent
and (b) in consequence of damage allegedly done to the second appellant’s
crane by servants or agents of the respondent. The respondent has in turn
instituted a counterclaim against the first appellant and it was in order to
obtain security for this counterclaim that the arrest was effected.
Subsequently the first appellant provided a letter of undertaking to the
respondent and the second appellant was allowed to sail. In terms of s 5
(3)(b), read with s 3 (10)(a)(i) of the Act, the second appellant is deemed to be
under arrest.

[4] The appellants then sought to set aside the deemed arrest of the
second appellant and the discharge in terms of s 5 (2)(d) of the Act of the
security provided by the appellants to the respondent. In the alternative they
sought, inter alia, an order that countersecurity be provided by the respondent
in respect of the first appellant’s claims in the arbitration.

[5] The grounds on which the appellants relied in support of the contention
that the deemed arrest be set aside and the security discharged were:

(a)
that previous arrest proceedings in Italy gave rise to a defence based
upon the exceptio rei judicatae which prevented the respondent from
causing the second appellant to be arrested under s 5 (3) of the Act to
obtain security for its counterclaim in the arbitration;

(b)
that the respondent failed to adduce admissible evidence in its
founding affidavit to prove that it had a prima facie case in respect of its
cause of action in its counterclaim in the arbitration; and

(c)
that the respondent had failed to comply with the obligation resting on it
as a litigant seeking ex parte relief to make a full disclosure to the court
of all material facts and circumstances which might have influenced the
decision of the judge hearing the ex parte application.

The Res Judicata Point
[6] The first ground relied on was based on the fact that the respondent
had previously, in March 2006, obtained ex parte an order for the
conservatory arrest of the second appellant to provide security for its
counterclaim from the court at Gorizia in Italy, which order was revoked on 8
April 2006. An appeal against the revocation of the order was dismissed on
the ground that, as the second appellant had left Italian waters by the time the
appeal was heard, the respondent was unable to prove the existence and
duration of its interest to act. The appeal was dismissed without the merits of
the matter being considered. The judge who revoked the arrest did so
because, so he held, the facts on which the respondent’s claim was based

appeared
‘under
the
present
circumstances
altogether
vague
and
unsubstantiated’. (The relevant portion of the judgment of the Italian court on
the point is set out at 670F-I of the reported judgment of the court a quo.)

[7] It is clear that the Italian court did not make a decision on the merits but
gave a judgment which if it had been given in a South African court would
have amounted to absolution from the instance. (In this regard I agree with
what the learned judge in the court below said in para 18 of his judgment at
675B-H.)

[8] There was a dispute between the experts on Italian law whose
affidavits were filed by the parties as to whether the decision of the Gorizia
court which revoked the arrest order was final, or whether it would have been
open to the respondent to present a further petition in an Italian court for the
arrest of the second appellant based on new points of fact or law even if such
points had already existed when the original order was made. (The
contrasting opinions of experts are summarised at 671A to 672F of the
reported judgment.)

[9] It was common cause before us that Cleaver J, following Laconian
Maritime Enterprises Ltd v Agromar Lineas Ltd 1986 (3) 509 (D), was correct
in applying the lex fori. It is clear that in our law a defendant who has been
absolved from the instance cannot raise the exceptio rei judicatae if sued
again on the same cause of action: see Grimwood v Balls (1835) 3 Menz 448;
Thwaites v Van der Westhuyzen (1888) 6 SC 259; Corbridge v Welch (1892)
9 SC 277 at 279; Van Rensburg v Reid 1958 (2) SA 249 (E) at 252B-C;
Herbstein and Van Winsen, The Civil Practice of the Supreme Court of South
Africa, 4 ed, 1997, 544 and 684. It was held in African Farms and Townships
Ltd v Cape Town Municipality 1963 (2) SA 555 (A) at 563G-H that the
dismissal of an application (which ordinarily would be regarded as the
equivalent to granting absolution from the instance: Municipality of Christiana
v Victor 1908 TS 1117, Becker v Wertheim, Becker & Leveson 1943 (1) PH
F34 (A)) can give rise to the successful raising of the exceptio rei judicatae
where, regard being had to the judgment of the court which dismissed the

application, ‘the import of the order [was] clearly that on the issues raised the
Court found against the appellant [which had been the applicant in the
previous proceedings], and in favour of the respondent’. It is thus clear that it
is not the form of the order granted but the substantive question (did it decide
on the merits or merely grant absolution?) that is decisive in our law and that
what is required for the defence to succeed is a decision on the merits.

[10] In view of the fact that the court a quo correctly found, as I have said,
that the effect of the judgment in the Gorizia court was to absolve the
respondent from the instance, it follows that whether or not a fresh application
for a security arrest would, in the absence of new facts or points of law which
arose after the dismissal of the first Italian application, be competent in Italy is
irrelevant for our purposes, because the judgment of the Italian court cannot
be regarded as a judgment on the merits.

THE ALLEGED FAILURE TO MAKE OUT A PRIMA FACIE CASE IN THE
FOUNDING AFFIDAVIT
[11] The second ground relied on by the appellants in their attack on the
judgment of the court a quo was based on the failure by Ms Reyna Soni, the
respondent’s attorney who deposed to the founding affidavit in the arrest
application, to identify the persons who were the sources of her knowledge as
to the events and circumstances surrounding the termination of the charter
party. The appellants’ counsel recognised that s 6(3) of the Act provides for
the admission of ‘statements which would otherwise be inadmissible as being
in the nature of hearsay evidence’ but contended that, before s 6(3) can
apply, what they called ‘the ultimate source of any hearsay statement’ had to
be identifiable. In support of this submission they referred, inter alia, to
Southern Pride Foods v Mohidien 1982 (3) SA 1068 (C) at 1071D to 1072B.

[12] A similar argument based on the Southern Pride decision and the
cases cited in it was rejected by this court in Cargo Laden on Board the MV
Thalassini Avgi v MV Dimitris 1989 (3) SA 820 (A) at 842B-D where Botha JA
said:
‘I do not, however, agree with the argument nor, with respect, with the remarks in the

unreported judgment [Elsden Shipping Lines (Holdings) Ltd v Atlantic Fisheries & Shipping Co
Ltd, CPD, 21 March 1986] which tend to support it. In my opinion it is quite clear that the
Legislature intended, by enacting s 6(3), to sanction a departure in admiralty cases from the
general practice of the courts in other cases in regard to receiving hearsay statements in
evidence. The object of the Legislature is placed beyond doubt by the use of the expression
“which would otherwise be inadmissible”. Counsel’s attempt to cut down the effect of that
expression by confining its operation to cases which are not of an interlocutory nature rests
on pure speculation as to the Legislature’s intention and is wholly unwarranted. Although the
prerequisites in other cases to which counsel referred, such as urgency and the disclosure of
the source of the information, are matters which will no doubt be taken into consideration in
the exercise of the discretion conferred by s 6(3), I can perceive no justification for thinking
that the Legislature contemplated compliance with such prerequisites as a condition requiring
fulfilment before the exercise of the discretion can come into play.’

[13] Lower down on the same page Botha JA, at 842G-H, in a passage
cited by Cleaver J (at 679C-D), said:
‘Accordingly, in my view, the general approach to be adopted in the application of s 6(3)
should be lenient rather than strict; the Court should, speaking generally, incline to letting
hearsay statements go in and to assess the weight to be attached to them under s 6(4) when
considering the case in its totality; and a decision to exclude such statements should normally
be taken only when there is some cogent reason for doing so.’

[14] Another complaint raised by the appellants on this part of the case was
based on the fact that Ms Soni said that she had been given her information
by Mr Nick Graydon, an English solicitor dealing with the arbitration on behalf
of the respondent, who had in turn been instructed by the manager of the
insurance and legal department of the respondent, who had in turn been
given information by unnamed and unidentified officers and servants of the
respondent. In my view this complaint is answered on the facts of this case by
what was said by Scott JA in The MT Tigr: Owner of the MT Tigr v Transnet
Limited 1998 (3) SA 861 (SCA) at 868H-I, a passage cited by the court a quo
(at 678A-C), namely:
‘In admiralty cases the evidence tendered and accepted by the Courts for the purpose of
establishing a prima facie cause of action is almost invariably of a hearsay nature. Even
“double hearsay” evidence from an undisclosed source has been accepted for this purpose
(see the MV Thalassini Avgi case supra at 841C-843D). It follows that the level of the test
applied is, generally speaking, a low one even in the type of applications for attachment or
arrest to which reference has just been made.’

[15] The appellants contended that Ms Soni’s founding affidavit also fell
short of establishing a prima facie case because she had contented herself
with the bald statement that the charterparty had been repudiated by the first
appellant without proving the facts from which the court could assess whether
there had in fact been a repudiation. It was conceded that the requisite facts
which were missing from the founding affidavit were contained in Ms Soni’s
replying affidavit filed in reply to the first appellant’s affidavit stating why the
arrest should be set aside but it was argued that on this part of the case the
respondent had to stand or fall by what was said in its founding affidavit.

[16] In my opinion the authorities are decisively against this submission. In
Transol Bunker BV v MV Andrico Unity; Grecian MAR SRL v MV Andrico
Unity 1987 (3) SA 794 (C) at 799H-I, in a passage specifically approved by
Botha JA in the Thalassini Avgi decision, at 834F-G (and incidentally cited by
the court a quo at 678, fn 14) Marais J said:
‘It would serve no good purpose to set aside an arrest, knowing full well that a sound basis for
the arrest does indeed exist, merely because the party who obtained the order failed to rely
upon it initially. It would ordinarily simply result in a new application for arrest being launched
in which precisely the same issue would have to be considered. That is manifestly wasteful of
both time and money.’

Similar considerations clearly apply here.

THE ALLEGED MATERIAL NON-DISCLOSURES AND MISSTATEMENTS
[17] The third ground of complaint related to what were alleged to be
material non-disclosures and misstatements contained in the founding
affidavit in the arrest application. In this regard the appellants relied on the
rules set forth in Schlesinger v Schlesinger 1979 (4) SA 342(W) at 348E-
349B, which have been approved on several occasions by this court (see, eg,
National Director of Public Prosecutions v Basson 2002 (1) SA 419 (SCA) at
428I-429B),  namely that all material facts must be disclosed which might
influence a court in coming to its decision and the withholding or suppression
of material facts by itself entitles a court to set aside an order even if the non-
disclosure or suppression was not wilful or mala fide.

[18] The non-disclosures and misstatements of which the appellants
complained were the following:
(1)
The respondent failed to set out the basis upon which the first
appellant’s claims were being prosecuted in the arbitration, in that

(i)
it did not mention that the first appellant alleged in the arbitration that
the respondent was not entitled to make the deductions from the hire
payable under the charterparty because it had not provided proper
supporting statements in respect of the deduction it claimed (as was
required under clause 29 of the charterparty); and

(ii)
it did not mention that the first appellant alleged in the arbitration that
the second appellant could have taken on bunkers at the port of Mina
Saqr in the Persian Gulf and indeed did so (a fact which was relevant
in the context of the first appellant’s termination of the charterparty).

(2)
The respondent did not properly describe the nature and effect of the
Italian proceedings.

(3)
The respondent failed to describe accurately what had taken place
during the negotiations between the parties with regard to the provision of
security once the dispute between the parties had manifested itself.

[19] As was pointed out by the respondent’s counsel, it is important to note
that the appellants did not contend that if any of the alleged non-disclosures
had not occurred there was a reasonable prospect that the judge would not
have ordered the arrest of the second appellant nor was an explanation given
as to how the alleged non-disclosures and misstatements might have
influenced the judge’s decision to order the arrest.

[20] As far as the first complaint is concerned I am satisfied that the
respondent’s submissions in the arbitration, which were annexed to the
founding affidavit, contained sufficient information to convey to the judge what
she required to know for the purpose of deciding that the respondent had

made out a prima facie case in respect of its claim.

[21] The appellant’s second complaint, regarding what was said about the
Italian proceedings, is dealt with by Cleaver J at 681D-682C of his judgment.
The passage in the founding affidavit which the appellants criticised is set out
at 681D-F. As Cleaver J said, the description of the proceedings was terse
but, save in one respect, accurate. The inaccuracy to which he referred, and
on which the appellants’ counsel placed great emphasis, was the statement
that:
‘(t)he court of final instance in Italy declined to determine an appeal against the order of the
court of first instance, on the basis that the vessel had left its jurisdiction by the time the
appeal was to be determined and that Applicant [ie, the present respondent] as appellant
therefore had no material interest enforceable by the appeal court.’

[22] As appears from what was said earlier about the Italian proceedings
the correct position was that the court of final instance in fact dismissed the
appeal without considering the merits because, so it was held, the respondent
had no material interest in the appeal. I am satisfied in the circumstances that
Cleaver J correctly held that the misstatement was not material.

[23] Cleaver J’s reasons for rejecting the appellant’s third complaint against
the founding affidavit are set out at 682C-683B. I agree with them and have
nothing to add.

THE CLAIM FOR COUNTERSECURITY
[24] I turn now to consider the appellant’s alternative claim for
countersecurity. The appellants’ case as far as this claim is concerned is set
out in para 42 of the judgment of the court a quo (at 686H-687G). In summary
they rely on the following facts:
(1)
The first appellant has no security for its claim;

(2)
If the first appellant is successful in the arbitration, it will have to launch
proceedings in South Korea to enforce an award in its favour, which
proceedings may take up to three years;

(3)
Although the respondent is one of the world’s largest carriers, owning
43 vessels, although its financial results for the second quarter of 2006
reflected assets valued at US$1,3 billion and although its vessels call at South
African ports on a regular basis, there is no guarantee as to what its financial
position will be in the future, the shipping industry being notoriously volatile.

[25] In my view Cleaver J was correct in holding (at 687D-E) that the first
appellant’s claim for security ‘is in fact based on a consideration of
convenience’. This means that the first appellant does not have what has
been described in many of the cases under s 5(2)(b) and (c) and (3) of the Act
as a genuine and reasonable need for security. Counsel for the appellants
submitted, however, that, though it is clear on the authorities that an applicant
for security under s 5(3) of the Act has to establish that security is needed and
that such need is ‘genuine and reasonable’ (see, eg, the Thalassini Avgi
decision at 832I-833A), the need for countersecurity in an application under s
5(2)(b) and (c) should not be set so high. In this regard it was submitted that
the discretion conferred by s 5(2)(b) is broader than that conferred by s 5(3).
This is because, so it was argued, unless countersecurity is ordered ‘one
party, if successful, will have security instantly available upon the conclusion
of the arbitration’, while the other party, if it is successful, will not have that
advantage. Counsel relied in this regard on the recent judgment of MD
Southwood AJ in the MV Gladiator: Samsun Corporation t/a Samsun Line
Corporation v Silver Cape Shipping Ltd, Malta 2007 (2) SA 401 (D), where the
learned judge, after a full analysis of the authorities, came to the conclusion
that though an applicant for countersecurity under s 5(2)(b) and (c) had to
show a need for such countersecurity, a requirement that such need be
shown to be ‘both genuine and reasonable’ would ‘lead to the loss of flexibility
which the Legislature intended . . . and thus hamstring the Court in the
exercise of its power’ (at 424F-G). He stated that there were, as he put it,
obvious differences between the approach adopted by Hurt J in The Yu Long
Shan: Guangzhou Maritime Group v Dry Bulk SA 1987 (2) SA 454 (D) at
463E-F and that laid down in cases decided by the Cape High Court, viz
Devonia Shipping Ltd v MV Luis (Yeoman Shipping Co Ltd Intervening) 1994
(2) SA 363 (C) at 374B-C; The Catamaran TNT: Dean Catamarans CC v

Slupinski (No 1) 1997 (2) SA 383 (C) at 394C-E; MV Heavy Metal: Belfry
Marine Ltd v Palm Base Maritime Sdn Bhd 2000 (1) SA 286 (C) at 298D-I;
The MV Rizcun Trader (4): MV Rizcun Trader v Manley Appledore Shipping
Ltd 2000 (3) SA 776 (C) at 804I-J; and MV Akkerman: Fullwood Shipping SA
v Magna Hellas Shipping SA 2000 (4) SA 584 (C) at 592B-F.

[26] It is noteworthy that MD Southwood AJ recognized (at 410G-H) that ‘s
5(2)(b) requires for its application that there is a need for security. The
Legislature’, he continued, ‘could never have meant the Court to order
security if there is no need for it.’ (Hurt J, in the passage to which MD
Southwood AJ referred, also proceeded from the premise that the need for
counter-security had to be established.) It is difficult to see how a need which
is not ‘genuine’ can be regarded as a need at all. It is also not clear to me why
a need which is not reasonable should be taken into account in the exercise
of a discretion to order countersecurity. I agree in this regard with Cleaver J’s
statement (at 686E-F) that ‘(t)he difference in approach may well be nothing
more than one of semantics for it seems that it will be difficult to identify the
difference in practice’ but if there is a difference, I prefer the approach
followed in the Cape.

[27] In the circumstances I am satisfied that Cleaver J correctly decided not
to exercise his discretion in regard to countersecurity in favour of the first
appellant and that the attack on this part of his judgment also must fail.

The following order is made:
The appeal is dismissed with costs.
…………….
IG FARLAM
JUDGE OF APPEAL
CONCURRING
SCOTT

JA
CLOETE

JA
COMBRINCK
JA
HURT

AJA

THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA

MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM:
The Registrar, Supreme Court of Appeal

DATE:
27 MARCH 2008

STATUS:
Immediate

Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.

In a decision delivered today the Supreme Court of Appeal dismissed an appeal
brought by United Enterprises Corporation, a company incorporated in the Marshall
Islands, and the MV ‘Wisdom C’, a bulk carrier registered in the Republic of Panama,
against a judgment delivered by Mr Justice R Cleaver in the Cape High Court in
favour of a South Korean company, STX Pan Ocean Company Limited.

The Supreme Court of Appeal held that the dismissal of a previous application of
STX Pan Ocean Company Limited to have the vessel arrested in Italy to provide
security for a claim which was the subject of arbitration proceedings in London did
not prevent a further security arrest of the vessel in Cape Town because the dismissal
of STX Pan Ocean Company Ltd’s earlier application had not amounted to a decision
on the merits. The Supreme Court of Appeal also held that the Cape High Court had
correctly dismissed United Enterprises Corporation’s application for countersecurity
because it had not shown that it had a genuine and reasonable need for security.