THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case no: 080/05

In the matter between:

INTERNATIONAL MARINE TRANSPORT SA
APPELANT

and

M V ‘LE CONG”

RESPONDENT

GUANGZHOU OCEAN SHIPPING COMPANY           INTERVENING

RESPONDENT
_______________________________________________________

Coram

:
SCOTT, BRAND, JAFTA, PONNAN JJA et

COMBRINCK AJA
Date of hearing :
2 November 2005
Date of delivery :
23 November 2005

Summary:  Ships owned by ‘state-owned enterprises’ established at
different levels of government in the People’s Republic of China not
‘associated’ ships within the meaning of s 3(6) of Act 105 of 1983
_______________________________________________________
JUDGMENT
_______________________________________________________

SCOTT JA/…

SCOTT JA:
[1] The appellant is a company registered and incorporated in
accordance with the laws of the Republic of Panama. It is the owner
of the mv Gaz Progress. On 12 March 2002 it applied for, and was
granted ex parte, an order in the High Court, Durban, for the arrest of
the mv Le Cong which was then at berth in the port of Durban. The
arrest was sought in terms of s 5 (3) of the Admiralty Jurisdiction
Regulation Act 105 of 1983 (‘the Act’). Its purpose was to provide
security for a claim which the appellant intended to enforce by way of
arbitration proceedings in London against Shantou Sez Chemical
Industry and Petroleum Gaz General Company (‘Shantou Sez’). The
claim was for the payment of charter hire in respect of two periods of
charter by Shantou Sez of the appellant’s vessel, the Gaz Progress.
In terms of the charterparty, disputes were to be determined by
arbitration in London and in accordance with English law. The claim is
a maritime claim within the meaning of s 1(1)(j) of the Act.
[2] The Le Cong is owned by Guangzhou Ocean Shipping
Company (‘Guangzhou’). When the appellant’s claim arose Shantou
Sez was the charterer by demise of the Gaz Progress. By reason of
the provisions of s 3(7)(c) of the Act, Shantou Sez is accordingly

deemed to be the owner of the Gaz Progress for the purposes of the
associated ship provisions contained in s 3(6) of the Act. The basis
upon which the arrest of the Le Cong was sought and granted was
that both Shantou Sez and Guangzhou were ‘state-owned
enterprises’ of the People’s Republic of China and that the Le Cong
and the Gaz Progress were accordingly associated ships within the
meaning of s 3(6).
[3] Subsequently, on 20 March 2002, a letter of undertaking on
behalf of Guangzhou was furnished to the appellant and the Le Cong
was permitted to leave port. In terms of s 3(10)(a)(i), however, the
vessel was deemed to remain under arrest.
[4] The order granted on 12 March 2002 made provision for an
application being made for the setting aside of the arrest after
security had been furnished. The letter of undertaking similarly
provided for such an application. It was launched on 4 July 2002 by
Guangzhou which sought leave to intervene and an order setting
aside the arrest. The merits of the appellant’s claim against Shantou
Sez were not placed in issue. Indeed, it appears that during the
proceedings the arbitration was held in London and a final award was
made in favour of the appellant for USD 3 831 233, together with

interest and costs. Ultimately, the sole question in issue was whether
in the circumstances the Le Cong was an ‘associated ship’ of the Gaz
Progress. The matter was heard by Hurt J who found for Guangzhou
and set aside the arrest with costs. The present appeal is with the
leave of the court a quo.
[5] It is necessary to quote ss 3(6) and 3(7) of the Act in full –
‘3(6) Subject to the provisions of subsection (9), an action in rem, other than
such an action in respect of a maritime claim contemplated in paragraph (d) of
the definition of ‘maritime claim’, may be brought by the arrest of an associated
ship instead of the ship in respect of which the maritime claim arose.
(7)(a)  For the purpose of subsection (6) an associated ship means a ship, other
than the ship in respect of which the maritime claim arose –
(i)
owned, at the time when the action is commenced, by the person
who was the owner of the ship concerned at the time when the
maritime claim arose;
or
(ii)
owned, at the time when the action is commenced, by a person
who controlled the company which owned the ship concerned when
the maritime claim arose;
or;
(iii)
owned, at the time when the action is commenced, by a company
which is controlled by a person who owned the ship concerned, or

controlled the company which owned the ship concerned, when the
maritime claim arose.
(b)
For the purposes of paragraph (a) –
(i)
ships shall be deemed to be owned by the same persons if the
majority in number of, or of voting rights in respect of, or the greater
part, in value, of, the shares in the ships are owned by the same
persons;
(ii)
a person shall be deemed to control a company if he has power,
directly or indirectly, to control the company;
(iii)
a company includes any other juristic person and any body of
persons, irrespective of whether or not any interest therein consists
of shares.
(c)
If at any time a ship was the subject of a charter-party the charterer
or sub-charterer, as the case may be, shall for the purposes of subsection (6)
and this subsection be deemed to be the owner of the ship concerned in respect
of any relevant maritime claim for which the charterer or the subcharterer, and
not the owner, is alleged to be liable.’
[6] It is common cause that both Guangzhou and Shantou Sez are
state-owned enterprises. Although not incorporated as companies
according to the law of the People’s Republic of China, they are
nonetheless juristic persons capable of owning property. As
previously stated, Guangzhou is the owner of the Le Cong, while
Shantou Sez is deemed to be the owner of the Gaz Progress.  In the

absence of a commonality in ownership the appellant was
accordingly obliged to rely on the provisions of s 3(7)(a)(iii) of the Act
(read with s 3(7)(b)(iii)) to establish that the vessels were ‘associated
ships’ within the meaning of s 3(6). The enquiry is therefore whether
both state-owned enterprises are controlled by the same person. The
appellant says that they are and that that person is the State of
China. Guangzhou says they are not. The issue involves a
consideration of the constitutional law of the Peoples Republic of
China. Both sides filed affidavits by experts on Chinese law. There
was a sharp dispute between them.
[7] The Act contains no definition of ‘power to control’. The nature
of the power to control contemplated in s 3(7) was, however,
considered in MV Heavy Metal: Belfry Marine Ltd v Palm Base
Maritime SDN BHD 1999 (3) SA 1083 (SCA). In that case the court
was concerned with a situation in which the majority shareholder in
each of two ship-owning companies was the same person who was a
nominee holding the shares in each company for different persons.
Nothing like that arises in the present case. What was common to all
three of the judgments delivered in the Heavy Metal  was the
acceptance that it is not the power to control a company in the sense

of managing its operations that is relevant, but the power to control its
‘direction and fate’. In this regard Smalberger JA, who delivered the
majority judgment, said in para 8 at 1105J – 1106A:
‘“Power” is not circumscribed in the Act. It can be the power to manage the
operations of the company or it can be the power to determine its direction and
fate. Where these two functions happen to vest in different hands, it is the latter
which, in my view, the Legislature had in mind when referring to “power” and
hence to “control”.’
In the South African context, both would vest in the same person
where the majority shareholder of a company is also its director. But
the power to control the fate and direction of a company is typically
the power which vests in the majority shareholder of a company or, in
the case of a subsidiary, the majority shareholder in its holding
company.
[8] Before turning to the evidence it is necessary to make two
further observations. The first is that although Guangzhou was the
applicant in the setting-aside proceedings, the appellant bore the
onus of establishing that its original application for the arrest of the Le
Cong was correctly granted. See eg Weissglass NO v Savonnerie
Establishment 1992 (3) SA 928 (A) at 936F-G. The second is that the
onus which the appellant bore of proving that the Le Cong was an

associated ship within the meaning of s 3(6), unlike proof of its claim
against Shantou Sez in respect of which a prima facie case was
sufficient, had to be discharged on a balance of probabilities. See
Bocimar NV v Kotor Overseas Shipping Ltd 1994 (2) SA 563 (A) at
581B-D.
[9] The evidence of Guangzhou’s experts, which formed the basis
upon which it was sought to set aside the arrest order, was shortly
the following. While Guangzhou and Shantou Sez were described as
‘state-owned enterprises’ and said to be owned ‘by the whole people’,
the concept of ownership in this context in Chinese law is a complex
one, is largely abstract and does not correspond to the concept of
civil ownership in western legal systems. Of greater significance,
however, was the distinction between the levels of government at
which the two enterprises were established and funded. Guangzhou
was established and funded at the level of the central government;
Shantou Sez was established and funded at municipal level. In this
regard, (and this was common cause, or not in dispute) Guangzhou is
one of several ship-owning state-owned enterprises established by
China Ocean Shipping (Group) Company, itself a state-owned
enterprise, which in turn was established and funded by the central

government.  Shantou Sez, on the other hand, was established by an
enterprise called City Petroleum Chemical Industry Company (later
renamed Shantou Wuzhou (Group) Company) which in turn was
established and funded by the Shantou City Municipal Government.
Each level of government is elected by popularly elected bodies.
These are, in the case of the central government, the National
People’s Congress and in the case of the lower tiers of government,
local people’s congresses. In accordance with its Budget law China
implements a system of central and local taxation with each level of
government having its own independent financial status and being
vested with exclusive rights in relation to the capital funds within its
own particular budget. A state-owned enterprise established at a
particular level of government, eg at municipal level, would be
established with funds emanating from the budget at that level and
such an enterprise would be subject to the control of the government
at that level. Accordingly, in the present case, so the evidence went,
the power to control Shantou Sez vests in the Shantou City Municipal
Government and is exercised through Shantou Wuzhou (Group)
Company. The central government is in law precluded from
exercising control in respect of Shantou Sez or any of its assets. The

powers of the central government are limited to those which one
would expect to be vested in the central government of a largely
unitary state and would relate typically to the promulgation of
administrative rules of a general nature.
[10]  The response of the appellant’s experts was to the effect that
the funding of the organs of state at different levels did not establish
independence between them; that there was no warrant for giving the
words ‘state-owned enterprise’ anything other than their simple
express meaning and that the reality of the People’s Republic of
China was that the central government controlled the provincial and
municipal arms of the government which enjoyed no independence
under the constitution.
[11] It appears from the papers that the meaning given to ‘power to
control’ in Heavy Metal was brought to the attention of the experts on
both sides. Ultimately the essential difference between them related
to the seat of this power. The appellant’s experts (an associate
professor of law at the University of Hong Kong and an assistant
professor of law at the City University of Hong Kong) contended that
this power to control was vested in the central government and that in
the instant case the Shantou City Municipal Government exercised

no more than certain supervisory powers over Shantou Sez whose
management attended to its day to day activities. Guangzhou’s
experts (a practising lawyer of Shenzhen in the Guangdong Province
and a professor of law at Beijing University) maintained that the
power of control in the above sense vested in the Shantou City
Municipal Government. Professor Xing of Beijing University, in a
replying affidavit, expressed his view as follows:
‘I understand that reference to “control” in section 3(7) of the Act is a reference to
the power to ultimately determine the fate and destiny of the legal person to
which the control relates. Such control would include, for example, the ultimate
power to cause the legal person to be wound up, to require that it merge with
some other entity or dispose of major assets and the like in much the same way
as the beneficial owner of the majority of shares or voting rights in a limited
liability company has ultimate control notwithstanding the existence of a Board of
Directors.
It is that sense that I maintain that such ultimate control of SHANTOU SEZ vests
in the SHANTOU Municipal Government (or the SHANTOU CITY PEOPLE’S
CONGRESS) and not the Central Government or the NATIONAL PEOPLE’S
CONGRESS. Neither the Central Government nor any of its Ministries or
Departments could exercise any of the powers of the nature referred to above
with regard to SHANTOU SEZ.’

[12] The content and effect of foreign law is a question of fact and
like any other fact must be proved (Standard Bank of SA Ltd v Ocean
Commodities Inc 1983 (1) SA 276 (A) at 294G). Where the content
and effect of foreign law is in issue in motion proceedings the rule in
Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3)
SA 623 (A) must therefore be applied. In other words, regard must be
had in the first place to the averments as to the foreign law contained
in the applicant’s affidavits (the respondent’s affidavits in proceedings
to set aside an arrest) which are admitted by the respondent (the
applicant in setting aside proceedings) together with the averments
as to the foreign law made by the respondent (the applicant in
setting-aside proceedings). Where, however, the foreign law is
statutory in nature a court will not simply accept the allegations made
in the affidavits without question, especially if there is disagreement,
but will itself examine the statute in the light of those allegations and
as far as possible arrive at its own conclusion. See the Standard
Bank case, supra, at 294H. In this court counsel for the appellant
submitted that neither the constitution of the People’s Republic of
China (a copy of an English translation of which was included in the
papers) nor the statutory enactments quoted in the affidavits

supported the contentions advanced by Guandzhou’s experts. In
particular, he argued that merely because the different tiers of
government may have been shown to be financially independent of
each other, did not mean that they were not ultimately under the
control of the central government. He accordingly submitted that even
applying the rule in Plascon-Evans, the appellant had succeeded in
discharging the burden of proving a commonality in control between
Shantou Sez and Guangzhou which rendered the Gaz Progress and
the Le Cong associated ships within the meaning of the Act.
[13] The extent to which a court will be dependent on the evidence
of experts when interpreting a statutory provision of a foreign country
will to a large extent depend upon the system of law in question. The
statutory provision must, of course, be interpreted as it would by a
court of the country in which it is enacted. The closer the system is to
ours the more readily a court will rely upon its own judgement when
faced with a problem of interpretation. In the present case, however,
the People’s Republic of China not only has a legal system different
from ours but its constitutional and social structures are vastly
different, as is its political philosophy and culture, and it is in this
context that its laws must be interpreted. Some examples will

illustrate the point. Article 1 of the constitution describes the People’s
Republic of China as a socialist state ‘under the people’s democratic
dictatorship’. Article 2 proclaims that ‘all power . . .  belongs to the
people’ while article 6 speaks of ‘ownership by the whole people and
collective ownership of the working people’. These are all concepts
which are wholly foreign to our constitution and legal system.
[14] The above notwithstanding, the broad structure of the state as
outlined in the Chinese constitution can be stated with reasonable
certainty. The highest organ of state power is said in article 57 to be
the National People’s Congress. It is constituted through ‘democratic
elections’ as are a number of local people’s congresses at various
levels of government. The latter, in terms of article 95, are
established ‘in provinces, municipalities directly under the Central
Government,
counties,
cities,
municipal
districts,
townships,
nationality townships, and towns’. (The reference to ‘municipalities
directly under the Central Government’ is a reference to particular
municipalities and is not a description of the power of the central
government.) The National People’s Congress has specified powers
and functions (one of which is the election of the president) as does
its standing committee. Provision is also made for a State Council

which is said in article 67 to be ‘the Central People’s Government’
and ‘the executive body of the highest organ of state power’. The
powers of this council are similarly specified.
[15] It is necessary to quote certain provisions of the Constitution
which, it would seem, have some bearing on the issue before this
court. In terms of article 89 the State Council has the power:
‘to exercise unified leadership over the work of local organs of state
administration at various levels throughout the country, and to formulate the
detailed division of functions and powers between the Central Government and
the organs of state administration of provinces, autonomous regions, and
municipalities directly under the Central government.’
One of the powers conferred on the Standing Committee of the
National People’s Congress in terms of article 67 is the power:
‘to annul those  local regulations or decisions of the organs of state power of
provinces, autonomous regions, and municipalities directly under the Central
Government that contravene the Constitution, the law or the administrative rules
and regulations.’
Article 16 (as amended in 1993) deals specifically with ‘state
enterprises’.  It provides:
‘State enterprises have decision-making power with regard to operation and
management within the limits prescribed by law, on condition that they submit to
unified leadership by the state and fulfill their obligations under the state plan.’

Both sides sought to rely on a sub-paragraph in article 3. It reads:
‘The division of functions and powers between the central and local state organs
is guided by the principle of giving full scope to the initiative and enthusiasm of
the local authorities under the unified leadership of the central authorities.’
Counsel for the appellant emphasised the reference to the unified
leadership of the central authorities while counsel for Guangzhou
argued that this was consistent with what his experts had said and
emphasised the preceding words of the provision.
[16] It is also necessary to quote from the Chinese Budget Law. The
provisions in question are some of those to which reference was
made by Guangzhou’s experts. Article 2 reads:
‘The State implements one level government, one level budget. Budget is divided
into five levels, ie the level of Central Government; the level of Provinces,
autonomous regions or municipalities directly under the Central Government; the
autonomous prefectures, the level of counties, autonomous counties, cities, cities
without districts or districts under cities; and the level of townships, national
townships or towns.’
Article 8 reads:
‘The State implements the separate system of central taxes and local taxes.’
This provision is explained in article 6 of the Rules for the
implementation of the Budget Law of the People’s Republic of China.
1995, which provides:

‘“The separate system of Central Taxes and Local Taxes” referred to in Art 8 of
the Budget Law means that the financial administration system determines the
extent of central and local expenditures on the basis of division of power between
the Central and Local Governments, and divides the central budget income and
the local budget income by virtue of the different types of taxes.’
Finally it is necessary to quote article 23 of the Budget Law. It reads:
‘The Government in the Upper Tier shall not use the capital within the budget of
the Lower Tier. The Government in the Lower Tier shall not hold the capital
within the budget of the Upper Tier.’
[17] It will be apparent that none of the provisions quoted above
affords a decisive answer to the issue in question, namely whether
the power to control Shantou Sez in the sense referred to in para 7
above rests with the Shantou Municipal City Government or whether,
as in the case of Guangzhou, the power rests with the central
government. Given the obvious difficulties facing a South African
court when attempting to interpret provisions of such a nature or
those of the Chinese Constitution generally, it has not been shown in
my view that they are inconsistent with or do not support the
statement of the law as set out in the affidavits of Guangzhou’s
experts. Indeed, there is much to be said for their exposition of the
law, especially when regard is had to the Budget Law. It follows that

as the appellant bore the onus of proof, Guangzhou’s version as to
the Chinese law had to be accepted as correct on the application of
the rule in Plascon-Evans.
[18] The appellant accordingly failed to establish that the Le Cong is
an ‘associated ship’ of the Gaz Progress within the meaning of the
Act and the appeal must fail.
[19] The appeal is dismissed with costs.

_____________

D G SCOTT

JUDGE OF APPEAL

CONCUR

BRAND

JA
JAFTA

JA
PONNAN
JA
COMBRINCK   AJA