THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Case no: 19/ 2010

NAME OF SHIP: MV IRAN DASTGHAYB

ISLAMIC REPUBLIC OF IRAN SHIPPING LINES
Appellant

and

TERRA-MARINE SA
Respondent

____________________________________________________________

Neutral citation:
MV IRAN DASTGHAYB Islamic Republic of Iran Shipping Lines

v Terra-Marine SA

(19/10) [2010] ZASCA 118 (23 September 2010)

BENCH:

HARMS DP, LEWIS, PONNAN and MHLANTLA JJA and

K PILLAY AJA

HEARD:

6 SEPTEMBER 2010
DELIVERED:
23 SEPTEMBER 2010

SUMMARY: Admiralty Jurisdiction Regulation Act 105 of 1983 – associated ship – s 7(1)(b) –

stay of proceedings for any other sufficient reason.

______________________________________________________________________

ORDER
______________________________________________________________________

On appeal from:
The KwaZulu-Natal High Court (Durban) (Exercising its Admiralty

Jurisdiction) (Patel J)

The appeal is upheld with costs.

The order of the court below is set aside and substituted with an order in the
following terms:

'(a)
The respondent's action in rem against the MV Iran Dastghayb under case
number A148/2005 is stayed in terms of section 7(1)(b) of the Admiralty
Jurisdiction Regulation Act 105 of 1983 pending determination of the
respondent's claims in the arbitration proceedings in London.

(b)
The order for the stay of the in rem action in paragraph (a) hereof is made
subject to the second applicant providing security to the respondent for
any final and un-appealable arbitration award in the arbitration
proceedings (and also in the in rem proceedings should the stay of the
action be lifted). Such security shall be restricted to the claims identified in
paragraph 59 of the founding affidavit of Mr Reddy at pages 43-45 of the
record as arising after 13 December 2000 and limited to the capital sum of
USD830 420.43 in respect of:

(i)
Unpaid management fees in the sum of USD632 100.00;
(ii)
Steel work and repairs in respect of the MV Eco Elham in the sum
of USD11 000.98;
(iii)
Steel work and repairs in respect of the MV ECO Ekram in the sum
of USD156 044.45;

(iv)
P & I Insurance reimbursement in relation to the MV ECO Ekram in
the sum of USD15 315.00;
(v)
Bunkers at Karachi USD15 960.00,

together with USD99 650.45 in respect of security for interest and USD25
000.00 in respect of legal costs; and

(c)
Upon the provision of such limited substitute security the security
previously provided by the second applicant shall be cancelled and the
respondent is directed to return all and any letters of undertaking furnished
in that regard to the applicants' attorneys for cancellation.

(d)
The respondent is ordered to pay the second applicant's costs, such costs
to include the qualifying fees of the expert witness Dr Iraj Babaei.’

____________________________________________________________________________________

JUDGMENT
______________________________________________________________________

PONNAN  JA
(HARMS DP, LEWIS and MHLANTLA JJA and K PILLAY AJA

concurring):

[1] During 1995 Eco Shipping Company PJS (ESC), a private joint stock company
was registered and incorporated in the Islamic Republic of Iran with a view to providing
a vehicle to ten Asian Islamic countries1 to enable them to engage in shipping as a joint
venture. On the formation of ESC, the appellant, the Islamic Republic of Iran Shipping
Lines (IRISL), a ship owner incorporated and registered according to the laws of the
Islamic Republic of Iran, bareboat chartered two vessels, the Eco Elham and the Eco
Ekram, to ESC.

[2] By written agreement dated 27 January 1997 the respondent, Terra-Marine SA
(Terra-Marine), a company duly registered and incorporated with limited liability in
accordance with the laws of Switzerland, was contracted to manage and administer the
vessels on behalf of ESC. In terms of the written Ship Management Agreement between
ESC and Terra-Marine, the latter had inter alia the following responsibilities:
(a)
to employ and recruit personnel to crew the vessels;
(b)
to maintain the vessels;
(c)
to supply the vessels with provisions; and
(d)
to generally manage the vessels in accordance with the usual applicable
international practice and to thereafter account to ESC.

1 The ten states, all parties to the treaty of Izmir of 1992, were the Islamic Republics of Iran, Pakistan and
Afghanistan and the Republics of Turkey, Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan Kyrgyzstan
and Tajikistan.

[3] Clause 6.9 of the Agreement provided:
'In case of any controversy arising out of the interpretation or enforcement thereof, it should at the first
place be settled through mutual negotiation. If the parties fail to reach an agreement in this way, then the
matter shall be submitted for arbitration in London to be adjudged under the provisions of English laws.'
Disputes did indeed arise between Terra-Marine and ESC resulting in the former
commencing arbitration proceedings against the latter in London. A sole arbitrator was
appointed during November 2003. Terra-Marine, as the claimant, delivered its points of
claim during October 2004 and ESC its defence and counter-claim during December
2004. On 10 January 2005, by resolution of its members, ESC was placed in liquidation
and Mr Syrious Khakpour was appointed its liquidator. ESC is now represented by its
liquidator in those proceedings.

[4] On 23 December 2005 and whilst the London arbitration proceedings were still
pending, Terra-Marine commenced an action in rem against some 92 vessels including
the MV Iran Dastghayb by the issue of an in rem summons. On 6 March 2006 the Iran
Dastghayb was arrested pursuant to that action in terms of an order granted by the
Durban and Coast Local Division of the High Court in the exercise of its admiralty
jurisdiction in terms of the Admiralty Jurisdiction Regulation Act 105 of 1983.

[5] The order for the arrest of the Iran Dastghayb was sought and obtained on the
basis that the Iran Dastghayb on the one hand and the Eco Elham and the Eco Ekram
on the other are associated ships within the meaning of that expression as defined in s
3(7) of the Act. The Iran Dastghayb was thereafter released from arrest after security
was furnished by its owner IRISL in the total sum of USD 1 999 220,2 with the result that
the vessel remained subject to a deemed arrest.

[6] On 6 October 2006 IRISL launched an application for an order inter alia: staying
the in rem proceedings in terms of s 7(1)(b) of the Act pending determination of Terra-
Marine’s claims in the arbitration, subject to it providing security for the claims, interest
and costs in the arbitration in substitution of the security already furnished;  and

2 Being USD 1 592 113 in respect of capital claims, USD 382 107 in respect of interest and USD 25 000
in respect of costs.

directing Terra-Marine to furnish counter security for IRISL’s counterclaims, interest and
costs in the arbitration.3 The thrust of IRISL’s case was that: (a) the claims which Terra-
Marine sought to enforce against the Iran Dastghayb in the in rem action were claims
arising out of a contract between ESC and Terra-Marine that contained an express
provision requiring all such claims to be submitted to and determined by arbitration; and
(b) those claims were already the subject of pending arbitration proceedings instituted
by Terra-Marine against ESC in London in terms of that agreement.

[7] By the time the application came to be argued in the court below IRISL had
abandoned its primary relief relating to Terra-Marine furnishing counter security. It also
no longer sought, as presaged in its replying affidavit, an order that the court simply
decline in terms of s 7(1)(a)4 to exercise jurisdiction in the in rem action, with a
consequential dismissal of the action with costs and the return to IRISL of the security
furnished. In addition to its claim that the action should be stayed, it also persisted in its
contention both in this court and the one below that a number of the claims sought to be
advanced in the in rem action, whilst permissible claims in the arbitration proceedings
against ESC, were not claims enforceable in rem against the Iran Dastghayb because it
was not an associated ship in relation to any claim that arose prior to 13 December
2000.

[8] Patel J, who heard the application, accepted Terra-Marine’s submission that
because IRISL was not a party to the agreement giving rise to the claims sought to be
advanced in rem against its vessel the Iran Dastghayb, it could not invoke the arbitration
clause. He accordingly held that there was no basis upon which IRISL could seek a stay
of the in rem action. Finding that conclusion to be dispositive of the application in its

3  Being USD 2 391 405.90 in respect of capital claims, USD 286 968.70 in respect of interest and USD
25 000 in respect of costs.
4 The section provides: 'A court may decline to exercise its admiralty jurisdiction in any proceedings
instituted or to be instituted, if it is of the opinion that any other court in the Republic or any other court or
any arbitrator, tribunal or body elsewhere will exercise jurisdiction in respect of the said proceedings and
that it is more appropriate that the proceedings be adjudicated upon by any such other court or by such
arbitrator, tribunal or body.'

entirety, the learned judge dismissed the application with costs but granted leave to
IRISL to appeal to this Court.

[9] Under s 3(4) a maritime claim may be enforced by an action in rem in two
circumstances, namely where the claimant has a maritime lien over the property to be
arrested or where the owner of that property would be liable to the claimant in an action
in personam in respect of that claim. In terms of s 3(4)(b) a maritime claim may be
enforced by an action in rem: 'If the owner of the property to be arrested would be liable
to the claimant in an action in personam in respect of the cause of action concerned'.
Section 3(4) thus identifies the necessary conditions for bringing an action in rem.
Section 3(5) deals with the manner in which such an action is to be brought, namely by
the arrest:
'within the area of jurisdiction of the court concerned of property of one or more of the following categories
against or in respect of which the claim lies:
(a)
the ship, with or without its equipment, furniture, stores or bunkers;
(b)
the whole or any part of the equipment, furniture, stores or bunkers;
(c)
the whole or any part of the cargo;
(d)
the freight . . . , '

[10] Two issues thus arise on appeal: first, was the court below correct in refusing to
stay the in rem proceedings in terms of s 7(1)(b) of the Act pending determination of the
claims in the arbitration; and, second, is the Iran Dastghayb an associated ship in
relation to maritime claims that arose prior to 13 December 2000?

[11] Before those issues are examined, it will be expedient, I consider, for a proper
understanding of the matter, to first record some general observations. A useful starting
point is s 3 of the Act, which sets out the circumstances in which a maritime claim may
be enforced by an action in personam or by an action in rem. In The Berg,5 Milne JP
analysed the nature of an action in rem in these terms:
'I think it is also important to bear in mind that the Act does not refer to claims in personam and claims in
rem, but to claims which may be enforced either by an action in personam or an action in rem. Once a

5 Euromarine International of Mauren v The Ship Berg 1984 (4) SA 647 (N).

claim is a maritime claim, then there are two methods of enforcing that claim where the Court exercises
its admiralty jurisdiction. One is by means of an action in personam and the other is by means of an
action in rem. In other words, it is not so much the nature of the cause of action that is affected by
whether the action is in personam or in rem, but the means by which the same cause of action is
enforced. This distinction is clearly brought out in considering the historical origins of actions in rem in
British law.'6
According to the learned Judge President:
'What does appear to be clear in both British and American admiralty law is that the essence of the action
in rem is the right to arrest a ship, and the right to satisfy any judgment from the proceeds of the sale of
the ship or bail or security provided in respect thereof.'7

[12] Section 3(6) of the Act gives to a claimant with a maritime claim the right to bring
an action in rem by the arrest of an associated ship instead of the ship in respect of
which the maritime claim arose. It provides: ‘[a]n action in rem, . . .  may be brought by
the arrest of an associated ship instead of the ship in respect of which the maritime
claim arose’. An associated ship is defined in s 3(7)(a) and (b) of the Act. What is
required is the existence of a 'ship in respect of which the maritime claim arose' and an
associated ship which is either ‘owned, at the time when the action is commenced, by
the person who was the owner of the ship concerned when the maritime claim arose’ (s
3(7)(a)(i)); or a ship owned ‘by a person who controlled the company which owned the
ship concerned when the maritime claim arose’ (s 3(7)(a)(ii)); or a ship owned ‘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’ (s
3(7)(a)(iii)).

[13] Some five weeks after that ‘novel procedure’8 was introduced into our maritime
law, it was invoked by a claimant, Euromarine, in an application for the arrest of the
Berg, a vessel owned by a South African company, in order to furnish security for an
arbitration in London. The validity of the arrest was challenged. Euromarine had time-
chartered a vessel called the Pericles from its owners, the second respondents in the

6 At 653B-D.
7 At 654I-655A.
8 Cargo Laden and Lately Laden on Board the MV Thalassini Avgi v MV Dimitris 1989 (3) SA 820 (A) at
824C-D.

high court application. During the subsistence of that charterparty an explosion occurred
on board the Pericles, which was then berthed in Durban harbour. Euromarine alleged
that the explosion was due to the unseaworthiness of the Pericles in breach of the
obligations of its owners under the charterparty. It had suffered substantial damages in
consequence of the explosion, which it was seeking to recover from the owners of the
Pericles in arbitration proceedings in London. The purpose of the arrest of the Berg was
to enable Euromarine to obtain security for those proceedings. Section 5(3)9 of the Act
made that possible. The owners accepted that Euromarine had a claim that was
enforceable by an action in rem against the Pericles. They also accepted that the Berg
was an associated ship in relationship to the Pericles and accordingly that the claim
could have been pursued in an action in rem in South Africa instituted by the arrest of
the Berg as an associated ship. However, they contended that such an action remained
an action in rem against the Pericles and was not an action in rem against the Berg
itself. Milne JP disposed of that argument in these terms:
'As that action would be commenced by the arrest of the Berg, and as any judgment in that action would
be satisfied from the proceeds of the Berg, I cannot conceive that the action could be said to be anything
other than an action in rem against the Berg.'10

[14] Later the learned Judge President stated:
'As I have already mentioned, however, there is a vital distinction between an action commenced by
arresting the Berg in terms of s 3(5) and an action commenced by arresting the Pericles in terms of that
section. It is, quite simply, this, that the action is against a different defendant. This is not a mere matter of
form. If the Berg is arrested in terms of s 3(5) read with ss (6) and (7), then, at any rate, if the action is
undefended, and is successful, it is only the fund derived from the sale of the Berg which can be used to
satisfy the judgment. In what sense can it be said, one might ask, that the action instituted by arresting
the Berg would remain one against the Pericles? If the American approach is adopted to actions in rem,

9 Section 5(3) of the Act provides: '(a)  A court may in the exercise of its admiralty jurisdiction order the
arrest of any property for the purpose of providing security for a claim which is or may be the subject of an
arbitration or any proceedings contemplated, pending or proceeding, either in the Republic or elsewhere,
and whether or not it is subject to the law of the Republic, if the person seeking the arrest has a claim
enforceable by an action in personam against the owner of the property concerned or an action in rem
against such property or which would be so enforceable but for any such arbitration or proceedings.
(aA)  Any property so arrested or any security for, or the proceeds of, any such property shall be held as
security for any such claim or pending the outcome of any such arbitration or proceedings.
(b)  Unless the court orders otherwise any property so arrested shall be deemed to be property arrested
in an action in terms of this Act.’
10 At 654F-G

then the Berg is the defendant and not the Pericles. If the British approach is adopted, then the only
sense in which it can be said that an admiralty action in rem is against a particular vessel is in the sense
that it is the proceeds of that vessel that are used to satisfy the judgment, and in this sense clearly the
action commenced by arresting the Berg remains one against the Berg.'11

On appeal12 that was endorsed by Miller JA in these terms:
'Such a provision, it was said, in effect provided the legal machinery by which a claim could be enforced.
It is true that s 3(6) read with s 5(3) describes a method for recovery of money due to one who has
suffered injury or loss for which he has a maritime claim, but it does much more than that; it gives to the
claimant a right which he never had before, namely to recover what is due to him from a party who was
not responsible for the damage suffered by him. It provides the claimant not only with a method of
recovery but with an additional or alternative defendant. And by that token, it is creative of new liabilities
or obligations in owners of ships, or the potential thereof'.

[15] That reasoning, according to M J D Wallis The Associated Ship and the South
African Admiralty Jurisdiction13 is not only compelling but inescapable. He adds:
‘[i]f one accepts, as English courts have accepted from at least the latter part of the 19th Century, that the
action in rem has the effect of “impleading the owner of property to answer to the judgment of the court to
the extent of his interest in the property”, then it is the owner of the associated ship who is impleaded by
the arrest of that vessel, not the owner of the ship concerned. If the American approach is adopted the
fact is that the action is directed at a different vessel. It necessarily follows that the proper
characterisation of the action instituted by the arrest of the associated ship is that it is an action in rem
against the associated ship, not an action in rem against the ship concerned.’14

[16] The judgments in the Berg thus established from the very inception of the Act
that an action in rem against an associated ship is something separate and distinct from
an action in rem against the ship concerned.  Thus, whilst the action in rem traditionally
impleads the owner of the ship concerned it can now be used to implead a third party,
albeit one closely connected to the owner of the ship concerned.15

11 At 655H-656A.
12 Euromarine International of Mauren v The Ship Berg 1986 (2) SA 700 (A) at 712C-E.
13 Unpublished PhD Thesis, University of KwaZulu-Natal (2010) p 145.
14 Wallis p 145.
15 Wallis p 146.

[17] The decks have now been cleared for a consideration of the first issue, namely
the stay application. Section 7(1)(b) of the Act provides:
'A court may stay any proceedings in terms of this Act if it is agreed by the parties concerned that the
matter in dispute be referred to arbitration in the Republic or elsewhere, or if for any other sufficient
reason the court is of the opinion that the proceedings should be stayed.'

[18] In MV Achilleus v Thai United Insurance Company Ltd & others16  Howard JP17
considered himself bound by the decision of the full bench of that division in MV
Spartan-Runner v Jotun–Henry Clark Ltd18 to hold, conformably to English law, that a
plaintiff who sues in this country in breach of an agreement to refer disputes to a foreign
court bears the onus of showing why the court should not stay the proceedings and
thereby give effect to the agreement. The court referred in this regard to the following
summary of the relevant principles by Brandon J in The Eleftheria,19 which was adopted
by the Court of Appeal in The El Amria:20
'(1)
Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court,
and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within
its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not.
(2)
The discretion should be exercised by granting a stay unless strong cause for not doing so is
shown.
(3)
The burden of proving such strong cause is on the plaintiffs.
(4)
In exercising its discretion, the Court should take into account all the circumstances of the
particular case.
(5)
In particular, but without prejudice to (4), the following matters, where they arise, may properly be
regarded:
(a)
In what country the evidence on the issues of facts is situated, or more readily available,
and the effect of that on the relative convenience and expense of trial as between the
English and foreign Courts.
(b)
Whether the law of the foreign Court applies and, if so, whether it differs from English law
in any material respects.
(c)
With what country either party is connected, and how closely.

16 1992 (1) SA 324 (N) at 334C-J.
17 Galgut and Combrinck JJ concurring.
18 1991 (3) SA 803 (N).
19 [1969] 2 All ER 641 (PDA) at 645.
20 [1981] 2 Lloyd's Rep 119 (CA) at 123-4.

(d)
Whether the defendants genuinely desire trial in the foreign country, or are only seeking
procedural advantages.
(e)
Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because
they would: (i) be deprived of security for that claim; (ii) be unable to enforce any
judgment obtained; (iii) be faced with a time-bar not applicable in England; or (iv) for
political, racial, religious or other reasons be unlike to get a fair trial.'

[19] Thus in principle, where claims arise out of an agreement which requires that
they be determined in some other jurisdiction, a party resisting a stay of those
proceedings bears the onus of showing why it should be permitted nevertheless to
pursue those claims here. As it was put in The Rhodesian Railways Ltd v Mackintosh21
the discretion of the court to refuse arbitration, where such an agreement exists, was to
be exercised judicially, and only when a ‘very strong case’ had been made out. The
court was there dealing with a different statute, but the comments are no less apposite,
because, for, to borrow from Colman J, it is ‘based upon general principles’.22

[20] These principles, to the extent that the issue arises between the parties
themselves to an arbitration agreement, are well settled. The question here is whether
they apply to a third party in the position of IRISL, who is not a party to the arbitration
agreement. In arriving at his conclusion that IRISL could not invoke the arbitration
agreement, Patel J relied on Freight Marine Shipping Ltd v S Wainstein & Co (Pty) Ltd &
others,23 a case involving a claim for damage to cargo carried on board a vessel. Three
parties were cited, of whom two were said (in the alternative) to be the carriers of the
cargo under the bill of lading. The third was the agent of the carrier cited in terms of the
provisions of the Merchant Shipping Act 57 of 1951. The bill of lading contained an
arbitration clause. The agent brought proceedings under the Arbitration Act 42 of 1965
to have the action stayed pending arbitration to resolve the question of liability on the
claim. That application was dismissed on the basis that the agent was not a party to the

21 1932 AD 359 at 375.
22 Metallurgical and Commercial Consultants (Pty) Ltd v Metal Sales Co (Pty) Ltd 1971 (2) SA 388 (W) at
391F-G.
23 1984 (2) SA 425 (D).

arbitration agreement.  There the court held that only a party was entitled under that Act
to seek a stay for the purposes of enforcing an arbitration agreement.

[21] Of Freight Marine Shipping Ltd v S Wainstein, Wallis24 states:
‘The case is relevant because it identifies the basic problem facing the owner of an associated ship in
seeking a stay of an action in rem properly instituted in South Africa by way of the arrest of an associated
ship. Such owner is not a party to the arbitration agreement (or the contract embodying the exclusive
jurisdiction clause) and the problem it faces is therefore that its situation is not encompassed by the
language of section 7(1)(b), because it has not been agreed “by the parties concerned” that they will
submit their dispute to arbitration or to determination by another court.'

[22] That reasoning formed the bedrock upon which Terra-Marine’s opposition to the
stay application rested. But it approaches the section as if it ends with the word
‘elsewhere’. It ignores the disjunctive ‘or’ and all that comes thereafter. The effect of the
disjunctive 'or' is to differentiate clearly between two situations when a court may grant a
stay in terms of the section. The first where the parties concerned have agreed that the
matter in dispute be referred to arbitration and the second if for any other sufficient
reason the court is of the opinion that the proceedings be stayed.

[23] It follows that Patel J appeared not to appreciate that he was empowered by the
legislature to grant a stay in two different circumstances and that in relation to the
second he had a far wider discretion. He accordingly limited himself to the first
circumstance. Even there he appears to have restricted himself to whether IRISL could
'rely on', in the sense of enforce, the arbitration provision. In respect of that enquiry he
concluded that ‘in my view there is no basis upon which the plaintiff could commence
arbitration proceedings against IRISL and therefore there is no basis on which IRISL
can ask for a stay of the proceedings in this forum’. But that may have been to
improperly fetter his discretion in respect of the first circumstance and certainly in
respect of the second circumstance he failed to exercise a discretion at all. It thus
becomes necessary to consider the second circumstance which, if applicable, will
render it unnecessary to resolve whether the first part of the sub-section does indeed

24 Page 519.

encompass a party in the position of IRISL or to determine whether Freight-Marine
Shipping Ltd v S Wainstein was correctly decided.

[24] In support of its contention that the court should refuse to stay the proceedings,
Terra-Marine submits that if the liquidator of ESC formed the view that its claims are
good and ESC's counter claims bad, he could simply dissolve the latter mid arbitration
thereby bringing those proceedings to an end. Were that to happen, so the contention
goes, the prejudice to Terra-Marine would be enormous in terms of wasted time, effort
and money. The matter is dealt with fully in IRISL’s replying affidavits. IRISL’s expert, Dr
Iraj Babaei, an attorney and Professor of Law at the Allameh Tabatabaii University of
Teheran, points out that Article 208 of the Iranian Commercial Code provides that a
company in liquidation will remain in existence until the liquidation is completed. That, in
turn, so he states, expressly requires the 'settlement of all dues and liabilities, collecting
of amounts due to the company and the distribution of assets of the company'. The
liquidator, according to Dr Babaei, has no power at all to cause a company in liquidation
to be de-registered until all claims against the company in liquidation have been
resolved or admitted and dealt with in the liquidation and distribution account.

[25] The liquidator confirms that this is and always has been his understanding of the
position. In his affidavit he states:
‘I have been advised that Terra-Marine SA have suggested that there exists a risk that I would frustrate
their pursuing of their claims in the current arbitration proceedings in London by purporting to finalise the
liquidation of ESC without reference to that claim and thereafter proceeding to deregister ESC.

I can categorically state that I have no such intention and, indeed, that course of action had not occurred
to me.

I appreciate (and have always appreciated) that the finalising of the liquidation of ESC requires that all
claims, whether in favour of or against ESC, be resolved and dealt with in ESC's liquidation account.

My understanding is that I cannot lawfully purport to finalise the liquidation of ESC whilst the claims of
Terra-Marine remain in dispute.'

[26] Terra-Marine advanced no other factual circumstance in support of its contention
that the court should refuse to stay the proceedings. Properly analysed the only ground
advanced by Terra-Marine amounted, absent any factual foundation as I have shown, to
little more than a speculative hypothesis. Moreover, since December 2004 when ESC
filed its defence and counter claim, no further steps have been taken by Terra-Marine in
the arbitration proceedings commenced by it in London. Sufficient time one would have
imagined for it to have tested its hypothesis should it have been so inclined. But even if
the hypothesis sought to be advanced by it were to have some validity, it needs be
remembered that the court is not being asked to decline jurisdiction in terms of s 7(1)(a),
but rather to grant the less drastic relief of a stay of proceedings. Thus in time, were
Terra-Marine’s fear of a dissolution of ESC at the hands of the liquidator to materialise,
it could always return to the high court for that order to be lifted or varied to the extent
necessary to address that exigency.

[27] Significantly, Terra-Marine, unlike ESC, was not without an alternative remedy.
Terra-Marine appears, on its own version, not to be in a position to meet any award that
may issue against it in favour of ESC by virtue of the latter's counter claim in the
arbitration proceedings. It thus appears to be intent on having its claims dealt with in
South Africa, where it has secured security for itself by means of the in rem arrest of the
Iran Dastghayb. ESC on the other hand will have to proceed to arbitration in London
without security. On Terra-Marine’s approach, ESC, not being a party to the suit in
South Africa, cannot avail itself of a claim in reconvention against Terra-Marine. It thus
has to forfeit the procedural advantages accruing to a plaintiff in reconvention, namely,
that convention and reconvention are usually dealt with together and that the plaintiff in
convention is bound to recognise the jurisdiction of the court in respect of the claim in
reconvention (LTA Engineering Co Ltd v Seacat Investments (Pty) Ltd).25

[28] The answer to that conundrum, so it was submitted, was that ESC could always
cede its claim to IRISL. However, any such agreement concluded for that purpose
would, in and of itself, show that ESC could never have genuinely intended to make a

25 1974 (1) SA 747 (A) at 764B.

cession of its claims. Rather it would have been entered into to enable IRISL to do
something for the ultimate benefit of ESC, that the latter could not itself do, namely to
prosecute a counter claim and hand any proceeds that may be secured from it to ESC.
Our courts will refuse to recognise such an agreement on the basis that the parties had
no real intention to enter into an agreement of cession and that it therefore is not a true
reflection of the real agreement between the parties (Skjelbreds Rederi A/S & others v
Hartless (Pty) Ltd).26 IRISL will thus be precluded from suing on it.  It follows that unlike
Terra-Marine, ESC will be remediless in this country.

[29] The alternative remedy available to Terra-Marine is a security arrest afforded by
s 5(3) of the Act to a maritime claimant in the position of Terra-Marine. Before us
counsel conceded that had Terra-Marine adopted that course, IRISL would have had no
answer to it. That procedure though would have required a comprehensive application
by Terra-Marine setting out on oath, inter alia, that it has (a) a claim enforceable by an
action in rem against the Iran Dastghayb; (b) a prima facie case in respect of such
claim; and (c) a genuine and reasonable need for security in respect of the claim.27 Here
the vessel was arrested pursuant to a writ issued in the in rem action. Terra-Marine
therefore had a much lower threshold to satisfy. All that Admirality Rule 4(3) required
was a certificate by it as the claimant (or its attorney) setting out only the barest detail.
The practice appears to be that on the strength of that certificate it is usually for the
Registrar (who may refer the question whether a warrant should be issued to a judge) to
issue the arrest warrant (The Galaecia).28

[30] When IRISL launched the stay application all it had to go on was the in rem
summons and particulars of claim. That contained little in support of the proposition that
there existed the requisite association or why it was permissible for Terra-Marine to
pursue proceedings in South Africa in the face of the arbitration clause in the agreement
and the pending arbitration proceedings that it had already commenced in London. It

26 1982 (2) SA 710 (A).
27 The MV Thalassini Avgi v at 832I-833A; Bocimar NV v Kotor Overseas Shipping Limited 1994 (2) SA
563 (A) at 579B-E.
28 The Galaecia: Vidal Armadores SA v Thalassa Export Co Ltd (2006) SCOSA D252 (D).

was therefore unsurprising that as the matter progressed, IRISL amended the relief it
had originally sought and filed additional affidavits when confronted by the fuller
allegations that first saw the light of day in Terra-Marine’s answering affidavit. The
course the proceedings had taken appears to have led the learned judge astray. He
held:
'I might in passing mention that the applicants have sought a stay of the action instituted by the plaintiff by
motion proceedings and to have certain issues which would otherwise be determined at the trial to be
determined in these application proceedings. Although nothing is irregular about this, the plaintiff is only
expected to justify the arrest to the extent that the arrest is challenged in their founding papers in motion
proceedings. The procedure adopted by the applicants in seeking to determine certain of the issues
between the parties in application proceedings carries with it the risk to the applicants in the event that
those issues cannot be determined in these proceedings because of disputes of facts then the applicants
must lose on those issues which will then have to be determined at the trial in due course.'
His approach overlooks the principle in our law ‘that a party cannot by obtaining ex
parte an order in his favour secure a more advantageous position than he would have
been in if the other party had, consequent upon notice, had an opportunity of opposing’
(Weissglass NO v Savonnerie Establishment).29

[31] It may well have been entirely inappropriate for Terra-Marine to enforce its claims
in South Africa by way of in rem proceedings in circumstances where not only was it
contractually obliged to enforce its claims by arbitration in London but was already doing
so. But one need not go that far. It suffices to state that it should be fairly obvious that to
permit parallel proceedings to commence and run in different fora at the same time and
in respect of essentially the same dispute is undesirable. In Universiteit van
Stellenbosch v JA Louw (Edms) Bpk30 this court stated:
‘As to the undesirability of allowing two different proceedings in two separate tribunals, the dicta in the
English Court of Appeal in Taunton-Collins v Cromie and Another31 are very apposite. At 333 Lord
Denning said:
"It seems to me most undesirable that there should be two proceedings in two separate tribunals – one
before the official referee, the other before an arbitrator – to decide the same questions of fact. If the two
proceedings should go on independently, there might be inconsistent findings. The decision of the official

29 1992 (3) 928 SA (A) at 936F-G.
30 1983 (4) SA 321 (A) at 335H-336A.
31 [1964] 2 All ER 332.

referee might conflict with the decision of the arbitrator. There would be much extra cost involved in
having two separate proceedings going on side by side; and there would be more delay. Furthermore, as
counsel for the plaintiff pointed out, if this action before the official referee went on by itself – between the
plaintiff and the architect – without the contractors being there, there would be many procedural
difficulties. For instance, there would be manoeuvres as to who should call the contractors, and so forth.
All in all, the undesirability of two separate proceedings is such that I should have thought that it was a
very proper exercise of discretion for the official referee to say that he would not stay the claim against
the contractors."
At 334 Lord Pearson said:
"It can be said in support of the application here that that is what the parties have agreed and that, when
the question is brought before the Court, the Court should be willing to say by its decision what the parties
have already said by means of their own contract. That is one principle. The other principle is that a
multiplicity of proceedings is highly undesirable for the reasons which have been given. It is obvious that
there may be different decisions on the same question and a great confusion may arise. Counsel for the
plaintiff also was able to point out the serious procedural difficulties which might arise if one had an
arbitration between two parties and an action between different parties"'
There would thus ordinarily be much to be said for staying one or other of the two
proceedings to allow the merits of the claim to be determined in a single forum.

[32] Moreover, here the result of the in personam proceedings must necessarily
determine the result of the in rem proceedings. Counsel for Terra-Marine was
constrained to concede that. Thus if Terra-Marine’s claim in the arbitration were to be
dismissed, the foundation of the in rem action would of necessity fall away. In this case
the court was dealing with a genuine contract of submission. Had Patel J adopted a less
technical approach he might have been disinclined to deny IRISL its stay application. It
would have been permissible for him, I think, in the exercise of his equitable discretion,
to have given effect to the substance of the agreement to arbitrate. Thus the mere
existence of the arbitration clause coupled with the concurrent proceedings, irrespective
of whether or not the arbitration clause could have been invoked by IRISL ought to have
caused Patel J, to paraphrase from Lord Pearson, ‘to be willing to say by his decision
what Terra-Marine had already said by means of its contract’.

[33] Section 3(7)(a) of the Act differentiates between a true sister ship and an
associated ship. John Hare32 describes the latter provision as a novel one33 ‘of South
African law that sets it apart from the arrest practice of all other maritime states’. Terra-
Marine had commenced an in rem action against 92 vessels including the Iran
Dastghayb. Had any of the other 92 vessels entered South African waters prior to the
Iran Dastghayb it, like the Iran Dastghayb, would also have been liable to arrest. If that
vessel had been a true sister ship as opposed to an associated ship as occurred here,
then the main contention now advanced by Terra-Marine, namely that the agreement to
arbitrate cannot be invoked by one not a party to it, would not have been available to
Terra-Marine. The effect of invoking the associated ship provision in this case is that
Terra-Marine has been able to garner for itself a benefit in this country that it could not
secure in any other maritime state. But, although permitted by the Act, its successful
invocation is dependent on chance and happenstance, namely whether the associated
ship that first finds itself in South African waters happens to be an associated ship as
opposed to a true sister ship.

[34] It is well established that effect must be given, if the terms of the contract permit,
to the obvious intention and agreement of the parties. That applies no less to choice of
law and chosen forum clauses in contracts. Here the arbitration proceedings that are
currently extant are subject to the English Arbitration Act and the other laws of England.
It would obviously be preferable that such disputes as exist be determined in England
under the auspices of an English arbitrator as opposed to the inconvenient and
expensive alternative of South African courts having to decide such questions on the
basis of expert evidence. There are certain advantages as well, such as finality, that a
claimant in an arbitration enjoys over a litigant who has to pursue its rights in a court.
And one who has contracted to allow the other contracting party those advantages
should not be readily absolved from that undertaking.

32 Shipping Law & Admirality Jurisdiction in South Africa 2 ed (Juta) p107.
33 Prof H Booysen 'South Africa’s New Admirality Act: A Maritime Disaster?' 1984 MBL 75 at 83 describes
it as a revolutionary idea.

[35] Courts should generally be slow to encroach upon a decision to refer a dispute to
private arbitration, for to do so would be to disregard the principle of party autonomy.34
That ought to apply with greater force in a situation such as this, for as Wallis points out:
'However, there seems to be no escape from the conclusion, however unsatisfactory, that by bringing an
action in rem against an associated ship a claimant can defeat the provisions of both an arbitration clause
and an exclusive jurisdiction clause in the contract underlying the claim.'35
Were that to be so, as indeed it must be on that analysis, a cynical litigant could with
impunity circumvent the terms of a bargain that the other party to it may have thought
had been earnestly struck. The other contracting party’s rights could thus be rendered
nugatory by a maritime claimant by invoking the associated ship jurisdiction, thereby
imperilling the important principle of party autonomy. More importantly it could
encourage a practice that should be deprecated, namely forum shopping.36

[36] In my judgment the cumulative effect of the factors that I have alluded to,
constitute sufficient reason for a stay of the action in terms of s 7(1)(b) and Terra-Marine
has failed to show any cause for the court to exercise its discretion against the granting
of it. I am thus satisfied that the judgment of the court below refusing a stay was wrong.

[37] I now turn to the second issue, namely whether the MV Iran Dastghayb is an
associated ship in respect of claims that arose prior to 13 December 2000. The only
claims that the court has jurisdiction to entertain are those which could properly be
enforced in rem against the Iran Dastghayb. Although IRISL was the applicant in the
stay application, Terra-Marine bore the onus of proving that its original application for
the arrest of the Iran Dastghayb was correctly granted.37 Terra-Marine thus retained the
onus of justifying the arrest in relation to each claim. In so far as the discharge of the
onus involved matters of fact, these had to be proved on a balance of probabilities.38

34 Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews 2009 (4) SA 529 (CC); Telcordia Technologies Inc
v Telkom SA Ltd 2007 (3) SA 266 (SCA) para 4; R H Christie 'Arbitration: party autonomy or curial
intervention: the historical background' (1994) 111 SALJ 143.
35 Page 520.
36 Gcaba v Minister for Safety and Security 2010 (1) SA 238 (CC) para 57.
37 Bocimar NV at 578G.
38 Bocimar NV at 582B.

[38] Since the Iran Dastghayb was arrested in rem on the basis that it is an
'associated ship' in relation to the Eco Elham and the Eco Ekram and liable to arrest in
their stead in terms of section 3(6) and (7) of the Act, it was for Terra-Marine to
establish on a balance of probabilities that in relation to each claim the former was an
associated ship of the ship concerned.

[39] It is common cause that 10 states were party to the formation of ESC and that it
was intended that each would subscribe for an equal 10 per cent shareholding in ESC.
There is no dispute that at an extraordinary general assembly meeting of ESC held on
13 December 2000 a decision was taken to amend the Articles of Association with
regard to the shareholding. Captain Khan, Terra-Marine’s principal witness, was present
at that meeting and signed the minute as a representative of Pakistan. The amendment
of the Articles of Association reflected the acquisition by IRISL (on behalf of the
government of Iran) of the shares of five39 of the original 10 member states. The net
result was that with effect from that date IRISL acquired 60 per cent of the shares. IRISL
contends that the Iran Dastghayb cannot be an associated ship save in respect of any
claim that arose after that date.

[40] The original agreement40 establishing ESC provided that each of the 10 member
states would subscribe for the initial shares in equal proportions as stipulated in the

39 Turkey, Azerbaijan, Kyrgyzstan, Tajikistan and Uzbekistan
40 The agreement provided:
'III
SHARE CAPITAL
It was agreed that the share capital of the Company will be US Dollars Ten Million (US $10 000 000)
consisting of US Dollars Ten Thousand (US $10 000) individual shares of US Dollars One Thousand (US
$1 000) and parties to this Agreement shall subscribe their initial shares in equal proportion as stipulated
in the Articles of Association.
. . . . .
V
NON-PAYMENT OF ADVANCE SHARE CAPITAL
Where any Member States for any reason do not effect payment of the share capital so subscribed by
them in advance will be allotted one symbolic Share and their share of profits will be ploughed back for
their share capital.

VI
NON-SUBSCRIPTION OF SHARE CAPITAL
Those Member States who do not subscribe for the Company's share, their shares would be entrusted to
the General Assembly or a nominee. The General Assembly may decide upon the above as per current
ECO regulations in its future Meetings.'

Articles of Association provided that, if any member state did not effect payment of the
share capital subscribed, such state would be allotted one symbolic share and, if a state
did not subscribe, its shares would be entrusted to the general assembly or a nominee.

[41] Iranian law required that 35 per cent of the share capital of a company be paid in
advance as a requirement of incorporation and this amount was paid in full by IRISL
during 1995. It was paid on behalf of all 10 member states by IRISL with the result that
each of them was regarded in relation to ESC as having subscribed 'and paid' the
advance subscription. Captain Khan disputes this contending that as the sole
shareholder which had made any payment, IRISL was in fact the sole shareholder in
ESC until the shareholder restructuring which occurred in 2000. The original Articles of
Association of ESC41 (albeit prepared in advance of the payment) records that: (a) the
whole of the shares have been subscribed by the founder states at equal rates; (b) all
groups of shareholders shall enjoy equal rights in all respects; and (c) 35 per cent of the
capital has been paid in advance by the subscribing states at equal rates.

[42] The official announcement of the establishment of ESC on 16 August 1997
identifies the original directors of ESC. Each was a representative of a member state.
The general meetings of ESC reflect that representatives of various member states
attended and voted without any indication that the shareholding between them was
anything other than equal. The meeting of 13 December 2000 was preceded by an
earlier extraordinary meeting which could not proceed 'due to non-attendance of

41 It provided:
'Company's capital : Nominal value of each Share:
Nominal capital of the company is US $ 10 million which is divided into 10 000 shares of US $1 000,
each.
Each Member Country and/or its nominees will hold 1 000 shares all groups of shareholders shall enjoy
equal rights in all respects. The Company shall not at any time issue any bearer shares nor shall the
Company at any time convert any existing registered shares into bearer shares.
. . .
ARTICLE 7
Subscribing of Shares
The whole of the shares have been subscribed to by the Founder States at equal rates 35 per cent of the
capital has been paid in advance by the subscribing states at equal rates. The remaining amount will
again be paid by Founder States as equal rates in accordance with the decision of the General
Assembly.'

majority members'. That is consistent with the notion that each of the 10 member states
was at that time an equal 10 per cent shareholder.

[43] Capt Khan’s evidence does not survive scrutiny. The overwhelming evidence to
the contrary is that until 13 December 2000 IRISL (on behalf of the Iranian State) held
10 per cent of the shares in ESC. Moreover, his country, Pakistan objected to the
change in shareholding that occurred on 13 December 2000 on the basis that all
member states were required, through the Council of Ministers, to approve an
amendment to the Articles of Association. It follows that Terra-Marine has failed to
discharge the onus resting upon it and that on this leg as well it must fail.

[44] In the result the appeal must succeed. In that event the parties were agreed that
the following order that identifies the claims that arose after 13 December 2000 should
issue. It is accordingly ordered as follows:

The appeal is upheld with costs.

The order of the court below is set aside and substituted with an order in the
following terms:

'(a)
The respondent's action in rem against the mv Iran Dastghayb under case
number A148/2005 is stayed in terms of section 7(1)(b) of the Admiralty
Jurisdiction Regulation Act 105 of 1983 pending determination of the
respondent's claims in the arbitration proceedings in London.

(b)
The order for the stay of the in rem action in paragraph (a) hereof is made
subject to the second applicant providing security to the respondent for any final
and un-appealable arbitration award in the arbitration proceedings (and also in
the in rem proceedings should the stay of the action be lifted). Such security shall
be restricted to the claims identified in paragraph 59 of the founding affidavit of

Mr Reddy at pages 43-45 of the record as arising after 13 December 2000 and
limited to the capital sum of USD830 420.43 in respect of:

(i)
Unpaid management fees in the sum of USD632 100.00;
(ii)
Steel work and repairs in respect of the MV Eco Elham in the sum of
USD11 000.98;
(iii)
Steel work and repairs in respect of the MV ECO Ekram in the sum of
USD156 044.45;
(iv)
P & I Insurance reimbursement in relation to the MV ECO Ekram in the
sum of USD15 315.00;
(v)
Bunkers at Karachi USD15 960.00,

together with USD99 650.45 in respect of security for interest and USD25 000.00
in respect of legal costs; and

(c)
Upon the provision of such limited substitute security the security previously
provided by the second applicant shall be cancelled and the respondent is
directed to return all and any letters of undertaking furnished in that regard to the
applicants' attorneys for cancellation.

(d)
The respondent is ordered to pay the second applicant's costs, such costs to
include the qualifying fees of the expert witness Dr Iraj Babaei.’

_________________
V M  PONNAN
JUDGE OF APPEAL

APPEARANCES:

For Appellant:

S R Mullins SC

Instructed by:

Shepstone & Wylie

Durban

Matsepes Inc

Bloemfontein

For Respondent:

A M Stewart SC

Instructed by:

Cox Yeats Attorneys

Durban

McIntyre & Van Der Post

Bloemfontein
SUPREME COURT OF APPEAL OF SOUTH AFRICA

MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL

FROM

The Registrar, Supreme Court of Appeal

DATE

23 September 2010

STATUS

Immediate

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

Islamic Republic of Iran Shipping Lines v Terra-Marine SA
(19/10) [2010] ZASCA 118 (23 September 2010)

Media Statement

Today the Islamic Republic of Iran Shipping Lines (IRISL) succeeded before the Supreme Court of
Appeal (SCA) in an appeal against a judgment in favour of Terra-Marine SA by the Durban High Court
in the exercise of its admiralty jurisdiction.

During 1995 Eco Shipping Company (ESC), a private joint stock company was registered and
incorporated in the Islamic Republic of Iran with a view to providing a vehicle to 10 Asian Islamic
countries to enable them to engage in shipping as a joint venture. On the formation of ESC, the IRISL,
a ship owner registered according to the laws of the Islamic Republic of Iran, bareboat chartered two
vessels the Eco Elham and the Eco Ekram to ESC.

In terms of a written agreement dated 27 January 1997, Terra-Marine SA a company registered and
incorporated in accordance with the laws of Switzerland was contracted to manage and administer
the vessels on behalf of ESC. That agreement contained an arbitration clause which provided that in
the event of disputes arising between Terra-Marine and ESC such disputes should be referred to
arbitration in London in terms of the provisions of English law. Disputes did indeed arise and in
consequence thereof Terra-Marine commenced arbitration proceedings against ESC in London. A
sole arbitrator was appointed during November 2003. During December 2005 and whilst the London
arbitration proceedings were still pending Terra-Marine commenced an action in rem against some 92
vessels including the MV Iran Dastghayb in the Durban High Court. On 6 March 2006 the Iran
Dastghayb was arrested in terms of a warrant of arrest issued pursuant to that action.

During October 2006 IRISL launched an application for an order that the in rem proceedings in the
high court be stayed in terms of s 7(1)(b) of the Admiralty Jurisdiction Regulation Act. The high court
held that IRISL, not being a party to the arbitration agreement between Terra-Marine and ESC, was

not entitled to invoke the arbitration agreement. It consequently dismissed the application. On appeal
the SCA held that the Act clearly differentiated between two situations when a court may grant a stay.
The first where the parties concerned had agreed that the matter in dispute be referred to arbitration
and the second if for any other sufficient reason the Court is of the opinion that the proceedings be
stayed. The SCA held that the high court appeared not to appreciate that it was empowered by the
legislature to grant a stay in two different circumstances and that in relation to the second
circumstance it had a far wider discretion. The SCA then set out various reasons why, in its view, the
stay application ought to have succeeded. It accordingly upheld the appeal, granted the stay of
proceedings sought by IRISL as well as certain ancillary relief.

--- ends ---