In the recent judgment of LBH Mozambique Limitada v The Fund of the Proceeds of Sale of Cargo on board the MV “Red Fin” and China Construction Bank Corporation (available here), the Durban High Court has confirmed that only creditors with genuine “maritime claims” in terms of section 1 of the Admiralty Jurisdiction Regulation Act 105 of 1983 may claim from a fund formed by a debtor’s maritime property which has been judicially attached and sold. Ordinary creditors with claims of a non-maritime nature are not entitled to lodge claims and compete with maritime creditors in the distribution of a fund.

In this important case, the Respondent bank challenged the correctness of the above principle which favours ordinary non-maritime creditors . The bank had lent and advanced a significant sum of money to the previous owner of the cargo, Metalmin, which was sold to form the fund in this case. Metalmin had defaulted on the loan and entered into voluntary liquidation proceedings shortly after the attachment of its cargo by the Applicant (represented by Bowman Gilfillan). Substantively speaking, a claim for monies lent and advanced to purchase cargo is not a maritime claim in terms of the Act. However, the Respondent sought to elevate its ordinary claim to a maritime claim by relying on a definition in section 1(1)(x) of the Act, which includes as a maritime claim “any claim for, arising out of, or relating to the distribution of a fund or any portion of a fund held or to be held by, or in accordance with the directions of, any court in the exercise of its admiralty jurisdiction, or any officer of any court exercising such jurisdiction.” The bank argued that the fact that it had lodged a claim against the fund effectively elevated or converted its non-maritime claim to a maritime claim.

The bank's argument was challenged by the Applicant and, ultimately, rejected by the Court on the basis that it is not the purpose of section 1(1)(x) to turn a non-maritime claim, which cannot otherwise be enforced under the Act, into a maritime claim simply because it has been lodged against a fund. This view that ordinary creditors cannot compete with maritime creditors to share in a fund has been widely accepted by maritime lawyers as being in line with the scheme and purpose of South African admiralty legislation. The judgment is to be welcomed as confirmation of the correctness of this principle notwithstanding the provisions of section 1(1)(x).

A more detailed article on this case can be accessed here or downloaded above.

For more information please contact Andrew Pike - Partner or Nicola Nel - Associate at Bowman Gilfillan.