16 JULY 2008

NECESSARIES CLAIM IN TERMS OF SECTION 11(4)(C)(V) OF ADMIRALTY JURISDICTION REGULATION ACT 105 OF 1983 DOES NOT INCLUDE A CLAIM OF AN ENTITY WHO PAYS THE THIRD PARTY WHICH RENDERED THE ACTUAL SERVICES

The Supreme Court of Appeal recently considered the claim of Orient, the port agent for Royal Olympic Cruise (ROC)’s vessels which had undertaken on behalf of ROC to pay the sum of US$ 517 000.00 to four entities which had rendered services to the Olympic Countess vessel in 2001, amounting to US$517 000.00.

ROC failed to reimburse Orient for a portion of the payments as it was obliged to do. Orient arrested the vessel in order to satisfy its claim which it alleged fell within the ambit of Section 11(4)(c)(v) and thus enjoyed priority over the Bank’s mortgage claim. The Bank disputed the ranking claimed by Orient, alleging inter alia that its claim fell under section 11(4)(f) and hence below that of the mortgagee’s.

Three of Orient’s four claims were claims against entities which had rendered services to the vessel and thus enjoyed maritime claims within the meaning of section 1(1)(m) of the Admiralty Jurisdiction Regulation Act 105 of 1983, they being “claims for, arising out of or relating to …the supplying of goods or the rendering of services for the employment, maintenance, protection or preservation of a ship”.

One of the four claims was a claim Orient had against an entity it had paid to pay the third party which had rendered the services to the vessel. The Bank objected to this claim on the basis that it was not a maritime claim and accordingly did not fall within the ambit of section 11(4)(c)(v).

Counsel for Orient submission was that the phrase “in respect of” in section 11(4)(c)(v) should be construed so as to include not only the claims of the entity which actually renders the services, but also the claims of the entity which pays the entity rendering the services.

The court held that the claims Orient had submitted in respect of the payments to the three entities which had actually rendered services to the vessel fell within the scope of section 11(4)(c)(v) but that these claims had arisen earlier than one year before the commencement of proceedings to enforce them or before the submission of proof thereof and, accordingly, these three claims could not enjoy the priority over the bank’s claim, but rather fell to be ranked under section 11(4)(f).

In respect of the fourth claim (in respect of the payment to an entity other than that physically performing the services), the court held that the entity which pays the claim of another cannot acquire a better right, privilege or preference than the entity receiving payment. Section 11(8) (which provides that entities paying the claims of third parties acquire the same rights as the entity actually providing the services) does not however extend those rights to the claim of an entity which pays another to pay the actual repairer, supplier or entity rendering the services. The court held that if that were to be the position, the limitation on priority ranking only for claims arising within one year of their enforcement could simply be overcome by the claimant paying the intermediary within one year of the enforcement and would encourage claimants whose claims were “older” than one year to “sell” the claim to a third party, thereby conferring an elevated ranking to the claim.

 
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