(Sea Venture Volume 19)
The appointment of nominee shareholders of shipowning companies may well create a liability for debts due from other companies.
That is the result of the judgement of the South African highest commercial court of appeal in the case of mv "Heavy Metal"1. In that case the court considered the South African legislation that entitles a claimant to arrest a ship in the associated ownership of a debtor shipowner or charterer.
It is, perhaps, this category of arrest for which South Africa is most notorious. The associated ship arrest provisions were introduced into South African law as an extension of the English sister ship provisions. The South African provisions are more extensive in that they permit a piercing of the corporate veil. In this respect a vessel owned by a different company from the company which owns the ship concerned is susceptible to arrest simply by virtue of the two owning companies being commonly controlled.
Section 3(7)(b)(ii) of the Admiralty Jurisdiction Regulation Act, No 105 of 1983 provides that ''a person shall be deemed to control a company if he has power, directly or indirectly, to control the company''. It was this sub-section that the court considered in the ''Heavy Metal''. The Court held that that nominee shareholders have direct control over a company whilst their principals have indirect control.
This decision means that ships are associated so long as there is a common majority nominee shareholding in the owning companies. The practice of nominee shareholding is, of course, fairly widespread in shipping circles and has often been used to disguise the real shareholding in shipowning companies. Nominee shareholders are often employees of the law firm that registers the shipowning company. That practice will, in South Africa, now expose the shipowning company concerned to the debts of other vessels whose owners have the same majority nominee shareholders regardless of whether the principal shareholders are common or not.
Given that this judgement was made by the highest commercial Court of Appeal legislative change would be required to amend the effect of the judgement. In the interim members should be guided by the decision and consider amending their corporate structure.
With thanks to Tony Norton of Garlicke & Bousfield Inc, correspondents for Durban, South Africa, for preparing this article2.
1Belfry Marine Ltd v Palm Base Maritime SDN BHD 1999 (3) SA 1083 (SCA).
2This article was published on the Steamship website in March 2000
