MLA Site Additions

  • The Maritime Law Association of South Africa was established in February 1974 as a result of concern among maritime lawyers and the shipping industry that legislation in South Africa regulating maritime affairs did not appear to be keeping pace with developments elsewhere in the world.

The End of the Bounty of “Rule B” – The Shipping Corporation of India Ltd v Jaldhi Overseas PTE Ltd

On 16th October 2009, The Shipping Corporation of India Ltd v Jaldhi Overseas PTE Ltd the United States Court of Appeal for the Second Circuit with the consent of all judges of the Court in active service, overruled the infamous decision of  Winter Storm, Ltd v TPI 310 F.3d 263, 278 (2d Cir. 2002) .

Both decisions were concerned with Rule B(1)(a) of the Admiralty Rules which states:

“If a defendant is not found within the district, when a verified complaint praying for attachment and the affidavit required by Rule B(1)(b) are filed, a verified complaint may contain a prayer for process to attach the defendant’s tangible or intangible personal property-up to the amount sued for- in the hands of a garnishee named in the process.”

By emphasizing the “tangible or intangible” nature of the property The Winter Storm decision had vested the United States District Court of the Southern District of New York with jurisdiction when an electronic fund transfer (“EFT”) momentarily passed through an intermediary New York bank electronically. An EFT is simply an instruction to transfer funds from one account to another. An intermediary bank is used when the originator and beneficiary have accounts in different banks. In theses circumstances, the  EFT is completed when the intermediary bank debits that account of the originator’s bank held by it and credits the account of the beneficiary’s bank held by it.

The result of The Winter Storm decision was a flood of Rule B attachments from foreign claimants seeking security for their claims. The Court of Appeal for the Second Circuit gave an example of the “unforeseen consequences” by stating that a total of $1.35 billion had been sought to be attached by maritime plaintiffs who had filed 962 lawsuits in the preceding four months of the hearing which added to the burden of the 800 to 900 writs already served daily on the District’s banks.

The Court of Appeal for the Second Circuit readily accepted that such activity “has threatened the usefulness of the dollar in international transactions” and introduces “uncertainty into the international funds transfer process”. Although acknowledging that the overturning of The Winter Storm would dramatically affect maritime attachments in the jurisdiction it noted earlier decisions which attempted to limit the scope and application of The Winter Storm decision.

In addition to these policy considerations, the Court of Appeal for the Second Circuit identified the salient question as being “whose assets (ETA) are they while in transit?” The Court found the question of ownership to be critical because “as a quasi in rem , the validity of a Rule B attachment depends entirely on the determination that the res at issue is the property of the defendant at the moment the res is attached.” By analysing state law the Court concluded that EFT’s are neither the property of the originator nor the beneficiary while briefly in the possession of the intermediary bank and are therefore not subject to attachment.

The Court of Appeal for the Second Circuit decision is confined to EFTs where the Defendant is the beneficiary, as the question of whether an EFT where the Defendant is the originator was remanded to the District Court. However it is suggested that the District Court will readily follow suit and reach a similar decision.

With the advent of the Jaldhi Overseas judgment, traditional “arrest- friendly” jurisdictions may become more attractive which in theory should lead to  increased arrest activity in South Africa.