Creditors’ ability under Maltese law to file an application before the courts for an injunction prohibiting the sale, transfer or deregistration of Maltese-flagged vessels has proven to be a useful and effective tool to protect maritime claims.
Section 37 injunction
In essence, the Section 37 injunction allows creditors, in certain circumstances which give rise to a maritime claim attracting the jurisdiction of the Maltese courts in rem, to obtain a court order which prohibits the vessel from being sold or entering any further mortgages until the merits of the case have been decided in the appropriate jurisdiction. When granted, the order is served on the registrar of Maltese ships and is recorded against the vessel’s entry in the registry. This obliges the registrar to refrain from:
- recognising any transfer of ownership;
- recognising any further mortgages; and
- issuing any deletion certificate for the vessel.
Further, if a transcript of register is issued, the injunction will appear on the transcript.
The law provides that the demand for the order must be made by sworn application as though the party were commencing an action. As with all such applications, this must be served on the defendant, which has 20 days to file a defence. The matter is also given a hearing date. Submissions and ultimately a court decision follow. The court will decide whether to agree to the request to order that no further transfers can be effected until the matter on the merits is decided. As this will take time and because any forewarning in the issuing of the injunction may defeat the object of the exercise, the law allows creditors to file an ex parte application together with the statutory sworn application, containing the same demands and requesting that the court agree to the order immediately and on an interim basis until the statutory sworn application has been heard and decided definitively. This caters for the element of urgency which often accompanies the necessity of obtaining such injunctions to ensure timely protection of creditors’ interests.
In the recent case of Dr Ann Fenech as mandatory for and on behalf of Clearlake Shipping Pte Ltd v Global LNG Limited, the creditor followed the above procedure in seeking security for a claim arising from a dispute under a charterparty concluded between the parties in relation to the MV Portovyy. While the merits were, in terms of the arbitration clause contained in the charterparty, subject to arbitration in London, the charterers were keen to ensure that their rights would be secured in the eventuality of them obtaining a favourable award.
The Maltese courts granted the Section 37 order on a provisional basis on the same day as the filing of both the statutory sworn application and the ex parte application (as described above). The owners eventually filed a cash deposit in the amount claimed by the charterers in the court registry, together with a request for the court to order that the Section 37 order be revoked.
By means of a 26 November 2020 decree, the court held that rather than ordering the revocation of the Section 37 injunction, the effects of said order would cease to exist insofar as the vessel itself was concerned but would continue to apply exclusively to the cash deposit provided by way of security by the owners, pending the final determination of the merits or a settlement being reached by the parties.
This case illustrates the practical efficacy of these procedures, which are an efficient tool for obtaining security while allowing owners to continue to make full use of their vessels. Further, the law allows owners to shift the effect of such an injunction from the vessel itself onto adequate security that may be provided by them in terms of law.
By Alison Vassallo, Fenech & Fenech Advocates