The arrest of vessels is an important and powerful weapon. In Malta, vessels can be arrested in order to achieve two objectives. The first is through a precautionary arrest warrant in order to secure a claim which has not yet been decided. The other is through an executive arrest warrant, which seeks to enforce a favourable judgment already obtained where the creditor refuses to pay the debt. The arrest of a vessel can eventually lead to the sale of the vessel in order to satisfy a judgment debt. In the meantime, the vessel is taken away from the owner and thus the owner can no longer earn an income from the vessel.
As a result, arrests usually have serious financial consequences for owners. Arrests are typically unannounced, often when a vessel is trading under charter and loaded with cargo. Having a vessel arrested puts an immediate stop to this activity, opening the owner up to other claims and losses. Therefore, the arresting party must be on the right side of the law and it is crucial that when arresting a vessel, the criteria permitting the arrest and the safeguards provided by the law are followed meticulously. If they are not – or if the law allows for a trigger-happy arresting party to proceed despite having no real grounds for arrest – there could be an increase in lawlessness. For example, it would give rise to an attitude of ‘might is right’ and increase the number of unscrupulous persons with suspect claims arresting vessels erroneously in the hope that the arrest will cause such chaos that the owner will simply give in to pressure and pay up. This would be wrong and illegal.
A recent case highlighted both the importance of this subject and a loophole in the law. Cassar Fuel Ltd v the MV K Dadayli was decided on February 12 2015 by Jacqueline Padovani Grima. Cassar arrested the MV K Dadayli for unpaid bunkers. The vessel was arrested long after it had been sold and the persons responsible for the payment no longer owned vessel. This was in breach of Article 742(D) of the Code of Organisation and Civil Procedure. Under Article 724(D), which was introduced into law in 2006, vessels may be arrested in rem only when the party that is liable for the claim in personam is the owner or bareboat charterer of the vessel when the action is brought or, in case of arrest, when the arrest is affected. This amendment was based on principles of equity and justice because it is neither equitable nor just to allow a vessel belonging to X to be sold in order to satisfy a judgment for a claim for which A (the previous owner of the vessel) is responsible.
The vessel owners filed an application primarily requesting that the court revoke the arrest warrant on the basis that the criteria stipulated in Article 742(D) were not satisfied. The vessel owners also requested the court to order the plaintiffs to pay for the expenses and damages that they suffered as a result of the illegal arrest (eg, extra bunkers consumed during the arrest, agency fees, port dues, pilotage fees, mooring costs during the arrest and a loss of time in relation to its chartering activities (by virtue of Article 836 (9)). Finally, the vessel owners requested that the court impose a penalty on the plaintiffs on the basis that the arrest was malicious, frivolous and vexatious in relation to Articles 836(8) and 861 of the Code of Organisation and Civil Procedure.
The court clearly stated that the criteria established in Article 742(D) must be followed religiously; therefore, a vessel cannot be arrested in support of an action in rem if the party that is liable for the claim in personam when the cause of action arose is no longer the owner or bareboat charterer of the vessel on arrested. Therefore, in this case, the arrest was illegal and the arrest warrant was revoked.
The judgment stopped short of making reparations to the vessel and its owners, which suffered damages as a result of the abusive arrest. This is because in the court held that the arrest of the vessel notwithstanding, the defendants’ failure to satisfy the criteria established by Article 742(D) was not malicious, frivolous or vexatious. Given that the court came to this conclusion, no penalty was applied and no award for damages could be sought as, according to Article 836(9), damages can be awarded only in cases which attract a penalty.
It could be argued that the court was incorrect in finding that the arresting parties’ actions were not malicious, frivolous or vexatious. Regardless, this case has highlighted a weakness in Maltese law, insofar as the right to damages resulting from an illegal arrest appears to be inextricably linked to the vessel owners proving that the arresting party should be ordered to pay a penalty.
In fact, the two should be separate and distinct. Vessel owners should be entitled to damages arising out of an illegal arrest as a natural and automatic consequence of a declaration that the arrest was illegal or wrongful because the necessary criteria were not followed. This right to damages once an arrest is declared illegal should have nothing to do with the court’s right to impose a penalty on an arresting party where Article 836(8) applies.
The fact that a party may arrest a vessel without satisfying the criteria for arrest and without paying for damages resulting from the illegal arrest merely because the court is unconvinced that the circumstances fit the criteria for which it could impose a penalty on the arresting party is not good news. It is something which the next round of amendments to the Code of Organisation and Civil Procedure must address.
Contributed by Fenech & Fenech Advocates,
Published in ILO, 6 May 2015
read also Part 2 of this article