Arrest of Ships Archives

Recent changes to procedures in relation to vessel arrests

January 22, 2020 Leave a Comment

Procedures for an arrest of vessel in Malta have been recently upgraded to enable, for the first time in Maltese legislative history, privately-engaged bailiffs to formally serve a warrant of arrest on ships that are in Maltese territorial seas. Act XXXI is the law that brought these changes into force effective as on the 18th of December 2019.

The new law changes the traditional rule that required that service of warrants of arrest must necessarily be done by a Court Official, typically the Court Marshall. The new law introduces flexibility into the procedure for service of an arrest in that it enables the creditor to engage a private bailiff (identified ‘a priori’ to the Court) to physically serve upon and notify the warrant of arrest to the ship’s Master and proceed to ‘seize’ the ship’s papers for them to be lodged in Court. Under the newly promulgated procedure, the privately engaged bailiff will work hand-inhand with Court officials thus ensuring that all steps remain subject to Court scrutiny.

The new procedure is specifically intended to facilitate the arrest of ships in difficult weather conditions, particularly where ships are miles away from Maltese shores, on anchorage, and sea conditions are bad. Now, more appropriately, rather than having Court personnel shipped out to vessels to enable notification of an arrest warrant, lawyers acting for creditors can tap the private sector to engage individuals that are apt to go out at sea in such weather conditions in place of the Court Marshall.

Contributed by Ganado Advocates, Source: Lexology

Click here to view Act XXXI

Flag injunctions: practical alternative to ship arrests

September 23, 2019 Leave a Comment

Introduction

Located in the heart of the Mediterranean and on the rhumb line between Gibraltar and the Suez Canal, Malta has long been regarded as a hot spot for ship arrests. Maltese law is straightforward in terms of who has a right to arrest and which claims may be secured by means of an arrest. Consequently, creditors can pre-assess and pre-determine whether they can proceed with a ship arrest in Malta. Further, local arrest procedures are quick, efficient and inexpensive meaning that a creditor monitoring or tracking a debtor’s vessel would normally be more than pleased to discover that said ship is scheduled to call at a Maltese port.

However, while ship arrests are a powerful legal remedy for creditors, they have one major limitation: they are possible only where the targeted vessel actually enters Maltese waters. Thus, a vessel can be arrested only when it is physically present within Malta.

Section 37 injunction

Apart from arrests, Maltese law offers creditors another practical and useful mechanism to ensure that they can adequately secure maritime-related claims, which may arise in connection to vessels. Section 37 of the Merchant Shipping Act affords a creditor the right to request the courts to issue an injunction over any vessel flying the Maltese flag, to ensure that it cannot be sold, transferred or deregistered from the Maltese ship registry. An injunction may be requested at any time, irrespective of where the ship is located or trading. The relevant court order is colloquially referred to as a ‘Section 37 injunction’.

From a procedural perspective, a creditor must file a sworn application requesting that the courts prohibit the sale or transfer of its debtor’s vessel. This must then be served on the debtor, which has 20 days to file a reply. Subsequently, the court will schedule a hearing to determine whether to issue the final injunction. However, given that speed is of the essence when dealing with injunctions of this nature, the creditor will also simultaneously with its application, file an ex parte application (ie, the debtor is not served with a copy of the same) requesting that the same court immediately issue a provisional injunction prohibiting any transfer or sale of the vessel pending the outcome of the final order. This ensures that the element of surprise is maintained and that a provisional injunction is issued expeditiously. Indeed, a provisional injunction is normally issued within the same day that the request is filed. When the court issues an injunction order, be it provisional or final, it is immediately served on the national ship registry administration and is then duly recorded in the ship’s register. Once the injunction is duly registered, the Maltese registry will not recognise or record any sale or transfer of that particular vessel, unless the ship is sold by judicial sale. Likewise, the owner will be prohibited from deregistering the vessel from the Maltese register while the injunction remains in force.

The Section 37 injunction is regarded by many as a practical and useful tool for creditors for a number of reasons. Malta is currently the sixth largest flag in the world and the largest in the European Union, boasting a gross tonnage of more than 82 million. The fact that a Section 37 injunction is issued on the basis of the flag rather than the location of a ship means that this remedy is available for roughly 6% of the world fleet. In addition, more than 780 superyachts are registered under the Maltese flag. This particular remedy offers creditors a more discreet way of securing their claims than having to arrest. Further, this procedure is available irrespective of whether the ship owner is a Maltese entity. The Maltese courts have jurisdiction to issue Section 37 injunctions against any owner of a Maltese-flagged ship, even if they are foreign domiciled.

Further, unlike a ship arrest, a Section 37 injunction does not impede a vessel from trading and operating commercially. As such, this remedy is advantageous to creditors faced with a debtor that is facing liquidity or cash-flow issues despite having assets (ie, ships). By allowing a vessel to continue to trade, a ship can continue to generate profits and liquidity for its owner. The cash earned could eventually translate to the creditor’s debt being paid off. In addition, throughout the whole process, the creditor can be confident that the ship cannot be transferred and thus that it has security for its claims. Because the ship is not impeded from its commercial operations, there are also restrictive circumstances where a debtor may request the court to order a creditor to provide for counter security. This is naturally an advantage for creditors. Further, provided that the grounds to issue the flag injunction subsist, there are limited defences or challenges which can be brought to frustrate a Section 37 injunction.

If creditors maintain their flag injunction over a vessel, it will remain registered in the ship’s registry. This means that if the debtor ship owner wishes to sell its ship in future, it would be prohibited from doing so until it either settles the debt or challenges the injunction. Thus, in some cases, the mere fact that the ship cannot be transferred creates enough pressure for a debtor to settle its dues.

Comment

For all of the above reasons, the Section 37 injunction provides creditors with an interesting, cost-efficient remedy where a ship arrest is not possible.

by Adrian Attard, Fenech & Fenech Advocates

Source: ILO

The judicial sale by auction of the Indian Empress

September 5, 2018 Leave a Comment

The June 2018 sale of the Indian Empress has attracted the attention of the superyacht community worldwide and international brokers, the international yachting media, potential owners and creditors of the yacht are watching this space very closely.

Overview of legislation

The sale of the Indian Empress must be considered in the context of the Code of Organisation and Civil Procedure and the Merchant Shipping Act, which have assisted in making Malta an important maritime jurisdiction.

The 2006 amendments to Article 742 of the Code of Organisation and Civil Procedure outlined:

an extensive list of claims for which the Maltese courts have jurisdiction in rem over vessels; and
additional powers given to vessel mortgagees under the Merchant Shipping Act through the newly introduced court-approved private sales.

These changes significantly contributed to the increase in maritime cases heard by the Maltese courts.

Further, the absence of a specialised admiralty court has not stopped the development of a robust body of maritime case law, principally due to the fact that maritime cases are referred to the same judges who have established procedures and provided important precedents in this regard – particularly in the realm of court-approved private sales and scenarios such as the one presented in the case of the Indian Empress.

Facts

The Indian Empress is a 95-metre superyacht built by Oceanco. The owners had approximately €27 million worth of debt with diverse creditors ranging from unpaid crew, to unpaid suppliers, service providers and financiers. The vessel was arrested in Malta by multiple creditors. These creditors are now obtaining favourable judgments and enforcing these against the vessel’s owners.

One such creditor, Melita Power Diesel Limited, filed an application requesting the judicial sale of the vessel. The sale was set for 28 June 2018 and attracted significant interest. The day before the sale, the owner of the Indian Empress filed an application in court asking to postpone the sale because they had previously entered into a memorandum of agreement (MOA) with Crediyacht Ltd to sell the yacht for $42 million. According to the owners of the vessel, Crediyacht needed more time to make the payment. It is unclear why the owners of the Indian Empress believed that the judge would grant their extension, particularly because owners of a vessel under arrest by several creditors cannot enter into a private MOA with a third party for the sale of the yacht unless all of the creditors will be paid and the arrest lifted. The court correctly refused the application, presumably seeing this as nothing more than a delay tactic. The court ordered the auction to proceed.

Under Maltese law, every bidder must offer evidence to the court-appointed auctioneer that they can cover their maximum bid. However, on the date of the sale, of the many international bidders that made offers, Crediyacht Ltd (the same company which had supposedly previously entered into an MOA for the private purchase of the yacht) had the winning bid of €43.5 million. Maltese law does not require a deposit to be made on the day of the auction; instead, it merely requires the successful bidder to pay the purchase price into the court within seven days.

However, concern arose when it became apparent that the successful bidder was the same entity which had previously been unable to produce the purchase price after supposedly entering into a MOA weeks earlier.

As expected, seven days after the auction, Crediyacht Ltd filed an application in court requesting an extension to make the payment. Naturally, all of the creditors opposed this request.

The judge refused the application.

In the meantime, the mortgagee – Barclays Bank – filed an application requesting the court to appoint a new date for the sale of the vessel and:

require any interested party to produce evidence to the court-appointed auctioneer that they had “guarantees or equivalent evidence or security for a value of not less than 35 million euros in place”; and
prohibit Crediyacht Ltd from participating in any future auction.

The main difficulties with the request to provide a guarantee of no less than €35 million was that:

Maltese law does not allow a minimum price in the case of the judicial sale of a vessel; and
accepting such a request would be tantamount to the court agreeing that a bidder could not make a bid of less than €35 million.

Decision

In his novel judgment, Justice Mark Chetcuti took a leaf out of the UK equity courts’ books and did not allow himself to be restrained by the failure of Maltese law to provide for the situation while maintaining the spirit of the law. Instead, Chetcuti:

set a new auction date for 19 September 2018;
required all bidders to deposit €1 million within 48 hours of the sale date;
prohibited Crediyacht from participating in the next auction; and
held Crediyacht responsible for paying the difference in the sale price if, at the 19 September auction, the Indian Empress was sold for less than the €43.5 million which Crediyacht had bid for the yacht on 28 June 2018.

Comment

This is the first time that a Maltese court has ordered bidders in a judicial sale by auction of vessels to make a cash deposit in court prior to the sale taking place and the first time that a bidder has been held liable for the payment of the difference.

by Ann Fenech, President of the Malta Maritime Law Association and Managing Partner of Fenech & Fenech Advocates

Source: ILO

Court lifts physical bunker supplier’s arrest of vessel

March 23, 2017 Leave a Comment

Following the issuance of a provisional arrest warrant for a yacht at the request of a physical bunker supplier, the Maltese court determined that it was not vested with jurisdiction in rem and accordingly lifted the arrest.

Facts

The motor yacht Vicky was arrested in Malta on January 4 2017 by Thevenin & Ducrot for a claim relating to unpaid bunkers supplied to the yacht. The owners of the yacht subsequently filed an application before the Maltese courts challenging the arrest and arguing, among other things, that the Maltese courts lacked jurisdiction in rem.

The court had to examine whether the requirements set out under Articles 742B and 742D of the Code of Organisation and Civil Procedure and Article 50 of the Merchant Shipping Act were satisfied when the arrest warrant was issued.

Maltese law and jurisprudence dictate that three essential requirements must be satisfied in order for an arrest in rem to be validly issued:

The vessel must be physically situated within Maltese territorial waters.
The claim must fall under Articles 742B of the Code of Organisation and Civil Procedure, which lists all maritime-related claims for which a claim in rem may be brought and includes dues “in respect of goods, materials, provisions, bunkers, supplies and necessaries supplied or services rendered to a ship for her operation, management, preservation or maintenance”.
The requirements set out under Article 742D of the Code of Organisation and Civil Procedure must be satisfied.

Article 742D provides that unless the claim is privileged in accordance with Article 50 of the Merchant Shipping Act, an arrest in rem may be brought against a ship only when the person liable for the claim:

was the owner or charterer, or in possession or in control, of the ship or vessel when the cause of action arose; and
is the owner, beneficial owner or the bareboat charterer of the ship when the action is brought.

The yacht owners argued that this requirement had not been satisfied.

The owners alleged that they were not liable for Thevenin & Ducrot’s outstanding dues. They further maintained that they had no juridical or legal relationship with the physical supplier that arrested the yacht. It transpired that the owners had not directly ordered the bunker supply in question. Instead, they had ordered bunkers from an intermediary fuel trader, Mastco Group AG. The latter entity subsequently used a third-party broker to purchase the fuel product from the physical supplier. However, when the bunkers were furnished to the Vicky, Mastco Group failed to pay the physical supplier. That said, the yacht owners had paid Mastco Group AG for the bunkers.

The physical supplier defended the arrest by arguing that although its invoices were issued to Mastco Group, the owners were aware of the order and accepted the fuel product. To this effect, the arresting party presented its bunker delivery note and argued that since this document bore the vessel’s stamp and was signed by the chief engineer, the owners were also liable for payment of the fuel product.

Decision

The court disagreed with the supplier’s argument, holding that the bunker delivery note was nothing more that proof of receipt of the fuel consignment. Moreover, the fact that it was signed by a representative of the vessel in no way meant that the vessel or the owners had participated in the contract of sale or were party to the agreement.

The supplier also alleged that its claim was in fact a privileged one in terms of Article 50(m) of the Merchant Shipping Act and that in any event, Article 742D of the Code of Organisation and Civil Procedure should not apply. However, in order for a claim to be deemed privileged, the debt in question must have been contracted directly by the owner of the ship, the master or an authorised agent of the owner. To this effect, the supplier argued that when Mastco Group AG ordered the bunkers it did so as an authorised agent for and on the behalf of the vessel. The court disagreed with this contestation as no substantial evidence was produced to prove, even on a prima facie basis, that Mastco Group AG had acted as the agent of the owners or vessel when purchasing the fuel product.

The court thus concluded that the Maltese courts were not vested with jurisdiction in rem and ordered that the arrest warrant be lifted.

Comment

In light of the growing spate of claims brought by physical suppliers against shipowners, this judgment sheds important light on the onus of proof with which an arresting creditor is burdened. The court held that it was insufficient merely to procure evidence of knowledge of the supply or proof of acceptance of the product from the supplier; there must be a more genuine juridical link between the physical supplier and the owner of the vessel. In this regard, the court may have reached a different conclusion had the bunker delivery note included a statement or declaration incorporating the physical supplier’s terms and conditions (which, in turn, may hold a shipowner jointly and severally liable for the payment). In this scenario, there are arguments both in support and against any arrest in rem made on this basis. That said, this remains a moot point, as it is still untested by the Maltese courts. Further, it would appear that a claim for unpaid fuel product ordered by a third party may in certain circumstances be considered privileged, provided that there is unequivocal evidence that the third party made the order in its capacity as an authorised agent of the owners.

Contributed by Dr Adrian Attard, Fenech & Fenech Advocates

Source: ILO, 22 March 2017

Wrongful Arrest of Ships (2)

October 25, 2015 Leave a Comment

In May of this year I wrote about the case of the MV Dadayli (February 12, 2015 per Madam Justice Jaqueline Padovani), where the court upheld the application of the vessel Dadayli which claimed that the arrest of the vessel was illegal given that the conditions stipulated in section 742 (b) of our Code of Organisation and Civil Procedure were not satisfied. (See: Wrongful Arrest of Ships (1))

As I stated then, the effects which an arrest of a vessel have on the owners or charterers can be disastrous. This makes arrest an exceptionally effective and powerful tool which a genuine creditor has every right to use provided the law is observed. It is equally important that the procedure is not abused and not used for the purposes of putting illegitimate and illegal pressure on owners. As a result it is in the interest of the rule of law and of ensuring the maintaining of high standards that the parameters established by the law are observed.

Otherwise it could easily lead to a ‘free for all’. This ‘free for all mentality’ is however raising its ugly head in Malta and overseas to the extent that the Comité Maritime International (CMI) has deemed it necessary to form an International Working Group to study the frequency of illegal arrests and how various jurisdictions, members of the CMI, deal with them. It is significant that the CMI, the international body which drafts the majority of international maritime conventions prior to their approval by the IMO or the UN, has put this item on its agenda.

The judgement in the case related to the MV Dadyli was not the only time this year that the court in Malta pronounced itself on the failure of arresting parties to follow the law which is there to safeguard against abuse.

On May 20, in another case the court agreed to the issuing of a warrant of arrest against the MV Blue Rose. The arresting party filed a sworn application stating that the vessel was in Maltese territorial waters outside harbour and that the claim could be prejudiced with the departure of the vessel. It is important to underline the fact that the jurisdiction of our courts extends over Malta’s 12 mile territorial sea.

Maltese courts do not have jurisdiction and therefore cannot grant warrants of arrest of vessels outside its territorial sea which is why the law provides that the applicant must swear a declaration as to the location of the vessel within Maltese territorial waters. Unlike the situation 20 years ago today every person with access to a computer can on a 24/7 basis find out exactly whether or not a vessel has entered Maltese territorial waters.

It is important for our judiciary to ensure, as they have already, that the law of the jungle does not become a reality

The warrant was served on Transport Malta which immediately realised that the vessel was not even in Maltese territorial waters. This meant that the warrant of arrest was null thus rendering the arrest of the vessel illegal. Transport Malta immediately filed a note before the court informing the court of this and Mr Justice Joseph Zammit McKeon quite correctly and promptly revoked ‘contrario imperio’ the warrant of arrest which he had granted a few hours earlier .

The case indicates that a system which works perfectly when the law is respected can so easily be abused which can lead to a loss of trust in the system. This would be a great shame. One of the things that makes arrests in Malta most efficient is the fact that an arresting party can obtain an arrest ex parte, meaning that it is not an application which is served on the defendant. If that were the case it would defeat the object of the exercise with the element of surprise being the most important part of the procedure.

However, precisely because a duty judge is obliged to accept the ex parte declarations made by the arresting party he needs to have the comfort of knowing that those declarations are correct and honest. If they are not correct and honest then that puts into jeopardy the entire system which we cannot afford to forfeit. Of course the legislator tried to safeguard against abuse by stating that such declarations by applicants need to be sworn.

Sadly, however, we are seeing an increasing number of what are essentially declarations taken in the most superficial of manners without verification of what they are supposed to be swearing to. Therefore the immediate action taken by the court on this occasion was extremely important sending out the message that misinformation

on a document which must represent the truth indicating that a vessel is in Maltese territorial waters when in fact it is not will not be tolerated.

This was not the first time that a warrant of arrest was issued when the vessel in question was not even in Maltese territorial waters. The exact same thing happened in the case of the Madara. This is the case which is repeatedly cited by the media as the vessel which ‘escaped’ from arrest. In fact the vessel never ‘escaped’ from arrest at all.

Like the case of the Blue Rose the arresting party swore that the vessel was in Maltese territorial waters and obtained the warrant when the vessel in fact was not in Maltese territorial waters at the time and was never served with the warrant.

This meant that the arrest of that vessel was an illegality and the warrant of arrest null and void and would have been revoked had it come before our courts as in the case in the Blue Rose.

The fact that the vessel was not in Maltese territorial waters when the arrest warrant was issued was established by the report published by Brigadier Carmel Vassallo who had been commissioned to conduct an investigation into the ‘escape’ of the vessel. Regrettably the author of the report missed this point completely and focused on who had the responsibility of keeping the vessel from ‘escaping’ when in fact it had not escaped in the first place.

The moral of the story of course is that the parameters and conditions which the law provides must be religiously and meticulously observed otherwise what we will have in reality would be the law of the jungle. Malta has worked exceptionally hard to develop into a maritime nation of repute and we cannot allow a deterioration of standards or the anything goes mentality reflected in the application of the law.

Our legal system not only needs to be serious and solid but needs to be seen as serious and solid. It is therefore even more important for our judiciary to ensure, as they have already, that the law of the jungle does not become a reality and that persons abusing the system are taken to task.

by Dr. Ann Fenech, managing partner at Fenech and Fenech Advocates and President of the MMLA.

Source: Sunday Times of Malta, 25 October 2015

Member of the Comité Maritime International

Recent changes to procedures in relation to vessel arrests

Flag injunctions: practical alternative to ship arrests

The judicial sale by auction of the Indian Empress

Court lifts physical bunker supplier’s arrest of vessel

Wrongful Arrest of Ships (2)

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