Legal Case Study Archives

Case Law Update Seminar – Call for Contributions

May 3, 2024 Leave a Comment

The MMLA Education Committee is excited to announce that it will be hosting a Case Law Update Seminar, scheduled to take place on or around 25 June 2024 between 4 pm-6.30 pm, to be followed by drinks.

During this seminar, three recent local cases which are of relevance to Malta’s legal development/ maritime industry will be tackled by means of case studies. The suggested formats are as follows:

Format A:

Each case will be tackled individually by a rotating panel of lawyers who acted for the parties in these cases. The case is to be assessed from the position of plaintiff and defendant with the final decision (if any) and its implications on the industry discussed by the said panel.

and/or

Format B:

A case study is presented by an individual lawyer. This format should also discuss the position of the plaintiff, that of the defendant and the final decision (if any) together with its implications on the industry.

Each case study should not take longer than 40 minutes, with a further 10 minutes put aside for questions after each panel/ presentation.

In the spirit of academic discussion, should you have an interesting case that you would like to put forward, we would encourage you to liaise with your counterparty lawyer/s so as to organise a lively debate on the subject matter.

In this regard, we are calling on lawyers who would be interested in contributing to the event to register their interest by sending an email to Dr Martina Farrugia (martina.farrugia@fenechlaw.com) by 15th May 2024, forwarding a brief summary of the case to be discussed and detailing why this is of relevance.

We look forward to hearing from you and with your help, putting together an interesting and educational seminar.

Court affirms scope and effect of Section 37 injunctions where security has been placed

April 22, 2021 Leave a Comment

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 obtained a Section 37 order on a provisional basis from the Maltese courts as security for a claim arising from a dispute under a charterparty concluded between the parties regarding the MV Portovyy (for further details please see “Court orders extension of effects of flag injunction to security deposited by debtor“). The purpose of the order was to prohibit the vessel’s sale, transfer or deregistration while the merits of the case were being determined in the appropriate fora – in this case, arbitration in London.

On 18 March 2020 the Maltese courts granted the Section 37 order on a provisional basis. This ex parte application seeking an immediate provisional order was filed, as is customary, together with the statutory sworn application containing the same demands. Such an application is then served on the other party which has 20 days to defend the application. The object of an ex parte application leading to an interim provisional order is to protect the status quo until the request is decided in due course. In this case, the owners eventually opted to file 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, which was delivered in open court with the agreement of both parties, the court held that rather than ordering the revocation of the Section 37 injunction, it was, in terms of the law regulating the procedure (ie, Section 37 of the Merchant Shipping Act), ordering that 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 settlement being reached by the parties.

The charterers subsequently filed an application before the Maltese courts requesting that the effects of the order be extended for a further year. This would align with the law, which envisages that any order of this nature granted by the courts expires within one year, unless a request for an extension is made by the creditor on the basis that such order was still required. The court granted this request by means of a decree of 8 February 2021.

Challenge to decrees

Given the above, it was of considerable surprise to the charterers when the owners subsequently filed a further application before the Maltese courts requesting revocation of both the 26 November 2020 and 8 February 2021 decrees.

The owners based their request for the revocation of the 26 November 2020 decree on the argument that, following the cash deposit made by the owners, the courts had never granted a final order and therefore procedures had effectively been extinguished. They further argued that when the law refers to the effects of the order applying to any amount deposited as security by the owners, reference is being made to a final order as opposed to a provisional order as had been granted in this case. The owners argued that there was no legal basis for revocation of either the 26 November 2020 or 8 February 2021 decree. In fact, there was every reason, given the purpose of the procedure provided by Section 37 of the Merchant Shipping Act, to extend:

the validity of the decrees by one year; and
the effects of the order to the cash deposit.

The charterers responded that it was indeed necessary for the court to extend the effects of the 18 March 2020 order to the security deposited by the owners pending the determination of the merits of the case. The charterers noted that when dealing with the extension of the effects of the order to the security deposited by the owners, the law makes no distinction between provisional and final orders. Further, if an order extending the effects of a prohibition from the transfer of the vessel to the free circulation of the security deposited instead of the vessel is not granted when an owner opts to deposit security, not only would such security remain unregulated, but the owners could effectively proceed with the withdrawal of the deposited sum pending the determination of the merits. The charterers argued that this interpretation contravened the scope of the Section 37 injunction, which provides a creditor with the possibility of obtaining security, pending the determination of the merits of the case, for the entire duration of the case.

Decision

By means of a 17 March 2021 decree, the court denied the owners’ requests and agreed with the charterers’ arguments in their entirety. The court held that the law made no distinction between provisional and final orders in allowing the effects of the Section 37 injunction to be extended to security deposited by the owners in the context of a Section 37 action. The court held that any differing interpretation would render Section 37 totally redundant, leading to circumstances where, if an owner deposited a cash security instead of leaving the attachment on the transfer of the vessel, the owners could freely withdraw the cash deposit irrespective of the fact that the action on the merits is ongoing and the security is still required. The court further denied the request for the revocation of the decree, extending the order for one year for the same reasons.

Comment

This case confirms what is already stated clearly in Article 37(4) of the law, which reads as follows:

Where the respondent either deposits in court the amount of the claim… or gives security… where the court has issued the order, it shall revoke the same with respect to the ship or the share therein, and the provisions of this article shall thereupon be applicable with respect to the amount so deposited or the security so given as the case may be.

This decision illustrates the effectiveness of the Section 37 injunction as a tool available to creditors seeking to obtain security for a claim pending the determination of the merits of the case. While the law allows owners to opt to deposit security, thereby removing the effects of the injunction from the vessel itself, the legislature has catered for these instances to ensure that creditors’ rights are not prejudiced.

by Dr Ann Fenech and Dr Alison Vassallo, Fenech & Fenech Advocates

Source: ILO

Court orders extension of effects of flag injunction to security deposited by debtor

February 12, 2021 Leave a Comment

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.

Case law

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.

Comment

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

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

Unnecessary risks constitute breach of marine insurance policy

May 2, 2016 Leave a Comment

On October 7 2015 in AJD Tuna Ltd v Citadel Insurance plc the Maltese Civil Court held that underwriters need not make payments under an insurance policy when the loss or damages occurred due to a fault or negligence on the part of the assured and where the assured’s behaviour constitutes a breach of policy.

Facts

The proceedings revolved around a claim brought by AJD Tuna Ltd against its underwriter in respect of the loss of the assured’s vessel, the Pippo II. The fishing vessel was berthed in Xemxija (a harbour in the north of Malta) when, during a storm, it broke off its mooring and ended up grounding on some nearby rocks.

As a result, the vessel started taking on water and risked sinking. The dangers were further compounded by the fact that there were a number of bluefin tuna farms in the vicinity and the owner of the vessel was concerned that the bunker fuel onboard could leak and cause environmental damage. The owner immediately informed the insurer of the incident, and the latter sent a representative to assess the situation.

The owner carried out some temporary repairs onboard the vessel in order to attempt to navigate it to a nearby port. However, rather than opting for one of the nearer ports recommended by the underwriter’s representative, the owner sailed the ship north towards the Mgarr Port in Gozo, an island just north of Malta. Along the way, the vessel encountered further difficulties and eventually sank in the channel between the islands.

The owner subsequently demanded reimbursement for its losses from the underwriter. The underwriter argued that the owner had breached its obligations under the respective policy and that no payment was owed as compensation.

The insurer argued that the owner took unreasonable and unnecessary risks when it decided to sail the boat across the channel to Gozo. Furthermore, the underwriter contended that it had instructed the owner that the vessel should either be left in Xemxija or alternatively taken to one of the nearby harbours. The insurer referred to the insurance policy, under which the underwriter was entitled “…to decide the port to which vessel shall proceed for docking or repairs.” Thus, the insurer contended that by deviating from its instructions and taking the vessel to Gozo rather than to the suggested ports, the owner had violated its obligations under the insurance policy.

In addition, the insurer argued that the owner’s actions resulted in the vessel sinking in deep waters, preventing the possibility of any investigation. Moreover, had the vessel sunk in shallower waters, it could have been salvaged, thereby reducing the loss suffered.

Decision

The court appointed an expert to assess the extent of the damages initially suffered by the vessel during the storm based on given testimony and available evidence. In addition to the fact that water had entered through cracks in the hull, a part of the keel was missing which further aggravated the risk of sinking during the storm. The court-appointed expert also advised that the vessel should not have undertaken such a voyage in this state unless it was in calm waters and under tow. The court shared the same sentiment as the expert and concluded that the decision to take the vessel to Gozo was imprudent, bearing in mind the state of the vessel and the weather.

Interestingly, the court also noted that the underwriter, on its part, had failed to provide the owner with a surveyor when the incident occurred in order to help it assess the extent of the damage and the repairs which needed to be carried out. The court also observed that the owner had every reason to request the assistance of a surveyor, as this was in its interest. The court considered this shortcoming when deliberating which party should pay the court’s costs and expenses.

The court nonetheless concluded that the owner had acted unilaterally and imprudently when it took the vessel to Gozo and consequently dismissed its claim for any damages.

Naturally, the court placed considerable weight on the insurance policy and found that by making certain decisions, the owner had failed to adhere to its obligations under the relevant policy.

Comment

While the owner’s situation is sympathetic given the distressing circumstances under which it had to act, this judgment highlights the importance of ensuring that owners are familiar with the content of their insurance policies – in particular, with the responsibilities arising thereunder. Moreover, the court’s decision illustrates the importance of having an emergency procedure in place that complies with any contractual duties arising under an insurance policy. As this case has shown, failure to do so could result in the assured receiving no compensation.

Contributed by Adrian Attard, Fenech & Fenech Advocates

Source: International Law Office, April 27, 2016

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Member of the Comité Maritime International

Case Law Update Seminar – Call for Contributions

Court affirms scope and effect of Section 37 injunctions where security has been placed

Court orders extension of effects of flag injunction to security deposited by debtor

Court lifts physical bunker supplier’s arrest of vessel

Unnecessary risks constitute breach of marine insurance policy

Facts

Decision

Comment

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