Legal Case Study Archives - Page 2 of 4

Compensation for Salvage

January 11, 2016 Leave a Comment

The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Tonio Mallia and Mr Justice Joseph Azzopardi in the case ‘Charles Grech and Brian Galea v Paul Azzopardi’ on December 15, 2015, held, among other things, that compensation for salvage was due even if no notice was given to the ‘receiver of the wreck’.

On September 22, 1996, Charles Grech and Brian Galea discovered a boat called Ray Jay underwater in the limits of Mellieħa. They performed salvage works to resurface the boat, with the assistance of divers, a cabin cruiser and inflatable buoys and towed it to Għajn Tuffieħa. They also obtained the assistance of third parties against payment.

Grech and Galea demanded compensation for the salvage operation from the owner of the boat who refused to pay them. Faced with this situation, Grech and Galea proceeded to file legal proceedings against Paul Azzopardi, the owner, requesting the court:

To declare that they were entitled to payment for their services for salvage;
To liquidate the compensation due to them; and
To condemn Azzopardi to pay such sum so liquidated together with legal interests.

In reply, Azzopardi contested the legal proceedings. He claimed that Grech and Galea’s motives were to appropriate the boat for themselves. Instead of notifying the owners of the salvage operation, they resurfaced the boat allegedly with the intention of keeping it and it was only by accident that he intervened to recover his boat.

Azzopardi claimed that Galea and Grech had caused damage to the boat, in respect of which there was a separate lawsuit.

It was not relevant that they did not give the police the registration number of the boat. They voluntarily tried to save the boat. If there was a valid reason, it was not necessary to notify the ‘receiver of the wreck’

It resulted that Azzopardi was the owner of the boat. On September 15 to 22, 1996, the boat, which was moored in Ġnejna Bay, broke loose and was later found underwater in the limits of Mellieħa.

Salvage had to be a voluntary act whereby a person rescued a seacraft in distress not out of any contractual relations nor to take the boat for himself.

Article 332 of Chapter 234 provides:

Where any person finds or takes possession of any wreck within the limits of Malta, or finds or takes possession of any wreck outside such limits and brings such wreck within the said limits, he shall:

(a) if he is the owner thereof, give notice to the receiver of wreck that he has found or taken possession of the same, and describing the marks by which the same may be recognised;

(b) if he is not the owner thereof, as soon as possible, deliver the same to the receiver of wreck;

And if any person fails, without reasonable cause, to comply with this article he shall for each offence be liable to a fine not exceeding 200 units and shall, in addition, forfeit any claim to salvage.

The court noted that compensation was due even if the wreck had sunk, or if it was a danger to navigation. It said that it did not appear that Grech and Galea failed to deliver the boat to the receiver of the wreck.

Article 343(1) Chapter 234 provides:

Where any vessel, whether Maltese or foreign, is wrecked, stranded or in distress at any place on or near the coasts within the territorial jurisdiction of Malta and services are rendered by any person in assisting that vessel or saving the cargo or apparel of that vessel or any part thereof, or where any services are rendered by any person other than a receiver of wreck in saving any wreck, they shall be payable to the salvor by the owner of the vessel, cargo, apparel, or wreck, a reasonable amount of salvage limited to the amount of the property saved.

The elements in a salvage operation were as follows:

Rendering licit service to the boat or to its merchandise;
The service had to be voluntary;
The boat had to be in distress;
The assistance had to consist in salvage work;
The assistance had to be successful.

The court had no doubt that Grech and Galea had rescued the boat with their hard work. It did not result that they tried to steal the boat nor did they carry out the operation in hiding. They acted in broad daylight, in the presence of onlookers. Their intention was to recover the boat from the bottom of the sea; to raise it to the surface and to take it ashore and this constituted salvage.

The court said that the boat was in danger even if it sank. A boat could still be salvaged even if sunk, in order to prevent it from suffering greater damage.

The boat was in a reasonable condition despite what happened to it. It was shown that Grech and Galea had incurred expenses to resurface the boat from the bottom of the sea.

In absence of any agreement, compensation had to be liquidated by the court. Compensation had to be large and liberal if there existed all elements to claim salvage at the time when the vessel was in distress or passing through such danger. Compensation was due even if not requested.

Article 346(2) of Chapter 234 provides:

In determining the amount or the apportionment of salvage, the court shall have regard to:

the measure of success obtained and the efforts and deserts of the salvor;
the danger run by the vessel saved, by her passengers, crew and cargo;
the danger run by the salvor and the salving vessel;
the time expended, the expenses incurred and the losses suffered, and the risks of liability and other risks run by the salvors, and also the value of the property exposed to such risks, due regard being had to the special appropriation (if any) of the salvors vessel for salvage purposes;
the value of the property saved.

In view of the value of the boat (€11,650) and the damage (€7,000-€8,000), the value of the boat after it was rescued was €4,500. The court awarded €2,000 compensation to be divided equally between each claimant, Grech and Galea.

Aggrieved by the decision of the First Hall of the Civil Court, Azzopardi entered an appeal calling for its revocation.

He reiterated his claim that Grech and Galea carried out such operation not to salvage it but to take it for themselves. They should have notified the receiver of the wreck and as they failed to do so, they forfeited their right to salvage, he claimed.

The Court of Appeal maintained that save for serious reasons it would not disturb the first court’s appreciation of facts.

As a general rule, each time a vessel was in danger and given assistance, there was a ground for compensation. In Chorley & Giles’s Shipping Law, the situation was explained by the English courts (Kennedy case 1985

“On the one hand, [the danger] must not be either fanciful or only vaguely possible or have passed by the time the service is rendered. On the other hand, it is not necessary that distress should be actual or immediate or that the danger should be imminent, it will be sufficient if, at the time at which assistance is rendered, the subject-matter has encountered any misfortune or likelihood of misfortune which might possibly expose it to loss or damage if the services were not rendered… [T]here must be such reasonable, present apprehension of danger that, in order to escape or avoid the danger, no reasonably prudent and skilful person in charge of the venture would refuse a salvor’s help if it were offered to him upon the condition of his paying a salvage reward.”

In this case the vessel sank and under article 343(1) of Chapter 234 the right for salvage existed even if the boat sank.

This Court of Appeal agreed with the first court, as regards the elements to qualify for salvage. The danger need not be absolute.

The court said that Grech and Galea carried out salvage work. They had no obligation to assist and did so voluntarily with the intention of either keeping the boat or to request compensation.

This was an issue which had to be determined in the discretion of the court, hearing the case. In this case the first court found that there was justification for this failure.

Grech and Galea cooperated with Azzopardi and the police. They agreed to release the boat immediately to Azzopardi and demanded compensation.

This court said that the first court exercised its discretion reasonably and it agreed with its decision.

Article 345(2) of Chapter 234 was considered by the first court when it liquidated compensation to amount to €2,000. The court agreed with the liquidation of damages by the first court.

For these reasons, on December 15, 2015, the Court of Appeal dismissed the appeal of Azzopardi and confirmed the decision of the first court of July 7, 2011.

by Dr. Karl Grech Orr, shipping partner at Ganado Advocates and member of the MMLA

Source: The Times of Malta, 11 January 2016

Proceedings following Escape of Arrested Vessel

September 30, 2015 Leave a Comment

Notwithstanding the advances made in the automated tracking systems used to identify and monitor vessels’ movements, arrested vessels still occasionally manage to abscond from the territorial waters of the particular jurisdiction in which they were arrested. Unfortunately, this is an inherent risk linked to the mobile nature of ships.

Maltese law tries to circumvent such occurrences by imposing penalties to dissuade unscrupulous shipowners from ordering ships to flee. Article 865 of the Code of Organisation and Civil Procedure provides for one of these deterrents. This article states that when a vessel that is subject to an arrest warrant escapes Maltese waters, the owner, bareboat charterer or other person in possession of the ship or vessel at the time of the breach will be jointly liable to pay a €116,470 penalty.

A Maltese civil court recently examined the application and nature of this remedy in Cassar Fuel Limited v MV Madra.(1)

Facts

The proceedings revolved around the arrest and subsequent escape of the vessel MV Madra.

Following the issuance of an arrest warrant by a Maltese court against the MV Madra, the vessel, together with the relevant local authorities, were duly served with the arrest papers. Following the arrest, the master and crew of the MV Madra decided to switch off the ship’s automatic identification system and fled from Maltese waters. Consequently, the arresting creditor, a Maltese bunker supplier, effectively lost the only security it had for its claim.

The bunker supplier commenced proceedings in rem against the vessel MV Madra requesting payment of the penalty stipulated in Article 865 of the code. Curators were appointed to represent the interests of the vessel in these proceedings. One of the key issues was whether an action of this nature could be brought against the vessel.

Decision

The court analysed Article 865 and explained that it affords an aggrieved creditor a partial remedy where a vessel absconds. An arrest warrant against a vessel can be considered as a form of security granted by the courts pending final determination of the action on the merits. The law seeks to offer the creditor a form of compensation where a vessel breaches a court order and escapes Maltese waters. Further, the court noted that the right to claim the penalty outlined in Article 865 is without prejudice to the creditor’s other rights to pursue its claim. Payment of the penalty by the liable party does not reduce or affect the outstanding principal debt.

The court also examined whether such an action could be commenced in rem directly against the vessel. The court stressed that the wording used in Article 865 presupposes that any such action is purely personal in nature and is brought against whichever party violated the court order. As such, the court concluded that the creditor must commence proceedings in personam against the owner, the bareboat charterer or any other person in possession of the vessel at the time of the alleged breach. The law therefore implies that the action can be commenced only against persons (both legal and natural), and not against a vessel in rem.

The plaintiff argued that since it had a claim in rem against the vessel, an action of this nature could likewise be brought in rem against the vessel. The court disagreed with this interpretation and correctly confirmed that the right to claim the penalty under Article 865 is completely independent and separate from the underlying claim, as such proceedings are commenced against a person or persons that removed the vessel from Maltese waters in violation of the court order.

Comment

The court’s conclusions are seemingly correct, as proceedings commenced under Article 865 must be brought in personam against any of the individuals mentioned in the article. However, arguably, the court’s analysis stopped short, as it should have addressed the requirements for jurisdiction in rem, which would have illustrated how jurisdiction is diametrically opposed to an action for penalties commenced under Article 865.

The Maltese courts have consistently held that a prerequisite for Maltese courts to have jurisdiction over a claim in rem is the physical presence of the defendant vessel in Maltese waters.(2) The only exception to this cornerstone rule is where the owner of the vessel deposits the claim amount in court as alternative security in lieu of the vessel.(3) In such cases the vessel will be free to leave and the courts will still have jurisdiction in rem due to the physical presence of the alternative security in Malta.

On the other hand, proceedings under Article 865 are commenced following the escape of an arrested ship. As such, no deposit will have been made (as otherwise the vessel would have been released). Therefore, an action of this nature presupposes that the vessel is no longer within Maltese waters. Accordingly, one of the fundamental elements for jurisdiction in rem is missing. It is thus clear that a claim for penalties under Article 865 cannot be commenced against a vessel in rem.

For further information on this topic please contact Adrian Attard at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (adrian.attard@fenlex.com). The Fenech & Fenech website can be accessed at www.fenechlaw.com.

Contributed by Fenech & Fenech Advocates

Source: ILO – September 30 2015

Photo © US Navy / Wikimedia Commons

Malta: Court Approved Private Sale

March 7, 2015 Leave a Comment

Source: Fenech & Fenech Advocates

As Maltese legal practitioners, we have for years been harping on the high standards of and comfort which Maltese law offers the mortgagee however it was the recession of 2008 which tested whether the system was as robust as we had been saying it was.

In 2006, our Code of Organisation and Civil Procedure underwent a radical shake up when it came to laws governing the jurisdiction of our courts in rem, arrest of ships and enforcement mechanisms. As far as the latter is concerned, 2006 saw the introduction of the “Court Approved Private Sale”. The advantage was that the mortgagee (who under Maltese law can proceed directly with enforcement) could himself source a private buyer at the highest possible agreed price; enter into an MOA with the private buyer, request the court to approve the sale and on court approval, the vessel would be sold free and unencumbered. This is a huge advantage because it enables the mortgagee to negotiate the best price for the benefit of creditors and owners whilst giving the buyer peace of mind because he is purchasing the vessel free and unencumbered

The first to test the new procedure was Danske Bank in 2010 in Ann Fenech for and on behalf of Danske Bank A/S v Thor Spirit (App. no 1135/2011). Since then there have been 11 applications before the court for the approval of a private sale, 10 of which were granted and one revoked after it was granted. Applicants must provide two valuations based on a physical inspection and must show that a genuine effort was made to get the best price for the vessel and that known creditors were made aware of the procedure.

The system has worked exceptionally well with all the applications coming before the same judge Mr. Justice Mark Chetcuti who has been instrumental in developing a process of the highest standard, totally transparent and in synch with the spirit of the law as drafted.

The end result has been an evolving yet consistently speedy, efficient and transparent remedy for mortgagees in the face of a defaulting owner. Applicants who have benefitted from this remedy include some of the largest maritime lenders such as, Danske Bank A/S, Commerzbank Aktiengesselschaft, Pireaus Bank AE, Rietumu Banka, Amsterdam Trade
Bank N.V, Hyundai Heavy Industries Co. Ltd, Macquarie Bank Limited and Bank of America.

One series of sales that hit the international headlines was those relating to vessels in the beneficial ownership of Today Makes Tomorrow – TMT. Three of the ships in the TMT operated fleet, the A Ladybug, the B Ladybug and the D Ladybug found themselves abandoned in Maltese territorial waters. The crew was effectively abandoned and remained unpaid with no provisions or fuel. This led to a serious concern on the part of the Maltese port authorities because these state of the art car carriers of circa 72,400 gross tons each were anchored 12 miles out exposed to the elements.

Applications were filed by Macquarie Bank Limited, Hyundai Heavy Industries and Bank of America respectively and it is thanks to their financial strength and seriousness that they were in a position to appoint managers who took care of the crew and ensured that the vessels were provisioned and fuelled and who gave the port authorities peace of mind with regard to their own safety and the safety of other vessels also at the same anchorage. These cases showcased the optimum results that can be achieved for the good of the owner, creditors, crew, ITF and port authorities when things are done in an orderly and organised fashion which ultimately was possible thanks to the procedure available under Maltese law.

The Ladybug cases also showcased another interesting element which was how the US Bankruptcy court can and will grant leave for the court approved private sales of such vessels, even when the assets of the bankrupt party are part and parcel of US Chapter 11 procedures.

Bunkers excluded from judicial sale on basis of retention of title clause

February 11, 2015 Leave a Comment

Contributed by Fenech & Fenech Advocates

Introduction
As the last few months have shown, the bunkering industry is volatile and risky. As such, bunker suppliers seek to include favourable terms which will assist them if a deal goes wrong. These contractual precautions range from favourable applicable law and jurisdiction clauses to the imposition of retention of title clauses. Under these clauses, parties will normally agree that the bunker supplier retains ownership over all bunkers furnished until the
buyer has paid in full.

In a recent decision the Civil Court upheld a request to have bunkers supplied to the defendant vessel excluded from a court-approved private sale on the basis that retention of title clauses existed, which governed the supply of the bunkers.

Facts
In Dr Ann Fenech noe v Vessel MV D Ladybug,(1) the court had to determine whether to grant the mortgagee bank’s request to order the private treaty sale of Ro-Ro vessel MV D Ladybug to an interested buyer. A court-approved private sale grants the new owner clean title over the vessel (similar to that afforded pursuant to a judicial sale by auction). Thus, any claims against the vessel are limited to the purchase price, which is deposited with the court.

A vessel sold via a court-approved private sale is generally sold as is (ie, with everything on board, including equipment, machinery and appurtenances), unless a party comes forward with a legitimate claim of title over any of the machinery or equipment (eg, in the courtapproved private sales of the sister ships MV B Ladybug(2) and MV A Ladybug,(3) the court excluded some on-board trailers from the sale of the vessels after a third party provided legitimate proof that it was the owner of the trailers).

In D Ladybug the owners had ordered several consignments of bunkers, all of which were furnished by two local suppliers while the vessel remained under arrest in Malta. The mortgagee bank paid the outstanding amounts due to the bunker suppliers, as the owners had defaulted on their payments. Simultaneously, the mortgagee bank entered into subrogation agreements with the suppliers.

During the court-approved private sale proceedings, the bank acted as both:

a creditor enforcing its mortgage and requesting the court’s approval for the private
sale of the MV D Ladybug; and
the party subrogated to the rights of bunker suppliers, which were requesting that the
bunkers be excluded from the sale.

The bank successfully argued that the bunkers were not part of the debtor’s property (ie, the ship) on the basis that the terms and conditions of both physical suppliers contained retention of title clauses, whereby the bunker suppliers retained ownership over all bunkers until the buyer had paid in full. The bank also relied on a recent amendment to the Commercial Code, which grants parties the statutory right to reach agreements on retention of title clauses.

While the inclusion of Article 26H of the code would seemingly quash any debate regarding
the enforceability of retention of title clauses or otherwise under Maltese law, it has rarely
been tested; and until this case, it had never been used in the context of bunkers. The bank
also argued that since it had been subrogated to the rights of the suppliers, it could avail itself
of those rights.

Decision
The court agreed with the bank and excluded the bunkers from the sale, providing the bank with two options: debunker the vessel or sell the bunkers to the interested buyer. The bank opted for the latter. To the bank’s benefit, the proceeds from sale of the bunkers did not need to be deposited with the court alongside the funds from the actual sale of the debtor’s vessel. Likewise, the amount received for the bunkers was not subject to any distribution
proceedings.

Comment
Before this landmark decision, the issue of retention of title clauses with regard to bunkers was unclear. Indeed, the only other court rulings regarding the exclusion of bunkers reached the opposite conclusion. Admittedly, the facts were somewhat different and the issue related to bunkers purchased by the charterers, which were on board when a creditor requested the judicial auction of the MT Pacific Future.(4) The court concluded that the bunkers on board should be excluded, despite the charterers’ claims that the bunkers were ultimately their property. The court further concluded that the charterers should not be treated differently from other creditors and all claims (including claims regarding bunkers) should attach to any eventual sale proceeds and rank according to law. However, arguably, this conclusion may have been somewhat superficial, as when considering the charters’ claims for the bunkers, the court stopped short of distinguishing between those bunkers which were consumed and those which were still physical on board. Therefore, this verdict may have prejudiced the charterers’ rights over their own property.

MV D Ladybug demonstrates that the inclusion of retention of title clauses can help to
mitigate any possible losses in relation to bunkers.

For further information on this topic please contact Adrian Attard at Fenech & Fenech
Advocates by telephone (+356 2124 1232), fax (+356 2599 0645) or email adrian.attard@fenlex.com. The Fenech & Fenech website can be accessed at fenechlaw.com.

Endnotes
(1) Civil Court (First Hall), Application 741/2014, delivered on October 8 2014 by Justice
Mark Chetcuti.
(2) Civil Court (First Hall), Application 179/2014, delivered on April 8 2014 by Justice Mark
Chetcuti.
(3) Civil Court (First Hall), Application 227/2014, delivered on April 28 2014 by Justice Mark
Chetcuti.
(4) Civil Court (First Hall) – Application 552/2013/1, delivered on June 11 2013 by Justice
Jacqueline Padovani Grima.

When you can arrest a vessel

September 7, 2014 Leave a Comment

Times of Malta, 7 September, 2014. By Ann Fennech

Our firm was instructed to give advice to the owners of the Atlantik following the departure of the Atlantik from Malta and after the owners of the Atlantik found out that the vessel had caused quite a stir in Malta due to the news that on April 30, it had ‘escaped’ from Malta.

On June 5, 2014, a letter was sent to the Commissioner of Police copying Brigadier (Rtd) Vassallo, who had already been appointed to conduct the enquiry explaining that as the Atlantik was traversing the Mediterranean from West to East, it planned to pick up bunkers off Malta and had scheduled a stop around April 30.

En route, the master of the vessel with a complement of Ukranian seafarers received news of the escalating dangerous situation developing between Ukraine and Russia and the crew urgently demanded to be repatriated to see to their families. The bunkering off Malta was therefore called off and the Atlantik proceeded directly to the Black Sea.

The Atlantik was never served with a warrant of arrest and neither did it know that one had been issued. It is understood that the vessel had no cause to ‘escape’ from an arrest because its owners had already been liasing with Shannon SA regarding an outstanding claim.

In fact, on May 16, 2014, the same Shannon SA who had issued the warrant of arrest against the Atlantik, voluntarily lifted the arrest because a settlement between the parties had been reached. While the focus of the report was the ‘escape’ and whether the authorities did what they ought to have done to stop the vessel from leaving, the report probably unwittingly exposed a situation relating to the time when warrants of arrest are being applied for and issued. It is a situation which causes concern.

To put this into some sort of context, one must remember that the arrest of a vessel is an important tool in the hands of a creditor who is owed money by a debtor. It is one way of ensuring that if following an action on the merits, the creditor is awarded a favourable judgment by the relative court, and the debtor is unable to pay the judgment debt, the creditor can actually enforce the judgment against the vessel which would be a form of security. Up until 2005, the jurisdiction of our courts to hear actions in rem against vessels was still regulated by the Admiralty Court Acts of 1840 and 1860.

The grounds which gave our courts jurisdiction (and therefore the grounds upon which one could arrest a vessel to secure an action in rem) were very limited and naturally did not take into account the advances in shipping from 1860 through to the end of the 20th century.

In 1995, a very important exercise was undertaken. A new section in our Code of Organisation and Civil Procedure was created – Section 742 B – granting the courts in Malta jurisdiction in rem over vessels, which section contains a very extensive list of maritime claims put together by following English statute law and the Arrest of Ships Conventions of 1952 and 1991.

Our reputation cannot afford any abuse of the system Apart from this, the 1995 amendments also saw the introduction of a new “warrant of arrest of a ship” with some very carefully written rules, as well as a newly drafted standard application entitled “warrant of arrest of sea vessels”, which application needs to be sworn by the person issuing the warrant, who would swear to the details therein, such as the identification details of the vessel and the place in Malta where the vessel is located.

The end result of the above is that for a person to file an application requesting the issuing of a warrant of arrest against a vessel, the ground upon which the application for the arrest is made needs to be one of the maritime claims listed in the law, and the vessel needs to be present in Maltese territorial waters, otherwise the court has no jurisdiction over it. Failing the satisfaction of these criteria, the arrest is illegally obtained and wrongful.

Bearing all of the above in mind, it therefore comes as a complete surprise to those of us who have been so heavily involved in the development of shipping law in Malta to read in the report that the warrant of arrest in the Atlantik was issued before the vessel entered Maltese territorial waters.

If this is indeed correct, then the application for the warrant to be issued and the issuing of the warrant of arrest by the Maltese courts before the vessel entered Maltese territorial waters was illegal and wrongful. It is not permissible to apply for a warrant of arrest unless the vessel is inside Maltese territorial waters because our courts would only have jurisdiction over a vessel provided it is within the jurisdiction.

It is for this reason that on the same application, the applicant has to swear on oath the place where the vessel is to be found (in Malta), with the indicated authority being Transport Malta. The judges who get presented with these applications at all times of the day and night have a right to expect that the sworn applications presented to them are representative of the truth and that arresting parties are not filing for arrests before vessels are actually in Maltese territorial waters.

Our reputation cannot afford any abuse of the system and as the law stands, no warrant of arrest can be filed, and no warrant of arrest can be granted, unless the vessel is already in Maltese territorial waters; otherwise, a warrant issued by the court when the vessel is not yet in Maltese territorial waters is a warrant obtained illegally and the arrest wrongful and could lead to its rescission.

The issue of whether the Maltese authorities are able to stop vessels fleeing from arrest once arrested is a different story!

Ann Fenech is a marine litigation lawyer and managing partner at Fenech & Fenech Advocates, the president of the Malta Maritime Law Association and member of the executive committee of the Comité Maritime International.

Member of the Comité Maritime International