Times of Malta, Monday, December 23, 2013, by Karl Grech Orr  

The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti, in the case “Godwin Xerri on behalf of Pol-Euro Shipping Lines Plc SA and Sea Voyager Shipping Ltd v Zejt Marine Services Ltd” on December 12, 2013, held, among other things, that the flag of the vessel although relevant, was not enough in this case to invoke the application of Maltese law.

The facts in this case were as follows. The Polish company Pol-Euro Shipping Lines plc SA was the owner of the Malta flag vessel Sider Lipari IMO no. 9119907, which bareboat chartered the vessel to the Malta Company Sea Voyager Shipping Ltd for 24 months, and extended it up to June 30, 2014.

On July 18, 2012, the Malta flag vessel Asso Zejt I which was the property of the Maltese company, Zejt Marine Services Ltd, collided into the vessel Sider Lipari, while it was berthed along the quay at the port of Sousse, in Tunisia.

As a consequence of the collision, the vessel Asso Zejt I caused extensive damage to the vessel Sider Liapri as well as other damages, amounting to over €300,000. The vessel Asso Zejt I was the only asset of Zejt Marine Services Ltd, and in view of the circumstances, it was likely that Zejt Marine Services would try to transfer the vessel before a decision was given on the merits.

It was feared that if the vessel was transferred before the case was decided, Pol-Euro Shipping and Sea Voyager Ltd would be unable to enforce their claims. Pol-Euro Shipping and Sea Voyagers Shipping said that there existed all requisites stipulated in article 37 of the Merchant Shipping Act. Article 742 B (F) of chapter 12 of the Laws of Malta provided specifically that the Maltese courts had jurisdiction in rem in respect of any claim for damages against a vessel arising as a result of a collision.

Faced with this situation, Pol-Euro Shipping and Sea Voyager Shipping filed legal proceedings against Zejt Marine Services Ltd, requesting the courts:

• to order that there would be no sale/ transfer or any dealing in the vessel Asso Zejt I;
• to order that there would be no sale/ transfer or dealings in the shares in Zejt Marine Services Ltd;
• to order that no deletion certificate would be issued by the Registrar of Shipping; and
• that there would be no mortgage registration over the vessel Asso Zejt I.

In reply, Zejt Marine Services Ltd disputed the legal action, which it said was unfounded. It was stated that the vessel was not its sole asset. Apparently, Zejt Marine Services had deposited a sum in Tunisia to cover its exposure to liability. It further appeared that claimants tried to arrest the vessel in Tunisia but the arrest was revoked owing to this fund. Zejt Marine Services pleaded that there did not exist the requisites to issue the order under article 37, and that the incident happened in Tunisia and that therefore the law of Tunisia was the applicable law.

The law in Tunisia gave the owner of the vessel the right to exonerate itself from responsibility by depositing the amount under the authority of the courts in Tunis and this to satisfy any liability of the owner of the ship. Zejt Marine Services said that it deposited a sum in settlement of any liability.

It was argued in its defence that this legal action was not permissible under article 37 of the Merchant Shipping Act, nor would any transfer of shares cause any prejudice to claimants. In addition, it claimed that it could not be ordered not to issue the deletion certificate.

This order could only be made against the Registrar of Shipping. The court noted that according to claimants the collision occurred due to the fault of the vessel Asso Zejt I which hit the vessel Sider Lipari. At the time, Sider Lipari was tied to the quay.

The Maltese court had jurisdiction under article 742 1 (b) of chapter 12 of the Laws of Malta as Zejt Marine Services was a Maltese company. The court made reference to EU Regulation 864/07 known as the Rome II, which applied to all member states under the treaty.

In the context of the Irish courts, Liz Heffernan wrote regarding the application of this regulation: “Turning first to geographical reach, the regulation is of ‘universal application’ which means that it is not limited to tort litigation within the EU but extends to any proceedings in tort that contain an international element whether EU or not.

In this sense, the regulation will provide a ‘one-stop shop’ for choice of law in tort which will obviate the need for the Irish courts to operate wholly different regimes for European as opposed to nonEuropean cases.”

According to Zejt Marine Services, the applicable law under Regulation 864/2007 (Rome II) was per article 4 (1) of the regulation which provides, unless otherwise provided, that the applicable law for obligations (not contractual) which result from delict or quasi-delict, was the law where the damages occurred.

Claimants, on the other hand, argued that the vessels had to be considered an extension of Malta and that therefore Maltese law should apply as the lex loci delicti.

The court, however, did not accept this interpretation. In this case it noted that the collision occurred in Tunis and the damages were also suffered in the same place. The facts came within the parameters of Regulations 4 (1 the applicable law was the law of the country where the damages were caused.

The court did not consider the flag of the vessel as the factor which justified an exception to the general application of Regulation 4 (1). Reference was made to Cheshire on private international law. Under article 4 (1) of the regulation, the applicable law was the law of Tunis. Claimants referred to Regulation 4 (2), according to which Maltese law should apply. Regulation 4 (2) provides: “However, where the person claimed to be liable and the person sustaining damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply.”

The fact that Maltese courts had jurisdiction did not mean that Maltese law should apply The court did not accept this argument.

The claimants under this article had to establish the seat of the central administration. No proof was brought, save for the fact that two of the parties in these proceedings were companies registered in Malta. The place of the registration was not necessarily the place of central administration.

This had to be proven by the person claiming the exception to the general rule under article 4 (1). Any interpretation had to be construed restrictively. On this point the court noted that not all the companies involved in the dispute were allegedly habitually resident in Malta. The owner of the vessel suffering the damages was a Polish company, which was not habitually resident in Malta.

In this respect, the court said that article 4 (2) did not apply. The fact that legal action was taken in Malta did not make Maltese law the applicable law, pointed out the court. Claimants also referred to the exception in article 4 (3) which provides: “Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question”.

It was stated that there was a manifest connection with Maltese law, and that therefore, Maltese law should apply. Claimants maintained that the nationality of the parties, the flag of the vessels and the damages, were all connected with Malta favouring the application of Maltese law.

The court felt that article 4 (3) gave the courts a margin of discretion. Reference was made to Cheshire: “It is not enough to show that the tort/delict is more closely connected with a country other than that indicated in paragraphs 1 or 2, it has to be ‘manifestly’ designed to underscore the exceptional nature of this escape clause.

The use of rules in article 4 (1) and (2), rather than presumptions, is also designed to make clear that the exception really is exceptional. “The escape clauses use the criterion of connections. The connection must be with a country, rather than the law of a country.

The scenario of both parties having a common habitual residence that is dealt with in article 4 (2) will be very much the exception and so article 4 (3) is likely to operate more commonly as an exception to article 4 (1), rather than article 4 (2). Apart from cases where there is a pre-existing relationship between the parties, situations where article 4 (3) would operate as an exception to article 4 (1) are likely to be relatively rare.”

In this case, however, the court was of the opinion that there were no grounds to apply this exception under article 4 (3). The flag of the vessel, although relevant, was not enough in this case to invoke the exception under article 4 (1). This was a case of a collision between two vessels, not an incident on a vessel.

The nationality of the parties was not conclusive. There was no proof of any intrinsic connection with Malta. The damage was suffered as a result of a collision and this was not enough not to apply article 4 (1) of the regulation. The fact that Maltese courts had jurisdiction did not mean that Maltese law should apply.

The court did not feel, in view of the relations between the parties, that it was fair to apply Maltese law, to determine the dispute.

For these reasons, on December 12, 2013, the First Hall of the Civil Court concluded that there was not a strong enough connection with Maltese law in order to disturb the application of article 4 (1). The court found Zejt Marine Services’ pleas to be justified.

It accordingly accepted Zejt Marine Services’ plea, declaring the law of Tunisia to be the applicable law to determine this dispute. The case had to be continued.

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Dr Karl Grech Orr is a partner at Ganado Advocates.

Times of Malta, Monday, October 8, 2012 by Karl Grech Orr  

The Court of Magistrates in Malta, presided over by Magistrate Consuelo-Pilar Scerri Herrera, on September 19, 2012, in the case “Atlas Insurance PCC Limited et noé vs BAS Limited” held, among other things, that the carrier was liable to pay for all damages as a result of the short-shipment of goods from Holland to Malta. The court further declared the carrier’s sub-contractor to be non-suited as there existed no juridical relationship between the latter entity and the consignee.

The facts in this case were as follows.

The carrier shall be liable for the total or partial loss of the goods and for damage thereto occurring between the time when he takes over the goods and the time of delivery, as well as for any delay in delivery.

The company Intercomp Marketing Ltd engaged BAS Ltd to transport merchandise, consisting of laptops and speakers, from the premises of the manufacturers, Dell in Holland, to the premises of Intercomp in Malta.

BAS subsequently subcontracted Fahrenheit Freight Forwarders Ltd to carry the goods from the warehouse of DHL Danzas Air & Ocean in Schiphol, Holland, to Malta by trailer.

When the consignment was delivered, Intercomp reported that six laptops had gone missing in transit. Intercomp obtained reimbursement from its insurer, Atlas Insurance, which therefore got subrogated in Intercomp’s rights.

It later proceeded by filing legal proceedings in Malta against BAS for payment of €5,048, the value of the goods paid to Intercomp, including the survey costs and the excess cost due to Intercomp under the insurance policy. In reply, BAS disputed responsibility for the loss of the missing merchandise.

It submitted in defence that the laptops had gone missing outside its area of responsibility, and that it could not be held accountable as it was not to blame in any way for the loss.

BAS maintained that Atlas Insurance had failed to notify it within the period of seven days stipulated in article 30 of the convention on the Contract of Inter-national Carriage of Goods by Road (CMR) and article 30 of chapter 486 of the Laws of Malta, the International Carriage of Goods by Road Act.

BAS further held that in case it were to be held liable, its liability was limited under the CMR Convention. It however pleaded that the subcontracting company, Fahrenheit, should be called into suit and be held liable for the damages. Fahrenheit, however, denied having any legal relationship with Intercomp and requested the court to declare it to be nonsuited.

It also stated in its defence that:

• any legal action against it was time-barred under article 32 (1)(a) CMR;
• it was not liable for the loss of the cargo as it had delivered the goods in the same state as it had received them, and if any items were lost, this had allegedly happened when the goods were outside its sphere of responsibility;
• besides, it said that the amount claimed was excessive and if at all, its liability should be limited within the para-meters of the CMR Convention.

On September 19, 2012, the Court of Magistrates (Malta) gave judgment by declaring BAS, which was engaged to transport the merchandise from Holland to Malta, fully liable for all damages suffered by Intercomp and Atlas Insurance as a result of the loss of the laptops not delivered to it.

It considered that BAS was responsible to deliver the consignment safely to Malta irrespective of any subcontracting agreement. The court upheld Fahrenheit’s legal argument that there existed no juridical relationship between Fahrenheit and Intercomp and declared Fahrenheit to be non-suited.

The court also declared that there was no evidence to show any contributory fault by Fahrenheit. The court’s decision was based on the following arguments:  The contract of carriage between Intercomp and BAS was regulated by CMR Rules.  BAS had failed to honour its contractual obligations, as Intercomp had not received the full consignment as agreed.  The court held that under Maltese Law, a debtor was responsible for any failure to perform his contractual obligations, unless he could prove force majeure or any “fortuitous event” to extenuate his responsibility. Reference was made to case law: Reginald Micallef nomine vs Godwin Abela nomine (A.K. March 16, 1992 – LXXV.11.430) and Marianno Saré vs Antoine Ellul (AC June 12, 1953 XXXVII.1.197).

The court also considered these principles in the context of the CMR Rules, in particular articles 3, 17 and 18.

Article 3

“For the purposes of this convention, the carrier shall be responsible for the acts of omissions of his agents, servants and of any other persons of whose services he makes use for the performance of the carriage, when such agents, servants or other persons are acting within the scope of their employment, as if such acts or omissions were his own.”

Article 17

1. The carrier shall be liable for the total or partial loss of the goods and for damage thereto occurring between the time when he takes over the goods and the time of delivery, as well as for any delay in delivery.

2. The carrier shall, however, be relieved of liability if the loss, damage or delay was caused by the wrongful act or neglect of the claimant, by the instructions of the claimant given otherwise than as the result of a wrongful act or neglect on the part of the carrier, by inherent vice of the goods or through circumstances which the carrier could not avoid and the consequences of which he was unable to prevent.

3. The carrier shall not be relieved of liability by reason of the defective condition of the vehicle used by him in order to perform the carriage, or by reason of the wrongful act or neglect of the person from whom he may have hired the vehicle or of the agents or servants of the latter.

Article 18

1. The burden of proving that loss, damage or delay was due to one of the causes specified in article 17, paragraph 2, shall rest upon the carrier.

The court held that the relationship between BAS and Fahrenheit was not relevant to Intercomp (res inter alios acta). Intercomp had no dealings with Fahrenheit and accordingly could not be held liable.

Fahrenheit was engaged exclusively by BAS and without Intercomp’s consent; re: Benjamin Bonnici nomine vs Francis Vella et nomine (PA) dated October 30, 2000; Albert Abela vs S. Mifsud & Sons Ltd (PA) (RCP) dated October 23, 2001; Mamo vs Abela nomine (AC) dated February 4, 2000.

Under CMR Rules (article 3) BAS was responsible for the safe consignment of the goods to the agreed destination. It was immaterial that it appointed subcontractors for any part of the voyage. The court said that the goods went missing in Holland, and that Fahrenheit was not in a position to control or verify the goods which it carried to Malta. Nor did BAS prove that Fahrenheit acted negligently and that the goods were lost owing to Fahrenheit’s lack of care.

In the light of a number of court decisions, the court held that BAS’s failure to take all necessary steps to ensure that the merchandise was not stolen constituted ‘gross negligence’ or wilful misconduct.

In this respect the limitation of liability provisions under the CMR Convention were not applicable; re: Paul Musu vs Frances Vella (AK) dated December 4, 1998; Joseph Bowman noé vs Anthony Mizzi et noé et (PA) dated March 20, 2003; Atlas Insurance Agency Ltd noé vs Express Trailers Ltd (AIC) (PS) dated October 3, 2007.

The court found that Intercomp had notified BAS within the period under article 30 of the CMR, and in this respect the insurance company’s lawsuit was not time-barred. For these reasons the court concluded that BAS was solely liable for the damages and condemned it to pay the full amount claimed by the insurance company, together with all judicial expenses.

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Dr Grech Orr is a partner at Ganado & Associates

ILO – Contributed by Fenech & Fenech Advocates August 29 2012

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In a recent judgment the Maltese courts rejected a foreign liquidator’s application to have a precautionary warrant of arrest lifted on the basis of the EU Insolvency Regulation (1346/2000).

Facts

In 2006 a German shipowner entered into a shipbuilding contract with a Chinese yard for the construction of a vessel (later named the MV Beluga Sydney). The following year, the shipowner assigned all rights and obligations to another German legal entity. The latter was consequently scheduled to accept delivery of the vessel as its new registered owner. The delivery took place in 2010.

However, it transpired that despite several agreements between the owners and the yard, a large sum due for the construction of the vessel had allegedly remained unpaid. In June 2011 the Chinese builders filed a request before the Maltese civil courts to obtain a precautionary warrant of arrest against the MV Beluga Sydney to secure their claim in rem, for an amount of $5,162,206.57. This represented the outstanding balance for construction of the vessel. The Maltese courts acceded to this request and the vessel, which was already within Maltese territorial waters, was immediately arrested.

One month later, the local courts of Bremen in Germany ordered the commencement of insolvency proceedings against the shipowner. The courts appointed a provisional administrator to look after the company’s affairs. The administrator was subsequently also appointed as liquidator of the company when the Bremen courts ordered its liquidation in November 2011.

Later that month, the appointed liquidator filed an application before the Maltese courts demanding that the precautionary warrant of arrest be lifted, or alternatively that the arresting creditor put up a counter-security. Among the various arguments raised to support the request to have the arrest lifted, the liquidator sustained that the precautionary arrest was invalid in accordance with the EU Insolvency Regulation.

The liquidator argued that, in terms of Article 4 of the regulation, German law should be the applicable law determining the validity or otherwise of any judicial proceedings affecting the ranking of creditors in the courts of any member state, including precautionary warrants of arrest. Accordingly, the liquidator argued that under Article 88 of the German Insolvency Code, the arrest of the vessel (which took place one month before insolvency proceedings were commenced) was invalid.

The liquidator attempted to link the above argument with one of the grounds in the Maltese Code of Organisation and Civil Procedure under which a precautionary warrant can be lifted – in cases where it would be unreasonable to maintain the precautionary act in force or where the precautionary act is no longer necessary or justifiable.

Decision

The court decided that none of the arguments put forward in the liquidator’s application merited lifting of the precautionary warrant. Likewise, the court held that there was no justifiable reason as to why the arresting creditor should be forced to put up a counter-warrant.

With respect to the argument raised in terms of the regulation, the court accepted that the regulation had direct effect in Malta and that it was therefore directly applicable in proceedings before the Maltese courts. However, the court also highlighted that the aforementioned European regulation differentiates between different classes of claim brought against insolvent parties.

The court referred to Paragraph 25 of the regulation’s preamble, which explicitly states that different rules should be followed in the case of rights in rem. The basis, validity and extent of every right in rem should normally be determined according to the lex situs (ie, the law of the place in which the property in question is situated) and should therefore be unaffected by the opening of insolvency proceedings in another member state. The court also referred to Regulation 5(1), which expressly states that the opening of insolvency proceedings shall not affect the in rem rights of creditors over both movable and immovable assets belonging to the debtor which are situated in the territory of another member state at the time of the opening of insolvency proceedings.

The court therefore decided that the mere fact that insolvency proceedings had been opened in Germany should not mean that legal proceedings already instituted by creditors in Malta to secure their rights in rem against the vessel should be stopped.

Comment

This judgment is to date the only judgment delivered by the Maltese courts in which the effects of the EU Insolvency Regulation on legal proceedings instituted in Malta to secure maritime claims in rem have been discussed. The court’s conclusions with respect to the effects of insolvency proceedings on claims in rem also complement the relevant provisions in the Merchant Shipping Act.

The act, and more specifically Article 37A(1), acknowledge that when dealing with actions and claims in rem, ships and other vessels constitute a particular class of moveable that should be treated as separate and distinct assets from the rest of the estate. Moreover, the same article expressly provides that where a shipowner goes bankrupt, any action or claim in rem against the ship enjoys preference in relation to the ship, over any other creditors of the shipowner’s estate.

Similarly, Article 37C(1) of the act provides that any registered mortgage, special privilege, action or claim in rem against a vessel will not be affected by bankruptcy of the shipowner that takes place after the date on which the claim arose, even if the shipowner was the owner or in possession of the vessel at the commencement of the bankruptcy. Article 37C(1) also reiterates that rights in rem enjoy a preference in relation to the ship in question, over all other debts of any other creditor of the bankrupt shipowner.

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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.

‘Times of Malta’, Monday, June 18, 2012. By Karl Grech Orr

The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Geoffrey Valenzia and Mr Justice Giannino Caruana Demajo on May 25, 2012, in the case “Norddeustsche Landesbank Girozentrale as represented by Dr Louis Cassar Pullicino vs Chemstar Shipping Ltd” held, among other things, that the rights of a mortgagee bank under Article 42 (1) of the Merchant Shipping Act to take possession of a vessel, were not subject to any limitations under Article 42 (2), which stated when a mortgage constituted an executive title. The rights of a mortgagee under Article 42 (1) were additional to and not subordinate to Article 42(2) of the Merchant Shipping Act.

The facts in this case were as follows.

The bank was entitled to exercise its rights under the security documents subject to judicial review. This meant that the bank had the right to take possession of the vessel Chemstar Shipping Ltd appealed from the decision of the First Hall of the Civil Court dated November 24, 2011.

The first court had upheld the request of Norddeutsche Landesbank Girozentrale, as mortgagee bank, to take possession of the vessel MV Star 1 which was mortgaged in its favour, in security of Chemstar’s loan obligations.

Chemstar was a principal debtor and guarantor and its debt was secured by a ship mortgage over the vessel, the property of Chemstar. The bank claimed that Chemstar was in default.

The loan facility had been terminated and payment in full was demanded. The bank gave sailing instructions to the master to bring the vessel to Malta.

However, its instructions were ignored. It said that as mortgagee bank, it had a right to take possession of the vessel. Faced with this situation, it proceeded to file legal proceedings in Malta, requesting the court:

• to declare that the bank had the right to take possession of the vessel;
• to order Chemstar within a short period to deliver the vessel and, if it failed, to authorise the bank to take possession of the vessel; appoint agents and crew;
• to prohibit Chemstar from doing anything which disturbed or impeded it from taking possession of the vessel;
• to give such orders and reminders to permit the bank from taking possession of the vessel.

Chemstar pleaded in defence that:

• the Maltese courts lacked jurisdiction;
• no court authorisation was necessary for the bank to take possession of the vessel;
• it was not to blame for the alleged “default”, the basis of this action. It in fact took action in Turkey on this matter;
• the bank did not follow the procedure in the law to acquire an executive title;
• the bank should have rendered the mortgage “executive” by filing a judicial letter in terms of Article 253 and 256 (2) of Chapter 12 and Article 42 (2) of Chapter 234 of the Laws of Malta.

On September 22, 2011 Chemstar petitioned the court to stay these proceedings until its case in Turkey was decided.

On September 29, 2011, the first court rejected its application. It noted the bank’s rights under the security documents.

Clause 8 of the Deed of Covenants states that: “The mortgage shall in so far as the owner’s obligations under the loan agreement are concerned be considered due and enforceable upon any event of default having occurred according to the sole discretion and option of the mortgagee.

“The mortgagee shall in such a case serve a written notice to this effect to the owner and any sum or amount outstanding under the loan agreement shall be considered immediately due and payable”. Under Clause 9: “Upon the security created by this deed becoming due and immediately enforceable pursuant to Clause 7 hereof, the mortgagee may put into force and exercise all the powers possessed by them as mortgagee of the vessel and in particular: (a) To take real or constructive possession of the vessel”.

The first court said that it was to no party’s benefit for these proceedings to be stayed and that this case in Malta could be decided before a decision was given in Turkey.

The court maintained that Chemstar would not suffer irremediable damage by this lawsuit. The first court accepted the bank’s request.

It decided further that the bank was entitled to take possession of the vessel under the loan agreement and deed of covenants.

It authorised the bank to take possession of the vessel, with the power to nominate agents and crew. It also ordered Chemstar not to impede directly or indirectly the bank from taking possession of the vessel.

Aggrieved by this decision, Chemstar appealed. Chemstar submitted that the bank failed to follow the necessary procedure in Chapter 12, to render its mortgage “executive”. It was not notified with a sworn statement indicating the amount due. It said that the bank did not file a judicial act under Chapter 12, necessary to render its mortgage “executive”, and before this was done, the bank could not take effective possession of the vessel.

Notice: The first court said that the bank was obliged to give written notice before enforcing its mortgage. Written notice was in fact given and no payment was made.

The bank also gave a notice of default and a notice of acceleration and demand. It informed Chemstar that the loan was terminated and gave sailing instructions to the master.

It also gave a notice of possession on July 29, 2011. The court said that the bank gave written notice as to the amounts due, in terms of the agreements and in this respect Chemstar’s pleas were without basis.

As regards the plea whether bank rendered its mortgage, “executive” and enforceable in terms of Article 42 of Chapter 234 the court considered Article 42 which provides:

1. In the event of default of any term or condition of a registered mortgage or of any document or agreement referred to therein, the mortgagee shall, upon giving notice in writing to the mortgagor: (a) be entitled to take possession of the ship or share therein in respect of which he is registered; but except so far as may be necessary for making a mortgaged ship or share available as a security for the mortgage debt, the mortgagee shall not by reason of the mortgage be deemed to be the owner of the ship or share, nor shall the mortgagor be deemed to have ceased to be the owner thereof.

2. A registered mortgage shall be deemed to be an executive title for the purposes of Article 253 of the Code of Organisation and Civil Procedure: (a) where the obligation it secures is a debt certain liquidated and due and not consisting in the performance of an act; or (b) where a maximum sum secured thereby is expressly stated in the instrument creating the security and such figure is recorded in the register for public notice.

3. The provisions of this article shall apply to all registered mortgages which secure debts resulting from any account current or overdraft or other credit facility.

4. In connection with the enforcement of any mortgage, not being a mortgage contemplated in sub-Article 2, for the purpose of determining the amount certain liquidated and due or the actual sum due when the mortgage secures a future debt within an expressly stated maximum, in connection with any judicial sale of a ship, the mortgagee shall specify the sum due at the time of enforcement by means of an affidavit served on the mortgagor: Provided that this shall be without prejudice to the right of any interested party to contest such amount according to law.

5. For the purpose of the proceedings referred to in this article, the debtor shall be deemed to be duly served if the application or other act is served on the master of the vessel, or if he is absent from these islands, on the local agent appointed for the vessel by the owners or their agent, or in the absence of such local agent on a curator appointed by the court to represent the debtor and the ship”.

The mortgagee under Article 42 had authority to exercise its powers after giving written notice to take possession of the vessel.

While Article 42 (2) restricted the cases when a mortgage was deemed to be “executive”, it did not impose any other condition to render a mortgage to be enforceable.

Article 42 (2) did not say that a mortgagee had to follow the procedures under Chapter 12. In this respect it did not have to apply Article 253 and Article 256 of Chapter 12.

The first court therefore did not accept Chemstar’s pleas. This court said that the bank was entitled to take possession of the vessel, under the mortgage and deed of covenants.

The bank complied with the formalities under the deed of covenants as regards notices. It resulted that Chemstar was in default, as it failed to pay the loan installments.

Nor did Chemstar contest that there was an event of default. The court said that the bank would suffer a greater hardship if these proceedings were delayed or stayed in particular since the vessel was the only asset of the debtor.

The court felt that there existed no extraordinary circumstances to justify this case be stayed until the Turkish case was decided. Enforcement of mortgage: The Court of Appeal had to consider whether the first court was correct to say that no other formality was necessary to enforce a mortgage, other than notice in writing. A mortgage had to be “executive” to be enforceable.

A mortgage, however, could be deemed to be included in Article 253 Chapter 12 in terms of Article 42 (2) Chapter 234. Article 256 (1) of Chapter 12 was applicable, maintained the court.

A mortgage could only enforce after two days from a request for payment by judicial act. This was also in accordance with Article 42 (5) of Chapter 234.

The court, however, pointed out that the rights of a mortgagee under Article 42 (1) were not subject to any limitations under Article 42 (2). The rights of a mortgagee under Article 42 (2) were additional to Article 42 (1). In this respect, the court dismissed Chemstar’s grievance that the formalities under Chapter 12 had to observed before the bank could present this action.

Chemstar claimed that it was not to blame for the breach. Chemstar maintained that the first court should have looked into its alleged “default”, in particular, when the bank requested the court to declare that it had a right to take possession of the vessel on the basis of its default. The court said it should review whether there was a breach as required by law.

The bank, on the other hand, disputed not observing the terms of the agreement. It put forward the argument that the fact that Chemstar chose to sue in Turkey only indicated that its pleas before the Turkish court would make no effect to rebut its claims in Malta.

This court said it could not now consider the bank was in a way responsible, once this issue had not been decided by the first court, otherwise it would deny a party the benefit of doppio esame.

If one of the conditions for the bank to take possession of the vessel was nonperformance by the mortgagor, a plea by the mortgagor defendant contesting such non-performance should not be lightly discarded. The bank was entitled to exercise its rights under the security documents subject to judicial review.

This meant that the bank had the right to take possession of the vessel. Chemstar’s pleas should not delay a decision by this court of the bank’s requests.

Besides as Chemstar raised this very issue before the Turkish court, this court was precluded from considering this issue: in view of the lis alibi pendens principle (a person could only sue once in relation to the same merits); nor should the outcome of the case in Turkey delay the delivery of a decision by this court.

For these reasons, on May 25, 2012, the Court of Appeal gave judgement by dismissing Chemstar’s appeal and by confirming the decision of the Court of First Instance dated November 24, 2011.

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Dr Grech Orr is a partner at Ganado & Associates