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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

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

Best in Shipping & Maritime Award

July 5, 2015 Leave a Comment

Ann Fenech, managing partner and head of the Marine Litigation Department at Fenech and Fenech Advocates, has won Best in Shipping and Maritime at the fifth annual European Women in Business Law Awards 2015, organised by Euromoney Legal Media Group Europe at The Grosvenor in London. This is the third time she has won this award.

Other nominees were: Elizabeth Blackburn from Stone Chambers, London; Siobhan Healey, from 7 King’s Bench Walk, London; Marie Kelly from Norton Rose Fulbright, Athens; Vivien Pitroff from Holman Fenwick Willan, London; and Vasanti Selvaratnam from Stone Chambers, London. Fenech & Fenech Advocates also won Best Law Firm in Malta. The Right Honourable Lady Justice Hallett attended to receive the Lifetime Achievement Award. In February 2013, she was assessed as the eighth most powerful woman in Britain by Woman’s Hour on BBC Radio. Judith Gill from Allen & Overy, London was presented the Outstanding Practitioner award.

The keynote speaker for the evening was Nicky Moffat, who was in the British Army for 27 years and was the most senior serving woman in the force when she left in 2012. Ann Fenech is currently president of the Malta Maritime Law Association and in June last year she was elected to serve on the executive council of the Comité Maritime International. The CMI is the international organisation which has, over the last 100 years, been responsible for the drafting of the vast majority of international maritime conventions. She is the first Maltese person to have been elected to serve on the council.

Source: Times of Malta, 5 July 2015

Malta For Maritime Registration in Shipping Law

June 20, 2015 Leave a Comment

If you have a sea-going vessel/ship, or even a fleet of them, you will need to make a decision about where you want your maritime registration to be held. There are a number of different flags from all over the world offering the opportunity to be registered; each will provide its own specific advantages and rules which must be adhered to.

Opting for Malta means joining the largest and arguably most established shipping community in Europe, and having access to a port which is perfectly placed between Europe and Africa. Malta is no longer to be a flag of convenience. In fact Maltese authorities in particular Transport Malta (ex Malta Maritime Authority) refers to the flag as a flag of confidence. Here’s a closer look at what ship registration in Malta brings and the benefit you can expect.

The legacy of Malta’s maritime history

Long history Lying in the Mediterranean beneath Italy but above the continent of Africa means that Malta occupies the perfect strategic position. Historically, the country has been one of the most important in maritime trade thanks to both its location and the abundance of natural harbours. Over the decades Malta has built an impressive array of maritime services such as towage, ship supplies, specialised repair plus Freeport facilities. This has helped the tiny nation to remain one of the giants on the global shipping stage, the 6th biggest in the world and the 2nd largest across Europe. This history of maritime excellence has earned the Maltese shipping flag real respect and worldwide confidence in their quality and monitoring.

Maritime monitoring Transport Malta holds responsibility for the registration of ships under the Maltese flag and also oversees the ongoing monitoring and administration of all those in the ship registry. Transport Malta has taken huge steps to protect the integrity of the Maltese shipping flag and has launched a number of different initiatives. Included in these was the appointment of inspectors all over the world to carry out regular safety inspections and to ensure ships comply with Maltese regulations. This rigorous approach to safety and monitoring combined with Malta’s status as a member of the EU means that it has been placed on the Paris MOU White List. This provides ships and vessels with advantages such as fewer port inspections.

The benefits
It’s clear that Malta has a very well-structured maritime/shipping industry and that it takes its responsibilities under its shipping flag very seriously. However, what benefits does registering with Malta provide to the owner of either a vessel or a fleet? There are a number of different benefits to being registered with the Maltese flag, some of which are financial.

Maltese registered ships enjoy the following tax benefits:

Income tax exemption: no income tax on revenue earned from shipping activities (international carriage of goods and passengers for reward).
Exempt from stamp duty on the sale of such a vessel exemption from donation and succession duty on the capital
No trading restrictions.
Double taxation agreements in place.
Possibility of registering ships in the name of non-resident entities.
Access to decision-makers within relevant authorities plus technical back-up.
Simplified procedure for the purchase and sale of shares/equity held in a Maltese shipping company.
Simplified process for the registration and deletion of all vessels.

In addition, the Maltese flag doesn’t pose any restrictions on the nationality of any of the crew serving on the vessel, nor the officers or the master. The nationality of any shareholders or directors is also unrestricted. Other vessels which wouldn’t normally be considered as a ship, such as an oil rig or a platform can be registered.

Malta has taken every possible step to ensure that its maritime regulations offer a real advantage to the ships that register under its flag and have in place responsible, efficient and useful legislation and procedures.

Source: Mamo TCV Advocates

Wrongful Arrest of Ships (1)

May 6, 2015 Leave a Comment

The arrest of vessels is an important and powerful weapon. In Malta, vessels can be arrested in order to achieve two objectives. The first is through a precautionary arrest warrant in order to secure a claim which has not yet been decided. The other is through an executive arrest warrant, which seeks to enforce a favourable judgment already obtained where the creditor refuses to pay the debt. The arrest of a vessel can eventually lead to the sale of the vessel in order to satisfy a judgment debt. In the meantime, the vessel is taken away from the owner and thus the owner can no longer earn an income from the vessel.

As a result, arrests usually have serious financial consequences for owners. Arrests are typically unannounced, often when a vessel is trading under charter and loaded with cargo. Having a vessel arrested puts an immediate stop to this activity, opening the owner up to other claims and losses. Therefore, the arresting party must be on the right side of the law and it is crucial that when arresting a vessel, the criteria permitting the arrest and the safeguards provided by the law are followed meticulously. If they are not – or if the law allows for a trigger-happy arresting party to proceed despite having no real grounds for arrest – there could be an increase in lawlessness. For example, it would give rise to an attitude of ‘might is right’ and increase the number of unscrupulous persons with suspect claims arresting vessels erroneously in the hope that the arrest will cause such chaos that the owner will simply give in to pressure and pay up. This would be wrong and illegal.

Facts
A recent case highlighted both the importance of this subject and a loophole in the law. Cassar Fuel Ltd v the MV K Dadayli was decided on February 12 2015 by Jacqueline Padovani Grima. Cassar arrested the MV K Dadayli for unpaid bunkers. The vessel was arrested long after it had been sold and the persons responsible for the payment no longer owned vessel. This was in breach of Article 742(D) of the Code of Organisation and Civil Procedure. Under Article 724(D), which was introduced into law in 2006, vessels may be arrested in rem only when the party that is liable for the claim in personam is the owner or bareboat charterer of the vessel when the action is brought or, in case of arrest, when the arrest is affected. This amendment was based on principles of equity and justice because it is neither equitable nor just to allow a vessel belonging to X to be sold in order to satisfy a judgment for a claim for which A (the previous owner of the vessel) is responsible.

The vessel owners filed an application primarily requesting that the court revoke the arrest warrant on the basis that the criteria stipulated in Article 742(D) were not satisfied. The vessel owners also requested the court to order the plaintiffs to pay for the expenses and damages that they suffered as a result of the illegal arrest (eg, extra bunkers consumed during the arrest, agency fees, port dues, pilotage fees, mooring costs during the arrest and a loss of time in relation to its chartering activities (by virtue of Article 836 (9)). Finally, the vessel owners requested that the court impose a penalty on the plaintiffs on the basis that the arrest was malicious, frivolous and vexatious in relation to Articles 836(8) and 861 of the Code of Organisation and Civil Procedure.

Decision
The court clearly stated that the criteria established in Article 742(D) must be followed religiously; therefore, a vessel cannot be arrested in support of an action in rem if the party that is liable for the claim in personam when the cause of action arose is no longer the owner or bareboat charterer of the vessel on arrested. Therefore, in this case, the arrest was illegal and the arrest warrant was revoked.

Comment
The judgment stopped short of making reparations to the vessel and its owners, which suffered damages as a result of the abusive arrest. This is because in the court held that the arrest of the vessel notwithstanding, the defendants’ failure to satisfy the criteria established by Article 742(D) was not malicious, frivolous or vexatious. Given that the court came to this conclusion, no penalty was applied and no award for damages could be sought as, according to Article 836(9), damages can be awarded only in cases which attract a penalty.

It could be argued that the court was incorrect in finding that the arresting parties’ actions were not malicious, frivolous or vexatious. Regardless, this case has highlighted a weakness in Maltese law, insofar as the right to damages resulting from an illegal arrest appears to be inextricably linked to the vessel owners proving that the arresting party should be ordered to pay a penalty.

In fact, the two should be separate and distinct. Vessel owners should be entitled to damages arising out of an illegal arrest as a natural and automatic consequence of a declaration that the arrest was illegal or wrongful because the necessary criteria were not followed. This right to damages once an arrest is declared illegal should have nothing to do with the court’s right to impose a penalty on an arresting party where Article 836(8) applies.

The fact that a party may arrest a vessel without satisfying the criteria for arrest and without paying for damages resulting from the illegal arrest merely because the court is unconvinced that the circumstances fit the criteria for which it could impose a penalty on the arresting party is not good news. It is something which the next round of amendments to the Code of Organisation and Civil Procedure must address.

Contributed by Fenech & Fenech Advocates,

Published in ILO, 6 May 2015

Member of the Comité Maritime International