Despite the EU debt crisis, the Euro currency has been Malta’s salvation, says Islands’ businesses, writes Paul Gunton of Fairplay [published in Fairplay, 26 January, 2012].
Rights of the mortgagees under Maltese law – Part 2
Times of Malta, Thursday, January 5, 2012 , by Ann Fenech
Section 42 of the Merchant Shipping Act lays down the rights of the mortgagee in the eventuality that the owner is in default of his obligations. One of the rights listed is the right of the mortgagee to take possession of the vessel.
In part one, I discussed a procedure which was inserted in our Code of Organisation and Civil Procedure in 2006 which gives the mortgagees of vessels further enhanced rights – a procedure whereby a mortgagee can enforce his rights through a court approved private sale which remedy attempts to bridge the distance between what was previously a choice between two remedies which were not in themselves 100 per cent satisfactory.
The judge made some very interesting remarks and observations, a number of which may very well open up a Pandora’s Box.
Through the court approved private sale the law seeks to support the mortgagee and other creditors of a defaulting owner by ensuring the best price for the vessel (something associated with a private sale as opposed to a judicial sale by auction), whilst ensuring that the vessel is indeed sold free and unencumbered (something which only a judicial sale by auction can guarantee and which a private sale cannot.)
We saw this remedy put to the test successfully on December 1, 2011 in the case Dr Ann Fenech for and on behalf of Danske Bank v. the M. V. Thor Spirit per Mr Justice Mark Chetcuti. The substantial and useful rights of the mortgagee granted by our law were however again confirmed by the same Mr Justice Mark Chetcuti on November 24, 2011, in the case Dr Louis Cassar Pullicino for and on behalf of Norddeutsche Landesbank Girozentrale v. Chemstar Shipping Ltd.
Section 42 of the Merchant Shipping Act lays down the rights of the mortgagee in the eventuality that the owner is in default of his obligations. One of the rights listed is the right of the mortgagee to take possession of the vessel. Whilst this may be all very well and good on paper, from a practical perspective this can present a number of challenges.
One would typically have a situation where the owner of the vessel is in default of a term in his mortgage; the mortgagee gives notice to the mortgagor to no avail because the owner remains in default, and the vessel is in some far flung jurisdiction. The mortgagee would like to take possession.
This would in real terms mean that the mortgagee would inform the owner that it intends to take possession; it may mean that the mortgagee would instruct the owner to take the vessel and to deliver the vessel into the possession of the mortgagee in a more efficient or reliable jurisdiction where the mortgagee can then take the necessary steps to enforce his mortgage through any remedy which Maltese law provides.
From experience, owners would generally comply with such requests. However there will be occasion when the owner, irrespective of the fact that the mortgagee would be fully within his rights to take possession of the vessel and order the owner to deliver the vessel to, say, Malta, the owner very consciously refuses. What can the mortgagee do about this situation?
This was the position which Norddeutsche Landesbank Girozentrale found itself in when following the default of Chemstar Shipping Ltd on its payments under a mortgage on the MV STAR 1, a vessel registered under the Malta flag, the bank sent the mortgagor a Notice of Default which was not actioned by the owner who remained in default of his obligations.
The mortgagee issued the owner with a Sailing Advice ordering the owners not to order the vessel to proceed to Turkey but to proceed to Malta instead. The owners ignored this advice and proceeded to Turkey. The bank then issued the owner with a further Sailing Advice as it was entitled to do in terms of its Loan Agreement to proceed immediately to Malta. The owners refused to do so. The bank representatives then attempted to board the vessel in Turkey to serve the Master with a notice of possession but were barred from boarding leading to the service of the notice of possession on the registered owners. The owners refused to hand over possession to the bank.
Given this, the bank was therefore forced to file an application before the Maltese courts requesting the court to confirm that the bank had the right to take possession of the vessel given the owner’s default, to fix a period of time within which the owner had to deliver the vessel to the bank failing which to authorise the bank to take possession of the vessel even by appointing new crew, order the owner to refrain from doing anything which would hinder either directly or indirectly the bank from taking possession of the vessel and finally to make all those orders necessary to enable the bank to take possession of the vessel.
The owners attempted to defend the application by stating that: The Maltese court had no jurisdiction over the matter because the vessel was not in Maltese territorial waters; that the law did not contemplate the mortgagee having a right to file such an application; that it was not the fault of the owners which led to them being in default; that the mortgagee had not taken any of the steps associated with obtaining an executive title; that the mortgagee had to first file an official letter which it did not.
Mr Justice Chetcuti threw out the defence of lack of jurisdiction on three counts – the basis that the defendant was a Maltese registered company and therefore the jurisdiction of the Maltese court was beyond question, on the basis of a jurisdiction clause in the deed of covenants indicating the Maltese courts as one of the courts to which disputes could be referred and on the basis of EU Regulation 2(1) of Regulation 44/2001.
Mr Justice Chetcuti also threw out the other defences by highlighting the fact that the right of the mortgagee to take possession was conditioned only by the need for the mortgagee to give notice to the owner in writing as stipulated in article 42 of the Merchant Shipping Act and the need to ensure that all the criteria established by the loan agreement and deed of covenants had been satisfied.
He therefore accepted all of the Bank’s requests and declared that the Bank had a right to take possession of the vessel and ordered the defendant to deliver the vessel to the bank within one week failing which was authorising the Bank to take possession of the Motor Vessel Star 1 ordering the owners to refrain from doing anything to obstruct the Bank from doing so.
In his decision dealing with every one of the defences separately, the judge made some very interesting remarks and observations a number of which may very well open up a Pandora’s Box, possibly each deserving a detailed analysis and article in themselves.
However, the general message which has been sent out loud and clear by this judgement is that in this particularly sensitive commercial area where the strength of the flag lies in the comfort it can give the financiers, international financiers of vessels registered under the Malta flag can rest assured that provided that their rights under the contracts they enter into are in line with the provisions of our Merchant Shipping Act they will be fully upheld and safeguarded.
Dr Fenech is head of the marine litigation department and managing partner at Fenech and Fenech Advocates.
Rights of the Mortgagees under Maltese law
Times of Malta, Thursday, December 15, 2011, by Ann Fenech
The meteoric rise of the Malta flag from one million tons in 1986 to over 40 million tons today is due to a number of reasons. Included in the long list is the foresight of our legislators, the continuous updating of our law, sensible fiscal solutions to the ship owner, a regulator who is open for business 24/7, English as an official language, central European time zone and tireless service providers who assist in promoting the product and facilitating the service.
One primary reason behind the success of our maritime flag is the security which our law gives to the financier of these vessels.
One primary reason behind the success of our maritime flag equal only to the sensible fiscal solutions it offers the ship owner is the security which our law gives to the financier of these vessels. No financier is going to lend several millions of dollars for the purchase of a vessel only to have the vessel registered in a jurisdiction which does not adequately safeguard his investment in the eventuality that the ship owner defaults on the mortgage payment.
Of course it is one thing to talk about the security offered by Maltese law, and quite another to see whether all the talk translates into something tangible.
Since 2008 to date and sadly with the collapse of a number of ship owners resulting in their inability to satisfy their obligations under their mortgage deeds, Maltese law and the security it says it offers the mortgagee has delivered very successfully.
As a result of a number of several ship owners of Maltese registered vessels defaulting on their mortgage payments, financiers have been able to put their mind at rest because they have seen Maltese law delivering what it has promised to deliver and have been able to put into effect the rights given to them by our Merchant Shipping Act in such situations.
Up until 2006 Maltese law provided the mortgagee with a number of remedies in the face of a defaulting owner. In the event of a default by the mortgagor of any term or condition of a registered mortgage, the mortgagee can take possession of the vessel and can sell the vessel.
In addition a mortgage is an “executive title” which means that the mortgagee can proceed directly with enforcement without the need of commencing any form of action. This is very important because it means that a mortgagee can proceed directly with applying to the Maltese courts for the judicial sale of the vessel. These two remedies, the ability to sell the vessel privately and the ability to apply for a judicial sale have advantages, however each also has disadvantages.
The advantage with a private sale is that the mortgagee can negotiate with a private buyer the sale of the vessel at the right price. However in a private sale the vessel is not sold free and unencumbered and this in itself may put potential buyers off.
In a judicial sale on the other hand, the vessel is sold free and unencumbered attracting buyers, however the prices normally fetched at Judicial Sales by Auction are frequently well below the market value given especially that there is no minimum reserved price.
In 2006, a very important amendment to our Code of Organisation and Civil Procedure was enacted. The amendment saw the introduction into our law of the Court Approved Private Sale. This is intended to bridge the distance between the advantages and disadvantages of the Private Sale and the Judicial Sale by Auction.
For some reason however and notwithstanding that this very useful remedy has been available on our statute books since 2006, it was only made use of for the first time in the application filed by Danske Bank A/S against the vessel Thor Spirit. Legal history was made on December 1, 2011 when our Civil Courts per Mr Justice Mark Chetcuti approved the private sale of a vessel following an application in the name of Dr Ann Fenech for and on behalf of Danske Bank v. the M. V. Thor Spirit.
The way the court approved sale works is as follows: The mortgagee finds a private buyer of a vessel at an agreed price which should be equal to or superior to two previously obtained valuations attesting to the value of the vessel. The mortgagee then files an application in court exhibiting copies of the MOA and the valuations obtained requesting the court to approve the private sale and to appoint a person who can transfer the vessel by means of a bill of sale to the new buyer for the agreed price. Such sale is effected free and unencumbered.
In this way the mortgagee can negotiate the best price (dealing with the difficulty created normally by a Judicial Sale by auction) for the sale of the vessel which is effected free and unencumbered (thereby dealing with the difficulty of a private sale.) Notwithstanding the fact that this remedy has been on the statute book since 2006, the first time it was tried and tested was in fact in this case.
The procedure was extremely efficient and fast and the time it took from the date of the application seeking court approval of the private sale to the date of the order was approximately two weeks.Now that the procedure has been carried out successfully, it is more than likely that we will be seeing plenty more in the coming months.
(The first in a series of three articles.)
Dr Fenech is head of the Marine Litigation Department and managing partner at Fenech & Fenech Advocates
Arresting a vessel in Maltese waters is now even easier
Recent legislative changes ratified by Malta streamline the process for arresting a vessels, write Dr Karl Grech Orr and Dr Matthew Attard.
Article appeared in Tanker Shipping & Trade, June-July 2011. See full article here.
Evacuees on commercial vessels present delicate legal considerations
First appeared, Times of Malta, Sunday, May 15, 2011. Author: Alison Vassallo .
The carriage of passengers on board commercial vessels out of a high risk zone is not to be entered into blindly or without a clear awareness of the legal intricacies involved. Beneath the great humanitarian concerns underlying the evacuations from Libya over the past weeks lies a steadily turning commercial cogwheel that few may be aware of.
By April 25, 615,939 people had fled violence in Libya by road, sea or air. Numerous shipping companies reacted to the crisis by operating round-trip charters between Benghazi and war-torn Misurata and Crete and Malta, mainly at the request of governments in Europe, Latin America, and the Far East. The crisis poses tragic humanitarian and socio-political implications but it also presents organisations with the requisite resources and expertise with a commercial reality. Were it not for these operators, tens of thousands of people would still be stuck in a war zone and the humanitarian consequences would potentially be more severe.
Malta’s geographical positioning has attracted a number of people to the realm of chartering vessels for evacuation. From a shipping perspective, the carriage of passengers on board commercial vessels out of a high risk zone may present a delicate legal scenario. This operation is certainly not one to be entered into blindly or without a clear awareness of the legal intricacies involved. The reality is that there is no standard form contract which caters for the carriage of passengers in such a particular scenario.
In contracting a voyage charter party for the carriage of goods, the parties would, in the normal course of events, resort to the terms of standard form contracts, most notably Gencon 1994. These contracts do not, by their nature, contemplate the carriage of people. The charter of a vessel for the carriage of passengers as opposed to cargo for a trip or a series of trips is the subject of a number of standard form agreements formulated by the international shipping community, namely the Bimco Cruisevoy and the Mediterranean Yacht Brokers Association Charter Agreement.
However, these contracts fall short of addressing the specific circumstances faced in the evacuation of people: they contemplate the carriage of passengers on board leisure vessels such as cruise liners and superyachts. This leads to the necessity of formulating what would essentially be an ad hoc agreement between the owner and the charterer. One of the main considerations which must be addressed by the parties at a very initial stage in their negotiations relates to whether the voyage charter party will be a berth charter party or a port charter party. In the case of a berth charter party, the vessel would be considered an arrived ship, and therefore ready to take on passengers upon its arrival at a designated berth.
In such a case, laytime (the time allowed to the charterer to load and discharge passengers) which is included in the lump sum freight, would start to run only on the ship’s arrival at a particular berth. This would obviously disadvantage the owner since any time spent outside the berth due to the inability of the vessel to berth – especially in scenarios like the evacuation of passengers from a high risk zone – would be at the owner’s expense. Alternatively, the voyage charter party can be designated as a port charter party.
In this case the vessel is deemed to be an arrived ship as soon as she is considered as having arrived at the ‘port’ which could be the anchorage. As opposed to a berth charter party, this is to the owner’s advantage and to the charterer’s disadvantage. Laytime would start to run as soon as the vessel is deemed to have arrived at the port and not necessarily at the berth – ultimately irrespective of whether the passengers are being loaded or discharged from the vessel. Both the laytime allowed for the charterer to load and discharge passengers and the rate at which demurrage (the pre-agreed rate of liquidated damages) will be charged by the owner once the laytime is exceeded, are to be clearly expressed in the agreement.
These are just some of the important considerations which people who may be unfamiliar with in this sector would not even contemplate when entering into charter parties in emergency scenarios. It is crucial that specialised professional legal advice is sought before a contract is finalised. This can go a long way in preventing a hastily approached business venture which can turn to litigation once the immediate urgency has died down or, even worse, lead to complex legal wrangling during the actual running of the contract.
These negative effects increase in gravity in scenarios where the consequences of a failed contract may stretch beyond the legal and commercial and touch human lives.
Dr Vassallo is an associate within the Litigation department at Fenech and Fenech Advocates.