FEATURES OF SHIP ARREST IN MALTA
By Dr. Kevin F. Dingli
Dingli & Dingli Law Firm
18/2 South Street,
Valletta VLT 11, Malta
Tel.: +356 21 23 62 06
Fax: 356 21 24 03 21
Ship arrest in Malta until very recently was regulated by obscure British statutes giving rise to rather limited heads of admiralty jurisdiction, and by the consistent practice of the Maltese Courts over time. There was no Warrant of Arrest proper, and ships were arrested by the suing out of a combination of two separate warrants .
Until the advent of the “POKER” case , it was always considered that the elements required for an action ‘in rem’ to be successfully instituted were (i) that the ship be physically within Maltese territorial waters; (ii) that the particular ship be detained under the authority of the Court in virtue of the aforementioned warrants; (iii) that the Claim be directed against the particular ship concerned and (iv) that the claim fall within one of the heads of admiralty jurisdiction recognised at the time.
The “POKER” case, which arose in the context of a bareboat charterparty scenario, upset settled practice by additionally requiring another element, namely (v) the underlying personal responsibility of the ship owner.
In the absence of any legal provisions regulating the arrest of a ship under bareboat charter, a crying need for statutory intervention came about, and opportunity to completely overhaul the law was presented in the form of Act XIV of 2006 , amending the Code of Organisation and Civil Procedure (“COCP”) by implementing various measures relating to judicial proceedings.
The changes brought about were principally as follows :
– the action ‘in rem’ was completely revamped. Heads of jurisdiction were significantly increased or expanded upon; and for the first time the substance of the action came to be regulated by law.
– a new Warrant of Arrest was introduced, both as a precautionary as well as an executive act, the precautionary warrant securing claims not yet judicially acknowledged or otherwise constituting executive titles whilst the executive warrant enforcing executive titles.
– the Judicial Sale by Auction of ships was reformed; and
– Court approved Sales for ships were introduced for the very first time.
The Action ‘in rem’ / Maritime Claims
The action ‘in rem’ is a special type of legal action instituted against a Ship (the ‘res’) being physically present and arrested within the territorial jurisdiction of the Court in connection with a recognised maritime claim arising in connection with that Ship, or where admissible a Sister Ship.
The action ‘in personam’ is an ordinary legal action instituted against the Owner of a Ship for any claim arising under contract or tort whenever that person may be subject to the ordinary jurisdiction of the Court.
Whilst every ‘in rem’ claim would also constitute an ‘in personam’ claim, the converse is not always true – e.g. in the case of a shipowner’s personal guarantee not secured by a ship mortgage.
The COCP makes separate provision for persons subject to the jurisdiction of the Civil Courts of Malta (the in personam jurisdiction of the Courts ), and for jurisdiction in rem against ships or vessels (the in rem jurisdiction of the Maltese Courts ).
The Warrant of Arrest may be sued out in order to secure both maritime ‘in rem’ claims, as well as ‘in personam’ claims. Ship Arrest in security of maritime claims, giving rise to the ‘in rem’ jurisdiction of the Courts, is however the primary focus of this paper.
Under a new Article 724B added to the COCP , the Civil Courts are now vested with jurisdiction ‘in rem’ against Ships in regard to the host of Maritime Claims therein listed.
A total number of 25 Maritime Claims giving rise to such ‘in rem’ jurisdiction are provided for . These follow closely on the British Supreme Court Act 1981, but also incorporate the maritime claims recognised under both Arrest Conventions of 1952 and 1999 even though Malta not yet signatory to either.
In cases concerning :
(a) any claim to the possession, ownership or title to or of any Ship or to the ownership of any share therein;
(b) any question arising between the co-owners of a Ship as to the ownership, possession, employment or earnings of that Ship; and
(c) any claim in respect of a mortgage, hypothec or charge on a Ship or on any share therein
an action ‘in rem’ may be brought against the Ship in connection with which the claim or question arises.
In all other cases concerning the remaining Maritime Claims , an action ‘in rem’ may be brought against :
(a) that Ship, where the person who would be liable on the claim for an action ‘in personam’ (“the Relevant Person”) was, when the cause of action arose, an owner or charterer of, or in possession or in control of, the Ship, if at the time when the action is brought the Relevant Person is either an owner or beneficial owner of that Ship or the bareboat charterer of it;
(b) any other Ship of which, at the time when the action is brought, the Relevant Person is the owner or beneficial owner as respects all shares in it.
This introduces the possibility of Sister-Ship-Arrest in Malta in connection with ‘in rem’ actions for the very first time.
Maltese law does not recognise the concept of a ‘Maritime Lien’ as known to English law.
Nevertheless the Merchant Shipping Act (“MSA”) ‘special privilege’ status to a number of claims .
Special Privileges have no jurisdictional relevance ‘per se’, but survive the voluntary sale of the Ship to which they relate for a period of 1 year, commencing to run from the date on which the sale of the ship was registered, documented or otherwise annotated in the registry to which that Ship belongs or, in cases where this is not effected, from the date of closure of registry following such voluntary sale.
In the NORBEL BULK case , the Court has recently held that the aforementioned registration needs to be effected in the Ship’s new register, but the writer believes the Court was mistaken in its interpretation of the relevant provisions of the MSA dealing with the attachment and extinguishment of charges, and the case is now pending appeal.
In an action ‘in rem’ which concerns a claim attracting a Special Privilege, the test requiring the Relevant Person to be the owner or beneficial owner or the bareboat charterer of the Ship at the time when the action is brought does not apply.
Warrant of Arrest
A new Warrant of Arrest has been introduced. This replaces the former Warrant of Impediment of Departure and the Warrant of Seizure which were previously coupled to effect a Ship Arrest.
The law provides for a Precautionary and an Executive Warrant of Arrest.
Precautionary Warrant of Arrest
The Warrant of Arrest of Sea Vessels is one of the recognised Precautionary Acts .
Precautionary Acts are available to secure the rights of a person without the necessity of any previous judgment. They are issued and carried into effect on the responsibility of the person suing out the Act.
The Precautionary Warrant of Arrest may be issued against any sea-going vessel having a length exceeding 10 metres, whether at sea or at some other place (within the territorial jurisdiction of the Maltese Courts) :
– to secure a debt or claim whether in personam or in rem of not less than €11,600; and
– which could be frustrated by the departure of the Ship.
No other warrant may be issued against a Ship.
The Arrest Convention 1952 provides that a Ship flying the flag of one of the Contracting States may be arrested in the jurisdiction of any of the Contracting States in respect of any maritime claim but in respect of no other claim. A similar provision is to be found within the Arrest Convention 1999 (not yet in force).
Malta is not yet a signatory to the Arrest Conventions, so that a possible future issue might arise when Malta becomes a signatory in regard to the arrest of a Ship flying the flag of a Contracting State in security of an ‘in personam’ claim not also constituting a Maritime Claim (e.g. a personal guarantee issued by a shipowner not secured by a ship mortgage).
The effect of Warrant of Arrest is :
– to seize the Ship from the debtor
– to attach the Ship in the hands of the Authority where the property is; and
– to order the Authority not to release the Ship, or allow the debtor to divest himself of the same or give or surrender to any person any rights on the same.
The Malta Maritime Authority (“MMA”) is deemed by law to be the authority having the arrested Ship in its hands or under its power or control as soon as the Ship enters Maltese territorial waters. The Minister may designate another authority.
The party issuing the Warrant is to bear all expenses necessary for preservation of the arrested Ship from the moment the warrant is served on the Authority, saving the right of recovery thereof together with his Claim.
The Precautionary Warrant of Arrest is sued out :
– by Application to be filed in prescribed form, which includes the Court Decree giving necessary orders;
– under pain of nullity clearly stating (i) particulars enabling identification of the Ship (ii) the name of Authority under whose power or control Ship may be and (iii) the place where Ship is to be found.
Power is given to the Court Executive Officer to adopt all measures deemed necessary for execution of warrant, subject to any directives given by Court / Registrar.
The Warrant is executed upon service thereof on the executive officer of the Authority having the Ship in its hands or under its power or control. A copy of the Warrant is also to be served on the Owner, Master/other person in charge or Agent of the arrested Ship.
Action is to be brought, or arbitration to be commenced, in respect of the Claim stated in Warrant, within 20 days from date of issue of Warrant .
In default, saving for just cause, the effects of the Warrant cease and the person suing out the Warrant shall be liable for all damages and interest.
Council Regulation (EC) No. 44/2001 is applicable to Malta pursuant to its EU Membership since 2004. Article 31 would allow a Precautionary Warrant of Arrest to be issued in Malta even if the Courts of another Member State have jurisdiction as to the substance of the matter. Certainly this would apply to ‘in personam’ claims (FLINTEMAR case).
However, Article 2 provides that persons domiciled in a Member State shall, whatever their nationality, be sued in the Courts of that Member State. It is questionable whether this provision applies to ‘in rem’ actions – or only to ‘in personam’ ones.
The difficulty arises because Malta is not party to the Arrest Conventions, so that Article 71 saving any conventions to which Member States are parties governing jurisdiction in relation to particular matters would not be applicable.
A Penalty of not less than €11,600 is applicable in the event it were to be found that the Warrant was obtained on demand maliciously made.
The Court may also, on good cause being shown, on demand of the Owner / Master / Agent, order the party suing out the Warrant to put up Security within a given time in an amount of not less than €11,600 for the payment of the penalty, damage and interest; and in default the Warrant is to be rescinded.
Following its arrest the Court may, on Application of the MMA, order the Ship to be shifted from a port or harbour to any other anchorage within territorial waters, if satisfied that because of the cargo, length or draft of the Ship; and/or other circumstances concerning safety, pollution, navigation or port operation, it is advisable that the Ship should leave port without delay.
Following its arrest the Court may also rescind a Warrant of Arrest and order the Ship to leave Malta and its territorial waters without delay on Application of the MMA if satisfied that because of the nature of the cargo of the Ship; and/or other circumstances concerning safety or pollution, it is advisable that the Ship should leave port and/or territorial waters.
The Court may order the sale of an arrested ship pendente lite if, on application of a Creditor, it appears that the debtor is insolvent, or unlikely to continue trading and maintaining the asset.
If the Ship be removed from the jurisdiction in breach of the Warrant, the owner / bareboat charterer or other person in possession of the Ship shall additionally be liable jointly and severally to a penalty of €116,400 in favour of the party issuing Warrant.
The person against whom a Precautionary Warrant of Arrest has been issued may have recourse to the Court issuing the same praying that the Warrant be revoked on grounds recognised by law . These would include :
– that other adequate security is available to satisfy the claim; and/or
– if amount claimed not prima facie justified or excessive; and/or
– if sufficient security provided.
The Court hears any such Application with urgency.
Executive Warrant of Arrest
The Executive Warrant of Arrest of Sea Vessels is one of the recognised Executive Acts available to persons in possession of an executive title recognised by law for the purposes of enforcing the same.
Executive Titles include, inter alia :
– Judgements and decrees of the Courts of Justice of Malta;
– Awards of Arbitrators registered with the Malta Arbitration Centre; and
– Ship Mortgages securing amounts certain, liquidated and due.
The Executive Warrant of Arrest is sued out:
– by Application to be filed in prescribed form;
– under pain of nullity clearly stating (i) particulars enabling identification of Ship (ii) name of Authority under whose power or control Ship may be and (iii) place where Ship is to be found; and
– describing in detail any rights and encumbrances.
The Court Executive Officer has power to adopt such measures deemed necessary for execution – subject to directives given by Court / Registrar.
On Application made for the issue of such Warrant, the Court shall establish whether it shall order the Sale of the Ship; or fix a time-limit within which the debtor is to pay the amount due.
If the Court orders the Sale of the Ship, it shall proceed according to the procedures laid down in the provisions relating to judicial sale by auction
If the Court fixes a time limit within which the debtor is to pay, it shall order the Warrant to remain definitely in force until payment of the amount due is effected.
When the time limit fixed passes without any effect, the Court, upon demand made by the interested party, shall order the Judicial Sale by Auction to take place in respect of the Ship.
The person against whom an Executive Warrant of Arrest issued, or any interested person, may have recourse to Court issuing such Warrant, containing all submissions and sustaining documents, praying that the Warrant be revoked, either totally or partially, for reason valid at law . The Court decides after hearing the parties, and there is the possibility of appeal from the Court’s decision.
Judicial Sales by Auction
Before a Judicial Sale by Auction may occur, a Ship need now only be appraised if required by the creditor or the debtor.
However, the law still provides that the procedure to be followed shall be that laid down for the judicial sale by auction of immovable property. This is evidently an oversight on the part of the Legislator, which needs to be rectified as soon as possible, thereby avoiding unnecessary uncertainty such as whether the jus redimendi – allowing a debtor the right to repurchase immovable property sold by auction within 4 months from the date of registration of the act of adjudication in the Public Registry – applies to judicial sales by auction of Ships.
The writer considers this to be unlikely, as this is not strictly a procedure for auction of immovable property but a right subsequent; and the act of adjudication of a Ship is not registered in the Public Registry of Malta.
Furthermore, Article 37D(1) of the MSA provides that where a Ship has been sold pursuant to an order or with the approval of a competent court within whose jurisdiction the vessel was at the time of sale, the interest of the mortgagees as well as of any other creditor in the ship shall pass on to the proceeds of the sale. Therefore judicial sale by auction gives clean title to the buyer.
Judicial Sale by Auction of a Ship is conducted by a Public Auctioneer in the presence of the Registrar of Courts, and the Purchaser shall be highest bidder. The general rule applicable to judicial sales by auction of immovable property to the effect that no offer may be accepted if less than 60% of the value at which it has been appraised no longer applies to Ships, even in cases where an appraisement has been made.
The Auctioneer may demand that bidders be in possession of necessary guarantees. Bids pro persona nominanda or by a person notoriously incapable of fulfilling obligations arising out of adjudication are not to be accepted. Any bid animo compensandi as may on Application be allowed is made on condition that bidder binds himself to pay price into Court should it so be adjudged. Opposition to an application to bid animo compensandi may only be made after the Judicial Sale.
The Purchaser is required to pay the price into Court within 7 days from date of final adjudication. Delivery of the adjudicated Ship takes place ipso iure on final adjudication and payment of the price into Court or approval of set-off. The Court may make Orders to ensure that the adjudicated Ship be delivered to the purchaser forthwith upon the giving of security to safeguard claims of the parties. Such Orders are not open to challenge and are to be implemented forthwith.
If during the Judicial Sale, before adjudication, it appears that a sum sufficient to meet the debts and costs of the auction has been obtained, the Registrar shall order the auction discontinued; and upon verbal demand by the Debtor, the Court shall order the unsold Ship to be restored to him.
Court Approved Sales
Court approved Sales constitute an innovation introduced as an alternative to judicial sales by auction of Ships.
Essentially, on Application made by any Creditor in possession of an Executive Title, the Court may approve the private sale of a Ship in favour of an identified Buyer in consideration of a determined price.
The Application must attach Appraisements made by 2 independent and reputable Valuers, confirming the value of the Ship
The Applicant must satisfy the Court that:
– such private sale is in the interest of all known creditors; and
– the price offered by the proposed buyer is reasonable in the circumstances of the case.
The Application is served on such persons as the Court deems it appropriate to call upon to make their submissions in the circumstances, acting upon the information given by the Applicant.
The Application is appointed for Hearing within 10 days of filing.
In any Decree acceding thereto, the Court nominates a person entitled to effect the transfer of the Ship in accordance with approved terms and conditions as though he were the owner.
The person so appointed is required to deposit the price in Court within 7 days of completion of sale.
The Court Approved Sale gives the Buyer legal title to the Ship free from all privileges and encumbrances. After such Sale, all claims and demands against the Ship may be enforced only against the proceeds of sale.
The end result achieved therefore equates to a Judicial Sale by Auction – only the procedure is much more expeditious.