The shipping industry is responsible for approximately 90% of worldwide trade, with over 50,000 merchant ships trading internationally and registered in over 150 different nations carrying approximately one million seafarers of virtually every nationality. This creates an environment whereby disputes amongst industry players are almost inevitable and therefore may lend ship owners, charterers, cargo owners and financiers (amongst others) the opportunity to bring about claims against one another for a number of reasons, many times carrying quite a hefty price tag.
The warrant of arrest over a ship or vessel is a common judicial remedy that is typically used in order to formally commence an action for the purposes of settling a claim which may be brought about by filing an application before the Maltese courts, instructing such courts to arrest the vessel in question by means of such warrant.
Unlike most other areas in shipping, Malta does not subscribe to any international arrest convention such as the Arrest Convention of 1952 or the Arrest Convention of 1999 however is solely regulated by domestic law, namely Article 742B of the Maltese Code of Organization and Civil Procedure (COCP) which was introduced in 2006. Pre 2006, Maltese law failed to address instances whereby Maltese courts could have exercised jurisdiction in rem over certain claims relating to vessels. Even though Malta until this day does not subscribe to the 1952 or 1999 arrest conventions, the 2006 amendments intelligently adopted several legal notions found within the 1952 and 1999 arrest conventions.
According to the COCP, Maltese courts have jurisdiction to hear claims made in in personam (against an individual or company) or in rem (against the vessel itself). An in personam claim can be made against the owner of the ship based on the grounds listed in section 742 of the COCP. Alternatively, an in rem claim can be made against the ship itself based on the grounds listed in section 742B of the COCP.
The arrest of a vessel can only take place by means of a warrant of arrest which is issued by the court and is to be served on the relevant local authorities as well as on the master of the arrested vessel. Such warrant may be served by any individual or company and not necessarily by an appointed court marshal, as recently amended last December 2019.
Maltese law caters for two forms of warrants: a precautionary warrant of arrest and an executive warrant of arrest. A precautionary warrant of arrest is made for the purpose of obtaining security and will only be issued if the vessel is beyond 10 meters in length & having a claim exceeding €7000, while an executive warrant of arrest is made for the purpose of enforcing a judgment. Furthermore, it should be noted that for a ship to be physically arrested and detained by a Maltese court, such vessel would necessarily need to be located within Malta’s 12 NM region. Even though this may seem slightly inconvenient, the geographical position of the Maltese islands does away with such limitation since it manages to capture a large number of vessels travelling between the Suez Canal and the Strait of Gibraltar, one of the busiest shipping transit routes in Europe and the world.
Once a precautionary warrant of arrest is succesfully issued against a vessel, the arrestor has 20 days to start an action on the merits in Malta from the date of issuance of such warrant. The warrant may be lifted through a counter-warrant of arrest on the basis that a security is set up as a form of guarantee. Finally, liability may be imposed on the arrestor if it is proven that the arrest was malicious or frivolous.
Sale of the Ship Through a Court Order
Court judgments and mortgages are executive titles in accordance with Article 253 of the COCP and any party who holds either of the two may immediately and uninterruptedly request the court to proceed with the sale of the vessel by means of a judicial sale by auction or a court-approved private sale.
To initiate a judicial sale by auction the holder of an executive title must firstly submit an application before the court, requesting the court to order the judicial sale of the vessel and likewise appoint a public auctioneer. In such instances, the ship is typically sold to the highest bidder who has seven days from final adjudication to pay the full price in court. Alternatively, any creditor having a judgment or other executive title in its favor may place a bid animo compensandi meaning that a creditor may choose to bid for the vessel in question itself, with the original amount owed to the creditor being set – off, whilst depositing in court the surplus where the price of the ship exceeds the total amount of debts and costs. When a ship is sold in a judicial sale by auction, the vessel is sold free and unencumbered.
Alternatively, a vessel may be sold by way of court-approved private sale whereby similarly creditors can make a request to the Superior Courts of Malta for the approval of a private sale of a vessel to a specific private buyer. The court shall appoint a date for hearing within 10 days of its filing. The advantage of a court-approved private sale is that there is less uncertainty over the price that can be achieved in comparison to a judicial sale by auction. In such instances, the holder of the executive title must ensure to obtain two valuations of the ship and the eventual selling price should be equal or exceeding those valuations. Once the court approves of the sale, the ship will be sold free and unencumbered like in the case of a judicial sale by auction.
Historically, the Maltese courts have always held a prominent role in the arrest of vessels and enforcement of executive titles. This major success owes itself to the fantastic geographical location of the Maltese islands combined with a heavily creditor-friendly legal system seeking to protect creditors from all sorts of injustice.
This article was written by Dr Sean Xerri de Caro.
This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.