The arrest of a ship in Malta by the holder of a maritime hypothec has been declared illegal on appeal, since the ship had been sold to new owners in Jamaica through a judicial sale by auction.

In a judgment handed down by the Court of Appeal in the case Dr. Ann Fenech (nominee on behalf of Bluefin Marine Limited) vs Jebmed SRL, the court confirmed the judgement delivered by the first Court of the Civil Hall by Mr.Justice Mark Chetcuti.

The case revolved around the arrest of the vessel Bright Star in June 2018 by Jebmed SRL, after the vessel - which was previously called Trading Fabrizia - had been sold to new owners in a judicial sale free and unencumbered in Jamaica earlier in 2018. Jebmed SRl were old creditors of the vessel who had arrested the vessel in Jamaica and sought her judicial sale there.

On 19 June 2018, Bright Star, under the new owners following the judicial sale, was on its way from Kavkaz in Russia to Venezuela with 30,000 tonnes of grain. It was ordered to stop in Maltese territorial waters for bunkering, and when it stopped in Malta, it was arrested through an arrest warrant issued by Jebmed SRL.

On 12 July 2018, the court decided to revoke the arrest warrant that was, instead, substituted with funds deposited in court.

The owners claimed that since they had purchased the vessel free and unencumbered in a judicial sale, , Bright Star was illegally arrested, and that because of their commercial obligations they were constrained to deposit the sum of €779,346.61 for the ship to be able to continue with its work, and that they, as the new owners, suffered damages and serious consequences from the "illegal act". The owners said that they suffered substantial damages due to the ship being unable to be used for a time, bunkering while it was arrested in Malta, and other things.

The Court of Appeal took note of the previous maritime hypothec by Jebmed SRL on the vessel, but also noted that the vessel had been sold free and unencumbered through the judicial sale in Jamaica to the new owners. The new owners argued that  as a result of the sale free and unencumbered the maritime hypothec over the vessel  had been extinguished and that the creditor had to turn to the proceeds of the sale.. Jebmed SRL, on the other hand, held that the State of Jamaica does not recognize its executive title, nor the maritime hypothec, and so the rights it had on the ship were still in force.

The Court of Appeal noted, however, that Maltese law doesn't make a distinction, but states that a maritime hypothec must end once the vessel is sold through a judicial sale. The law states that the interest of creditors, in the case of a vessel being sold  free and unencumbered under the authority of a court, "shall pass on to the proceeds of the sale." This, the court noted, means that the interest of the creditors on the vessel ends, and is passed on to the proceeds of the sale. The owners of the vessel submitted that  Jebmed was free to pursue payment from the vessel's proceeds and the  court in Jamaica had reserved one million for Jebmed to pursue and enforce its  claim.

The fact that Jamaica doesn't automatically recognize maritime hypothecs issued in Malta "is not relevant to the case," the court said. "The sale of the vessel occurred free and unencumbered, and Maltese law states clearly that each sale under a sale by judicial auction cancels out a hypothec registered on a vessel. Our law makes no condition of any form of reciprocity."

The court has agreed with the first court's decision, that the arrest was illegal.

The vessel was represented by lawyers Ann Fenech, Adrian Attard and Martina Farrugia.

Ann Fenech said that this is a very important judgement which confirms the position under Maltese law, leading to legal certainty for the benefit of international trade and international shipping, particularly since Malta is the largest flag in Europe and when Malta is an important location for the judicial sale of ships. "The importance of the subject matter is underlined by the fact that the General Assembly of the United Nations has as recently as the 7th of December 2022 adopted a new Convention on the International Effects of Judicial Sales of ships which provides that when a vessel is sold free and unencumbered it cannot be re arrested by a previous creditor of the vessel," Fenech added. Arrangements are currently being made for the signing ceremony to take place later on this year in Beijing after which the Convention will be open for ratification by Member States, Fenech said.