The Malta Independent 26 May 2024, Sunday
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Law report - Court auction of sea vessels: Notice to creditors

Ganado Advocates Thursday, 2 May 2024, 10:38 Last update: about 24 days ago

Karl Grech Orr & Benjamin Farrugia

The Court of Appeal, in its Superior Jurisdiction, composed of Chief Justice Mark Chetcuti, Mr Justice Christian Falzon Scerri and Madam Justice Josette Demicoli, in the case Mediterranean Trading Shipping Co Limited vs the Vessel M/T Turu and others, dated 29th February 2024, decided, among other things, that Mediterranean Trading Shipping Co Limited, as a creditor of a ship, enjoyed no special right at law to be specifically notified of the sale by Court auction of the Vessel, and that failure to do so did not invalidate the Court auction.

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This case concerns the vessel M/T Turu, which had been effectively abandoned by its owners in the Maltese Ports. The company KS Shipping Limited was engaged to tend to the Vessel’s crew matters following the Vessel’s abandonment, and did so until December of 2018, when it handed its responsibilities of the Vessel to Mediterranean Trading Shipping Co Limited.

As a result of two Court decisions delivered against the Vessel in 2018, the Vessel was declared to be a debtor of (i) Mediterranean Trading Shipping Co Limited in the amount of approximately €117,000, and of; (ii) Transport Malta in the amount of approximately €38,000.

Thereafter, Transport Malta proceeded to enforce the judgement delivered in its favour to collect the outstanding amount due to it. It first arrested the Vessel pursuant to a Court Decree issued on the 11July 2018, and subsequently demanded its judicial sale by Auction. Notice of these proceedings were served on KS Shipping Limited, which received notice in its capacity as the Vessel’s crew agent, but not also upon Mediterranean Trading.

In January of 2019 the Vessel was sold by judicial auction to a Maltese company, Pendennis Company Limited, for €35,000.

After the Court auction proceedings were finalised, Mediterranean Trading instituted legal proceedings on the 9th of August 2019 before the First Hall Civil Court, requesting the revocation and annulment of the judicial auction of the Vessel. Mediterranean Trading pleaded that the Court auction was null and void as it, as a creditor/agent of the Vessel, had not been specifically notified of such Court auction proceedings.

It was argued that as a creditor/agent, it should have been notified, and the failure to do so invalidated the entire Court auction process. Mediterranean Trading claimed that it suffered a breach of its rights as it was not given the opportunity of participating in the auction, and suffered damages for which it claimed compensation.

Article 187(7) of Chapter 12 of the Laws of Malta provides that where an action is initiated against a ship or vessel, notice of such action shall be served on the “Master” of such ship/vessel, or any person acting in that behalf. Where such persons are absent, notice may be served on the “agent of the ship”. A “Master” of a ship is defined in Chapter 499 of the Laws of Malta as “the person having command or charge of the ship for the time being, but does not include a pilot”.

Article 313 of Chapter 12 of the Laws of Malta states that the Court Registrar is responsible for the publication of Judicial Sales by Auction, in the interest of the public and in order to safeguard the parties’ rights. He must do so in at least two newspapers, one being in the Maltese Language and the other in the English Language, while also providing important details relating to such auction, including the date, time and place of the auction, the court reference and the identity of each of the parties involved, as well as a description of the property in auction and its appraised value.

The First Hall Civil Court, in its judgement of 24th of November 2022, dismissed all the claims of Mediterranean Trading and also declared that two of the co-defendants in the case, namely KS Shipping Limited and the Director General (Courts), were not appropriate co-defendants to the suit.

Mediterranean Trading disagreed with the decision of the First Hall Civil Court and sought to have such decision overturned on appeal by filing an application to the Court of Appeal on the 21st of December 2022.

The Court of Appeal noted that since this case concerned (i) an analysis of the validity of the notice served on KS Shipping Limited as the “agent of the ship”, and; (ii) the analysis of whether the Director General (Courts) had abided by the obligations incumbent in terms of Article 313 of Chapter 12 – that in both cases there was a sufficient connection with the subject matter of the case to require both mentioned parties to remain co-defendants in the suit.

The Court then proceeded to consider the legal requirements for proper service of notice of judicial actions against ships.

In this case, notice of the legal action against the vessel MT Turu was served on KS Shipping Limited, which received such notice as the “agent of the ship” in terms of Article 187(7) of Chapter 12.  However, it transpired from the evidence presented during the proceedings, that KS Shipping Limited was not, in fact, the “agent of the ship”, as the Court remarked.

The Court felt that even if KS Shipping Limited was not the “agent” in the proper sense, in the circumstances, it was still appropriate for it to be served with the Court proceedings in view of its strong connection with the Vessel.

On its part, Mediterranean Trading, however, failed to prove that it was the proper “agent” of the Vessel at the time when Transport Malta filed its legal proceedings for the Court auction of the Vessel in accordance with Article 313 of Chapter 12.

The Court held that the correct publication procedure had been followed in this case. Mediterranean Trading, as a creditor, did not enjoy any special right to be specifically notified of the court auction proceedings, and the failure of such notice did not invalidate such court auction proceedings.

Mediterranean Trading was deemed to have been sufficiently notified of the Court auction, and, if it wished, it could have placed bids during the auction itself.

The Court, in fact, had serious reservations as regards the claim that raised by Mediterranean Trading that it was not informed of the Court auction proceedings, noting that not only was such Court auction in the words of the Court, the “talk of the town”, but also since Mediterranean Trading would have been required, as agent of the ship at the time, to allow an appointed Court Auctioneer access to the vessel in order to appraise its value. It maintained, in any case, that Mediterranean Trading was itself at fault for not safeguarding its rights as a creditor following the publication of the Court auction proceedings in the local newspapers.

For these reasons, on 29th February 2024 the Court of Appeal gave judgement by dismissing the claims on the merits raised by Mediterranean Trading, and by confirming the decision of the First Hall Civil Court on these points. It declared that the Court auction of the Vessel was validly conducted and that no damages were due to Mediterranean Trading. KS Shipping Limited and the Director General (Courts) were made to bear the costs in respect of the (now overturned) procedural pleas raised by them, whereas Mediterranean Trading was ordered to bear the costs for the claims it raised on the merits.

 

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.

 

Karl Grech Orr is a Partner at GANADO Advocates

Benjamin Farrugia is a Trainee Advocate at GANADO Advocates

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