Bank’s priority over shipyard

The First Hall of the Civil Court, presided over by Mr Justice Gino Camilleri, in the case entitled “Ranking of creditors in the names Credit Europe Bank NV represented by Dr Louis Cassar Pullicino vs the vessel Bodrum”, on July 20, 2012, held, among other things, that the term “last voyage” for the purposes of article 50 (j) did not have to be an international voyage. In this case the court considered the movement of the boat from drydocks to anchorage and from anchorage in Tuzla to Malta as two voyages. As a result, the claim of the mortgage bank was ranked prior to that of the shipyard for repairs.

In this case the court had to consider the ranking of the creditors in respect of the vessel Bodrum.

At issue was whether the move from drydocks to anchorage and from anchorage in Tuzla to Malta was to be considered one voyage or two voyages

By the court decree of August 17, 2009, a legal referee was appointed to rank all claims, to establish the nature of each claim and to report on the ranking of each claim.

The legal referee filed her report on January 31, 2011.

The following claims were made against the vessel:

1. A claim by Credit Europe Bank N.V. for €12,372,157. The legal referee felt that this claim was amply proven. The bank exhibited a copy of the loan agreement dated August 6, 2007 with the owner of Bordum as co-borrower, whereby a banking facility of €13,020,000, was granted. The bank’s claim was secured by a First Preferred Marshall Islands Mortgage dated August 14, 2007.

It also produced a legal opinion dated November 11, 2007, where it was confirmed that such mortgage satisfied the legal requisites of Article 49 of Chapter 234. Under Article 49, the mortgage over the vessel should be recognised and enforceable in Malta, as a mortgage with all rights and powers in terms of Chapter 234.

The legal referee noted that the bank’s claim was covered under article 54 (A) (3) Chapter 234, as a claim that was secured by a foreign mortgage, which was recognised under Chapter 234.

2. A claim by the same bank for $346,263 in terms of Article 50 (h) of Chapter 234.

The bank subrogated the rights of the crew and this claim was considered as privileged under Article 50 (h) of Chapter 234.

Reference was made to the receipts given by the master where it was stated:

“I, the undersigned, Kozlov Oleksandr, Master of Marshall Islands flagged MV Bodrum, hereby declare and confirm that all the wages for services on board the vessel, including but not limited to the overtime payments, vacation payments etc amounting to $33,953.94 have been fully paid to me by Credit Europe Bank N.V. for my time served on the aforementioned vessel beginning on or around December 16, 2008.

“By this letter, I hereby confirm and declare that I irrevocably assign to Credit Europe Bank N.V. all of my rights against MV Bodrum and/or her owners Bodrum Maritime Inc including the ancillary in connection with these payments of wages to me. I hereby declare and confirm that all the wages have been fully paid to me in respect of MV Bodrum and I have no outstanding wages claim.”

This receipt was good proof that the master had not received payment of wages from the owners but directly by the bank.

This declaration/receipt was also signed by each crew member.

The court was of the opinion that the bank proved its claim (for $346,263) subrogating the rights of the crew and that this claim should be deemed to be a special privilege under article 50 (h) of Chapter 234.

3. The foreign company Gemak Gemi Insaat Sanayi Ve Ticaret AS made a claim for $850,000 for repairs carried out in respect of the vessel, under article 50 (j).

Article 50 (j) deals with “moneys due to creditors for labour, work and repairs previously to the departure of the ship on her last voyage”. It makes the proviso that “such privilege shall not be competent where the debt has not been contracted directly by the owner of the ship, or by the master, or by an authorised agent of the owner”.

It resulted that the vessel Bodrum entered drydocks, operated by the Company Gemak Gemi Insaat Sanayi Ve Ticaret AS, Gemak Shipyard in the port of Tuzla on August 18, 2008. The works were not completed and the vessel was moved to anchorage in the port of Tuzla and remained at anchorage between December 19, 2008 and January 18, 2009.

After the Certificate of Seaworthiness was issued, the vessel was towed to Malta.

At issue was whether the move from drydocks to anchorage and from anchorage in Tuzla to Malta was to be considered one voyage or two voyages.

The legal referee reported that two voyages were made. When the vessel left drydocks, it could not proceed on its trip to Malta, without seaworthiness certificate.

The plan was that it had to wait at anchorage. The court agreed with the legal referee.

It followed, therefore, that Gemak’s claim was valid. But, since it was not rendered before the last voyage of the vessel, its claim was not privileged under Article 50 (j).

The court did not accept the agreement raised by Gemak that a voyage could only be between two countries. Maltese law did not specify that a voyage had to be “international”, pointed out the court.

4. A claim by Seven Sea Ship Chandlers LLC for €13,326.

The legal referee was not satisfied that the foreign company had established that its claim for €13,326 was privileged under Article 50 (g).

Article 50 (g) provides for “the expenses incurred for the preservation of the ship and of her tackle including supplies and provisions to her crew incurred after her last entry into port”.

There was no evidence that these expenses were incurred “after her last entry into port”. It resulted that provisions were granted when the vessel was in the United Arab Emirates in September 2007.

These provisions were supplied before the vessel left for its last voyage and were not incurred when the vessel was in Malta.

In this respect, the company Seven Seas claims could not be considered as a privileged claim under Chapter 234.

5. A claim of the foreign company Eureka Control Systems PTE for $467,325.

This was not sufficiently proven, noted the court.

After considering the claims, the court considered the ranking of creditors under Article 54 A (3), which provides that “any debt secured by a mortgage registered under the provisions of this Act or secured by a foreign mortgage recognised under this Act shall rank after the debts specified in article 54 and in article 50(c), (d), (e), (f), (g), (h), (i), (j) and (k) but before the debts specified in article 50(l), (m), (n), (o) and (p) and in preference to other hypothecary and privileged claims.”

Article 50 listed the special privileges and ranked in the order indicated in article 54 A (3).

The First Hall of the Civil Court agreed with the ranking order provided by the legal referee, and said it should be adopted.

For these reasons, on July 20, 2012, the court gave judgement by ordering that the claims over the vessel should rank in the following order:

First priority: Legal expenses;

Second priority: The claim of Credit Europe Bank N.V. for $346,263 subrogating the rights of the crew, in terms of Article 50 (h) and interests thereon;

Third priority: The claim of Credit Europe Bank N.V., secured by the Marshall Islands Mortgage and interests until the date of payment, without prejudice to the right of the bank to receive the whole amount, as the amount deposited under the custody of the court was less than the amount due to the bank.

The remaining unsecured claims ranked on a pari passu basis: these included the claim of Gemak Gemi Insaat Sanayi Ve Ticaret AS for $850,000, and the claim of Seven Seas for AED69,633.

The court, in addition, refused to consider “new evidence” furnished by Gemak, after the proceedings for the compilation of evidence had been closed. There had to be exceptional circumstances to justify the admission of new evidence.

As it did not result that there were exceptional circumstances, the court refused to consider the new evidence produced by Gemak. Gemak maintained that, as certain issues had not been raised, it did not feel the need to produce such evidence at an earlier stage, when evidence was being compiled by the legal referee.

The court said that this was not correct; Gemak was obliged to produce all evidence at the compilation stage of the proceedings.

The costs had to be borne by all creditors in proportion to their claims.

Dr Grech Orr is a partner at Ganado & Associates.