The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti, in the case ‘Malta Towage Ltd v MV Imrak’ on August 25, 2014, held, among other things, that the rights of all interested parties had to be safeguarded in the court-approved private sale and not just of the creditor requesting its sale.

The facts in this case were as follows;

The Malta Towage Ltd acquired by the private agreement dated April 22, 2014, the rights of the crew for unpaid wages (€197,609), in consideration of €50,000. The defendant vessel MV Imrak was notified of the assignment by way of the judicial letter dated April 24, 2014, per article 1471 of the Civil Code.

No payment was made, despite requests. Malta Towage proceeded to negotiate the private sale of the vessel, to Brittania Shipping for the price of €57,000 and requested the court to approve the sale under article 358-364 of Chapter 12. Article 358 of Chapter 12 provides:

“ Notwithstanding any other provision of this code, the court may, on the application of any creditor with an executive title, approve a private sale of a ship or vessel or aircraft, in favour of an identified buyer and in consideration of a determined price.”

Malta Towage presented two independent valuations as required by law. Two surveyors inspected the vessel for the purposes of the valuation, and indicated as the market value of the vessel to be between €55,000 to €60,000. It was also noted, that with time, the vessel’s condition would deteriorate.

The Registry of Shipping and the vessel were notified of its application.

Malta Towage asked the court:

• To approve in terms of article 358 of Chapter 12 the private sale of the vessel MV Imrak to Brittania Shipping of the UK;

• To appoint Anthony Cutajar as the person to transfer the vessel free from encumbrances according to article 364 of Chapter 12, as if he were the registered owner, in terms of article 362-364 of Chapter 12;

• To authorise Cutajar to deposit within seven days under the authority of the court, €57,000 for it to be freely withdrawn in order to satisfy its claim of €197,609;

In case Cutajar was not appointed by the court, the court should appoint another person.

By its decree of June 10, 2014, the court accepted Malta Towage’s request for the sale of the vessel under articles 358 et req of Chapter 12.

The court subsequently considered the application of Cassar Ship Repairs Ltd calling for its revocation. It said that it had a claim against the vessel and was never notified of the court-approved private sale.

Another creditor, Mediterranean Trading Shipping, also applied for the revocation of the court’s decree, and opposed its sale. Cassar Ship Repair associated itself with Mediterranean Shipping. Unilever Magreb argued that in case the sale be approved, this should not include the cargo on the vessel.

It was argued that there was no evidence that the master had a power of attorney to sign the assignment on behalf of the other crew members. Mediterranean Shipping had not been notified of the proposed sale between Malta Towage and Brittania Shipping. It appeared that the shareholders and director of Malta Towage and Brittania Shipping were the same.

The court said that under our law, a creditor could demand either a court auction or a court approved private sale. In both cases the vessel would be sold free from mortgages and privileges. The court was not just a spectator in the court approved private sale proceedings. The creditor requesting the sale had to provide:

• Two valuations from independent and reputable surveyors;

• Proof that the sale was in the interest of all creditors; and

• That the price was reasonable in the circumstances.

The creditors had to satisfy the court on the elements to approve the sale of the vessel. The evidence had to convince the court that morally the sale met all criteria imposed by law for it to approve the private sale.

A creditor could always request a court auction. The court would order the valuation and control all issues of the sale.

In case of a court approved private sale, it was up to the enforcing creditor to act in good faith, to act openly and not to leave any reasonable doubt to the court that the sale was not fair. It had to be seen to be fair. It was in these cases that the court should approve the sale of a vessel. This did not mean that the enforcing creditor should not protect his interests; after all, he was paying for the proceedings. However, he could not protect his interests at the expense of other interested persons.

The court noted that Malta Towage did not inform the court that the shareholders of Malta Towage and Brittania Shipping were the same. In this respect, it appeared that Malta Towage was selling the vessel to itself, pointed out the court. The court asked why this was not brought to its attention before June 10, 2014, and why no other creditors/ interested persons were notified.

There were doubts whether Malta Towage acted in good faith in the circumstances, said the court. It had doubts on its transparency - a duty imposed upon Malta Towage. It also had reservations on the valuations which were done at the request of Malta Towage.

The court did not have proof that the surveyors were aware of the facts. The fact that the vessel would probably be towed by Malta Towage meant that the towage costs would be much lower than estimated; though this did not affect the value of the vessel itself.

The company Mediterranean Shipping maintained that the assignment of the crew rights was done before Malta Towage had a valuation of the vessel.

The court had doubts on the methodology of Malta Towage to obtain payment of the assigned credit of €197,000, from the purchase price of €57,000. It appeared that the value of the vessel varied between €130,000 and €180,000 before the cost of towage to Turkey was deducted.

In addition to the real costs of the towage, another issue was why scrap the vessel in Turkey and why the surveyor, based the costs of approximately €72,000 to scrap the vessel in Turkey and not at another port, close by in the Mediterranean.

The court did not have proof that the surveyors were aware of the facts. The fact that the vessel would probably be towed by Malta Towage meant that the towage costs would be much lower than estimated; though this did not affect the value of the vessel itself

The discrepancy between €180,000 and the price offered €57,000 without any clear explanation of the real costs of transport and when Malta Towage had only acquired rights by subrogation gave this court reason to believe that the requirements at law had not been satisfied.

The court was not convinced that from the circumstances the proposed sale of the vessel was reasonable and in the interest of all creditors. Malta Towage failed to prove that it would be more prudent, in its interests of all parties, for the sale to be approved by the court. The court made reference to the English case ‘International Marine Banking Corp. v Dora 1977

“The fact of the matter, as I view it, is that the procedure is one prescribed by the plaintiff as satisfactory for its own purposes and the proposed sale which has resulted from it is not a sale by the court at all but a sale by the plaintiff for which it now seeks the endorsement of the court to give the transaction the appearance of a sale by the court. I would not, therefore, be prepared to grant the order sought even if I were satisfied that the 5.9 million price is as high as any price likely to be obtained on a sale by the court.’’

In ‘Den Norsk Bank ASA v owners of the ship Margo L 1977

“In this case, Den Norsk Bank, which is a ship finance specialist is asking the court (as it had done repeatedly on a number of occasions) to depart from the normal mode of sale and to allow its proposed purchaser Hudson to buy the vessel at US$3.4 million. In support of this application, the bank relies on three brief valuation certificates from three valuers.

“Unfortunately as often happens in this sort of maritime valuation of ships, no detailed analysis was shown in these valuation certificates as to the factors and reasons which led to these valuations being given and in the absence of analysis and reasons, there can be no proper weighing of the strength of any of these valuation certificates or why one should be preferred over the other or why anyone should be accepted. This most unsatisfactory nature of the valuations of the vessel is however only one aspect of why the court cannot allow private sale.”

The court was of the opinion that the provisions on court approved private sale could not be interpreted in the sense of protecting the rights and interests of the creditor, requesting the sale. They also had to be interpreted to safeguard the rights of the interested parties in the process.

For these on August 25, 2014, the First Hall of the Civil Court gave judgment by declaring that the request of Malta Towage Ltd was not acceptable and did not satisfy the requirements at law.

Dr Karl Grech Orr who is a partner at Ganado Advocates.