The First Hall of the Civil Court, presided over by Mr Justice Mark Chetcuti, on November 28, 2013, in the case “Amsterdam Trade Bank NV v MT Pacific Future” held, among other things, that a creditor was not obliged to find the best price for a sale. It was sufficient if the price was reasonable.

The facts in this case were as follows.

The foreign bank Amsterdam Trade Bank NV applied to sell the vessel Pacific Future by way of court-approved private sale in terms of article 358 et seq. of chapter 12 of the Laws of Malta. It based its claim on an executive title by having paid the crew wages (€353,740) and cost of repatriation.

On June 27, 2013, the court had declared that the crew were due €353,740, which decision was not subject to appeal.

On July 12, 2013, the bank entered a deed of subrogation whereby the rights of the crew were subrogated to it.

The bank said that it had an interest to enforce its executive title and proceed to sell the vessel and apply for the court-approved private sale.

According to article 358 chapter 12, the court had the power, on application of a creditor having an executive title, to approve the private sale of the vessel in favour of a specific buyer and for an agreed price.

The bank attached two independent valuations as required by law: one valuation for $4.5 million and another valuation for $4.5 million to $5 million.

The bank said that it had an offer to sell the vessel for the price of $4,550,000 in terms of a memorandum of agreement dated September 17, 2013, and that the price was within the parameters of the market value of the vessel.

The bank requested the court to approve the sale of the vessel Pacific Future to MFH for the price of $4,550,000 under the conditions of the MoA, and subject to such conditions as the court felt to be appropriate.

It also requested the court to appoint, in terms of article 362 chapter 12, Dr Kris Borg or some other person to authorise the transfer of the vessel according to the MoA and such other conditions as the court deemed fit, as if it were the registered owner and giving such other order according to the circumstances.

The vessel Pacific Future, as the defendant, opposed the bank’s application to sell the vessel for the price offered by MFH, the buyers. It said that the price did not reflect the value of the ship, nor was it close to the valuation of the vessel. The difference between the real value of the vessel and the price offered was considerable. Further, it argued that if the court were to accept the bank’s request, it would be prejudicial to the owners and other creditors.

The court decree suspending the sale by court auction did not create rights against the parties

The defendant vessel alleged that the bank had acted with malice, and that it had brought the owners in a position where they could not pay its debts.

On a separate issue, it maintained that the bank had already tried to sell the vessel by court auction, but the court had suspended the sale.

Apparently, when the bank sold a number of vessels belonging to the same owner, it had allocated a major part of the payment to cover the balloon payments due in June 2015, instead of reducing the principal debt.

The bank later issued a notice of default against the owners. It declared unilaterally the acceleration of the loan so that the total amount became immediately due. The defendant vessel maintained that the bank was not justified to request the sale of the vessel.

It was stated that the bank had paid the crew with money belonging to the owners, and acquired by subrogation the rights of the crew with the owners’ money.

The court noted that four elements had to be satisfied for the bank to use the court-approved private sale: the executive title of the bank; the agreement to sell the vessel to a buyer for an agreed price; two independent valuations; and proof by sellers that the sale of the vessel was in the interests of creditors and that the price was reasonable in the circumstances.

The court said that the bank did have an executive title by having acquired the rights of the crew.

The court decree suspending the sale by court auction did not create rights against the parties. The debt in respect of the crew wages was distinct from the debt of the owners to the bank, nor did the defendant vessel contest this debt.

The owners did not prove that the bank had paid the crew with malice. The court said that the executive title of the crew was legitimate. It was not necessary for all creditors to file an application for the private sale of the vessel. The bank had a right to act in its own name. It was not necessary for the bank to state “as subrogated’’ in the names of the parties. This strict formalism was not necessary, pointed out the court.

As to the sale of vessel, the bank had provided two independent valuations as well as a memorandum of agreement to sell the vessel for $4,550,000 tale quale, without any guarantees on its condition. The cargo on board had to be delivered to Ukraine.

This court had to see whether the sale satisfied the requisites of law. The defendants submitted that the value of the vessel was approximately $7.1 million to $8 million, and that a reasonable price would be $7.5 million. The court noted, however, that the vessel was not in class and that it required repairs of around $2 million and had cargo subject to cargo charter commitments.

There was conflicting evidence as to who owned the bunkers – there was no proof that the bunkers formed part of the purchase price. The court considered a detailed report prepared by a Greek expert on the state of the vessel, according to which its realistic value was around $4.6 million.

The court said the purchase price was not the best price, but considering the state of the vessel and the fact that there was no other buyer offering a higher price, the price was reasonable.

A creditor was not obliged to find the best price. It was sufficient if the price was reasonable. If this request was not accepted, it would be more difficult to sell the vessel in view of its condition.

The court considered the risk of refusing the sale of the vessel to allow another buyer to offer a higher price compared with a guaranteed sale of the vessel, and the uncertainty which would arise by the repairs of the vessel as well as the added complications that the prospective buyer had to assume the obligation to deliver the cargo on board the vessel.

The court said that the bank satisfied the requisites of the law and the sale of the vessel had to be approved.

For these reasons, on November 28, 2013, the First Hall of the Civil Court gave judgment by accepting the bank’s request and ordered the sale of the vessel Pacific Future for $4,550,000 equivalent to €3,407,729 according to the MoA dated September 17, 2013, free of encumbrances in terms of article 364 chapter 12. This decree, however, would have no effect if the sale did not take place within three weeks once the cancelling date November 17, 2013, had not been extended.

The court appointed Dr Borg to transfer the vessel in terms of article 362 chapter 12 according to the MoA, as if he were the owner with all effects as stated in articles 363 and 364 chapter 12.

Dr Karl Grech Orr is a partner at Ganado Advocates.