The Court of Appeal, composed of Chief Justice Silvio Camilleri, Mr Justice Raymond C. Pace and Mr Justice Tonio Mallia, in the case ‘Dr Kris Borg on behalf of Unitor As vs Norbel Bulk’ held, among other things, that after the sale of the vessel and after the registration of the transfer of the vessel in Norway, it was clear that at the time Unitor AS filed this lawsuit in Malta, it did not have a special privilege under article 50 of our Merchant Shipping Act, nor any droit de suite to proceed in rem against the vessel according to law. As its claim was not privileged under article 50, Unitor AS’s claims did not follow the vessel after its transfer to new owners.

The facts in this case were as follows.

Although the sale should be registered, even if not registered, it did not mean that the transfer was not effected upon the signing of the bill of sale

Foreign company Unitor AS filed an action in rem in Malta against the vessel Norbel Bulk to recover the outstanding amount equivalent to 231, 028 Norwegian kroner, representing the balance of a larger sum due for supplies, necessary provisions and spare parts, with legal interests from the date of consignment, July 21, 1995. The order for the provisions was made by its previous owners.

The foreign company Unitor AS maintained that its claim was privileged under article 50 (M) of the Merchant Shipping Act.

In reply, the defendant vessel represented by John Ellul Sullivan, as from April 15, 2009 contested the legal action to be unfounded.

It disputed responsibility for the claim which it said, was not privileged under article 50 of the Merchant Shipping Act.

On March 23, 2009, the Court of First Instance accepted Unitor AS’s requests and condemned the vessel to pay the equivalent of NOK231, 028, for the provisions.

Article 50 (M) of the Merchant Shipping Act provides that:

“The debts hereunder specified are secured by a special privilege upon the vessel, as well as any proceeds from any indemnity arising from collisions and other mishaps as well as any insurance proceeds:

“Moneys, due to creditors for provisions, victuals, outfit and apparel, previously to the departure of the ship on her last voyage: provided 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”;

Under Article 37 (D)(3) of the Merchant Shipping Act states that:

“Without prejudice to any other cause which may at law extinguish an obligation the special privileges specified in article 50 are not extinguished by the sale of the vessel, except in case of a sale made pursuant to an order or with the approval of a competent court made according to the forms prescribed by law, or where, subsequent to a voluntary sale a period of one year has elapsed from the date of the registration, recording or annotation of that voluntary sale in the registry to which the ship belongs or where no such registration, recording or annotation are entered in that registry from the date of closure of the register of the ship in such registry subsequent to such voluntary sale, unless within such period of one year an action for the recovery of the claim secured by such privilege has been brought before a competent court.”

The first court considered that on July 11, 1995, the vessel was transferred to new owners. Its name was changed from Elie Marie to Norbel Bulk. On the same day, it was deleted from the Norwegian International Register, owing to the sale of the vessel and provisionally registered under the name Norbel Bulk. It was later registered on September 20, 1995, in the St Vincent and the Grenadines, under the name Sunny Bulk.

It resulted that the foreign company Unitor AS had supplied necessary provisions to the vessel before the transfer of ownership but payment for the provisions was never made. The vessel made a voyage from Latvia to Taiwan and en route, it had to stop in Malta for repairs and while the vessel was in Malta, it was arrested.

The court noted that the debt pre-existed the sale of the vessel. It arose before the vessel was acquired by the new owners. It reasoned that the one-year time limit under article 37D (3) commenced from the date of registration of the sale.

It said that the fact that the vessel was deleted from the Norwegian Ship Register did not mean that on the date of its deletion, the vessel was transferred to new owners. The sale of a vessel could not be presumed. The date of deletion only indicated when the vessel was deleted from Norway.

The court maintained that the law did not require that the debt was incurred in the last port before departure. What was important was that the claim arose before departure on its last voyage. The claim had to exist before the last voyage.

The first court felt that new owners benefited from the supplies and services rendered to the vessel. As the voyage from Latvia to Taiwan was not completed, it considered the last voyage from Santos, Brazil to Talinn.

Aggrieved by the decision of the first court, the defendant vessel entered an appeal, calling for its revocation.

The Court of Appeal noted that the first court had found that the vessel remained responsible for the debt once it was arrested before the transfer of the vessel was registered and once the provisions were granted before the departure of the vessel on her last voyage. The first court felt that Unitor AS should not be prejudiced by the sale of the vessel, occurring after its arrest.

This court disagreed with the first court.

In the circumstances, the bill of sale was executed in June 1995 and on July 11, 1995, the vessel was cancelled from the Norwegian Register. After the sale of the vessel, the new owners were not responsible for debts incurred prior to the transfer. The persons responsible were the persons who made the order. The vessel was liable in rem only if the claim was a special privilege.

The transfer of a vessel was effected by the execution of a bill of sale (article 32 of the Merchant Shipping Act), and although the sale should be registered, even if not registered, it did not mean that the transfer was not effected upon the signing of the bill of sale.

Under article 37 (D)(3), post transfer of the vessel, the vessel remained liable in rem, only insofar as Unitor AS claims enjoyed a special privilege under article 50 of the Merchant Shipping Act.

In addition, there was a time limit of one year within which a claimant in rem could file an action against a vessel after the registration of its voluntary sale in the registry to which the ship belongs or where there was no such registration from the date of its closure of its previous register, where an annotation was made.

Claims not constituting a special privilege did not enjoy a droit de suite over a vessel. In addition under article 50 (M), only those debts which were incurred in the port before her departure on her last voyage were privileged. Article 50 (M) did not capture all preceding debts contracted before her last voyage.

The phrase “before her last voyage” was limited to the provisions and supplies furnished in the port before departure on her last voyage. The law distinguished between “last voyage” and “preceding voyages”.

Reference was made to William Tetley: in his book Maritime Transportation, chapter 4: “Where claims in these categories (e.g. necessaries) relate to different voyages, however, those attaching to the last voyage prime those attaching to previous voyages, except that wage claims arising out of same contract of engagement and covering several voyages, rank with claims of the last voyage.”

It was not important whether the last voyage was completed or whether the voyage was interrupted. What was important was that the claim arose before the vessel effectively departed on her last voyage.

In this case the vessel departed from Latvia, on her last voyage, to its destination, Taiwan. The fact that the vessel stopped in Malta for repairs did not neutralise the fact that this was its last voyage. Only those supplies provided in Latvia were covered by a special privilege, pointed out the court. Debts incurred not immediately before her departure but before or during preceding voyages did not enjoy a special privilege.

In this respect the court held that Unitor AS’s claim was not privileged under our law.

For these reasons, the Court of Appeal on November 9, 2012, gave judgment by accepting the appeal and by revoking the decision of the first court.

It held that the vessel was transferred by the previous owners in June 1995, which sale was registered in the Norwegian Register. On July 11, 1995, the vessel was deleted from Norway owing to its sale. It noted that Unitor AS proceeded to arrest the vessel in Malta and filed these legal proceedings on August 18, 1995.

The court said that after the sale of the vessel and after the registration of the transfer of the vessel in Norway, it was clear that at the time Unitor AS filed this lawsuit in Malta, it did not have a droit de suite to proceed in rem against the vessel according to law. As its claim was not privileged under article 50 chapter 234, Unitor AS’s claims did not follow the vessel, after its transfer to new owners.

Dr Karl Grech Orr is a partner at Ganado & Associates.