The First Hall of the Civil Court, on June 5, 2015, in the case ‘Dr Ann Fenech in representation of Faisal Juma Khalfan Belhoul Alfalasi v MY Whispering Angel’ held, among other things, that a third party had an in rem right of action against a yacht, located in Malta.
The third party had a dispute under a memorandum of agreement (MoA) which was entered into with a bareboat charterer, who had promised to sell to him a yacht, belonging to GMW55 Ltd.
The company, GMW55 Ltd, was the owner of the Maltese registered yacht MY Whispering Angel. It leased the yacht to Angelic Charters L.P. of the Isle of Man pursuant to the Malta VAT Lease Guidelines, with a purchase option at the end of the lease.
Angelic Charters entered into a MoA on January 15, 2014, where it obliged itself in its own name, to sell the yacht belonging to GMW55 to Faisal Juma Khalfan Belhoul Alfalasi for the price of €2.7 million. Angelic did not exercise its purchase option and failed to deliver and sell the boat to Alfalasi under the MoA. The merits of this dispute between Angelic and Alfalasi were referred to arbitration in London.
Alfalasi proceeded to arrest the yacht in Malta. He had no relations with its owner and was also aware that Angelic was not the owner.
Faced with this situation, GMW55 Ltd filed legal proceedings, requesting the court to revoke contrario imperio, the arrest warrant of April 26, 2015, under article 836(1)(f) of chapter 12 as it was allegedly not reasonable for this precautionary arrest warrant to remain in vigore.
GMW55 Ltd also asked the court to order Alfalasi to give a guarantee in security of the penalty which it could impose, in terms of article 838A of chapter 12, and if the guarantee was not given to revoke the warrant.
It said that the owner failed to show that there existed circumstances warranting a guarantee under article 836(8) chapter 12. The court had the discretion to impose a penalty if the circumstances mentioned in the law occurred
Alfalasi contested the proceedings, maintaining that the arrest warrant was validly issued according to law, under articles 742B and 742D of chapter 12, and asked the court to dismiss the owner’s claims. Alfalasi put forward the following arguments:
A vessel could be held responsible in rem in particular circumstances mentioned in the law and subject to satisfying a number of conditions under article 742B and article 742D of chapter 12. Article 742B (d) chapter 12 provides: “Any claim arising out of the contract for the sale of the ship.”
Article 742D of chapter 12 provides:“Save for those claims which attract a special privilege in accordance with article 50 of the Merchant Shipping Act, and which, in terms of article 37D(3) of the said Act, survive the voluntary sale of a vessel by up to one year, in the cases mentioned in article 742B(d) to (y), an action in rem may be brought before the civil courts of Malta against:
“(a) that ship or vessel, where the person who would be liable on the claim for an action in personam (the relevant person) was, when the cause of action arose, an owner or charterer of, or in possession or in control of, the ship or vessel, if at the time when the action is brought the relevant person is either an owner or beneficial owner of that ship or the bareboat charterer of it;
“(b) any other vessel of which, at the time when the action is brought, the relevant person is the owner or beneficial owner as respects all shares in it.”
Under article 742D, for a creditor to have an in rem right of action against a vessel, the person responsible had to be the owner or the charterer or had to have control or possession of the vessel.
Defendant Alfalasi maintained that this requirement had been satisfied, as at the time of filing the suit, Angelic was the bare boat charterer and was still the bareboat charterer at the time of the arrest of the yacht.
In addition, Alfalasi disputed that there existed any basis to request a guarantee.
He added that GMW55 Ltd did not prove that he acted frivolously, maliciously and vexatiously, and did not show any just cause as required under article 836(i) of chapter 12 for the court to order him to give a guarantee to pay any penalty, damages and interest.
The First Hall of the Civil Court noted that Alfalasi arrested the yacht, which belonged to a third party, GMW55 Ltd.
Reference was made to article 836(i) of chapter 12.
To decide whether to issue a warrant, the court had to make a prima facie examination: re: ‘Av Carmelo Castelli noe v Focal Maritime Services Ltd et’ dated April 26, 2002.
Our law was based on English Admiralty Law, which permitted creditors to arrest a vessel not only in respect of the debts of the owner but also in rem – where the vessel could be held responsible in rem in certain specific circumstances, mentioned in the law (articles 742B and 742D chapter 12).
The requisites under articles 742B and 742D of chapter 12 had to be satisfied, pointed out the court.
Under article 742D(a) of chapter 12, a creditor had a right in rem against a vessel when the person who was responsible at the time of the cause of the action and at the time of the lawsuit was the owner or the charterer or had control or possession of the vessel.
The court had jurisdiction in rem as Angelic Charters was the bareboat charterer in the relevant period.
The court noted that the owner did not prove on a prima facie basis that there was any change in circumstances from the date of issuance of the warrant (April 26, 2015) up to the date of this application, (April 30, 2015), re: ‘GasanMamo Insurance Ltd et v Roc A Go Crane Services Ltd’ dated February 6, 2014.
It said that the owner failed to show that there existed circumstances warranting a guarantee under article 836(8) of chapter 12. The court had the discretion to impose a penalty if the circumstances mentioned in the law occurred. The court could also decide not to impose a penalty under article 836(8) of chapter 12 in exceptional cases, in the interests of justice. The penalty under article 836(8) of chapter 12 was one of public order, in order to ensure the seriousness of the judicial process and not to let the institute of warrants to be abused.
Good faith was presumed and bad faith had to be proven: re: ‘Miller Blacker pro et noe vs Howard’ vol. XXIV-1-554.
The court said that there was no proof if damages suffered by GMW55 Ltd and that according to article 836(9) of chapter 12, the damages could only be requested in circumstances contemplated under article 836(8)(a)-(d) of chapter 12, which this court felt had not been established.
For these reasons on June, 5, 2015, the First Hall of the Civil Court gave judgment by dismissing the pleas of the owner GMW55 Ltd and by accepting Alfalasi’s defence.
Karl Grech Orr is a partner at Ganado Advocates.