Insights

Malta continues to attract vessels to its shores for court-approved sales. Following closely last year’s judicial sale of the 100 meter super yacht m.y. Indian Empress, the m.v. HHL Rio de Janeiro, a specialised heavy lift vessel, sailed into Maltese waters for her sale by private treaty. The sale was instigated by the enforcing mortgagee. Having considered the market value of the ship, the Court proceeded with its decision of the 29 May, 2019, in the proceedings in the names “J. Scerri-Diacono nomine versus m.v. HHL Rio de Janeiro”, to approve the sale.

Proceedings were filed in Court on the 16 May, 2019 and a hearing was appointed on the 27 May, 2019. The case was then adjourned for a decision and the ship eventually was sold on the 5 June, 2019 – all in the space of 20 days. Apart from the embedded feature of complete transparency of the judicial proceedings and the sale itself, the efficiency of the judicial proceedings reasserts Malta’s place as a leading jurisdiction for the judicial sales of vessels.

Apart from the approval of the sale itself, the Court addressed a number of interesting legal points.

The first was the question as to whether the prospective buyer should be allowed to retain representatives on board for the duration of the proceedings (typically a couple of weeks) and until the actual sale of the vessel. In past cases (for instance in the sale of the m.y. Indian Empress) the Court denied such requests commenting obiter dicta that the buyer had no right to board the subject vessel until this was actually acquired by him. In the m.v. HHL Rio de Janeiro case, an argument was made to the Court that the buyer would have placed a deposit against the price prior to the commencement of the proceedings and would need to have representatives on board for a number of reasons. Amongst the reasons brought to the attention of the Court was the fact that a prospective buyer would want to ensure the state and condition of the ship from the time judicial proceedings commence to the time he takes control of the ship. Another reason submitted was that the buyer’s representatives on board are essential to prepare the buyer for a crew change and other logistical requirements in anticipation of delivery. Unlike the previous case, in this case the Court conceded to the buyer the right to have representatives on board the vessel albeit without the right of those representatives to ‘reside’ on the vessel. In brief, the representatives of the buyer were granted ‘viewing rights’.

The second point of legal interest that was considered by the Court in the said proceedings related to the question as to whether the removal of mortgages from the ship’s register (prior to receipt of funds by the mortgagee from the proceeds of the sale of the ship) had any adverse effect on the rights of priority that the mortgagee enjoyed as a matter of law. The mortgagee was concerned that the removal of the mortgage at that early stage was premature because it would deny him the right to subsequently rely on the mortgage when making claims on the proceeds of the sale in competition with other creditors vying for those funds. The point arose given that Maltese law specifically provides that the sale by court approval is ‘free from encumbrances’. No debts survive the sale. Essentially, this means that any pre-existing mortgages are subject to being removed from the vessel’s register at the point in time when the vessel is sold to the approved buyer. The thorny question raised in this sale was whether the removal of the mortgage from the ship’s register following the sale had any adverse impact on the mortgagee’s right of priority ‘qua’ mortgagee, should he have to compete, post-sale, with other creditors for the proceeds of the sale. The Court agreed with the mortgagee’s submissions that the removal of the mortgages (post-sale) did not have any negative impact on the mortgagee’s rights to enjoy the right of priority over the proceeds of the sale, as granted to the mortgagee under Maltese law.

The flexibility and efficiency demonstrated by the admiralty judge continues to strengthen the excellent reputation of the Maltese Courts, auguring well for future judicial sales of vessels in Malta.