The Enforcement of Malta-registered Mortgages, ‘In Rem’ Actions Against Vessels Sailing in Maltese Waters, and the Recognition of Foreign-Registered Mortgages – Part 2

Actions “in rem”

Although Malta is not yet signatory to the Arrest Conventions of 1952 and 1999, various measures relating to judicial proceedings in respect of a number of heads of maritime claims ‘in rem’ were introduced by virtue of Act XIV of 2006 amending the COCP, which claims are recognized and incorporated in both Conventions. Under the new Article 742B of the COCP, the Civil Courts of Malta are now vested with jurisdiction ‘in rem’ against ships in relation to a total of twenty five heads of maritime claims which include inter alia any claim to the possession, ownership or title to or of a ship or to the ownership of any share therein and any claim in respect of a mortgage, hypothec or charge on a ship or any share therein. The introduction of Article 742B reformed to a large extent our laws on admiralty jurisdiction which laws were previously regulated by the Vice-Admiralty Court Act 1840 and the Admiralty Court Act 1861 which provided for limited heads of maritime claims and which did not regulate the substance of an ‘in rem’ action.

The Warrant of Arrest

By virtue of the 2006 amendments to the COCP, the “Warrant of Arrest” in security of maritime ‘in rem’ claims was introduced replacing the former “Warrant of Impediment of Departure” and the “Warrant of Seizure” which necessarily had to be filed to enforce a creditor’s rights. In terms of the COCP a warrant of arrest can be sued out on the basis of any one of the twenty five heads of maritime claims giving rise to the ‘in rem’ jurisdiction of the Maltese Courts when the vessel is within the territorial jurisdiction of Malta, irrespective of her flag.

Maltese law provides for a precautionary and an executive warrant of arrest. The precautionary warrant of arrest may be issued against any sea-going vessel having a length exceeding ten metres to secure a debt or a claim of not less than Eur11,600 which could be frustrated by the departure of the said vessel. (*Artilce 855 of the COCP)

A warrant of arrest has the effect of seizing the vessel from the debtor and also to attach the same in the hands of the Authority for Transport in Malta not to release such vessel or allow the debtor to divest himself in any way from the same in whole or in part or to give surrender to any person any rights on the same. The Authority for Transport in Malta is designated as the relevant authority for the purpose of maintaining in its hands or under its power or control the arrested vessel.

A debtor in possession of an executive title, which debtor would therefore include a mortgagee of a Maltese registered vessel, may make a demand for the issue of an executive warrant of arrest. In this case the Maltese court will first establish whether an order for a judicial sale of the vessel is warranted or alternatively it will fix a time-limit within which the mortgagor is to pay the amount due. If the court decides to grant a time limit within which the mortgagor is to pay, the court will also order that the executive warrant remains in force until payment of the amount due is effected. If the mortgagor does not effect payment within the time limit the court will, pursuant to a demand made by the mortgagee, order the judicial sale of the vessel.

An executive warrant of arrest is sued out in the form of an application in the prescribed form on which form the necessary court orders and decrees are given and issued. The application for the issue of this newly introduced warrant of arrest must include (i) particulars enabling the identification of the ship in question (ii) the name of the authority under whose power or control the ship may be at the time when the warrant is requested and (iii) the place where the ship is located at such time. (*Article 860 of the COCP)

Recognition of Foreign Mortgages

It is interesting to note that Merchant Shipping Act provides that a foreign mortgage is also recognised as a mortgage for the purpose of Maltese law and thereby benefits from the status, rights and powers granted by law as described above, notwithstanding the fact that it is not entered over a Maltese registered ship. The recognition of a foreign mortgage is subject to the following conditions:

1. it has been validly recorded in the registry of ships of the country under whose laws the ship is documented;
2. the registry of ships wherein the foreign mortgage is recorded is a public registry;
3. it appears upon a search of the registry; and
4. under the laws wherein it is registered, it is granted a preferential and generally equivalent status as a mortgage under Maltese law

Pursuant to the above, a foreign mortgage registered over a vessel that is in Maltese territorial waters may, if the above-mentioned conditions are satisfied be deemed to be an executive title and consequently the mortgagee may enforce its security against the mortgagor without the requirement of obtaining a court judgment against the mortgagor, arrest the vessel in Malta and have the vessel sold either by (i) private sale (ii) court order or (iii) a court approved sale, irrespective of the flag under which the vessel is registered.

With regards to the enforcement of a foreign mortgage as set out above, for the purpose of determining the amount certain, liquidated and due in connection with any sale of a ship, the mortgagee must specify the sum due at the time of the enforcement by means of an affidavit served on the mortgagor.

It is noteworthy that for the purposes of proceedings for the enforcement of a mortgage, whether such mortgage is registered over a Maltese registered vessel or otherwise, the mortgagor will be deemed to be duly served if the judicial act is served on the master of the vessel, or if he is absent from Malta, on the local agent appointed for the vessel or in the absence of such local agent, on a curator appointed by the court to represent the mortgagor and the vessel.

Conclusion

In the light of the developments outlined above, Malta has continued to reinforce its position as a leading shipping centre by ensuring that its legal framework encompasses various legal solutions intended to safeguard mortgagees and other creditors of shipowners when vessels are either registered under the Maltese maritime flag or alternatively when vessels registered under a foreign flag are situated within Maltese territorial waters. Once the jurisdiction of the Maltese courts is established, the enforcing creditor may apply the various legal remedies intended primarily at facilitating the potentially cumbersome process of recovering payment from the shipowner.

The Enforcement of Malta-registered Mortgages, ‘In Rem’ Actions Against Vessels Sailing in Maltese Waters, and the Recognition of Foreign-Registered Mortgages – Part 1