Protecting a Vessel’s Creditors: Precautionary Measures Prohibiting Dealings and Transfers

Article 37 of the Merchant Shipping Act (Chapter 234 of the Laws of Malta) is a mechanism which is particular to Malta, further securing Malta’s position as the largest ship registry in Europe.

Article 37 deals with the power of the Court to prohibit any dealing with a ship, or any share therein. Here, the Civil Court, First Hall, may, if it thinks fit, on a demand by a sworn application of a person claiming a right in or over a Maltese ship, make an order prohibiting any dealing with a Maltese ship, or any share therein.

Essentially, a person claiming a right in or over a vessel used in navigation, whether self-propelled or not, is entitled to submit a request to the Court to trigger the above-mentioned action under Article 37. The Court can only issue such order for a specified time, which cannot exceed a 1-year period. However, upon the request of the applicant, this period may be extended by the Court, for further periods of not more than one year each. Additionally, the Court may make such order on any terms and conditions it thinks just, including for example, the imposition of an obligation to provide security.

Obtaining such an order from the outset is essential in order to prevent debtors from de-registering before the claimant can enforce the claim.

For the purposes of exercising this course of action, as per Article 37(10), a right in or over a ship or a part thereof must be a claim based on:

1. A right of ownership; or
2. Secured by a mortgage; or
3. Secured by a registered encumbrance; or
4. Secured by a privilege or lien over the ship arising by operation of Maltese law or the law applicable to the claim; or
5. Any other claim which gives rise to a claim in rem against a vessel under Maltese law.

The necessity of the existence of one or more of these requirements was clearly explained in the case of Glory Wealth Shipping PTE Ltd. vs. Peninsula Enterprise SpA (11/06/2009). Here it was also held that an action pursuant to Article 37 is meant to guarantee that the position of a creditor in relation to a ship is secured until the creditor brings his claims against the debtor (which may be the vessel itself or its owners) in proceedings before a competent Court or Tribunal. Furthermore, the Court stated that the remedy under Article 37 is especially applicable in the maritime sector and is available in favour of any “persons who exercise a right in or in respect of a ship”. Such order can be given in respect of both the vessel and its shares, including a transfer that removes it from registration under the Maltese flag.

Article 37 proceedings are swift by nature – the Court must appoint the application for hearing within 20 days of its filing. On the application of the plaintiff, the Court may also make a provisional order prohibiting any such dealings until the Court decides on the merits of the application. When a provisional order is issued, the applicant is obliged to prosecute the claim within 30 days of the issuance of such order. When a definitive order is issued, the applicant is obliged to prosecute the claim within 8 days from the issuance of such order, if this has not been done already.

It is important to note that the Court is precluded from issuing such an order if it results that the rights of the claimant are otherwise secured. Similarly, where the respondent either deposits the amount of the claim in Court, or gives satisfactory security for such claim, the Court shall not issue the order.

If you are claiming a right in or over a Maltese ship and would like to take action, including the action provided for under Article 37 of the Merchant Shipping Act and/or if you wish or need to pursue any other maritime litigation, and require our assistance, please contact us on litigation@gvzh.mt.

If you require any further information and assistance regarding yacht and ship registration and mortgaging and other maritime matters, kindly contact us on transportation@gvzh.mt.