World first as court says ship's Malta mortgage overrides foreign auction

A ship has been arrested in Malta after a creditor obtained a Maltese court order claiming a judicial sale by auction of the shyip in Jamaica was ignored.

Jebmed SRL were first ranking creditors of the 22,988-tonne bulk carrier Bright Star, which at the time was named Trading Fabrizia, by virtue of a mortgage registered in Malta, where the ship was registered, in 2017.

The vessel went into financial distress whilst in Haiti and Jamaica and was arrested by a number of creditors, including Jebmed, in Jamaica.

But Jamaica did not recognise the fact that Jebmed’s mortgage gave them the right to be the first creditors to be paid by virtue of the mortgage. After obtaining a legal opinion from a Maltese legal firm, the courts in Jamaica reserved $3,000,000 for Jebmed to advance their judicial claim in Jamaica.

The vessel was subsequently sold to Bluefin Marine Limited by means of a judicial sale in Jamaica on 9January 2018 for $10.3 million. The ship was then registered in Liberia under the name Bright Star.

Jebmed had then filed a request for the arrest of the vessel with the Maltese authorities.

The ship was arrested on the basis of the mortgage on 19 June 2018 as it passed through Maltese territorial waters for bunkering.

The ship’s lawyer, Ann Fenech, contested the arrest arguing that the vessel was sold as free and unencumbered in Jamaica back in January and that if Jebmed wanted to get paid there were $3 million reserved for them in Jamaica.

She argued that the hypothec was over the proceeds of the judicial sale by auction and not the vessel itself.

The First Hall of the Civil Court had ruled against Jebmed but the company’s lawyers, Marlon Borg and Jonathan Thompson, refused to accept that they had to undergo fresh judicial proceedings in Jamaica which would put their credit at risk and therefore did not institute new proceedings in Jamaica since they argued that by virtue of the mortgage registered in Malta they had already satisfied all the requirements to be paid.

In a decision handed down on Friday, Malta’s Superior Court of Appeal definitively ruled that the arrest of the vessel was valid and correct since Jamaica had not recognised the effects that the mortgage registered in Malta placed on the ship and the rights of the creditors, and that therefore Malta cannot recognise the sale of the vessel in Jamaica as having been made free and unencumbered.

Chief Justice Joseph Azzopardi, Mr Justice Giannino Caruana Demajo and Mr Justice Noel Cuschieri noted that under Jamaican law, a maritime hypothec is simply a proof of credit that must then be made official by a Jamaican court and which has no executive effect or effect on the ranking of creditors from the sale of the ship. Therefore, the provision of the Merchant Shipping Act which would have released the ship from its hypothec was not satisfied.

The $3 million meant to secure Jebmed’s claim changed nothing as this money was simply there to secure, said the court, whereas an executive title gave rise to an action.

In addition to this, there was no guarantee that there weren’t higher ranking creditors were the ship to be sold in Jamaica, once that Jebmed did not have precedence on the proceeds of the sale deposited in Jamaica, as the Maltese hypothec was not recognised in that country.

The Court of Appeal ruled that the Jamaican court’s decision to nullify a Maltese hypothec could not be recognised in Malta.

This is a first case in the international scene where a vessel was arrested following a judicial sale by creditors on the basis of a mortgage registered prior to that judicial sale.

The judgment is being interpreted in legal circles as delivering a statement to all courts in the international scene that Malta will not accept judicial sales if the rights of the mortgagee are not safeguarded during such sales.