Following the issuance of a provisional arrest warrant for a yacht at the request of a physical bunker supplier, the Maltese court determined that it was not vested with jurisdiction in rem and accordingly lifted the arrest.
The motor yacht Vicky was arrested in Malta on January 4 2017 by Thevenin & Ducrot for a claim relating to unpaid bunkers supplied to the yacht. The owners of the yacht subsequently filed an application before the Maltese courts challenging the arrest and arguing, among other things, that the Maltese courts lacked jurisdiction in rem.
The court had to examine whether the requirements set out under Articles 742B and 742D of the Code of Organisation and Civil Procedure and Article 50 of the Merchant Shipping Act were satisfied when the arrest warrant was issued.
Maltese law and jurisprudence dictate that three essential requirements must be satisfied in order for an arrest in rem to be validly issued:
- The vessel must be physically situated within Maltese territorial waters.
- The claim must fall under Articles 742B of the Code of Organisation and Civil Procedure, which lists all maritime-related claims for which a claim in rem may be brought and includes dues "in respect of goods, materials, provisions, bunkers, supplies and necessaries supplied or services rendered to a ship for her operation, management, preservation or maintenance".
- The requirements set out under Article 742D of the Code of Organisation and Civil Procedure must be satisfied.
Article 742D provides that unless the claim is privileged in accordance with Article 50 of the Merchant Shipping Act, an arrest in rem may be brought against a ship only when the person liable for the claim:
- was the owner or charterer, or in possession or in control, of the ship or vessel when the cause of action arose; and
- is the owner, beneficial owner or the bareboat charterer of the ship when the action is brought.
The yacht owners argued that this requirement had not been satisfied.
The owners alleged that they were not liable for Thevenin & Ducrot's outstanding dues. They further maintained that they had no juridical or legal relationship with the physical supplier that arrested the yacht. It transpired that the owners had not directly ordered the bunker supply in question. Instead, they had ordered bunkers from an intermediary fuel trader, Mastco Group AG. The latter entity subsequently used a third-party broker to purchase the fuel product from the physical supplier. However, when the bunkers were furnished to the Vicky, Mastco Group failed to pay the physical supplier. That said, the yacht owners had paid Mastco Group AG for the bunkers.
The physical supplier defended the arrest by arguing that although its invoices were issued to Mastco Group, the owners were aware of the order and accepted the fuel product. To this effect, the arresting party presented its bunker delivery note and argued that since this document bore the vessel's stamp and was signed by the chief engineer, the owners were also liable for payment of the fuel product.
The court disagreed with the supplier's argument, holding that the bunker delivery note was nothing more that proof of receipt of the fuel consignment. Moreover, the fact that it was signed by a representative of the vessel in no way meant that the vessel or the owners had participated in the contract of sale or were party to the agreement.
The supplier also alleged that its claim was in fact a privileged one in terms of Article 50(m) of the Merchant Shipping Act and that in any event, Article 742D of the Code of Organisation and Civil Procedure should not apply. However, in order for a claim to be deemed privileged, the debt in question must have been contracted directly by the owner of the ship, the master or an authorised agent of the owner. To this effect, the supplier argued that when Mastco Group AG ordered the bunkers it did so as an authorised agent for and on the behalf of the vessel. The court disagreed with this contestation as no substantial evidence was produced to prove, even on a prima facie basis, that Mastco Group AG had acted as the agent of the owners or vessel when purchasing the fuel product.
The court thus concluded that the Maltese courts were not vested with jurisdiction in rem and ordered that the arrest warrant be lifted.
In light of the growing spate of claims brought by physical suppliers against shipowners, this judgment sheds important light on the onus of proof with which an arresting creditor is burdened. The court held that it was insufficient merely to procure evidence of knowledge of the supply or proof of acceptance of the product from the supplier; there must be a more genuine juridical link between the physical supplier and the owner of the vessel. In this regard, the court may have reached a different conclusion had the bunker delivery note included a statement or declaration incorporating the physical supplier's terms and conditions (which, in turn, may hold a shipowner jointly and severally liable for the payment). In this scenario, there are arguments both in support and against any arrest in rem made on this basis. That said, this remains a moot point, as it is still untested by the Maltese courts. Further, it would appear that a claim for unpaid fuel product ordered by a third party may in certain circumstances be considered privileged, provided that there is unequivocal evidence that the third party made the order in its capacity as an authorised agent of the owners.
For further information on this topic please contact Adrian Attard at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email ([email protected]). The Fenech & Fenech website can be accessed at www.fenechlaw.com.