Martina Farrugia November 16 2022 Importance of establishing underlying jurisdiction when lifting corporate veil: cancelled charter of cruise liner Fenech & Fenech Advocates | Shipping & Transport - Malta Martina Farrugia Shipping & Transport IntroductionFactsDecisionIntroductionThe Code of Organisation and Civil Procedure (COCP), Chapter 12 of the Laws of Malta, sets out the rules that establish the jurisdiction of the Maltese courts. The primacy of establishing underlying jurisdiction continues to remain an important requirement that precedes any decision on the merits. This rule remains valid even in circumstances where a plaintiff has requested that the courts lift the corporate veil.Article 742(1) of the COCP provides the general criteria that establishes jurisdiction of the Maltese courts.These relate to the following grounds:742.(1) Save as otherwise expressly provided by law, the civil courts of Malta shall have jurisdiction to try and determine all actions, without any distinction or privilege, concerning the persons hereinafter mentioned:(a) citizens of Malta, provided they have not fixed their domicile elsewhere;(b) any person as long as he is either domiciled or resident or present in Malta;(c) any person, in matters relating to property situate or existing in Malta;(d) any person who has contracted any obligation in Malta, but only in regard to actions touching such obligation and provided such person is present in Malta;(e) any person who, having contracted an obligation in some other country, has nevertheless agreed to carry out such obligation in Malta, or who has contracted any obligation which must necessarily be carried into effect in Malta, provided in either case such person is present in Malta; (f) any person, in regard to any obligation contracted in favour of a citizen or resident of Malta or of a body having a distinct legal personality or association of persons incorporated or operating in Malta, if the judgment can be enforced in Malta;(g) any person who expressly or tacitly, voluntarily submits or has agreed to submit to the jurisdiction of the court.The courts have recently reasoned that procedure should not be so rigidly followed as to impede the effects of justice. Since the amendments to the Code of Organisation and Procedure in 1995, the courts have shifted away from the excessive rigidity in applying procedure, particularly where the flexibility would afford the parties the opportunity to correct any minor errors, and "save proceedings" from potential nullity due to procedural errors. However, this flexibility is afforded only where it would not cause the other party undue prejudice. Could this flexibility be applied in matters relating to the jurisdiction of the courts?FactsThe First Hall Civil Court in Malta weighed in on this point in a preliminary decision delivered on 24 March 2022.(1)The claim related to losses occasioned to the plaintiff, following a charter party agreement regulating the charter of a cruise liner. Unfortunately, due to the spread of the covid-19 pandemic, the charter was cancelled, and the charterer claimed a refund of sums paid in advance to Pullmantur Cruises Ship Management Ltd. However, following determinations that the defendant, Pullmantur, was in financial difficulty and would not be able to refund such sums, the plaintiff pursued the owning company of the vessel, RCL Sovereign LLC, and the shareholder of this latter company, Royal Caribbean Cruises Ltd, which was the ultimate beneficial owner (UBO) of the vessel too – the other defendants in the case.In an action filed before the First Hall Civil Court of Malta, the plaintiff alleged that the defendants had colluded to try to defraud the plaintiff out of the payment of sums owed to it. It requested that the Court lift the corporate veil of the companies and find that the defendants were jointly and severally liable for the debt owed to it. The defendants wholly denied these allegations of fraud and/or wrongdoing.Pullmantur Cruises Ship Management Ltd, as the first defendant, filed a preliminary plea and claimed that there was no jurisdiction as a result of an exclusive jurisdiction clause in the charterparty agreement that had identified the Spanish Courts of Justice as the competent court to hear any dispute arising out of the charter. It claimed that under article 25 of the EU Brussels Recast Regulation, the courts were bound to respect this exclusivity. Furthermore, the company had gone into liquidation and therefore requested a stay in proceedings in favour of the liquidation proceedings. Pullmantur denied liability on the merits, citing that its failure to honour its agreement under the charterparty was due to the covid-19 pandemic and thus a force majeure event.In a sworn reply filed jointly by RCL Sovereign LLC and Royal Caribbean Cruises Ltd, Royal Caribbean Cruises Ltd – as a Liberian registered company and the UBO of the MV Sovereign – raised in its defence a preliminary plea that the Maltese courts had no jurisdiction in its regard as none of the criteria set out in article 742(1) of the COCP were applicable in its regard. In this reply it was explained that RCL Sovereign LLC had bareboat chartered the MV Sovereign to Pullmantur Cruises Sovereign Ltd; however, the charter agreement had been cancelled after the company began defaulting in its hire payments. The UBO strongly denied all allegations of wrongdoing and claimed that it was owed millions in debts by Pullmantur Cruises Ship Management Ltd. Without prejudice to its preliminary plea, the UBO claimed that a decision had been made to scrap a number of its vessels in order to recoup part of their losses and insisted that it was similarly a victim of the financial difficulties in which Pullmantur Cruises Ship Management Ltd found itself.The Court ordered the parties to present proof in relation to the preliminary plea on jurisdiction.Pullmantur Cruises Ship Management Ltd relied on the charterparty agreement that established the exclusive jurisdiction of the Spanish Courts of Justice and filed a copy of the court decision ordering the voluntary winding up of the company taking place before the Spanish courts.Royal Caribbean Cruises Ltd filed an affidavit signed by the vice president of the company, whereby the Liberian company confirmed that:it was not a citizen of Malta;it was not domiciled, resident or present in Malta;the claim did not relate to property situate or present in Malta;the company did not hold any properties or branches in Malta; andthe claim did not relate to an obligation to be carried out in Malta and, in any case, such person was not present in Malta and nor was the charterparty an obligation contracted in favour of a citizen or resident in Malta or a legal entity registered in Malta or established in Malta.For the sake of good order, the affidavit confirmed that the defendant had not, in any manner, expressly or tacitly accepted the jurisdiction of the Maltese courts.By means of written submissions, the defendant company further argued that the Court would need to establish jurisdiction in its regard prior to making any determinations on the merits. In its submissions to the Court, the UBO alleged that until such time as the Court established jurisdiction in its regard, the courts were prohibited from delving into the merits, and therefore it could certainly not entertain requests by the plaintiff to pierce the corporate veil. To do otherwise would force the Court to delve into the merits prior to determining whether it had jurisdiction.The plaintiff rebuffed these arguments, claiming that its claim for a refund under the charterparty had to be seen in light of its accusations of wrongdoing and the request to lift the corporate veil due to its alleged collusion with parties that were not party to the charterparty agreement. The plaintiff also claimed that since Royal Caribbean Cruises Ltd was the UBO of RCL Sovereign Ltd and the latter had submitted to the jurisdiction of the court on the basis of article 6 of subsidiary legislation 234.23, Royal Caribbean should similarly be considered to have submitted to the jurisdiction of the Court on the basis of the principal of the lifting of the corporate veil.DecisionThe Court agreed with the reasoning of the defendants and held that it could not accept the submissions made by the plaintiff.With regard to the company Pullmantur, the Court held that the principal of pacta sunt servanda applied and therefore the exclusive jurisdiction clause in the charterparty had to be honoured. The Court held that there was no legal foundation for the plaintiff's claim that allegations of bad faith should in some manner override the rules of underlying jurisdiction. The Court held that this was unfounded under local and foreign law. The Maltese courts could not have jurisdiction in its regard. Given this finding, the Court did not proceed to consider Pullmantur's secondary plea relating to the insolvency proceedings.With regard to Royal Caribbean Cruises Ltd, the Court held that it could not accept that the plaintiff's arguments had any legal basis:In order to establish the Jurisdiction of the Maltese Courts against a company registered in Liberia, the relevant considerations are not the merits of the plaintiff's claim against the particular company but whether Royal Caribbean can be considered to fall under one of the grounds contemplated in Article 742 (1) of Chapt. 12. If the Court were to accept this reasoning, it would mean that the Court would be obliged to deliberate and decide on the merits and then determine whether it has jurisdiction. This proposal is diametrically opposed to the statutory rules which establish the grounds under which Jurisdiction of the Maltese Courts is founded.Therefore, the Court could not accept that the company had submitted to the jurisdiction of the Maltese courts, by means of the mere allegations alone made against the UBO that it was the owner of the vessel and therefore the corporate veil should be lifted. Previous court decisions have clearly showed that establishing jurisdiction prior to examining the merits is an essential procedural rule that cannot be deviated from, even if this affects the plaintiff's alleged rights.In considering the grounds of jurisdiction available under article 742(1) of Chapter 12 of the Laws of Malta, the Court found that it did not have jurisdiction in regards to the Liberian company and released it from the proceedings.The case continues to be heard against the owning company registered in Malta.For further information on this topic please contact Martina Farrugia at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email ([email protected]). The Fenech & Fenech website can be accessed at www.fenechlaw.com.Endnotes(1) Advocate Dr Joseph Camilleri as special mandatory for and on behalf of the Portuguese company Viagens Abreu S A v Pullmantur Cruises Ship Management Ltd, RCL Sovereign LLC and Royal Caribbean Cruises Ltd.