The sale of the Indian Empress in June attracted the attention of the global superyacht community and international brokers, international yachting media, potential owners, and creditors of this yacht are watching the space very closely.
This needs to be seen in the context of our Code of Organisation and Civil Procedure (COCP) and the Merchant Shipping Act, which have assisted greatly in making Malta an important maritime jurisdiction. The amendments to article 742 of our COCP in 2006 laying out an extensive list of claims for which our courts would have jurisdiction in rem over vessels, the powers given to mortgagees of vessels under the Merchant Shipping Act as well as the introduction of the court-approved private sale also in 2006, have contributed significantly to the increase of cases with a maritime flavour being heard by our courts.
The absence of a specialised admiralty court has not stopped the development of a robust body of maritime case law, principally due to the fact that cases with a maritime flavour are referred to the same judges who have over the years developed the law that we have by coming out with some very interesting pronouncements and establishing important procedures, particularly in the realm of court-approved private sales and in other scenarios, such as the one presented by the Indian Empress.
The Indian Empress is a 95-metre superyacht built by Oceanco. Her owners have run up circa €27 million worth of debt with diverse creditors, ranging from unpaid crew to unpaid suppliers and service providers and her financiers. She was arrested by a number of her creditors in Malta, and one by one each of these creditors are obtaining judgments in their favour being able to enforce their judgment against this superyacht.
One such creditor, Melita Power Diesel Ltd, filed an application requesting the judicial sale of the vessel. A sale date was set for June 28, 2018, attracting a great deal of interest. The day before the sale, the Indian Empress filed an application in court asking the court to postpone the sale because her owners had previously entered into an memorandum of agreement (MOA) with a company called Crediyacht Ltd for the sale of the yacht for $42 million, and that this company needed some more time to produce the payment.
How or why the owners of the Indian Empress thought that this was going to fly with the judge remains a mystery for several reasons, starting with the fact that it was totally out of order for the owner of a vessel under arrest by several creditors to enter into a private MOA with a third party for the sale of a yacht unless all the creditors would have been paid and the arrest lifted. The judge correctly refused the application, presumably seeing this as nothing more than a delaying tactic, and ordered the auction to proceed.
Mr Justice Mark Chetcuti delivered a judgment in which he clearly thought outside the box
Under our law, every bidder needs to provide evidence to the auctioneer appointed by the court that they are good for the maximum amount they will be bidding. On the date of the sale there were a number of bidders from all over the world, and the successful bidder was Crediyacht Ltd (the same company which had supposedly previously entered into an MOA for the private purchase of the yacht) having bid the sum of €43.5 million.
Maltese law does not provide for a deposit to be made on the day of the auction and merely requires the successful bidder to pay the purchase price into court within seven days. Eyebrows were indeed raised by those in the auction room when it became apparent that the successful bidder who was now obliged to pay the purchase price within seven days was the same entity which had been unable to produce the purchase price after having supposedly entered into an MOA weeks earlier.
As suspected, on the seventh day following the auction, Crediyacht Ltd filed an application in court requesting the court for an extension of time to make the payment. Naturally all the creditors opposed this request. The judge was not going to have any of that and refused the application.
In the meantime, the mortgagee – Barclays Bank – filed an application requesting the court to appoint a new date for the sale of the vessel, to order that any person intending to bid had to produce evidence to the auctioneer appointed by the court that the “bidders have guarantees or equivalent evidence or security for a value of not less than €35 million in place” and to prohibit Crediyacht Ltd from participating in any future auction.
The main difficulty with the request for the production of a guarantee of not less than €35 million was that Maltese law does not allow a minimum price in the case of a judicial sale of a vessel, and that accepting such a request would be tantamount to the court agreeing that a bidder could not make a bid of less than €35 million.
Mr Justice Mark Chetcuti delivered a judgment in which he clearly thought outside the box, took a leaf out of the book of the British courts of equity and did not allow himself to be restrained by the failure of our law to provide for the situation, while maintaining the spirit of the law.
The court reset a new auction date for September 19, ordered that any bidder had to deposit the sum of €1 million within 48 hours prior to the sale date, prohibited Crediyacht from participating in the next auction, and held Credi-yacht responsible for the payment of the difference in the sale price in the event that at the auction of September 19, the Indian Empress was sold off for less than the €43.5 million, which Crediyacht had bid for the yacht on June 28.
To my knowledge this is the first time a Maltese court has ordered bidders in a judicial sale by auction of vessels to make a cash deposit in court prior to the sale taking place, and the first time it has held a bidder liable for the payment of the difference.
Ann Fenech is a board member of the Malta Maritime Forum and managing partner of Fenech & Fenech Advocates. The opinion expressed by the author does not necessarily reflect the position of the Malta Maritime Forum.