The June 2018 sale of the Indian Empress has attracted the attention of the superyacht community worldwide and international brokers, the international yachting media, potential owners and creditors of the yacht are watching this space very closely.
Overview of legislation
The sale of the Indian Empress must be considered in the context of the Code of Organisation and Civil Procedure and the Merchant Shipping Act, which have assisted in making Malta an important maritime jurisdiction.
The 2006 amendments to Article 742 of the Code of Organisation and Civil Procedure outlined:
- an extensive list of claims for which the Maltese courts have jurisdiction in rem over vessels; and
- additional powers given to vessel mortgagees under the Merchant Shipping Act through the newly introduced court-approved private sales.
These changes significantly contributed to the increase in maritime cases heard by the Maltese courts.
Further, 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 maritime cases are referred to the same judges who have established procedures and provided important precedents in this regard – particularly in the realm of court-approved private sales and scenarios such as the one presented in the case of the Indian Empress.
The Indian Empress is a 95-metre superyacht built by Oceanco. The owners had approximately €27 million worth of debt with diverse creditors ranging from unpaid crew, to unpaid suppliers, service providers and financiers. The vessel was arrested in Malta by multiple creditors. These creditors are now obtaining favourable judgments and enforcing these against the vessel’s owners.
One such creditor, Melita Power Diesel Limited, filed an application requesting the judicial sale of the vessel. The sale was set for 28 June 2018 and attracted significant interest. The day before the sale, the owner of the Indian Empress filed an application in court asking to postpone the sale because they had previously entered into a memorandum of agreement (MOA) with Crediyacht Ltd to sell the yacht for $42 million. According to the owners of the vessel, Crediyacht needed more time to make the payment. It is unclear why the owners of the Indian Empress believed that the judge would grant their extension, particularly because owners of a vessel under arrest by several creditors cannot enter into a private MOA with a third party for the sale of the yacht unless all of the creditors will be paid and the arrest lifted. The court correctly refused the application, presumably seeing this as nothing more than a delay tactic. The court ordered the auction to proceed.
Under Maltese law, every bidder must offer evidence to the court-appointed auctioneer that they can cover their maximum bid. However, on the date of the sale, of the many international bidders that made offers, Crediyacht Ltd (the same company which had supposedly previously entered into an MOA for the private purchase of the yacht) had the winning bid of €43.5 million. Maltese law does not require a deposit to be made on the day of the auction; instead, it merely requires the successful bidder to pay the purchase price into the court within seven days.
However, concern arose when it became apparent that the successful bidder was the same entity which had previously been unable to produce the purchase price after supposedly entering into a MOA weeks earlier.
As expected, seven days after the auction, Crediyacht Ltd filed an application in court requesting an extension to make the payment. Naturally, all of the creditors opposed this request.
The judge 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 and:
- require any interested party to produce evidence to the court-appointed auctioneer that they had “guarantees or equivalent evidence or security for a value of not less than 35 million euros in place”; and
- prohibit Crediyacht Ltd from participating in any future auction.
The main difficulties with the request to provide a guarantee of no less than €35 million was that:
- Maltese law does not allow a minimum price in the case of the judicial sale of a vessel; and
- accepting such a request would be tantamount to the court agreeing that a bidder could not make a bid of less than €35 million.
In his novel judgment, Justice Mark Chetcuti took a leaf out of the UK equity courts’ books and did not allow himself to be restrained by the failure of Maltese law to provide for the situation while maintaining the spirit of the law. Instead, Chetcuti:
- set a new auction date for 19 September 2018;
- required all bidders to deposit €1 million within 48 hours of the sale date;
- prohibited Crediyacht from participating in the next auction; and
- held Crediyacht responsible for paying the difference in the sale price if, at the 19 September auction, the Indian Empress was sold for less than the €43.5 million which Crediyacht had bid for the yacht on 28 June 2018.
This is the first time that 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 that a bidder has been held liable for the payment of the difference.
by Ann Fenech, President of the Malta Maritime Law Association and Managing Partner of Fenech & Fenech Advocates