Case study: Private Sale of a Yacht and Enforcement of Mortgage

Dr Daniela Bartolo | 20 May 2013

Chetcuti Cauchi Lawyers


In this case, Malta’s Civil Court weighed the request of Christel H. Kuhne, a creditor of the vessel M.Y. Louis and the Girls (hereinafter, ‘the Yacht’) that sought to satisfy her claims against the yacht via a court-approved private sale of the asset (hereinafter ‘Creditor’).
Ms Kuhne’s claim amounted to € 2,910,000, exclusive of interest, representing credit she advanced to Blue Phoenix Maritime Limited (hereinafter, ‘Debtor’) subject to the conditions laid out in a Deed of Covenants and a Loan Agreement signed by the parties on 29 September 2011. On the same day, as a caution of the credit advanced by Ms. Kuhne, a mortgage in terms of Article 42(2) of the Merchant Shipping Act[1]was registered in respect of the yacht  'M.Y. Louis and the Girls' owned by Blue Phoenix Maritime Limited.
Legal background

Article 37B of the Merchant Shipping Act provides that a ship may act as a security of a debt or obligation. The mortgage, which acts as a special charge over the vessel is a type of debt security related to shipping.

For mortgages to have legal validity vis-à-vis third parties they must be registered. Registration necessitates an instrument that creates the security executed by the mortgagor in favour of the mortgagee in the presence of, and attested, by a witness or witnesses.[2]
In the case of default by a debtor, Maltese legislation grants mortgagees the power to sell the vessel. Since Article 253 of the Code of Organisation and Civil Procedure[3] confers on validly-registered mortgages the status of an executive title, the mortgage can be enforced without the need for the mortgagee to file additional court proceedings. To secure rights at law, the mortgagee will only be required to give notice to the mortgagor.[4]
The sale of the vessel may be made by judicial auction or, as in this case, by private agreement. For the sale to take place, appraisements by two independent and reputable valuers, which confirm the value of the yacht, must be submitted in Court.

Court’s opinion

The Court noted that the Creditor had followed the procedure for the enforcement of a mortgage set in Maltese law and that she was requesting that the yacht be sold at the price of € 2,150,000.
The Court further noted that the Creditor’s offer was more advantageous than the two estimates provided by two independent appraisers who put the market value of the yacht at between €1,800,000 and €2,000,000; and € 1,700,000 and € 2,000,000, respectively.
The Court observed that the Creditor and a third party had signed a Memorandum of Agreement, by virtue of which the latter confirmed readiness to purchase the Yacht for the sum of €2.15 million.

The Decision

The Court accepted the Creditor’s request for a private sale of the yacht and ordered that the yacht is sold at the price of € 2,150,000 under the terms and conditions stipulated in Memorandum of Agreement signed between the Creditor and third party.
With its approval the Court nominated a person to act instead of the Yacht’s registered owner and transfer the vessel to the acquirer.  The funds representing the price of Yacht must be deposited in Court within seven days from completion of the sale.

The court in its decision allowed the sale of the yacht, hence renforcing the strong postion of the mortgagee under Maltese law and the protection it providets to financiers.

[1] Chapter 234 of the Laws of Malta

[2] Article 38(1), Cap. 234 of the Laws of Malta

[3] Chapter 12 of the Laws of Malta

[4] If the sum due is not the same as the original amount due,  Maltese law requires that the amount being claimed is formally ascertained and notified to the mortgagor by means of a simplified procedure.


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