Maltese Courts award record level of damages during 2010
Date: 1st February, 2011
Managing Partner, and head of the Marine Litigation department, Dr Ann Fenech's article on the recent award of damages in the Finaval case has been published in the ILO Shipping and transport newsletter.
Maltese Courts award record level of damages during 2010
2010 saw Maltese courts award the highest amount of damages ever awarded in a case related to the failure of the transfer of shares in a company, owner of a new Aframax Tanker.
The Italian company Finaval filed an action against the Monagasque company Scorpio Ship management s.a.m and others for breach of a promise of sale of shares in a Maltese registered company which had been formed for the purposes of entering into a ship building contract with ship builders Samsung. Finaval claimed that Scorpio had promised Finaval that prior to the delivery of the Aframax tanker to the Maltese Company, Scorpio would give Finaval the option to purchase the shares in the Maltese company equivalent to the contract price of the vessel plus the pre-delivery costs calculated at US$37,800,000. Scorpio failed to offer the shares as promised to Finaval with the result that Finaval lost the opportunity to purchase the shares of a company which would own a brand new Aframax tanker at the price of US$37,800,000 at a time when the price of Aframax tankers was rising considerably. Finaval requested the court to declare that Scorpio breached its obligation to transfer the shares as it was obliged to do, to order the transfer of the shares to Finaval and in the eventuality that the ship had already been transferred by the company to order the defendants to pay damages.
Scorpio defended the claim by stating that primarily the Maltese Courts did not have jurisdiction over the matter given that neither Finaval nor Scorpio were Maltese; that Scorpio should be declared non suited since the shares in the Maltese company did not belong to Scorpio who, it claimed, had no control over the disposal of shares belonging to other entities; that in any event there was never a promise of sale.
The first court delivered its judgement on jurisdiction on the 2nd December 2004 and held that the jurisdiction of the Maltese court was founded on section 742 (c) of the Code of Organisation and Civil Procedure stating that the Courts of Malta have jurisdiction over "any person in matters relating to property situate or existing in Malta." Thus it was irrelevant that neither Finaval nor Scorpio were Maltese. It further held that "shares" in a Maltese company as had been established by previous case law very much constituted "property situate in Malta" and the very nature of the claim put forward by the Finaval s was for the transfer of the shares in the company.
With respect to Scorpio being non suited on the basis that it had no control over the disposal of the shares, the Court rejected this argument completely. The Court held that "Scorpio had obliged itself to transfer to Finaval the shares which it had registered in someone else's name. Scorpio has to see for itself how it was going to fulfil the obligation it assumed. A debtor of an obligation cannot escape from its execution when he himself would have led to its impossibility."
The same court gave its judgement on the merits on the 5th July 2007 and on the basis of the evidenced produced accepted Finaval's claim that there had been a promise of sale of the shares contained in a letter dated 24th December 2002, made by Scorpio in favour of Finaval and that the promise had been broken when the shares were not transferred. The court confirmed that all the requirements stipulated by article 1357 of the Civil Code had been satisfied because the object of the sale had been identified as the shares in the company, the price of the shares had been determined or was determinable and that the promise had been accepted by the plaintiffs as reflected by the events that took place subsequent to the promise.
Since the Maltese company which had entered into the ship building contract with Samsung was subsequently struck off, the court ordered Scorpio to pay Finaval the sum of US$ 22,200,000 being the difference in the price between what Finaval would have paid had the shares been transferred and the price which it would have paid for the same type of vessel on the open market at the time when the vessel would have been delivered, estimated at US $60,000,000.
The Court also ordered the defendant to pay all the court costs and interest from the date of the commencement of the action up until date of payment.
Scorpio appealed.
The Court of Appeal rejected Scorpio's defence of lack of jurisdiction since the merits related to shares in a company registered in Malta and shares were to be considered as "property situate in Malta" and thus covered by article 742 ( c ) of the COCP. The Court held that the fact that the shares in the company could no longer be transferred because the Maltese company had been struck off during the running of the case meaning that all that remained was a claim requesting the court to award damages resulting from the alleged breach of a promise of sale of the shares, had no bearing on jurisdiction because the jurisdiction of the courts was established at the time when the action was instituted and when the action had been instituted the company was still registered and had not yet been struck off.
The Court of Appeal also confirmed the judgement of the first court on the merits stating that Scorpio had indeed promised Finaval the option to purchase the shares in a company destined to own an Aframax Tanker. The Court confirmed the view of the first court that once it had been established that the letter of the 24th December 2002 amounted to a promise it had to assess whether that promise had all the requirements stipulated by article 1357 of the Civil Code which it had. The Court rejected the appellant's additional submission that since the document did not contain a jurisdiction clause then it could not have been intended as a binding document. The Court underlined the fact that a promise of sale of a movable object, such as the shares in question need not even be in writing and consequently the promise of sale was valid irrespective of whether the letter contained a jurisdiction clause. Thus the Court of Appeal concluded that since by virtue of the letter of the 24th December 2002 the object of the promise had been the shares in the company which had to be transferred to Finaval anytime before the delivery of the vessel, by means of a sale against payment to Scorpio of the equity and pre-delivery costs all the requirements stipulated by article 1357 of the Civil Code had been satisfied and that the pre-contractual stage had long passed.
The Court of Appeal also rejected the appellants position that Finaval had not accepted Scorpio's offer because the substantial evidence that was brought forward during the running of the case including Finaval's complete participation in the discussions and negotiations over the specifications and delivery of the new building proved the opposite. Importantly the Court rejected Scorpio's position that it had nothing to do with the matter and should not be held liable. The Court of Appeal added to the findings of the first court and stated that the promise to Finaval had been made by Scorpio consequently the obligation was of Scorpio to transfer and sell the shares to Finaval; it was Scorpio which had terminated the agreement; the discussions and negotiations had been between Scorpio and Finaval and the other companies did not feature anywhere; the letter of the 24th December had made it clear that everything was going to be actuated by Scorpio and that Scorpio was controlling everything and had the controlling interest in the vessel. According to this letter, Scorpio had to order the vessel, it had to provide the equity and when the shares were transferred to Finaval, Finaval had to pay Scorpio and no one else; The Court held "This Court agrees with the first Court when it decided that Scorpio should be declared as solely responsible."
The Court of Appeal also confirmed the decision reached by the first court on the damages awarded which was the difference between the price which Finaval would have paid for the shares had they been transferred as promised and what it would have cost Finaval to purchase a vessel on the open market at the time when the vessel was meant to have been delivered, which the court estimated at S$22,200,000 based on the expert evidence of a shipbroker. The Court of Appeal however ordered that interest be paid by Scorpio from the date of judgement rather than the date when the action was filed. It also confirmed the first court's order on costs obliging defendant to bear the costs.
Ann Fenech from Fenech and Fenech represented Finaval Spa.
