January 12, 2022 court of first instance - Orders
Claim No: CFI 066/2021
THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS
IN THE COURT OF FIRST INSTANCE
ORDER OF JUSTICE SIR JEREMY COOKE
UPON the Claimant’s Part 8 Claim dated 18 July 2021 and amended on 11 October 2021.
AND UPON the sale by order of the Khor Fakkan Courts of a Vessel MT (“Mia”) and the payment into the Khor Fakkan Courts of the proceeds of that sale (the “Vessel Sale Proceeds”).
AND UPON hearing counsel for the Claimant and the Defendant not attending
IT IS ORDERED THAT:
1. The Claimant has the benefit of a mortgage over the Vessel Sale Proceeds.
2. There be judgment for the Claimant against the Defendant in the sum of US$ 46,726,889.11, being:
a) the sum of US$ 38,109,879.84; and
b) interest of US$ 8,617,009.27.
3. Interest on the said sum of US$ 46,726,889.11 shall accrue at a rate of 9% per annum from the date of judgment until payment.
4. The Defendant shall procure the payment to the Claimant of the Vessel Sale Proceeds, subject to any claims found by the Khor Fakkan Court to have priority.
5. The Defendant shall not transfer the Vessel Sale Proceeds to any party other than the Claimant, save to the Dubai International Financial Centre Court (“DIFC Courts”) or to pay any claims found by the Khor Fakkan Court to have priority.
Date of issue: 12 January 2022
1. This is an application by the Claimant, to which I shall refer to as the “bank” or the “Claimant” as the case may be for judgment against the Defendant, to whom I shall refer as the “Challenger” or “Defendant”. The bank seeks to recover loan monies which were advanced to Mista and guaranteed by the Defendant, Challenger, under the terms of a mortgage dated 29 October 2014 over a Liberian flagged vessel, The MIa.
2. On 8 July 2019, the bank obtained judgment in the DIFC Courts against Horizon in the sum of US$ 38,109,879.84 plus interest at nine percent per annum. That judgment debt is unpaid. If interest is now taken into account, the total amount outstanding is US$ 46,726,889.11. The Mia, “the Vessel”, was sold by an order of the Khor Fakkan Courts on 16 August 2021 and the sum held in the courts' account after deduction of auction fees is some US$ 13.5 million. These sale proceeds remain subject to an attachment order from those courts and a freezing injunction granted by this court on 7 October, as amended on 10 and 14 October 2021.
3. The bank seeks not only judgment in a monetary sum, but declarations and orders establishing its right to payment from the sale proceeds, subject to any claims which may be found by the Khor Fakkan Courts to have priority.
4. The Court has evidence before it in the shape of two witness statements of Mr Adrian Chadwick dated 18 July and 6 October 2021, two affidavits of the same deponent dated 3 October 2021 and 5 October 2021, and their exhibits, which include in particular, the mortgage. The ship mortgage is in essentially a standard form but governed by Liberian law, with the usual kinds of covenants contained in it. There is the usual covenant to pay the indebtedness and to perform the terms of the mortgage. There is a prohibition on sale without the mortgagee's consent, and any sale that does take place is specifically subject to the terms of the mortgage itself. Various events of default were set out, which have taken place, including the failure to pay sums due under it. The effect of any sale is to divest the owners of their title in the ship and there is provision as to the application of the sale proceeds.
5. As a matter of history, the position is this. The bank had entered into a facilities agreement with Horizon on 29 October 2014 under which the bank agreed to extend facilities to an aggregate total of US$ 85 million. As a condition precedent to any such loan, Horizon was obliged to procure the execution of a mortgage over the vessel. On the same day, that mortgage on the vessel was executed under which the bank was given a first preferred mortgage. The Defendant, Challenger, was entitled to retain possession of the vessel until default. Challenger also guaranteed Horizon's indebtedness to the bank, Horizon being defined in the mortgage as the borrower.
6. On the occasion of any event of default, including, as I have said, a failure to pay principal or interest, the security became immediately enforceable, the indebtedness under the facilities agreement became immediately due and payable and the bank was entitled to exercise all its foreclosure rights and obtain judgment in respect of Horizon's indebtedness and recover it from the property of the Defendant, Challenger, including the vessel. The bank was also entitled to take possession of and sell the vessel in those circumstances.
7. Article 3(11) of the mortgage made general provision for the application of the proceeds of sale, which were first to be applied in relation to the costs and expenses of the bank and enforcing any rights of the bank, which specifically included those under the facilities agreement. It was in July 2015, that Horizon began to default in relation to the facilities agreement, but after 23 December 2015 it made no substantial payments of any kind in relation to the sums due to the bank. There were various cheques presented which were dishonoured. On 8 July 2019, this court entered default judgment against Horizon in the sum of US$ 38,109,879.84, with interest accruing at nine percent.
8. From about August 2015, the Claimant sought to enforce the mortgage in Fujairah and Khor Fakkan, but following a series of appeals on 13 July 2021, the Union Supreme Court ultimately found that the DIFC Court had exclusive jurisdiction, rather than the Khor Fakkan Court. Various other claims have been made against Challenger which have been the subject of decision in the Khor Fakkan Court, where an attachment order had been obtained. The vessel was sold pursuant to the claim by the Khor Fakkan Port for port dues on or about 16 August 2021. That gave rise to the sum currently held in that court, to which I have already referred.
9. The priority of debts has been established by judgment in the Khor Fakkan Court in the following manner: first, court fees of AED 43,700; secondly, Khor Fakkan Port dues of AED 2,328,868.96; thirdly, a claim from the Modan, the Misani Club, for sums due of AED 1,754,984.76; and a provisional recognition of the bank's own claim. The bank commenced the proceedings in which this application is made on 18 July 2021 and those proceedings were served on Challenger through the Liberian Ministry of Foreign Affairs. Permission was given by this court for service through Challenger's legal representatives in the Khor Fakkan proceedings in due course whilst issuing a freezing order against Challenger.
10. The position is this, Horizon's liability under the facilities agreement has been already established by the default judgment. The liability of the Defendant, which guaranteed that liability and provided a mortgage in respect of it, is established likewise. The evidence shows that the bank is entitled to judgment in the sum sought, which together with interest as at today's date is US$ 46,726,889.11.
11. There is an additional proprietary claim because the bank seeks an order in the following terms as set out at paragraph 32.4 in the amended particulars of claim. What is sought is an order declaring that the Claimant bank has a mortgage over the vessel sale proceeds and an order requiring the payment of those proceeds to the Claimant subject to any claims which are found to have priority. A further order is sought prohibiting the Defendant from transferring the vessel sale proceeds to any party other than the Claimant, save into the DIFC Court or to pay any claims found to have priority. As submitted, the effect of the mortgage is to convey to the mortgagee title to the asset, namely the vessel, subject to the mortgagor's right of redemption, and once the sale has taken place the sale proceeds constitute the traceable product of the vessel and the bank has title to the sale proceeds under the terms of the mortgage, subject of course to any third party claims with priority and any residual rights of Challenger if there should be any sum left over after satisfaction of the mortgage debt, which it does not appear would be the case here.
12. In the circumstances, I grant judgment to the Claimant in respect of the monetary claim as such and I make an order in the terms sought in paragraph 32.4 of the amended particulars of claim.
For better web experience, please use the website in portrait mode