Act LII/2016 was introduced primarily to amend and update the Aircraft Registration Act and other ancillary-related laws to ensure that local legislation kept abreast of the contemporary challenges and realities of the aviation industry. However, this act also promulgated particular amendments which go beyond aviation law into the realm of shipping.
These recent changes are making Maltese law an ideal legal regime to govern and regulate disputes which may arise under certain types of shipping contract – namely, ship sale and purchase agreements, promise of sale agreements and charterparties.
Choice of law
Most sales of vessels are concluded following the execution of a standard form agreement. The parties normally complete the relevant boxes and strike out those provisions or clauses, if any, which they do not want to include in the agreement. Accordingly, these standard form agreements help to ensure that negotiations are not too lengthy or expensive.
The majority of these standard forms point to English law as the applicable law and English arbitration as the dispute resolution forum. Indeed, standard form contracts have the benefit of being generally tried and tested before the English courts and tribunals, which gives contracting parties peace of mind that the clauses therein will be legally enforceable under English should any dispute arise. It would be imprudent to apply another law without reviewing and scrutinising the whole contract to ensure that all of the provisions therein are legally binding and enforceable under that legal system. However, one of the major setbacks which parties face is that – by default – standard contracts send disputing parties to arbitration in London. Arbitral proceedings in the United Kingdom can be costly, even more so if the parties are not domiciled or resident there.
Before the new amendments, Maltese law was never advised as a choice of law to regulate these standard form contracts, as it was doubtful whether all of the terms and stipulation of standard form contracts would be enforceable given the existence of a number of archaic provisions contained under Maltese law of contracts. Therefore, more often than not, parties were encouraged to retain the standard applicable law and jurisdiction clauses, even if this meant that any disputes would be costly.
One of the most interesting changes introduced in the Civil Code provides that any ship sale and purchase agreement will now primarily be governed by “the terms and conditions agreed between the parties as well as by the international usages of trade applicable in the context as well the special laws relating to merchant shipping”. Moreover, the law provides that if there is a conflict between the agreed contractual terms and the general provisions of the Civil Code, the former will prevail. The law helps to move away from Malta’s draconian position. It also provides clarity and certainty to parties.
Accordingly, the law now recognises that in these types of agreement, the courts should apply and enforce the contractual will of the parties and this should prevail over any contradictory dispositions found in Maltese civil law. While the matter is yet to be tested, it is arguable that perhaps the only limitation in this regard would be a clear violation of public policy. However, in any event, it is hard to envisage many circumstances in which the content of a ship sale and purchase agreement would be considered in breach of Maltese public policy.
The new act also introduced similar amendments with respect to ship operational leases such as chartering. In terms of ships, the law defines ‘lease’ as “the chartering thereof under terms where possession or control is given to the lessee, including bareboat charters or the equivalent”. Again, with respect to chartering, it is common to use standard form charterparties contracts.
Accordingly, the same rhetoric used in the context of ship sale and purchase agreements will apply to charterparties. Maltese law now gives priority to the privity of the contract, putting contracting parties’ minds at rest that these standard form agreements will be enforceable under Maltese law.
The changes should also act help to promote Malta as a dispute resolution forum. It is likely that the change in choice of applicable law will also bring about a change in the chosen dispute resolution forum. Thus, if parties select Maltese law to govern their contract, it would be sensible and logical to have disputes determined and decided on by arbitration in Malta. International arbitration in Malta has the added advantage of being relatively cheap to conduct, flexible and efficient. Moreover, proceedings can be conducted in English.
These factors, together with the legal assurances that the agreed terms and conditions will be enforceable under Maltese law, will help Malta to grow as a forum of choice in the context of the aforementioned contracts. The amendments discussed above offer contracting parties a new option when selecting the applicable law and jurisdiction for certain classes of shipping contract.
by Dr Adrian Attard, Fenech & Fenech Advocates