News - MMLA

Regulating autonomous ships

September 19, 2018 Leave a Comment

What are the challenges of autonomous navigation on board masterless vessels?

Challenges, whether legislative, sociological or technological, form part of our daily work routine. Contrary to previous decades, innovative models do not require years or even months to cross an ocean. Evolution tends to spread very fast, more so nowadays when millennials are rapidly engaging themselves in managerial roles largely concerned with quick and effective product placement.

The recent emergence of blockchain technologies, the steady infiltration of cryptocurrencies in our lives and the recently introduced GDPR rules have proved that shipping, like any other sector involved in the carriage of persons and goods, is also not immune to such novelties.

Unmanned technology is also gaining particular momentum within the shipping industry. The aim of such technology is clearly that of supporting the ship operator, cargo owner and ultimate consumer by reducing human-derived risks and operational costs connected with the carriage of goods by sea. However, when it comes to ships and navigation one must keep in mind that the lawmaker often ranks the protection of seafarers and of the sea environment at the top of its priorities, ahead of such strictly navigational or commercial aspects which also arise from the use of autonomous ships. It will be interesting to see how these two differing interests can and should coexist next to each other.

Use of driverless means of transport has become common across various sectors of public transportation. Many capital cities have adopted driverless metro systems for years now. The same is happening with respect to the private transportation by car, although the latter is still going through (an advanced) testing phase.

The difference between such means of transport lies mainly on the number of variables that these come across throughout their operation. As metros operate on a one-direction line, collisions can be easily reduced through a number of mechanical and electronic precautions. On the other hand, during their journey, cars come across other cars, buses, trucks, pedestrians, animals and different meteorological events, and so cannot make a linear journey.

What does autonomy mean with particular reference to ships? The International Maritime Organisation has identified four different types of vessel autonomy.

The first are ships with automated processes and decision support where seafarers operate and control systems and functions directly from the vessel and only some operations may be automated. The second are remotely controlled ships where seafarers are on board the vessel although the ship is controlled and operated from another location. The third are remotely controlled ships without seafarers on board where the vessel is controlled and operated from another location with no seafarers on board. Finally, the fourth are fully autonomous ships where the operation is performed automatically by the vessel’s operating system.

Trials on autonomous ships have already commenced in Norway and Finland. Denmark has also taken steps to regulate this particular aspect of navigation; with the first autonomous ship to be used for subsea positioning, surveying and environmental monitoring currently registered under the British flag. The European Union has also invested in research projects such as the EU’s FP7 project (Maritime Unmanned Navigation through Intelligence in Networks).

The introduction of automation, as happened in other industries, would produce an immediate and tangible effect on the workforce on board ships and port operators engaged in the loading and offloading of cargo. On the other hand this would be beneficial for IT developers involved in the creation of software meant to govern navigation and protecting same from the risk of cyber-attacks. Automation might be welcomed by insurers, and a bit less by ship litigators, since with respect to the cargo loading and unloading procedures it will reduce the amount of mistakes deriving from human error.

However, one of the main obstacles faced by autonomous ships lies in the current legal framework within which their manned counterparts operate. In fact most – if not all – maritime conventions (and charter parties) assume that vessels operate with crew on board – this is the case, for example, of the Maritime Labour Convention or the International Convention on Standards of Training, Certification and Watch keeping for Seafarers – a requirement an autonomous ship would unlikely be able to satisfy.

Another challenging aspect concerning autonomous ships revolves around the implementation of the International Regulations for Preventing Collisions at Sea (COLREGS) in particular when these will be navigating alongside manned ships. The COLREGS often contain provisions referring to the human element; referring for example to “the ordinary practice of seamen” test, that is, what a reasonably competent mariner should do in a given situation (similarly to the bonus paterfamilias test used in civil law).

Automation would require practitioners to start considering accidents which might arise, for example, when an operator makes a poor decision in reliance on wrong information provided by the vessels’ sensors due to a technical failure. Such instances are bound to raise further questions on the apportionment of liability between the operator, manufacturer or software developer and ship-owner.

Moreover, within a shipping ambit different types and degrees of liability already coexist next to each other: that of the ship-owner (or the bareboat charterer) for crew’s actions (i.e. COLREGS); or that of the registered owner (i.e. pollution at sea conventions) while other forms of liability make the ship liable in its own right (e.g. maritime liens).

Apportionment of liability between the ship-owner, software developer and manufacturer is an aspect not to be underestimated even in such a context. How would an autonomous ship be expected to intervene in case should it encounter, throughout her route, another ship in distress? Also, where would responsibility lie in the case of environmental damage? Will the ship-owner be held accountable or will responsibility for the ensuing damage lie on the software provider, for example, for not having developed a sound algorithm or on the vessel’s sensors’ manufacturer for their technical failure?

Legal clarity around cyber liability and collision regulations is fundamental if autonomous ships want to sail free on our seas and oceans, especially before the maritime industry starts investing in infrastructure and skills needed to for unmanned ships to reach a commercial level.

The answers to these questions are far from clear, and much work needs to be done before international solutions are in place. The Comité Maritime International (CMI), of which the Malta Maritime Association is a proud and active member, has recently established a working group on maritime law for unmanned craft, aimed at analysing how international conventions and regulations can adapt themselves to autonomous ships.

Many in the industry, in view of a lack of clear regulations in this respect, have welcomed this news in a conservative manner. Truth is that you cannot stop innovation from happening. Not, at least, in today’s world where ideas travel at the speed of sound from one corner of the world to another and with such a multitude of players wishing to gain new shares in an often saturated market. The interests in such area are many, from that of ship builders wishing to consolidate or grow their market share, to that of the ship owner wishing to cut costs or that of IT developers wishing to expand their reach in this industry, to that of crew members wishing to safeguard their jobs.

The importance of such a new means of navigation, although still far from becoming an everyday reality, has generated such an interest that even the IMO’s Maritime Safety Committee kicked off the procedure leading to the regulation of Maritime Autonomous Surface Ships (MASS). This exercise aims at regulating aspects concerning safety, security and environment. IMO’s focus is international trade facilitation, analysis of potential costs of the industry and the impact on individuals operating both off and onshore. The IMO will first look into the application of current legislation onto MASS and ascertain whether each specific provision can be applied to it and the regulations that need to be amended or introduced.

A possible key to facilitating navigation of autonomous ships on our seas and oceans could lie in the adoption of a uniform and linear set of rules modelled on the current IMO framework. It is submitted that a mere temporary or piecemeal update of regulation is not sufficient. Rules should, as much as possible, contain self-updating provisions able to cater for current as well as future technological advances. Shipping, more than any other sector in view of its global breadth, requires common and uniform standards and this can clearly only be achieved through the intervention of the International Maritime Organisation.

by Stephan Piazza, member of the MMLA Executive Committee and Manager Transport & Leisure – Shipping, Aviation & Infrastructure at KPMG in Malta

Source: Times of Malta, Maritime & Logistics Supplement

Picture: new atlas, Rolls-Royce

Smart shipping – Blockchain technology offers the opportunity to revolutionise the shipping sector

September 19, 2018 Leave a Comment

Malta is fast becoming a centre for Distributed Ledger Technology (DLT) businesses. Its efforts to become a global hub in this sector culminated in the enactment of three new laws earlier this year. This new legislative framework seeks to create a regulated environment within which this sector can function and thrive in. However, despite the buzz generated by blockchain, many people are still not sure what this technology really means and more importantly, how it can transform and revolutionise so many different industries, including shipping.

At its core, blockchain is a decentralised and distributed digital database. This means that different parties can share and update the same information online in real time, naturally depending on authorisation rights. There is no need for a central administrator. To simplify matters, imagine a spreadsheet. Rather than having one person regularly update it, here the spreadsheet is duplicated across a network of users (also known as ‘nodes’), who are regularly updating the spreadsheet.

Thus, whereas most centralised databases keep information upto-date at a particular moment, data held on a blockchain exists as a shared database which is constantly being updated and reconciled in real time as new sets of ‘blocks’ are added to it. Each block contains a timestamp and is linked to the previous block, forming a chain of information.

Naturally, while the information can be accessed by all, not all users can add a new entry to an existing chain. To do so, they must have a special cryptographic key. Decentralised data arguably also provides more security as it becomes harder to manipulate the information in the ledger. By way of example, imagine your bank maintains a central database of all its customer details and transactions. When you withdraw money or transfer funds, your bank updates its records in its database. If a hacker manages to access to this centralised database – they can change balances and change transaction details at will.

However, with blockchain, this would not be possible as there is no centralised database. All the users have real-time access to the data. Any manipulation would require the same change being made on all copies of the distributed ledger at the same time, which is highly unlikely. Most people associate blockchain technology with banking and cryptocurrencies. Perhaps this is a result of the fact that these two industries were the first to identify the enormous potential of this technology and have invested so heavily in it.

However, blockchain as a secured, decentralised and encrypted ledger is being explored by other sectors and the shipping industry is no exception. Shipping remains to date a paper-intensive industry, with most transactions dependent on the use of paper documents such as sale contracts, charterparties and bills of lading. Some of these documents may also need to exchange hands several times.

For instance, traditionally a bill of lading is issued at the port of loading in favour of the shipper. It may subsequently need to pass on to several banks before ultimately reaching the receiver. The process can be so time consuming that sometimes the cargo arrives at the port of discharge before the bills of lading do.

Blockchain technology offers the opportunity to turn shipping paperless, by means of which all the key stakeholders – including shippers, receivers, carriers, charterers, banks, terminals and customs officials – may contract, exchange or store information in encrypted format, give and accept instructions and securely effect payment exchanges. Every party involved in a transaction may access any of the relevant trade documentation in real-time, with the peace of mind that these have not been tampered with. By doing so, the use of blockchain technology promises to simplify current shipping processes, reduce costs, provide more time-efficient solutions and also offers a securer way of trading.

Blockchain technology may also revolutionise the shipping industry through the use of smart contracts. These electronic contracts are essentially drawn up by a computer programme which is intended to facilitate negotiations and execute agreements between parties. Additionally, they also aim to self-enforce or perform the obligations when certain pre-defined conditions are met. For instance, automated payments could become self-executing under a smart contract once the performance of the obligations therein is carried out.

It will be interesting to see whether the industry will embrace the use of smart contracts. In shipping, most transactions are carried out using standardform contracts and thus, much could depend on how well these contracts can be coded or transposed into smart contracts. The potential that blockchain has to transform shipping operations into more efficient and profitable enterprises is already being recognised by a number of big stakeholders in shipping.

Indeed, over the last couple of months, we have seen a number of ambitious projects go live. Container shipping giants A.P. Moller–Maersk have teamed up with IBM and recently launched their blockchain trade platform TradeLens. This platform aims to connect all parties involved in the shipping trade and enables them to interact efficiently and access real-time shipping data. It will enable participants to also digitalise and exchange trade documentation using a module, called ClearWay, which will also allow for the use of smart contracts and automated processes, such as import and export clearance. In layman’s terms, this technology will allow multiple trading partners as well as authorities to establish a single shared view of each transaction. Shippers, carriers, freight forwarders, terminal operators and customs authorities can interact more efficiently through real-time access to shipping data and shipping documents.

Blockchain-based start-up CargoX recently also successfully carried out its pilot shipment for the first ever smart bill of lading. The test trail saw shipments of garments arrive in the port of Koper from Shanghai, China on August 19, 2018. CargoX claims that its services can reduce the costs associated with issuing and processing bills of lading by up to 85 per cent, as well as save time and provide a more secure way of shipping cargo. The likelihood is that widespread acceptance of blockchain technology in shipping will not happen overnight.

There are still a number of challenges which will need to be overcome, primarily the need to ensure that the law supports the technology and also protects the legitimate interests of so many parties’ involvement in the maritime chain. Another important factor will certainly be the willingness of public authorities to embrace and use this technology. We must therefore patiently wait to see as to what extent the shipping industry can take advantage of blockchain technology.

by Adrian Attard, Member of the MMLA and maritime lawyer at the marine litigation department of Fenech & Fenech Advocates

Source: Times of Malta, Maritime&Logistics Supplement

The judicial sale by auction of the Indian Empress

September 5, 2018 Leave a Comment

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.

Facts

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.

Decision

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.

Comment

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

Source: ILO

Is State aid essential to the shipping industry?

September 4, 2018 Leave a Comment

The recent long-awaited European Commission decision on the Maltese Tonnage Tax System has been welcomed by the shipping community, both locally as well as from other member states.

The European Commission rightly concluded that Malta was not abusing the European State Aid guidelines for shipping in an attempt to grow its registered fleet and hence was satisfied that Malta was not taking an unjust competitive advantage with respect to the other member states.

Furthermore, the Maltese Tonnage Tax System was endorsed by the Commission for a period of 10 years – this will create certainty and stability for owners intending to use the flag, giving them the confidence to properly plan ahead.

This article is not intended to be an analysis of Tonnage Tax Rules or how Malta has transposed them into its system. Rather, it addresses a question that has been posed to me a number of times by both colleagues and friends who are not versed in maritime law: Why should the shipping industry be afforded special tax treatment on the income it generates? And why is shipping treated differently than most other industries?

In a nutshell, State aid is granted to the shipping industry in the form of fiscal incentives that are offered to eligible owners and operators of vessels flying the flag of a European member state or operating from an EU jurisdiction. The scope behind this benefit is to attract owners to register, operate and manage their vessels within the European Union and also has the objective of increasing the tonnage registered in the EU.

In 1989, the European Commission published its first set of guidelines on the use of State aid for shipping. The primary objective of this was to create guidance and standard adherence by member states to the rules. The guidelines were also introduced on account of the fact that many owners were flagging out of the EU to jurisdictions which at the time were offering more attractive fiscal incentives and friendly environments to operate from. This legal development did not prove to be successful and there was an ever-growing trend of ship owners who opted for non-EU flags to register their vessels in, as well as non-EU jurisdictions to operate from. This led to the 1997 Communication defining new guidelines on state aid to maritime transport, followed by the 2004 commission communication which was issued, in part, to cater for further ship registries, including the Malta ship registry, which through the accession of such States in the union, were going to increase European tonnage considerably.

These two communications proved to be helpful for those member states wishing to attract shipping to their jurisdiction and were successful in enabling European member states to attract tonnage back to Europe. Historically, Greece was the first to adopt its tonnage tax rules, and others such as the Netherlands, Denmark, France and Spain followed suit.

Managing to attract and keep ship owners within the EU is important for a number of reasons, including that EU standards can be imposed on ships registered in European member states – this ensures, among other things, safer and cleaner seas and better conditions applicable to the seafarers’ rights, giving added value to the owners or operators of vessels, which are seen to confirm and adhere to the best maritime standards. Moreover, more leverage is acquired by member states with substantial tonnage to influence non-EU international players, encouraging them to adopt international conventions putting higher standards into practice. Also, as a consequence, ship management activities could employ a number of skilled and well-paid workers, ensuring the industry generates a substantial amount of income.

Non-EU jurisdictions have proved to be quite successful in attracting tonnage to their shores

Shipping is not like any other industry. Ships and their owners have, to a large degree, no real necessity to operate or flag their vessels in a particular jurisdiction. There are a number of non-EU registries having white list status, meaning that they are flags that enjoy a good reputation. Historically, these non-EU jurisdictions have proved to be quite successful in attracting tonnage to their shores and thus negatively impacting European fleet numbers.

The European Union has recognised this phenomenon and has, through the adaptation of the guidelines and its recent fine-tuning as to how such guidelines should be implemented by EU states, created much needed clarity within the industry. Issues of transparency and checks and balances have also strengthened the system and are intended to reduce any potential abuse.

In principle, aid should be given for income that is generated from pure shipping activities as defined in the guidelines and should not be afforded without some level of scrutiny. In order for the scheme to be effective, each member state adopting it must ensure that abuses are minimised and that the objectives of growth are being achieved.

The European Commission needs to monitor the behaviour of each member state offering this assistance to their shipping industry in order to ensure that there is a level playing field between EU countries and that no member state is gaining unjust competitive advantage on others. It does, however, also need to sensitise itself to the competition that its own member states are facing from third countries. In this respect, one cannot but criticise the undue delay by the Commission in providing its decision on the Maltese tonnage tax rules – a staggering five years.

The European Union and the so-called European Fleet need to be able to compete and attract more owners to their shores. This is critical not only from an economic perspective, but also because a larger fleet can exert more leverage and influence on the manner in which this industry is regulated. This, in turn, will benefit the maritime environment generally. Higher environmental standards, better working conditions and safer vessels are the bi-product of attracting more tonnage towards European shores. Ship owners who have not experienced the EU flag for a while, need to be re-introduced accordingly and understand the many benefits of operating within a European member state or flying the flag of such member state.

The ability of member states to offer State aid to the shipping industry needs to be regarded as an essential tool afforded to it by the European Union which should be exploited and utilised in order to achieve the goals and aspirations set out by the Commission. It is imperative that member states, including Malta, which boasts of being the largest register in Europe, work towards a common objective – the continued growth and influence of the European fleet and the European shipping industry.

by Matthew Attard, Vice-President of the Malta Maritime Law Association and maritime lawyer within the shipping practice at Ganado Advocates.

Souce: Times of Malta

MMLA President at UNCITRAL in New York

July 5, 2018 Leave a Comment

The President of the Malta Maritime Law Association (MMLA), Ann Fenech together with the President of Comité Maritime International (CMI) Stuart Hetherington represented CMI at the 51^st session of UNCITRAL in New York on 29^th June 2018. Also present was another CMI Executive Council member, Professor Alex von Zeigler who was the Swiss delegate representing Switzerland. Up for discussion was the Swiss Proposal to UNCITRAL suggesting that UNCITRAL should work on cross border issues related to judicial sales.

In February the MMLA together with CMI and the Ministry for Transport organized an international Colloquium on a Draft International Instrument on Foreign Judicial Sales of Ships and their Recognition, a convention drafted by the CMI, where international experts discussed the importance of having an international convention to deal with the issues of recognition of judicial sales of ships. Present for the Colloquium were representatives of the entire maritime and trading industry including ship owners, charterers, financiers, suppliers of provisions and bunkers, flag registries and representatives from BIMCO, FONASBA, the ITF as well as legal practitioners and maritime service providers from around the world. The conclusions of the Malta Colloquium formed the basis of a report attached to the Swiss Proposal requesting UNCITRAL to take on the work.

The CMI are delighted to report that notwithstanding a number of other proposals put to UNCITRAL for future work, the Swiss proposal for work on recognition of judicial sales was one of two proposals accepted by UNCITRAL. UNCITRAL therefore mandated one of its working groups to take on this project. It is expected that work on this will commence as soon as one of the working groups finishes its current assignment.

Member of the Comité Maritime International

Regulating autonomous ships

Smart shipping – Blockchain technology offers the opportunity to revolutionise the shipping sector

The judicial sale by auction of the Indian Empress

Is State aid essential to the shipping industry?

MMLA President at UNCITRAL in New York

Contact Us

Join Us

International Events