Elizabeth Ayling, Author at Malta Maritime Law Association

Malta & the Nairobi Convention on the Removal of Wrecks (2007)

March 11, 2015 Leave a Comment

On the 18th January 2015, Malta ratified the Nairobi International Convention on the Removal of Wrecks 2007, (hereinafter referred to as ‘the Nairobi Convention’ or ‘the Convention’). The Convention enters into force internationally on the 14th of April 2015.

The Nairobi Convention is the first to establish a set of uniform international rules which ensure prompt and effective removal of wrecks. The Convention imposes an obligation on ship-owners that operate vessels flagged with States that are parties to the Convention or whose vessels enter ports of any of the said countries to insure against their vessels becoming wrecks. Upon entry into force, Maltese ships of 300 gross tonnage or more, will be required to have certification on board to serve as evidence that insurance is in place to cater for wreck removal. Apart from applying the Nairobi Convention to Malta flagged vessels, Malta has declared that it will also apply this Convention to wrecks located within its territory, including the territorial sea regardless of flag.

The Legal Notice (‘the L.N.’) transposing the Nairobi Convention into Maltese law has been drafted and is expected to come into force in the very near future. Once the L.N. is published, the ‘Wreck Removal Certificates’ will start to be issued by Transport Malta (TM) with an effective date, however, that will post date the L.N., namely the 14th April 2015. Wreck Removal Certificates will start to be issued by TM to ship owners of Maltese flagged vessels
who take the necessary steps to fulfill their obligations under the L.N. before the 14th April 2015. Owners fulfill their obligations, inter alia, by submitting proof that insurance against the risks contemplated in the Convention has been obtained (i.e. the relative ‘blue card’ issued in terms of the Convention to the Maltese Flag Administration). TM is inviting owners to start submitting the said blue card even at this very early stage, even though the L.N. has not yet been made law.

It is essential that owners of Maltese flagged vessels have in place an insurance policy which is effective as from the 14th April 2015 and should allow enough time for the said blue card to be submitted to the Malta Flag Administration to enable the relative Wreck Removal Certificate issued by the Flag Administration in terms of the Convention to be released and placed on board the ship by the 14th April 2015.

So far 16 States have ratified the Convention, and these include: Antigua & Barbuda; Bulgaria; Congo; Cook Islands; Denmark; Germany; India; Iran; Liberia; Malaysia; Malta; Marshall Islands; Morocco; Nigeria; Palau; United Kingdom. While several countries, including Norway are expected to ratify the Conventions, notably, large flags such as Panama have not yet ratified the Convention.

Any ship, even if flagged with a non-contracting State, entering ports or the territorial waters, as the case may be, of any contracting State to the Convention that has opted to apply the Convention, within its territorial seas (such as Malta), must necessarily have on board a Wreck Removal Certificate, regardless of the fact that the respective vessel is flagged with a State not a party to the Convention. Ship owners flagged with non-contracting States who require Wreck Removal Certificates because they operate their vessels in such territorial seas or ports, may apply to the Malta Flag Administration for the latter to issue them with the Wreck Removal Certificates after they submit the relative blue card to the satisfaction of the Flag Administration. Malta has indicated its willingness to issue Wreck Removal Certificates to such owners.

Contributed by:
Dr Jotham Scerri Diacono, Partner at GANADO Advocates
& Ms Rachel Genovese

Malta: Court Approved Private Sale

March 7, 2015 Leave a Comment

Source: Fenech & Fenech Advocates

As Maltese legal practitioners, we have for years been harping on the high standards of and comfort which Maltese law offers the mortgagee however it was the recession of 2008 which tested whether the system was as robust as we had been saying it was.

In 2006, our Code of Organisation and Civil Procedure underwent a radical shake up when it came to laws governing the jurisdiction of our courts in rem, arrest of ships and enforcement mechanisms. As far as the latter is concerned, 2006 saw the introduction of the “Court Approved Private Sale”. The advantage was that the mortgagee (who under Maltese law can proceed directly with enforcement) could himself source a private buyer at the highest possible agreed price; enter into an MOA with the private buyer, request the court to approve the sale and on court approval, the vessel would be sold free and unencumbered. This is a huge advantage because it enables the mortgagee to negotiate the best price for the benefit of creditors and owners whilst giving the buyer peace of mind because he is purchasing the vessel free and unencumbered

The first to test the new procedure was Danske Bank in 2010 in Ann Fenech for and on behalf of Danske Bank A/S v Thor Spirit (App. no 1135/2011). Since then there have been 11 applications before the court for the approval of a private sale, 10 of which were granted and one revoked after it was granted. Applicants must provide two valuations based on a physical inspection and must show that a genuine effort was made to get the best price for the vessel and that known creditors were made aware of the procedure.

The system has worked exceptionally well with all the applications coming before the same judge Mr. Justice Mark Chetcuti who has been instrumental in developing a process of the highest standard, totally transparent and in synch with the spirit of the law as drafted.

The end result has been an evolving yet consistently speedy, efficient and transparent remedy for mortgagees in the face of a defaulting owner. Applicants who have benefitted from this remedy include some of the largest maritime lenders such as, Danske Bank A/S, Commerzbank Aktiengesselschaft, Pireaus Bank AE, Rietumu Banka, Amsterdam Trade
Bank N.V, Hyundai Heavy Industries Co. Ltd, Macquarie Bank Limited and Bank of America.

One series of sales that hit the international headlines was those relating to vessels in the beneficial ownership of Today Makes Tomorrow – TMT. Three of the ships in the TMT operated fleet, the A Ladybug, the B Ladybug and the D Ladybug found themselves abandoned in Maltese territorial waters. The crew was effectively abandoned and remained unpaid with no provisions or fuel. This led to a serious concern on the part of the Maltese port authorities because these state of the art car carriers of circa 72,400 gross tons each were anchored 12 miles out exposed to the elements.

Applications were filed by Macquarie Bank Limited, Hyundai Heavy Industries and Bank of America respectively and it is thanks to their financial strength and seriousness that they were in a position to appoint managers who took care of the crew and ensured that the vessels were provisioned and fuelled and who gave the port authorities peace of mind with regard to their own safety and the safety of other vessels also at the same anchorage. These cases showcased the optimum results that can be achieved for the good of the owner, creditors, crew, ITF and port authorities when things are done in an orderly and organised fashion which ultimately was possible thanks to the procedure available under Maltese law.

The Ladybug cases also showcased another interesting element which was how the US Bankruptcy court can and will grant leave for the court approved private sales of such vessels, even when the assets of the bankrupt party are part and parcel of US Chapter 11 procedures.

Bunkers excluded from judicial sale on basis of retention of title clause

February 11, 2015 Leave a Comment

Contributed by Fenech & Fenech Advocates

Introduction
As the last few months have shown, the bunkering industry is volatile and risky. As such, bunker suppliers seek to include favourable terms which will assist them if a deal goes wrong. These contractual precautions range from favourable applicable law and jurisdiction clauses to the imposition of retention of title clauses. Under these clauses, parties will normally agree that the bunker supplier retains ownership over all bunkers furnished until the
buyer has paid in full.

In a recent decision the Civil Court upheld a request to have bunkers supplied to the defendant vessel excluded from a court-approved private sale on the basis that retention of title clauses existed, which governed the supply of the bunkers.

Facts
In Dr Ann Fenech noe v Vessel MV D Ladybug,(1) the court had to determine whether to grant the mortgagee bank’s request to order the private treaty sale of Ro-Ro vessel MV D Ladybug to an interested buyer. A court-approved private sale grants the new owner clean title over the vessel (similar to that afforded pursuant to a judicial sale by auction). Thus, any claims against the vessel are limited to the purchase price, which is deposited with the court.

A vessel sold via a court-approved private sale is generally sold as is (ie, with everything on board, including equipment, machinery and appurtenances), unless a party comes forward with a legitimate claim of title over any of the machinery or equipment (eg, in the courtapproved private sales of the sister ships MV B Ladybug(2) and MV A Ladybug,(3) the court excluded some on-board trailers from the sale of the vessels after a third party provided legitimate proof that it was the owner of the trailers).

In D Ladybug the owners had ordered several consignments of bunkers, all of which were furnished by two local suppliers while the vessel remained under arrest in Malta. The mortgagee bank paid the outstanding amounts due to the bunker suppliers, as the owners had defaulted on their payments. Simultaneously, the mortgagee bank entered into subrogation agreements with the suppliers.

During the court-approved private sale proceedings, the bank acted as both:

a creditor enforcing its mortgage and requesting the court’s approval for the private
sale of the MV D Ladybug; and
the party subrogated to the rights of bunker suppliers, which were requesting that the
bunkers be excluded from the sale.

The bank successfully argued that the bunkers were not part of the debtor’s property (ie, the ship) on the basis that the terms and conditions of both physical suppliers contained retention of title clauses, whereby the bunker suppliers retained ownership over all bunkers until the buyer had paid in full. The bank also relied on a recent amendment to the Commercial Code, which grants parties the statutory right to reach agreements on retention of title clauses.

While the inclusion of Article 26H of the code would seemingly quash any debate regarding
the enforceability of retention of title clauses or otherwise under Maltese law, it has rarely
been tested; and until this case, it had never been used in the context of bunkers. The bank
also argued that since it had been subrogated to the rights of the suppliers, it could avail itself
of those rights.

Decision
The court agreed with the bank and excluded the bunkers from the sale, providing the bank with two options: debunker the vessel or sell the bunkers to the interested buyer. The bank opted for the latter. To the bank’s benefit, the proceeds from sale of the bunkers did not need to be deposited with the court alongside the funds from the actual sale of the debtor’s vessel. Likewise, the amount received for the bunkers was not subject to any distribution
proceedings.

Comment
Before this landmark decision, the issue of retention of title clauses with regard to bunkers was unclear. Indeed, the only other court rulings regarding the exclusion of bunkers reached the opposite conclusion. Admittedly, the facts were somewhat different and the issue related to bunkers purchased by the charterers, which were on board when a creditor requested the judicial auction of the MT Pacific Future.(4) The court concluded that the bunkers on board should be excluded, despite the charterers’ claims that the bunkers were ultimately their property. The court further concluded that the charterers should not be treated differently from other creditors and all claims (including claims regarding bunkers) should attach to any eventual sale proceeds and rank according to law. However, arguably, this conclusion may have been somewhat superficial, as when considering the charters’ claims for the bunkers, the court stopped short of distinguishing between those bunkers which were consumed and those which were still physical on board. Therefore, this verdict may have prejudiced the charterers’ rights over their own property.

MV D Ladybug demonstrates that the inclusion of retention of title clauses can help to
mitigate any possible losses in relation to bunkers.

For further information on this topic please contact Adrian Attard at Fenech & Fenech
Advocates by telephone (+356 2124 1232), fax (+356 2599 0645) or email adrian.attard@fenlex.com. The Fenech & Fenech website can be accessed at fenechlaw.com.

Endnotes
(1) Civil Court (First Hall), Application 741/2014, delivered on October 8 2014 by Justice
Mark Chetcuti.
(2) Civil Court (First Hall), Application 179/2014, delivered on April 8 2014 by Justice Mark
Chetcuti.
(3) Civil Court (First Hall), Application 227/2014, delivered on April 28 2014 by Justice Mark
Chetcuti.
(4) Civil Court (First Hall) – Application 552/2013/1, delivered on June 11 2013 by Justice
Jacqueline Padovani Grima.

Inland-waterway vessels

October 13, 2014 Leave a Comment

Source: Paul Gonzi in ‘Times of Malta’, 13-10-14

The ever growing number of Malta-flagged vessels is evidence of the robust framework within which the Maltese ship-registry operates, comprising sound legislation and practical procedures which continue to meet best industry standards.

Malta, as a member of the EU as of 2004, makes every effort to meet international obligations, attested as of recent by the ratification of the 2006 Maritime Labour Convention (MLC) and the transposition of the convention’s provisions into the Laws of Malta by means of the 2013 Rules – the Merchant Shipping, Maritime Labour Convention) Rules applicable primarily to commercial seagoing vessels.

In today’s global industry, the protection of seafarers working (and often residing for long periods) on board vessels has progressively become of paramount importance, and is regulated by a number of legislative instruments, not least the aforementioned MLC and other EU legislation, such as Council Directive 1999/63/EC which puts into effect the 1998 Agreement on Working Time of Seafarers (concluded between the organisations representing management and labour in the maritime sector among the EU member states) which is also applicable to seagoing ships.

Effectively, within the EU, the working-time for workers is, to date, primarily regulated by means of the Working Time Directive (2003/88/EC) which sets minimum standards to protect the health and safety of workers. This directive is currently transposed into the Laws of Malta by means of Subsidiary Legislation 452/87 entitled ‘The organisation of working time regulations’ which sets rules on daily rest, breaks, weekly rest and duration of night work, among other things.

The Working Time Directive also makes reference to transport sectors and to inland waterway transport; however, it has over the years been argued that it does not take the specific working and living conditions of navigational crew members and shipboard personnel engaged on board inland waterway vessels in the sector sufficiently into account. Indeed, exceptions to mobile workers working on such vessels are provided for also under the
SL 452/87.

Thus it has been concluded by the European Commission that more sector-specific rules are necessary, this particularly in light of the fact that working time on board such vessels may vary depending on the way in which work is organised, the operations concerned, the geographical location and the cross-border nature and the length of the particular voyages which may vary from continuous sailing (24/7) to short-term day voyages.

The Commission has concluded that such rules are necessary to balance out the protection of the seafarer’s health and safety, with the reality that many seafarers on such inland waterway vessels must spend consecutive days working and residing on the vessel often with long on-call time – effectively requiring working time which exceeds the maximum times specified in the Working Time Directive.

Indeed Directive 2003/88/EC does allow for a sectoral approach to be taken in certain circumstances, with the possibility for separate provisions to be adapted to the specific needs of different transport sectors, as has occurred in the case of civil aviation, rail transport and general seafarers engaged on commercial sea-going vessels.

Therefore, given the particular needs of the inland waterway industry, in July 2014 the European Commission presented a proposal aimed at setting specific rules on working time for the inland waterway transport sector which would implement a 2012 agreement reached by EU-level representatives of employers and employees in this sector including the European Transport Workers Federation, the European Barge Union and the European Skippers Organisation. The agreement sets minimum rules on working time for passenger or cargo transport ships in inland navigation across the EU.

Thus, under the proposal for a directive, the European Commission has suggested, among other things, that the total working time for such workers would not exceed 48 hours per week, though this could be averaged over up to 12 months and the total night working time would not exceed 42 hours per week.

In addition such workers would be entitled to at least four weeks’ paid annual leave, and to paid annual medical tests, together with an entitlement of at least 10 hours daily rest (with at least six hours uninterrupted) and to at least a total weekly 84 hours of rest.

The proposal may be found on the web portal of the EuropeanCommission. Indeed, the impact of such proposed Directive on the Laws of Malta, and in particular on Malta-flagged inland waterway vessels, whether of a passenger or cargo transport nature, is
yet to be determined.

Nevertheless, one can expect that such amendments will continue to strengthen the Maltese
maritime registry as a reputable flag which on the one hand benefits ship-owners yet without
compromising the rights of seafarers.

Paul Gonzi is a lawyer specialising in employment, data protection and ICT law at Fenech &
Fenech Advocates. Email: paulgonzi@fenlex.com.

Authorities launch guidelines on tax treatment of charters

August 21, 2013 Leave a Comment

Contributed by Fenech & Fenech Advocates
ILO – August 21 2013

Following similar announcements recently made by France and Italy, on July 29 2013 the Maltese authorities published the Guidelines for the Value Added Tax (VAT) Treatment of Short-Term Yacht Chartering. The guidelines address situations in which a short-term charter of a yacht with a crew (or on a bareboat charter basis) is entered into between the owner or operator and the charterer for a consideration.

In terms of Article 56(1) of EC Directive 2006/112 on the common system of VAT, the place of short-term hiring of a means of transport is deemed to be the place where the means of transport is actually put at the disposal of the customer. Article 56(2) provides that in the case of vessels, ‘short-term’ shall mean the continuous possession or use of the means of transport throughout a period of not more than 90 days.

The short-term charter of a yacht to be used for leisure purposes is a supply of a service that is taxable at the standard rate of VAT at the place where the yacht is placed at the disposal of the customer. Therefore, where the yacht is placed at the disposal of the customer in Malta, the charter would be subject to VAT at the standard rate of 18% on the hire that is paid by the charterer to the owner by way of consideration.

Under these guidelines, subject to a number of conditions stipulated by the guidelines themselves and any further conditions that may be imposed, this supply may be taxed according to the portion of the yacht’s use within the territorial waters of the European Union. This is based on Article 59a of EC Directive 2006/112, which provides that member states may consider the place of supply of yachts capable of international travel as being situated
outside the Community if the effective use and enjoyment of the services or part thereof takes place outside the Community.

Since it is difficult to determine the physical movement of a yacht in order to establish the period that the yacht spends within the territorial waters of the European Union and that it spends outside territorial waters of the European Union, the guidelines provide that an acceptable measure would be the length of the yacht and its method of propulsion. The guidelines then establish the estimated percentage proportion of the charter, based on the time
that the yacht is used within the territorial waters of the European Union. The standard rate of VAT at 18% is applied to the established percentage of the charter deemed to relate to its use within EU territorial waters. By way of example, sailing or motor yachts over 24 metres in length would be susceptible to taxation on 30% of the hire that is paid on the charter.

Following the submission of a number of documents to the VAT department – which include, but are not limited to, evidence that the owner or operator of the yacht is registered to VAT in Malta, details of the yacht and a copy of the charterparty – and provided that the conditions established in the guidelines and any other further requirements stipulated by the director general of VAT are met to the latter’s satisfaction, the applicant would be informed in writing of the applicable proportion of the charter fee that would be subject to VAT. Prior approval must be sought in writing from the VAT department and each application will be considered on a case-by-case basis.

The subject of yacht charters sees a coupling of Malta’s steadily increasing reputation as a yachting hub on a legislative front with the attractiveness that it may offer those seeking an alternative cruising ground in the Mediterranean. While the concentration of yacht charters has traditionally and will remain scattered along the French Riviera, as a result of its unique location and proximity to Sicily and Tunisia, Malta undeniably offers a fascinating option as the starting point to a charter holiday in the Mediterranean.

For further information on this topic please contact Alison Vassallo at Fenech & Fenech
Advocates by telephone (+356 2124 1232), fax (+356 2599 0645) or email alison.vassallo@fenlex.com.

Member of the Comité Maritime International

Malta & the Nairobi Convention on the Removal of Wrecks (2007)

Malta: Court Approved Private Sale

Bunkers excluded from judicial sale on basis of retention of title clause

Inland-waterway vessels

Authorities launch guidelines on tax treatment of charters

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