MMLA Admin, Author at Malta Maritime Law Association

Commercial Yacht Code 2020

December 1, 2020 Leave a Comment

We are pleased to announce that the Merchant Shipping Directorate within the Authority of Transport in Malta has rolled out its 4th edition of the Malta Commercial Yacht Code 2020 (Code) which updates and replaces the Commercial Yacht Code 2015 (CYC 2015).

The substantial increase in the number of superyachts which the Malta flag has continued to lure to its Register has seen the Merchant Shipping Directorate being sensitive to the fast-changing technological developments which this particular industry attracts. Drawing on its own experience of an already well established yachting industry and heeding the technical and commercial advice of yacht builders, repair yards, Classification Societies and industry stakeholders at large, the Merchant Shipping Directorate has come up with an improved Code that mirrors the yachting industry’s realities and ensures a greener and safer commercial yacht fleet for the Malta flag.

The Code comes into effect as of the 1st January 2021 however for existing yachts certificated in accordance with the CYC 2015, compliance with the new Code shall be by not later than the yacht’s first periodical survey carried out after the 1st June 2021.

The amendments and additions introduced by the Code are several and varied and largely seek to enhance the safety aspects of commercial yachting as well as to cater for the particular technological market demands of the industry – all this in conformity with safety and international regulations and standards.

The revisions, all of which are conveniently listed in Annex 1 of the Code, provide, inter alia, for improvements on the safety of passengers at sea, the well-being of the seafarers engaged onboard, the enhancement of the structural aspects of yachts, the provision for innovative designs and requirements covering electrically powered and/or hybrid engines and plants. The Code further provides for the improvement of the protection of the marine environment by introducing the requirements of the Ballast Water Management Convention and furthermore dedicates a section of the Code to the design, construction and safety of Helicopter Landing Areas.

More specifically, amendments made relate to the following sections:

• Definitions (Section 2), • Application and Interpretation (Section 3), • Structural Strength and Watertight Integrity (Section 4), • Rigging on Sailing Yachts (Section 5) • Machinery (Section 6), • Electrical Installation (Section 7), • Intact and Damage Stability (Section 8), • Life Saving Appliances (Section 10), • Fire protection (Section 11), • Equipment (Section 12), • Maritime Labour Convention 2006 (Section 13), • Protection of Personnel (Section 14), • Navigation and Communication (Section 15), • Marine Pollution Prevention section (Section 16), • Manning and Crew Certification (Section 17), • Medical Stores (Section 19), • Survey and Certification (Section 20), • Tenders and Ancillary Craft (Section 22), • Static Chartering (Section 23), • Helicopter Landing Areas (Section 24).

By Rowena Grima and Stephanie Farrugia, Fenech & Fenech Advocates

Source: Lexology

The enforcement of the EU Ship Recycling Regulation with regards to the Inventory of Hazardous Materials in light of COVID-19 Restrictions

November 25, 2020 Leave a Comment

One of the principle purposes of the European Union Regulation 1257/2013 on ship recycling (the “Regulation”) which came into force in December 2019, is to ensure that hazardous waste from resulting from ship recycling is subject to environmentally sound management.

The Regulation obliges all new ships^[1] to carry on board an inventory of hazardous materials, which shall identify at least the hazardous materials contained in the structure or equipment of the ship, their location and approximate quantities (the “IHM”). All existing EU flagged ships and non-EU flagged ships calling to an EU port or anchorage will be required to carry the IHM together with a certificate of compliance on-board as of the 31 December 2020.^[2] In terms of Article 8(4) of the Regulation, an initial survey is to be carried out on all existing ships by the 31^st December 2020 in order to certify that said ships are complying with this obligation.

A number of stakeholders in the shipping industry have advised the European Commission that the lockdown measures and the widespread travel restrictions imposed in various EU Member States in order to curb the spread of COVID-19 have prevented ship owners (or their registered agents) from producing their IHM and have also created major difficulties for flag state surveyors to conduct inspections in order to verify and certify IHMs held on-board. It is being estimated a substantial number of ships will not be compliant with the IHM obligations and would not have the necessary certificates in place by the 31^st December 2020.

In response to this, the European Commission has issued a set of guidelines to EU Port State Authorities in order to ensure a harmonised approach during ship inspections as from the 1^st January 2021^[3](the “Commission Guidelines”).

General Guiding Principles

Primarily, the Commission Guidelines first refer to a set of guidance notes published by the European Maritime Safety Agency on inspections carried out by EU port states to enforce provisions of the Regulation^[4] (the “EMSA Guidance”). Specifically within the context of enforcement actions to be take in the event of ship-recycling related non-compliances, the EMSA Guidance provides that an inspector should be satisfied that any ship recycling-related non-compliances confirmed or revealed by the inspection are, or will be, rectified in accordance with the Regulation. The EMSA Guidance furthermore emphasises that an inspector should use professional judgement in order to decide the appropriate action(s) to be taken for any identified ship recycling-related non-compliance. The Commission Guidelines encourage EU Port State inspectors to take heed of the general guiding principles provided in the EMSA Guidance in view of any identified non-compliances with respect to the IHM obligations which may result from the COVID-19 crisis.

Specific guidance in relation to COVID-19

The Commission Guidelines identify two specific COVID-19 related scenarios which EU Port State authorities are likely to come across when enforcing the Regulation which may require a certain harmonised approach.

Vessels without a valid IHM and/or accompanying certificate due to COVID-19

In this case it is incumbent on the ship owner and/or master of the ship to prove that all possible measures were taken to prepare the IHM and obtain the required certification.^[5] Such proof would include providing a service contract for the survey of the vessel to take place. It is then up to the inspector to determine whether the justification provided by the ship is acceptable on a case-by-case basis depending on the circumstances of the ship.

Where the inspector is of the view that the evidence provided is sufficient, the ship has four months, from the date of inspection, to ensure that the IHM and/or accompanying certificate are duly completed. In this case, the inspector will issue a warning to the vessel and register it in the ship recycling module known as THETIS-EU. If the plan set out is further impacted due to continuing travel or access restrictions due to the pandemic, it is the responsibility of the master and or ship owner to prove that it was not feasible to meet the initial targets set out. The inspector will then determine whether the explanation provided is enough to merit a re-evaluation of the initial plan.

In the case of the Ready for Recycling Certificate, the inspector will issue a warning to the ship owner and/or master to obtain the certificate before entering the ship recycling facility. Since this certificate is only valid for 3 months, it should be completed at the earliest prior to the ship undertaking its last voyage to the yard. This warning should also be registered in the THETIS-EU.

Vessels with a semi-completed IHM with an associated approved Inventory Certificate or Ready for Recycling Certificate or the Statement of Compliance that does not contain on-board sampling

In this particular scenario, the ship would have an IHM and relevant certificate which was prepared remotely without on-board sampling due to restrictions on conducting on-board inspections during the pandemic.

In principle where a certificate is based on an IHM without on board sampling, this should not be accepted as it would not be deemed to be complete. However, in view of the difficulty of inspectors to go on-board ships and conduct the inspections themselves, remote surveying could be accepted if it is shown that the flag state is in agreement. The ship will need to document plans and arrangements for when it will be possible for on-board inspections to take place. Again, it is for the inspector to determine whether the proof provided by the ship owner and/or master is sufficient.

The Commission Guidelines provide that the harmonised approach is to be applied for an initial period of 6 months from the 31 December 2020 up to the 30 June 2021.

Steps Taken by the Malta Flag

On the 27 October 2020, by means of Merchant Shipping Notice 163, the Malta Flag Administration formally notified ship-owners, ship operators, managers, masters, and owners’ representatives and recognised organisations of Maltese flagged vessels of the said Guidelines. In its notice, the Malta Flag Administration, while referring to the IHM obligation, which comes into force on the 31 December 2020, explained to operators of Malta-flagged vessels that the Guidelines provide guidance in the light of the disruptions that may have been caused by COVID-19, for a harmonised approach towards enforcement by the EU port States authorities during ship inspections carried out as from the said deadline.

The Flag Administration, while recalling the EMSA Guidance, highlighted that this reference document also provides both technical information and procedural guidance contributing to the harmonised implementation and enforcement of the provisions of the Regulation and the Port State control Directive.^[6]

The Maltese shipping community was also reminded of Merchant Shipping Notices No.147 and 153 concerning the implementation of the Regulation.

The attention and cooperation of all parties concerned was encouraged in order to ensure the uninterrupted operations of Maltese ships.

By Jotham Scerri Diacono and Saman Bugeja, Ganado Advocates

Source: Lexology

Refinancing Malta-flagged cruise liners

November 5, 2020 Leave a Comment

At the start of 2020, the new decade was forecast to herald a boom for the global cruise liner industry. However, COVID-19 lockdown measures imposed across the globe have significantly disrupted cruise ship operations and the financing arrangements between financiers and cruise liner companies, as borrowers, under traditional facility agreements.

COVID-19’s impact on shipping industry

The ongoing COVID-19 pandemic has had a major effect on global shipping, affecting all sectors – from passenger ships to container ships and oil tankers. Unlike general commercial shipping activities which have continued to function at reduced levels, cruise line operators were faced with an unprecedented total shutdown of operations almost overnight. In addition to the loss of income-generating capacity, operators have been confronted with the additional burden of liability claims for the return of deposits for cancelled holidays.

The industry reacted to this extraordinary situation by seeking ways to weather the storm until operations could return to normal in order to avoid defaults under loan facilities and deferred or even cancelled orders in the case of new-build vessels. In either case, this would have been detrimental to the parties concerned and the economies of many cruise shipbuilding nations (eg, Germany, Italy, France, Norway and Finland).

Actions taken to mitigate losses

Anxious to avoid such a situation and maintain the good standing of cruise liner companies during the suspension of operations, financiers have been quick to offer debt restructuring solutions to borrowers to fill the liquidity void. At the local level, the most common refinancing exercise involving Malta-flagged vessels is the renegotiation of debt holidays. By virtue of such debt holidays or debt repayment extensions, cruise liner companies have been granted the opportunity to defer payment obligations, thereby giving them the means to better manage their cash flow during periods of no or limited revenue without giving rise to debt forgiveness.

As they operate in the most heavily affected sector of the shipping industry, cruise line operators were among the first to look towards negotiating such payment holidays. As such, these have been consistently negotiated since March 2020 as the deliveries of 2020 new-build vessels have been rolled out. However, these payment holidays are not available across the board as certain facility agreements include as an event of default instances where the borrower commences negotiations with one or more of its creditors with a view to rescheduling its indebtedness. This is frequently the case where cross-guarantees are in place or a company has multiple facilities.

With respect to borrowers which do not have such restrictions in their facility agreements, Malta-flagged vessels have witnessed increased activity in this area as debt holidays have given rise to refinancing scenarios that require the execution of fresh security over the secured vessels. While debt holidays may vary in the way in which they are provided, a common example has been the provision of additional finance from the same lender to repay the borrower’s commitments up to a period of one year, with the corresponding obligation of the borrower to repay a premium over and above the outstanding loan. This scenario would necessitate the registration of an amendment mortgage or second priority mortgages to secure the new amounts advanced or obligations that are being created.

With the cut-off period for moratoriums approaching, there is growing concern within the cruise liner industry about the ramifications of a continued depressed environment in the fourth quarter of 2020. Major cruise liners operating in the United States have agreed to continue the suspension of their cruise operations until at least 31 October 2020. Meanwhile, Malta cruise liner companies have resumed limited operations in a concerted attempt to restart economic motors. However, the safety measures imposed and lack of consumer trust with respect to safety have led cruise ships to operate at a lower capacity than needed to stem the continued haemorrhaging. The international climate has led stakeholders to suggest that cruise liner companies will almost certainly require extended debt holidays come Spring 2021 and that such extended debt holidays may even be voluntarily offered by financiers.

The extension of payment holidays will likely depend on several factors, including longstanding relationships between financiers and cruise liner companies and their proven reliability in times of crisis – which may be ascertained from the borrower’s proactive approach during the current and previous downturns. As with most industries, COVID-19’s continued impact on the cruise liner industry in the fourth quarter of 2020 will be fluid.

Comment

As a natural reaction to the debilitating effects of the pandemic, the new-build cruise liner market for deliveries post-2022 has all but ceased. Yet, the shipping industry is clearly better positioned to withstand the current market slowdown than it was during previous market meltdowns. Financiers are motivated to help the industry through the financial consequences of travel restrictions and health issues and there is reason to believe that the availability of deferred payment obligations until Spring 2021 will be extended further. These extensions will almost certainly be essential to carry the industry through what is forecast to be another difficult year and will go a long way in instilling renewed optimism in an industry facing its most severe downturn in history.

by Peter Grima, Fenech & Fenech Advocates

Source: Lexology

Update on yachting procedures

September 2, 2020 Leave a Comment

Malta has always been at the forefront of offering solid, reliable solutions to yacht owners depending on their individual requirements and the intended use of their yacht. The first half of 2020 has seen the introduction of updated rules affecting operating leases and streamlined importation procedures, offering owners the possibility of availing themselves of a number of solutions and procedures catering to their individual requirements. Given the delay in the season due to the COVID-19 pandemic, this article highlights these developments for owners that are taking delivery of or importing their yachts over the coming months.

Improved importation procedures

For many years Malta has offered an efficient and attractive procedure for the importation of commercial yachts that are intended to be brought into free circulation within the European Union so as to enable them to carry out their chartering season in the Mediterranean. The introduction of the following measures earlier in 2020 was intended to further strengthen the procedure governing the importation of commercial yachts in Malta:

Deferment of value added tax (VAT) on the importation of commercial yachts by Maltese owning entities with a Maltese VAT registration without the requirement of the importing entity setting up a bank guarantee as required in the past.
Deferment of VAT on the importation of commercial yachts by EU owning entities with a Maltese VAT registration provided that the company appoints a VAT representative in Malta in terms of Article 66(2)(b) of the VAT Act without the requirement of the importing entity setting up a bank guarantee as required in the past.
Deferent of VAT on the importation of commercial yachts by non-EU owning entities on provision by the importing entity of a bank guarantee in an amount equivalent to VAT on 0.75% of the value of the yacht which would in all cases be subject to a cap of €1 million.

Updated guidelines relating to use and enjoyment by yacht lessees

On 12 March 2020, the commissioner for inland revenue published revised guidelines regarding the place of supply of the hiring of pleasure yachts. The guidelines establish the manner in which the use and enjoyment of such pleasure yachts is to be treated for VAT purposes.

While the general principle is that full taxation in Malta applies where the place of supply of the service is determined to be Malta, the guidelines provide for a method of adjustment based on the actual effective use and enjoyment of a pleasure yacht in and outside EU waters. The revised guidelines establish that this is to be calculated by reference to the period of time when the pleasure yacht is used and enjoyed outside EU territorial waters.

For the purpose of applying the guidelines, the lessee must provide the lessor with documentary or technological data to determine the actual effective use and enjoyment by the lessee of the pleasure yacht in and outside EU territorial waters during the lease period.

The guidelines may be used within the context of operating leases that are set up under Maltese law.

Updated practices in application of operating leases

Malta has built a formidable reputation in catering to owners’ needs while constantly taking into account industry practice and legal developments. This has led to Malta being a go-to jurisdiction for the setting up of operating leases. Such operating leases are formulated in accordance with best practices to ensure compliance with EU interpretations and European Court of Justice judgments and would generally comprise the following principles:

A Maltese shipping organisation would be set up as the owner of the yacht (the lessor), which would lease the yacht to another entity (the lessee).
The place of supply of the yacht would be Malta.
The yacht would be available to a lessee for consideration for a specified period.
General principles relating to intra-community supplies and importations at the time of acquisition of the yacht by the lessor and place of supply rules at the time of the supply of the yacht to the lessee will apply.
The lease period and the consideration paid to the lessor by the lessee for the use of the yacht are commercial decisions that are established contractually between the parties.
Such decisions would be based on an assessment of the type of yacht involved, its specifications and value, together with the prevailing market conditions.
The lessee would pay VAT on a quarterly basis on the monthly lease instalments to the lessor.
Subject to a number of conditions being satisfied, the VAT department would, on a request to that effect, issue a letter confirming that the lessor has declared and is accounting for VAT on the lease of such yacht in Malta.

By Alison Vassallo at Fenech & Fenech Advocates www.fenechlaw.com.

Source: ILO

Malta’s role in ship recycling and its impact on environmental protection

August 24, 2020 Leave a Comment

Ship recycling has recently taken a front seat both from a commercial perspective and a legal perspective. With an increasing number of ship owners choosing to recycle their vessels, recycling regulations continued to receive more attention.

The regulation of ship recycling in Europe has come a long way since the EU brought into force rules and regulations modelled on the Hong Kong Convention,[1]. The Hong Kong Convention[2] and likewise EU legislation is aimed at ensuring that ships, when being recycled after reaching the end of their operational lives, do not pose any unnecessary risks to human health, safety and to the environment.[3] The EU’s rules and regulations specifically tackling ship recycling are contained in the EU Ship Recycling Regulation[4], which came into force only recently in December 2019. With the regulation of ship recycling becoming more complex, ship owners seeking to recycle their vessels should ensure strict compliance with all applicable provisions, given that violations in this legal sphere can lead to severe consequences.

The EU Ship Recycling Regulation has full legal effect in Malta as a member state of the EU. However, it is not the Law alone that makes Malta an ideal location from which to organise and facilitate the recycling of ships. The islands’ geographical location in the centre of the Mediterranean together with the business-friendly, can-do approach of the local authorities also plays an important part. Indeed, some may say that it all starts with geography and not with the Law.

Recycling of ships consists in a “chain of events” starting with the consideration and decision of the owner to scrap a vessel to the final event when the vessel is broken up by the scrapyard and the constituent parts of the ship recycled, disposed, demolished, or reused, according to set rules. Although the Maltese Islands themselves do not provide facilities for the recycling of vessels, Malta nevertheless has a role to play, in that the Islands serve as a platform from where the recycling process can be “launched”.

Two Distinct Scenarios

There are two distinct scenarios, very different from each other, where Malta plays a key role in the recycling process. These scenarios have different legal treatments. One scenario relates to those owners that operate non-EU flagged vessels that are in Maltese waters[5] at the point when the decision is taken to recycle the vessels. The second scenario relates to owners of Malta-flagged vessels, generally, wherever they happen to be, that intend to scrap their vessels.

Non-EU Flagged Vessels situated in Maltese Waters

In the first category of cases, ship owners of non-EU flagged vessels in Malta are to submit a notification to the competent authorities in the vessel’s (last) port of call (Malta), being the port where the decision to recycle takes place. Owners will be subject to the rules established under the Maltese Waste Management (Shipments of Waste) Regulations[6] as well as the Waste Shipment Regulation[7] which is directly applicable in Malta in view of it being an EU Member State. Both Maltese Law and the relative EU legislation adopt or derive inspiration from the Basel Convention[8]. The process of recycling vessels under the waste management rules, sees the vessels change their designation in Malta from seagoing vessels into ‘waste’, to be afterwards shipped to their final destination outside Malta for demolition, reuse, recycling, and disposal.

Exporting waste from Malta in accordance with the said legislation ensures that ships are demolished conscientiously and with high regard to the protection of the environment and this, in turn, serves to safeguard a companies’ international reputation at a time when environmental responsibilities are high on the agenda. The entire process happens under the careful watch of the Maltese environmental authorities who have, along the way, adopted a favourable approach that is very welcome in a somewhat complex cross-border regulatory environment.

The Basel Convention is internationally accepted by the industry and adopted by a large number of states, most notably Turkey, which provides the main breakage facilities in this part of the world, having built, especially in recent years, a reputation for itself based on reliability and environmental protection. Given that, insofar as the legal process is concerned, both Malta and Turkey derive their respective rules from the same source (the Basal Convention), allowing the interfacing necessary between the two countries to be fluid and healthy: this allows the process to take place in a reasonable time and at a reasonable cost.

On Malta’s part, the islands score high with those owners with vessels in Malta’s vicinity not only because the islands offer good anchorage, but more importantly because the competent Maltese authorities have the required expertise to handle the procedures laid down by the applicable international instruments governing the disposal of waste.

Malta Flagged Vessels

Malta plays a role in the second category of cases not because the vessels would be located in Malta when the decision to recycle them is taken, but because they would be flagged here. In other words, owners of Malta flagged vessels aiming to recycle their vessels must abide with the EU Ship Recycling Regulation. In this scenario, the place where the vessels happen to be when the owners take a decision to recycle them is irrelevant. Under the said regulation, owners who decide to scrap their vessels will be required to notify the Malta Flag Administration and obtain prior Flag approval in accordance with Merchant Shipping Notice 147 of December 2018 and Merchant Shipping Notice 154 of 2019.

The applicable EU Ship Recycling Regulations contain important requirements relating to:

the European List of Approved Ship Recycling Facilities which has been recently updated pursuant to Commission Implementing Decision (EU) 2020/95 of 22 January 2020;

the notification that would need to be sent to the Merchant Shipping Directorate regarding the intended recycling operations;

conducting the Inventory of Hazardous Materials (IHM) Report and having onboard an Inventory Certificate or a Ready for Recycling Certificate (depending on the circumstances); and

the development of a Ship Recycling Plan and the surveys that need to be conducted at different intervals prior to the vessels being taken out of service for their eventual recycling.

Conclusion

Gone are the days where vessels are sent to scrap in an unregulated fashion with complete disregard to the environment. True, the procedures are now somewhat complex and occasionally cumbersome but surely that’s a small price to pay when considering the irreparable environmental damage that would otherwise be caused had the industry been permitted to continue to operate in unregulated cocoon.

[1] Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009.

[2] At time of writing, the Hong Kong Convention has not obtained sufficient ratifications to come into force.

[3] The Hong Kong Convention addresses various issues surrounding ship recycling, including the fact that ships sold for scrapping may contain environmentally hazardous substances such as asbestos, heavy metals, hydrocarbons, ozone-depleting substances, and others. It also addresses concerns raised about the working and environmental conditions at many of the world’s ship recycling locations.

[4] EU Regulation No 1257/2013 of the European Parliament and the Council, of 20 November 2013 on ship recycling and amending Regulation (EC) No 1013/2006 and Directive 2009/16/EC.

[5] Within Maltese territorial seas or internal waters, vide the Law of the Sea Convention, UNCLOS III and Territorial Sea and Contiguous Zones Act, Chapter 226 of the Laws of Malta.

[6] Legal Notice 285 of 2011, as amended by Legal Notice 440 of 2011, which is based on the Basel Convention and transposes the provisions of Council Regulation (EC) No 1013/2006 on shipments of waste “in order to establish a system of supervision and control of shipments of waste, so as to guarantee protection of human health and the environment”.

[7] Regulation (EC) No 1013/2006 of the European Parliament and of the Council of 14 June 2006 on shipments of waste.

By Jotham Scerri-Diacono, Partner, GANADO Advocates and Rachel Genovese, Regulated Industries Advisor, CSB Group

Source: Ship Management International

Picture: Shutterstock

Member of the Comité Maritime International

Commercial Yacht Code 2020

The enforcement of the EU Ship Recycling Regulation with regards to the Inventory of Hazardous Materials in light of COVID-19 Restrictions

Refinancing Malta-flagged cruise liners

Update on yachting procedures

Malta’s role in ship recycling and its impact on environmental protection

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