The United Kingdom officially left the European Union on 1 January 2021. However, the uncertainty surrounding Brexit led many vessels and yachts to leave the United Kingdom’s shipping registry much earlier than the country’s official departure from the European Union, and even before the implications of Brexit were fully understood. The rationale behind such a decision was that shipowners wanted to adopt a cautious approach and retain an EU flag rather than being faced with the risk of instability which Brexit was expected to create for future commercial arrangements within the European Union. From a Maltese perspective, Brexit has given rise to a new opportunity for the Malta Ship Registry to consolidate its position as the largest flag in Europe and the sixth largest in the world – a position it has consistently held for several years.

Increased popularity of Malta flag

French shipping giant CMA CGM, then the largest owner of container ships under the UK flag, was one of the major shipowning companies which transferred its fleet to other European countries as a consequence of the Brexit referendum, with the vast majority of its fleet reflagged to Malta in 2019. As the world’s fourth largest container shipping line, CMA CGM constitutes one of the more high-profile reflagging cases that the Malta Ship Registry has witnessed as a direct result of Brexit. Several factors influenced the French company’s decision to reflag to the Malta and other EU flags, principal among which was the fact that it had traditionally always used EU flags and complied with the EU regulatory framework. Consequently, CMA CGM viewed an EU flag as an integral part of the dynamics of its business, as well as a means to ensure that it remains competitive.

Other notable reflagging cases during this period involved Norwegian vehicle carrier Wallenius Wilhelmsen, which completed the transfer of its UK-registered vessels to Malta towards the end of 2019. Further, the Naples-based Grimaldi Group staggered the reflagging of its fleet of roll-on, roll-off vessels to the Malta flag over several years, with the most recent reflaggings completed in the first few months of 2021.

The Malta Ship Registry saw an unprecedented increase in the number of new registrations between 2019 and 2020, with Malta’s registered tonnage increasing by 7%, the largest increase in the world at the time.

Benefits of Malta flag

The uncertainties caused by Brexit are not the only reason why Malta is a popular flag choice. Many shipowners view the Malta flag as a strict flag which maintains high standards and quality tonnage and are attracted to its experience, versatility and good reputation. Further, the Malta flag is white listed in the Paris and Tokyo Memoranda of Understanding on Port State Control. This means that Malta-flagged vessels are subjected to fewer port state inspections, which translates to smoother and more time-efficient port operations for shipowners. Moreover, the financing aspect has a contributary affect, since shipowners are a priori often required by their financiers to register their vessels with an EU flag. In such instances, financial conditions in loan documentation typically stipulate that vessels must be registered with an EU flag or even with certain specific flags where the jurisdiction is deemed to be creditor friendly.

Malta is one such jurisdiction which is generally considered as providing additional creditor confidence. This is because Maltese law stipulates that a registered mortgage grants a watertight executive title in favour of the mortgagee. In practical terms, an executive title enables creditors to swiftly enforce their mortgage upon an event of default simply by tendering a notice of default. These facets collectively render the Malta flag an attractive option to financiers and shipowners alike.

Benefits of Brexit

In addition to the immediate impact that Brexit has had on increasing Malta’s registered tonnage, it has also given rise to other opportunities. Principal among them is the potential for attracting UK-based maritime organisations, such as protection and indemnity clubs and ship management companies, which want to set up an outpost to maintain access to the EU financial market. Malta may be considered an attractive jurisdiction for the relocation of UK-based organisations due to its:

• cultural connection to Britain;
• high availability of English-language proficient individuals specialised in a variety of areas, including:
  • shipping;
  • finance;
  • insurance; and
  • law

• shipping law that is broadly based on English common law; and
• approved tonnage tax and corporate tax system that offers a favourable fiscal environment.

Overall, Brexit may have a lasting positive impact on the growth of the Malta maritime flag and increase the presence of UK shipping organisations in Malta. This bodes well not only for the consolidation of Malta’s impressive maritime flag standing, but also for strengthening its maritime services industry as a whole and its status as a leading maritime hub in the Mediterranean.

by Peter Grima of Fenech & Fenech Advocates

Source: International Law Office