Malta Maritime Law Association
Malta Maritime Law Association
It is with great pleasure and joy that we announce that our President, Dr. Ann Fenech has been elected President of the Comite’ Maritime International during the 125th General Assembly held on 21st October in Antwerp. Dr Ann Fenech is the first Maltese and the first woman ever to be honoured with such appointment.
Our very best wishes to her on her new endeavour!
On June 30 in New York, the 55th Session of the United Nations Commission for International Trade Law (UNCITRAL) approved the text of the convention on the international effects of judicial sales of ships and this after the Commission had at its 35th Session in New York in May 2018 agreed to take on the project. It was a cause for great celebration for the Comité Maritime International (CMI) and for international maritime trade.
The convention owes its beginnings to a draft prepared by the CMI. In 2008 Henry Li from China suggested that the CMI should undertake a study on the subject matter.
It was evident that while in the majority of states, vessels sold in judicial sales are sold free and clear of any pre-existing claims, with their laws also providing for old creditors of such vessels to present their claims against the proceeds of the sale, there are states which refuse to recognise and give effect to the free and unencumbered title which accompany such judicial sales acquired by the purchasers of such vessels.
These instances lead to hugely challenging situations presenting serious interruptions to the orderly conduct of international trade, bearing in mind that 90 per cent of world trade is carried by sea.
This failure not only leads to mala fede claimants exerting illegitimate pressure on buona fide purchasers who would have spent good money in purchasing vessels in judicial sales, the failure also gives rise to great uncertainty for the new financiers of such vessels who assume they are financing vessels leading to a clean title, only to find old creditors making a claim against the ship purchased clean.
There have also been cases where old mortgagees refuse to let go of their pre-existing mortgages, causing problems to registrars of ships leading to great delays in the deletion of mortgages, or even ships from the old registries which in turn lead to further challenges with the registration of new mortgages.
These problems also lead to the question, which purchaser is going to risk paying top dollar for a ship in a judicial sale which is supposed to give him a clean title if after the sale, an old creditor can come along and arrest that vessel? This, in turn, leads to loss of confidence in judicial sales, leading to lower prices for ships in judicial sales, which in turn leaves less money for the vessel’s old creditors.
So between 2008 and 2014 the CMI worked on a draft convention aimed at ensuring that when a vessel is purchased in a properly held judicial sale free and clear of all previous debts, such a title will be given full effect by other state parties. The draft convention was called the ‘Beijing Draft’. Following its finalisation, the CMI needed to find an international legislative body for its draft, which would work on the project and turn it into an international treaty.
In July 2017 the CMI approached UNCITRAL, and the Commission at UNCITRAL recommended that the CMI should first hold an international colloquium with the maritime industry in order that the industry may express its view on whether there was a real need for such a convention.
This international colloquium was organised in Malta by the CMI in conjunction with the Malta Maritime Law Association and the support of Transport Malta in February 2018, and it was attended by over 150 international maritime protagonists ranging from BIMCO to IACS, to ITF, ship owners, flag registries, financial institutions, ship owners, service providers and maritime judges. There was an overwhelming agreement on the need for certainty in international trade and on the need for such a convention.
Switzerland thus presented the conclusions of the Malta Colloquium and the ‘Beijing Draft’ to the 51st session of the Commission in June 2018 and, notwithstanding some very stiff competition, the proposal garnered support from a number of very important state delegations leading the Commission to decide that this was a topic that would be added to the work programme of the Commission. Subsequently, the project was given to Working Group V1 and from May 2019 it held five working sessions until the Working Group presented the finalised text to the Commission in June of this year.
The 55th session of the Commission deliberated the draft for four days and approved the text of the Convention on June 30. It agreed to submit the text to the General Assembly of the United Nations recommending to the same General Assembly the adoption of the convention at its 77th session, the authorisation of a signing ceremony to be held as soon as practicable in 2023 in Beijing, upon which the Convention would be open for signature, and recommending that the Convention be known as the Beijing Convention on the judicial sales of ships.
It is anticipated that the General Assembly of the United Nations will adopt the convention at its 77th session in September.
Our Merchant Shipping Act clearly provides that where a ship has been sold in a judicial sale, the interest of the mortgagees as well as of any other creditor in the ship pass on to the proceeds of the sale of the ship.
However notwithstanding this and that for decades the position in Malta has been that when a vessel is sold in a judicial sale, it is sold free and unencumbered so that a purchaser purchases the vessel without any of the vessel’s previous debts.
In June 2018, the vessel Bright Star was arrested in Malta for an old debt, six months after having been sold free and unencumbered in Jamaica, following the arrest of the ship in Jamaica by the same old creditor.
In May 2021, the court in Malta decided in favour of the new owners underlining the fact that once a vessel is sold in a judicial sale free and unencumbered, any previous creditor must make a claim against the proceeds of the sale declaring the subsequent arrest to be illegal. The case is now before the Court of Appeal.
This case clearly shows that even in jurisdictions like Malta where the law is crystal clear, unscrupulous mala fede claimants will try to put illegitimate pressure on buona fede purchasers who purchase vessels in judicial sales.
The convention on the international effects of judicial sales of ships seeks to resolve this. It has 23 Articles with its entire raison d’être contained in Article 6 which states: “A judicial sale for which a certificate of judicial sale referred to in Article 5 has been issued shall have the effect in every other State Party of conferring clean title to the ship on the purchaser.” It is expected that the convention will be adopted by the General Assembly of UN in September- Ann Fenech
There are a number of criteria which need to be satisfied for the convention to apply, and important among which are the notification criteria contained in Article 4 and the issuance of a certificate of judicial sale by the court where the judicial sale takes place provided for in Article 5.
Article 4 provides that while the judicial sale needs to take place in accordance with the law of the state of judicial sale, a notice of judicial sale must be given to the owners or bareboat charterers of the ship, the registry or bareboat charter registry of the vessel, to the mortgagees, holders of registered hypothecs or other registered charges and to holders of maritime liens which would have presented a claim before the same court.
Article 5 provides that upon completion of a judicial sale which confers clean title to the ship, which was conducted in accordance with the law of state of judicial sale and in accordance with the convention, the court or other public authority conducting the sale will then issue a certificate of judicial sale to the purchaser. This certificate will state that the vessel was sold free and unencumbered in accordance with the law of the state of judicial sale and the criteria provided in the convention.
The convention also provides that both the notice of judicial sale and the certificate of judicial sale are to be transmitted to the repository mentioned in Article 10. The repository is the IMO which will provide a module in its already existing GISIS platform to host the repository.
This enables any person to access the digital IMO GISIS platform to see whether any vessel is about to be sold in a judicial sale and/or whether such a ship has in fact been sold and a certificate issued. This is of great benefit to creditors of ships who have an interest in pursuing the proceeds of a sale and who may wish to partake in any ranking of creditors procedures which may take place following the sale of such ships.
Article 7 provides that at the request of a purchaser who produces a certificate of judicial sale, a registrar of ships is obliged to delete the vessel, or affect a transfer of ownership, and is obliged to delete any pre-existing mortgages, hypothecs or registered charges.
Article 8 provides that an application for an arrest of a ship for a claim pre-existing the sale free and unencumbered shall be refused on the production of the certificate of judicial sale by the new owner of the vessel, and that if the vessel is arrested in ex parte proceedings, that vessel is to be immediately released on the production of a certificate of judicial sale.
In order to have further certainty, the convention provides in Article 9 that it is the court of the state of judicial sale which has exclusive jurisdiction to hear a claim or application to avoid the judicial sale and no other court of any other state. The only exceptions to these are two.
The court of the state of registration may decide that giving effect to the convention is against its public policy, and similarly, the court of the state where the vessel is subsequently arrested may also decide that not arresting such a vessel or releasing from arrest such a vessel would be in breach of its public policy.
It is expected that the convention will be adopted by the General Assembly of the United Nations at its 77th Session in September. It will be a significant step forward in achieving certainty in international maritime trade, particularly in today’s challenging economic climate.
Ann Fenech is the President of MMLA, a partner at Fenech & Fenech Advocates and Vice President of CMI and CMI coordinator for the project at UNCITRAL.
The article was issued in a two–part series.
Source: The Times of Malta
MMLA President and CMI Vice President Dr. Ann Fenech participated to the 55th session of the UNCITRAL: United Nations Commission on International Trade Law during which the Draft Convention on the International Effects of Judicial Sale of Ships was approved. The convention is expected to be adopted by the General Assembly of the United Nations in Autumn.
Dr. Fenech was the COMITE MARITIME INTERNATIONAL co-ordinator of the project in Working Group VI at UNCITRAL for the past 4 years.
Dr Ann Fenech, President of the MMLA, and CMI co-ordinator for the project at UNCITRAL, just returned from New York where she attended the 40th session of UNCITRAL Working Group V1. The meeting was held in a hybrid fashion between 7 – 11 February. Dr Fenech is pleased to report that the Working Group has completed its work by agreeing a final Draft of the Convention on the International Effects of Judicial Sale of Ships.
Working Group V1 has been considering and deliberating this draft convention presented to UNICTRAL in the form of the Beijing Draft since May 2018, starting off with the Malta Colloquium organised jointly by the MMLA and CMI. The Draft will now be presented to the Commission for its deliberation and approval in June and if approved the Convention will be presented to the General Assembly of the UN which will be followed by a signing ceremony of the Convention which could be held in Beijing in the first quarter of 2023.
Although viewed as one of the most fundamental aspects of the Maltese economy, the ‘maritime’ industry is both poorly categorised and often underutilised. Grouped together informally as a collection of trades rooted in their proximity and dependence to the sea, the maritime industry is nonetheless one of the best performers in the modern economy of the Maltese islands and continues to be a sector with vast opportunities despite an already exponential growth.
The foundation of the maritime industry in Malta is steadfast and supported by a reliable statistical growth observed over the past years. At heart, the maritime industry is one which is historical to the Maltese; the island nation has provided an invaluable strategic naval base to many empires throughout the centuries, even more attractive still as a merchant hub for trade between the levant and the rest of Europe[1]. This naval tradition has largely endured, evidenced by the modern prosperity of the Maltese maritime economy.
The Maltese maritime industry, without the effect of any economic multipliers, makes up roughly 15% of the Maltese GDP, with an output growth-rate of 13.9% alongside a total output of €2,303.67 million according to an extensive April 2020 research paper. ‘Value added’ is another aspect where the maritime industry shines, year-by-year beating out the rest of the economy with a 12% growth rate and €853 million in value added. Lastly, the maritime industry offered roughly 12,000 jobs of full-time-equivalent, making up 5% of the total employment in the economy. When including indirect and induced effects (economywide impacts of the maritime industry) as multipliers to the current figures, one can expect results almost double in relation to value added and employment: €2,163 million and 20,000 jobs respectively[2].
The shipping industry has experienced widespread expansion on a global scale. However, some segments experience growth more rapidly than others. While warehousing, which includes storage and bunkering services, remains the largest field in an employment and value-added sense, there is a definite trend towards the ‘maritime services’ sector.
The ‘maritime legal and management services’ sector, for one, has seen continual growth in the Maltese islands and has gradually outpaced more traditional sectors by twofold in terms of growth rate. Although partially a result of a general global rise in demand for shipping infrastructure, the strength of the Malta flag and the Maltese corporate structures greatly accentuates this trend as law firms are often at the charge of the process. The Maltese flag is, likewise, one of proven confidence and lessened bureaucratic restrictions, attractive in great part due to its status as an EU nation with relative ease in vessel and vessel mortgage registration procedures[2]. This is best showcased by raw statistics; the Maltese flag is the largest in the EU and 6th largest worldwide, with a total gross tonnage registered of 84.27 million as at December 2020[3]. Hand-in-hand with this is the Maltese corporate structure, with similar benefits in regard to EU member status and ease of both investment and incorporation of companies bundled together with strong fiscal incentives. As continual
growth permeates the shipping industry, there is little doubt that both strong corporate infrastructure and staunch legal support will be essential in the modern maritime economy.
A clear sign of most country’s economic prospects is the direction of its capital: investment from both the private and the public sector. Numerous projects have occurred on the islands, ranging from relatively small investments in infrastructure surrounding the deep-water quay and breakwater ports in Valletta and Marsaxlokk, to the €50 Million shore-side electrical supply in the Grand Harbour, greatly reducing the environmental impact of cruise-liners visiting Valletta, important for the environmentally-conscious modern world. This is equally accented by the monumental €303.4 million invested in the Malta Freeport terminal since privatisation in 2004. Most of the capital has since been developed into equipment such as several modern quay cranes and rails as well as infrastructural land development, progressively increasing its area and influence.
Even though the ‘maritime’ aspect of the Maltese economy is already recognised and capitalised upon, there is some opinion that the potential of the maritime sector is yet to be fully realised. Logistics, at one angle, is an excellent opportunity for the Maltese islands. The centralised location in the Mediterranean provides Malta the ability to provide competitive value and supply chain services[4]. This is only increased by the technology-focus of the Maltese islands in the recent years in combination with the thriving commercial sector. This reputation presents the possibility of future developments in research and innovation in the maritime sector, one of many exciting future avenues even including diverse fields such as LNG bunkering and petro-chemical transhipment, areas where global investment has already shown interest.
The business, legal and maritime environment of the Maltese islands is comprehensive, yet oftentimes it lacks the government structure to truly take advantage of all the mentioned opportunities. In line with this prospect, the reformation of Transport Malta as announced by Minister for Transport, Infrastructure and Capital Projects Ian Borg on the 14th of October 2021 outlines a plan to separate Transport Malta into three authorities: land, aviation and maritime. This news brings promise to the industry[5].
Further to this, the restructuring is viewed by some as essential to growth in the maritime industry, thoroughly examined in a 2020 research paper entitled ‘Realising the Potential of the Maritime Sector towards the Growth and Development of the Maltese Economy’[2]. With such fundamental differences present in both the past and future concepts of ‘transport,’ how can a single entity be expected to handle the distinctions of every sector equally? The separation of Transport Malta between maritime, land and aviation authorities will inevitably allow more precise focus on each sector, which, for the purposes of this article, presents an interesting opportunity for a creation of a better national framework surrounding the maritime industry and the use of its resources.
In summary, the Maltese maritime economy is one where great success is already present and equally visible. The future of the sector, however, is less certain. While particular concessions, such as the Transport Malta reformation, have been introduced in an attempt to organise the industry, the necessity to band together still stands, in order to continue building upon the maritime economy to unlock its full potential.
[1] ‘Malta – Country Commercial Guide’, December 2021 (International Trade Administration)
[2] ‘Realising the Potential of the Maritime Sector towards the Growth and Development of the Maltese Economy’, April 2020 (Dr. Gordon Cordina, Ms. Maria Cini, Ms. Victoria Apap – E-Cubed Consultants)
[3] ‘Transport Malta Annual Report 2020’, May 2021 (Transport Malta)
[4] ‘Making Malta a Centre of Maritime Excellence’, 2020 (Integrated Maritime Policy)
[5] ‘The setting up of independent authorities for the transport sectors has been announced’ – Press release by the Ministry for Transport, Infrastructure and Capital Projects, October 2021 (Department of Information, Malta)
by Mark Anthony Kuflewicz, Ganado Advocates
Source: Lexology