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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

Malta introduces measures aimed at attracting Ship & Yacht Management Companies to Malta

June 19, 2018 Leave a Comment

The Maltese Government has recently confirmed its commitment towards the Shipping and Maritime cluster through the recently introduced Legal Notice 140 of 2018 aimed at attracting Ship and Yacht Management activities to Malta.

Ship management activities represent the operational side of the shipping industry. Maltese authorities, conscious of the scarce presence of third party managers on our shores, together with industry stakeholders, analysed the deficiencies in our current legal framework and have, for this reason, decided to take action in a consistent manner concurrently with the recently revamping of its tonnage tax rules.

The intention of Maltese Authorities is clearly that of attracting players on Maltese shores in order to strengthen the already robust ship registration and financing offering. These rules, together with the recently revamped tonnage tax regime, the sound corporate tax measures and the attractive social security policies are set to make Malta as the perfect home port for ship management activities.

Legal Notice 140/2018 in a nutshell

The Qualifying Employment in Maritime Activities and the Servicing of Offshore Oil and Gas Industry Activities (Personal Tax) Rules, 2018 introduced a favourable Tax Rate of 15% chargeable on employment income derived by individuals with respect to work or duties carried out in Malta (or in respect of any period spent outside Malta in connection with such work or duties).

The employers need to be:

1. Undertakings holding either a Document of Compliance (DOC) issued in terms of the International Safety Management Code or a Seafarer Recruitment and Placements Services Licence issued in the terms of the Maritime Labour Convention; or

2. Any undertaking involved in works on board of ships, with the exclusion of ships involved in regular ferry services on board of ro-ro and fast ferry ships; or

3. Any undertaking providing services to offshore oil and gas and ancillary services industry.

The beneficiaries from such exemption could be:

1. Chief Executive Officer;

2. Chief Operations Officer;

3. Managing Director;

4. Chief Financial Officer;

5. General Manager;

6. Crewing Manager;

7. Technical Manager;

8. Technical Ship Superintendent;

9. Designated Person Ashore;

10. Master;

11. Chief Mate;

12. Second Officer;

13. Chief Engineer;

14. Second Engineer;

15. Chef;

Servicing of the Offshore Oil and Gas and Ancillary Services Industry Activities

1. Chief Executive Officer;

2. Chief Operating Officer; and

3. Head of Training Academy (which Academy must be certified by an international accreditation institution).

In order to benefit from this favourable tax treatment, the employee must:

1. be employed to fill one of the above mentioned senior categories and be in possession of professional qualifications or acceptable professional experience;

2. be entitled to remuneration of at least €65,000 (exclusive of the annual value of any fringe benefits);

3. be in receipt of stable and regular resources which are sufficient to maintain him/herself and his/her family members without recourse to the Maltese social assistance system;

4. reside in accommodation regarded as normal for a comparable family in Malta;

5. not be domiciled in Malta;

6. be in possession of a valid travel document;

7. be in possession of adequate sickness insurance in respect of all risks normally covered for Maltese Nationals for himself/herself and the members of his/her family;

8. be protected as an employee under applicable Maltese laws.

In order for an eligible person to benefit from the reduced 15% rate he/she would be required to apply to the Authority for Transport in Malta (“TM”) for a formal determination confirming eligibility to the favorable tax rate. The eligible person would then need to submit a prescribed form endorsed by Transport Malta to the local tax authorities together with his/her tax return.

The eligible person must be a citizen of the EEA or a Third Country Nation and can avail of this tax benefit for a period of 5 years (4 in the case of third country nationals) with the possibility to extend such period for a similar period of time 5 years up to a maximum period of 10 years (9 in case of third country nationals) of assessment.

Ship Manager’s treatment under Tonnage Tax Rules

In addition to the above and as an alternative to the ordinary corporate tax on income, Ship Managers may be eligible to benefit from the tonnage tax exemptions with respect to the income derived from the management of vessels.

The conditions to be fulfilled in order to benefit from the tonnage tax exemption are the following:

1. Provision of technical and/or crew management services. Commercial management is excluded from the exemption.

2. Ship management companies must be set-up as Shipping Organisations in accordance with the provisions of the Merchant Shipping Act (Cap. 234 Laws of Malta) and duly approved as such by the Authority for Transport in Malta;

3. Must be established in the European Union (EU) or in the European Economic Area (EEA);

4. Maintaining of separate accounts clearly distinguishing the payments and receipts by the ship manager with respect to ship management activities from those not connected to such activity; and

5. At least two-thirds of the tonnage of the ships to which the ship manager provides ship management activities is managed from the territory of the European Union or EEA;

6. The tonnage in respect of which the ship manager provides ship management activities satisfies the flag-link requirement.

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

Source: Lexologie

Recent legal developments in ship management

June 16, 2018 Leave a Comment

Ship management is a major sector of the shipping industry, with ship managers establishing themselves in a number of locations with notable ship management centres present in Cyprus, the Netherlands, Singapore and Hong Kong.

Ship management has been simply described as the function of taking care of a ship. It is generally carried out in-house, that is by the shipowner or a member of the same ship owning group. However, it is also often undertaken by third-party ship managers.

In brief, third-party ship management is performed by professional undertakings which are completely independent from shipowners who wishing to outsource ship management functions. The typical management roles offered by ship managers may be broadly split into three main service areas – technical, crew and commercial management. The services provided when offering technical management include ensuring compliance with flag state requirements and with the ISM and ISPS Code, making arrangements for and supervising the maintenance of the managed vessel and the supply of same with the stores and spares needed. Crew management services include the selection and engagement of crew, payroll, certification control, training as well as organising the transportation of the crew.

Despite the range of maritime services offered in and from Malta, the presence of third party ship managers in Malta is, so far, practically negligible. In order to attract ship managers to our shores, a comprehensive, stable and functional legal framework on ship management and on the formation, operation, regulation and taxation of ship managers is indispensable.

The news that the European Commission conditionally endorsed the Maltese tonnage tax system was therefore received with great enthusiasm. Following the Commission’s decision on December 19, 2017, Malta published Legal Notices 127 and 128 of 2018 which amended, supplemented and reinstated its tonnage tax law previously regulated by Legal Notice 83 of 2010. Published on April 13, 2018 and effective on May 1, 2018, the new law strives to ensure compatibility between the Maltese tonnage system and the European Union’s rules on State aid and is being regarded as a positive development by the Commission, Malta and the shipping industry.

As was the case with its predecessor, the scope of Legal Notice 128 of 2018 is not limited to ship owning activities – ship management and ship managers are also addressed. Ship management activities are now included in the tonnage tax system. Effectively this means that going forward, ship managers are permitted to pay a ‘tonnage tax’ which is equivalent to a percentage of the tonnage tax paid by the owners and/or charterers of the ships managed and this to the exclusion of the standard corporate tax levied under the Income Tax Act (Cap. 123 Laws of Malta).

by Jan Rossi, member of the MMLA and maritime lawyer within the shipping practice at Ganado Advocates

Source: Times of Malta

Legislative changes: ship sale contracts and charterparties

November 22, 2017 Leave a Comment

Introduction

Act LII/2016 was introduced primarily to amend and update the Aircraft Registration Act and other ancillary-related laws to ensure that local legislation kept abreast of the contemporary challenges and realities of the aviation industry. However, this act also promulgated particular amendments which go beyond aviation law into the realm of shipping.

These recent changes are making Maltese law an ideal legal regime to govern and regulate disputes which may arise under certain types of shipping contract – namely, ship sale and purchase agreements, promise of sale agreements and charterparties.

Choice of law
Most sales of vessels are concluded following the execution of a standard form agreement. The parties normally complete the relevant boxes and strike out those provisions or clauses, if any, which they do not want to include in the agreement. Accordingly, these standard form agreements help to ensure that negotiations are not too lengthy or expensive.

The majority of these standard forms point to English law as the applicable law and English arbitration as the dispute resolution forum. Indeed, standard form contracts have the benefit of being generally tried and tested before the English courts and tribunals, which gives contracting parties peace of mind that the clauses therein will be legally enforceable under English should any dispute arise. It would be imprudent to apply another law without reviewing and scrutinising the whole contract to ensure that all of the provisions therein are legally binding and enforceable under that legal system. However, one of the major setbacks which parties face is that – by default – standard contracts send disputing parties to arbitration in London. Arbitral proceedings in the United Kingdom can be costly, even more so if the parties are not domiciled or resident there.

Changes
Before the new amendments, Maltese law was never advised as a choice of law to regulate these standard form contracts, as it was doubtful whether all of the terms and stipulation of standard form contracts would be enforceable given the existence of a number of archaic provisions contained under Maltese law of contracts. Therefore, more often than not, parties were encouraged to retain the standard applicable law and jurisdiction clauses, even if this meant that any disputes would be costly.

One of the most interesting changes introduced in the Civil Code provides that any ship sale and purchase agreement will now primarily be governed by “the terms and conditions agreed between the parties as well as by the international usages of trade applicable in the context as well the special laws relating to merchant shipping”. Moreover, the law provides that if there is a conflict between the agreed contractual terms and the general provisions of the Civil Code, the former will prevail. The law helps to move away from Malta’s draconian position. It also provides clarity and certainty to parties.
Accordingly, the law now recognises that in these types of agreement, the courts should apply and enforce the contractual will of the parties and this should prevail over any contradictory dispositions found in Maltese civil law. While the matter is yet to be tested, it is arguable that perhaps the only limitation in this regard would be a clear violation of public policy. However, in any event, it is hard to envisage many circumstances in which the content of a ship sale and purchase agreement would be considered in breach of Maltese public policy.

The new act also introduced similar amendments with respect to ship operational leases such as chartering. In terms of ships, the law defines ‘lease’ as “the chartering thereof under terms where possession or control is given to the lessee, including bareboat charters or the equivalent”. Again, with respect to chartering, it is common to use standard form charterparties contracts.

Accordingly, the same rhetoric used in the context of ship sale and purchase agreements will apply to charterparties. Maltese law now gives priority to the privity of the contract, putting contracting parties’ minds at rest that these standard form agreements will be enforceable under Maltese law.

The changes should also act help to promote Malta as a dispute resolution forum. It is likely that the change in choice of applicable law will also bring about a change in the chosen dispute resolution forum. Thus, if parties select Maltese law to govern their contract, it would be sensible and logical to have disputes determined and decided on by arbitration in Malta. International arbitration in Malta has the added advantage of being relatively cheap to conduct, flexible and efficient. Moreover, proceedings can be conducted in English.

Comment
These factors, together with the legal assurances that the agreed terms and conditions will be enforceable under Maltese law, will help Malta to grow as a forum of choice in the context of the aforementioned contracts. The amendments discussed above offer contracting parties a new option when selecting the applicable law and jurisdiction for certain classes of shipping contract.

by Dr Adrian Attard, Fenech & Fenech Advocates

Source: ILO

Member of the Comité Maritime International

The judicial sale by auction of the Indian Empress

Malta introduces measures aimed at attracting Ship & Yacht Management Companies to Malta

Recent legal developments in ship management

Legislative changes: ship sale contracts and charterparties

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