First appeared in ‘Times of Malta’, 18 March, 2015.

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What legal aspects have contributed to Malta’s success story as the sixth largest
maritime flag worldwide, asks Lara Saguna Axiaq.

The latest statistics for 2014 indicate that the Malta maritime flag has reached yet another milestone: the Malta ships register has become the sixth largest maritime flag in the world. It has moved up from seventh place in 2013 and has retained its position as the largest in Europe. The Maltese register has not only registered an increase in gross tonnage but has also continued to attract younger vessels to its fleet while retaining high standards.

This success story is supported by a legislative structure which, through the years, has adapted to the needs of the maritime industry and at the same time has provided the certainty and security which is required by owners, operators, managers and financiers alike. The Merchant Shipping Act (Chapter 234 of the Laws of Malta), as the primary instrument regulating the registration of ships under the Malta flag, widely defines the term ‘ship’ as all types of ships, including those under construction as well as other marine structures such as oil rigs and pontoons, all of which may be registered under the Malta flag. This definition also means that pleasure boats, commercial yachts, tankers, container and other commercial ships, pontoons, barges, floating production storage and offloading vessels, installations and structures, offshore oil rigs and drilling units are all eligible for registration under the Malta flag. The Merchant Shipping Act requires all ships exceeding six metres in length which are not employed solely in navigation on the coasts of Malta to be registered in Transport Malta’s ships register.

In addition to full registration, the Merchant Shipping Act allows for bareboat charter registration of ships, in other words, the registration of a ship in two jurisdictions which are legally considered to be compatible. Maltese flag compatibility has currently been established with various ship registers including that of Antigua and Barbuda, the Bahamas, Cyprus, Isle of Man, Italy, Liberia, Marshall Islands, Panama, Turkey, Spain and several others. This provides owners and charterers with flexibility for their contractual arrangements and operation of ships. As far as the age of ships is concerned, restrictions are also applicable and ships which are 15 years and over but less than 20 years must be inspected within the first month from the date of the provisional registration under the Malta flag. Ships of 20 years and over are subjected to a flag state inspection prior to being accepted for registration. Ships of 25 years and over are, generally speaking, not accepted for registration and this prohibition has assisted in significantly reducing the average age of ships registered under the Malta flag.

A Malta flagged ship may be registered in the ownership of: a Maltese individual or company or; in the ownership of a citizen of a member state of the European Union, the European Economic Area or Switzerland who resides in Malta or; in the ownership of an international owner, being a citizen of a member state of the EU, EEA or Switzerland not residing in Malta or a non-Maltese corporate body or entity which enjoys legal personality in terms of the law under which it has been established or constituted.

In the light of the fact that Malta is a party to most of the major international maritime conventions of the International Maritime Organisation and the International Labour Organisation, Malta flag ships are obliged to adhere strictly to the provisions of such international conventions. Among the latest conventions affecting the maritime industry are the Maritime Labour Convention which entered into force in 2013 and the Nairobi International Convention on the Removal of Wrecks which was ratified by Malta in January this year and enters into force in April 2015.

A ship owner’s choice of flag is very often not only determined by the requirements and advantages of a flag with respect to the registration and operation of a ship but also by requirements imposed by any financiers who may be involved in assisting a ship owner with financial needs. Since financiers, also known as mortgagees, usually require as collateral the registration of a mortgage in their favour over a ship owner’s ship, financiers frequently request the submission of updated reports on the law of the flag state being considered by a ship owner before agreeing to provide requested financing. This is done in order to determine the adequacy of the level of protection provided to secure their interests, particularly when registering and enforcing mortgages registered over ships. This in fact is one of the primary areas where Maltese law has developed significantly over the last decades with a view to provide mortgagees with iron-clad security while keeping the flag accessible to ship owners.

The rights of a mortgagee – who has the benefit of a registered ship mortgage registered in their favour – are regulated by the Merchant Shipping Act. While ships are invariably initially registered on a provisional basis until certain original documentation required for permanent registration is filed with the registrar of ships, once a ship is provisionally registered under the Malta flag, a mortgage can legally be registered thereon and the mortgagee’s rights will immediately be fully secured and enforceable irrespective of whether the ship is provisionally or permanently registered. The law provides for a statutory form which is executed by the ship owner and filed and registered at Transport Malta in the presence of the registrar of ships. Upon the registration of a mortgage, the registrar of ships is legally bound to indicate the date and time of registration on the face of the mortgage deed and records the document on the ship’s register book, which is available for public
inspection.

Mortgage deeds, which may be drawn up to secure the payment of a principal sum and interest, an account current as well as the performance of any other obligation including a future obligation, enjoy a significantly higher ranking over other privileged claims specified in the Merchant Shipping Act and rank, in relation to other registered mortgages, according to the priority in date and time of their registration. The law does not allow an owner to delete a ship registered under the Malta flag without the prior written consent of a mortgagee. In those cases (specified in the Merchant Shipping Act) where the registrar of ships has the discretion to strike off a ship from the register, the registrar must first submit a one month notice in writing to the mortgagee and to the owner.

A mortgagee has the power to prohibit the creation of any further mortgages and may likewise prohibit the transfer of ownership of the ship without a mortgagee’s prior written consent. Of significant importance is the executive title which Maltese law grants a mortgagee of a Malta flagged ship, such that in the event of a breach of any of the conditions agreed upon, the mortgagee may proceed to take full possession of the ship without first having to obtain a court judgement. Among the powers granted to a mortgagee in case of a default, the mortgagee is granted the absolute power to sell the ship. However, where there are several mortgagees, a subsequent mortgagee can only commence sale proceedings with the concurrence of prior mortgagees, unless the sale takes place following the order of a court of competent jurisdiction. In addition, the mortgagee has the power to do all such things in the name of the owner as may be required in order to maintain the status and validity of the registration of the ship.

On the strength of a relatively recent amendment to Maltese law, creditors who hold an executive title (such as mortgagees) and who seek to enforce their rights, not only have the option to sell a ship by private sale or judicial auction, but may also avail themselves of socalled court approved private sales wherein the court may approve a private sale of a ship in favour of an identified buyer and in consideration of a determined price. Such court approved private sales have the same effect as judicial sales with respect to the granting of title to the purchaser free from all privileges and encumbrances. Malta’s ability to keep legislatively abreast with the ever-evolving needs of the maritime industry has been a major contributing factor in attracting among the most demanding and reputable ship owners and financiers to Malta. This, together with the efficiency and accessibility of the Maltese maritime administration, the comprehensive support structure provided by reputable and experienced service providers, and the wide range of maritime services available have rendered the Malta maritime flag the leading flag of choice it is today.

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Dr Lara Saguna Axiaq specialises in ship registration and ship finance law at Fenech &
Fenech Advocates.

This article is not intended to offer professional advice and you should not act upon the
matters referred to in it without seeking specific advice.

Contributed by Fenech & Fenech Advocates
ILO – July 10 2013

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Introduction

The Maltese flag has established itself as a flag of confidence and a popular choice for many well-reputed shipowners. This is clearly evidenced by the fact that the Maltese registry boasts tonnage of more than 45.6 million gross tons, making it the eighth largest flag in the world and the second largest in Europe. The Maltese flag is flown aboard vessels worldwide. In light of these figures, and bearing in mind that ships at sea will always remain vulnerable to a number of risks, it is probable that Maltese-flagged vessels may become a casualty of some sort from time to time.

Where such an incident results in damage being sustained – whether to the vessel itself, its cargo, another vessel or any other property – the ship, its master, owner or charterer may potentially become exposed to a number of claims. In such cases, it is essential to establish the events that gave rise to the incident in question. Most jurisdictions therefore either oblige or enable the master of a ship to make a so-called ‘sea protest’ shortly after the incident in question, in which he or she can declare the facts of the incident as known to him or her. In this regard, Malta is no exception.

Under Article 104 of the Merchant Shipping Act, a master is obliged to make a sea protest
wherever a vessel flying the Maltese flag:

• sustains damage;
• is stranded, abandoned or lost; or
• owing to the stress of weather or any other cause, is forced to enter port.

Under Maltese law, a sea protest tends to hold significant probative weight in any subsequent settlement negotiations or litigation, since it is often taken as being a correct statement of facts (unless there is evidence to the contrary). However, there is a tendency to assume that the form and method by which such a sea protest is made are not important, so long as the statement produced is truthful and duly sworn before a notary public. This impression is wrong – Maltese law provides clear rules on how a sea protest should be made, together with a detailed procedure.

Applicable procedure

Making a sea protest
Article 104 of the act clearly indicates that when the vessel is at a Maltese port, any sea protest must be made before a judge of the civil courts of Malta. When the ship is at a port outside of Malta, it should be made before a Maltese consular officer. In the absence of such a consular officer in any particular jurisdiction, the law requires that the sea protest be made before a local authority in that particular country.

Timeframe
Article 104 also stipulates the timeframe within which a sea protest must be made. If the event giving rise to the need to make a sea protest occurs while the vessel is at a port, the sea protest must be made within 24 hours of the incident taking place. If the incident occurs while the vessel is at sea or outside any port, the master has 24 hours from the vessel’s next entry into port to make the sea protest.

Information to be included
Maltese law clearly indicates the information that should be included in a sea protest, in terms of both the content of the sworn statements and the documentary evidence required. The master making the sea protest is duty bound to produce his or her official logbook and the original ship’s log when making the sea protest, so that these documents can be physically endorsed by the authority before which the protest is made.

The Maltese courts have held that, in accordance with Article 104, where authenticated copies of the logbook are provided by the master when making the sea protest, these documents should subsequently be treated as being authentic evidence of their content, unless proof can be brought to the contrary.(1) Indeed, Article 104(7) allows interested parties to prove any facts that are contrary to those stated in the sea protest.

In relation to the sea protest, and more specifically the contents thereof, the master must state
on oath the facts known to him or her with regard to the incident in question. These should
include:

• the place and time of sailing;
• the nature of the cargo onboard the vessel;
• the course pursued;
• the incident encountered;
• the damage sustained; and
• all other relevant facts, particularly those relating to the casualty at hand.

Sworn statements
Furthermore, when making the sea protest, the master must be accompanied by at least another three crew members, who should also be examined on oath. The law also states that when a passenger vessel is involved, passengers should also ideally (where practicable) accompany the master to give a statement. However, for various reasons (eg, the language difficulties sometimes faced by seafarers), in practice the master and the crew members usually prepare their written statements beforehand. These are then produced at the sea protest and sworn on oath.

Risks of non-compliance
The effects of not complying with Article 104 can be substantial. For instance, a master who fails to comply with Article 104 will legally be answerable to any interested party for damages and interest that ensue as a result of such non-compliance. The law also provides that if cargo is on board the vessel, the master cannot discharge the cargo (except where there is imminent danger) before he or she has completed the sea protest in accordance with Article 104.

Case study
In a 2011 judgment,(2) the Maltese courts were asked to consider whether a duly notarised statement by the master that was drawn up after the vessel had entered port in Malta was sufficient to constitute a valid sea protest under the law.

The plaintiffs alleged that damage caused to a consignment of steel beams brought to Malta on board the MV Emzani had resulted from bad stowage on the part of the charterers. The defendants did not deny that the beams had sustained damage, but argued that this was due to bad weather encountered by the vessel en route to Malta, rather than any shortcoming in stowage. The defendants argued that the sea conditions and weather were so bad that the vessel had had to stop for shelter during its voyage towards Malta. When the vessel finally entered Maltese waters, the master proceeded to make a sea protest before a Maltese notary public. The defendants relied heavily on the content of this document as evidence to support their defence that the damages sustained to the cargo were the result of an act of God.

After reviewing Article 104 of the Merchant Shipping Act, the courts concluded that the statement made before the notary public was not and could not be considered a sea protest under Maltese law. Thus, the statement made by the master did not have the juridical effect of a sea protest as contemplated under Maltese law. Moreover, the court made reference to

Article 104(7) and commented that where a sea protest is not filed within the timeframe stipulated by law, the defendant may still prove its defence through any other means. In other words, the facts stipulated in the sea protest may still be relied on, but the defendant cannot rely on the invalid sea protest – the content thereof would need to be proven by other means.

In this particular case, the court disregarded the statement made by the master before the notary public and also felt that no alternative supporting evidence had been brought by the defendants to prove their position.

Comment
In light of the above, owners of Maltese flagged vessels and their masters should take careful note of Article 104 of the Merchant Shipping Act. Irrespective of having made any duly notarised statement, the effects and consequences of failing to making a sea protest in line with Article 104 could prove detrimental to shipowners.

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.

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Endnotes

(1) Advocate Doctor Griscti v Parnis England, Maltese Civil Courts, January 31 2003.
(2) Gasan Mamo Insurance Limited (C-3143) v MMS Limited (C-3984).