News - Malta Maritime Law Association

Flying the Maltese flag

March 18, 2015 Leave a Comment

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

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.

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.

Malta & the Nairobi Convention on the Removal of Wrecks (2007)

March 11, 2015 Leave a Comment

On the 18th January 2015, Malta ratified the Nairobi International Convention on the Removal of Wrecks 2007, (hereinafter referred to as ‘the Nairobi Convention’ or ‘the Convention’). The Convention enters into force internationally on the 14th of April 2015.

The Nairobi Convention is the first to establish a set of uniform international rules which ensure prompt and effective removal of wrecks. The Convention imposes an obligation on ship-owners that operate vessels flagged with States that are parties to the Convention or whose vessels enter ports of any of the said countries to insure against their vessels becoming wrecks. Upon entry into force, Maltese ships of 300 gross tonnage or more, will be required to have certification on board to serve as evidence that insurance is in place to cater for wreck removal. Apart from applying the Nairobi Convention to Malta flagged vessels, Malta has declared that it will also apply this Convention to wrecks located within its territory, including the territorial sea regardless of flag.

The Legal Notice (‘the L.N.’) transposing the Nairobi Convention into Maltese law has been drafted and is expected to come into force in the very near future. Once the L.N. is published, the ‘Wreck Removal Certificates’ will start to be issued by Transport Malta (TM) with an effective date, however, that will post date the L.N., namely the 14th April 2015. Wreck Removal Certificates will start to be issued by TM to ship owners of Maltese flagged vessels
who take the necessary steps to fulfill their obligations under the L.N. before the 14th April 2015. Owners fulfill their obligations, inter alia, by submitting proof that insurance against the risks contemplated in the Convention has been obtained (i.e. the relative ‘blue card’ issued in terms of the Convention to the Maltese Flag Administration). TM is inviting owners to start submitting the said blue card even at this very early stage, even though the L.N. has not yet been made law.

It is essential that owners of Maltese flagged vessels have in place an insurance policy which is effective as from the 14th April 2015 and should allow enough time for the said blue card to be submitted to the Malta Flag Administration to enable the relative Wreck Removal Certificate issued by the Flag Administration in terms of the Convention to be released and placed on board the ship by the 14th April 2015.

So far 16 States have ratified the Convention, and these include: Antigua & Barbuda; Bulgaria; Congo; Cook Islands; Denmark; Germany; India; Iran; Liberia; Malaysia; Malta; Marshall Islands; Morocco; Nigeria; Palau; United Kingdom. While several countries, including Norway are expected to ratify the Conventions, notably, large flags such as Panama have not yet ratified the Convention.

Any ship, even if flagged with a non-contracting State, entering ports or the territorial waters, as the case may be, of any contracting State to the Convention that has opted to apply the Convention, within its territorial seas (such as Malta), must necessarily have on board a Wreck Removal Certificate, regardless of the fact that the respective vessel is flagged with a State not a party to the Convention. Ship owners flagged with non-contracting States who require Wreck Removal Certificates because they operate their vessels in such territorial seas or ports, may apply to the Malta Flag Administration for the latter to issue them with the Wreck Removal Certificates after they submit the relative blue card to the satisfaction of the Flag Administration. Malta has indicated its willingness to issue Wreck Removal Certificates to such owners.

Contributed by:
Dr Jotham Scerri Diacono, Partner at GANADO Advocates
& Ms Rachel Genovese

Malta: Court Approved Private Sale

March 7, 2015 Leave a Comment

Source: Fenech & Fenech Advocates

As Maltese legal practitioners, we have for years been harping on the high standards of and comfort which Maltese law offers the mortgagee however it was the recession of 2008 which tested whether the system was as robust as we had been saying it was.

In 2006, our Code of Organisation and Civil Procedure underwent a radical shake up when it came to laws governing the jurisdiction of our courts in rem, arrest of ships and enforcement mechanisms. As far as the latter is concerned, 2006 saw the introduction of the “Court Approved Private Sale”. The advantage was that the mortgagee (who under Maltese law can proceed directly with enforcement) could himself source a private buyer at the highest possible agreed price; enter into an MOA with the private buyer, request the court to approve the sale and on court approval, the vessel would be sold free and unencumbered. This is a huge advantage because it enables the mortgagee to negotiate the best price for the benefit of creditors and owners whilst giving the buyer peace of mind because he is purchasing the vessel free and unencumbered

The first to test the new procedure was Danske Bank in 2010 in Ann Fenech for and on behalf of Danske Bank A/S v Thor Spirit (App. no 1135/2011). Since then there have been 11 applications before the court for the approval of a private sale, 10 of which were granted and one revoked after it was granted. Applicants must provide two valuations based on a physical inspection and must show that a genuine effort was made to get the best price for the vessel and that known creditors were made aware of the procedure.

The system has worked exceptionally well with all the applications coming before the same judge Mr. Justice Mark Chetcuti who has been instrumental in developing a process of the highest standard, totally transparent and in synch with the spirit of the law as drafted.

The end result has been an evolving yet consistently speedy, efficient and transparent remedy for mortgagees in the face of a defaulting owner. Applicants who have benefitted from this remedy include some of the largest maritime lenders such as, Danske Bank A/S, Commerzbank Aktiengesselschaft, Pireaus Bank AE, Rietumu Banka, Amsterdam Trade
Bank N.V, Hyundai Heavy Industries Co. Ltd, Macquarie Bank Limited and Bank of America.

One series of sales that hit the international headlines was those relating to vessels in the beneficial ownership of Today Makes Tomorrow – TMT. Three of the ships in the TMT operated fleet, the A Ladybug, the B Ladybug and the D Ladybug found themselves abandoned in Maltese territorial waters. The crew was effectively abandoned and remained unpaid with no provisions or fuel. This led to a serious concern on the part of the Maltese port authorities because these state of the art car carriers of circa 72,400 gross tons each were anchored 12 miles out exposed to the elements.

Applications were filed by Macquarie Bank Limited, Hyundai Heavy Industries and Bank of America respectively and it is thanks to their financial strength and seriousness that they were in a position to appoint managers who took care of the crew and ensured that the vessels were provisioned and fuelled and who gave the port authorities peace of mind with regard to their own safety and the safety of other vessels also at the same anchorage. These cases showcased the optimum results that can be achieved for the good of the owner, creditors, crew, ITF and port authorities when things are done in an orderly and organised fashion which ultimately was possible thanks to the procedure available under Maltese law.

The Ladybug cases also showcased another interesting element which was how the US Bankruptcy court can and will grant leave for the court approved private sales of such vessels, even when the assets of the bankrupt party are part and parcel of US Chapter 11 procedures.

Bunkers excluded from judicial sale on basis of retention of title clause

February 11, 2015 Leave a Comment

Contributed by Fenech & Fenech Advocates

Introduction
As the last few months have shown, the bunkering industry is volatile and risky. As such, bunker suppliers seek to include favourable terms which will assist them if a deal goes wrong. These contractual precautions range from favourable applicable law and jurisdiction clauses to the imposition of retention of title clauses. Under these clauses, parties will normally agree that the bunker supplier retains ownership over all bunkers furnished until the
buyer has paid in full.

In a recent decision the Civil Court upheld a request to have bunkers supplied to the defendant vessel excluded from a court-approved private sale on the basis that retention of title clauses existed, which governed the supply of the bunkers.

Facts
In Dr Ann Fenech noe v Vessel MV D Ladybug,(1) the court had to determine whether to grant the mortgagee bank’s request to order the private treaty sale of Ro-Ro vessel MV D Ladybug to an interested buyer. A court-approved private sale grants the new owner clean title over the vessel (similar to that afforded pursuant to a judicial sale by auction). Thus, any claims against the vessel are limited to the purchase price, which is deposited with the court.

A vessel sold via a court-approved private sale is generally sold as is (ie, with everything on board, including equipment, machinery and appurtenances), unless a party comes forward with a legitimate claim of title over any of the machinery or equipment (eg, in the courtapproved private sales of the sister ships MV B Ladybug(2) and MV A Ladybug,(3) the court excluded some on-board trailers from the sale of the vessels after a third party provided legitimate proof that it was the owner of the trailers).

In D Ladybug the owners had ordered several consignments of bunkers, all of which were furnished by two local suppliers while the vessel remained under arrest in Malta. The mortgagee bank paid the outstanding amounts due to the bunker suppliers, as the owners had defaulted on their payments. Simultaneously, the mortgagee bank entered into subrogation agreements with the suppliers.

During the court-approved private sale proceedings, the bank acted as both:

a creditor enforcing its mortgage and requesting the court’s approval for the private
sale of the MV D Ladybug; and
the party subrogated to the rights of bunker suppliers, which were requesting that the
bunkers be excluded from the sale.

The bank successfully argued that the bunkers were not part of the debtor’s property (ie, the ship) on the basis that the terms and conditions of both physical suppliers contained retention of title clauses, whereby the bunker suppliers retained ownership over all bunkers until the buyer had paid in full. The bank also relied on a recent amendment to the Commercial Code, which grants parties the statutory right to reach agreements on retention of title clauses.

While the inclusion of Article 26H of the code would seemingly quash any debate regarding
the enforceability of retention of title clauses or otherwise under Maltese law, it has rarely
been tested; and until this case, it had never been used in the context of bunkers. The bank
also argued that since it had been subrogated to the rights of the suppliers, it could avail itself
of those rights.

Decision
The court agreed with the bank and excluded the bunkers from the sale, providing the bank with two options: debunker the vessel or sell the bunkers to the interested buyer. The bank opted for the latter. To the bank’s benefit, the proceeds from sale of the bunkers did not need to be deposited with the court alongside the funds from the actual sale of the debtor’s vessel. Likewise, the amount received for the bunkers was not subject to any distribution
proceedings.

Comment
Before this landmark decision, the issue of retention of title clauses with regard to bunkers was unclear. Indeed, the only other court rulings regarding the exclusion of bunkers reached the opposite conclusion. Admittedly, the facts were somewhat different and the issue related to bunkers purchased by the charterers, which were on board when a creditor requested the judicial auction of the MT Pacific Future.(4) The court concluded that the bunkers on board should be excluded, despite the charterers’ claims that the bunkers were ultimately their property. The court further concluded that the charterers should not be treated differently from other creditors and all claims (including claims regarding bunkers) should attach to any eventual sale proceeds and rank according to law. However, arguably, this conclusion may have been somewhat superficial, as when considering the charters’ claims for the bunkers, the court stopped short of distinguishing between those bunkers which were consumed and those which were still physical on board. Therefore, this verdict may have prejudiced the charterers’ rights over their own property.

MV D Ladybug demonstrates that the inclusion of retention of title clauses can help to
mitigate any possible losses in relation to bunkers.

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. The Fenech & Fenech website can be accessed at fenechlaw.com.

Endnotes
(1) Civil Court (First Hall), Application 741/2014, delivered on October 8 2014 by Justice
Mark Chetcuti.
(2) Civil Court (First Hall), Application 179/2014, delivered on April 8 2014 by Justice Mark
Chetcuti.
(3) Civil Court (First Hall), Application 227/2014, delivered on April 28 2014 by Justice Mark
Chetcuti.
(4) Civil Court (First Hall) – Application 552/2013/1, delivered on June 11 2013 by Justice
Jacqueline Padovani Grima.

Inland-waterway vessels

October 13, 2014 Leave a Comment

Source: Paul Gonzi in ‘Times of Malta’, 13-10-14

The ever growing number of Malta-flagged vessels is evidence of the robust framework within which the Maltese ship-registry operates, comprising sound legislation and practical procedures which continue to meet best industry standards.

Malta, as a member of the EU as of 2004, makes every effort to meet international obligations, attested as of recent by the ratification of the 2006 Maritime Labour Convention (MLC) and the transposition of the convention’s provisions into the Laws of Malta by means of the 2013 Rules – the Merchant Shipping, Maritime Labour Convention) Rules applicable primarily to commercial seagoing vessels.

In today’s global industry, the protection of seafarers working (and often residing for long periods) on board vessels has progressively become of paramount importance, and is regulated by a number of legislative instruments, not least the aforementioned MLC and other EU legislation, such as Council Directive 1999/63/EC which puts into effect the 1998 Agreement on Working Time of Seafarers (concluded between the organisations representing management and labour in the maritime sector among the EU member states) which is also applicable to seagoing ships.

Effectively, within the EU, the working-time for workers is, to date, primarily regulated by means of the Working Time Directive (2003/88/EC) which sets minimum standards to protect the health and safety of workers. This directive is currently transposed into the Laws of Malta by means of Subsidiary Legislation 452/87 entitled ‘The organisation of working time regulations’ which sets rules on daily rest, breaks, weekly rest and duration of night work, among other things.

The Working Time Directive also makes reference to transport sectors and to inland waterway transport; however, it has over the years been argued that it does not take the specific working and living conditions of navigational crew members and shipboard personnel engaged on board inland waterway vessels in the sector sufficiently into account. Indeed, exceptions to mobile workers working on such vessels are provided for also under the
SL 452/87.

Thus it has been concluded by the European Commission that more sector-specific rules are necessary, this particularly in light of the fact that working time on board such vessels may vary depending on the way in which work is organised, the operations concerned, the geographical location and the cross-border nature and the length of the particular voyages which may vary from continuous sailing (24/7) to short-term day voyages.

The Commission has concluded that such rules are necessary to balance out the protection of the seafarer’s health and safety, with the reality that many seafarers on such inland waterway vessels must spend consecutive days working and residing on the vessel often with long on-call time – effectively requiring working time which exceeds the maximum times specified in the Working Time Directive.

Indeed Directive 2003/88/EC does allow for a sectoral approach to be taken in certain circumstances, with the possibility for separate provisions to be adapted to the specific needs of different transport sectors, as has occurred in the case of civil aviation, rail transport and general seafarers engaged on commercial sea-going vessels.

Therefore, given the particular needs of the inland waterway industry, in July 2014 the European Commission presented a proposal aimed at setting specific rules on working time for the inland waterway transport sector which would implement a 2012 agreement reached by EU-level representatives of employers and employees in this sector including the European Transport Workers Federation, the European Barge Union and the European Skippers Organisation. The agreement sets minimum rules on working time for passenger or cargo transport ships in inland navigation across the EU.

Thus, under the proposal for a directive, the European Commission has suggested, among other things, that the total working time for such workers would not exceed 48 hours per week, though this could be averaged over up to 12 months and the total night working time would not exceed 42 hours per week.

In addition such workers would be entitled to at least four weeks’ paid annual leave, and to paid annual medical tests, together with an entitlement of at least 10 hours daily rest (with at least six hours uninterrupted) and to at least a total weekly 84 hours of rest.

The proposal may be found on the web portal of the EuropeanCommission. Indeed, the impact of such proposed Directive on the Laws of Malta, and in particular on Malta-flagged inland waterway vessels, whether of a passenger or cargo transport nature, is
yet to be determined.

Nevertheless, one can expect that such amendments will continue to strengthen the Maltese
maritime registry as a reputable flag which on the one hand benefits ship-owners yet without
compromising the rights of seafarers.

Paul Gonzi is a lawyer specialising in employment, data protection and ICT law at Fenech &
Fenech Advocates. Email: paulgonzi@fenlex.com.

Member of the Comité Maritime International

Flying the Maltese flag

Malta & the Nairobi Convention on the Removal of Wrecks (2007)

Malta: Court Approved Private Sale

Bunkers excluded from judicial sale on basis of retention of title clause

Inland-waterway vessels

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