News - Malta Maritime Law Association

Malta becomes biggest ship registry in Europe

January 23, 2012 Leave a Comment

For the first time in its maritime history, Malta has been confirmed as the country with the largest ship register in Europe. Following a 16 per cent increase in tonnage, the island surpassed Greece By the end of the year, 5,830 vessels – a total of 45.6 million tonnes – were registered under the Maltese flag, Transport Minister Austin Gatt has said: “Following a 16 per cent increase in tonnage, the island surpassed Greece for the first time. Although it’s the smallest European country, Malta has the seventh largest ship register in the world,” he said.

Dr Gatt said that during 2011, the Maltese shipping register generated over €12 million in revenue for Transport Malta alone. This significant achievement was mainly attributed to the register’s high-service quality which attracted reputable companies, Dr Gatt added. Applicants had to pass through a rigorous selection process and not every owner who expressed interest in joining the register was accepted. The condition and the age of prospective members are a major factor in the determination of whether they would make it to the register.

Malta’s register listed various types of vessels, including cruise liners like the Royal Caribbean, and super yachts, which registered an increase of 18.6 per cent over the previous year.

[Source: Times of Malta]

A focus on the Bacino

January 9, 2012 Leave a Comment

Appeared in Times of Malta, 9 January 19, 2012. By Alison Vassallo

Every once in a while a judgment is handed down by the European Court of Justice which, by reason of the ripples it causes in a particular sector of the industry it touches upon, comes to be referred to simply by one word – one such case is that which has come to be referred to as the “Bacino”.

The Bacino has attracted significant criticism directed from all angles of the yachting community. The full name of the case is “Etat du Grand-Duche de Luxembourg, Administration de l’enregistrement et des demains v. Pierre Feltgen, Bacino Charter Company SA (C- 116/10)”, December 22, 2010 and consisted of a reference for a preliminary ruling made by the Luxembourg Cour de Cassation to the ECJ concerning the interpretation of Article 15(5) of the Sixth Council Directive 77/338.

The article of law which formed the object of this referral provided that: “Member States shall exempt.. 4. The supply of goods for the fuelling and provisioning of vessels: a) used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities; b) used for rescue or assistance at sea, or for inshore fishing, with the exception, for the latter, of ship’s provisions; 5. The supply, modification, repair, maintenance, chartering and hiring of the seagoing vessels referred to in paragraph 4(a) and (b) and the supply, hiring, repair and maintenance of equipment – including fishing equipment – incorporated or used therein”.

Bacino Chartering Company SA (“Bacino”) made available on a regular basis a vessel which it owned, together with a crew, to natural persons for the purpose of leisure activities on the high seas. Bacino did not charge the charterers VAT on the hire and therefore did not pass any VAT payments calculated on such hire to the Luxembourg tax authorities.

The Luxembourg tax authorities were however of a different view and they notified Bacino of the tax assessments for the financial years 1998 and 1999 which set out the amounts of VAT owed by the company for charters carried out during such period.

Bacino challenged that assessment before the District Court of Luxembourg which dismissed its action, subsequent to which Bacino was successful in arguing before the Court of Appeal that since the vessel was engaged in navigation on the high seas and carrying passengers for reward, the said activity did in fact fall within the parameters of the exemption outlined above.

In assessing whether VAT is due on a particular service, the ECJ adjusted the collective focus of the industry to the use being made of the yacht by the person availing himself of the particular service. Therefore in case where service consists of making a yacht available for charter and the lessee is a private person using the yacht for leisure purposes the Court held that VAT is due by him to the owner on the hire.

By analogy, in case where the person ordering the supply of fuel, provisions or commissioning the refit of a yacht is the owner of the yacht who is using the yacht for commercial activities on the high seas, then no VAT is due on the said services by the owner to the particular supplier or service provider.

While the question put to the ECJ related solely to whether VAT is due on the hire paid by a private person to the owner of a yacht where the owner is in the business of operating the yacht for commercial purposes on the high seas, the findings of this judgment may be said cover other services besides hire, namely those of supply, modification, repairs and maintenance.

Perhaps much of the alarm that has trickled down throughout the industry arises as a result of reading more into the judgment than there is. The ECJ in this case has not come up with new law. The court, when faced with the facts of the Bacino Case, was merely provided with a perfect opportunity of stating in black and white what the real spirit and meaning of the cited exemption is – placed simply being that where the lessee of a yacht uses the yacht for private (leisure) purposes, then the lessee is required to pay VAT on the service to the owner who in turn uses the yacht for commercial activities on the high seas.

The Bacino has attracted significant criticism directed from all angles of the international yachting community. The main concern for owners is whether they can retain competitive charter rates and whether the prevailing economic climate can support a proportionate hike in rates. It very much remains to be seen whether all of this will in fact translate into a tangible threat to the attractiveness of chartering a yacht, or whether this is effectively a storm in a teacup.

Dr Vassallo is a senior associate within the Yachting Department and the Marine Litigation Department at Fenech and Fenech Advocates.

Rights of the mortgagees under Maltese law – Part 2

January 5, 2012 Leave a Comment

Times of Malta, Thursday, January 5, 2012 , by Ann Fenech

In part one, I discussed a procedure which was inserted in our Code of Organisation and Civil Procedure in 2006 which gives the mortgagees of vessels further enhanced rights – a procedure whereby a mortgagee can enforce his rights through a court approved private sale which remedy attempts to bridge the distance between what was previously a choice between two remedies which were not in themselves 100 per cent satisfactory.

The judge made some very interesting remarks and observations, a number of which may very well open up a Pandora’s Box.

Through the court approved private sale the law seeks to support the mortgagee and other creditors of a defaulting owner by ensuring the best price for the vessel (something associated with a private sale as opposed to a judicial sale by auction), whilst ensuring that the vessel is indeed sold free and unencumbered (something which only a judicial sale by auction can guarantee and which a private sale cannot.)

We saw this remedy put to the test successfully on December 1, 2011 in the case Dr Ann Fenech for and on behalf of Danske Bank v. the M. V. Thor Spirit per Mr Justice Mark Chetcuti. The substantial and useful rights of the mortgagee granted by our law were however again confirmed by the same Mr Justice Mark Chetcuti on November 24, 2011, in the case Dr Louis Cassar Pullicino for and on behalf of Norddeutsche Landesbank Girozentrale v. Chemstar Shipping Ltd.

Section 42 of the Merchant Shipping Act lays down the rights of the mortgagee in the eventuality that the owner is in default of his obligations. One of the rights listed is the right of the mortgagee to take possession of the vessel. Whilst this may be all very well and good on paper, from a practical perspective this can present a number of challenges.

One would typically have a situation where the owner of the vessel is in default of a term in his mortgage; the mortgagee gives notice to the mortgagor to no avail because the owner remains in default, and the vessel is in some far flung jurisdiction. The mortgagee would like to take possession.

This would in real terms mean that the mortgagee would inform the owner that it intends to take possession; it may mean that the mortgagee would instruct the owner to take the vessel and to deliver the vessel into the possession of the mortgagee in a more efficient or reliable jurisdiction where the mortgagee can then take the necessary steps to enforce his mortgage through any remedy which Maltese law provides.

From experience, owners would generally comply with such requests. However there will be occasion when the owner, irrespective of the fact that the mortgagee would be fully within his rights to take possession of the vessel and order the owner to deliver the vessel to, say, Malta, the owner very consciously refuses. What can the mortgagee do about this situation?

This was the position which Norddeutsche Landesbank Girozentrale found itself in when following the default of Chemstar Shipping Ltd on its payments under a mortgage on the MV STAR 1, a vessel registered under the Malta flag, the bank sent the mortgagor a Notice of Default which was not actioned by the owner who remained in default of his obligations.

The mortgagee issued the owner with a Sailing Advice ordering the owners not to order the vessel to proceed to Turkey but to proceed to Malta instead. The owners ignored this advice and proceeded to Turkey. The bank then issued the owner with a further Sailing Advice as it was entitled to do in terms of its Loan Agreement to proceed immediately to Malta. The owners refused to do so. The bank representatives then attempted to board the vessel in Turkey to serve the Master with a notice of possession but were barred from boarding leading to the service of the notice of possession on the registered owners. The owners refused to hand over possession to the bank.

Given this, the bank was therefore forced to file an application before the Maltese courts requesting the court to confirm that the bank had the right to take possession of the vessel given the owner’s default, to fix a period of time within which the owner had to deliver the vessel to the bank failing which to authorise the bank to take possession of the vessel even by appointing new crew, order the owner to refrain from doing anything which would hinder either directly or indirectly the bank from taking possession of the vessel and finally to make all those orders necessary to enable the bank to take possession of the vessel.

The owners attempted to defend the application by stating that: The Maltese court had no jurisdiction over the matter because the vessel was not in Maltese territorial waters; that the law did not contemplate the mortgagee having a right to file such an application; that it was not the fault of the owners which led to them being in default; that the mortgagee had not taken any of the steps associated with obtaining an executive title; that the mortgagee had to first file an official letter which it did not.

Mr Justice Chetcuti threw out the defence of lack of jurisdiction on three counts – the basis that the defendant was a Maltese registered company and therefore the jurisdiction of the Maltese court was beyond question, on the basis of a jurisdiction clause in the deed of covenants indicating the Maltese courts as one of the courts to which disputes could be referred and on the basis of EU Regulation 2(1) of Regulation 44/2001.

Mr Justice Chetcuti also threw out the other defences by highlighting the fact that the right of the mortgagee to take possession was conditioned only by the need for the mortgagee to give notice to the owner in writing as stipulated in article 42 of the Merchant Shipping Act and the need to ensure that all the criteria established by the loan agreement and deed of covenants had been satisfied.

He therefore accepted all of the Bank’s requests and declared that the Bank had a right to take possession of the vessel and ordered the defendant to deliver the vessel to the bank within one week failing which was authorising the Bank to take possession of the Motor Vessel Star 1 ordering the owners to refrain from doing anything to obstruct the Bank from doing so.

In his decision dealing with every one of the defences separately, the judge made some very interesting remarks and observations a number of which may very well open up a Pandora’s Box, possibly each deserving a detailed analysis and article in themselves.

However, the general message which has been sent out loud and clear by this judgement is that in this particularly sensitive commercial area where the strength of the flag lies in the comfort it can give the financiers, international financiers of vessels registered under the Malta flag can rest assured that provided that their rights under the contracts they enter into are in line with the provisions of our Merchant Shipping Act they will be fully upheld and safeguarded.

Dr Fenech is head of the marine litigation department and managing partner at Fenech and Fenech Advocates.

Rights of the Mortgagees under Maltese law

December 15, 2011 Leave a Comment

Times of Malta, Thursday, December 15, 2011, by Ann Fenech

The meteoric rise of the Malta flag from one million tons in 1986 to over 40 million tons today is due to a number of reasons. Included in the long list is the foresight of our legislators, the continuous updating of our law, sensible fiscal solutions to the ship owner, a regulator who is open for business 24/7, English as an official language, central European time zone and tireless service providers who assist in promoting the product and facilitating the service.

One primary reason behind the success of our maritime flag is the security which our law gives to the financier of these vessels.

One primary reason behind the success of our maritime flag equal only to the sensible fiscal solutions it offers the ship owner is the security which our law gives to the financier of these vessels. No financier is going to lend several millions of dollars for the purchase of a vessel only to have the vessel registered in a jurisdiction which does not adequately safeguard his investment in the eventuality that the ship owner defaults on the mortgage payment.

Of course it is one thing to talk about the security offered by Maltese law, and quite another to see whether all the talk translates into something tangible.

Since 2008 to date and sadly with the collapse of a number of ship owners resulting in their inability to satisfy their obligations under their mortgage deeds, Maltese law and the security it says it offers the mortgagee has delivered very successfully.

As a result of a number of several ship owners of Maltese registered vessels defaulting on their mortgage payments, financiers have been able to put their mind at rest because they have seen Maltese law delivering what it has promised to deliver and have been able to put into effect the rights given to them by our Merchant Shipping Act in such situations.

Up until 2006 Maltese law provided the mortgagee with a number of remedies in the face of a defaulting owner. In the event of a default by the mortgagor of any term or condition of a registered mortgage, the mortgagee can take possession of the vessel and can sell the vessel.

In addition a mortgage is an “executive title” which means that the mortgagee can proceed directly with enforcement without the need of commencing any form of action. This is very important because it means that a mortgagee can proceed directly with applying to the Maltese courts for the judicial sale of the vessel. These two remedies, the ability to sell the vessel privately and the ability to apply for a judicial sale have advantages, however each also has disadvantages.

The advantage with a private sale is that the mortgagee can negotiate with a private buyer the sale of the vessel at the right price. However in a private sale the vessel is not sold free and unencumbered and this in itself may put potential buyers off.

In a judicial sale on the other hand, the vessel is sold free and unencumbered attracting buyers, however the prices normally fetched at Judicial Sales by Auction are frequently well below the market value given especially that there is no minimum reserved price.

In 2006, a very important amendment to our Code of Organisation and Civil Procedure was enacted. The amendment saw the introduction into our law of the Court Approved Private Sale. This is intended to bridge the distance between the advantages and disadvantages of the Private Sale and the Judicial Sale by Auction.

For some reason however and notwithstanding that this very useful remedy has been available on our statute books since 2006, it was only made use of for the first time in the application filed by Danske Bank A/S against the vessel Thor Spirit. Legal history was made on December 1, 2011 when our Civil Courts per Mr Justice Mark Chetcuti approved the private sale of a vessel following an application in the name of Dr Ann Fenech for and on behalf of Danske Bank v. the M. V. Thor Spirit.

The way the court approved sale works is as follows: The mortgagee finds a private buyer of a vessel at an agreed price which should be equal to or superior to two previously obtained valuations attesting to the value of the vessel. The mortgagee then files an application in court exhibiting copies of the MOA and the valuations obtained requesting the court to approve the private sale and to appoint a person who can transfer the vessel by means of a bill of sale to the new buyer for the agreed price. Such sale is effected free and unencumbered.

In this way the mortgagee can negotiate the best price (dealing with the difficulty created normally by a Judicial Sale by auction) for the sale of the vessel which is effected free and unencumbered (thereby dealing with the difficulty of a private sale.) Notwithstanding the fact that this remedy has been on the statute book since 2006, the first time it was tried and tested was in fact in this case.

The procedure was extremely efficient and fast and the time it took from the date of the application seeking court approval of the private sale to the date of the order was approximately two weeks.Now that the procedure has been carried out successfully, it is more than likely that we will be seeing plenty more in the coming months.

(The first in a series of three articles.)

Dr Fenech is head of the Marine Litigation Department and managing partner at Fenech & Fenech Advocates

Why the Malta Flag?

December 11, 2011 Leave a Comment

Why the Malta Flag. Appeared in Yachting in Malta, 9th edition. 2011-2012.

See full article here.

Member of the Comité Maritime International

Malta becomes biggest ship registry in Europe

A focus on the Bacino

Rights of the mortgagees under Maltese law – Part 2

Rights of the Mortgagees under Maltese law

Why the Malta Flag?

Contact Us

Join Us

International Events