The Shipping Law Review: Malta

Commercial overview of the shipping industry

The Republic of Malta is a small, strategically located island country whose maritime industry has long provided great value to its economy. Malta is regarded as a strong and safe maritime jurisdiction; in fact, it has consolidated its position as the largest European maritime flag and, since 2014, the sixth largest in the world. Since then, registered numbers have continued to increase every year.

As well as offering a stable legal and fiscal regime, Malta's ship registry has remained competitive and has constantly proven itself ready to accommodate shipowners and shipping companies, always within the parameters of international rules and conventions. According to UNCTAD's Review of Maritime Transport for 2020, Malta retained its position as the sixth-largest flag worldwide and increased the registered deadweight tonnage (DWT) to 115,879, constituting a share of the total global DWT of 6 per cent.

The successful enactment of the Commercial Yacht Code also makes Malta a leading commercial yacht registry and has led to the country becoming the flag choice for the global luxury superyacht industry. In addition, lying midway between Europe, the Middle East and North Africa, Malta is established as the third-largest trans-shipment port and logistics centre in the Mediterranean region, mainly for container cargo.

General overview of the legislative framework

Malta's legal system is a hybrid, mainly based on Roman law influenced to a great extent by UK law, as a result of its former status as a British colony. Following Malta's accession to the European Union in 2004, the European Union Treaty was transposed into Maltese law and is now the law of the country.

The principal legislation for shipping is the Merchant Shipping Act of 1973, a law based on UK shipping laws, as amended, and supplemented by a comprehensive set of rules and regulations. Several international conventions to which Malta is either a signatory or that have been incorporated into Maltese law, as well as EU regulations and directives, also regulate the shipping industry.

Forum and jurisdiction

i Courts

Maritime cases are heard in the Civil Court. Disputes with a value of more than €15,000 are heard by the First Hall of the Civil Court while smaller claims are heard by the Court of Magistrates. Although the Civil Court is the competent court to hear a vast range of cases, individual judges are normally assigned cases of a similar nature to increase court efficiency.

Ship arrest procedures are swift and relatively inexpensive. When coupled with the judicial sale by auction procedure or a court-approved private sale, Malta offers a reliable solution for an executing creditor seeking recourse to the courts.

ii Arbitration and ADR

Arbitration proceedings are regulated by the Arbitration Act,2 which incorporates a number of international conventions, such as the UNCITRAL Model Law on International Commercial Arbitration. Arbitration in Malta falls under the auspices of the Malta Arbitration Centre.

Maltese law only contemplates mediation as a method of alternative dispute resolution, which is regulated by the Mediation Act.3 The law allows for disputes involving civil, family, social, commercial or industrial matters to be referred for mediation.

iii Enforcement of foreign judgments and arbitral awards

In accordance with Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgment in civil and commercial matters (recast), a judgment given in an EU Member State shall be recognised in Malta without any special procedure being required. With respect to judgments constituting a res judicata given by any other competent court outside Malta and the European Union, these may be enforced in the same manner as judgments are delivered in Malta, upon an application containing a demand that the enforcement of the judgment be ordered.

With respect to the recognition and enforcement of arbitral awards in Malta, the Second Schedule of the Arbitration Act4 incorporates into Maltese law the Protocol on Arbitration Clauses (Geneva 1923), the Convention on the Execution of Foreign Arbitral Awards (Geneva 1927) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). Therefore, a foreign arbitral award, by means of registration through the Malta Arbitration Centre, may be recognised and subsequently enforced as an executive title by the courts of Malta in the same manner as if the awards were delivered in domestic arbitration. An executive title would then be of relevance with respect to executive warrants of arrest (see Section V.i, below).

Shipping contracts

i Shipbuilding

The Grand Harbour in Valetta, Malta's capital city, is considered to be the deepest natural harbour in the Mediterranean, which has further increased Malta's maritime importance throughout history. Historically, the dry docks were mainly used for repair and construction of civilian ships but naturally this changed during both world wars, given Malta's role and strategic location.

After Malta became an EU Member State, a process of privatisation of Malta Shipyard Ltd took place as government subsidies to the shipyard had to stop. Nowadays, there are no state-owned shipyards and only a handful of privately owned yards, the largest being Palumbo Malta Shipyards Ltd. All are regulated by international and domestic law.

ii Contracts of carriage

Malta's economy is dependent on foreign trade, serving as a freight trans-shipment hub. Being an importing country, it is essential that Malta is compliant with international regulations and standards. In this respect, Malta is not a signatory to the Protocol to amend the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading 1968 (the Hague-Visby Rules), the UN Convention on the Carriage of Goods by Sea 1978 (the Hamburg Rules) or the UN Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea 2009 (the Rotterdam Rules). However, the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading 1924 (the Hague Rules) is applied by the Maltese courts with regard to marine cargo claims by virtue of the Carriage of Goods by Sea Act 1954.5 The Maltese courts also apply the Hague-Visby Rules when they are incorporated into a bill of lading that is the subject of a dispute.

Carriage is considered an act of trade as per the Commercial Code6 and, therefore, any dispute that may arise in this respect shall be subject to the jurisdiction of the Civil Court of Malta in accordance with the provisions contained in the Code of Organisation and Civil Procedure,7 which also caters for contracts of affreightment. The Merchant Shipping Act8 regulates the carriage of goods as a shipping activity.

The United Nations Convention on International Multimodal Transport of Goods (Geneva 1980) is not in force and, as such, multimodal transport is not regulated in Malta.

iii Cargo claims

Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy and to ensure that the ship is properly manned, equipped and supplied.9 In addition, Article IV(2)(q) of the Carriage of Goods by Sea Act states that neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from any other cause arising without the actual fault or privity of the carrier, or without the fault or neglect of the agents or servants of the carrier. The burden of proof is on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.

Under the Merchant Shipping Act, an agent is to be considered mandatory for the carrier and cannot be found liable for any liability of the carrier.10

iv Limitation of liability

The regime for limitation of liability for maritime claims applicable in Malta is the Convention on Limitation of Liability for Maritime Claims 1976 (the LLMC Convention 1976) as amended by the 1996 Protocol, which was ratified by Malta on 13 February 2004 by virtue of an instrument of accession. On 8 June 2015, the International Maritime Organization (IMO) announced new limits to enter into force, in accordance with the tacit acceptance procedure, raising the amount claimable for loss of life or personal injury on ships (not exceeding 2,000 gross tonnage) to 3.02 million special drawing rights (SDRs), up from 2 million SDRs (additional amounts are claimable on larger ships).11 For the purposes of Article 11 of the LLMC Convention 1976, the fund referred to therein is governed by the Limitation of Liability for Maritime Claims Regulations12 and shall be constituted with the First Hall of the Civil Court. The rate of interest to be applied shall be 8 per cent.

Remedies

i Ship arrest

According to the Merchant Shipping Act, ships and other vessels constitute a particular class of movables whereby they form separate and distinct assets within the estate of their owners for the security of actions and claims to which the vessel is subject. The Code of Organisation and Civil Procedure provides for the arrest of vessels in Malta both as security of maritime in rem13 claims, when the ship concerned is within the territorial jurisdiction of the Maltese courts, and as security of in personam14 claims, when the owner is subject to the jurisdiction of the Maltese courts. The legislation provides for an exhaustive list of maritime claims for which the courts shall have jurisdiction in rem. Ships can be arrested in Malta only by virtue of a warrant of arrest. A precautionary warrant of arrest may be issued against any seagoing vessel (subject to certain requirements) to secure a claim that has not yet been decided, and an executive warrant of arrest is to be issued when enforcing a judgment. Vessels may also be arrested pursuant to the provisions of Article 31 of Council Regulation (EC) No. 44/2001, dealing with protective measures, in cases where the courts of another Member State have jurisdiction as to the substance of the matter. The arrest of sister ships is possible but only in cases concerning specific maritime claims as listed in the relevant legislation.

A ship within Maltese territorial waters can be arrested irrespective of her flag so long as the requirements prescribed by law are met, which are that the ship has a length exceeding 10 metres and that the claim is not less than €7,000. The warrant of arrest is filed ex parte by the arresting party by submitting the appropriate forms requesting the arrest of the vessel and indicating the place where the vessel is to be found: it is not permissible to apply for a warrant of arrest unless the vessel is within Maltese territorial waters. Transport Malta is deemed by law to be the authority with the power and control to have a ship arrested as soon as it enters Maltese territorial waters.

By virtue of Act XXXI of 2019, entitled Various Laws (Better Administration of Justice) (Amendment) Act, the procedure for the arrest of vessels in Malta has been amended; the amendments came into force on 18 December 2019. The execution of the warrant is effected for all effects of law the moment a notice of the warrant has been duly served on the executive officer of the Authority for Transport in Malta. In accordance with these amendments, the party issuing the warrant should appoint a natural or legal person who should be responsible for serving an official copy of the warrant to the master of the vessel or other person in charge of the vessel and seize the appropriate documentation and certification from on board the vessel, which must be handed to the registrar, civil courts and tribunals by the person indicated by the applicant within one working day. The applicant is required to indicate the particulars of the nominated person, so appointed, in the prescribed form. It is essential that the nominated person must have agreed to effect this service. The same procedure as described above is applicable mutatis mutandis in the event of a counterclaim to lift the warrant of arrest. The application forms for precautionary and executive warrants of arrest have also been amended.

Once a vessel is arrested, the arrestor must commence an action on the merits, or arbitration proceedings in respect of the claim stated in the warrant, within 20 days of the date of issue of the warrant of arrest. In default, the effects of the warrant cease and the arresting party may be liable for damages. A warrant of arrest may be lifted by means of a counter-warrant of arrest issued by the court on the grounds of repayment of the claim or the setting up of a security by means of a guarantee, among other things. Cash deposits, Maltese bank guarantees or, by agreement between the parties, a guarantee put up by a P&I club can be placed for the release of the arrest. A penalty of not less than €11,600 is applicable if it is found that the warrant was obtained upon a demand maliciously made.

Moreover, the owner whose vessel was arrested may apply to the court requesting that the arresting party give, with good cause and within a time fixed by the court, a counter-security sufficient for the payment of the penalty that may be imposed, and of damages and interest, and, if in default, to rescind the warrant.

ii Court orders for sale of a vessel

A court judgment and a mortgage are executive titles and, therefore, the holder of such a title may proceed directly to enforce its claims.

Judicial sale by auction

The holder of an executive title could file an application in court requesting the court to order the judicial sale of the vessel and appoint a public auctioneer. The court registry is bound to publish the list of judicial sales by auction that are to be held. The auction is conducted in the presence of the Registrar of Courts and the purchaser shall be the highest bidder. The public auctioneer may request that a person submitting an offer should be in possession of the necessary guarantees. The auctioneer shall cause that no bid shall be accepted if it is either made pro persona nominanda or by any person who is notoriously incapable of fulfilling the obligations arising out of the adjudication. The purchaser shall pay the price into court within seven days of the final adjudication. Any creditor having a judgment or other executive title in its favour may bid animo compensandi; that is, in set-off of the debt it is owed. In such cases, the creditor by means of an application should request the approval of the court for proposed set-off, and it shall pay into court the surplus of the price if the price exceeds the amount of the debt and costs. When a ship is sold in a judicial sale by auction, the vessel is sold free and unencumbered.

Court-approved private sale

A court-approved private sale offers creditors of an indebted vessel a simple remedial mechanism, by which a request is made to the Superior Courts of Malta to approve the private sale of a vessel. This amendment was introduced to address the disadvantages of private sales and judicial sales by auction.

By means of such an application and subject to certain procedures being followed, in the event of default, a holder of an executive title may sell the vessel to a private buyer, thereby being able to agree on a reasonable price (as would be the case in a private sale) but also allowing the buyer to benefit from purchasing the vessel free and unencumbered (as in a judicial sale by auction). The agreed price should be equal to, or higher than, two previously obtained valuations of the vessel, carried out by independent and reputable valuers. An application is filed in court, exhibiting copies of the memorandum of agreement and the valuations obtained, and 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. The court shall appoint the application for hearing within 10 days of its filing. If approved, the vessel would be sold free and unencumbered.

Despite this legislation being enacted in 2006, the courts were not asked to rule on it until December 2011. The sale of the MV Thor Spirit 15 in December 2011 paved the way for many similar cases in which other subtleties of this judicial mechanism have also been explored.16 Several court-approved private sales have since been successful, such as the Blankenese case in 2013, the MV Ladybug case in 2014 and the HHL Rio de Janeiro case, decided in 2019. The procedure is now being used extensively and the more contentious private sales are being more uniformly handled by the courts of Malta.

Regulation

i Safety

The Merchant Shipping Directorate (MSD) and Armed Forces of Malta (AFM) are the institutions with responsibility for maritime safety in Malta. The MSD is responsible for ensuring that Malta implements and accedes to the key international conventions regarding maritime safety and the AFM implements the International Convention on Maritime Search and Rescue 1979 (the Search and Rescue Convention 1979) in addition to the Global Maritime Distress and Safety System used to increase safety at sea and facilitate the rescue of distressed ships, boats and aircraft.

Malta is a party to the following maritime safety and security conventions:

  1. International Convention for the Safety of Life at Sea 1974 (SOLAS) (as amended);
  2. International Regulations for Preventing Collisions at Sea 1972 (COLREGs) (as amended);
  3. Convention on Facilitation of International Maritime Traffic 1965 (the FAL Convention);
  4. International Convention on Load Lines 1966 (the Load Lines Convention);
  5. Search and Rescue Convention 1979;
  6. Convention for the Suppression of Unlawful Acts of Violence Against the Safety of Maritime Navigation 1988 (SUA);
  7. Torremolinos International Convention for the Safety of Fishing Vessels (as amended);
  8. Maritime Labour Convention 2006 (MLC) (as amended); and
  9. International Convention on Standards of Training, Certification and Watchkeeping for Seafarers 1995 (the STCW Convention) (as amended).

These maritime safety regulations are transposed into domestic law through:

  1. Merchant Shipping (Safety Convention) Rules (SL 234.30);
  2. Merchant Shipping (Safety Convention Rules) (SL 234.33);
  3. Merchant Shipping (Ship Inspection and Survey Organisations) Regulations (SL 234.37);
  4. Merchant Shipping (Accident and Incident Safety Investigation) Regulations (SL 234.49);
  5. Merchant Shipping (Fishing Vessels) (Minimum Health and Safety Requirements) Regulations (SL 234.34);
  6. Merchant Shipping (Fishing Vessel Safety) Rules (SL 234.36);
  7. Merchant Shipping (Maritime Labour Convention) Rules (SL 234.51); and
  8. Merchant Shipping (Certification of Commercial Yachts and Commercial Cruising Vessels) Regulations (SL 234.45).

The Merchant Shipping (Accident and Incident Safety Investigation) Regulations (SL 234.49) established the Marine Safety Investigation Unit as an independent government investigation unit to carry out safety investigations into accidents and incidents and participate in safety studies and academic research.17 As per Regulation 19.3 of Chapter III of SOLAS, fire and abandon ship drills on board all Malta-flagged cargo ships shall be carried out once a fortnight, and fire and abandon ship drills on board all Malta-flagged passenger ships are to be carried out once a week.

IMO Resolution MSC.428(98) concerning Maritime Cyber Risk Management in Safety Management Systems encourages ship management companies to ensure that cyber risks are appropriately addressed in the vessel's safety management systems with regard to their operations ashore and aboard, by no later than the first annual verification of the respective Document of Compliance after 1 January 2021.

ii Port state control

Through the MSD, Malta ensures that any ship entitled to fly its flag complies with the applicable international rules and standards. As part of the effective enforcement of those rules, standards, laws and regulations, Malta adopted the Memorandum of Understanding on Port State Control in the Mediterranean Region (the Mediterranean MOU) on 11 July 1997 (which entered into force on 24 February 1998), with other maritime authorities and the assistance of, among others, the IMO, the International Labour Organization and the European Commission. Moreover, Malta has an active participation in the Paris Memorandum of Understanding on Port State Control 1982 (the Paris MOU), of which Transport Malta has been a member since 2006.

As the provisions of the Paris MOU were incorporated into EU law through Directive 2009/16/EC of the European Parliament and of the Council on port state control, Malta transposed them into domestic law through the Merchant Shipping (Port State Control) Regulations (SL 234.38)18, which apply to any ship and her crew calling at a port in Malta or anchored off a Maltese port to engage in a ship-port operation, unless the exemptions set in the legislation apply. Furthermore, the Merchant Shipping (Flag State Requirements) Regulations (SL 234.48) adopt the measures contained in Directive 2009/21/EC of the European Parliament and of the Council on compliance with flag state requirements. Both regulate inspections and detention procedures.

iii Registration and classification

Registration

Maltese legislation offers great advantages and benefits to those who choose to register their vessels under the Malta maritime flag. Malta retains its place on the Paris MOU white list, in line with its policy not to register ships with a poor detention, safety or marine pollution record, and ranks among the flags meeting the Paris MOU criteria for low-risk ships.19 Ship registration and the provision of all ancillary services is the responsibility of the MSD, which is also responsible for the regulation, control and administration of all matters concerning merchant shipping, the certification of seafarers and the administration and implementation of international maritime conventions and agreements.20 The registry's services are offered around the clock, to accommodate any urgent matter.

Maltese legislation provides for the registration of vessels used for navigation in international waters under the provisions of the Merchant Shipping Act, and the registration of ships under 24 metres in length and employed solely in navigation within the territorial waters of Malta, whether privately or commercially, under the provisions of the Small Ships Regulations. Registration of fishing vessels used in the territorial waters of Malta is provided for under the provisions of the Fisheries Conservation and Management Act. Commercial yachts (that is, those in commercial use that are more than 15 metres in overall length and do not carry more than 12 passengers) can be registered in Malta subject to the conditions of the Commercial Yacht Code.21 All types of vessels, from pleasure yachts to oil rigs, may be registered, provided that all requirements set out in the applicable legislation are met. Maltese law also provides for the registration of vessels under construction.

As for ownership and eligibility for registration, the Merchant Shipping Act provides that vessels owned by either citizens of Malta or bodies corporate established under the laws of Malta, or European citizens or foreign corporate bodies or entities (international owner) having a Maltese resident agent, are eligible for registration under the Malta flag. An international owner shall be deemed to have submitted to the jurisdiction of the Maltese courts through the resident agent. There are no nationality restrictions for masters, officers and crew of Malta-registered vessels and no trading restrictions. A vessel is first registered provisionally under the Malta flag for six months, during which time all documentation needs to be finalised.

Maltese law allows for both bareboat charter registration of foreign ships under the Malta flag (bareboat charter in registration) and for bareboat charter registration of Maltese ships under a foreign flag (bareboat charter-out registration), as long as all the requirements prescribed in the legislation are satisfied and the consent of the registrar is provided. Moreover, Malta caters for a certificate of registry to be issued in the name of the charterer or the lessee when a ship registered under the Malta flag is being operated under charter or is leased, and that ship is not bareboat-charter registered in a foreign registry.

At the request of the owner, the registry of a Maltese ship may close, followed by the issuance of a deletion certificate, provided, inter alia, that the consent of the registered mortgagees is evidenced and all liabilities and obligations of the ship towards the Republic of Malta have been fulfilled.

Malta has also become renowned for the protection it offers to financiers. The mortgagee has the right to take possession and sell the vessel secured by the mortgage when the debtor is in default and is also empowered to maintain the status and validity of the registration of the ship, thereby safeguarding its ability to operate the ship commercially pending a sale procedure. Under Maltese law, a mortgage is an executive title and can be enforced upon default without the need for a special judgment. Mortgages enjoy a relatively high ranking among maritime claims, which is of great importance if the mortgage is actually enforced through a judicial sale or a court-approved private sale and the proceeds from the sale of the vessel are not sufficient for all creditors.

Classification

A merchant vessel at the time it is being registered as a Maltese ship and during the period of its registration under the Malta flag must be classed with a classification society authorised to issue statutory certificates on behalf of the government. The criteria in accordance with which organisations or bodies of surveyors may be authorised under the Merchant Shipping Act are prescribed in the Ship Inspection and Survey Organisations Regulations.22

The following classification societies are recognised and approved by the government:

  1. American Bureau of Shipping;
  2. Bureau Veritas;
  3. China Classification Society;
  4. Croatian Register of Shipping;
  5. Class NK (NK);23
  6. DNV;24
  7. Indian Register of Shipping;
  8. Korean Register of Shipping;
  9. Lloyd's Register;
  10. Polish Register of Shipping;
  11. Registro Italiano Navale; and
  12. Russian Maritime Register of Shipping.

iv Environmental regulation

Malta is a Member State of the European Maritime Safety Agency, the European Seaports Organisation and the Regional Marine Pollution Emergency Response Centre for the Mediterranean Sea. In assistance with these regional authorities and, among other, the IMO, Malta enforces international, regional and EU instruments, which have been either ratified or directly form part of domestic legislation. Malta is party to the major conventions regulating sea and air pollution.

As a signatory of the International Convention for the Prevention of Pollution from Ships 1973 (MARPOL) (as amended), Malta has transposed MARPOL's Annexes into domestic legislation through:

  1. Merchant Shipping (Prevention of Pollution of Ships) Regulations (SL 234.32);
  2. Merchant Shipping (Prevention of Pollution by Garbage) Regulations (SL 234.33);
  3. Merchant Shipping (Prevention of Pollution Sewage) Regulations (SL 234.47); and
  4. Merchant Shipping (Wreck Removal Convention) Regulations (SL 234.53).

As of 1 January 2020, all ships subject to MARPOL Annex VI are, in principle, required to use on board either fuel oils with a sulphur content of no more than 0.5 per cent mass/mass in accordance with the revised MARPOL Annex VI, Regulation 14.1, or alternative emission reduction and control technologies to comply with the emission standard. In the event that any deficiencies are recorded against the listed items, action may be taken by the Port State Control Officer, which may include the detention of the ship, other enforcements, administrative or corrective measures.25 As of 1 October 2020, electronic record books can be used in lieu of hard copy record books on board Malta-flagged vessels for record-keeping requirements under MARPOL.26

The International Convention on Civil Liability for Bunker Oil Pollution Damage 2001 (the Bunker Convention) has been transposed into domestic law through the Merchant Shipping (Liability for Bunker Oil Pollution Damage) Regulations (SL 234.46).

Additionally, in response to grave concern about the spread of invasive species through the carriage of ballast waters from ships, Malta acceded to the Convention for the Control and Management of Ships' Ballast Water and Sediments 2004 (the Ballast Water Management Convention, which entered into force on 8 September 2017) on 7 September 2017. The Convention came into force in Malta on 7 December 2017 when it was transposed into domestic legislation through the Merchant Shipping (Ballast Water Management Convention) Regulations (SL 234.55).

Moreover, to further establish a system of penalties for failure to comply with monitoring and reporting obligations, Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015, and amending Directive 2009/16/EC, was transposed into domestic legislation through the Merchant Shipping (Monitoring, Reporting and Verification of Carbon Dioxide Emissions from Maritime Transport) Regulations (SL 234.54).

Furthermore, Malta is a signatory to:

  1. the UN Environment Programme Convention on Biological Diversity;
  2. the Convention for Protection of the Mediterranean Sea against Pollution 1976 (the Barcelona Convention) and its 2002 and 2004 Protocols;
  3. the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter 1972 (the London Convention);
  4. the International Convention on the Control of Harmful Anti-Fouling Systems on Ships 2001 (the Anti-Fouling Convention);
  5. the International Convention on Oil Pollution Preparedness, Response and Co-operation 1990 (the OPRC Convention); and
  6. the Protocol on the Preparedness, Response and Co-operation to Pollution Incidents by Hazardous and Noxious Substances 2000 (OPRC-HNS).

v Collisions, salvage and wrecks

Collisions

Malta has adopted the COLREGs, which are regulated in the Commercial Code (Chapter 13), the Merchant Shipping Act (Chapter 234) and the Prevention of Collisions Regulations (SL 234.20).

The Commercial Code has sections dealing with the rights and obligations of the insurer and of the assured, specifying the risks borne by the insurer, and with the prescription and inadmissibility of action for damage occasioned by the collision of vessels when a collision happens in a place in which the master could institute proceedings, unless the master has made a protest.27

The Prevention of Collisions Regulations are regulated under the Merchant Shipping Act.28 Any proceeds from any indemnity arising from a collision are secured by a special privilege upon the vessel. In the case of a mortgaged vessel, the same will attach to any proceeds from any indemnity arising from such collisions.

Salvage

Malta is not a signatory to the International Convention on Salvage 1989 (the 1989 Salvage Convention); however, the law of salvage is found in the Commercial Code and the Merchant Shipping Act.

The Commercial Code establishes that any damage caused to a vessel or to cargo, or to both, and the salvage payable for extraordinary services to avoid loss or capture in cases of imminent peril, are to be considered to be general average, as per the provisions of Title IV of the Code.29

Under the Merchant Shipping Act, salvage includes all expenses properly incurred by the salvor in the performance of salvage services.30 Salvage in respect of preservation of life, when payable by the owners of the vessel, shall be payable as a priority over all other claims for salvage.31 If the vessel, cargo and apparel are destroyed, or the value thereof is insufficient, after payment of the actual expenses incurred, to pay the amount of salvage payable in respect of the preservation of life, the Minister may, at his or her discretion, award to the salvor, out of the Consolidated Fund, such sum as he or she thinks fit in whole or in part satisfaction of any amount of salvage so left unpaid.32

Moreover, under the principle of 'no cure no pay', the liability of the owner to pay salvage shall extend to persons having an interest that has been saved by the property being brought into a position of security.33

If any dispute arises as to apportionment of any amount of salvage among the owners, master, pilot, crew and other persons in the service of any foreign vessel, the amount shall be apportioned in accordance with the law of the country to which the vessel belongs.34

Wrecks

Malta ratified the Nairobi International Convention on the Removal of Wrecks 2007 (Nairobi WRC 2007) on 18 January 2015. The Nairobi WRC 2007 is transposed into Maltese legislation through the Merchant Shipping (Wreck Removal Convention) Regulations (SL 234.53), which is applied to all Maltese ships wherever they may be and to all other ships while in Maltese waters regardless of flag. A section on wrecks is also found in both the Commercial Code and the Merchant Shipping Act.

The applicability of the Nairobi WRC 2007 in Malta, as per the Regulations, means an area extending to 25 nautical miles from the baselines from which the territorial waters are measured in accordance with the Territorial Waters and Contiguous Zone Act.35 With respect to certification, Transport Malta is the authority that issues the wreck removal certificates in terms of the Nairobi WRC 2007, which must be placed on board the vessel.

If a vessel has sunk, is stranded or is abandoned on or near the coasts within the territorial jurisdiction of Malta, the Minister responsible for shipping36 is granted the power not only to remove the vessel but also to destroy it, whether in whole or in part.37

Ship recycling

Malta ratified the Hong Kong Convention for the Safe and Environmentally Sound Recycling of Ships 2009 (the Hong Kong Convention) on 14 May 2019, becoming the 12th nation to do so. Additionally, the obligations set out in Regulation (EU) No. 1257/2013 of the European Parliament and of the Council of 20 November 2013 on ship recycling (amending Regulation (EC) No. 1013/2006 and Directive 2009/16/EC) (the EU Ship Recycling Regulation) are enforceable in Malta through the Merchant Shipping (Ship Recycling) Regulations (SL 234.56) adopted on 31 December 2018.38 Moreover, to establish a framework to protect human health and the environment against the adverse effects of hazardous wastes and their disposal, Malta ratified the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal in June 2000. The obligations as found in this Convention are in force by means of the Environment Protection (Control of Transboundary Movement of Toxic and other Substances) Regulations 2000. The Environment and Resources Authority is the competent authority under these regulations. The EU Ship Recycling Regulation relating to the Inventory of Hazardous Materials (IHM) is in force, which gives rise to the obligation to carry on board an IHM with a certificate or statement of compliance as appropriate, as of 31 December 2020.

vi Passengers' rights

Malta has ratified the Athens Convention on the Carriage of Passengers and their Luggage by Sea 1974 (the Athens Convention). The Convention establishes a regime of liability for damage suffered by passengers carried on a seagoing vessel. Passengers' claims are regulated by the Merchant Shipping (Carriage of Passengers by Sea) Regulations39 and give effect to the Athens Convention. In accordance with the Regulations, the Registrar General of Shipping and Seamen should issue a certificate attesting that insurance cover or another financial security is in force in respect of ships registered under the Malta flag and of any other ship entering or leaving Maltese ports. Malta is also bound by Regulation (EC) No. 392/2009 on the liability of carriers of passengers in the event of loss of damage resulting from an accident, which entered into force on 31 December 2012. The Regulation incorporates certain provisions of the Athens Convention (as amended by the 2002 Protocol) and applies to all carriers involved in international carriage, including carriage between EU Member States, and certain types of domestic carriage. Regulation (EU) No. 1177/2010 concerning the rights of passengers when travelling by sea and inland waterways,40 which came into force on 18 December 2012, is also enforceable in Malta.

vii Seafarers' rights

Malta ratified the MLC on 22 January 2013. The MLC, which entered into force on 20 August 2013, was transposed into domestic legislation through the Merchant Shipping (Maritime Labour Convention) Rules (SL 234.51). Part IV of the Merchant Shipping Act regulates certification, the conditions for admission to employment, the form, period and conditions of agreements with crew, the conditions of service regulations, the discharge of seafarers, the repatriation of seafarers, rights of wages and payment of seafarers, and the power of the court to rescind a contract between owner or master and seafarer.

Malta has acceded to the STCW Convention (as amended), which was transposed into domestic legislation through the Merchant Shipping (Training and Certification) Regulations (SL 234.17).41 In terms of these Regulations, officers and seafarers are subject to certification issued by the Registrar General of Shipping and Seamen, who is responsible for certification of seafarers. Certificates of competence are issued after the successful completion of approved training courses and examinations held in Malta. In addition, Malta has entered into bilateral agreements with foreign maritime administrations for the recognition of certificates of competence issued to seafarers.42 These Regulations were amended through Legal Notice 26 of 2021, which transposed the provisions for the training and certification of radio operators from the Radiocommunications (Certificates of Operators) Regulations (SL 399.35) into the Merchant Shipping (Training and Certification) Regulations. Furthermore, the Regulations include new training provisions directed towards the yachting sector.

With regard to detention measures in respect of ships, if a ship is not in compliance with the provisions of the Merchant Shipping Act, the Merchant Shipping (Maritime Labour Convention) Rules and applicable requirements of the STCW Convention, the Registrar General of Shipping and Seamen shall take necessary measures to ensure that the ship shall not sail until it can proceed to sea 'without presenting an unreasonable threat of harm to the working and living conditions of seafarers and any expenses incurred therefor shall be a charge on the ship, so however that the ship shall not be unduly detained or delayed'.43

Outlook

Under the Maltese system, a shipping company is subject to tonnage tax calculated on the basis of the net tonnage of the ship as an alternative to charging corporation tax. Tonnage tax is applied to a shipping company's core revenues derived solely from shipping activities, such as international carriage of goods and passengers, certain ancillary revenues that are closely connected to shipping activities (which are, however, capped at a maximum of 50 per cent of a ship's operating revenues), and revenues from towage and dredging subject to certain conditions. Maltese legislation also caters for ship management companies that may benefit from the tonnage tax system, subject to the conditions set in the legislation being met. Moreover, Malta, under its domestic legislation, has an exemption for domestic source income earned by non-resident shipping owners on a reciprocal basis.

Subject to amendments introduced by Legal Notice 31 of 2020,44 shipping companies should file audited financial statements, as from financial year 2020, within the periods required for a company incorporated in terms of the Companies Act.45 The amendments cater for small companies and the exemptions applicable for small companies under the Companies Act should also apply to shipping companies, as long as the other criteria set out in the legislation are met. A shipping company may elect to be governed by the Companies Act should the relevant notice be filed.

Prior to the aforementioned amendments, a shipping company incorporated in another jurisdiction applying to be continued in Malta was required to go through a lengthy process. However, through the introduction of the amendments, foreign shipping companies have been provided with their own specific rules catering for this circumstance, which provides for a smoother transition of foreign-registered companies wishing to continue in Malta, or conversely, a Malta shipping company wishing to continue in another jurisdiction.

A provision introduced to the Companies Act as of 3 March 2020, with the introduction of Act V of 2020, has extended the possibility for cell companies to be created and for companies to be converted into cell companies, provided that they carry on or are engaged in shipping or aviation business. The directors of the cell company should keep separate records, accounts statements and other documents to evidence the assets and liabilities of each cell as distinct and separate from the assets and liabilities of other cells in the same company. Consequently, creditors of a particular cell should be able to avail themselves of the assets of that particular cell only and should not reach to other cells to cater for the debts due by that particular cell. The amendments may serve as a simplifying tool for shipping companies who wish to consolidate their holdings, vessel portfolios and other assets. In view of the foregoing, it is evident that owing to the fact that Malta has long appreciated the maritime industry as one of its economic pillars, efforts are continuously being made to ensure the industry remains competitive and robust.

Malta has also enacted the legal framework to regulate activities based in the blockchain and fintech industries and has established itself as a centre for distributed ledger technology businesses; as a result, we have seen a lot of blockchain-driven shipping platforms choose Malta for business. Maltese legislation also caters for smart contracts offering the opportunity for paperless and more efficient shipping transactions.

Additionally, securitisation is one of the financing tools being used as a primary source of raising finance within the shipping industry. Securitisation transactions are undertaken through special purpose vehicles, which are entities that are set up for the sole purpose of issuing securities to fund the acquisition of particular assets. The Maltese legislation is also very popular among financiers and shipowners who opt for sale and leaseback transactions because of the benefits offered. Malta offers a network of double tax treaties with approximately 80 jurisdictions.

Furthermore, Malta has established its position as a ship finance leasing jurisdiction offering various incentives to the parties involved. The legislation was amended and a certificate of registry in the name of the charterer or lessee might be issued. Maltese law provides that the letting of ships shall be regulated by the provisions of any agreement between the lessor and the lessee. The termination of the lease shall be regulated by the agreement between the lessor and lessee. Any notice of termination that may be required to be given under the agreement may be given by notice in writing in any manner, including by electronic means. The lease of a ship or rights thereunder shall be dissolved immediately or terminated by the lessor (or mortgagee who shall be deemed to have such power unless expressly waived) at any time in the event of a default and upon notice in writing to the lessee (in the manner referred to above), notwithstanding any opposition by the lessee, and without the need of any authorisation or confirmation by any court that an event of default has taken place. In these circumstances, the lessor may, after notice to the lessee, take possession of the ship in accordance with the agreement between the parties and may ask the court in Malta for an order authorising or directing these acts, and the court shall render full support to the lessor or the mortgagee as expeditiously as possible.46

A financial institution, whether established or operating in Malta, carrying out the activity of financial leasing and all related transactions, should not require a licence from the competent authority for the purposes of exercising its activities in Malta under the Financial Institutions Act.

Transport Malta adopted preventive measures in the early stages of covid-19 reaching the Maltese islands to minimise the effects of the pandemic on the maritime industry and to ensure provision of an uninterrupted service to the Maltese shipping community under the current exceptional circumstances. To assist the shipping industry, Transport Malta took the economic measure of deferring the due payment of the respective registration fees and annual tonnage tax by three months from the anniversary with respect to those whereby the anniversary falls on or after 1 April 2020. Commercial vessel activities were granted temporarily extended expirations of certifications, registrations and permits of commercial vessels, small ships and moorings, including registration of small ships, nautical licences, certification of commercial vessels, certification of competency and mooring permits provided that the boat owner is in possession of a valid insurance policy.

To better assist the teleworking measures adopted by local companies and to lessen physical contact, the authorities' services were facilitated through the introduction of online services regarding yacht and boat registration under the Valletta Registry. The online services range from renewal of certification of registry, provisional and permanent registration, transfer of ownership, online payments and other ancillary services.

Footnotes

1 Jean-Pie Gauci-Maistre is a managing partner, Despoina Xynou is a partner and Deborah Mifsud is a junior associate at Gauci-Maistre Xynou.

2 Laws of Malta, Chapter 387.

3 ibid., Chapter 474.

4 ibid., Chapter 387.

5 ibid., Chapter 140.

6 ibid., Chapter 13.

7 ibid., Chapter 12.

8 ibid., Chapter 234.

9 Carriage of Goods by Sea Act 1954, Article IV, Schedule 1.

10 Laws of Malta, Chapter 234.

12 Laws of Malta, Subsidiary Legislation 234.16.

13 Code of Organisation and Civil Procedure [COCP], Article 742B.

14 COCP, Article 742.

15 Danske Bank A/S v. MV Thor Spirit (1 December 2011).

16 In Joint Stock Company Rietumu Banka v. MV Blankenese (22 August 2013), the issue arose that the mortgagee was requesting the court to sell the ship to a company in which the same mortgagee was in control. The court held that there is nothing in the Maltese Companies Act that prohibits a shareholder from acquiring property of a company in which he or she is a shareholder, and made a distinction between the physical individual shareholder and a duly incorporated company which is separate and distinct from its members. It specifically stated that parties alleging bad faith on the part of the buyer must prove bad faith before the court and it emphasised that the price being paid by the buyer was as good as or superior to the valuations produced by the mortgagee, so the court was convinced that the valuations were reasonable and true. Given the fact that the price offered exceeded the valuations presented, the court discarded the objections raised by the two claimants; Amsterdam Trade Bank NV v. MT Pacific (28 November 2013); Hyundai Heavy Industries Co Ltd and Hyundai Samho Heavy Industries Co Ltd v. MV B Ladybug (8 April 2014), in which the court made it clear that any creditor who decides to make use of this mechanism is not abusing the law, since the private sale of vessels is a legitimate remedy according to Maltese law as long as creditors who decide to apply for the approval of a private sale of a vessel do not abuse this mechanism or use it frivolously to the detriment of other creditors or the debtor himself; Malta Towage Limited v. MV Irmak (25 August 2014); Pacific Seaways Shipbuilding Inc. v. MV Kay (18 February 2016), in which not only was the mortgagee of the vessel allowed to purchase it but was allowed to do so animo compensandi; Fenech noe v. MY Indian Empress (25 September 2018).

18 Subsidiary Legislation 234.38 was amended by Legal Notice 37 of 2021 and adopts the measures contained in Directive 2009/16/EC of the European Parliament and of the Council of 23 April2009, in Directive 2013/38/EC of the European Parliament and of the Council of 12 August 2013 in its latest version, and in Regulation (EC) No. 725/2004 of the European Parliament and of the Council of 31 March 2004 on Enhancing Ship and Port Facility Security, in its latest version as far as its Article 8 and Regulation 9 in its Annex I are concerned.

19 Published on the flag performance list of the Paris Memorandum of Understanding on Port State Control 1982.

21 The requirements of the Commercial Yacht Code [CYC] 2015 have been duly revised and improved and a new CYC 2020 is being issued to replace CYC 2015. CYC 2020 is applicable to all commercial yachts and is effective as of 1 January 2021. Merchant Shipping Notice 164 can be accessed at https://www.transport.gov.mt/include/filestreaming.asp?fileid=5739.

22 Subsidiary Legislation 234.37.

27 Commercial Code (Chapter 13 of the Laws of Malta), Article 545.

28 Merchant Shipping Act (Chapter 234 of the Laws of Malta), Part V, Section 5.

29 Commercial Code (Chapter 13 of the Laws of Malta), Article 444(h).

30 Merchant Shipping Act (Chapter 234 of the Laws of Malta), Article 330.

31 ibid., Article 342.

32 id.

33 ibid., Article 344.

34 ibid., Article 345(3).

35 Chapter 226 of the Laws of Malta.

36 Merchant Shipping Act (Chapter 234 of the Laws of Malta), Article 339.

37 id.

38 Subsidiary Legislation 234.56.

39 Subsidiary Legislation 234.52.

41 The Merchant Shipping (Training and Certification) Regulations (Subsidiary Legislation 234.17) have been amended through Legal Notice 26 of 2021.

43 Merchant Shipping (Maritime Labour Convention) Rules, Article 129(1).

44 Published in the Government Gazette on 21 February 2020.

45 The Laws of Malta, Chapter 386.

46 See Civil Code (Chapter 16 of the Laws of Malta), Article 1526.

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