'Maritime Malta' – legal perspective

Introduction
Overview of legal system
Comment

Introduction

The term 'Maritime Malta' perfectly describes Malta – a country which has always had close connections with the sea and maritime sector. Malta's position in the centre of the Mediterranean, equidistant from the straits of Gibraltar and Suez and the shores of North Africa and Italy, means that it has always been considered a highly strategic trading post.

Malta's existing maritime diversity is evidenced by the fact that it:

• has the largest shipping register in Europe;
• has one of the deepest natural harbours in the world;
• is home to numerous marinas which now welcome some of the world's most glamorous superyachts;
• has a tradition in ship repair, with numerous yards and docks – one of which is 230 metres long;
• has two fascinating ports of call, Valletta and Gozo, for the hundreds of cruise liners either visiting Malta or using it has a home port;
• is equidistant from the straits of Gibraltar and Suez and thus an ideal bunkering location;
• boasts an international port (Malta Freeport) which serves as a highly successful transhipment centre; and
• is home to the International Maritime Law Institute, a postgraduate academic institution under the auspices of the International Maritime Organisation.

These achievements are a direct result of careful planning, a strong workforce that is prepared to deliver value for money and a 'can do' attitude. In addition, Malta has a stable and reliable legal regime and laws which give investors and their financiers a high degree of confidence.

Overview of legal system

Before Malta became a British colony in 1801, it had a fully developed judicial system based initially on Roman law and later on the Napoleonic Code. When the British came to Malta, they found a highly developed legal system. That said, the years under British rule (from 1801 to 1964) were extremely important in terms of shipping legislation, as a number of shipping laws passed in England during this period came into force in Malta.

Following independence in 1964, a number of important commercial laws passed by Parliament were based on the British model. These include several laws in relation to financial services, shipping and companies. This, coupled with the fact that English is the second official language in Malta (which means that all legislation is available in English), ensures that investors and their financiers are guaranteed a high level of confidence.

As English is an official language, there is often less bureaucracy compared to other jurisdictions, where everything from a simple power of attorney to the most complex corporate documents must be translated into the working language of the respective country, notarised and apostilled.

Malta has a diverse body of maritime laws to sustain its maritime activities. It is universally recognised that having a solid legal base which provides potential investors and their financiers with confidence that their investments are secure is paramount. Without it, no country can aspire to have good-quality, high-end investments.

In addition to the laws passed by Parliament, Malta is a signatory to an increasing number of international conventions regarding the maritime sector. Further, as Malta is a member of the European Union, it is subject to the entire body of European law.

International conventions
Malta is party to a number of both well-known and less-established international conventions, and these conventions are a major part of its body of law. The more well-known conventions include:

• the Safety of Life at Sea Convention;
• the Prevention of Pollution from Ships Convention; and
• the United Nations Convention on the Law of the Sea (UNCLOS).

Malta helped to launch the discussion on the establishment of UNCLOS on November 1 1967 when Dr Arvid Pardo, Malta's permanent representative to the United Nations, made a heartfelt appeal before the General Assembly highlighting the need to protect the oceans and take all measures against pollution. It was Pardo who, based on Malta's historic position, argued that the seabed and ocean floor should constitute part of the "common heritage of mankind" – a phrase now contained in Article 136 of UNCLOS.

Local legislation
In terms of local legislation, there are several laws which regulate every aspect of the maritime sector. Perfect examples of Maltese maritime law are the Merchant Shipping Act (first promulgated in 1973) and the several pieces of subsidiary legislation promulgated under the act. The Merchant Shipping Act is the undisputed authority for the maritime sector. It regulates numerous pillars of maritime law, including:

• the registration of vessels;
• the registration of mortgages;
• masters and seafarers;
• safety at sea;
• pollution;
• special shipping inquiries;
• wreck and salvage; and
• shipowner liability.

Many other legal notices and subsidiary legislation have been promulgated under the auspices of the act. Combined, these laws establish the entire body of law regulating, among other things:

• collisions at sea;
• training and certifications;
• load line rules;
• the limitation of liability on maritime claims;
• safe manning and watch keeping;
• shipping organisations; and
• the certification of commercial yachts.

The Merchant Shipping Act has been fine-tuned and constantly updated to the extent that the Malta flag is now the European white-listed flag of choice for hundreds of shipowners. The reasons behind the flag's success are mostly operational in nature and include:

• English being an official language;
• the tonnage tax regime; and
• the regulator's ability to offer a continuous service, where necessary.

Further, as Maltese law offers a great deal of protection to financiers, it is attractive to investors. Ships are often financed by third parties. The mortgagee must believe that the law of the flag state properly protects its interests; otherwise, the financier will refuse the owner's chosen flag. As such, the choice of flag is an important consideration.

Maltese law also protects mortgagees against defaulting owners – one of the reasons why the Maltese flag is so successful. Further, under Maltese law, mortgagees are in a privileged position because the mortgage itself constitutes an executive title. This means that the mortgage is equivalent to a judgment. Thus, in the case of a defaulting owner, the mortgagee need not commence an action on the merits against the mortgagor for defaulting on its payments. Any other normal creditor would have to commence an action, make a case in court, obtain a judgment and then enforce the judgment.

Under Maltese law, mortgagees have a number of available options to enforce their rights:

• Take possession of the vessel – under this method, the mortgagee can trade the vessel as though it has ownership while the vessel remains under the ownership of the defaulting owner.
• Private sale – under a private sale, the vessel is sold with all its privileged debts and thus will be an unattractive proposition to potential purchasers.
• Judicial sale – a judicial sale is one ordered by the courts. Once a date is set for the auction, the vessel will be sold to the highest bidder. In a judicial sale, the vessel is sold free and unencumbered (thus shedding all of its previous debts); however, as there is no reserve price, vessels are commonly sold for a fraction of their actual price.
• Court-approved private sale – a court-approved sale allows a mortgagee to find a private buyer and negotiate a price, thus eliminating the uncertainty of the sale price. To do so, the mortgagee must file an application in court requesting approval of the sale and present two independent valuations of the ship to show that the sale price is equal to or in excess of the valuation. Once the sale is approved, the vessel will be sold free and unencumbered. This method ensures that the vessel will be sold for an agreed price, rather than leaving it to chance in a judicial sale – something which is particularly useful in the depressed, second-hand tonnage market. This way, all the parties involved – including the shipowner – get the benefits of both a private sale and judicial sale without the disadvantages.

Comment

One of the secrets behind Malta's success in the international maritime industry is the country's willingness to think outside the box, improve its products, develop new solutions and update its laws to ensure that they meet the needs and requirements of the international maritime community. For example, Maltese law has continued to develop robust structures to assist superyacht owners, distinguishing them from cargo vessels and passenger liners (for further details please see "Malta – logical choice for superyacht owners").

To be successful, a country's maritime law must reflect the needs of the community: it must be sensitive to the needs of users and regulators and should thus be continuously updated. Malta's regulator and legislature work with industry service providers to ensure that Maltese law reflects the exigencies of the maritime industry. In this context, the Malta Maritime Law Association (MMLA) has become important in developing the concept of 'Maritime Malta'. The MMLA comprises maritime lawyers and other service providers and has an excellent working relationship with Transport Malta. The MMLA is a member of the Committee Maritime International (CMI), the body tasked with drafting maritime conventions. In 2015 Malta had its first representative elected to the CMI executive committee.

For further information on this topic please contact Ann Fenech at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (ann.fenech@fenlex.com). The Fenech & Fenech website can be accessed at www.fenechlaw.com.