Contributed By Fenech & Fenech Advocates
Not applicable. Malta has not introduced any legislation specifically addressing 'maritime finance' since the general shipping laws and regulations, including the laws regulating mortgages, security and collateral in respect of maritime assets, already adequately provide a world-class standard of regulation as is evidenced by the Maltese shipping register being the largest in the European Union.
Malta is a signatory to LLMC 76. The provisions found under LLMC 76 as amended by the 1996 protocol, have been transposed into Maltese domestic legislation by means of the 2003 Limitation of Liability for Maritime Claims Regulations, subsidiary legislation 234.16 of the Laws of Malta (the Maltese Regulations).
Malta is a party to LLMC 76 as amended by the 1996 protocol (the LLMC). Malta deposited its instrument of accession on 13 February 2004, making it the tenth IMO member state to accede to the 1996 protocol. In doing so, it also triggered the entry-into-force mechanism under the protocol.
Not applicable in light of 2.2 1996 Protocol, above.
The law is silent with regards to the time bar for setting up a limitation fund. It is arguable that this was intended by the legislator to afford ship-owners the unfettered right to set up a fund at any time. Likewise, the Maltese Regulations do not stipulate a specific time bar for a creditor to file a claim for distribution from the limitation funds.
Accordingly, the applicable time bars would appear to be the general time limits applying to different categories of claim (for instance, in the case of tortious claim it would be two years). It should be noted that, to date, no limitation fund has ever been constituted in Malta.
The Maltese position is more restrictive than that found under the LLMC. The Maltese Regulations expressly provide that a ship-owner cannot avail him or herself of the right to limit his or her liability in respect to those claims mentioned in paragraphs (d) and (e) of Article No 2(1) of the LLMC. Accordingly, the claims subject to limitation of liability under Maltese Law are the following:
The Maltese Regulations exclude all those claims found in Article No 3 of the LLMC. These excluded claims are:
Furthermore, the Maltese Regulations also exclude claims for the loss of life or personal injury to passengers of seagoing ships. In those cases, a ship-owner would still be entitled to limit its liability under the provisions of the Athens Convention relating to the Carriage of Passengers and their Luggage by Sea, 1974, as amended by the 2002 protocol. The LLMC, however, still applies for any claims for the loss of life or personal injury to passengers of non-seagoing ships.
Lastly, the Maltese Regulations exclude claims for damage within the meaning of the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea 1996. However, this particular exclusion is not yet in force in Malta.
Maltese law reflects the position found under Article No 4 of the LLMC. A person may only lose the right to limit his or her liability if it is proven “…that the loss resulted from his or her personal act or omission, and that it was committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result”.
Provided that the defendant has raised limitation of liability as a defence, the burden would be encumbered on the same defendant to show that they are entitled to claim such liability. The onus of proof would then shift to the claimant to evidence that the defendant’s conduct justifies barring the right of limitation.
The Maltese Regulation apply the following limits of liability on claims arising on any distinct occasion:
While the matter has yet to be tested before the Maltese courts, it would be extremely hard to break an owner’s right to limit its liability under Maltese law. A claimant must first prove that the loss was a result of an act or omission of the owner and, secondly, prove the owner committed the act or omission either with the intention to cause that loss or so recklessly that they should have known that loss would occur.
Regulation 13(3) of the Maltese Regulations states that a person claiming limitation may constitute a limitation fund by paying into court the equivalent in euros of the SDR amount to which they claim to be entitled to limit their liability.
In accordance to Maltese general laws of procedure, such payment into court may be made either by a deposit of money or a local bank guarantee.
From the outset, it should be noted that since no limitation fund has ever been constituted in Malta, this matter has not been discussed or tested before the courts. One can only be guided by the provisions of the Maltese law.
Under our general law of procedures, a court would generally allow a P&I Club LOU to be granted as alternative security for a claim, provided that the claimant creditor does not object.
That said, in the case of a limitation fund, the court cannot ascertain that the owner has the consent of all existing or possible creditors who may bring forward a claim in the distribution. Therefore, it is unlikely that a court would accept a P&I Club LOU to constitute a limitation fund.
In accordance with Article No 13(2) of the LLMC, after the limitation fund has been established, the owner may request the release of the vessel or the release of any other security given. As previously stated, to date no limitation fund has ever been established in Malta, therefore there is no precedence on the subject.
However, in line with the provisions of Article No 13(1) of the LLMC, an owner would need to file an application asking the courts to lift any existing arrest. The judge should accept this application on the basis that the fund constitutes valid alternative security. With regards to existing claims, Article No 12 of the Regulations gives the Civil Court (First Hall) powers to consolidate these claims and ensures that all claims being heard by any other court can be transferred before said Civil Court (First Hall).
A creditor must obtain a final and non-appealable executive title (such as a judgment) against either the owner of the ship in personam or against the ship in rem. A creditor may then demand the court schedules a date for the judicial auction of the vessel. Alternatively, a creditor may opt to find a prospective buyer and ask the court to approve a private sale. The latter is the preferred choice for financial institutions and mortgagees. The judicial auction and the court-approved private sale are the only two types of judicial sale of ships permissible under Maltese law.
Maltese law dictates that the judicial auction of vessels must be publicly advertised in the Government Gazette and at least two national newspapers (one in Maltese and the other in English). Moreover, the master and/or agent will be served with a copy of the auction notice.
In the case of a court-approved private sale, the law provides that a copy of the sale application shall be served on the master and/or agent as well as on every other interested person known to the executing creditor, including any other creditor who has filed a claim in Malta.
In both cases, the creditor executing the judicial sale will often also advertise the judicial sale in international maritime journals and/or list the vessel with prominent brokers.
In a judicial auction, there is no need to get the vessel appraised since under Maltese law there is no minimum sale price reserve.
In a court-approved private sale, the creditor requesting the sale must procure two appraisals of the vessel. These must be full on-board appraisals as opposed to mere ‘desktop’ valuations. These valuations must give accurate representations of the value of the vessel.
Since there is no minimum price threshold, there is normally only one auction round. That said, if for whatever reason the highest bidder at that auction does not deposit the purchase price in court within the following seven days, then the auction will fall through. Consequently, a second auction will need to be scheduled by the courts. If the vessel is subsequently sold at a lower price, the difference in sale price must be reimbursed by the defaulting highest bidder of the first auction.
As discussed, under our law there is no minimum reserve with regard to the sale price. It is at the auctioneer’s discretion to determine at what price to start the auction, as well as the bid increments.
The auctions are normally held within one of the halls of the courts in Valletta, Malta. On the auction date, prospective bidders will attend the hall to register their participation. Once all bidders are registered, the court-appointed auctioneer will read out the auction notice in English and in Maltese. This includes details of the executing creditor, the judge’s decree ordering the auction and any conditions to the sale ordered by the courts (such as the exclusion of third-party property on board the ship).
The auctioneer will subsequently inform the public of the starting price and the bid increment amounts. The auction will then start and go on until the vessel is sold to the highest bidder.
Bidders are not required to attend the auction with an attorney. A prospective bidder may turn up on the day and register to bid. However, it is always recommended to engage an attorney to advise on what paperwork is required to participate in an auction. Moreover, the assistance of an attorney ensures there are no misunderstandings during the auction with respect to the applicable sale conditions and terms.
A bidder must prepare all the necessary bidding documentation (board resolutions, copies of passports, bank references, etc). On the day, a bidder should go to the auction with his or her legal counsel. Before the auction begins, the court deputy will open registration for prospective bidders. The bidder or their legal counsel will fill in a registration form and submit all the supporting documentation for examination by the court deputy.
A successful bidder must deposit the full sale price with the court within seven days of the date of the judicial sale by auction. This timeframe is considered peremptory and thus under no circumstances can it be extended. Failure to pay within this time will nullify the auction, after which the creditor must file a request for the court to reschedule a new auction date. The legal implications for a bidder who fails to deposit the sale price in time are quite serious.
It is possible for a creditor with a judicially recognised credit against the vessel to place a bid in the auction. It is also possible for such a creditor to make a bid animo compensandi, in effect to set off his or her bid with his or her existing credit.
As stated above, there is no minimum reserve for the sale price in a judicial sale by auction. The ship is sold to the highest bidder present on the auction date.
Conversely, in a court-approved private sale, the judge will approve the sale only once it has been adduced that the sale price offered is in the best interest of all the interested parties. Said price, however, would normally be over the market value of the vessel. This enforcement mechanism is the preferred option for most financiers and mortgagees as it gives them control over the sale and gives them more peace of mind over the sale price to be attained.
Malta is not a party to the Hague, Hague-Visby, Hamburg or Rotterdam Rules.
Cargo claims would by default be regulated by the Carriage of Goods by Sea Act of 1954 That said, if the claim arises under a bill of lading containing a clause paramount, our courts would fully apply the Hague or Hague-Visby Rules.
Our Carriage of Goods by Sea Act 1954 incorporates the text of the Hague Rules. However, the Act only applies in relation to vessels carrying goods from Malta to any other port and therefore the law excludes contracts of carriage in which goods are being imported into Malta, which is the norm.
Having said that, the vast majority of cargo claims heard by our courts arise under bills of lading containing a clause paramount. Our courts will apply fully the Hague or the Hague-Visby Rules, as may be referred to in the clause paramount.
The simple answer to the question of whether a bill of lading evidences a contract of carriage is yes. The theory behind the answer is more complicated, however. Maltese law on bills of lading is very limited and contained within sections 321 to 327 of the Commercial Code. These sections are very old indeed and are very rarely used, principally because cargo disputes arising out of bills of lading are decided by the courts on the basis of the articles contained in the same bills of lading. These are interpreted according to the law governing the bills, which is very frequently English law.
On the rare occasions when there is no reference to a governing law and in the event that the limited sections in our commercial code do not shed any light on the matter, our courts are heavily influenced by English law whenever there is a lacuna in Maltese law.
Thus principles established in English law relating to bills of lading will, in the absence of a specific law governing the bills, be used and referred to by our courts. In this context our courts have already decided that bills of lading indeed evidence a contract of carriage. That said, section 325 of the Commercial Code also states that: “A bill of lading is conclusive evidence between all parties concerned in the cargo, as well as between them and the insurers saving any proof to the contrary.”
The limited sections in the Commercial Code on bills of lading suggest that the parties to a contract for the carriage of goods evidenced by the bill of lading would typically be the issuer of the bill of lading, the shipper, the consignee, the holder of a bill of lading ‘made to order’, the consignee and the endorsee.
The Commercial Code also provides separately for contracts of affreightment and defines such as an agreement for the hire of a vessel. As for the bills of lading, these sections are limited and in need of a very generous overhaul. As the law stands, the parties to such a contract of affreightment (charter party) are referred to as the person letting the vessel, and the freighter (charterer).
It is, however, very rare that we actually make use of these rather antiquated provisions to resolve disputes arising under a charter party or bill of lading. We invariably deal with disputes arising under standard form charters and bills of lading, and these forms are certainly newer than the relative sections of our Commercial Code. Consequently, the clauses therein are interpreted in accordance with English law if Maltese law is silent on the matter.
The consignee, the endorsee and the holder of a bill of lading made to order would all be entitled to make a claim under a bill of lading.
The carrier or its local agent may be sued for cargo claims in Malta.
The issue of who such claimants can sue and who is considered the carrier was the subject of a very important case in The Hope 1 (Maltese Court of Appeal No 212/1999 delivered 26 June 2009). By and large, the court will consider the heading of the bill of lading and the signature box as very good indicators as to who the carrier is. However, unusual situations regarding the carrier’s identity do occasionally present themselves, as with The Hope 1.
In that case, the consignee commenced an action against owners of a vessel for damages to cargo carried under 58 bills of lading, which the defendant argued were charterer’s bills of lading. All 58 bills carried the time charterer’s name prominently on the front; 36 of the bills also cited the charterer Pan Ocean as the carrier in the signature box. In the other 22 bills, Pan Ocean was not described as the carrier in the signature box. The first court did not distinguish between the two types; it held in favour of the defendant and dismissed the plaintiff’s claim, stating that all the bills were charterer's bills.
However, the Court of Appeal distinguished between the 36 and the 22 bills of lading. With regard to the group of 36, the court quoted extensively from The Starsin (Lloyd’s Law Reports (2003) Vol 1), stating that when a bill of lading contains an identity of carrier clause naming the owners as the carrier, this can still be overruled if the signature box on the face of the bill was signed off by agents (expressly agents of the charterers who were described as the carrier) at the port of loading.
With regard to the other 22 bills of lading – which had been signed off by the agent of the charterer but with the words “for the Master” and where Pan Ocean was not described as the carrier – after considering the detailed submissions presented by the parties, the court concluded that the words “for the Master” were sufficient for the court to conclude that those 22 bills of lading were not charterer’s bills of lading and therefore distinguished between them and the first group of 36.
Whether a vessel can be sued in rem before the Maltese courts is entirely dependent on whether or not our courts have jurisdiction in rem over the merits of the claim. In 2006 our Code of Organisation and Civil Procedure was radically overhauled and a new section, 742B , was introduced.
This section contains a list of maritime claims over which Maltese courts have jurisdiction. It is an extensive list based on the maritime claims listed in the Arrest Convention of 1952, the Arrest Convention of 1999 and section 20 (2) of the UK Supreme Court Act, now the Senior Courts Act 1981.
According to section 742B, Maltese courts have jurisdiction in rem to hear “any claim arising out of any agreement relating to the carriage of goods in a ship or to the use or hire of a ship whether by charter-party or otherwise”.
Maltese law does not provide for maritime liens per se. Our closest equivalent is what we refer to as maritime privileges. Section 50 of the Merchant Shipping Act 1973 as amended provides a list of 16 “Special Privileges on Ships”. These range from judicial costs incurred in respect of the sale of the ship to salvage costs to wages and expenses incurred for the preservation of the ship after her entry into port or prior to her departure on her last voyage to moneys due to creditors for labour, work and repairs.
The purpose of this list is twofold. The claims mentioned therein survive the voluntary sale of a vessel by up to one year. Secondly, the list provides the order of ranking of the various privileged creditors in the event that the sale price of the vessel in the judicial sale is not sufficient to pay all the creditors.
Under Maltese law a claimant can make a claim in contract or in tort. Whether a claimant sues in contract or in tort is dependent on whether or not there is a contract of carriage between the parties.
Normally, if there is a contract of carriage then the claimant would be advised to sue in contract. If there is no contract of carriage and the claimant can prove that the damage occurred as a result of the fault of the carrier, then they may also file an action in tort based on the articles of tort as contained in our Civil Code.
A Maltese Court will recognise a Himalaya clause in a bill of lading governed by the laws of another jurisdiction, provided that that other legal system recognises such clauses. This was confirmed by the Maltese Court of Appeal in Joseph Zammit vs Marin Hili noe (decided on the 7th October 2015).
However, such clauses would most likely not be enforceable under Maltese law since our legal system is fault based. It is unlikely that a Court would uphold that an action in tort may not be brought against say an independent contractor of a carrier on the basis of the existence of a Himalaya clause. The matter however remains to be tested as it is very uncommon to come across a bills of lading which stipulates that Maltese law should be the applicable governing law.
Under Maltese law there are no immunities specifically available to the carrier defending a cargo claim, however should the Hague or Hague-Visby Rules be applicable contractually, the court will apply the immunities and defences.
Malta became the tenth member state to accede to the 1996 protocol, triggering the coming into force of LLMC 76 as amended by the 1996 protocol. This is the only limitation of liability regime available to the carrier at law. In the event that the bill of lading incorporates the Hague or Hague-Visby Rules then the limitations contained therein would be applied.
The burden of proof rests with the claimant, who must prove that the carrier is liable for the damages suffered. Barring specific contractual stipulations, liability under Maltese law is fault-based. Every person is liable for damage that ensues as a result of their fault. However it is the claimant who must prove that it was the fault of the defendant that the damages ensued.
The Maltese courts have noted that the failure to give notice of loss and damage within the stipulated timeframe from when damage is noticed is not a fatal error. Such failure however creates a presumption that the cargo was delivered in good order. Nonetheless, such a presumption may be rebutted by other evidence.
The courts will apply the time bars contractually agreed to by the parties in the bills of lading, either specifically or by reference to the incorporation of the Hague or Hague-Visby Rules. Failing any such reference, the time bar for claiming damages in tort is two years and the time bar for claiming damages arising out of contract is five years. That said, the Commercial Code in Article No 544 (a) and (e) specifically provides for a one-year time bar in actions for the payment of freights and for non-delivery of cargo. These statutory time bars cannot be extended.
Time-bars contractually agreed to by the parties in the bills of lading, either specifically or by reference to the incorporation of the Hague or Hague-Visby Rules, can be extended by the parties.
The grounds upon which our courts will exercise jurisdiction over actions filed before them are laid down in Section 742 of our Code of Organisation and Civil Procedure. When they are seized of cases over which they have legal jurisdiction, with disputes under a bill of lading containing jurisdiction and choice of law clauses, our courts will generally recognise the validity of such clauses and cede jurisdiction. There have, however, been a number of cases where the Maltese courts have not ceded jurisdiction in favour of that indicated in the bill of lading, ie, when the witnesses and all the evidence were available in Malta.
The law covering marine accidents in waterways is the Merchant Shipping (Accident and Incident Safety Investigation) Regulations 2011 (Subsidiary Legislation 234.49) (the Regulations). It is applicable to marine accidents and incidents involving or occurring on board Maltese ships, wherever they may be, and to foreign-flagged ships when in Maltese waters, or when Malta has other substantial interests.
Marine accidents are also regulated by Part VII of the Merchant Shipping Act, Chapter 234 of the Laws of Malta and are covered by the general provisions related to tort available in the Civil Code, Chapter 16 of the Laws of Malta.
Malta does not have canals or lake passages however Maltese legislation defines:
The commercial harbours of the Grand Harbour of Valletta, the Marsamxett Harbour, the Marsaxlokk Harbour and Mgarr, Gozo are compulsory pilotage areas.
The following ships are exempt from requiring a pilot even when traversing through compulsory pilotage areas:
Nonetheless, the Authority for Transport in Malta may require such exempted ships to enter, leave, anchor or move within such designated areas under the supervision of a pilot.
Ships carrying dangerous goods, disabled ships and tug and tow combinations may require a pilotage service.
In cases where such a service is unavailable due to bad weather, or any other particular case, the Authority may exempt any ship from compulsory pilotage.
A ship-owner can recover from the authority damages that arise from a marine accident in waterways, if it can prove that the authority was negligent in its duties and was therefore responsible for the accident.
The Regulations provide that “the sole objective of marine safety investigations... shall be the prevention of future marine accidents and incidents through the ascertainment of causes, contributing factors and circumstances”.
This is achieved through the investigation of accidents by the Marine Safety Investigations Unit, the events and circumstances preceding such accidents and the subsequent recommendations as to how future marine accidents and incidents may be prevented. Such recommendations may be made publicly available, in the interest of maritime safety and environmental protection.
The role of the investigators is not to assign blame or determine civil or criminal liabilities for the incident. Nor can the aforementioned recommendations be considered as a presumption of blame or liability.
Under Maltese law, there is no Board of Inspectors, instead such investigations are carried out by a special unit. This unit is composed of the Head of Marine Safety Investigation (HMSI), who is appointed by the Authority in concurrence with the Minister and a number of safety investigators.
The HMSI has the discretion to order the investigation of any marine accident or incident.
The HMSI shall order a marine safety investigation when the marine accident or incident involves a ro-ro ferry or high-speed passenger craft, when it occurs in Maltese waters, or where the incident is in waters over which member states have no jurisdiction and the last port visited by involved vessels was in Malta.
The HMSI shall also be bound to order a marine safety investigation once it is confirmed that the reported occurrence is a ‘very serious casualty’. The Regulations define a very serious casualty as a “marine accident involving the total loss of the ship or a death or severe damage to the environment”.
As above, it is not a Board of Inspectors who investigate but the Marine Safety Investigation Unit. Where the reported occurrence is a ‘serious casualty’, the HMSI may carry out a preliminary assessment and thereupon decide, at its discretion, whether or not to undertake a marine safety investigation. A serious casualty is defined as one that does not qualify as a very serious casualty, but which involves a fire, explosion, collision, grounding, contact, heavy weather damage, ice damage, hull cracking, suspected hull defect etc, resulting in:
Where the HMSI decides not to undertake an investigation, the reasons for such decision must be recorded and notified through EMCIP (the European Marine Casualty Information Platform).
Where the reported occurrence is neither a serious nor very serious casualty, the HMSI has the discretion to decide whether or not to order a marine safety investigation.
Under Maltese law there are no hearings, rather the Marine Safety Investigation Unit (MSIU) conducts an investigation and ultimately compiles a report with the intention of preventing future accidents. Such investigations are not intended to assign blame or liability.
When a marine accident occurs, on board a Maltese vessel whatever its location, or on board a foreign vessel within Maltese waters, a report must be filed.
Where the MSIU has decided to proceed with an investigation, this shall be started promptly and in no event later than two months from the occurrence of the incident.
Following a marine accident or incident, the owner or operator of the ship, or her Master, shall ensure that all records that may reasonably be considered as evidential material pertinent to the accident are preserved without alteration until such time as the HSMI confirms that the investigation is complete or that no investigation shall take place.
Where the accident or incident involves another substantially interested state, the provisions of the regulation require the unit to co-ordinate with such other interested state as to who shall be the lead investigating state, so as to avoid duplication of investigations.
The HMSI has the power to reopen investigations should new evidence come to light.
In addition to the above, where a shipping casualty has been deemed to have occurred, a preliminary inquiry may be held by such person as is appointed by the Minister.
Part VII of the Merchant Shipping Act defines a shipping casualty as:
A preliminary inquiry may be held where a shipping casualty involves, or is supposed to involve, a Maltese ship or has occurred on the coasts of Malta, including any port installation or ship repair facility, or at sea within the territorial jurisdiction of Malta.
A preliminary inquiry may be followed by a formal investigation by the Courts of Magistrates. In conducting a formal investigation, the Magistrate shall be assisted by one or more assessors of nautical, engineering or other special skill or knowledge. Proceedings may be conducted in English.
The Court will draw up a report to the Minister containing a full statement of the case and the opinion of the court thereon. The report shall include extracts from the evidence or such other observations. The report must be signed by the assessors, who may include any disagreement they have with the findings and reasons for such. The report must be made in duplicate and a copy saved in the Court’s records. This copy may be produced as evidence in subsequent criminal proceedings, should these be brought.
If criminal proceedings are taken against any person in connection with a shipping casualty, the report produced under the formal investigation shall be filed within the record of the proceedings and shall have the same effect as the ‘process verbal’ referred to in the Criminal Code.
A ship-owner must file a sworn application before the First Hall, Civil Courts of Malta, wherein it claims damages against the authority. Such application is assigned to a member of the judiciary, who will set a date for a first hearing and order that the respondent be served with the application. The respondent will be given 20 days to respond to the claims made against them.
An action that falls under the jurisdiction of the Administrative Review Tribunal must be brought within six months of the date the interested person became aware or could have become aware of such an administrative act, whichever is the earlier.
In all other cases, an action for damages must be brought within two years of the incident.
Actual loss the act directly caused to the injured party, expenses the party may have been compelled to incur as a result of the damage, the loss of actual wages or other earnings, and the loss of future earnings arising from any permanent incapacity, total or partial.
Remote losses or those losses which cannot be considered to have been directly caused by the actions of the authority.
The Regulation prohibits any civil or criminal action being taken against the HMSI or any person appointed by the Authority as a safety investigator for anything he or she may do or report in the course of the exercise of his or her functions, unless it is shown that he or she has acted in bad faith.
As explained in 9 Initiating Claims for Damages, above, the claimant must file a sworn application before the First Hall, Civil Courts of Malta, wherein it claims damages against the authority.
A civil action in tort must be brought within two years of the incident. For a criminal action, there exists a longer prescription period of five years.
Malta does not have a dedicated maritime court and thus this will depend on what sort of action is filed. If an action is filed before the Administrative Review Tribunal, it will have exclusive jurisdiction to hear the action. If it is a general action for damages, this will be filed before the First Hall, Civil Courts of Malta.