Shipping 2022 Comparisons

Last Updated February 25, 2022

Contributed By Fenech & Fenech Advocates

Law and Practice

Authors



Fenech & Fenech Advocates was established in 1891 and has diverse areas of expertise, including corporate and commercial law, ICT law, M&A transactions, financial services, tax, banking, trusts and foundations, aviation, intellectual property, employment law and environmental law. It is particularly well known for its extensive maritime practice, with four distinct departments dedicated to the maritime sector: marine litigation, ship registration, ship finance and yachting. The firm represents major industry players, ranging from the largest ship-owners, tug and salvage operators and port facilities to bunker operators, charterers and financiers, yacht-builders and yacht-owners. It also regularly assists with the drafting of maritime laws and legislation.

The Maltese court system is regulated by virtue of the Code of Organisation and Civil Procedure, Chapter 12 of the Laws of Malta (the COCP). The COCP provides that the Courts of Justice of Civil Jurisdiction in Malta are either superior or inferior. The Superior Courts are the Civil Court, the Court of Appeal and the Constitutional Court, whilst the inferior Courts are the Court of Magistrates (Malta) and the Court of Magistrates (Gozo).

There is no designated maritime or shipping court and all maritime cases are heard by the Civil Courts (First Hall). In practice, cases with a maritime flavour are assigned to specific judges who, over the years, have garnered a great deal of expertise in the subject.

The jurisdiction of the courts to hear cases in rem is regulated by Article 742(B) of the COCP introduced into the COCP in 2006; previously, the jurisdiction in rem of the courts was still regulated by the Victorian Admiralty Court Acts of 1840 and 1861. This Article lists all the maritime claims which can be heard by the Maltese courts against vessels in rem.

The grounds contained in Article 742(B) are based on Article 21 of the English Supreme Court Act, and the list of maritime claims in the Arrest of Ships Convention 1952 and the Arrest of Ships Convention 1999.

Transport Malta, through its Merchant Shipping Directorate, has the responsibility to monitor and ensure that its fleet, as well as ships entering Maltese waters, are compliant with international standards regarding safety, pollution-prevention and onboard living and working conditions. A memorandum of understanding for the Mediterranean region had been signed in Malta in 1997 and Transport Malta is also a member of the Paris Memorandum of Understanding on Port State Control since July 2006.

If Port State Control Officers notice deficiencies in the course of an inspection, actions may vary, from recording a deficiency to be rectified within a certain period of time to issuing a detention order if that deficiency poses a hazard to safety, health or the environment. The detention order may only be lifted if the deficiency has been rectified to the satisfaction of the authority. The Ports Directorate within Transport Malta is responsible for the prevention of pollution occurring in the waters within its jurisdiction. Through the assistance of the Pollution and Incidence Response Unit, the Ports Directorate deals with any incidence of pollution occurring within its jurisdiction. The Directorate also participates in the Western Mediterranean Region Marine Oil and HNS (hazardous and noxious substances) Pollution Co-operation (West MoPoCo) project, which aims to provide assistance and share expertise to strengthen the co-operation of preparedness between participating countries for any response to marine pollution.

The Ports Directorate also releases periodic Notices to Mariners which contain updated navigational information, including the location of any wrecks or groundings of vessels.

Malta ratified the Nairobi International Convention on the Removal of Wrecks 2007, which has been transposed into Maltese law and applies to all Maltese ships, wherever they may be, and to all other ships, regardless of flag, while located within the territorial waters of Malta. If a wreck is located in Maltese waters and may pose a hazard, the Authority for Transport in Malta is given the power to issue a "wreck-removal notice", informing the registered owner of the deadline within which the wreck is to be removed. Should the registered owner fail to remove the wreck, the Authority may do so itself at the registered owner’s expense. 

The Merchant Shipping Act, Chapter 234, Laws of Malta (the MSA) is the primary legislation governing ship registration. The Act is supplemented by several subsidiary regulations which handle all ship-registration matters. 

The Authority responsible for the registration of vessels is the Merchant Shipping Directorate within the Authority for Transport in Malta, referred to as Transport Malta.

The registered owner of a vessel under the Malta flag may be a Maltese or non-Maltese entity or an individual (provided that individual holds a valid EEA, EU, Swiss or UK passport). In the case of a non-Maltese entity or individual, a resident agent must be appointed in Malta to act as a channel of communication between the Maltese authorities and the non-Maltese owner.

The MSA also caters for the possibility of registering a vessel still under construction.

Under Maltese law, a vessel is initially registered provisionally for a period of six months. During this period, mortgages may be registered securely. The provisional registration may be extended for additional periods of up to a maximum of one year, during which time proof of ownership documentation, together with some technical documents, needs to be filed with the ship registry for the purposes of obtaining permanent registration.

The MSA provides for various registration options: straight, bareboat-out, bareboat-in and dual registration. In the case of dual registration, the interests of the owner are registered with the Malta Ship Registry, while charterers also operate the vessel under the Malta flag. Charterers may apply to obtain vessel certificates in their name, provided that the owner and any registered mortgagees provide their written consent to such an arrangement, and charterers pay registration fees equal to those due by owners.

The Malta Ship Registry within Transport Malta is responsible for the registration of Maltese mortgages over Malta-flagged vessels.

The registration of a mortgage over a Malta-flagged vessel takes place by means of a statutory mortgage instrument, which is produced to the Registrar of Ships for registration and recorded in the register of the relevant vessel. This registration determines the exact date and time from when the mortgage becomes effective vis-à-vis third parties and consequently also determines its ranking. The mortgage instrument is generally executed locally by a local representative of the mortgagor acting pursuant to a power of attorney- also presented to the Registrar of Ships together with the mortgage instrument.

The Maltese Ship Registry which is responsible for the registration of ships and mortgages is a public registry distinct from the Government Public Registry. It is accessible to the general public, who may physically attend the registry to carry out searches on Malta-flagged vessels. A transcript of the register of any registered vessel, which will reflect the publicly available information, may also be ordered from the Ship Registry.

Malta is a party to the following:

  • the 1972 Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter;
  • the 1973 International Convention for the Prevention of Pollution from Ships, as modified by the Protocol of 1978 relating thereto and by the Protocol of 1997;
  • the 1992 Protocol of the International Convention on Civil Liability for Oil Pollution Damage 1969 and the Protocol of 1992 to Amend the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage;
  • the 1990 International Convention on Oil Pollution Preparedness, Response and Co-operation (OPRC);
  • the 2000 Protocol on Preparedness, Response and Co-operation to Pollution Incidents by Hazardous and Noxious Substances (OPRC-HNS Protocol);
  • the 2001 International Convention on the Control of Harmful Anti-fouling Systems on Ships;
  • the 2004 International Convention for the Control and Management of Ships' Ballast Water and Sediments; and
  • the 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships.

Malta is also party to the 2007 International Convention on the Removal of Wrecks.

Last year, the Oil and Hazardous and Noxious Substances Pollution Preparedness, Response and Co-Operation Regulations, 2020 (Legal Notice 450/2020) came into force, transposing the provisions of the OPRC convention and the OPRC-HNS Protocol, and to provide for a national contingency plan.

Salvage

Malta is not a signatory to any of the Salvage Conventions.

The law relating to Salvage is contained in Articles 342 to 346 of the MSA, which provides for the payment of a salvage award when services are rendered which save lives or property from any vessel in Maltese territorial waters or from any Maltese vessel, wherever it may be. The salvage payable must be limited to the value of the property salvaged.

The award is based on the following: the measure of success obtained, the efforts of the salvors, the danger run by the vessel saved, by her passengers, crew and cargo, the danger run by the salvor and the salvaging vessel, the time expended, the expenses incurred and the losses suffered, and the risks of liability and other risks run by the salvors, the value of the property exposed to such risks, having due regard to the special appropriation of any of the salvor’s vessels for salvage purposes, and the value of the property saved.

The obligation to pay salvage is not limited to the owner of the vessel but is an obligation of the person whose property has been saved.

Collisions

The liability for damages arising out of a collision is established by reference to the general law of tort, in Article 1031 of the Civil Code. Founded on fault-based liability, every person is liable for the damage that occurs as a result of his or her fault. A person is deemed to be at fault if, in his or her own acts, he or she does not use the prudence, diligence and attention of a “bonus paterfamilias” – the standard of the “reasonable man.”

In determining fault, consideration will be given to the Collision Regulations which became part and parcel of the law of Malta by virtue of Legal Notice 87 of 1978 entitled “Merchant Shipping (Prevention of Collisions) Regulations, 1978”, which effectively laid out the International Regulations for Preventing Collisions at Sea 1972 as a Schedule to that Legal Notice.

Malta is a signatory to the 1996 Protocol of the LLMC 76, which has 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 establishment of a limitation fund is set out in the above-mentioned regulations which stipulate that limitation funds are to be constituted with the Civil Court, First Hall. To constitute a limitation fund, one may pay into court the equivalent in euros of the number of Special Drawing Rights (SDR) they claim, in order to be entitled to limit their liability in terms of the Regulations, together with interest from the date of occurrence giving rise to that liability to the date of payment into court at the rate of 8%. The person may adjust this figure by topping up funds in court if these were not sufficient or by filing an application to request a refund if they have overpaid.

A person effecting payment shall give notice thereof in writing to every person making a claim against them, specifying the date of payment, the amount paid, the amount of interest included therein and the period to which it related.

Funds can be constituted by paying a deposit of money into court or by providing a bank guarantee issued by a local bank. It is to be noted that, to date and as far as is known, there have been no limitation funds set up in Malta.

Malta is not a signatory to the Hague Rules, the Hague-Visby Rules, the Hamburg Rules or the Rotterdam Rules.

The Hague Rules, however, apply in limited circumstances, because the text of these rules has been incorporated by virtue of the Carriage of Goods by Sea Act of 1954, by way of a Schedule to the Act. The Hague Rules have effect in relation to and in connection with the carriage of goods by sea in any vessel used for that purpose and carrying goods from Malta to any other port, but not if that vessel is carrying goods within the limits of Malta, transporting them from one island to another. Thus, the Hague Rules are not applicable as a matter of law in relation to cargo carried that was loaded on board a vessel in a foreign port and discharged in Malta.

In the case of disputes arising under a bill of lading related to goods discharged in Malta covered by a bill of lading containing a Clause Paramount, Maltese courts will apply the liability regime indicated in the Clause Paramount. Therefore, in practice the courts tend to apply the Hague, or the Hague-Visby Rules where indicated, which are the most commonly applicable liability regimes. There is no known case in which the Maltese court has applied the Hamburg Rules. The Rotterdam Rules are not yet in force.

In the event that the bill of lading does not contain a Clause Paramount incorporating the Hague or the Hague-Visby Rules, the laws which govern the dispute would be the Maltese Civil Code and Commercial Code. 

Maltese law on bills of lading is contained in Articles 321 to 327 of the Commercial Code, which are quite archaic, and merit being revised. Whilst they do not deal with title to sue directly, they imply that, by and large, the parties to the bill who would be entitled to sue on the bill would be the shipper, consignee and any subsequent endorsee who is a subsequent holder of the bill of lading. 

Maltese law provides that the bill of lading may be drawn to order or to bearer or in favour of a specified named party, and thus any such holder of the bill of lading would have title to sue. It is important to note that parties to a dispute frequently refer to English case law on the matter. Although Maltese courts are not obliged to follow English case law, English jurisprudence has substantial persuasive value.

Where the bill of lading contains a Clause Paramount applying the Hague or the Hague-Visby Rules, the courts will apply the liability regime, including the limitation provisions found in those Rules. It is not known if the Maltese courts have ever had to consider applying the liability regime in the Hamburg or Rotterdam Rules. However, if there is no Clause Paramount indicating the liability regime to be applied, Maltese law itself does not provide the ship-owner with any rights to limit his or her liability for cargo damage along the lines found in the various Rules. The only rights of limitation available would be those limits found under the 1996 Protocol to the 1976 Limitation Convention.

Maltese law is silent on this issue and consequently a carrier’s right to commence an action against the shipper for misdeclaration or misdescription would be governed by the general law of contract. Much would depend on the stage at which the carrier discovered the misdescription and what the carrier would be claiming. 

If the misdeclaration is discovered at the beginning of the voyage and prior to the departure of the vessel, it would be pertinent to establish whether that misdescription was of sufficient gravity to give the carrier the right to rescind the contract; alternatively, if the misdescription is discovered during or at the end of the voyage, the carrier would have to establish that the misdescription has actually caused damage to the carrier. 

The courts would apply the time limits for filing claims for damaged or lost cargo in terms of the liability regime indicated in the Clause Paramount. If there is no Clause Paramount, the position is less clear.

With regard to lost or undelivered cargo, Article 544 (e) of the Commercial Code states that actions for the delivery of goods are time-barred by the lapse of one year from the arrival of the vessel.

With respect to damaged cargo, there is no particular provision and, consequently, if the claim is based in contract, it would attract a five-year time limit and if the claim is based in tort, it would attract a two-year time limit. 

The extension of time bars is not a straightforward issue. Some time bars can be interrupted, allowing time to start to run again, and others cannot be interrupted, even if the parties agree that these should be extended. The latter time bars are referred to as being “peremptory”. An example of a peremptory time limit is the one previously referred to relating to lost or undelivered cargo. Such a time limit may not be extended, even if by mutual agreement of the parties. 

Malta is not a party to any Arrest Convention, with ship arrests governed solely by Maltese domestic law.

Up until 2005, the grounds upon which a creditor could arrest a ship in rem were the grounds upon which the courts in Malta could exercise jurisdiction in rem, as reflected in the UK Admiralty Court Acts of 1840 and 1861, which applied in Malta.

In 2006, statutory amendments were enacted to revamp the grounds upon which the courts could exercise jurisdiction in rem and therefore arrest vessels as security in actions in rem. A new article was introduced into the COCP, which exhaustively listed all the maritime claims for which a creditor could seek to arrest a ship in rem in Malta. This list, found in Article 742B of the COCP, is based on the English Supreme Court Act of 1981 and the Arrest of Ships Conventions of 1952 and 1999.

Under Maltese law, a creditor may seek to obtain a precautionary or an executive arrest. In the latter case, the creditor must already hold a judgment or other similar enforceable title. Conversely, a precautionary arrest is issued when a creditor wishes to obtain security for a claim which has not yet been decided. An arresting party has a statutory timeframe of 20 consecutive days from the date of the issuance of a precautionary arrest within which to institute proceedings on the merits before a competent court or tribunal.

A creditor is also permitted to arrest a ship in Malta either to secure a claim in personam or alternatively a claim in rem. In the former case, the vessel would be regarded in the same way as any other asset forming part of the debtor’s estate. In such circumstances, the arresting party would need to ensure that the Maltese courts would be vested with jurisdiction over the debtor, as enshrined in Article 742(1) of the COCP, which all require a direct connection or proximity to the territory of Malta or Maltese persons.

When an arrest is obtained to secure a claim in rem, the vessel is considered as being separate and distinct from the rest of the debtor’s patrimony. Nonetheless, the arresting party would still need to ensure that the Maltese are vested with jurisdiction in rem. The creditor’s claim must fall under one of the headings of maritime claims listed in Article 742B of the COCP. Furthermore, unless the claim is a special maritime privilege, the creditor would generally also need to satisfy the "relevant person test", as prescribed in Article 742D of the COCP, in order to make an arrest in rem.

Maritime liens are alien to the Maltese legal system. The closest equivalents are those claims listed in Section 50 of the MSA, referred to as special maritime privileges. There are 16 special privileges which include any judicial costs incurred in respect of the sale of the ship, salvage costs, crew wages and remuneration, expenses incurred for the preservation of the ship after her last entry into port, as well as moneys due to creditors for provisions, victuals, outfit and apparel, incurred prior to the departure of the ship on her last voyage. Section 50 of the MSA also serves to help competing creditors establish the ranking of their respective claims, as the list is organised in a hierarchical order according to the priority of the nature of those claims.

There are two fundamental differences between ordinary maritime claims and special maritime privileges under Maltese law. First, special maritime privileges attach to a vessel and will survive any voluntary sale of a vessel for up to a year. Conversely, ordinary maritime claims do not follow the vessel and an arrest in rem would only be possible where those claims satisfy the "relevant person test". The second cardinal difference relates to ranking. All the special maritime privileges enjoy a higher ranking than ordinary maritime claims.

Maltese law recognises that certain creditors may retain a possessory lien over a vessel. Any ship-repairer, ship-builder or creditor, into whose care and authority a ship has been placed for the execution of works or any other purpose, is entitled to retain possession over the ship until the debts for any such work or repairs are settled. However, a possessory lien is extinguished upon the voluntary release of the ship from the custody of the creditor.

Generally, a vessel may not be arrested in rem unless the "relevant person test" has also been satisfied. Article 742D of the COCP dictates that an arrest in rem for a maritime claim is only possible where the party who would be liable for the claim in an action in personam (the relevant person) was, when the cause of action arose, an owner or charterer of, or in possession or in control of, the ship or vessel, and that same relevant person is either the owner, beneficial owner or bareboat charterer of the ship at the time of the arrest.

There are several exceptions to this rule. Where the claim attracts a special maritime privilege, the creditor may arrest the ship, irrespective of who incurred the debt. Likewise, there is no need to satisfy the relevant-person test when the underlying claim relates to the possession, ownership or title of a ship, or to any issue arising between co-owners of a ship in so far as the ownership, possession, employment or earnings of that ship are concerned, or to a claim in respect of a mortgage, hypothec or charge registered over the ship.

Article 742B(o) of the COCP provides that a claim “in respect of goods, materials, provisions, bunkers, supplies and necessaries supplied, or services rendered to a ship for her operation, management, preservation or maintenance” would be classified as a maritime claim. Accordingly, a bunker supplier would be able to arrest a ship in rem to secure a claim for unpaid bunkers. Maltese law does not differentiate between contractual suppliers and physical suppliers. Both may arrest a vessel in rem for unpaid bunkers.

However, any supplier seeking to secure an arrest for such a claim must satisfy the relevant-person test. Accordingly, a contractual supplier or a physical supplier may only arrest the vessel where the owner or the bareboat charterer of the vessel is the party liable in personam for the unpaid debt.

Following the collapse of the OW Bunkers Group, several court cases were filed where local bunker suppliers relied on stipulations in their bunker delivery notes, which incorporate their standard terms and conditions, in order to try to satisfy the relevant-person test by holding the owners liable for the unpaid debt, even where the fuel products were ordered by a charterer or an intermediary bunker trader. Maltese jurisprudence has been largely inconsistent on the matter; however, the more recent judgments on the subject have taken the position that a supplier cannot rely on the wording of the bunker delivery note to arrest a ship where the owner or bareboat charterer was not the party who contracted to purchase the bunkers.

Nonetheless, there may be cases where a claim for unpaid bunker supplies would be classified as a special maritime privilege and, thus, an arrest may be issued against the vessel, irrespective of who contracted to purchase the bunkers. Claims relating to bunkers furnished to a ship after the vessel’s last entry into port, or prior to her departure on her last voyage, would classify as special maritime privileges. All other bunker supplies would, however, be classified as ordinary maritime claims.

Formalities

A creditor seeking to arrest a vessel in Malta must submit an arrest application, including all the relevant details about the parties, the vessel, and the nature of the claim, as well as the amount being claimed (which must be in excess of EUR7,000).

Where the arresting party is not Maltese, it would need to provide a power of attorney, notarised and legalised/apostilled, empowering its appointed local legal counsel to file the arrest on its behalf.

It is advisable that the arresting creditor also include any documents to substantiate its claim, such as copies of the relevant contract or invoices, or even a statement of facts. Documents must be submitted in English or Maltese, or in any other language accompanied by a certified translation into Maltese or English.

The arrest procedure in Malta is extremely expeditious, with arrests usually issued within a matter of hours from filing. Moreover, it is also possible to arrest a ship outside of normal court hours.

Security for an Arrest

The Maltese courts will never require an arresting creditor to put up any security prior to the issuance of an arrest. However, the owner of the arrested vessel may request security pursuant to Article 838A of the COCP. The court will only order the arresting party to put up security if the owner of the vessel can prove there is a "good cause" for such a demand. This is not defined; however, jurisprudence would suggest that the owner would need to show that it may have a legitimate claim for statutory penalties, interests and damages caused by the arrest. Failure to put up security would lead to the release of the arrest.

It is possible for a creditor to arrest bunkers on board a ship by means of a warrant of seizure over those bunkers, which must necessarily be the property of its debtor. Nevertheless, there are several associated practical difficulties, which make this remedy less attractive. First, the creditor would need to arrange and pay for the de-bunkering of the fuel from on board the vessel. Second, the creditor would need to find available storage in Malta where the bunkers must be kept, until there is a final outcome on the merits of the claim. Malta is a relatively small country, with limited storage-tank facilities and a high market demand for available storage space. Third, the creditor would need to engage the storage facility-operator holding the product as its legal co-signatory, as required by law. The respective operator may not be willing to accept this role, as it confers several obligations and responsibilities.

In this regard, Maltese law offers additional protections to suppliers wishing to arrest those bunkers for which they have not yet been paid. Article 2009(d) of the Civil Code would afford the unpaid supplier a privilege over the bunkers. Moreover, should the bunker supplier have included a retention of title clause in its terms of sale, that would be deemed enforceable in Malta, pursuant to the relatively new provisions under Article 26H of the Commercial Code. Accordingly, a bunker supplier with a claim for unpaid bunkers may retain title and take back possession of the bunkers, which would still be deemed to be its property.

Maltese law does not specifically provide for the arrest of freight. Nonetheless, it would be possible, for instance, for a consignee with a claim against a ship-owner under a bill of lading to issue a garnishee order to seize freight that was due to that ship-owner. Under normal circumstances, a garnishee order is used in the context of seizing any funds belonging to a debtor in bank accounts held with local banks. The creditor names the banks as garnishees in his or her application and consequently the banks would be obliged to seize any of the debtor’s funds in their possession. That said, the law allows a creditor to name any third party as a garnishee.

There is, therefore, nothing precluding a consignee from issuing a garnishee order against the ship-owner and listing the charterer as a garnishee. Once the charterer is served with the garnishee order, it would be legally obliged to deposit into court any monies belonging to the carrier which may be, or may come to be, in its possession. Thus, whenever freight is due from the charterer to the owner, the former would be prohibited from paying it directly to the owner but instead would need to deposit the amount in court as security for the consignee’s claim.

Maltese law permits sister-ship arrests under certain circumstances. Article 742D of the COCP provides that, where a creditor has a claim in rem (which is one of the maritime claims listed in Article 742B) in relation to a particular ship, it may arrest any other ship that is owned or beneficially owned by the party who is liable in personam for the claim.

Maltese law offers creditors the possibility of applying for a flag injunction, which is another pragmatic tool used to obtain security for maritime claims. Section 37 of the MSA affords a creditor the right to request that the Maltese courts issue an injunction over any vessel flying the Malta flag, prohibiting it from being sold, transferred or deregistered from the Maltese Ship Registry. In addition, such an injunction would also prohibit the affected ship-owner from registering any further mortgages over the ship in question.

A Section 37 injunction may, however, only be issued where the creditor has a “right in or over a ship or a part”, which is defined under Section 37(10) of the MSA as being a claim based on either:

  • a right of ownership; or
  • secured by a mortgage; or
  • secured by a registered encumbrance; or
  • secured by a privilege or a lien over the ship arising by operation of Maltese law or the law applicable to the claim; or
  • any other maritime claim which gives rise to a claim in rem under Maltese law.

Furthermore, the flag injunction is a precautionary measure and, accordingly, the creditor will also need to open an action on the merits before a competent court or tribunal.

Once the injunction is issued by the courts, it will be recorded in the ship’s register at the Maltese Ship Registry, where it will remain until it is removed by court order, preventing the sale, transfer or deletion of the vessel until that time.

Unlike a ship arrest, which must occur within Maltese territorial waters, a Section 37 injunction may be requested, wherever the vessel is situated. A vessel may continue trading while under a Section 37 injunction, which is advantageous to creditors dealing with a debtor who may have liquidity issues. By allowing the vessel to operate commercially, the ship can continue to generate revenue and, hopefully, the debtor could eventually be able to pay its dues. Nonetheless, the creditor issuing the Section 37 injunction will continue to maintain its security, as the ship cannot be sold or transferred. 

A creditor may also resort to using other attachment mechanisms available under Maltese law, which are not exclusive to maritime claims. For instance, a creditor may file for a garnishee order (which is similar in nature to a freezing order) to seize any funds which the debtor may have in accounts held with Maltese banks. It is also possible to apply for a warrant of seizure of any other movables or immovables which a debtor may have in Malta.

For a ship-owner or any interested party to secure the immediate release of an arrested ship, they would need to put up adequate security in court to cover the alleged claim amount. Strictly speaking, Maltese procedural law only allows two forms of security: either the deposit of the money in court, or alternatively the presentation of an original bank guarantee (which must be drawn by a Maltese bank) in court. That said, a Maltese court would generally allow a Club Letter of Undertaking (LOU) to be granted as alternative security for a claim, provided that the arresting creditor does not object.

Judicial Sales of Ships

A creditor with a final and non-appealable enforceable title may apply to the Maltese courts to have an arrested ship sold judicially, either by means of a court auction or alternatively by means of a court-approved private sale. In both cases, the vessel is always sold free and unencumbered.

In the case of a judicial sale by auction, the creditor presents an application requesting the courts to schedule an auction date and appoint an auctioneer to preside over the auction. The registration of bidders is normally carried out on the day of the auction itself. Bidders fill up a registration form and are required to present all the necessary bidding documentation shortly before the auction commences. The auction is public, and the vessel is sold to the highest bidder, who must deposit the purchase price in court within seven days, running from the auction date. There is no minimum reserve price and thus the market value of the vessel is not guaranteed.

Alternatively, a court-approved private sale allows the creditor to take a more pro-active approach, as it may actively source the market for potential buyers (usually through ship-brokers). Once the best offer is identified, the creditor would normally conclude a Memorandum of Agreement (MoA) with that prospective buyer, to be approved by court. The creditor would then file a court application to request that the presiding judge approve the private sale. The creditor is required to submit two independent appraisals of the vessel. These need to be survey valuations, rather than "desktop" estimates.

The creditor must prove to the court that the proposed private sale is in the interest of all known creditors and that the price offered is reasonable in the given circumstances. The application is served on all interested parties and a hearing date is appointed for the judge to decide whether to accept the sale. Once approved, the purchaser has seven days, running from the date of the completion of the sale, to deposit the purchase price in court.

Maintenance Expenses

Generally, it is the ship-owner who remains responsible for the maintenance of its vessel whilst under arrest. Nonetheless, Article 857(4) of the COCP states that any expenses necessary for the preservation of an arrested ship should be borne by the party issuing the arrest warrant. In such cases, the law provides the arresting party with the right to recover any such expenses and costs, together with its claim against the owner. These expenses would enjoy a relatively high ranking.

Ranking

Following a judicial sale of a vessel, and the deposit of the purchase price, competing creditors must participate in distribution proceedings in order to be paid according to the established rankings of their respective claims. Article 54A of the MSA sets out the ranking of all maritime claims in a clear and hierarchal order. Under Maltese law, a mortgagee would enjoy a relatively high ranking. Only possessory liens and a limited number of special maritime privileges would pre-rank a mortgage claim. All ordinary maritime claims under Article 742B would rank after a mortgagee’s claim.

Under Maltese general corporate law, a company in financial distress may file for a company recovery procedure under Article 329B of the Companies Act. seeking judicial protection, for a specific period of time, in order to be able to attempt to revive the company’s business. Under this protection, a creditor would not be permitted to seize any assets or enforce any judgment against the debtor company in Malta without first obtaining leave of the courts.

That said, shipping companies are not regulated by the Companies Act and are governed by the provisions of the Merchant Shipping (Shipping Organisations – Private Companies) Regulations, Subsidiary Legislation 234.42, which do not have an equivalent company recovery procedure. It is therefore questionable whether Maltese shipping companies are afforded protections akin to those granted within the context of US Chapter 11 Bankruptcy proceedings, such as an automatic stay order. To the best of the authors’ knowledge, this question has never arisen before a Maltese court.

In this respect, it is also prudent to note that a Maltese court will also not necessarily consider itself bound by any stay order issued by a foreign bankruptcy or insolvency court. This issue was touched upon in the B Ladybug case. After the arrest of the vessel, proceedings were commenced to have her sold judicially. The owners tried to interrupt the judicial sale proceedings, arguing that the beneficial owners of the vessel were subject to ongoing US bankruptcy proceedings where a stay order had been given, and thus the Maltese courts were obliged to suspend the ongoing judicial sale proceedings. The presiding judge disagreed, finding that Maltese courts should not be bound by the extra-territorial effects of such a stay.

The grounds upon which an arrested party can legitimately claim damages and penalties from an arresting party due to a wrongful arrest are explicitly provided for in Article 836(8) of the COCP. Should a court set aside an arrest, the owners would generally only be entitled to claim damages in the following four circumstances:

  • where, following the arrest, the arresting party failed to commence proceedings on the merits within the statutory 20-day timeframe;
  • where the creditor failed to make a demand for payment from the debtor within the 15 days preceding the arrest. This, however, does not apply when there is an urgent need for the issuance of the warrant;
  • where the arresting creditor had knowledge of the ship-owner’s solvency and its clear financial ability to pay the claims;
  • where the arrest was filed maliciously, frivolously or vexatiously.

There is no statutory limit on the amounts of damages which a court may award; however, the ship-owner must prove that the damages it suffered were a result of the wrongful arrest.

The aforementioned four grounds also give rise to the owner’s right to claim statutory penalties from the arresting parties, which are limited to a sum between EUR1,164.69 and EUR6,988.12. However, should the court conclude that the arrest was filed maliciously, the penalties to be imposed would be of no less than EUR11,600. It should be noted, however, that the Maltese courts are extremely reluctant to impose statutory penalties, and jurisprudence in this regard is quite consistent.

Malta is a party to the Athens Convention on the Carriage of Passengers and their Luggage by Sea, 1974, incorporated by means of the Merchant Shipping (Carriage of Passengers by Sea) Regulation, subsidiary legislation 234.52 of the Laws of Malta. The resolution of maritime passenger claims is also dealt with under the Limitation of Liability for Maritime Claims 1976, as amended by the 1996 protocol, which was 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.

Malta is further bound by Regulation (EC) No 392 of 2009 on the liability of carriers of passengers by sea in the event of accidents, which incorporated the 2002 Protocol to the Athens Convention and Regulation (EC) No 1177/2010 on the rights of passengers when travelling by sea and inland waterway.

Time Limit for Filing a Claim

Any action for damages arising out of the death of or personal injury to a passenger or for loss or damage to luggage shall be time-barred by the lapse of two years. The two years begins to run as follows:

  • personal injury – from the date of disembarkation;
  • death – from the date when the passenger should have disembarked, or if a personal injury resulting in death, from the date of death, if occurring within three years from disembarkation;
  • loss or damage to luggage – from the date of disembarkation or from the date when disembarkation should have occurred, whichever is the later.

Limitation of Liability in Respect of a Passenger’s Claims

Under Subsidiary Legislation 234.16 of the Laws of Malta, a ship-owner may limit his or her liability in respect of a passenger’s claims to claims for loss of life or personal injury, in addition to property claims, which mirror those found in the 1996 LLMC Protocol.

Malta has exercised its discretion allowed under the Convention and has determined that, for a ship with a tonnage not exceeding 300 tons, the limitation will be at 500,000 Units of Account.

The Maltese courts will largely recognise and enforce a law and jurisdiction clause stated in bills of lading. However, if it is shown that there is a closer connection with Malta, and where the law and jurisdiction clause is included in a document that has not been negotiated by the parties, and/or is presented post facto, the court may be swayed to deviate from the clauses in the bills of lading in favour of Maltese jurisdiction (naturally, provided that the Maltese courts would have jurisdiction to determine the matter).

A law and arbitration clause in a charterparty that has been incorporated into the relevant bill of lading will not automatically be recognised by the Maltese courts unless it satisfies certain criteria. In the "Northeastern Breeze", the court held that a generic clause incorporating the terms of the charterparty would not suffice, and that the arbitration clause would have to be specifically incorporated into the bill of lading for this to be given effect, or specific reference to its applicability to the bill of lading would have to be made in the charterparty. This is a position borne out of common law and commercial practice. 

This is also evident from the Arbitration Act, Chapter 387, of the Laws of Malta that provides in Article 2(c) that "an arbitration agreement is also concluded by the issuance of a bill of lading, if the latter contains an express reference to an arbitration clause in a charterparty".

The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is applicable in Malta. The process by which a foreign arbitral award can be registered in Malta is set out in the Arbitration Rules, Subsidiary Legislation 387.01.

As previously explained, a vessel may be arrested in rem in Malta by means of a warrant of arrest issued on any of the grounds listed in Article 742B of the COCP if the vessel concerned is physically present within the territorial jurisdiction of the Maltese courts or as security of an in personam claim where the ship-owner is subject to the ordinary jurisdiction of the Maltese Court under Article 742 of the COCP.

However, the matter is not straightforward, and much will depend on whether one is dealing with an arbitration clause or a jurisdiction clause.

With regard to arbitration clauses, Article 742(4) of the COCP provides that any person who is party to an arbitration agreement may demand a precautionary act (including a precautionary arrest warrant) to be issued and, where the party has not brought forward his or her claim before an arbitrator, he or she shall have 20 days from the date of issue of the precautionary act to commence the arbitration proceedings.

With respect to a jurisdiction clause, however, the decision of the court will in turn depend on whether the clause points towards a jurisdiction established within the European Union, or otherwise.

If the jurisdiction clause refers a dispute to a court within a European Union Member State, then, pursuant to the provisions of Article 35 of Regulation 1215/2012 (Brussel I Recast Regulation), a party may apply for a provisional arrest warrant, including protective measures in Malta, in order to secure their claim on the merits being pursued before the courts in another EU Member State.

If the jurisdiction clause directs disputes to a court outside of the EU, jurisprudence is varied. Some case law suggests that the issuance of precautionary warrants to secure a claim, such as an arrest of a vessel, will only be valid if the Maltese courts would have notional jurisdiction in terms of Article 742 of the COCP. There is, however, other case law which suggests that an arrest in support of an action heard before a foreign court, even if the Maltese court has notional jurisdiction, would not be permitted.

Nonetheless, and in all cases, it is commonly held, even when the merits are not to be heard in Malta, that an arrest of a vessel in rem must satisfy the grounds of jurisdiction provided for under Article 742B of the COCP, together with the "relevant person test" requirement under Article 742D of the COCP.

Malta does not have a domestic arbitration institute that specialises in maritime claims. Nonetheless, where parties opt for arbitration proceedings in Malta, which would be conducted in accordance with the rules found under the Arbitration Act, they can nominate a panel of arbitrators who are specialised in maritime disputes. This helps to ensure that the matter is handled with the necessary expertise.

Where proceedings are commenced in breach of a foreign jurisdiction or arbitration clause, a defendant may challenge those proceedings and request that a preliminary decision be given, limited to the point of jurisdiction.

Where the courts find that the proceedings have been commenced wrongly, it will declare it does not have jurisdiction to hear the matter and may order court costs to be paid by the plaintiff. The defendant would also retain a right to institute an action to recover any damages suffered.

Maltese companies (as well as those established under the laws of any European Union State) which own, operate, administer or manage a tonnage tax ship are exempt from:

  • income tax which would otherwise be payable on income arising from shipping activities;
  • any income, profits or gains derived from the sale or other transfer of a tonnage tax ship which had been acquired and sold whilst under the tonnage tax system, or from the disposal of any rights to acquire a ship which, when delivered or completed, would qualify as a tonnage tax ship; and
  • the distribution of profits derived from shipping activities or from other transactions previously referred to.

A tonnage-tax ship is a ship of any net tonnage engaged in shipping activities.

“Shipping activities” comprises the international carriage of goods or passengers by sea or the provision of other services to or by a ship as may be ancillary thereto or associated therewith, including the ownership, chartering or any other operation of a ship, and includes also ship-management activities of a ship manager.

A company which benefits from the tonnage tax system will be required to pay an annual fixed tonnage tax to the Registrar of Ships, which is calculated in accordance with the net tonnage and age of the vessel.

The coronavirus pandemic has resulted in a number of restrictions aimed at ensuring the safety and continued smooth running of the maritime sector in Malta. Thankfully, these restrictions have now been repealed.

Nonetheless, by means of Port Notice 11/2020, the Authority reminded ship-owners, operators and Masters of the need to submit the Maritime Declaration of Health in order to obtain clearance "free pratique" from the local health authorities. Once duly granted, personnel may embark or disembark from the vessel. Until this clearance is given, a ship Master is required to display the Q flag.

In reaction to the difficulties ship-owners are facing with crew changes, the Authorities have allowed ship-owners, managers and masters to extend seafarers’ employment agreements (SEA) where repatriation is not possible by the end of the validity of the SEA – in such a case, the SEA may be extended up to a maximum total of 11 months under at least the same terms and conditions of the original agreement, by means of a signed agreement between the ship-owner and the seafarer, and this is to be in line with Maritime Labour Convention (MLC) provisions. Extensions beyond 11 months may be applied for with the flag on a case-by-case basis by ship-owners, who must provide reasons, documentary evidence and a defined repatriation plan that provides for the seafarer’s repatriation at the earliest opportunity, and in any case not later than 14 months.

COVID-19 does not automatically create a force majeure event and therefore the classification of non-performance of a shipping contract as a force majeure event is case-specific and must meet the following criteria.

Under Maltese law, a debtor will be liable for the non-performance of an obligation as well as for the delay in the performance thereof, unless he or she proves that it resulted from an extraneous cause not imputable to him or her. Furthermore, a debtor will not be liable for damages for failing to give or do the thing he or she undertook to give or do, or if he or she did something forbidden, in consequence to an irresistible force or a fortuitous event.

Case law defines a force majeure event as an irresistible force that could not be avoided by the exercise of due diligence by the hypothetical reasonable man. It requires the complete impossibility of performance and must not simply make the obligation more onerous. Furthermore, the person alleging force majeure must not have contributed to the event by his or her own omissions or actions. The event must be directly causative of the frustration, with the burden of proof on the person claiming frustration.

Two years into the pandemic, it is harder to prove frustration, given that delays in the shipping sector have become commonplace. This is, in fact, being reflected by the insertion of specific COVID-19 clauses that regulate non-performance or the delay in performance arising out of the coronavirus pandemic. 

Since the start of the pandemic, the Maltese courts have had the opportunity to discuss COVID-19 as a force majeure occurrence under a general contract.

In Cherubino Limited v Dipartiment tal-Kuntratti et App No 508/21TA, the court granted a prohibitory injunction to prevent the defendant from enforcing against a performance guarantee after the plaintiff defaulted on its obligation when its supply chain was disrupted, after an airline cancelled its scheduled flights due to COVID-19. The court recognised the pandemic as an "epidemic" falling within the definition of "force majeure", as defined within the contract between the parties and upheld the request for the injunction. The matter is under appeal.

The Court of Appeal in Steve Baldacchino v L-Awtorita tal-Artijiet app No 10/2021 LM, overturned a decision by the First Court which had refused to acknowledge COVID-19 as a force majeure event on the basis that difficulty in execution was not tantamount to force majeure. Instead, the Court of Appeal recognised the coronavirus pandemic as having caused a fundamental change of circumstances that allowed the plaintiffs, operating in the tourism sector, to renege on their obligation to purchase a property awarded under a government tender without losing their bid bond. The Court referred to the principal rebus sic stantibus and held that the Authority’s delay in calling on the plaintiffs to sign the contract of sale resulted in the plaintiffs operating in an entirely different reality and circumstances from those in place when they had originally placed their bid for the property. While not attributing the blame for the change of circumstances on the Authority, the Court granted the appellants’ plea and agreed that the First Court had wrongly applied the principles of force majeure, overturning the judgment. 

Malta has transposed various EU directives in line with the revised Annex VI to MARPOL by means of Subsidiary Legislation 545.18 titled "The Quality of Fuels Regulations" (the Regulations), which regulates marine fuels used within the Maltese territory and its permissible sulphur content by mass (m/m). The Regulations regulate the sulphur content of marine fuel and the capping of that sulphur content by all ships, irrespective of flag, when calling in Maltese ports and traversing Maltese internal waters, territorial waters and its exclusive economic zone.

The Regulator for Energy and Water Services established by the Regulator for Energy and Water Services Act (the REWS) is the competent authority responsible for the enforcement of sulphur-content limitation in Malta. Authority for Transport in Malta is also empowered to carry out certain enforcement procedures.

Since 1 January 2020, the use of marine fuels with a sulphur content exceeding 0.10% m/m by ships at berth in ports in Malta is prohibited. In all other areas falling outside of Maltese ports, but within the Maltese territorial sea, internal waters, exclusive economic zone, and any pollution control zones, the sulphur content of marine fuels, bar a few exceptions, shall not exceed 0.50% m/m. 

As part of the enforcement of sulphur-content limitation, the REWS has in place an inspection and monitoring programme on vessels which operate for the national maritime transport and on larger vessels which fall under the MARPOL convention and travel to Malta from other EU and non-EU ports. Monitoring as part of the programme (which programme is in line with the detailed requirements as defined by Commission Implementing Decision (CID) EU 2015/253) includes analysing the sulphur content in the samples lifted and the vetting of documents related to fuel purchase, storage and use by the vessel.

The latest available data shows that, during the year of 2020, the REWS carried out inspections of documents on 107 vessels and collected 32 samples as part of its monitoring requirements. Through these inspections, the REWS identified two vessels that were burning Marine Gasoil (MGO), which had an excess of 0.10% sulphur content while at berth. In both cases, the REWS performed an investigation and fines were issued according to the established REWS Decision No 14/2019.

By Decision No 5 of 26 October 2021, the REWS established certain fines applicable to any person in charge of a vessel in the event of absent MARPOL samples, and/or absent documentation, with respect to the marine fuel of the vessel.

All United Nations sanctions, in addition to EU sanctions, are directly applicable in Malta and are binding in their entirety as part of domestic law, pursuant to the provisions of the National Interest (Enabling Powers) Act, Chapter 365 of the Laws of Malta.

Conversely, the Office of Foreign Assets Control (OFAC) sanctions are not directly enforceable in Malta, as observed by the Civil Court (First Hall) in its judgment World Water Fisheries Limited vs Bank of Valletta plc, delivered on 29 September 2020. Nevertheless, most local authorities and regulators do recommend that economic operators, as well as the public in general, exercise caution in this regard.

The Sanctions Monitoring Board is the competent local authority responsible for the implementation of all UN and EU sanctions in the Republic of Malta. The aforementioned Board is composed of representatives from various relevant government ministries, governmental authorities, regulators, and enforcement bodies. In the exercise of its functions, the Board is empowered to refer to other relevant authorities (including the Malta Police Force) for action, assistance, or information. In practice, Maltese authorities do tend to co-operate extensively when enforcing applicable trade sanctions. The National Interest (Enabling Powers) Act also outlines the punishments for sanction breaches, which could include hefty penalties (up to a maximum of EUR5 million for natural persons and a maximum of EUR10 million in the case of legal persons).

From a shipping perspective, it is worth mentioning that the Authority for Transport in Malta issued a merchant shipping notice (No 175) in October 2021 to inform that the use of Maltese ships in violation of any applicable sanctions “... may be considered as being against the interest of Malta and of Maltese shipping and may lead, inter alia, to closure of registry”.

It is known that there are Maltese persons, both natural and legal, presently subject to OFAC sanctions. However, as previously stated, these sanctions are not directly enforceable in Malta and there are no legal proceedings known to have been commenced in the Maltese jurisdiction in this regard. That said, there are certainly known ongoing local criminal proceedings that have been instituted against Maltese economic operators for alleged breaches of UN and/or EU sanctions.

One final comment would be to state that judges in Malta are not bound by the law of precedent. Thus, a judge is not bound to interpret a law in the same manner as another judge. That said, parties often cite case law to support their respective positions, because they do have a great deal of persuasive value. Finally, in particular with regard to maritime matters, if there is a lacuna under Maltese law, Maltese courts very frequently refer to English judgments for guidance.

Fenech & Fenech Advocates

198, Old Bakery Street
Valletta
VLT1455
Malta

+356 2124 1232

+356 2599 0640

info@fenechlaw.com www.fenechlaw.com
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Law and Practice in Malta

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Fenech & Fenech Advocates was established in 1891 and has diverse areas of expertise, including corporate and commercial law, ICT law, M&A transactions, financial services, tax, banking, trusts and foundations, aviation, intellectual property, employment law and environmental law. It is particularly well known for its extensive maritime practice, with four distinct departments dedicated to the maritime sector: marine litigation, ship registration, ship finance and yachting. The firm represents major industry players, ranging from the largest ship-owners, tug and salvage operators and port facilities to bunker operators, charterers and financiers, yacht-builders and yacht-owners. It also regularly assists with the drafting of maritime laws and legislation.