25 March 2015

Sixth Largest Maritime Flag Worldwide – The Legal Aspects Which Have Contributed To The Success Story

Fenech & Fenech Advocates


Established in 1891, Fenech & Fenech Advocates is a multi-disciplinary full service law firm with diverse areas of expertise, including corporate and commercial law, M&A transactions, financial services, tax, immigration, banking, trusts and foundations, aviation, intellectual property, maritime law and marine litigation, yachting, employment law, environmental law and various other areas.
Latest statistics for 2014 indicate that the Malta maritime flag has reached yet another milestone: the Malta Ships Register has become the sixth largest maritime flag in the world.
Malta Transport
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Latest statistics for 2014 indicate that the Malta maritime flag has reached yet another milestone: the Malta Ships Register has become the sixth largest maritime flag in the world. It has moved up from seventh place in 2013 and has retained its position as the largest in Europe. The Maltese register has not only registered an increase in gross tonnage but has also continued to attract younger vessels to its fleet whilst retaining high standards.

This success story is supported by a legislative structure which, through the years, has adapted to the needs of the maritime industry and at the same time has provided the certainty and security which is required by owners, operators, managers and financiers alike. The Merchant Shipping Act (Chapter 234 of the Laws of Malta) (the "Act"), as the primary instrument regulating the registration of ships under the Malta flag, widely defines the term "ship" as all types of ships, including those under construction, as well as other marine structures such as oil-rigs and pontoons, all of which may be registered under the Malta flag. This definition also means that pleasure boats, commercial yachts, tankers, container and other commercial ships, pontoons, barges, floating production storage and offloading vessels (FPSOs), installations and structures and offshore oil rigs/drilling units are all eligible for registration under the Malta flag. The Act requires all ships exceeding six (6) metres in length which are not employed solely in navigation on the coasts of Malta to be registered in the Ships Register of Transport Malta.

In addition to full registration, the Act allows for bareboat charter registration of ships, in other words, the registration of a ship in two jurisdictions which are legally considered to be compatible. Maltese flag compatibility has currently been established with various ship registries including with that of Antigua and Barbuda, the Bahamas, Cyprus, the Isle of Man, Italy, Liberia, the Marshall Islands, Panama, Turkey, Spain and several others. This provides owners and charterers with flexibility for their contractual arrangements and operation of ships.

As far as the age of ships is concerned, restrictions are also applicable and ships which are 15 years and over but less than 20 years must be inspected within the first month from the date of the provisional registration under the Malta flag while ships of 20 years and over are subjected to a flag state inspection prior to being accepted for registration. Ships of 25 years and over are, generally speaking, not accepted for registration and this prohibition has assisted in significantly reducing the average age of ships registered under the Malta flag.

A Malta flagged ship may be registered in the ownership of (i) a Maltese individual or company or (ii) in the ownership of a citizen of a Member State of the European Union (EU), the European Economic Area (EEA) or Switzerland who resides in Malta or (iii) in the ownership of an international owner, being a citizen of a Member State of the EU, EEA or Switzerland not residing in Malta or a non-Maltese corporate body or entity which enjoys legal personality in terms of the law under which it has been established or constituted.

In the light of the fact that Malta is a party to most of the major International Maritime Conventions of the International Maritime Organisation (IMO) and the International Labour Organisation (ILO), Malta flag ships are obliged to adhere strictly to the provisions of such international conventions. Among the latest conventions affecting the maritime industry are the Maritime Labour Convention which entered into force in 2013 and the Nairobi International Convention on the Removal of Wrecks which was ratified by Malta in January this year and enters into force in April 2015.

A shipowner's choice of flag is very often not only determined by the requirements and advantages of a flag with respect to the registration and operation of a ship but also by requirements imposed by any financiers who may be involved in assisting a shipowner with its financial needs. Since financiers (also known as mortgagees) usually require as collateral the registration of a mortgage in their favour over a shipowner's ship, financiers frequently request the submission of updated reports on the law of the flag state being considered by a shipowner before agreeing to provide requested financing, and this in order to determine the adequacy of the level of protection provided to secure their interests, particularly when registering and enforcing mortgages registered over ships. This in fact is one of the primary areas where Maltese law has developed significantly over the last decades with a view to provide mortgagees with iron-clad security whilst keeping the flag accessible to shipowners.

The rights of a mortgagee (which has the benefit of a registered ship mortgage registered in its favour) are regulated by the Act. Whilst ships are invariably initially registered on a provisional basis until certain original documentation required for permanent registration is filed with the Registrar of Ships, once a ship is provisionally registered under the Malta flag, a mortgage can legally be registered thereon and the mortgagee's rights will immediately be fully secured and enforceable irrespective of whether the ship is provisionally or permanently registered. The law provides for a statutory form which is executed by the shipowner and filed and registered at Transport Malta in the presence of the Registrar of Ships. Upon the registration of a mortgage, the Registrar of Ships is legally bound to indicate the date and time of registration on the face of the mortgage deed and records the document on the ship's register book, which is available for public inspection.

Mortgage deeds, which may be drawn up to secure the payment of a principal sum and interest, an account current as well as the performance of any other obligation including a future obligation, enjoy a significantly higher ranking over other privileged claims specified in the Act and rank, in relation to other registered mortgages, according to the priority in date and time of their registration. The law does not allow an owner to delete a ship registered under the Malta flag without the prior written consent of a mortgagee. In those cases (specified in the Act) where the Registrar of Ships has the discretion to strike off a ship from the Register, the Registrar must first submit a one month notice in writing to the mortgagee and to the owner.

A mortgagee has the power to prohibit the creation of any further mortgages and may likewise prohibit the transfer of ownership of the ship without a mortgagee's prior written consent. Of significant importance is the executive title which Maltese law grants a mortgagee of a Malta flagged ship, such that in the event of a breach of any of the conditions agreed upon, the mortgagee may proceed to take full possession of the ship without first having to obtain a Court judgement. Among the powers granted to a mortgagee in case of a default, the mortgagee is granted the absolute power to sell the ship although, where there are several mortgagees, a subsequent mortgagee can only commence sale proceedings with the concurrence of prior mortgagees, unless the sale takes place following the order of a court of competent jurisdiction. In addition, the mortgagee has the power to do all such things in the name of the owner as may be required in order to maintain the status and validity of the registration of the ship.

On the strength of a relatively recent amendment to Maltese law, creditors who hold an executive title (such as mortgagees) and who seek to enforce their rights, not only have the option to sell a ship by private sale or judicial auction, but may also avail themselves of so-called "court approved private sales" wherein the court may approve a private sale of a ship in favour of an identified buyer and in consideration of a determined price. Such court approved private sales have the same effect as judicial sales with respect to the granting of title to the purchaser free from all privileges and encumbrances.

It is clear that Malta's ability to keep legislatively abreast with the ever-evolving needs of the maritime industry has been a major contributing factor in attracting among the most demanding and reputable ship owners and financiers to Malta. This, together with the efficiency and accessibility of the Maltese maritime administration, the comprehensive support structure provided by reputable and experienced service providers and the wide range of maritime services available, have rendered the Malta maritime flag the leading flag of choice it is today.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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