Thought leadership from our experts

Malta – A maritime jurisdiction

Whichever way one looks at it, Malta is truly a maritime jurisdiction. Our natural geographic position in the centre of the Mediterranean making us equidistant from Port Said and Gibraltar, the deepest natural harbour in the Mediterranean, English as an official language and a host of other advantages and assets have made Malta a natural choice for numerous persons involved in the maritime sector.

Malta has made a name for itself in providing the largest ship register in Europe, extremely good shipyards, an international maritime law institute, state of the art yacht marinas, a freeport which offers the perfect location for transhipment, and a location where vessels can bunker as they traverse the med without deviating from the contractual route. All of this and much more in fact means that there is a huge amount of maritime activity taking place in Malta and as a result as litigation lawyers we get involved in the entire spectrum of marine related incidents.

This volume of marine activity gives rise to numerous scenarios needing legal intervention and 2014 has been no exception. The fact that the Malta flag is the largest flag in Europe with well over 50 million tons means that very frequently foreign courts are seized with issues requiring the expert opinion on what the law of Malta has to say about a number of matters. The most commonly asked questions we have had to deal before foreign courts are whether or not one would have been able to arrest or commence an action in rem in Malta, whether the claim would qualify as a maritime lien or what limitation regime applies.

However 2014 can probably go down as a year where there was substantial activity in the world of court approved private sales. The Maltese courts played an important part in assisting numerous creditors get some of what they were owed as a result of the TMT fall out. This was possible due to the amendments we introduced in our Code of Organisation and Civil Procedure in 2006 allowing the holders of executive titles to file an application before the Maltese courts requesting the court to approve a private sale. Mortgagees enjoy a very special status under Maltese law. They are considered to be executive titles which means that in the face of defaulting owners they can proceed directly to enforcement without having to resort to commencing an action on the merits. A foreign mortgage can qualify as though it was a Maltese mortgage if it satisfies the criteria laid down in our Merchant Shipping Act. The court approved private sale is one of the enforcement mechanisms and the advantage of this procedure over a private sale is that in a court approved private sale the vessel is sold free from encumbrances. The advantage of this procedure over a judicial sale by auction on the other hand is that the creditor is able to realise a particular price for the vessel rather than leave it up to chance. This procedure was used by Bank of America, Hyundai Heavy Industries as well as Macquarie in three separate proceedings which they instituted against the A Ladybug, the B Ladybug and the D Ladybug. These vessels belonging to the TMT group at the heart of bankruptcy proceedings in Huston Texas were in Malta and the mortgagees were able to extricate these vessels from the bankruptcy proceedings in the USA and we got the vessels sold in a court approved sale in Malta. The system worked well and showed how robust the Maltese legal system is in the face of defaulting owners.

What happens in a court approved private sale is that the mortgagee sources the market for the best offer and price and once the best offer is sourced it obtains two valuations for the vessel. Provided that the best price obtained is equal to or in excess of the highest valuation, the mortgagee may file an application in court requesting the court to approve the private sale. The court will normally approve the sale if it is satisfied that the price is indeed the best price that could be obtained and is satisfied that it is in excess of the valuations. The sale then takes place and the money is deposited in court and is then distributed to the creditors according to the list of privileged creditors. What happens very frequently in the case of mortgagees is that they would, during the running of the case, have paid off all those creditors which pre rank them such as the crew, the providers of bunkers and provisions and the port authorities. That is also what happened in the Ladybug cases which ensured that after the actual sale of the vessel and the deposit of the sale price into court, the mortgagees were able to recoup their funds from the court relatively quickly.

Malta being home to numerous bunker suppliers also means that they too were hit by the OW Bunker bankruptcy which certainly took the world of shipping by surprise. As I write this article we are very busy advising numerous persons who have in one way or another been affected by this phenomenon. It is clearly a very difficult moment for suppliers, owners and traders involved in the OW chain and it is unlikely that the problem will be resolved any time soon. In the meantime for most people involved it is a question of damage limitation