The robust nature of our law supporting the Malta maritime flag was recently confirmed by the EU Commission, by giving the Malta tonnage tax regime the green light. Our law is constantly being fine-tuned in order to maintain its relevance in a constantly developing international regulatory environment with the latest amendments published only recently.

Although the tonnage tax system is perceived to be one of the benefits of the Malta flag, an as important feature of the flag is the protection which our law gives to the mortgagees.

While mortgagees are typically the financiers or builders of a vessel, any creditor can enter a mortgage against a vessel to secure a claim. Under Maltese law a registered mortgage is an executive title, which means that it is equivalent to a judgement. In the event that the owner defaults, the mortgagee is entitled to enforce the mortgage as though he was already in possession of a judgement able to proceed directly with the arrest and judicial sale of the vessel.

This is an extremely powerful tool giving financiers, in particular, a great deal of comfort in the event that things don’t quite work out, leading them to rate the Malta flag very highly on their list of preferred flags because in the event of default the vessel can be arrested and sold in a judicial sale without the need of commencing an action on the merits.

Under Maltese law there are two types of judicial sales: the traditional judicial sale by auction and the court approved private sale.

In a judicial sale by auction, the ship is sold in court to the highest bidder with no reserved price mechanism. Therefore the creditor would have no idea whether the price fetched in the sale will come anywhere close to what is owed to him and other creditors.

In a court-approved private sale, the mortgagee sources the open market, seeks a buyer and agrees a price, obtains valuations of the ship by means of physical inspection and provided that the sale price exceeds the highest valuation, the court on an application by the mortgagee will, after hearing the parties and verifying the facts, approve the sale.

Like a judicial sale by auction, the vessel is sold to the buyer free and unencumbered and stripped of its existing debt. The creditors of the vessel then seek settlement from the sale price.

This showcases Malta’s robust laws, providing international mortgagees with a strong sense of security

If the vessel is not physically present in Malta but in another EU member state, it is possible through European Enforcement Orders to obtain an order from the Maltese court confirming that in Malta, the mortgage is an executive title entitling the mortgagee to sell the vessel in a judicial sale. That Maltese order is then enforced through the judicial sale of the vessel in the EU member state where the vessel happens to be.

This showcases Malta’s robust laws while providing mortgagees, including the international shipping financier, with strong security. Ship finance is crucial to international shipping which is, in turn, one of the fundamental pillars of international trade.

In addition, it is crucial for a buyer in any judicial sale to have the purchase of his free and unencumbered vessel recognised worldwide, guaranteeing a superior price to the benefit of all the creditors of the vessel as well as her original owners.

There are no issues of recognition of judicial sales between EU member states, however, there is no similar mechanism on an international level and it is precisely this which the Comite Maritime International (CMI) has been working on very hard indeed over the past few years.

The CMI has already drafted an international convention with the benefit of the participation of its 52 national maritime law association members. It has studied in detail the problems which have arisen worldwide every time a judicial sale of a vessel is for some reason or other not given recognition in another country. This often leads to great uncertainty for the buyer, causes havoc with the financiers of the new purchase and is an obstacle to the smooth conduct of international trade where certainty and international uniformity are key fundamentals to success.

The Malta Colloquium held in Malta in February was the perfect opportunity to hear international experts speak of the benefits of well-organised, structured judicial sales and the sometimes challenging scenarios and unnecessary hurdles to international trade that ensue when there is a failure in the recognition of such sales in other countries.

The general conclusion of the views expressed by attendees representing international ship owners, banks involved in ship financing, diverse creditors and established international maritime organisations was that: it was crucial for the smoother function of commercial maritime activity and that properly regulated judicial sales of ships should be recognised internationally in order to bring better organisation, certainty and peace of mind – three of the most important pillars to the smooth operation and function of international trade.

These comments were carefully noted by the representative of the United Nations Committee of International Trade Law (Uncitral), who confirmed that Uncitral was prepared to consider putting the matter on its agenda if there was sufficient support. As a result and following the Malta Colloquium, the governments of Malta and Switzerland presented a proposal to Uncitral on possible future work on cross-border issues related to the judicial sale of ships. This proposal has been put on the agenda of the 52 meeting of Uncitral to be held in New York on June 29.

What is required now is for as many States as possible to support the Maltese and Swiss proposal and to take this exciting project to the next step of putting it firmly on the Uncitral agenda. It will be a step that will be most welcomed by the international maritime community, by the maritime judiciary worldwide and most certainly by Malta.

Ann Fenech is managing partner at Fenech & Fenech Advocates, an executive council member of the Comite Maritime International and sits on the Malta Maritime Forum Board. The opinion expressed by the author does not necessarily reflect the position of the Malta Maritime Forum.

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