Insights

Act No. I of 2025 (the “Act”) builds upon key principles from the Maltese Civil Code, Chapter 16 of the Laws of Malta (the “Civil Code”), integrating its lease concept into maritime legislation, however a clear distinction must be made between a finance and a bareboat charterer.

This article seeks to examine this distinction to clarify the implications of the Act’s propositions.

Definitions of finance charterer vs bareboat charterer

To grasp the proposed amendments in the Act, it is essential to understand the definition of a “finance charterer” which is defined as:

“the term ‘finance charter’ shall refer to the chartering or lease of a ship under terms where the possession, operation or control of that ship is given to a bareboat charterer or to a lessee including through a demise or bareboat charter or a similar agreement, the principal purpose and intention of which is to finance the acquisition, operation, administration or management of that ship”

This definition is influenced and in line with the definition of the term ‘lease’ in Article 1526(7) of the Civil Code when addressing the lease of ships and aircraft.

The term “bareboat charterer” is separately defined as:

“a person who leases or sub-leases a ship, by means of a contract for a stipulated period of time, during which period such person shall acquire full control and complete possession of the ship, including the right to appoint her master and crew for the duration of the charter but excluding the right to sell or mortgage the ship”.

Therefore, the application of the amendments and the creation of rights in favour of a registered owner of a ship qua lessor^[1], is limited to those structures or arrangements, the primary purpose of which is to serve as a mechanism for financing the vessel.

Dual registration

The Act strengthens existing legislation, particularly the amendments introduced by Legal Notice 210 of 2016, which enable dual registration under the Maltese Register of Ships. This is distinct from bareboat charter registration, which falls under separate provisions.

Article 19A of the Merchant Shipping Act permits a financing entity, such as the shipping fund or lessor, to register title over the vessel as registered owner in the Maltese register of ships whilst simultaneously allowing another entity, as lessee, to have the operational certificate of Malta registry and any other certificates issued by the Maltese flag authorities, in its name as lessee. This option is also available in those instances where the lessee has subsequently chartered the vessel to a third-party charterer that wishes to have the registration certificate issued in its name as charterer, subject of course to both the registered owner’s and the lessor’s consent. The consent of any registered mortgagee is also necessary.

Furthermore, Act No. LII of 2016 amended the Civil Code’s provisions on the sale and lease of assets, prioritising contractual agreements over traditional rules in the Civil Code. This ensures that any ill-suited provisions contained in the legal institutes of sale and of lease in the Civil Code, and which contextually do not apply to the realities of a modern shipping finance arrangement or ship sale and leaseback transaction, are effectively blocked from regulating the parties’ relationship and consequently being applied by the courts in a dispute. Of course, the choice of the usually selected foreign laws in a sale and/, or lease agreement will do this admirably well and Maltese law will recognise the choice.

Hence, this clarification on the subordination of Maltese law to the contract is essentially a defence against any purely local public policy arguments which could potentially upset the parties’ choice of law. The said amendments further empower lessors (qua financiers) by overturning the bias that exists in Maltese civil law in favour of the possessor of an object subject to lease.

Possession

The power to retake possession granted to a lessor is like that available to the mortgagee under the existing provisions in the Merchant Shipping Act as well as to that of a lessor in the amended provisions in the Civil Code dealing with the letting of ships and aircraft.

Conclusion

The Act introduces significant advancements in Maltese maritime legislation by seamlessly integrating leasing principles from the Civil Code into the realm of shipping finance. It establishes a clear legal distinction between finance charters and bareboat charters, ensuring that leasing structures designed for vessel financing are precisely regulated. Strengthening the framework of dual registration, the amendments empower both registered owners and lessees with distinct legal recognition through separate registration certificates. Moreover, by prioritising contractual agreements over rigid Civil Code provisions, the Act safeguards modern shipping finance arrangements from outdated legal constraints.

These transformative reforms fortify legal certainty for financiers, granting them enhanced authority to reclaim possession of leased vessels in cases of default or dispute.

[1] The term “lessor” is defined in Article 49B (13)(d) as “the term lessor shall refer to the owner of a ship which is the subject of or is otherwise addressed in a finance charter”.

This article is the fourth and last in a series of articles that were published by Ganado Advocates in the past weeks.