In the latest episode of the ‘Ganado Meets Strategic Leaders’ podcast, Max Ganado meets with Lino Vassallo, former registrar-general of shipping and seamen
During the political administration led by former prime minister George Borg Olivier, attorney general Edgar Mizzi had drafted the Merchant Shipping Act, which was very much based on the UK’s Merchant Shipping Act of 1894.
Lino Vassallo notes that the similarity between both acts was comforting to the legal minds in Malta at the time, as they were already accustomed to the UK’s Merchant Shipping Act.
The Merchant Shipping Act was then passed by parliament in 1973, while Dom Mintoff was prime minister of Malta. Despite both Max Ganado and Vassallo acknowledging that this move was not in-line with Mintoff’s vision, given his inward-looking view in terms of the economy; Vassallo suspects that this decision could have been due to Mintoff’s close relationship with the first president of Cyprus, president Makarios III.
Given that Cyprus had already implemented a similar act in their legislation, Vassallo speculates that this could have left a favourable impression on Mintoff.
Discriminatory tax exemptions in the Merchant Shipping Act
Although the text of the Merchant Shipping Act presented to parliament was similar to that which was previously drafted, it contained an important difference. The text had previously contained a provision which catered for the possibility of tax exemption for ships which were over 4,000 net tonnes. However, the act presented to parliament expanded the applicability of this provision to ships which were over 1,000 net tonnes.
As a young lawyer during the time of the Merchant Shipping Act’s enactment, Ganado had noted that this exemption would not be applicable to existing Maltese-flagged vessels, as even the larger Maltese-flagged vessels were all under 1,000 net tonnes, and this was a way to make sure Maltese operators do not get tax exemptions.
Vassallo notes that despite the inapplicability of the tonnage tax provision to most Maltese-flagged vessels, the Merchant Shipping Act introduced another tax exemption for vessel owners who would employ Maltese seafarers; whereby they would be exempted from paying tax on these seafarers.
Conversely, foreign seafarers working on Maltese-flagged vessels were taxed. It is worth noting that although the traditional model of tax exemptions tends to exempt foreigners over locals, this latter exemption acted as an incentive towards localsinstead.
The growth in Maltese-flagged ships: strategic changes
Ganado explains that in 1972, the number of ships registered in Malta was quite small and it was only after 1984 that the Maltese registry started to see a growth in numbers. He attributes this growth to the decision taken by former prime minister Karmenu Mifsud Bonnici to remove the eight per cent interest rate on loans to ships, as this limitation was acting as an obstacle for shipowners who needed bank finance to register their vessels in Malta.
In the early 1990s, the country saw another influx of Maltese-flagged vessels. However, due to this sudden increase, various administrative issues started to emerge. Ganado and Vassallo also acknowledge the early efforts put in by Maltese firms, such as Gauci-Maistre and Sullivan/Sorotto, to attract vessel owners to Malta.
The sinking of MV Erika: a wake-up call
There was a time in Malta’s shipping history where the country was accepting ships which may have been too old, or tankers which ran a risk of pollution, the two say.
They mention the sinking of the Maltese-flagged tanker Erika on December 12, 1999, and the resulting oil spill in French waters. They say that it was then that the Maltese shipping industry realised that one cannot grow a business without the ability to properly regulate it. It is not enough to legislate for a regulator, but one must also ensure that such regulator has enough resources to manage the risks in his domain, they point out.
Following the MV Erika incident, both Ganado and Vassallo note that there was a concerted effort to intervene and be more strict with vessels being registered in Malta.
The interplay between Maltese politics and the Merchant Shipping Act: a product of cooperation
Vassallo and Ganado describe the Merchant Shipping Act as a success story which was brought about through cooperation among various governments. They say it cannot be attributed to one political party, as ultimately, it was drafted by one political party and brought into the daylight by a different party.
Vassallo believes that the Merchant Shipping Act had, both the advantage and blessing, of knowing no political parties.
The Malta Maritime Authority (MMA) commenced operations on January 1, 1992, by virtue of the Malta Maritime Authority Act of 1991, in order to give tools to the Merchant Shipping Directorate to be able to function. Ganado and Vassallo acknowledge that the MMA helped to solve the problem of resources and worked on a strategic vision to deal with the issues facing the maritime industry properly.
When asked if Malta was successful in designing an apolitical strategic group which helps our country in taking decisions without having negative political divisions, Vassallo replied: “There are two major political parties; but we cannot have two of everything. We cannot have an expert in something from one party and an expert from another party […] That’s why you need to have these apolitical groups, who continually work and recognise each other’s work. We have to get rid of this mentality that something which was done by a predecessor is bad.”
The industry’s future: is the industry open to strategic changes?
With the increasing transparency requirements, following Malta’s greylisting (and subsequent removal) by the Financial Action Task Force (FATF), Ganado notes that the concept of allowing international companies to be owners or operators of Maltese-flagged vessels may need to be reviewed.
He adds that a contradiction may be developing whereby international operators are coming from a country which does not meet the FATF’s standards. As a country subscribing to good transparency standards, Ganado says that we need to ensure that foreign companies using Malta will not undermine that position as that would continue to damage our reputation.
Andrea Grima is a trainee advocate at Ganado Advocates.