Malaysia: The Merchant Shipping (Amendment) Act 2017: A Sea Change?

Last Updated: 29 May 2018
Article by Siva Kumar Kanagasabai and Corrinne Chin

INTRODUCTION

The Merchant Shipping (Amendment) Act 2017 ("MSAA 2017") was passed by Dewan Rakyat and Dewan Negara on 9 and 16 August 2017 respectively to amend the Merchant Shipping Ordinance 1952 ("MSO 1952"). Although the MSAA 2017 was gazetted and became law on 1 December 2017, it will only come into force on a date appointed by the Minister.

This article will provide an overview of the key amendments made in MSAA 2017, specifically the registration of ships under the Malaysia Ship (International) Register, bareboat charteredout ships, the Registrar's new powers, the rights of mortgagees, licensing of ships, increment of penalties, and the Malaysia Shipping Development Fund.

In this article, a "Malaysian ship" refers to a ship that is registered or licensed under Part II of MSO 1952, as amended by MSAA 2017.

REGISTRATION OF SHIPS

Under MSAA 2017, no ship shall be within Malaysian waters or the exclusive economic zone unless it is registered in Malaysia as a Malaysian ship or registered in any other country, subject to MSO 1952 and any other written law. A ship may be registered as a Malaysian ship under the Malaysia Ship Register ("MSR") or Malaysia International Ship Register ("MISR") (collectively "Ship Registers").

MSAA 2017 increases the number of categories of registration of ships as Malaysian ships under the Ship Registers and amends the requirements imposed on some of the categories when registering a ship. In addition, it also removes the requirement that property in a ship be divided into 64 shares and provides that a ship may be divided into any number of shares.

Registration under MSR

Under MSAA 2017, a Malaysian citizen or a body corporate incorporated in Malaysia may register their ships as a Malaysian ship under MSR.

The present law specifically requires a Malaysian corporation registering its ship under MSR to have, amongst others, a majority of Malaysian shareholders and directors. However, under MSAA 2017, the extent to which it may register its ship under MSR will be determined by the Minister (normally by regulations which will be issued in due course). As the regulations have not been issued at this juncture, it is unclear whether MSAA 2017 would result in less stringent requirements being introduced.

Registration under MISR

Presently, only a corporation incorporated in Malaysia may register its ship as a Malaysian ship under MISR. With the inception of MSAA 2017, any person or entity, regardless of citizenship or place of incorporation, may register a ship as a Malaysian ship with MISR.

Unlike the more stringent MSO 1952, MSAA 2017 does not subject a Malaysian company to foreign shareholding and paidup capital requirements, nor the requirement to appoint a ship manager.

However, a non-Malaysian citizen or a body corporate incorporated outside Malaysia applying to register a ship as a Malaysian ship under MISR, is required to appoint a representative person so long as the said ship remains registered. The representative person must be a Malaysian citizen who has his permanent residence in Malaysia or a body corporate incorporated in Malaysia which has its principal place of business in Malaysia.

Unlike a ship manager whose responsibilities include maintaining and operating a ship, the role of a representative person, as stated in MSAA 2017, is to file documents or furnish information required under the MSO 1952 and accept service of any document to be served on the owner relating to offences.

The current law does not allow a ship to be registered under MISR unless it is fitted with mechanical means of propulsion, is not more than 15 years or 20 years in age (depending on the type of ship) and is of not less than 1,600 gross tonnage, unless exempted by the Minister. Under MSAA 2017, the age and tonnage criteria for registration under MISR may be prescribed in regulations to be issued by the Minister. Hence it remains to be seen whether the criteria for registration under MISR will be stricter or more lenient in this regard.

Ships under Bareboat Charter Terms

MSO 1952 currently does not provide for the registration of ships under bareboat charters. In a revolutionary move, MSAA 2017 will allow charterers of a ship under bareboat charter terms to register a ship as a Malaysian ship with the Ship Registers. The establishment of a bareboat charter registry operating under the Ship Registers is in line with regimes in other countries such as the United Kingdom and Singapore.

MSAA 2017 defines "bareboat charter terms" as the hiring of a ship for a stipulated period on the terms which give the charterer possession and control of the ship, including the right to appoint the master and crew of the ship.

The registration of a ship under bareboat charter terms with the Ship Registers is subject to (i) the Minister's approval; and (ii) evidence that the ship's registration at its primary registry has been suspended or that the authority of primary registry has consented to the suspension of the ship's registration at its primary registry.

BAREBOAT CHARTERED-OUT SHIPS

The current law also does not stipulate the rights of Malaysian shipowners to register their ships as a bareboat charter in another country. Following the amendments made in MSAA 2017, Malaysian shipowners may do so subject to conditions imposed by the Director of Marine and the consent of the Registrar. However, the Minister may disallow any Malaysian ship to be bareboat chartered-out for any reason and duration as he thinks fit. While a Malaysian ship is bareboat chartered-out and re-registered in another country, the registration of that ship in Malaysia will be suspended.

REGISTRAR'S NEW POWERS

The Registrar is responsible to maintain the Ship Registers. MSAA 2017 accords the Registrar with the power to, amongst others, suspend and terminate registrations of Malaysian ships (including ships on bareboat charter terms) under the Ship Registers, which the law does not presently expressly provide for. For example, the Registrar may terminate the registration of a Malaysian ship if the ship is broken up, or is an actual or constructive total loss such that it is no longer capable of being used in navigation.

The Registrar may also terminate the registration of a ship under bareboat charter terms if (i) the ship ceases to be operated under a bareboat charter; or (ii) the rights and obligations of the bareboat charterer under the bareboat charter terms are assigned; or (iii) the ship's primary registry is closed or annulled; or (iv) the primary registry authority has revoked or withdrawn the suspension of the ship's registration at its primary registry.

RIGHTS OF MORTGAGEES

Registered mortgagees are empowered to sell the ship when the mortgage money is due and to give effectual receipts for the purchase money. Nevertheless, in practical terms, unless there is a debenture providing for the appointment of a receiver with the right to sell the ship, any sale of a ship pursuant to a mortgage would require a Court order.

MSAA 2017 also expressly recognises contractual or equitable interests, and allows for such interests to be enforced by or against the owners and mortgagees of ships. However, it should be noted that under MSAA 2017, a bareboat chartered-in ship may not be mortgaged. In fact, the laws of primary registry of these ships will apply to issues such as the priority of registered mortgages.

LICENSING OF SHIPS BELOW 15 NET TONNAGE

Unless specifically exempted, MSAA 2017 will require ships below 15 net tonnage in any part of Malaysian waters for purposes of trade or business; transportation of any person other than for trade or business; or sports, leisure or recreational activity, to be licensed. The present law requires the licensing of vessels below 500 gross tonnage for any of the aforesaid purposes.

PENALTIES

MSAA 2017 increases the penalties across the board in the event MSO 1952 is contravened. For example, the penalty for a person who uses a ship or causes or permits a ship to be used without a licence or for a purpose other than the purpose for which it is licensed or contrary to the conditions of its licence will attract a fine not exceeding RM100,000 and/or imprisonment for a term not exceeding two years, as opposed to a mere fine not exceeding RM10,000 under the present law.

MALAYSIA SHIPPING DEVELOPMENT FUND

MSAA 2017 also introduces the Malaysia Shipping Development Fund ("Fund") from monies collected through the payments of annual tonnage fee. The Malaysia Shipping Development Fund Committee ("Committee") controls and administers the Fund which is aimed at improving the shipping industry. Specifically, the Fund is to be expended to improve the shipping industry; provide awards, fellowships, scholarships and research grants; sponsor research projects; organize seminars, expositions and other similar activities; and pay any other expenses incurred by the Committee in the execution of its functions.

COMMENTS

MSAA 2017 is intended to arrest the steady decline of Malaysian shipping tonnage by encouraging shipowners and bareboat charterers to flag their ships in Malaysia by introducing more categories of registration and imposing less stringent registration requirements under the Ship Registers. It also increases the powers of the Registrar and introduces stricter penalties. MSAA 2017 also seeks to address the need to improve maritime human resources by introducing the Fund to train and educate our maritime manpower.

The amendments under MSAA 2017 will no doubt complement the Ministry of Transport's 5-year Malaysia Shipping Master Plan to revitalize shipping. Time will tell whether the amendments will bring about a sea change to the Malaysian shipping industry.

To view the article please click here.

Originally published in Issue 4/2017 of Legal Insights

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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