Introduction
Although enacted in 2017, the Merchant Shipping (Amendment) Act 2017 (“MSAA 2017”) which amends the Merchant Shipping Ordinance 1952
1 (“MSO 1952”) will come into force in Peninsular Malaysia and the Federal Territory of Labuan on
1 September 20262. Its commencement represents the most significant overhaul of Malaysia's ship registration and licensing regime in many years and introduces reforms intended to modernise the Malaysian registry and strengthen the country's maritime sector.
The MSAA 2017 will come into operation in the States of Sabah and Sarawak on such date as the Minister of Transport (“Minister”) may, after consultation with the State Authorities of Sabah and Sarawak, appoint by notification in the Gazette.
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Modernising Malaysia's Ship Registration Regime
Perhaps the most significant reforms introduced by the MSAA 2017 relate to the registration of Malaysian ships. The amendments substantially modernise the existing registration framework by expanding the categories of vessels that may be registered, introducing greater flexibility for foreign ownership structures and recognising bareboat charter registration.
The amendments maintain the distinction between the Malaysia Ship Register ("MSR") and the Malaysia International Ship Register ("MISR"), but significantly broaden access to the latter.
The MSR remains the principal register for Malaysian-owned vessels and is available to Malaysian citizens and companies incorporated in Malaysia. By contrast, the MISR has been expanded to permit not only Malaysian owners but also foreign individuals and foreign-incorporated companies to register vessels under the Malaysian flag.
To facilitate foreign ownership, the amendments require a foreign owner registering a vessel under the MISR to appoint a representative person in Malaysia (“Representative Person”). The Representative Person must either be a Malaysian citizen permanently resident in Malaysia or a Malaysian-incorporated company with its principal place of business in Malaysia. The Representative Person acts as the owner's local representative for regulatory purposes, including filing documents required under the MSO 1952 and accepting service of documents relating to proceedings under the legislation.
The amendments also introduce a statutory framework for bareboat charter registration, bringing Malaysia into line with many established international shipping registries. A vessel may now be registered in Malaysia as a bareboat chartered-in ship, provided the Minister approves the registration and the vessel's primary registry has either suspended its registration or consented to the suspension. Conversely, Malaysian-owned vessels may be registered as bareboat chartered-out ships in another jurisdiction, with the Malaysian registration being suspended during the charter period.
These reforms provide shipowners and financiers with considerably greater flexibility when structuring ownership and charter arrangements. In particular, the expanded access to the MISR and the recognition of bareboat charter registration are likely to enhance the attractiveness of the Malaysian flag for international shipping operations while accommodating modern vessel financing and chartering structures.
Greater Protection for Ship Financiers
The MSAA 2017 also introduces important reforms for banks and other financiers involved in vessel financing by clarifying the legal framework governing the transmission of interests and mortgage of Malaysian ships.
The amendments preserve the long-established requirement that transfers of registered Malaysian ships or shares in a registered ship must be effected by a bill of sale. However, they also provide a clearer statutory framework for the transmission of ownership by operation of law, subject to the approval of the Registrar and the continuing qualification of the registered owner to own a Malaysian ship. The rights of registered mortgagees are likewise preserved under the MSAA 2017, which empowers a registered mortgagee to sell the vessel and give a valid receipt for the purchase price once the mortgage monies have become due. Where there are multiple registered mortgages in respect of the same vessel, a subsequent mortgagee cannot sell the vessel without the concurrence of every prior mortgagee, except under an order of the Court.
The amendments also clarify that a bareboat chartered-in ship may not itself be mortgaged in Malaysia. Instead, any mortgage over such a vessel will continue to be governed by the laws of its primary registry. This reflects the temporary nature of bareboat charter registration and avoids the creation of competing security interests across different jurisdictions.
Taken together, these amendments strengthen the legal framework governing ship ownership and financing in Malaysia. By providing greater certainty in relation to transmission of interests alongside the existing mortgage provisions in the MSO 1952, the reforms are likely to be welcomed by shipowners, banks and other financial institutions involved in vessel acquisitions and financing transactions.
A New Licensing Framework
The MSAA 2017 also introduces a comprehensive licensing framework aimed at strengthening regulatory oversight of Malaysia's maritime industry. In addition to modernising the licensing regime for certain vessels, the amendments establish, for the first time, a statutory framework governing service undertakings
4 and port undertakings
5.
Under the new provisions, the Director of Marine is empowered to issue licences to persons providing service undertakings or port undertakings. Such licences may specify, among other things, the functions to be performed by the licensee, the applicable performance standards, the duration of the licence and any conditions considered appropriate by the Director of Marine. The Minister is also empowered to prescribe regulations governing matters such as licensing fees, qualifications of personnel, record-keeping and reporting obligations.
The amendments also introduce a licensing requirement for all vessels of less than 15 net tonnes operating in Malaysian waters for purposes of trade or business, transportation of any person other than for trade or business, or sports, leisure or recreational activity. The trade or business purposes include vessels engaged in activities such as the carriage of goods or passengers, fishing, salvage, dredging, offshore exploration and oceanographic activities. Certain categories of vessels are exempted, including vessels already registered under the MSO 1952 or other written laws, foreign non-fishing vessels registered overseas, fishing vessels regulated under the Fisheries Act 1985, and vessels licensed under the merchant shipping legislation of Sabah or Sarawak.
Failure to obtain the requisite licence, or operating a vessel in breach of the conditions of a licence, constitutes an offence punishable by a fine of up to RM100,000, imprisonment for a term of up to two years or both.
The amendments also repeal the previous licensing regime applicable to native sailing ships and boats, bringing those vessels within the broader licensing framework established under the revised legislation. This reflects a move towards a more consistent and streamlined regulatory regime for vessels operating in Malaysian waters.
Taken together, these reforms expand the Director of Marine's regulatory oversight while establishing a more modern and unified licensing framework for vessels and maritime service providers. Owners and operators should review their operations to ensure compliance with the new licensing requirements.
Domestic Shipping Reforms
The MSAA 2017 also introduces a revised framework governing domestic shipping in Malaysian waters, reinforcing the longstanding policy that domestic maritime trade should principally be undertaken by Malaysian vessels.
The definition of "domestic shipping" under the MSO 1952 has been retained and encompasses both the provision of shipping services within Malaysian waters or the exclusive economic zone, as well as the carriage of goods or passengers between Malaysian ports and between Malaysian ports and places within the exclusive economic zone. Foreign vessels are generally prohibited from engaging in domestic shipping activities unless specifically authorised under the legislation. A contravention may result in a fine of up to RM250,000, imprisonment for a term of up to three years or both.
The amendments also formalise the licensing framework administered by the Domestic Shipping Licensing Board. Subject to limited exceptions (one of which is the exemption of Malaysian ships of less than 15 net tonnage from the requirement from obtaining a domestic shipping licence), domestic shipping activities require the appropriate licence, with the Minister retaining the discretion to grant exemptions permitting foreign vessels to undertake domestic shipping in specified circumstances. The amendments further provide that appeals against decisions of the Board lie to the Minister, whose decision is final.
These reforms reaffirm Malaysia's cabotage framework while providing a clearer statutory basis for the licensing and regulation of domestic shipping activities. Shipowners, charterers and operators involved in the domestic carriage of goods or passengers should review their operations to ensure compliance with the revised licensing regime and any applicable exemption requirements.
Practical Implications
The commencement of the MSAA 2017 marks the most significant reform of Malaysia's merchant shipping legislation in many years. The amendments modernise the ship registration regime, introduce greater flexibility for foreign ownership and bareboat charter registration, clarify the legal framework governing the transmission of interests, and establish a more comprehensive licensing framework for vessels and maritime service providers. They also reaffirm Malaysia's domestic shipping regime through a revised licensing framework for domestic shipping activities.
The amendments are likely to be of particular interest to: