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Title: Bareboat Charter Registration: A Practice in the Maritime World that is aimed to Stay
Affiliation: Lund University
October 2011
TABLE OF CONTENTS
1.
Introduction ............................................................................................................. 1
1.1.
2.
Registration ........................................................................................................ 3
4.
Conclusion ..................................................................................................................... 20
BIBLIOGRAPHY ......................................................................................................... 21
TABLE OF CASES ...................................................................................................... 23
1.
Introduction
Sovereign States must regulate legal relationships, people and property that are under their
power and jurisdiction.1 In fact, some principles are used to establish State jurisdiction, such
as nationality.2 The word nationality evokes romanticism because it is frequently associated
with individuals, patriotism, sacred symbols, and strong sentiments of respect and love to a
nation, a particular culture, or society. However, in legal terms, nationality is a political
status,3 that represents a connection with a specific State that governs the nationals rights
and obligations.4 Furthermore, not only individuals, but also ships and aircrafts have
nationality.
Ships nationality is generally apparent from the flag it flies.5 This statement is
contained in article 5 of the Geneva Convention on the High Seas, 1958, and article 91 of the
United Nations Convention on the Law of the Sea, 1982. Furthermore, nationality is usually
granted through registration. In fact, registration is the entry of a matter in the public
records.6 So, a main question arises: can a vessel fly the flag of a different State while it is
registered in a previous State? Prima facie the answer is negative. Indeed, a vessel may only
have one nationality; otherwise, it would be assimilated as a stateless ship.7 Nevertheless, in
the maritime practice exists a fascinating system of registration for bareboat-chartered
vessels, in which a temporary use of the flag of a second State is allowed.8 This system has
revolutionized the understanding of registration and its functions. Moreover, it is a powerful
instrument for aspiring maritime countries to increase their fleets, and it represents a strong
economic incentive for ship owners and charterers.
1.1.
This essay principally discusses the regime of bareboat charter registration. The topic is
developed in three sections. The first section, very briefly, deals with essential concepts that
1
See Malcolm N. Shaw, International Law, 6th edition, Cambridge, 2008, Chapter 12: Jurisdiction, p. 645.
See ibid for an explanation of other principles of State jurisdiction, such as the territoriality, universality, passive, and
protective principle; and, treaties that provide for jurisdiction, pp. 647 683.
3
P. North, J.J. Fawcett and G.C. Cheshire, Private International Law, 13th edition, Butterworths, London, 1999, p. 159.
4
Malcolm N. Shaw, International Law, p. 660.
5
Thor Falkanger, Hans Jacob Bull, and Lasse Brautaset, Scandinavian maritime law The Norwegian perspective, 2nd
edition, Universitetsforlaget, 2004, p. 48.
6
Nigel Ready, Ship Registration,3rd edition, Lloyds of London Press, 1998, p. 6.
7
See Edgar Gold, Aldo Chircop, and Hugh Kindred, Maritime Law, Toronto, Irwin Law, 2003, pp. 176 180. Note the
authors explanation about stateless ships as vessels without protection that may be visited and boarded on the high seas by
the warships of any state. See also, article 6 of the Geneva Convention on the High Seas, 1958 and article 92 of the United
Nations Convention on the Law of the Sea, 1982.
8
Nigel Ready, Ship Registration, pp. 39 - 48.
2
underlie ship registration, such as the rationale of nationality and its relationship with
registration, and the definition of genuine link. The second section presents the origin,
benefits, and potential pitfalls of bareboat charter registration. Finally, a third section is
dedicated to the analysis of the practice of bareboat charter registration in two developing
countries: Ecuador and the Phillipines.
The main purpose of this essay is to demonstrate that bareboat charter registration is a
beneficial commercial and legal practice that has been broadly embraced not only by open
registries, like Panama, but also by traditional maritime nations like the United Kingdom, and
aspiring maritime countries as Ecuador.
2.
2.2.
Registration
See
article
2
of
the
Geneva
Convention
on
the
High
Seas,
1958.
<untreaty.un.org/ilc/texts/instruments/english/conventions/8_1_1958_high_seas.pdf>, visited on 16 December 2010 at
15:45. See also articles 89 of the United Nations Convention on Law of the Sea, 1982,
<www.un.org/Depts/los/convention_agreements/texts/unclos/closindx.htm>, visited on 16 December 2010 at 15:49.
15
John Colombos, The International Law of the Sea, 6th revised edition, Longman Green & Co. Ltd, 1967, p. 285. Note that
on the high seas, a concurrent jurisdiction may arise, when the coastal States intervene in cases of oil pollution on the high
seas. Further, the exclusive jurisdiction of the flag States is relative due the doctrine of hot pursuit, trade of slaves, among
others. See Malcolm N. Shaw, International Law, pp. 614-618.
16
Malcolm N. Shaw, International Law, pp. 647 649.
17
Lauritzen v Larsen (1953), 345, United States Supreme Court, 571.
18
Nigel Ready, Ship Registration, p. 6.
19
John Colombos, The International Law of the Sea, p.289. Note the authors explanation about different scenarios of
concurrent jurisdictions and the position of the vessels in territorial waters and ports, pp. 306-331.
20
Supra footnote 14. See the duties of the Flag State in article 94 of the United Nations Convention on the Law of the Sea.
21
Supra footnote 9.
the former is the most important test for the latter.23 Furthermore, registration provides
evidence of the owners title. However, it is important to bear in mind that evidence is not
equivalent of proof. Additionally, the priority between proprietary rights, like mortgages or
hypothques, is given through registration.24 Hence, registration deals with private and public
law functions25 that were summarized in the Liverpool Borough Bank v Turner:
The Court emphasized two points relating to registration. First, it is the interest of the nations
of the world that it should be clearly known and recognized who shall be entitled to the
privileges of a British ship, and, secondly, the object is to determine what should be proper
evidence of title to maritime property.26
Thus, registration has implications not only for the flag State, but also for the owners, the
mortgagees, and the public.
Z. Oya zayir, Liability for oil pollution and collisions, Lloyds of London Press, Honk Kong, 1998, p. 7.
Ibid, p. 6. Note that [i]n international texts and treaties the terms registration and nationality are often apposed. Thus,
in the United Nations Convention on the Law of the Sea, the ships of a State are referred by expressions vessel of its
registry vessel flying its flag or vessels having the nationality.
24
Christopher Hill, Maritime Law, 6th edition, Lloyds of London Press, Hong Kong, 2003, pp. 28-31.
25
See ibid, p.27. In the United Kingdom, vessels registered under the small ship register do not benefit of the private law
functions of registration. In other words, mortgages cannot be registered. See also infra p. 10 for a detailed explanation of
the functions of registration.
26
Liverpool Borough Bank v Turner (1860) 29, Law Journal Reports, Ch, 827.
27
Z. Oya zayir, Liability for oil pollution and collisions, p.5.
28
Nigel Ready, Ship Registration, p. 10.
29
Ibid.
30
Christopher Hill, Maritime Law, pp. 9-10.
23
able to register its vessel in a State. Particularly in closed registries, requisites of nationality
are relevant. For example, a certain percentage of the beneficial owners and/or crew have to
be nationals and/or the ship has to be built within the territorial shipyards. Japan is a closed
registry of this type.31 A more flexible approach is not linked directly with nationality, but
with domicile and, in the case of companies, those legal entities must be incorporated and
have the principal place of business in a defined State.32
The effectiveness of the nationality connection is questionable because the beneficial
owners of a ship are not always amenable to a particular jurisdiction. Additionally, it is
undeniable that a company is different from its shareholders, as the Court stated in Salomon v
A Salomon & Co Ltd,33 and the pierce of the corporative veil must be used only when the
company is a faade.34
labour conditions, and pollutions prevention in order to overcome the bad reputation of
being cataloged as open registries.
2.3.
Genuine link
Professor Gold explains that ship registration in Canada incorporates the genuine link
doctrine because [t]he nationality of the ship is a reflection of the nationality of the
owner.43 In other words, genuine link is beneficial ownership. Nevertheless, this approach is
not precise. Although the International Court of Justice in the Nottebohm case stated that
nationality implies a genuine connection interest and sentiments44 between a State and
an individual, it does not mean that: a) this doctrine can immediately apply to a vessel, which
is a property and b) that the genuine connection is equivalent of ownership.
40
Actually, article 5 of the Geneva Convention on the High Seas, 1958, provides that
[t]here must exist a genuine link between the State and the ship; in particular, the State must
effectively exercise its jurisdiction and control in administrative, technical and social matters
over ships flying its flag. This provision is also contained in articles 91 (1) and 94 (1) of the
United Nations Convention on the Law of the Sea, 1982. Therefore, genuine link is the
effective jurisdiction of a State over its vessels, and beneficial ownership is not the link
provided by these legal provisions. This view can be summarized as follows:
Some countries, for example the United States, maintain that genuine link really only
amounts to a duty to exercise jurisdiction over the ship in a efficacious matter, and it is not a
precondition for the grant, or the acceptance by other states of the grant of nationality.45
(Emphasis mine)
Further, in the IMCO case, the International Court of Justice was consulted about the
meaning of largest ship-owning nations.46 This definition was necessary to constitute the
Inter-Governmental Maritime Consultative Organizations Committee. The Court stressed
that ship-owning nations refer to the States registered tonnage and not to the beneficial
owners of the ships. Although this decision does not define genuine link, it demonstrates that
ship registration, and therefore, ship nationality is not a synonym of beneficial ownership.
On the other hand, the United Nations Conference on Trade and Development
UNCTADs report of 1981 on open registries remarked that genuine link relates with the
identification and accountability of shipowners for this provides an economic link between
the vessel and the flag State.47 For this reason, the economic link was introduced in the
United Nations Convention on Conditions for Registration of Ships, 1986, which establishes,
for ships registration, the participation of nationals as owners, or crew, or both.48 The failure
of entering into force of this Convention reflects that States are not willing to renounce their
sovereignty regarding to their exclusive jurisdiction to set the conditions for the grant of
nationality to ships. This exclusive jurisdiction was recognized in the M/V Saiga (No. 2)
case.49 Furthermore, economic link is a vague term because a ship may have an economic
connection whether with the shipyard where it was built, or with the State that levies taxes on
the income derived from a ship operation. Overall, the lack of interest to bring the
45
Convention into life reveals that the efforts to identify genuine link with ownership are
fruitless. Thus, genuine link is neither beneficial ownership nor a precondition for the validity
of registration.
State. For instance, the owner can preserve some benefits, such as subsidies;58 the charterer
benefits of lower crew costs;59 and the flagging in State may become a maritime State, like
the Philippines, by increasing its fleet and providing crew.
58
Ibid.
Supra footnote 48.
60
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p. 3.
61
Ibid p. 4.
62
Supra footnote 18.
63
Note that nationality is not a synonym of registration because the latter may not be compulsory for certain vessels
regarding its type or size. For example, in Norway, State owned vessels and ships less than fifteen meters are exempt of
obligatory registration. However, those vessels are Norwegian. Thor Falkanger, Hans Jacob Bull, and Lasse Brautaset.
Scandinavian maritime law The Norwegian perspective, p. 55.
59
In conclusion, this unique scheme of ship registration does not duplicate a vessel
registry because the functions of the flagging in and flagging out States are different. In
fact, Dr. Krger clarifies that bareboat charter registration only divides up the public law and
private law functions of the ships register.64 The flagging in State is involved with the
grant of nationality to a vessel, so this State must exercise the public law functions of
registration. Professor Ready describes the following public law functions of ships register:
a) exclusive control and jurisdiction over a vessel in administrative, social and technical
matters; b) naval protection; c) diplomatic protection; d) regulation of activities in territorial
waters, like cabotage; e) the right to fly the national flag; and f) application of rules of war
and neutrality to a ship.65 On the other hand, the law of the flagging out State should govern
the validity of the proprietary rights and priorities between mortgages, hypothques, and other
charges.66 If the flagging out State maintains the private law functions of registration, it will
provide for instance, security to the mortgagees67 because they will not be subject to a foreign
law that could affect their rights.
Overall, the flagging out State must cancel or suspend the public law functions of
registration while a vessel is registered in the flagging in State, which will be responsible of
the ship. However, the general practice among the States is far away from being uniform as it
is discussed below.
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p. 6.
See that according Dr, Krger the division of the public and private law functions of registration does not result, in the
meaning of international public law, in a dual registration.
65
Nigel Ready, Ship Registration, p. 7.
66
Note that the applicable law of maritime liens is controversial because those privileges can be understood as a
substantive matter or just as remedial or procedural. In the former case, the lex causae applies and in the latter scenario, the
lex fori is the applicable law. See Christopher Hill, Maritime Law, pp. 119-128.
67
Nigel Ready, Ship Registration, pp. 45-48.
68
Proshanto K. Mukherjee, Flagging options: Legal and Other Considerations, Mariner, Jan/Mar, 1993, p. 36.
10
the suspension or cancellation of the public law functions of the flagging out State.69 In
addition, Professor Mukherjee explains that some flagging in States re-record charges like
mortgages and hypothques, and this practice could threaten these proprietary rights and may
be contradictory with the law of the flagging out State.70 However, double recordation is
justified if it is only used for information purposes, so the public and the individuals
interested in a ship can be fully aware of its charges.
States like Cyprus and Panama differentiate the public and private law functions of
registration. In these cases, mortgages, charges, or encumbrances will be subject to the law of
the flagging out State.71 Similarly, in the United Kingdom, the Merchant Shipping Act of
1995 establishes that private law provisions for registered ships (which basically deals with
bills of sale and mortgages) do not apply to bareboat chartered-in ships.72 All in all, bareboat
charter registration requires compatibility between the legislation73 of the flagging in and
flagging out State in order to avoid conflicts.
See article 9 of the Law for the Strengthening and Development of Aquatic Transport and Related Activities, Registro
Oficial No.204, 5 November 2003, <www.fielweb.com/login.php> visited on 26 December 2010 at 22:19.
70
Supra footnote 67.
71
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p. 7.
72
Christopher Hill, Maritime Law, p 18.
73
Proshanto K. Mukherjee, Flagging options: Legal and Other Considerations, p. 37.
74
See supra footnote 48, article 2 of the United Nations Convention on Conditions for Registration of Ships, 1986.
75
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p. 3.
Cf. Mr. Maitland opinion about the distinction between flag State and State of registration: in the case of bareboat charter
registration a vessel may be registered in more than one State, and that therefore State of registration may mean either
such State. But it may fly only one flag. p. 11.
11
Finally, it is more appropriate to use expressions, such as flagging in, chartering in,
flagging out, or chartering out to avoid possible confusions between registration,
nationality, flag, and documentation.
According to article 11 of the Convention, a ship shall be registered in the name of
the owner or the bareboat charterer (emphasis mine) because the latter is considered the
owner pro hac vice.76 Furthermore, paragraph 5 prescribes:
[i]n the case of a ship bareboat chartered-in a State should assure itself that right to fly the flag of
the former flag State is suspended. Such registration shall be effected on production of evidence,
indicating suspension of previous registration as regards the nationality of the ship under the
former flag State and indicating particulars of any registered encumbrances.77 (Emphasis mine)
This fundamental provision reinforces the idea that the flagging out State withdraws
temporarily the nationality of a bareboat-chartered ship. Thus, the ship will only have one
nationality because the flagging in State must be satisfied that the nationality, and therefore,
the right to fly the flag of the primary registry, are suspended. Moreover, article 12 (4)
prescribes that the flagging in State should exercise jurisdiction and control over the
registered vessel. In other words, the flagging out State cannot implement the public law
functions of registration.
The United Nations Convention on Conditions for Registration of Ships, 1986, does
not establish the proper law that should govern the charges of a bareboat-chartered ship. Mr.
Maitland maintains that it is implicit from the Convention that all those encumbrances
recorded in the State of original registration shall remain in full force and effect.78
Nevertheless, the International Convention on Maritime Liens and Mortgages, 1993, which
will be examined below, eliminates the doubts that may arise about the protection of ships
charges.
76
See supra footnote 48, article 12 (3) of the United Nations Convention on Conditions for Registration of Ships, 1986.
Ibid, article 11 (5).
78
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p.
11.
77
12
This fundamental article clarifies that the private law functions of registration should be
exercised by the flagging out State. Additionally, the mortgagees rights are protected
because, prior to the change of flag, ships encumbrances must be satisfied or the holders of
these proprietary rights have to give their consent to the change of flag. Hence, this
Convention is a significant effort to reach uniformity about bareboat charter registration, and
to enhance it with an effective protection of ships encumbrances.
Furthermore, Professor Hill explains that encumbrances registration is a notice to all
the world,83 but in the case of bareboat charter registration a question arises: how third
parties have notice of a ships charges? Indeed, States that allow this system have taken
different approaches. For instance, St. Vincent and the Grenadines has a system of dual
notice84 because the ships encumbrances that are registered in the flagging out State must
79
Ibid, p. 35.
Christopher Hill, Maritime Law, p. 29.
81
See article 3 of the Andean Communitys Decision No. 487: Maritime claims, Maritime Hypothques, Privileges and
Arrest of Ships, Registro Oficial No. 259, 5 February 2001, <www.fielweb.com/login.php> visited on 29 December 2010 at
17:07.
82
See
International
Convention
on
Maritime
Liens
and
Mortgages,
1993,
<www.jus.uio.no/lm/un.imo.maritime.liens.and.mortgages.convention.1993/doc.html > visited on 29 December 2010, at
17:15.
83
Supra footnote 78.
84
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p.
36.
80
13
be recorded also in St. Vincent and the Grenadines85 while the ship is flagging into this State.
However, this re-recordation must be used only for information purposes in order to avoid
conflicts about the proper law and priorities between ships charges. In this sense, the
International Chamber of Commerce recommends to avoid double recordation.86 In contrast,
Panama does not require any encumbrances re-recordation.87 The solution to the problem of
notice and enforceability of mortgages against third parties is that the flagging in State has a
reference identifying the ship88 and the flagging out State. This way, third parties may
examine the underlying registry. Indeed, article 16 (c) of the International Convention on
Maritime Liens and Mortgages, 1993, establishes cross-reference entries to identify in each
register, which States are involved in bareboat charter registration.
14
Vanuatu93 have adopted legislation regarding vessels flagging in and/or flagging out.
Thus, bareboat charter registration is not a synonym of open registries.
The increasing popularity of bareboat charter registration is a reflection of its
advantages. First, bareboat charter registration facilitates ships finance. At present, ships are
big, sophisticated and expensive, so banking institutions are required to finance vessels
investment and operation. In this case, the vessels will be subject to a bareboat charter
because it is not the bank business to manage ships.94 Moreover, the International Chamber
of Commerce recognizes that bareboat charter registration supports the internationalization of
shipping business because vessels ownership is multinational and based in joint ventures
between developed and developing countries.95 For instance, the system makes capital
available in developing nations while ship owners can decrease operational costs of ships.
Thus, bareboat charter registration is the response to the requirements of the shipping
industry to improve its competitiveness.
For flagging in States, bareboat charter registration is an opportunity to enhance its
fleet or to become significant maritime nations. Indeed, it is a mechanism to increase the fleet
and the welfare of a State because it promotes employment and specialization of local
seafarers.96 Further, a flagging in State will increase its income, for instance, by levying
taxes from the ships operation. Moreover, the technology, know how, and expertise involved
in the shipping industry requires an enormous amount of economic resources that many
aspiring maritime States, as Ecuador, do not have. However, bareboat charter registration
enables the transfer of capital, and manning skills97 of ships. Therefore, developing nations
can gain economic independence from developed maritime nations and their shipping
industries by developing its own fleet.
Finally, the charterer could benefit from lower crew costs, tax incentives, and new
markets while retaining, for example, subsidies of the flagging out State.98 Overall, bareboat
charter registration provides commercial advantages for the parties involved and reveals that
93
15
the economic and international aspects of the shipping industry have caused the evolution of
ship registration.
See article 736 of the Trade Code, Suplemento del Registro Oficial No. 1202, 20 August 1960,
<www.fielweb.com/login.php> visited on 2 January 2011 at 22:16.
100
Domicile is the residence, within a specific place in the Ecuadorian territory, accompanied with the positive or
presumptive intention to continue in that place. See article 45 of the Civil Code, Registro Oficial Suplemento No. 46, 24 June
2005, <www.fielweb.com/login.php> visited on 2 January 2011 at 22:40.
101
See article 1 and 5 of the Law of Companies, Registro Oficial No. 312, 5 November 1999,
<www.fielweb.com/login.php> visited on 2 January 2011 at 22:52.
102
See supra footnote 69, article 2 of the Law for the Strengthening and Development of Aquatic Transport and Related
Activities.
103
Ibid, preamble.
16
legislation is silent about the possibility of ships flagging out. A bareboat-chartered vessel
can fly the Ecuadorian flag for a period minimum of two years.104 In addition, the charterer
must hire at least 70% of Ecuadorian crew and, if possible, the vessel should be maintained
and repaired in Ecuadorian shipyards.105 The bareboat charter contract is incorporated in a
special register.106 Also, when a bareboat-chartered vessel is registered, it has the same
obligations and rights of an Ecuadorian vessel,107 so it can be engaged for example, in
cabotage.108 The bareboat charterer is exempt to pay the value added tax (VAT) regarding
certain importations and services.109 Finally, when the vessel is registered, the General
Bureau of the Merchant Marine and the Coast issues two documents: a) Patente that is the
evidence of its nationality, and b) Matrcula that demonstrates the port of registry.110
Although bareboat charter registration was introduced recently in 2003, it has not
been successful. First, the legislation does not provide anything about the proper law of
mortgages, hypothques, and ships charges. Thus, this legal vacuum threatens the validity
and priorities of ships encumbrances. Second, the register does not identify the flagging
out State, so the notice and enforceability of ships charges against third parties are
jeopardized. Third, the law does not establish the procedure for the suspension or cancelation
of primary register. Consequently, a risk of double registration is latent. Finally, Ecuador is
not a crew supplier country, so the condition of hiring 70% of Ecuadorian crew is not easily
to fulfill.
In conclusion, bareboat charter registration could be advantageous if Ecuador invests
in the specialization of local seafarers, and the acquisition of technology to develop its own
fleet. In addition, the legislation about mortgages and registration must be updated, and the
Government should immediately implement the International Convention on Maritime Liens
and Mortgages, 1993,111 to protect ships encumbrances and third parties.
104
See, article 11 of the Rules for the Strengthening and Development of Aquatic Transport and Related Activities, Registro
Oficial No. 385, 26 July 2004, <www.fielweb.com/login.php> visited on 3 January 2011 at 12:15.
105
See supra footnote 69, article 9 and 10 of the Law for the Strengthening and Development of Aquatic Transport and
Related Activities.
106
Supra footnote 104, article 8 of the Rules for the Strengthening and Development of Aquatic Transport and Related
Activities.
107
Ibid, article 10.
108
Note that cabotage is an exclusive right of Ecuadorian vessels. See, article 16 of the Law of Facilitation of Exports and
Aquatic Transport, Registro Oficial No. 901, 25 March 1992, <www.fielweb.com/login.php> visited on 3 January 2011 at
12:15.
109
Supra footnote 69, article 6 of the Law for the Strengthening and Development of Aquatic Transport and Related
Activities.
110
Supra footnote 11, article 122 of the Maritime Police Code.
111
Note that Ecuador is party to the International Convention on Maritime Liens and Mortgages, 1993. However, the
Government has not implemented it. The Convention was ratified and published in Registro Oficial No. 314, 15 April 2004,
<www.fielweb.com/login.php> visited on 3 January 2011 at 14:18.
17
Sonia B. Malaluan, An Analysis of the Bareboat Chartering Program of the Philippines, World Maritime University,
Malm Sweden, 1998, pp. 9-10.
113
Ibid.
114
Ibid.
115
Ibid, p. 57.
116
Supra footnote 98.
117
Sonia B. Malaluan, An Analysis of the Bareboat Chartering Program of the Philippines, p. 10.
118
Ibid, p.11.
119
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p.
18.
120
Sonia B. Malaluan, An Analysis of the Bareboat Chartering Program of the Philippines, p. 1.
121
Ibid, p. 12.
18
program stimulates the local development of the shipping industry for the nationals who do
not have the capital to buy ships. Finally, taxes and fees have increased the States revenue.122
On the other hand, the temporal condition of the program was a major drawback.
Indeed, the Presidential Decree No. 1771 extended the bareboat charter registration until
1999.123 A new extension was conceded until 2009, through the Executive Order No. 438 of
1997.124 These time limits did not provide security for the charterers because the programs
life was always pending on the political will of the Government. However, in 2007, the
Executive Order No. 667125 extended indefinitely the bareboat charter program. According to
the preamble of the Executive Order No. 667, the program is necessary for the existing
financing schemes remain insufficient to encourage Filipino operators to acquire ships.
This may be truth in the long run, but in the short run, the benefits mentioned above
demonstrate that the program has improved the welfare of the Philippines society.
The effective protection of mortgages is another problem of the bareboat charter
program. In fact, the ship has to be registered with a Philippine name.126 If a ship has two
names, third parties may not be aware of its encumbrances. Further, it is possible to reregister the mortgages, but it is expensive,127 and it could cause conflicts of laws between the
legislation of the primary registry and the flagging in State. Thus, a double recordation may
threaten the validity and priority of the ships charges if it is not used as reference. In this
sense, the Government must guarantee an effective protection system to the holders of
proprietary rights. For instance, in the register should be an annotation about the flagging
out States, and the original names of the vessels.
Overall, the elimination of the programs time limit allows the Government to plan an
effective long run shipping policy. Further, the State has to implement financial schemes to
modernize its own fleet. Finally, the legislation has to secure the legal interest of the
mortgages, so the bareboat charter registration in the Philippines becomes an applicable
example to be followed by other States.
122
Ibid, p. 48.
Ibid, p. 10.
124
See Section 1 of the Executive Order No. 438, 15 September 1997. [t]he effectivity of any charter or lease contract
entered into under the said Decree -760- is hereby extended, provided, however, it shall not go beyond the year 2009, unless
otherwise further extended by the President of the Republic of the Philippines. Chan Robles, Virtual Law Library,
<www.chanrobles.com/executiveorders/1997/executiveorderno438-1997.html>, visited on 4 January 2011 at 18:01.
125
See the Executive Order No. 667 of 11 October 2007, published in Official Gazette on 21 January 2008.
126
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p.
19.
127
Ibid.
123
19
Conclusion
Bareboat charter registration challenged the traditional concept that a vessel must be subject
only to one registry. In fact, this system demands the differentiation between public and
private functions of the register to avoid the risk of stateless ships that are amenable to the
jurisdiction of more than one State. Furthermore, this system demonstrates that the maritime
industry is always evolving, and searching economic advantages to decrease its operational
costs, access to new markets, and investment schemes to finance ships. On the other hand, the
States have seen an opportunity to extend and/or maintain their fleets, acquire technology,
increase the national revenue by levying taxes from the ships operation, and invest in the
specialization of local seafarers. Consequently, this constant development requires to be
accompanied by a comprehensive legal regime.
Indeed, the harmonization, of the practice of bareboat charter registration among the
countries that have adopted the system of flagging in and/or flagging out, is fundamental
to avoid frauds between the ship owner and the charterer against the holders of ships
encumbrances and third parties. Thus, the protection of hypothques, and mortgages is a key
element for the success of bareboat charter registration. For this reason, ships charges should
be subject to the law of the flagging out State because the mortgagees, for example, must
not deal with a different legislation that may endanger the validity and enforceability of their
rights. Besides, it is not justifiable that the mortgagees should be subject to a jurisdiction that
they did not agree or even know. In this sense, the International Convention on Maritime
Liens and Mortgages, 1993, secures ships encumbrances when a vessel is temporarily
registered in a second State. Furthermore, the United Nations Convention on Conditions for
Registration of Ships, 1986, although it is not in force, it is a contribution towards the
harmonization of bareboat charter registration since this Convention clarifies that the public
law functions of registration must be exercised by the flagging in State.
Regarding the national practices analyzed in this document, it is important to
understand that enacting legislation about bareboat charter registration is not enough and it is
not a one size fits all panacea. Specifically, in the case of Ecuador, the law regarding ship
registration is disperse, contradictory, and does not provide any protection to ships
encumbrances. Hence, the legislation must be immediately amended, and complemented with
a national shipping policy that encourages Ecuadorian citizens to bareboat-chartered vessels
as a viable alternative of ships acquisition. Further, the revenues of the system must be
invested in technology and capacitation. Otherwise, the law of bareboat charter registration
20
would be ineffective. Finally, the Philippines has a successful bareboat charter program that
needs to improve the notice of ships charges to third parties.
In synthesis, bareboat charter registration has to be promoted and not banned.
Actually, the States that allow this system should not be cataloged as flags of convenience
because of the intrinsic benefits offered, such as lower crew costs and/or tax exemptions. In
fact, a flag State should be judged by the effective jurisdiction exercised over its ships. In
addition, the system still involves risks, especially to the mortgagees, but the benefits are
even greater, in particular to the aspiring maritime nations that do not have the capital to
stimulate a competitive shipping industry. Overall, bareboat charter registration enhances the
international character of shipping and it reflects that ship registration evolves according to
the political and economic interests of States, and the trends of the shipping industry.
BIBLIOGRAPHY
Books
Ademuni-Odeke, Bareboat Charter (Ship) Registration, Kluwer Law International, The
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Colombos John, The International Law of the Sea, 6th revised edition, Longman Green & Co.
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Ademuni-Odeke, The National and International Legal Regimes of Bareboat Charter
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21
Montero Llcer Francisco J.: Open registries: past, present and future, Marine Policy
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Mukherjee Proshanto K., New Horizons for Flag States, Maritime Review, 2000.
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Malaluan Sonia B., An Analysis of the Bareboat Chartering Program of the Philippines,
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Rogers Rhea, Ship Registration: A Critical Analysis, World Maritime University, Malm
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Mukherjee Proshanto K., Ship registration lecture, Lund University, 12 November 2010.
TABLE OF CASES
IMCO case, (1960) ICJ Rep. p. 150.
Lauritzen v Larsen (1953), 345, United States Supreme Court, 571.
Liverpool Borough Bank v Turner (1860) 29, Law Journal Reports, Ch, 827.
M/V Saiga (No.2) case (St. Vincent and the Grenadines v. Guinea) (1999), ITLOS Reports
10, 120 I.L.R. 143.
Nottebohm case (Liechtenstein v Guatemala) (1955), ICJ, Rep. 4.
Salomon v A Salomon & Co Ltd (1897), Appeal Cases 22, (HL).
The Giuseppe di Vittorio case (1998) 1, Lloyds Rep. 136.
The SS Lotus (France/Turkey), (1927), PCIJ, Series A, No. 10.
23