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Author: Gabriela Argello

Title: Bareboat Charter Registration: A Practice in the Maritime World that is aimed to Stay
Affiliation: Lund University

Mara Gabriela Argello Moncayo

Bareboat charter registration:


A practice in the maritime world that is aimed to stay

October 2011

TABLE OF CONTENTS
1.

Introduction ............................................................................................................. 1
1.1.

2.

Delimitation and purpose ................................................................................... 1

Essential notions underlying ship registration ..................................................... 2


2.1. Nationality: concept and rationale ...................................................................... 2
2.2.

Registration ........................................................................................................ 3

2.2.1. Categories of registries .................................................................................... 4


2.2.1.1. Closed registry......................................................................................... 4
2.2.1.2. Open registry ........................................................................................... 5
2.2.1.3. Second and international registries ......................................................... 6
2.3.
3.

Genuine link ....................................................................................................... 6

Bareboat charter registration: concept and origin .............................................. 8


3.1. Potential difficulties in the system of bareboat charter registration ...................... 9
3.1.1. Dual register, parallel register, or registry at all? ............................................ 9
3.1.2. Lack of uniformity of bareboat charter registration ...................................... 10
3.1.3. The United Nations Convention on Conditions for Registration of Ships,
1986, in relation to bareboat charter registration..................................................... 11
3.1.4. The mortgagees position and the International Convention on Maritime
Liens and Mortgages, 1993 ..................................................................................... 12
3.2. Benefits of bareboat charter registration .............................................................. 14

4.

National experiences of bareboat charter registration ...................................... 16


4.1. Ecuador ................................................................................................................ 16
4.2. The Philippines .................................................................................................... 18

Conclusion ..................................................................................................................... 20
BIBLIOGRAPHY ......................................................................................................... 21
TABLE OF CASES ...................................................................................................... 23

Author: Gabriela Argello


Title: Bareboat Charter Registration: A Practice in the Maritime World that is aimed to Stay
Affiliation: Lund University

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.

Delimitation and purpose

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.

Essential notions underlying ship registration

2.1. Nationality: concept and rationale


According to Professor Mukherjee, nationality is a substantive matter.9 Indeed, it is the link
between a ship and a particular State that establishes their reciprocal rights and obligations.
Therefore, nationality must not be confused with the bureaucratic or administrative process,
called registration, through which a State grants its nationality to a ship. In fact, in some
jurisdictions like Canada, owners of vessels not exceeding 15 gross tons have no obligation to
register them,10 but those vessels are Canadian. On the other hand, in Ecuador all ships, no
matter their size or tonnage, must be registered to be considered as Ecuadorians.11 In regard
to nationality, two main doubts arise: Why a ship has nationality and how is this link
determined?
Chattels and immovable property do not have nationality. So, what makes a ship
different? According to Professor Gold, nationality reflects the territorial or quasi territorial
nature of ships.12 In other words, the author adheres to the doctrine presented in The SS
Lotus case that defines a ship as a floating part of territory.13 However, this statement is not
accurate. Indeed, vessels have the right of freedom of navigation on the high seas, where no
claim of sovereignty can be proclaimed according to article 2 of the Geneva Convention on
the High Seas, 1958, and article 89 of the United Nations Convention on the Law of the Sea,

Proshanto K. Mukherjee, Ship registration lecture, Lund University, 12 November 2010.


Edgar Gold, Aldo Chircop, and Hugh Kindred, Maritime Law, p. 179.
11
See, article 123 of the Maritime Police Code, Suplemento del Registro Oficial No. 1202, 20 August, 1960,
<www.fielweb.com/login.php> visited on 14 December 2010 at 18:36. Note that Registro Oficial is the Ecuadorian bulletin,
which contains all the legislation and judicial decisions of the State. Only when a law, decree or regulation is published in
this bulletin, that legislation will enter into force.
12
Edgar Gold, Aldo Chircop, and Hugh Kindred, Maritime Law, p. 177.
13
See The SS Lotus (France/Turkey), 1927, PCIJ, Series A, No. 10.
10

1982.14 In consequence, nationality is a ground of jurisdiction over the ship, as a unit,


because on the high seas they are property where no local jurisdiction exists.15 For this
reason, 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, provide that flag States have
exclusive control and jurisdiction over their vessels on the high seas.
Complementary, the conditions to grant nationality must be established exclusively by
each State for it is a domestic affair.16 This approach is precise, and it was explained in
Lauritzen v Larsen. In this case, the United States Supreme Court stated: [e]ach State under
international law may determine for itself the conditions on which it will be grant its
nationality to a merchant ship, thereby accepting responsibility for it and acquiring authority
over it.17 In fact, conditions for nationality are a matter of sovereignty and domestic
jurisdiction, which cannot be impinged according to article 2 (7) of the United Nations
Charter. Furthermore, 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, prescribe that every State
shall fix the conditions for the grant of its nationality to ships.
Once a ship has been granted with a nationality, it must fly the flag of that particular
State. Also, as mentioned before, a vessel must have only one nationality. Hence, the flag is a
visual evidence and a symbol of a ships nationality,18 but is not a synonym of it. Finally,
as Professor Colombos explains, [t]he possession of nationality is the basis for the
intervention and protection by a State19 because a flag State acquires the responsibility to
exercise control and jurisdiction20 over the ships that are entitled to fly its flag, and the ships
are protected by that particular State under international law.

2.2.

Registration

Registration is a procedure,21 an administrative function by which nationality and collateral


rights and duties are conferred to a ship.22 Although registration is different from nationality,
14

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.

2.2.1. Categories of registries


2.2.1.1. Closed registry
Registration of ships can be traced back to the Roman Empire. 27 Later in history, registration
became compulsory because the maritime powers, such as France or the United Kingdom
wanted to preserve the commercial benefits of their trade routes in favor of their nationals.28
For instance, under the Navigations Acts of the seventeenth and eighteenth century, a ship
built in the United Kingdom, and owned by British citizens was considered British, and its
registration was obligatory.29 This kind of restricted registry cannot coexist with the demands
of the contemporary shipping industry that is international in nature. In fact, a ships engine
or hull may be built in different countries, and the ship itself may be assembled in a diverse
location. In addition, companies or its subsidiaries generally own ships, and the beneficial
owners, usually do not share the same nationality, are not easily identifiable or amenable to a
certain jurisdiction.
At the present, registries are not generally compulsory anymore. In fact, they are
privileges or entitlements30 because a person or an entity must fulfill certain conditions to be
22

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

2.2.1.2. Open registry


The open registry practice, as known today, is the consequence of the liquor prohibition laws
enacted in the United States of America; the World War I; and the instable political scenario
in Europe during the 1930s.35 Open registries do not require the participation of nationals
owners and/or crew to grant nationality to ships. Thus, the foreign element is what
characterizes them. For this reason, open registries have been accused of lacking genuine
link.36 Also, these registries are called flags of convenience because: a) the registration is
easy, b) taxes are low or based on tonnage, c) crew costs are lower, and d) the flag State does
not exercise effective jurisdiction and control over its ships, which are usually substandard.37
Although, registration is considered a service rather than the exercise of sovereignty,38 the
criticisms against open registries should not be based in national links or excessive
economic benefits, but in the degree of the effective jurisdiction exercised over those vessels.
For instance, Liberia is imposing restrictions to register vessels older than twenty years.39
Hence, flag States should effectively control: ships seaworthiness, seafarers specialization,
31

Z. Oya zayir, Liability for oil pollution and collisions, p. 9.


Rhea Rogers, Ship Registration: A Critical Analysis, World Maritime University, Malm Sweden, 2010, p.21.
33
Salomon v A Salomon & Co Ltd (1897), Appeal Cases 22, (HL).
34
See Christopher Hill, Maritime Law, p.107-108. About the pierce of the corporative veil, in the case of the Evo Agnic
(1988) 2 Lloyds Rep 411, the Court did not pierce the corporative veil because there was no evidence of sham or fraud.
35
See for the origin of open registries: Nigel Ready, Ship Registration, pp. 20-22. See also Francisco J. Montero Llcer:
Open registries: past, present and future, Marine Policy Journal, Vol. 27, Issue 6, 2003, pp. 513-523.
36
Ibid, pp. 18-19.
37
Ibid.
38
Proshanto K. Mukherjee, New Horizons for Flag States, Maritime Review, 2000, p. 110.
39
Nigel Ready, Ship Registration, p. 23. Note Francisco Monteros explanation that: [i]t is a mistake to label closed
registers intrinsically safe and abiding by international regulations, and ORs as unsafe and dangerous. Judging by the 2002
fleet statistics we can confirm that there are ORs with excellent safety records and closed registers with very poor ones.
Francisco J. Montero Llcer: Open registries: past, present and future, p. 521.
32

labour conditions, and pollutions prevention in order to overcome the bad reputation of
being cataloged as open registries.

2.2.1.3. Second and international registries


To avoid the phenomenon of vessels flagging out, many States have established a second or
international registry. This regime is an attempt to become competitive in respect of major
open registries like Panama or Liberia, but without compromising the control in technical,
social, and administrative matters over ships. Indeed, according to Professor Ready, second
or international registries offer some benefits of open registers, including the possibility of
hiring a percentage of non-national crew, or the registration of foreign shipowners, as the
Portuguese Madeira Shipping register allows.40 Moreover, restrictions are still imposed. For
example, if a ship is registered under the Norwegian International Ship Register (NIS), it
cannot be engaged in cabotage.41
These registries compete directly with flags of convenience. Indeed, the conditions
about nationality of shipowners and/or crew may not be so stringent, but the ships
seaworthiness is strict controlled. Thus, second and international registries can be cataloged
also as hybrid registries42 because the benefits of open and closed registries are successfully
combined. Overall, the emphasis on the ships safety and manning issues is remarkable in
order to avoid the loss of life and cargo at sea, no matter the denomination of the registry as
closed, open, international or hybrid.

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

Nigel Ready, Ship Registration, p. 29-32.


Thor Falkanger, Hans Jacob Bull, and Lasse Brautaset. Scandinavian maritime law The Norwegian perspective, p. 62.
42
Rhea Rogers, Ship Registration: A Critical Analysis, pp.41-45.
43
Edgar Gold, Aldo Chircop, and Hugh Kindred, Maritime Law, pp. 176-177.
44
Nottebohm case (Liechtenstein v Guatemala) (1955), ICJ, Rep. 4.
41

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

Christopher Hill, Maritime Law, p. 612.


IMCO case, (1960) ICJ Rep., p. 150.
47
Z. Oya zayir, Liability for oil pollution and collisions, p. 52.
48
See articles 7,8,9 and 10 of the United Nations Convention on Conditions for Registration of Ships, 1986,
<r0.unctad.org/ttl/docs-legal/unc-cml/United%20Nations%20%20Convention%20on%20Conditions%20for%20
Registration%20of%20Ships,%201986.pdff>, visited on 22 December 2010 at 18:17.
49
M/V Saiga (No.2) case (St. Vincent and the Grenadines v. Guinea) (1999), ITLOS Reports 10, 120 I.L.R. 143. Note the
Court statement about genuine link: the need for a genuine link between a ship and its flag State is to secure more effective
implementation of the duties of the flag State, and not to establish criteria by reference to which the validity of the
registration of ships in a flag State may be challenged by other States.
46

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.

3. Bareboat charter registration: concept and origin


Open, close, international, and second registries show that ship registration evolves according
to political and economic interests of flag States and the tendencies in the shipping industry.
Indeed, bareboat charter registration is an innovation through which a vessel registered in
one State is permitted to fly the flag of a second State for a determinate period. 50 To
understand the rationale of this registry one must bear in mind that bareboat charter is a lease.
In particular, Evans LJ, in The Giuseppe di Vittorio, explained that the charterer receives
from the owner the possession and control of the ship, so the charterer becomes the employer
of the crew and the master.51 For this reason, the charterer is treated like a temporary owner
or owner pro hac vice.52 By the possession and control of a ship, the bareboat charterer may
even register the vessel in another State while the primary registry is cancelled or
suspended.53 The extent of the suspension or cancellation of the first registry, the
consequences, and benefits of flagging in or flagging out are discussed below.
The modern practice of bareboat charter registration originated in Germany54 as an
attempt to increase its fleet. The law of the flag of 1951 allowed a vessel to fly the Germans
flag temporarily, if a German charterer operated and controlled that ship, and the charterer
complied with the labour regulations of Germany.55 Also, the primary registry should not be
opposed to the change of flag.56 Hence, this law enhanced the participation of national crew
in bareboat-chartered vessels and was an incentive to strength the State as a maritime power.
Furthermore, according to Dr. Krger, the notion of bareboating in was complemented
with bareboating out. In the latter scenario, a German ownership was exempted to register its
vessel in Germany, if the ship was operated from another country and that other country
grants the vessel the right to fly its flag for the period during it is operated from abroad.57
The flagging out practice is advantageous for the owner, the charterer, and the flagging in
50

Nigel Ready, Ship Registration, p. 39.


The Giuseppe di Vittorio case (1998) 1, Lloyds Rep. 136.
52
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, a
report of the Symposium, 1987, p. 3.
53
Supra footnote 50.
54
Supra footnote 52, p.4
55
Ibid.
56
Ibid.
57
Ibid, p.5.
51

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.

3.1. Potential difficulties in the system of bareboat charter registration


3.1.1. Dual register, parallel register, or registry at all?
The legal nature of bareboat charter registration is confusing and it is commonly referred as
dual or parallel registration. Those appellatives represent a misunderstanding between the
public and private law functions of registration and the lack of uniformity in the international
field about this system. Moreover, dual or parallel registration implies that a ship is registered
in two different States, and therefore, it is subject to different jurisdictions, and ultimately has
more than one nationality. Dr. de Alba supports that the term dual registration must not be
used because it would reflect that a vessel is subject to the whole array of privileges and
obligations of both countries and entitling the shipowner or the charterer to fly the flag
of either country at will.60 Thus, the objective of bareboat charter registration is not to
duplicate the registry of a vessel because it contravenes 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. These articles provide that a ship that flies more than one flag according to its
convenience will be considered as a stateless ship.
Additionally, Dr. Ehlermann considers that this system is not a matter of registration
because the original registry is maintained while a second State allows the vessel to fly
temporarily its flag.61 So, a distinction between registry and flag is necessary. However, this
proposal is misleading. First, registration is a procedure through which a ships nationality is
granted. Second, the flag is only a prima facie evidence of a ships nationality.62 Hence, a
ship is entitled to fly the flag of a State because a nationality has been granted to that vessel,
generally through registration.63 Consequently, bareboat charter registration is actually a ship
registration.

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.

3.1.2. Lack of uniformity of bareboat charter registration


Flag States, in exercise of their sovereignty, establish the conditions to grant nationality to a
ship. Thus, the practice of bareboat charter registration between States that permit ships
flagging in and/or flagging out differs in each jurisdiction. Also, these differences reflect
that many jurisdictions do not distinguish among the public and private law functions of
registration. For example, in Australia, bareboat charter registration is considered a new
registration and the primary registry must be cancelled. 68 Furthermore, in Ecuador, the
legislation is silent about the proper law that will govern the proprietary interests of a
bareboat-chartered vessel hypothques and mortgages, and there is no provision regarding
64

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.

3.1.3. The United Nations Convention on Conditions for Registration of


Ships, 1986, in relation to bareboat charter registration
Although it is improbable that the United Nations Convention on Conditions for Registration
of Ships, 1986, will enter into force, its provisions concerning bareboat charter registration
are relevant to demonstrate that this system does not involve dual registration. Consequently,
the risk of a ship to be subject to several jurisdictions can be avoided. Article 2 of this
Convention differentiates between flag State and State of registration. In fact, flag State is
defined like the State whose flag a ship flies and is entitled to fly and the State of
registration is the State in whose register of ships a ship has been entered.74 The distinction
between flag State and State of registration resembles the misleading proposition of Dr.
Ehlermann who supported that bareboat charter is not a matter of ship registration rather than
a question of flying a flag.75 Nonetheless, it is important to bear in mind that two States can
exercise different functions about a vessel in order to facilitate bareboat charter registration.
69

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.

3.1.4. The mortgagees position and the International Convention on


Maritime Liens and Mortgages, 1993
The success of bareboat charter registration rests on the effective protection of a ships
encumbrances in order to avoid flag changes that could be detrimental, for example, to the
mortgagees. In this sense, the International Chamber of Commerce remarked that mortgages
should be subject to the law of the original registry. Otherwise, not only their priority, but

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

their validity could be impaired.79 For instance, in England, registration of mortgages is a


mechanism to establish priority between them, but the lack of registration does not invalidate
these charges.80 On the other hand, according to the regional legislation of the Andean
Community -Bolivia, Colombia, Ecuador and Peru-, the registration of maritime hypothques
determines the validity and the priority of these encumbrances.81 Thus, if a hypothque is not
registered, it does not exist and cannot be enforced. These differences among States
legislation require that the mortgages remain subject to the law of the flagging out State.
For this reason, the International Convention on Maritime Liens and Mortgages,
1993,82 which entered into force on 5 September 2004, deals with the temporary change of
flag of a vessel. In fact, article 16 (a) provides that State of registration is the flagging out
State. Further, paragraph (b) establishes that [t]he law of the State of registration shall be
determinative for the purpose of recognition of registered mortgages, "hypothques" and
charges. Finally, paragraph (d) prescribes:
[n]o State Party shall permit a vessel registered in that State to fly temporarily the flag of another
State unless all registered mortgages, "hypothques" or charges on that vessel have been
previously satisfied or the written consent of the holders of all such mortgages,"hypothques" or
charges has been obtained.

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.

3.2. Benefits of bareboat charter registration


Bareboat charter registration has been often characterized as flags of convenience through
the back door.89 Benefits for the bareboat charterers include for example, lower crew costs
in the flagging in State. In addition, this system allows the registration of foreign owned
vessels. However, Professor Ademuni-Odeke explains that although a vessel is foreign
owned, it is not necessarily foreign controlled.90 For example, the charterer of a ship
bareboated into the United Kingdom has to fulfill the same conditions of qualified owners of
British ships (e.g. being a British citizen).91 Additionally, crew costs are economic
advantages that are beneficial not only to the charterers, but also to the flagging in States
that promote the employment of local seafarers. In this sense, traditional maritime States like
the United Kingdom adopted this registration system. In fact, Antigua and Barbuda,
Australia, the Bahamas, Cyprus, Ecuador,92 France, Germany, Italy, Liberia, Mexico,
Panama, Poland, the Philippines, St. Vincent and the Grenadines, Spain, Sri Lanka and
85

Nigel Ready, Ship Registration, p. 47.


International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits, p.
38.
87
Nigel Ready, Ship Registration, p. 47.
88
Note that vessels bareboated into the Philippines must be registered there under a Philippine name. This often results in
the same ship having two names. If the vessels document contains no reference to her original name or indeed to the
State of primary registry there is an obvious danger that third parties will not be able to obtain notice of encumbrances
recorded in the State or registration. In this situation, the question must arise as to the enforceability of mortgages against
third parties who have no notice, actual or constructive, of their existence. Nigel Ready, Ship Registration, p. 45.
89
Ademuni-Odeke, The National and International Legal Regimes of Bareboat Charter Registrations, Ocean Development
&
International
Law,
Vol.
28,
No.
4
January
1997,
pp.
329-368,
<ehis.ebscohost.com.ludwig.lub.lu.se/ehost/pdfviewer/pdfviewer?hid=2&sid=85716368-0b7a-483d-bad564fd59d8270d%40sessionmgr11&vid=2> visited on 30 December 2010 at 10:08, p. 331.
90
Ibid, p. 335.
91
Christopher Hill, Maritime Law, p. 18.
92
Note that Ecuador only regulates vessels flagging in, but there is no legislation about Ecuadorian vessels flagging out.
See supra footnote 69: Law for the Strengthening and Development of Aquatic Transport and Related Activities.
86

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

Nigel Ready, Ship Registration, p. 40.


See Ademuni-Odeke, Bareboat Charter (Ship) Registration, Kluwer Law International, The Hague, 1998, p.69. See also
about bareboat charter that: in practice, it always is for a long period of time and is registrable by the charterer or
management company in its national register. It now is common practice for a vessel to be ordered and built purposely for
bareboat charter registration as a condition for its ship finance. Ademuni-Odeke, The National and International Legal
Regimes of Bareboat Charter Registrations, p. 334.
95
International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and Commercial benefits,
pp.29-30.
96
Ibid, pp.32-33.
97
See Ademuni-Odeke, Bareboat Charter (Ship) Registration, pp.70-71.
98
Ibid, p. 71-72. See also International Chamber of Commerces (ICC), Bareboat Charter Registration: Legal Issues and
Commercial benefits, pp. 29-34. Note that although shipowners benefit from lower crew costs, the local seafarers of
Philippines have higher income levels compared to those of those locally-employed personnel. p. 33.
94

15

the economic and international aspects of the shipping industry have caused the evolution of
ship registration.

4. National experiences of bareboat charter registration


4.1. Ecuador
Ship registration in Ecuador is outdated and the legislation is disperse and contradictory. The
conditions for the grant of nationality and registration procedure are contained in the
Maritime Police Code, Trade Code, Law and Regulations for the Strengthening and
Development of Aquatic Transport and Related Activities, and the Law of Facilitation of
Exports and Aquatic Transport. Indeed, ship registration is an entitlement. According to the
Trade Code, the persons qualified to own an Ecuadorian vessel must be nationals,99 so in
principle, Ecuador is a closed registry. Ecuadorian citizens and companies domiciled100 and
established under the Ecuadorian law are considered nationals. However, it is important to
bear in mind that the shareholders are not necessarily amenable to the Ecuadorian jurisdiction
because the beneficial owners do not need to be nationals or domiciled in Ecuador. Thus, in
the case of companies, aliens can beneficially own Ecuadorian vessels, although the principal
place of business has to be located in Ecuador.101
Further, article 9 of the Law for the Strengthening and Development of Aquatic
Transport and Related Activities, 2003, establishes bareboat charter registration. This
legislation provides that foreign individuals domiciled in Ecuador can also register a ship as
Ecuadorian.102 Nevertheless, it is unclear if aliens are entitled to register a vessel that is not
subject to a bareboat charter. Moreover, the preamble of the law clarifies that Ecuador desires
to strength its fleet and develop a competitive shipping industry because 90% of Ecuadors
foreign commerce is transported by sea.103 For this reason, the Government implemented the
temporal registration of foreign owned vessels under the Ecuadorian flag, and this policy is
complemented with tax exemptions for bareboat charterers and Ecuadorian shipyards.
The Law and the Rules for the Strengthening and Development of Aquatic
Transport and Related Activities only regulates vessels flagging in to Ecuador. Indeed, the
99

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

4.2. The Philippines


The program of bareboat charter registration implemented in the Philippines represents the
first step to achieve a strong and competitive national fleet. Particularly, the Maritime
Industry Authority (MARINA) is in charge of executing the program that originated in 1975,
through the Presidential Decree No. 760. This Decree introduced the registration of foreign
owned vessels to ships that were leased to Philippine nationals, manned with Filipino crew,
and the vessels were engaged in domestic trade.112 For this purpose, nationals are Philippine
citizens or corporations established under the legislation of the Philippines.113 Regarding the
beneficial owners, Philippine citizens must own 60% of the capital stock, and nationals must
participate in the governing board.114 Notwithstanding the strict requirements that a
bareboated-chartered vessel has to fulfill to be registered temporarily in the Philippines, the
International Transport Workers Federation declared this register as a flag of convenience115
because of the crew costs. However, this is not feasible at all because Filipino crew receives
higher salaries in comparison with local standards.116
The Presidential Decrees No. 866 (1976), and 1711 (1980) amended and extended the
bareboat charter program, and allowed overseas trade for vessels flagging in to the
Philippines.117 Thus, bareboat charterers have access to national and international markets.
Besides, bareboat charterers can benefit from tax exemptions, for example, when importing
spare parts118 that are required to repair the ship. Nevertheless, the bareboat-chartered
vessels are also subject to the same obligations of permanent Philippines ships.119
The Government encourages this program for its advantages for the States economy.
Indeed, this registration system has not only generated job opportunities, but has promoted
the specialization of local seafarers who are well trained and competitive. For this reason, the
Philippines is the biggest provider of seamen in the world.120 Moreover, it is favorable to
impose an age limit of fifteen years121 to the bareboat-chartered vessels because it ensures the
acquisition of a modern fleet, technology, and expertise of the shipping business. Further, this
112

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
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21

Montero Llcer Francisco J.: Open registries: past, present and future, Marine Policy
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Malaluan Sonia B., An Analysis of the Bareboat Chartering Program of the Philippines,
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The Giuseppe di Vittorio case (1998) 1, Lloyds Rep. 136.
The SS Lotus (France/Turkey), (1927), PCIJ, Series A, No. 10.

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