Ship Registration: Law and Practice

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Bareboat charter registration

Development of the system

5.1 It may seem counterintuitive that, amid fierce competition among flag States for the business of owners to register their vessels in a marketplace effectively unrestrained by nationality requirements, one register might permit and actively promote the subsequent registration of a vessel elsewhere. One of the noteworthy developments in ship registration practice in recent years has been the continued and increasingly widespread use of such a structure – whereby a vessel registered in one State is permitted to fly the flag of a second State for a determinate period under certain conditions. Legitimate objections to such a system include the risk of confusion or legal ambiguity as to the rights of the owner and the charterer at any given time; the possibility of an overlapping jurisdiction by two States; or the risk that registration of the vessel may lapse altogether as a result of the particular rules of one flag State or the other.1 These issues are most stark at the commencement and termination of the arrangement, a moment which is determined by a private contract. This situation generally arises as a result of a bareboat charterparty in terms of which a vessel registered in State A is leased for a fixed period to nationals or corporations of State B who, during the charter period, re-register and operate the vessel under the flag of the latter State. 5.2 The essential characteristic of a bareboat charterparty in this context is that it is a contract which entirely divests the operation and maintenance of the vessel into the charge of the charterer. The vessel is leased by the owner ‘bare’, that is, without a Master or crew to sail her. The St Vincent and the Grenadines legislation states simply: ‘bareboat’ means a ship without a crew.2 The Master and crew, the repair and maintenance, and the commercial performance of the vessel are the sole preserve of the charterer. This form of leasing can be used as a financing technique, for example as method of hire-purchase when combined with a purchase obligation at the expiry of the hire period; or with which to structure a sale and lease-back commitment. 5.3 A judicial definition is “that the legal owner gives the charterer sufficient of the rights of possession and control which enable the transaction to be regarded as a letting – a lease or demise, in real property terms”.3 Statutory descriptions of this concept refer

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to the lease or hire of the ship for a stipulated period of time on terms which give the charterer the whole possession and control of the ship, involving the right to appoint the Master and crew.4 The Cyprus legislation provides a comprehensive explanation:

‘Bareboat chartering’ is a chartering by virtue of which the charterer for the agreed period of time, acquires full control and possession of the ship, has the nautical control and management of the ship, appoints and dismisses the master and the crew of the ship, is responsible towards third parties as if he was the shipowner and, generally, so long as the chartering continues, substitutes in all respects the shipowner, save that he has no right to sell or mortgage the ship.5

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