Introduction to the Law of Admiralty
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The law of admiralty is a complex area of law which, as will be discussed below, goes back to antiquity. It is a classic discipline and, it is said, the only true body of international law, a lingua franca through which people of different nations can come together to deal with the promise, profits and perils of voyages at sea. It also includes, however, some recent developments borne out of the economic and environmental challenges of the late twentieth century. In addition to traditional commercial topics, admiralty can be said to include the laws which regulate the ever increasing recreational boating activities such as cruising, fishing and racing. Once an elitist sport and lifestyle, yachting has become so widespread as to require government regulation in all its forms. This article is not meant to provide a comprehensive description of maritime law or specific legal advise on any given topic. Rather, it is a general overview of the subject which attempts to address both traditional commercial areas, such as carriage of goods, general average and maritime liens, as well as topics of interest to the yachtsman and recreational boater. We will have reached our goal if this brief discussion can trigger a spark of interest and introduce the reader to this intriguing and fascinating discipline.
The Meaning of Adimiralty Jurisdiction
Many of the peculiarities of admiralty actions have been removed by legislation and court decisions. What remains is not simply the legacy of a long history and tradition but a function of the specific needs of maritime commerce.
Aside from the actual form of the proceedings, actions in admiralty were, and still are, of two types: in personam and in rem. The in personam suit is typical of any other jurisdiction or branch of law. The in rem proceeding, on the other hand, is virtually unknown outside of admiralty. The basis of the in rem proceeding is the maritime lien. Upon the occurrence of certain events or the non-fulfillment of obligations arising out of a contract or condition, maritime law gives the aggrieved party a right defined as a property interest in the vessel or other tangible thing involved in the amount of the accrued liability. This right is called a maritime lien. The difference between the maritime lien and other types of liens is that it is generally independent of possession and is not extinguished by transfer to a bona fide purchaser without notice of its existence. Although a personal maritime liability may exist without a lien, the lien itself may vest even though the owner of the burdened vessel is not himself liable.
The way to enforce a maritime lien is the above mentioned procedure in rem which is an action directly against the vessel burdened by the lien. The vessel against which the lien is asserted is taken into the custody of the court. The owner of the vessel, who conducts the defense, will normally post a bond, thus securing the release of the vessel. If the lien is established on the merits, the vessel is sold at auction through an officer of the court, with the proceeds going to the lienor up to an amount sufficient to satisfy the lien. It is important to note that, while a suit in personam can be brought either in the federal courts (where jurisdiction is present due to diversity of citizenship) or at common law in state courts, a proceeding in rem can only be brought in the federal court as a court of admiralty.
DETERMINING ADMIRALTY JURISDICTION
A) Waters or vessel test
For a matter to be maritime the waters where it takes place must be of a certain type. High seas and harbors communicating with them are included but other bodies of water may or may not be. In general, the admiralty jurisdiction of the United States extends to all waters, with or without tides, salt or fresh, natural or artificial, which are navigable in interstate or foreign water commerce, without regard as to whether the particular body of water is entirely within a state, and whether or not the transaction in question is confined to a single state. It follows that small bodies of water wholly within a state and not navigable in interstate and foreign commerce do not provide admiralty jurisdiction. The Great Lakes and the Mississippi, on the other hand, are clearly within admiralty jurisdiction as is the Erie Canal, which is wholly within a state but navigable in interstate commerce. The Code of Federal Regulations also lists waterways where federal jurisdiction applies.
Generally, a vessel is defined by the federal statutes as a watercraft or other contrivance capable of being used as a means of transportation over water. Courts have differed, however, in the interpretation of what constitutes a vessel. While a cargo ship is clearly a vessel, floating docks and platforms, barges and other equipment used to repair bridges, docks and piers present more of a jurisdictional problem. In order to determine whether or not a given item is a vessel, several factors are considered, particularly the function and purpose for which it was built. A court may ask whether the object can be defined by law as a vessel, whether it can move across the water, whether it is subject to the perils of the sea or whether it is designed to be permanently fixed in position.
Offshore operations such as oil rigs and platforms pose particular jurisdictional problems. The principal law governing offshore operations is the Outer Continental Shelf Lands Act (OCSLA) which authorizes the Secretary of the Interior to lease tracts of the federal Continental Shelf for the exploration and development of mineral resources. The Act states that it is the ” duty of any holder of a lease or permit….to…..maintain all places of employment within the lease area…….in compliance with occupational safety and health standards….” The Act also provides a federal statutory cause of action for violations of federal rules and regulations. The application of admiralty jurisdiction over workers engaged in offshore operations depends on these variables: (1) type of craft or structure involved; (2) the status of the injured party (seaman, maritime worker or other category); and (3) the location of the platform at the time of the injury (whether it is within the limit of a state’s jurisdiction).
B) Activity or type of lawsuit test
As was noted earlier, the empowerment of the courts of the United States to draw upon and administer maritime law derives from the language of the Constitution which extends the judicial power of the United States to “all cases of admiralty and maritime jurisdiction”. Section 9 of the Judiciary Act of 1789 provides that:
“…………the district courts…….shall also have exclusive original cognizance of all civil causes of admiralty and maritime jurisdiction………saving to suitors, in all cases, the right to a common law remedy, where the common law is competent to give it:……”
The jurisdictional question, however, has become a little more complicated than Congress originally intended it to be. As of 1966, in order to invoke the constitutional admiralty jurisdiction, a “complaint” must be filed which is formally indistinguishable from the ordinary civil complaint. When admiralty jurisdiction is invoked, however, the consolidated rules still make provision for differential treatment and handling of certain matters previously existing only in admiralty.
An accurate list of the type of activities which fall within the admiralty jurisdiction is impossible to make but the following cases would most likely be deemed in admiralty:
Suits for contracts for the carriage of goods and passengers; for repairs and supplies furnished to vessels as well as services such as towage, pilotage and wharfage; for the chartering of ships; for the services of seamen; for recovery of indemnity or premiums on marine or yacht insurance policies; Suits in tort for collision damage, or for any physical damage to ships or cargoes on navigable waters; for any damage caused by a vessel; for personal injuries to seamen and passengers while aboard a vessel on navigable waters. (The statutes dealing with personal injury are the Merchant Marine Act of 1920, § 33, 41 Stat 1007, 46 U.S.C.A., popularly known as the Jones Act and the Death on the High Seas Act, 1920, 41 Stat 537, 46 U.S.C.A.); Suits for wrongful death. When these occur outside territorial waters, the federal Death on the High Seas Act applies but within U.S. waters, it would seem that general maritime law applies. Under the Jones Act a seaman may sue either at law or in admiralty and he usually chooses to sue at law in order to have a jury; Suits for general average, salvage and maintenance and cure; Petitions for limitation of shipowners’ liability; Proceedings to foreclose preferred ship-mortgages; Suits to recover vessels wrongfully taken or withheld.
The following categories of actions usually do not fall within the admiralty jurisdiction:
suits for the sale and building of vessels; for the payment of a fee for procuring a charter; for services to a vessel out of navigation. Suit on breach of an agreement to procure insurance on a cargo.
Purchase and Sale of Vessels
The purchasing a vessel can be a very complex transaction. To begin with, admiralty law may not apply to issues relating to the sale of a vessel itself unless other circumstances are involved. If the vessel is considered personal property, the Uniform Commercial Code will apply and state courts will have jurisdiction. The issues involved are many and may include shipbuilding contracts, marine surveys, mortgages, leases (or charters), liens and others.
While the purchase of a pleasure boat is often made by and in the name of its actual user, that is not the case for large commercial vessels. Not only are corporate entities involved but the entity acting as owner is often a lessee or charterer. For reasons mostly related to the tax provisions, many owners of a vessel choose to hold the property as charterers. In addition, many American vessel owners register their vessel in foreign countries.
Among the documents likely to be used in the sale of a vessel are the letter of intent, a sales contract, a purchase order and a bill of sale. A letter of intent is nothing more than a document to hold the vessel pending a survey or financing. In most commercial cases, however, the sale contract is used. The contract sets out the terms and conditions of the sale and specifies the rights and obligations of the parties. Among the items covered are:
1. description of the vessel;
2. hull identification number;
3. engine or other equipment identification numbers;
4. registration or documentation numbers;
5. inventory of equipment included in the sale;
6. price and payment terms;
7. time and place of delivery;
8. a statement of mortgages, liens and claims;
9. terms and conditions for a survey;
For vessels purchased directly from a shipbuilder a few considerations should be made. While contracts relating to the construction of ships or the supply of materials to a vessel are not within admiralty jurisdiction, tort claims for negligent construction or design of a vessel are. The shipbuilding industry also includes naval architecture companies, businesses that manufacture and supply component parts, and other related services. Although their contracts are not within admiralty jurisdiction, shipbuilders and component manufacturers are subject to suit in admiralty jurisdiction for products liability. Such torts for products liability have recently been introduced in maritime law but court interpretation remains narrow on the subject. A manufacturer has no duty under either negligence or a strict products liability theory to prevent a product from injuring itself. A claim in admiralty, therefore, cannot be brought where the only loss claimed is economic loss resulting from the product injuring itself.
So called “red letter clauses” are provisions and exculpatory clauses inserted in shipbuilding contracts designed to affect the duties, rights and obligations of ship builders. In general, they attempt to do some of the following: (a) exclude express and implied warranties; (b) place a ceiling on damage exposure; (c) limit the time for filing suit; (d) limit liability for cost of repair or replacement of defective materials; (e) exclude the cost of attorneys’ fees. The validity and rights under said clauses is determined according to state law on ship building and other contracts outside admiralty jurisdiction. In most cases, the applicable state law will be Article 2 of the Uniform Commercial Code.
Warranties are important to ship builders and to those who choose to purchase a vessel directly from a builder, or rely on the services of a naval architect. Express warranties are affirmations of fact made by the seller or any description of the goods that constitutes the basis of a deal between seller and purchaser and which are normally contained in the written contract. Two implied warranties are very important: the implied warranty of merchantability and the implied warranty of a fitness for a particular use. The implied warranty of merchantability in essence assures that the goods are up to the standards of the trade and are fit for the ordinary purpose for which they are to be used. The warranty of fitness for a particular purpose is created when the seller knows the specific purpose which the buyer has for the goods and also knows that the buyer is relying on the seller’s skill and judgement to provide goods suitable for that purpose or use.
A bill of sale is a document which actually transfers title to the vessel. States have special forms for the sale of a vessel. The Coast Guard also has its own form and only that federal form may be used to document a vessel with the Coast Guard. A purchase order is a contract normally used for the purchase from manufacturers or for the special order of a vessel. It normally contains provisions for limitation of liability as well as inventories of items included.
Given the large sums involved in the purchase of a large commercial vessel, central to the transaction is the ship mortgage. The Ship Mortgage Act of 1920 conferred maritime lien status to ship mortgages, which meant they became entitled to admiralty jurisdiction. However, it only covered a mortgage on a “vessel of the United States over 200 gross tons and upwards”. The Act was expanded to relax the 200 tons requirement in 1935 and to extend the “preferred status” of mortgages under the Act to certain mortgages on foreign ships. The real efforts by Congress to attract private capital to finance the building and operation of a mercantile fleet did not come until the Merchant Marine Act of 1936. Title XI of the Act created a system of federally guaranteed or insured ship financing. With the Ship Financing Act of 1972, Congress expanded and consolidated the Title XI program in order to make ship financing virtually risk-free to the investor and attractive in traditional money markets.
The Title XI program and its developments have come to assume great practical importance for commercial vessels financing. The guarantee pledges “the full faith and credit of the United States ” to the payment of principal and interest on guaranteed obligations. The guarantee of principal is normally restricted to 75% of the cost of construction, reconstruction or reconditioning, as determined by the Secretary of Commerce. The guarantee is to be secured by a mortgage entitled to preferred status under the Ship Mortgage Act and existing vessels may be mortgaged to secure future construction.
In order for the mortgage to have its preferred status, certain formalities must be followed. Section 926 of the Act states three conditions before a mortgage, bill of sale or conveyance can be admitted to record:
1. the mortgage or other document must “state the interest of the grantor or mortgagor in the vessel, and the interest so sold, conveyed or mortgaged”;
2. the mortgage or other document must have been acknowledged before a notary or other qualified public official;
3. when the vessel’s port of documentation is changed, the collector of customs at the new port must be furnished with a certified copy of the record of the vessel at the former port.
Section 922 sets additional requirements as follows:
“a mortgage which includes property other than a vessel shall not be held a preferred mortgage unless the mortgage provides for the separate discharge of such property by the payment of a specified portion of the mortgage indebtedness. If a preferred mortgage so provides for the separate discharge, the amount of the portion of such payment shall be indorsed upon the documents of the vessel.”
A mortgagee must also comply with the public notice provisions of the Mortgage Act. These require that the mortgage be properly recorded with the collector of customs and that certain information about the mortgage be indorsed on the ship’s papers. More specifically, two documents must re on record. The first is an original of the mortgage executed by both parties. The second is an affidavit to the effect that the mortgage is made in good faith and without any design to hinder, delay or defraud any existing or future creditor of the mortgagor or any lienor of the mortgaged vessel. The requirement is jurisdictional. If the affidavit is not filed or filed improperly, the mortgage does not receive its preferred status.
An important part of the acquisition process, whether it is a pleasure boat or a large commercial vessel, is the search for liens. As we have mentioned above, a vessel can be burdened by a mortgage which can be duly recorded. Other recorded liens can also be present. If the vessel is documented, a search should include the Coast Guard Office of Marine Inspection at the vessel’s home port where liens or mortgages outstanding against the vessel should be on file. If the vessel is registered, a search should be made at the county clerk’s records office for the court which has jurisdiction over the place where the vessel is registered or where the owner resides or where the corporation which owns the vessel is domiciled. Unfortunately, it is possible that hidden liens may be present which cannot be discovered at the time of sale. For a more detailed discussion on liens we refer the reader to the section on liens of this article.
Vessel Registration and Documentation
Fewer than one percent of vessels in the U.S. are documented with the Coast Guard with most pleasure boats opting for state registration. Among the statutes dealing with registration are the Federal Motorboat Act of 1910 which placed on the federal government the responsibility to regulate recreational boating in the U.S.; the Federal Numbering Act of 1918 which instituted a numbering system for all undocumented vessels; the Federal Boating Act of 1958 which shifted the responsibility of numbering undocumented vessels from the federal government to the states; and the Federal Boating Safety Act of 1971, mostly dealing with recreational boating, which entrusted states and territories with insuring minimum registration requirements set by the federal government. Among those requirements are navigation rules, vessel numbering, safety equipment, lights and day shapes, pollution rules and distress assistance.
Pursuant to the legislation cited above, states are required to assign numbers to all vessels with propulsion machinery that are used in waters under federal jurisdiction. Exceptions to that requirement are documented vessels (not in every case) and foreign vessels temporarily in the U.S. The way numbers are assigned to vessels by states is either through a title or registration system. A registration system basically requires the payment of an annual fee in order to get a number and sticker. This type of registration system does not protect good faith purchasers from the acquisition of stolen or lien burdened vessels because no chain of title is provided. The only purpose of the registration is to establish who holds the current registration of the vessel. The titling of a boat follows the same principles as the titling of an automobile with the title showing seller and purchaser as well as mortgagees and other lenders who are still owed money. When the boat is resold, the title is signed over to a the new owner who gets his own title upon registration. The chain of title is thus established.
Documentation of vessels is the responsibility of the Coast Guard. Documentation was originally required only for large commercial vessels but is gradually being used for smaller and pleasure boats for the added security it affords lenders. The National Vessel Documentation center is located in Falling Waters, West Virginia . Unlike simple registration or titling by states, the documentation procedure requires numerous forms and documents. They include the application for initial issue of certificate of documentation; the builder certificate and first transfer of title; a bill of sale on appropriate federal form; and declaration of citizenship.
When the owner of a vessel is an individual all he needs to show as proof of citizenship is his passport or naturalization certificate. A corporation, however, may present more complex issues. A corporation is deemed a citizen if (a) it is incorporated under the laws of the United States or of a state, territory, district or possession; (b) its president, or other chief executive officer and its chairman of the board are United States citizens; (c)no more of its directors than a minority of the number necessary to constitute a quorum are non-citizens; and (d) the controlling interest in the corporation is owned by United States citizens or, if the vessel is documented for coastwise trade, at least 75 percent of the interest in the corporation is owned by United States citizens.
It should be noted that the regulations only find control and ownership in a corporation if (I) title to at least a majority of the stock is vested in United States citizens free of any trust or fiduciary obligation in favor of any person who is not a United States citizen; (ii) at least the majority of the voting power is vested in U.S. citizens; (iii) there is no contract or understanding through which it is arranged that the majority of the voting power may be exercised directly or indirectly on behalf of any person who is not a U.S. citizen; and (iv) there are no other means whatsoever by which control of the corporation is conferred upon or permitted to be exercised by any person who is not a U.S. citizen.
One of the most cumbersome requirements of the documentation procedure is the builder’s certification and first transfer of title or the establishment of a chain of title, on federal bills of sale forms, to be signed by each and every successive owner. That requirement applies to initial documentation only, whether or not there has been a state chain of title. While this requirement does not present a problem for new vessels, it can be a major challenge for old ships whose builder is no longer in business and which have had many owners. In some cases a waiver may be available but, most of the time it is necessary to rely on the services of documentation companies who track down all the successive owners.
Carriage of Goods
As was noted earlier, the bulk of maritime commercial activity involves carriage of goods. The most important document used in this type of transaction is the bill of lading. A bill of lading is basically a contract of carriage but a very special one. Since ocean bills are negotiable, they control possession of the goods and allow for the financing of the movement of merchandise and commodities around the world. The good faith purchaser of a bill of lading, or holder in due course, is given privileged status. The debt is said to be “merged” with the instrument, which means that when the instrument is discharged, so is the underlying debt. It also means that only payment to a holder of the bill or note (someone in physical possession) will discharge the debt. Even payment to a thief will discharge the debt. Creditors of a holder in order to reach an instrument to collect their credits need attach the paper itself as opposed to serving garnishment process on the holder.
The most important mercantile shipping terms for the sale of goods are three: F.O.B., C.I.F. and F.A.S. In a F.O.B. (Free on Board) shipment, the risk passes to buyer at the F.O.B. point. The F.O.B. point can be the seller’s factory or warehouse. In that case, the sale price quoted does not include freight which is the responsibility of the buyer as is the risk from the warehouse onward. If, however, the term is F.O.B. point of destination, seller bears the risk during transit and is responsible for payment of the freight. The term F.A.S. (Free Alongside) followed by “vessel” at some specific port is a variation of F.O.B. The sale is consummated when the seller delivers the goods alongside the vessel. The difference between the terms “F.O.B. vessel” and “F.A.S. vessel” is that in the F.O.B. the seller bears the risk until the loading has been completed. C.I.F. stands for Cost, Insurance, Freight, a term followed by the port of destination. “C.I.F. London”, for example, would mean that the quoted price would include the price of the goods plus freight up to London and insurance.
A contract for the sale of goods by documents requires the buyer to pay (or accept) drafts on presentation of documents, without inspection of the goods. This type of arrangement is mostly used in international transactions. The goods move under a negotiable bill of lading. In order to get the goods the buyer has to get the bill; he only gets the bill after payment or acceptance. Another important instrument used in international transactions is the letter of credit. That instrument is an official promise by a bank to pay money to the customer for whom it has issued the credit. The buyer is the bank’s customer for whose account the letter of credit is issued by the bank (issuer) and the seller is the beneficiary. The reason for the extensive use of letters of credit is that the seller, who is required to ship goods to distant or foreign locations, is protected by the bank’s promise more than by the buyer’s obligations under the contract.
One of the most important issues dealt with by maritime law is the loss for lost or damaged goods. The basic statute regulating the subject is the Carriage of Goods by Sea Act of 1936 (also known as Cogsa). The thrust of Cogsa, which followed the Harter Act of 1893 and the Hague Rules, was to prevent shipowners from contracting out of the duty to use care to put his vessel in good shape for the voyage, or the duty to properly care for the goods aboard. If he did however provide a seaworthy vessel, he would not be liable for those in charge of the vessel. Cogsa only applies to foreign trade. Its application is also limited to the period running from the time when the goods are loaded until they are discharged from the ship. In those areas where Cogsa does not apply, Harter is still applicable law. Also, pursuant to Cogsa, every bill of lading incorporates the statute. It is allowed to contract out of Cogsa’s terms but only by increasing the shipowner’s liabilities and not by decreasing them.
Among the duties of a carrier are the exercise of due diligence to 1) make the vessel seaworthy; 2) properly equip, supply and man the vessel; 3) make the holds, cooling compartments and al other areas where the goods are to be stored, fit and safe for their reception, preservation and carriage. Once the due care is given, the law protects the carrier by stating in Section 4 (1) of Cogsa that:
“Neither the carrier nor the ship shall be liable for loss or damage arising or resulting from unseaworthiness unless caused by want of due diligence on the part of the carrier to make the ship seaworthy, and to secure that the ship is properly manned, equipped, and supplied, and to make the holds, refrigerating and cool chambers, and all other parts of the ship in which goods are carried fit and safe for their reception, carriage and preservation in accordance with the provision of paragraph (1) of section 3. Whenever loss or damage has resulted from unseaworthiness, the burden of proving the exercise of due diligence shall be on the carrier or other persons claiming exemption under this section.”
Section 4(2) of Cogsa lists the causes for which the carrier shall not be liable. The most important is 4(2)a:
“Act, neglect or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship”
Sections 4(2) b through p list other causes of damagee which are excepted. Fire, for example, is excepted unless caused by the actual fault or privity of the carrier. The perils of the sea are also excepted. A carrier is also not liable for acts of God or, as stated in the statute,
” for any accident as to which he can show that it is due to natural causes, directly and exclusively, without human intervention, and that it could not have been prevented by any amount of foresight and pains and care reasonably to be expected of him.”
Other exceptions related to human force include: acts of war; acts of public enemies; arrest or restraint of princes; seizure under legal process; quarantine restrictions; riots and civil commotions; strikes; lockouts or stoppages of work; acts or omissions of the owner or shipper of the goods; losses arising from inherent defect of the goods or insufficiency of packing. Section 4(2) provides a catchall exception as follows:
“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from…….any other cause arising without the actual fault and privity of the carrier and without the fault or neglect of the agents or servants of the carrier, but the burden of proof shall be on the person claiming the benefit of this exception to show that neither the actual fault or privity of the carrier nor the fault or neglect of the agents or servants of the carrier contributed to the loss or damage.”
The effect of deviation is addressed by Cogsa in Section 4(4) to the effect that a deviation does not breach the Act or the carriage contract if it is undertaken to save life or property at sea. a deviation undertaken to load or unload cargo or passengers is not deemed reasonable and is therefore in breach.
Suits based on cargo loss or damage or other breach of the contract of carriage, are within the admiralty jurisdiction. Actions in personam may be brought either in federal court under the admiralty jurisdiction or in state courts under the saving clause. It should be noted, however, that maritime liens arising out of the shipper-carrier relation may be enforced only in federal court under admiralty jurisdiction.
The term “charter party” stands for the contract between the owner of a vessel and the charterer, that is the one that takes over the vessel for a certain amount of time or voyage. Three are the main types of charter:
1) The Voyage Charter. The charterer hires the vessel for a single voyage. The owner and his crew manage the vessel;
2) The Time Charter. Here the vessel is hired for a specific amount of time. The owner still manages the vessel but the charterer selects the ports of destination and controls the operation of the ship. It is a more permanent arrangement than the voyage charter and more representations are made about the ship to the charterer;
3) Demise or Bareboat Charters. This arrangement is completely different from the previous two. The charterer takes full control of the vessel along with the legal and financial responsibility for it. The demise shifts the control and possession of the vessel.
Charters are not in themselves subject to Cogsa but bills of lading issued in conjunction with a charter are. As a practical matter, many charter party forms stipulate the applicability of Cogsa or the Harter Act to the relations between owner and charterer. Such stipulation is valid and enforceable even without the issuance of a bill of lading. Suits brought for the breach of an obligation under a charter party are generally within the admiralty jurisdiction. As long as the agreement is executory, for inadequate performance the remedy is in personam which allows the plaintiff to go to state court under the saving clause. If, however, a charter breach creates a maritime lien, the suit is in rem with exclusive admiralty jurisdiction.
What has been said above mostly applies to commercial operations and voyages. In pleasure boating, the most frequent charter arrangement is the bareboat charter. The voyage or time charter is only used for larger yachts and is more the exception than the rule. Charter fleets are mostly made up of boats belonging to individuals or companies who only use their boats on a part time basis or as an investment. a recent arrangement in recreational boating is the time-share chartering in which several charterers are assigned a certain number of days per month or season in a manner which resembles time-share for residential resorts.
A legal principle which traces its origins in ancient maritime law, general average is still part of the admiralty law of most countries. General average requires three elements which are clearly stated by Mr. Justice Grier in Barnard v. Adams :
“Ist. A common danger: a danger in which vessel, cargo and crew all participate; a danger imminent and apparently ‘inevitable,’ except by voluntarily incurring the loss of a portion of the whole to save the remainder.
“2nd. There must be a voluntary jettison, jactus, or casting away, of some portion of the joint concern for the purpose of avoiding this imminent peril, periculi imminentis evitandi causa, or, in other words, a transfer of the peril from the whole to a particular portion of the whole.
“3rd. This attempt to avoid the imminent common peril must be successful”.
The first codification of the general average principle were the York-Antwerp Rules of 1890 which were supplemented and amended in 1924, in 1949 and in 1974. While the Rules never had the force of law, American commercial concerns seem to have accepted the 1949 version in its entirety and bills of lading incorporate them verbatim.
Rule I of the 1974 version provides that no jettison of cargo can be made good as general average, unless such cargo is carried in accordance with the recognized custom of the trade. It should be noted that damage done to the ship in accomplishing a jettison of cargo is a general average sacrifice as Rule II states: “Damage done to a ship and cargo, or either of them, by or in consequence of a sacrifice made for the common safety, and by water which goes down a ship’s hatches opened or other opening made for the purpose of making a jettison for the common safety, shall be made good as general average.”
Rule G clearly states that general average is to be adjusted as regards both loss and contribution on the basis of values at the time and place where the voyage ends.
Claims for general average can either be asserted in ordinary state courts or in admiralty. Most litigation on this subject, however, tends to be in the admiralty court.
The concept of marine salvage has been recognized by the law since the times of Byzantine Empire . In modern times, the Salvage Convention of 1910 was adopted by an international panel and ratified by the United States in 1913. The U.S. also adopted a Salvage Act in 1912 to supplement the Convention and address new circumstances.
Unlike land based volunteer acts to save property, the person who saves property at sea is entitled to a reward which is generously computed in light of the fundamental public policy involved. Public policy, to encourage mariners to provide prompt service in emergencies, is to award compensation much greater than the value of the actual labor involved.
The formal requisites of an act of salvage, in a way similar to those required for general average, are the following:
1) there must be a serious peril from which the vessel or property could not have been rescued without the salvor’s assistance;
2) the salvor’s act must be voluntary (no legal or official duty to render assistance);
3) the act must be successful in saving all or part of the property at risk.
When the property has been abandoned, anyone may become a salvor and if the owner later wants to reclaim his property, he would take it subject to a lien for the salvage claim. The owner in possession of the property, however, does not have to accept an offer of salvage. While the typical act of salvage involves the rescue and tow of a vessel at sea, the range of situations which can constitute salvage is quite broad. Among examples of salvage are the following: the escorting of a distressed ship to a position where aid can be rendered; giving information on how to avoid an obstruction such as an ice floe or to avoid running aground; carrying a message which results in the provision of emergency assistance. In general, it can be said that, so long as a vessel is in danger, almost any voluntary act which contributes to its ultimate safety or rescue may qualify as an act of salvage.
As was noted earlier, certain tests must be met for an act to qualify for salvage. For property to become subject to salvage it must be on the water or on a beach or reef. It was also mentioned that since the act of salvage must be voluntary, a person who is under a duty to provide assistance cannot claim as a salvor. A crew member, for example, would not qualify under any circumstance. The same goes for passengers. Public employees such as firemen or even licensed pilots are not entitled to an award for saving property if it was their duty to do so. On the other hand, a salvage claim is not defeated by the fact that the salving vessel is professionally equipped to render assistance or engage in salvage operations. It should be noted that, while nothing prevents a government from claiming salvage, the U.S. Coast Guard has long provided a rescue service with a traditional policy of not claiming salvage for its rescue efforts.
For what concerns the amount of a salvage award, a court opinion from The Blacwall is often cited:
“Courts of admiralty usually consider the following circumstances as the main ingredients in determining the amount of the award to be decreed for a salvage service:
“(1) The labor expended by the salvors in rendering the salvage service.
“(2) The promptness, skill and energy displayed in rendering the service and saving the property.
“(3) The value of the property employed by the salvors in rendering the service, and the dangers to which such property was exposed.
“(4) The risk incurred by the salvors in securing the property from the impending peril.
“(5) The value of the property saved.
“(6) The degree of danger from which the property was rescued.”
The items taken into account in assessing the value of the property are the ship, freight and cargo. The salvage award can never be greater than the value of the salved property and will always be substantially lower except in the case of abandoned or derelict property. Where substantial values are involved, awards tend to be under 20% of the value of the property.
Salvage awards are for salvage of property, not life.The 1912 statute does not provide for awards for the pure salvage of life unaccompanied by salvage of property. Salvors of human life, however, who have taken part in the services rendered on the occasion of the accident giving rise to salvage, are entitled to a fair share of the remuneration awarded to the salvors of the ship, her cargo and accessories. In other words, the trial court will also consider moral as well as economic issues.
There are two types of salvage contracts. One is the agreement in extremis entered into by the master of a vessel in danger under the stress of circumstances. The second type can be entered into by the owner and a professional salvage team after the immediate peril has ceased. The in extremis agreement will be enforced only if the court finds that it has been fairly negotiated and not entered into under duress with the result of an extortionary bargain for the salvor. If the court finds that a form of extortion was attempted, it may reduce the award or forfeit it entirely.
A suit to enforce a maritime lien for salvage can be brought both in rem against the vessel or in personam against any person who may be liable. The trend for the resolution of salvage disputes, however, seems to be arbitration even if extrajudicial resolutions are not necessarily binding on crews of salving vessel.
A maritime lien is a very different concept from a consensual land lien. The maritime lien arises out of contract or tort. Only certain types of maritime claims can give rise to a lien and the parties cannot by agreement modify the status of a claim. The maritime lien can only be foreclosed, or “executed” in maritime parlance, by an admiralty court acting in rem. Priority among the same class of competing maritime liens is determined by the time of their attachment but in inverse order: last in time is first in right. The maritime lien is often referred to as “secret” or “hidden” because it depends neither on possession nor notice through filing (with the exception of the preferred ship mortgage which is statutory). It is also said to be “indelible” because since it can only be executed by an admiralty court acting in rem it is valid against the whole world, including a bona fide purchaser of the vessel without regard to even bankruptcy or reorganization.
Aside from the obvious way of extinguishing a maritime lien by paying the underlying claim, a lien can also be extinguished by laches. The in rem decree of an admiralty court following a judicial sale extinguishes all liens regardless of whether a claimant has participated in the proceeding.
As we have seen earlier, the demise charter places the ship in the custody and control of the charterer. The question then arises as to the effect on the ship of actions by the charterer which may or may not be authorized by the owner. The law seems to be settled on this point in that the ship itself is to be treated as a principal, and as personally liable for the negligence of anyone who is lawfully in possession of her.
a claim needs to be maritime in nature to give rise to a lien. This brings us back to the section on jurisdiction, i.e. what types of structures are deemed vessels, which contracts are maritime, which torts are maritime. Once again, it must be stated that it is not possible to provide an exhaustive list. A tentative rank of liens, however, can be the following:
1) Seamen’s claims for wages. As Justice Gray wrote in the John G. Stevens, “sacred liens, and, so long as a plank of the ship remains, the sailor is entitled, against all other persons, to the proceeds as a security for his wages.”;
3) Tort. This includes both collision and personal injury claims;
4) General Average. The lien can be in favor of the vessel against cargo or the other way around;
5) The preferred ship mortgage. As we have seen, lien status is given by statute;
6) Supplies and repairs;
7) Towage, wharfage, pilotage, stevedoring and related services;
8) Cargo damage caused by improper loading, stowage and custody;
9) Ship’s claims against cargo for unpaid freight;
10) Charter party breach either by the owner or the charterer;
11) Claims for marine pollution.
The Maritime Lien Act was enacted by Congress in 1910 and amended in 1920 with further amendments in 1971. The Act consists of five sections also issued as Sections 971 to 975 of Title 46 of the United States Code and it clarified some issues that had created confusion in the case law up to the enactment of the law. Section 971 provides that:
“Any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel, whether foreign or domestic, upon the order of the owner of such a vessel, or of a person authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit in rem, and it shall not be necessary to allege or prove that credit was given to the vessel.”
Section 974 provides that liens can be waived “by agreement or otherwise” and then adds that “this chapter” shall not be construed to affect existing rules with respect to (a) advances; (b) laches; © actions in personam; (d) lien priorities; (e) priorities between maritime liens and mortgages other than preferred mortgages under the Ship Mortgage Act. Section 975 attempts to clarify the issue of state statutes as follows:
“This chapter shall supersede the provisions of all State statutes conferring liens on vessels, insofar as such statutes purport to create rights of action to be enforced by suits in rem in admiralty against vessels for repairs, supplies, towage, use of dry dock or marine railway, and other necessaries.”
The Maritime Lien Act in 1920 was amended and reenacted as part of the Ship Mortgage Act. We have already discussed preferred ship mortgages under the section on sale of vessels. What needs to be pointed out at this juncture is that Section 974 does not effect “…….the rules of law existing on June 5, 1920, in regard to (4) the rank of preferred maritime liens among themselves, or (5) priorities between maritime liens and mortgages, upon vessels of the United States.”
The statute of limitations for lien based claims must be noted here. Damage claims for damage brought by cargo which moves under Cogsa bills of lading must be commenced within one year from the date of delivery; the Salvage Act of 1912 requires salvage claims to be brought within two years of the act of salvage; actions for wrongful death under the Death on the High Seas Act or under state legislation must be brought within two years for the Federal Act and the state statutory period; suits against the United States under the Suits in Admiralty Act must be brought within two years after the accrual of the cause of action. While other maritime claims are not directly subject to a particular statute of limitations they may be barred by laches. The admiralty court will look at what it considers the applicable local or foreign statute of limitations.
A libel in rem or in personam brought after the state statute of limitations would have expired for a state action will not be automatically dismissed by the admiralty court. The court will instead consider the extent of the delay and the degree of prejudice to the defendant.
The execution of a lien by in rem decree is one of the examples of the unique character of admiralty law. As was noted earlier, only an admiralty court acting in rem can divest liens by a judicial sale. A maritime lienor may have the ship arrested by filing a libel in rem in any district in which the ship is found. The Marshall will then take the ship into custody. Notice of the libel must be given by publication so that other claimants may intervene. If the ship is not released on a stipulation for value and a judgement in favor of one or all of the libellants becomes final, the ship will be sold on order of the court. As was noted earlier, such a sale will extinguish all liens. The owner of the ship which is libeled in rem may have the vessel freed by posting a bond. The release of a vessel from arrest is governed by 28 U.S.C.A. ß 2464 and by the former Admiralty Rules.
The general principles of marine insurance are the same as with other types of insurance in that there are two parties: the assured and assurer (or carrier). The assured or insured agrees to pay a premium and the insurer agrees that, if certain losses or damage occurs to certain interests of the insured, the insurer will indemnify the insured. The similarities pretty much end here. The complex circumstances involved in sea voyages require very specific arrangements for the provision of marine insurance. The fixing of rates and special conditions, for example, requires a vast knowledge of the nature of vessels and cargos and of the conditions of navigation.
The marine policy may cover the risks of a single voyage, or may insure for a certain period of time. Cargo is almost always insured by voyage. Vessels are usually insured for a certain duration of time, usually year by the year. Cargo policies may be on a single lot or may be open to cover cargo as shipped by the insured. Hull insurance, or vessel insurance, may cover a ship or a whole fleet.
Typical of marine insurance is the principle that no contract of marine insurance is valid unless the insured has an insurable interest in the subject matter at the time of loss. The term insurable interest has been variously defined. According to the English Marine Insurance Act of 1906, “every person has an insurable interest who is interested in a marine adventure…. a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by its loss, or damage thereto, or by the detention thereof, or may incur liability in respect thereof”.
Another issue important in the marine insurance area is misrepresentation or concealment. The marine insurance contract is one which requires the highest degree of good faith. Any misrepresentation of a fact which is material to the underwriter will void the policy. In addition, a policy can be void for breach of any of the warranties implied by law or expressed in the policy. The most common is the implied warranty of seaworthiness of the insured vessel or of the vessel carrying insured goods. Seaworthiness is a general term but is has been narrowed by case law. A ship which is seaworthy for a southern voyage may not be so for a transatlantic crossing in winter. Similarly, in cargo policies, the warranty of seaworthiness of the vessel includes fitness to carry a particular cargo.
In voyage policies, the doctrine of deviation states that the underwriter is deemed to have intended to accept only that risk that inheres in the expeditious prosecution of the voyage by the usual commercial route. If, without justification, the vessel departs from the route, or delays unreasonably in pursuing the voyage, the policy will be voided. Once voided by a deviation, the insurance contract is canceled for good and not restored by a return to the proper course. Whether or not a ship has deviated is a question which is either settled by the policy or by usage.
The main risks insured against in a marine policy are stated in the “perils” clause which is often supplemented by the “specially to cover” clauses, or restricted by provisions eliminating one or more of the insured risks. The traditional “perils” clause is contained in the First Schedule of the British Marine Insurance Act of 1906 from Lloyd’s policy. It reads as follows:
“Touching the adventures and perils we the assurers are contended to bear and to take upon us in this voyage: they are of the seas, men-of-war, fire, enemies, pirates, rovers, thieves, jettisons, letters of mart and countermart, reprisals, takings at sea, arrests, restraints,and detainments of all kings, princes and people, of what nation, condition or quality soever, barratry of the master and mariners, and of all other perils, losses, and misfortunes, that have or shall come to the hurt, detriment or damage of the said goods and merchandises, and ship, &c., or any part thereof. “
More recently, war risks have been removed from ordinary marine policies and are covered by separate war risk policies. Ordinary marine policies no longer mean what they state and only cover those risks which are not excluded by the F.C. & S. (Free of capture and seizure) clause. Among the perils “of the seas” that are deemed to be covered under a marine policy are the extraordinary action of the wind and waves, collision, foundering, stranding, striking on rocks and icebergs. Not covered are ordinary wear and tear and losses which can be anticipated as regular incidents of sea carriage or navigation.
Hull policies, that is policies insuring ships, used to be quite specific as the risks they covered. Modern policies are written to cover most forms of liability. A “collision and running down” provision is contained in the standard hull policy to cover liability incurred for damage to another vessel or structure, and sometimes even personal injuries incurred. The protection and Indemnity policy covers against collision liability not covered by the “collision and running down” clause, as well as against all other liability exposure.
Under a marine policy a loss can be partial or total. Total losses can be actual or constructive. Actual total loss can be defined as the situation in which a ship or its goods can no longer arrive at their destination in specie. Actual total loss can also be found where the goods are so damaged in the course of the voyage that, while they still exist in specie at that time and can be sold where they are, there is no reasonable possibility that they can be transported to their destination without complete destruction or change. Constructive total loss is distinguished from actual total loss in that no formal abandonment need be made in respect of the actual total loss whereas the tender of abandonment is a prerequisite of a claim under constructive loss.
Most marine insurance policies are “agreed value” policies which means that the insured and the underwriter have already set a value for the insured vessel. It should be noted that, in the pleasure boating industry, boats can be insured either under a yacht policy or a boat policy. A boat policy, much like insurance policies in motor vehicles, does not set an agreed value and in the event of loss depreciation is usually deducted from the amount the insured will recover. Pleasure boat policies are usually written to cover a certain geographical area. On the East Coast, for example, the area may be Maine to North Carolina . Or it may cover two or more regions. It is important to understand, however, that while most policies cover the entire United States and sometimes even Canada for occasional trips, the yacht must be based and principally operated within the region selected in the policy. In other words, a cruise to Florida from the mid-Atlantic region in most policies is not a problem. Moving the boat to Florida for six moths, however, definitely would be.
Limitation of Liability
An owner of a vessel is sometimes permitted to file for limitation of liability with regard to an event which may expose him to a claim or suit for damages. The institution of limitation of liability has its roots in medieval sea codes to encourage maritime activities and protect vessel owners at a time when corporate entities were not yet in existence. The institution, however, with some modifications, is still very much alive.
Normally, the vessel owner will institute limitation proceedings without admitting liability. He must do so within six months of the event or accident giving rise to the claims. He must also turn over to the court the ship or the equivalent value of it, whatever it might be after the event giving rise to the claims. Notice must also be given to the known claimants and is to be published. Once the limitation is in place, if the trial exonerates the vessel owner, he will owe nothing. If he is found at fault, he may be able to limit his liability to the value of the ship. A part owner of a vessel may limit his liability to his share in the vessel.
An additional bonus to vessel owners, and the subject of some controversy, is the insurance issue. An insurance company is apparently subrogated to the vessel owner and enjoys the same limitation of liability. If a yacht, following a maritime disaster, is worth $5,000 that would be the maximum the insurance would have to pay to the claimants if the limitation of liability is granted. On the other hand, because the hull insurance (which, as we have seen, is the portion of the policy which covers the vessel itself) does not go to the limitation fund, the vessel owner may collect the proceeds of such insurance, while the claimants are limited in their recovery to the value of the vessel.
Pursuant to 46 U.S.C.A. § 188, limitation is available to owners of “all seagoing vessels, and also to vessels used on lakes and rivers or in inland navigation.” It is clear from the language of the statute that pleasure boats are well within the limitation provisions. The Loss of Life Amendments to 46 U.S.C.A. increased the vessel owner’s responsibility for personal injury or death caused by or on a “seagoing vessel”. The limitation fund would then be raised to $420 per ton which could amount to a considerable sum for vessels which weigh thousands of tons. The above amendments, however, only apply to “seagoing vessels” which would exclude tugs and towboats, fishing boats and most pleasure yachts not engaged in the carriage of passengers for hire.
Depending on where and how a vessel is operated, she is likely to fall under the law enforcement jurisdiction of a number of agencies and entities including the following: the U.S. Coast Guard; the U.S. Customs Service; the Immigration and Naturalization Service; the Drug Enforcement Administration; County marine patrols; municipal marine patrols; and Wildlife and Fisheries agents. In foreign waters, of course, local agencies will have jurisdiction. Any of these agencies could enforce laws pertaining to a vessel and, as will be explained below, their powers can be quite broad.
By far the agency with the broadest functions and jurisdiction is the U.S. Coast Guard. Since 1967 the Coast Guard operates under the Department of Transportation. It is a civilian agency which, in time of war, can be mobilized under the command of the U.S. Navy. The functions of the Coast Guard in time of peace are: (1) law enforcement and administration of boating regulations; (2) maintenance of aids to navigation and rescue; (3) oceanographic research.
Under the Customs Enforcement Statute (19 U.S.C. §1581a) which applies to the so-called “customs waters” of the United States, the Coast Guard may “….go on board any vessel and examine, inspect, and search the vessel and examine every part thereof and any person….. or cargo on board, and to this end may…….stop such vessel.” This, incidentally, applies to both U.S. and foreign vessels without regard to whether the vessel is bound for the U.S. If a violation of American law is found, the vessel may be seized and the persons on board prosecuted in American courts. The authority of U.S. officials even extends to the high seas to search, seize, and assert jurisdiction on vessels. Most of the cases involve the seizure of vessels involved in narcotic trafficking.
U.S. officials, under the 1980 Marijuana on the High Seas Act can also assert jurisdiction over
a) any vessel documented under U.S. laws;
b) any vessel owned in whole or in part by a U.S. citizen or corporation, unless such vessel has been granted nationality by a foreign nation; and
c) any vessel without nationality or assimilated to statelessness under Article 6(2) of the Convention on the High Seas.
The Coast Guard investigates marine casualties in order to determine the causes. While such investigations do not per se create civil liability, they do influence lawsuits. In addition, a Coast Guard finding of fault can lead to suspension or revocation of captains’ licenses or other seamen’s documents and even to criminal charges. It should be noted that, during an investigation, the Coast Guard has the authority to subpoena witnesses and documents and to examine, inspect, and search anything it deems relevant. The Coast Guard also has the authority to perform random drug and alcohol tests of licensed captains and crew members, and even unlicensed crew members with duties related to safety. Recreational boaters are subject to drug and alcohol testing by the Coast Guard if they are involved in a collision or accident. The Coast Guard’s definition of intoxication is a blood-alcohol level of .10 percent unless the state has a more stringent threshold which would then be applied.
The procedure of Coast Guard or other agency boarding is a simple, though not necessarily a pleasant one. A passing Coast Guard vessel will hail the ship to be boarded on VHF radio channel 16 and request identification. They will normally ask the vessel to stand by or stop so that their boarding boat can safely go alongside the vessel to be boarded. Boarding parties usually carry drug-testing and alcohol-detection devices. The boarding team includes at least two people armed with 9mm handguns. The agents first identify themselves and then inquire as to weapons on board. If any weapons are on board they will seize them for the duration of the boarding. During the boarding, officers inspect registration or documentation papers and look for violations of law. In particular, they can check compliance with laws and regulations regarding drugs and alcohol, safety equipment and aliens. If a drug or other search by the coast Guard does not produce any evidence of violations but causes damage to the vessel, the vessel owner can seek reimbursement.
Guide to Yacht Purchases
The purchase of a pleasure yacht represents for most people a substantial investment, similar to the purchase of a house. Unlike a car or other machine, a vessel may last for decades. Options to repower and upgrade electronics make the fiberglass boat an item of indefinite duration with older, classic styles often preferred to shiny new models. A pleasure yacht often becomes a very personal, “living thing” with memories attached to it. Yachts, because of their high cost and their mobility , are also subject to many laws and regulations which the purchaser may not be aware of.
There is no simple checklist of things to do and avoid in the purchase of a yacht. The intended use of the boat and the financial circumstances of the buyer are the main guidelines but many variables will still be involved. As in everything else, planning is very important. Unfortunately, however, the excitement of a new toy and the sales pressure of brokers often prevents a buyer from a careful analysis of the options. The following is only a general guideline of the various steps involved before and after the purchase of a yacht. For specific advice, it is recommended that a purchaser consult an attorney and an accountant familiar with yacht ownership.
The first thing a potential yacht owner should do is to decide the type and size of boat he can afford and will be comfortable with. While this concept may seem obvious, it actually cannot be stressed enough. The choice of boat should be determined by the specific needs and intended use (racing, casual cruising, extended cruising, investment, charter, tax shelter, second home, liveaboard, etc.). The prospective purchaser should know exactly what he wants to do with the vessel he is purchasing. Not only is a certain type of yacht unsuitable for certain uses but the legal, financial, insurance and other requirements may be different. Certain yachts are difficult or impossible to insure as are certain skippers without experience or with negative information on their records. Certain vessels may not be insured for certain voyages. If co-ownership is considered, the time to plan for it is before purchasing the yacht.
A sales contract is not a step to be bypassed, particularly where the yacht is an expensive one. Many things must be covered in a sales agreement. Among the various issues, you must make sure that you have the right to get the boat surveyed. If purchasing an old boat you may decide to accept certain defects and not others. A clause for post survey negotiations should be included. You should know exactly which equipment is included. You may want to make the sale subject to financing. In some cases, when selling one boat and buying another you may want to make the purchase subject to the sale of your other boat. Other items to be covered in a contract are the hull or identification number; place of delivery of the boat; terms of payment; liability for loss before and after delivery.
Financing the boat has consequences that go well beyond the avoidance of cash outlays. Tax laws allow for the deduction of interest on certain loans. In many cases, interest on a loan on a yacht that can be used as a second home (or first home for that matter) may be tax deductible. Again, certain boats qualify as “second homes” while others, usually very small ones, do not. Financing a boat also means complying with the many requirements of a lender. For example, a lender may require that a yacht be kept at a marina and be covered by hull insurance. But someone with a free mooring contemplating the purchase of an old boat may not be interested in complying with the requirements of a lender if such requirements would make yacht maintenance unreasonably expensive. For a more detailed discussion of ship mortgages, please refer to the chapter on the purchase and sale of vessels.
United States law offers two types of vessel identification: registration and documentation. The difference between state registration and Coast Guard documentation is meaningful only for certain uses of a yacht. Federal documentation makes sense for those traveling overseas and in international waters because it carries more weight than state registration. It also simplifies matters for those who use the boat in two or more different states for several months at the time. Insurance carriers often require documentation for large yachts. Federal documentation, however, does not relieve the owner of the sales tax liability in the state where the yacht is used. The procedure to document a vessel, although recently streamlined, still presents much more paperwork than state registration. Companies and attorneys who provide that service charge several hundreds dollars.
Vessel insurance refers to two types of coverage: hull and indemnity. In other words, one covers the value of the yacht and the other the liability of the owner. The difference between “boat insurance” and “yacht insurance” is that in yacht insurance you get what is known as “agreed value”. In case of loss, no depreciation is taken. Virtually all new vessels carry insurance while many older boats do not. As some skippers put it, “it’s a better investment to put the premium money in an extra anchor”. Insurance options are almost unlimited. Certain boats are uninsurable as are certain blue water passages or certain destinations. In the end, where the purchaser obtains free title to a yacht, it will be his call to determine what type of insurance, if any, is appropriate.
Most insurance companies require a survey. A survey is also a good way to locate potential problems. Not all surveyors are alike, however. Check the references of the marine surveyor, such as accreditation by SAMS or other organizations. One thing to keep in mind is that accreditation by a surveyors’ organization does not provide any guarantees. In the event of mistakes by a surveyor which lead to the purchase of a defective vessel, the only real comfort will be an error and omissions policy covering the surveyor. Also, remember that surveyors have specialties such as rigging, fiberglass hulls, aluminum hulls, power or sail, etc.
If the plan is to charter out the yacht, appropriate arrangements should be made and a business plan should be prepared. Most charter companies, for example, do not take older or small boats into their fleets. This information should be on hand before a yacht is purchased. The financial and tax consequences of placing a yacht into charter service can also be significant. An accountant should be retained prior to making a final decision.
As in the case of a charter, sharing the yacht is a decision which will seriously affect the use of the yacht. Along with the sharing of expenses, a sharing arrangement also calls for the assignment of rights and duties of the co-owners. Finding a partner for the ownership of a yacht is akin to finding a roommate. There is no substitute for the search of a compatible person with a compatible schedule and needs. But certain rules should be in writing in the form a co-ownership agreement. The agreement should spell out how and where the yacht is to be kept and used, how it will be financed and insured, who will provide the maintenance, who and when will use it, a conflict resolution clause and other items.
The purchase of a used yacht presents a complication which is not encountered in real estate and automobile acquisitions. In addition to the regular liens of record such as mortgages, vessels are subject to maritime liens, also known as hidden liens. A person who has performed work on the yacht or provided services or supplies to it may have a claim against the vessel itself and therefore a lien. The owner of a lien on the vessel can bring a proceeding against the vessel itself (known as in rem proceeding because it is against the vessel) and cause the vessel to be sold by a federal Marshall . Some liens may be registered with the county clerk or other local authority where the vessel has been registered or used, but that is not always the case. Yachts can move and incur liability in areas that are very far from the point of sale. There is no certain way to identify all possible liens and the history of the vessel is usually the best way to establish clear title.
Seamen aboard ships and other vessels earn wages that are protected by a maritime lien of the highest order. Typically, an owner is obligated to pay the seaman’s wages upon completion of the voyage or within certain time frames thereafter. Often, due to financial situations, the owner will delay payment to the seaman despite his obligation to timely pay wages due. In some cases, this results in a penalty that is paid to the seaman by the vessel owner that compensates the seaman for the delay and augments the underlying wages that are due.
When seamen aboard foreign-flag vessels are in American ports, the penalty wage statute applies to them despite the flag their vessel may be flying. Often this particular type of seafarer is unfamiliar with the law and is somewhat hesitant to contact an attorney to assist him in protecting his valuable rights to the wages to which he is entitled. One organization that helps seafarers make contact with the appropriate attorneys to assist them is the ITF. Maritime Legal Resources works closely with the ITF and their network of attorneys to protect seafarersí right to prompt payment of wages in ports throughout the United States .
A seaman who is overdue for payment of wages earned aboard a vessel, regardless of flag, should contact Maritime Legal Resources to have his case evaluated. There is no time like the present because an owner who does not pay his sailors on time is often running into financial difficulties. With the passage of time, the financial difficulties increase. It then becomes more difficult to realize and satisfy the lien for wages as the value of the vessel is further eroded due to the ownerís financial problems. Regardless of nationality, seafarers should contact Maritime Legal Resources via phone, fax, or e-mail today to protect their claim for wages
Collision and Wake Damage
This type of case is the one where there is no substitute for having an experienced mariner on your side. Understanding the interplay between vessels in motion and applying the Nautical Rules of the Road to the vessel’s movement is essential to your case. Most attorneys go outside their firm for the advice of a maritime expert witness when they prosecute a maritime case. At Maritime Legal Resources, that is not the case – one attorney has 20 years commercial maritime experience and works as a maritime expert in addition to practicing law.
If you have the misfortune of being involved in a collision where you experience personal injury or boat damage, you need the background and experience of Maritime Legal Resources on your side. Analysis of the complex facts in a boating collision or wake damage case is one of our specialties.
Carriage of Goods
Maritime Legal Resources routinely and competently represent shippers, consignees, cargo owners, underwriters, charterers and carriers in carriage of goods or cargo matters. Despite modern cargo handling equipment and the widespread use of containers, problems arise with the transportation of cargo. These problems include cargo damage or destruction, loss of cargo, misdelivery of cargo, refusal to deliver cargo, late delivery of cargo, or freight disputes. The firm can provide effective, cost efficient legal assistance in all cargo matters.
Purchase and Sale of Vessels
The purchase and sale of a vessel can be a complex transaction involving shipbuilding contracts, vessel purchase contracts, bills of sale, marine surveys, documentation of vessels with the National Vessel Documentation Center , preferred ship mortgages, liens and/or charters. Maritime Legal Resources represents lenders and borrowers in a wide variety of financial transactions, which include vessel purchase contracts, preferred ship mortgages, boat foreclosures and the chartering of vessels. The firm is experienced in vessel documentation under all flags, especially the United States .