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Trends and developments
Trends and developments
Are there any notable trends or recent legal developments in your jurisdiction’s shipping industry?
The most notable trend in the maritime industry is the increased resort by shipowners to the US bankruptcy courts, whether pursuant to:
- Chapter 11 (eg, TMT Group, an international shipping company with relatively few contacts in the United States, or International Shipholding Corporation, a domestic corporation with a predominantly US flag fleet); or
- a Chapter 15 proceeding in aid of a foreign main proceeding (eg, Hanjin Shipping).
While maritime arrests are not unheard of, the use of US bankruptcy laws have made vessel arrests – especially mortgage foreclosure actions – a rarity in the case of distressed shipping companies.
Which ships are eligible for registration in the national shipping register(s) and which parties may register ships?
As defined in Section 3 of Title 1 of the US Code, the word ‘vessel’ includes “every description of watercraft or other artificial contrivance used, or capable of being used, as a means of transportation on water”. Any vessel weighing at least five net tons that is not documented under the laws of another country is eligible for registration with the National Vessel Documentation Centre (NVDC) of the US Coast Guard, provided that it is owned by a US citizen. Who or what is the definition of a ‘citizen’ depends on what type of registry endorsement is sought for the vessel to be registered. For example, if the vessel is intended for use in the US coastwise trade, in addition to other criteria (ie, being built in the United States), the entity that owns the vessel must ultimately be 75% legally and beneficially owned by US citizens. If the vessel is intended solely for US international trade and does not trade between points in the United States, various corporate formalities must be met to be entitled to registration (eg, having a US citizen chief executive officer and US citizen board control), but there is no minimum citizenship beneficial ownership requirement.
What are the procedural and documentary requirements for registration?
The process to register a vessel under the US flag begins with the filing of an “application for documentation” (USCG-1258) with the NVDC. Other documentary requirements include the submission of evidence of ownership and build, tonnage and dimensions.
Grounds for refusal
On what grounds may a registration application be refused?
There are no age requirements for the registration of US flag vessels. Therefore, assuming that all other requirements are complied with, the vessel will be registered by the NVDC.
Are there any particular advantages of flying your jurisdiction’s flag?
US flag vessels bearing a coastwise registry endorsement are the only vessels that may transport persons or cargo for hire between points in the United States. In addition, US flag vessels are entitled to certain cargo preferences, including US Agency for International Development and military cargoes.
Liens and mortgages
How are encumbrances such as maritime liens and mortgages registered in your jurisdiction and what are the effects of registration?
The only maritime claims that must be registered in order to be enforced are vessel mortgages. A vessel mortgage on a US flag vessel will not be enforced by the federal courts unless it has been properly recorded with the National Vessel Documentation Centre (NVDC). Other maritime claims need not be registered, although it is possible for the holder of a maritime lien claim to file a “notice of claim of lien” with the NVDC. The filing of notice does not constitute prima facie evidence of the validity of the claim, but it is noted on the relevant vessel’s abstract of title and entitles the filing party to notice of any future sale of the vessel.
Securable claims and priority
What claims can be secured by maritime liens and what is the order of priority?
The claims giving rise to liens against a vessel and their general priority are as follows (although circumstances may sometimes dictate a different result):
- expenses, fees and costs allowed by the court, including those incurred while the vessel was in the custody of the court;
- wages of vessel crew;
- maritime liens arising before a preferred mortgage was recorded;
- liens for maritime tort;
- salvage and general average claims;
- preferred mortgage claims on a US flag vessel;
- liens for necessaries;
- preferred mortgage liens on foreign flagged vessels; and
- general maritime contract liens.
The general rule is that liens take precedence within a class in inverse date of incurrence (ie, the more recent claims are paid first).
Under what circumstances are maritime liens extinguished?
Liens are extinguished:
- when paid;
- when alternative security in lieu of the vessel is provided which creates a substitute res (property) for the lien; or
- when the vessel is sold in an admiralty foreclosure proceeding.
Are foreign liens recognised in your jurisdiction?
Yes, provided that they are recognised as lien claims in the jurisdiction in which they arose.
Transfer and assignment
Which rules govern the transfer and assignment of liens, mortgages and other encumbrances?
Assignment of a mortgage on a US flag vessel is governed by US law and must be recorded with the NVDC, the same as the original mortgage. There are no specific rules regarding the assignment of other maritime liens and these should be dealt with on a case-by-case basis.
Grounds for arrest
Under what circumstances can a ship be arrested in order to secure a claim against it?
A ship can be arrested or attached under Rule B or C of the Federal Supplemental Rules of Civil Procedure (the rules that control in the federal courts with respect to admiralty matters) when the vessel is located in US waters and is within reach of the local federal court’s jurisdiction.
Can a ship be arrested to secure a non-maritime claim?
Generally no. However, under Rule B, a vessel or other property may be attached to secure a claim that is maritime in nature, even if the claim does not support a lien. The jurisdiction invoked under Rule B is quasi in rem rather than in rem – that is, the basis of the claim is in personam, but is asserted as security against the vessel as property of a defendant not located within the district.
Can a ship be arrested to secure a claim against a sister ship?
Generally, a vessel can be arrested only for claims against that ship. However, Rule B attachment claims may be asserted against any “property of the defendant”, which may include a sister ship in common ownership or that is property of an alter ego of the defendant.
What are the procedural and documentary requirements for seeking arrest of a ship?
Pursuant to Rule C of the supplemental rules, the party seeking to arrest a vessel (or other property) presents a complaint which must be verified, describe the property to be arrested with reasonable particularity and aver that the property is within the court’s jurisdiction. Attachment under Rule B requires a verified complaint and an affidavit stating that the defendant cannot be found within the judicial district. The plaintiff seeks an arrest warrant or order authorising process of attachment from the court ex parte and the arrest warrant, if granted, is served by the marshal on the vessel or other property.
What security must the arresting party put up in order to secure arrest of a ship and how is this security calculated?
Initially, security is not required for a vessel arrest or attachment. However, the marshal will require a deposit of a sufficient amount to cover the anticipated custodial costs before arresting or attaching a vessel. In addition, under Rule E of the supplemental rules, the court may require the arresting party to submit a bond to cover any claims that may be asserted against it or other counter-security.
What security can the arrested party provide for release of an arrested ship?
The nature and adequacy of the counter-security – usually a bond – are within the court’s discretion to determine. The amount of the bond must be sufficient to cover the claim asserted by the arresting party.
Judicial sale of ships
What is the legal procedure for the judicial sale of ships in your jurisdiction?
A proceeding to exercise a maritime lien right is an in rem action which is maintained in the federal district court of the jurisdiction in which the vessel is located. The claimant will obtain an order for the arrest of the vessel ex parte. The owner will be entitled to appear and contest the arrest or post alternative security. If the court finds that the arrest is valid on its face and no alternative security is posted, the vessel will ultimately be sold at auction by the federal marshal in an interlocutory sale.
Under what circumstances are foreign sales recognised?
US federal courts will recognise foreign admiralty sales of vessels provided that the court conducting the sale had jurisdiction over the vessel and due process occurred.
Limitation of liability
What parties may limit liability for maritime claims?
Under the Limitation of Liability Act, originally passed in 1851, vessel owners – including demise or bareboat charterers – may limit liability. Neither ship operators nor managers can limit liability under the statute; nor can time or voyage charterers.
For what claims can liability be limited? Are any claims explicitly exempt from the limitation of liability?
The Limitation of Liability Act provides for limitation to apply in a variety of claims. On the filing of a petition for limitation, a stay will be issued covering “all claims and proceedings against the owner related to the matter in question”.
The Oil Pollution Act of 1990 provides a separate regime for limitation of liability for oil spills, including limits. The Comprehensive Environmental Response, Compensation and Liability Act, which applies to the discharge of hazardous substances other than oil – whether on land or at sea – also has a regime limiting liability. These limitations on liability do not apply in certain circumstances.
What limits are set for eligible claims?
The limitation fund is calculated based on:
- the vessel’s market value at the conclusion of the casualty; and
- the value of pending freight.
However, there are exceptions in respect of personal injury and death. In these instances the limit is $420 per gross ton, irrespective of the vessel’s value, including instances where the vessel is a total loss.
What rules and procedures govern the establishment of limitation funds?
As noted above, the law governing limitation of liability is domestic and not the subject of an international convention – specifically, the Limitation of Liability Act, which is a federal statute. A limitation proceeding is commenced under Rule F of the Federal Supplemental Rules of Civil Procedure and creates not only a limitation proceeding, but a concursus of claims where all claims are marshalled into one proceeding.
How are liability funds distributed?
Pursuant to Rule F of the supplemental rules, upon determination of liability, the fund is divided pro rata among the claimants to the fund, in proportion to the amounts of their respective claims, subject to any priority to which the claimants may be entitled at law.
Carriage of goods
Is your jurisdiction party to any international conventions on the carriage of goods by sea? If so, does the relevant domestic implementing law contain any notable modifications (eg, extensions to the scope of application)?
The United States applies a version of the Hague Rules through the Carriage of Goods by Sea Act (for goods in foreign commerce), as well as the Harter Act (for mostly domestic carriage). The United States also signed the Rotterdam Rules, which are not yet ratified. The Carriage of Goods by Sea Act applies “tackle to tackle”, but the period that it covers is frequently extended by clauses in bills of lading.
What is the official extent of the carrier’s responsibility for goods?
The vessel owner may not be liable under the Carriage of Goods by Sea Act if it is not the contractual carrier. However, the vessel itself will be liable in rem for having carried the cargo and ratified the bill of lading. Under the Carriage of Goods by Sea Act, a carrier may limit its liability to $500 per package or customary freight unit. However, the act’s limitations and defences can be lost if the carrier commits an unreasonable deviation, for example.
Contractual limitation of liability
May parties contract out of any legal provisions governing cargo liability?
Under the Carriage of Goods by Sea Act, the parties to a bill of lading may contract for higher limitations than the $500 per package or freight unit provided by the act.
Title to sue
Who has title to sue on a bill of lading?
A real party in interest may bring a suit under a bill of lading and cargo claims are frequently brought by shippers and their insurers.
What is the time bar for cargo claims?
The Carriage of Goods by Sea Act contains a one-year statute of limitations.
Definition of ‘carrier’ and ‘goods’
How are ‘carrier’ and ‘goods’ defined in respect of cargo claims? Is there any especially pertinent case law on this issue?
Under the Carriage of Goods by Sea Act, the term ‘carrier’ includes the owner or the charterer which enters into a contract of carriage with the shipper. The term ‘goods’ includes goods, wares, merchandise and articles of every kind – except live animals and cargo that is stated by the contract of carriage as being carried on deck and is so carried.
Defences available to carrier
Under what circumstances may the carrier rely on the perils of the sea defence? What other defences are available to the carrier?
‘Peril of the sea’ is one of 16 specifically excepted causes of cargo damage for which ocean carriers are not liable under the Carriage of Goods by Sea Act. Briefly stated, this has been defined as a fortuitous action of the elements at sea, of such force as to overcome the strength of well-found ships or the usual precautions of good seamanship. The validity of the peril of the sea defence depends on the nature and cause of the cargo loss. Negligence or fault of the ocean carrier voids the defence. The act sets out 15 other defences, as well as a catch-all exception which relieves ocean carriers from cargo liability for any cause arising without the actual fault of the carrier or its agents.
What legal protections and defences against cargo claims are available to agents of the carrier and other third parties (eg, Himalaya clauses)?
The $500-per-package limitation of liability contained in the Carriage of Goods by Sea Act extends only to a carrier of goods by sea and not to third parties which are not carriers, such as stevedores or terminal operators. However, non-carriers may become third-party beneficiaries of the act’s limitations and conditions by inserting a provision in the bill of lading known as a ‘Himalaya clause’. Although a carrier is free to contract with the owner or consignee of cargo to extend the benefits of the act to the carrier’s agents, servants and independent contractors pursuant to a Himalaya clause, the clause is strictly construed against the carrier and its third-party beneficiaries. The contractual extension of the act’s limitation of liability benefits pertains to third parties only if this intention is clearly and unambiguously expressed in the bill of lading.
Deviation from route
Under what circumstances is deviation from the agreed route allowed?
Deviations generally fall into two types: geographic and non-geographic. The former is the carrier’s failure to proceed in the most direct and customary route to the port of delivery. The latter is an action taken by the carrier that increases risk of loss or damage to cargo (eg, the stowage of cargo on deck), without the knowledge and consent of the shipper. Under the Carriage of Goods by Sea Act, carriers are not liable for losses resulting from reasonable deviations.
Claims against shipper
What claims can the carrier pursue in respect of the shipper’s failure to meet its obligations?
Under the Carriage of Goods by Sea Act, the shipper is responsible for proper marks, number, quantity and weight of the cargo, and must indemnify the carrier “against all loss, damages, and expenses arising or resulting from inaccuracies in such particulars”. Shippers have been held liable to carriers and other cargo interests for negligence or due to the undisclosed dangerous nature of cargo.
Multimodal carriage of goods
How is multimodal carriage regulated in your jurisdiction?
The US Supreme Court has held that a through bill of lading is a maritime contract even for those portions of the transport services that take place on land. Other cargo liability regimes cover rail and truck transport that, at times, conflict with the Carriage of Goods by Sea Act and may affect the carrier’s liability in the event that the cargo is not aboard a vessel.
Collision and pollution
What rules and procedures (under both domestic and international law) apply to the prevention of, liability for and remedy of:
The United States has incorporated the International Regulations for Preventing Collisions at Sea by statute. Separate but similar rules apply to the country’s inland waters. The United States is not a party to the 1910 Brussels Collision Convention. Collision law is based on fault, including proportionate fault, but is different from international law.
Casualties – including incidents causing injury or death, grounding, bridge strike, environmental harm or property damage in excess of $25,000, – must be reported to the US Coast Guard (USCG).
(b) Oil pollution?
The Oil Pollution Act of 1990 provides the framework for liability for discharge of petroleum products into or upon navigable waters, shorelines or the US exclusive economic zone. Generally the responsible party (for vessels in particular, an owner, operator or demise charterer) is liable for damages, including costs of removal, damage to natural resources and property, lost revenues and profits. The act identifies defences to liability, including acts of god, war and acts of third parties.
Responding to oil pollution is primarily the responsibility of the USCG. Its National Response Centre is the point of contact for reporting oil spills.
The USCG aggressively enforces criminal laws against the discharge of oily waste water (‘magic pipe cases’) and related record-keeping violations, and maintains a whistle-blower bounty programme to encourage the reporting of discharge violations.
(c) Other environmental damage caused by a ship?
The United States has ratified the International Convention for the Prevention of Pollution from Ships (MARPOL 73/78) and its annexes, excluding Annex IV. The Act to Prevent Pollution from Ships implements MARPOL and its annexes. This act applies to vessels in US waters and US-flagged ships worldwide. The USCG and Environmental Protection Agency (EPA) are the principal agencies involved in rulemaking and enforcement under US environmental laws.
The United States maintains International Maritime Organisation (IMO) designated emission control areas – implementing MARPOL Annex VI – that apply sulphur fuel and engine nitrogen oxide standards to vessels operating off the United States, Puerto Rico and the US Virgin Islands.
The United States is not a signatory to the IMO Ballast Water Management Convention. However, USCG regulations govern ballast water management and generally prohibit ballast water discharge into US waters. The United States has not yet approved ballast water treatment systems and is not in accord with other IMO member states on standards for such systems.
The United States is not a party to MARPOL Annex IV regulating sewage discharges. However, ocean-going vessels operating in US navigable waters which are registered in foreign countries may be subject to Annex IV requirements. The Clean Water Act and related regulations and programmes govern sewage discharge.
Solid waste discharge is governed by the Act to Prevent Pollution from Ships and the Marine Protection, Research and Sanctuaries Act and federal regulations. Hazardous waste management and disposal can be subject to the Resource Conservation and Recovery Act and the Clean Water Act, as well as federal regulations. Grey-water discharge is also regulated by the EPA.
Vessel owners and operators meeting certain requirements may elect to follow the discharge requirements of the EPA’s Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, which covers 27 types of discharge (excluding sewage, oil, garbage and certain others). The permit is subject to forthcoming updates by the EPA.
Chemical releases are reported to the National Response Centre.
What is the legal regime governing salvage and general average?
The United States is a party to the 1910 Brussels Salvage Convention and the 1989 Salvage Convention. However, salvage cases are usually decided under principles of the general maritime law. Federal courts have exclusive jurisdiction over salvage cases brought in rem.
The law recognises two types of salvage: pure and contract. ‘Pure salvage’ is the salvage of property exposed to a marine peril, where the salvage service is voluntary and successful in whole or in part. Salvage awards are based on numerous factors, including the degree of peril. ‘Contract salvage’ is as described and courts will generally enforce a salvage contract that was fairly bargained for. Finds (ie, the salvage of abandoned vessels) may be subject to federal law protecting archaeological remains and defining ownership of shipwrecks.
General average is recognised within the general maritime law and is not statutory. The York-Antwerp Rules are generally inserted into bills of lading and charterparties. Bills of lading and other contracts of carriage often contain a ‘Jason’ or ‘New Jason’ clause which provides that the carrier is entitled to a general average contribution even when the loss arises from its own fault, if it is absolved from liability by law or contract in the circumstances.
Places of refuge
What framework governs access to places of refuge for ships in distress?
USCG captains of the port are responsible for decision making with respect to whether a vessel needs to be moved to a place of refuge and, if so, what place of refuge to use. While place of refuge decision making is undertaken on a case-by-case basis, potential places of refuge may be identified for evaluation for use in specific incidents. In accordance with IMO Resolution A.949(23) on places of refuge, the National Response Team – a federal interagency organisation – has promulgated the “Guidelines for Places of Refuge Decision Making” which describes procedures and processes with respect to incident-specific incidents, as well as pre-incident identification of potential places of refuge.
What rules and procedures apply to the removal of wrecks in your jurisdiction?
Federal statutes and regulations, including the Wreck Removal Act of 1889 and the Oil Pollution Act of 1990, apply to the removal of wrecks and associated environmental concerns.
Under what circumstances can the authorities order removal of wreckage?
The owner, lessee or operator of a wrecked vessel located in navigable waters has strict duties under the Wreck Removal Act to mark and then promptly remove the wreck (in consultation with the USCG and the Army Corps of Engineers), and could face civil or criminal liability for failure to do so. Casualty reports must, in certain circumstances, be filed with the USCG within 72 hours. If the responsible parties fail to remove the wreck promptly, the government will assume responsibility for marking and removal, and may then seek reimbursement under the Wreck Removal Act and take other action under related statutes and regulations. The National Response Team has promulgated guidance with respect to abandoned vessels.
What maritime risks must be covered under the law and what is the mandatory level of coverage?
The Oil Pollution Act and the Comprehensive Environmental Response, Compensation and Liability Act set out limits of liability and require a vessel “certificate of financial responsibility” for tank and other vessels. The certificate is issued by the USCG National Pollution Funds Centre on evidence of financial responsibility from a guarantor (ie, insurer) or a self-insured applicant.
Insurable risks and ships
What other risks are typically covered by marine insurance contracts concluded in your jurisdiction and what ships are insurable?
US insurance contracts include traditional subjects of marine coverage, including:
- war risk;
- protection and indemnity;
- demurrage and defence;
- charterers’ risk; and
- cargo-related coverage.
Oil pollution is a particular subject of coverage.
What is the legal regime governing marine insurers’ subrogation rights?
The right to subrogation exists in the law and is generally widely allowed. Courts sitting in admiralty will resolve specific questions of subrogation by application of relevant state law.
Jurisdiction and dispute resolution
What courts are empowered to hear maritime cases in your jurisdiction?
The federal courts possess subject-matter jurisdiction over maritime matters. The state and federal courts have concurrent jurisdiction over many matters not specifically in admiralty (eg, personal injury claims). However, certain claims are cognisable only in admiralty and must be brought in the federal courts (eg, mortgage foreclosures, vessel arrests and actions under Rule B of the Federal Supplemental Rules of Civil Procedure).
Exclusive jurisdiction and arbitration clauses
Under what conditions will exclusive jurisdiction and arbitration clauses in shipping contracts be held as valid?
While it is black-letter law that parties may not, by contract, deprive a court over matters within its proper jurisdiction, there is a strong policy in the United States to honour the parties’ choice of forum in which to litigate disputes, including arbitration. For example, the Federal Arbitration Act provides for the institution of judicial proceedings to compel arbitration, including international arbitration, and for the issuance of a stay when a dispute is asserted in a lawsuit that is otherwise subject to arbitration.
What is the general state and prevalence of maritime arbitration in your jurisdiction?
The principal arbitral body in respective of maritime disputes is the Society of Maritime Arbitrators, Inc in New York. While the number of active arbitrations before members of the society varies, it handles a large number of disputes every year – principally in respect of charters, vessel sales and other maritime contracts concluded between US parties. However, the society is not the exclusive venue for such cases, as some contracts – while maritime in nature – provide for mediation or arbitration under the auspices of the American Arbitration Association, other arbitral institutions or ad hoc.
Recognition and enforcement
What regimes govern the recognition and enforcement of foreign judgments and arbitral awards?
Many states have adopted a version of the Uniform Foreign Country Money Judgments Recognition Act. In addition, foreign maritime arbitration awards are frequently enforced under the New York Convention, which has been given effect within the Federal Arbitration Act.
Law stated date
Correct as of
Please state the date as of which the law stated here is accurate
December 2 2016.
What regime governs the imposition of security measures on ships and in port facilities?
The United States has implemented the International Port and Security Code domestically through the Maritime Transportation Security Act of 2002. Most of the implementing responsibilities under the act lie with the US Coast Guard (USCG). Regulations concerning security measures on ships and port security are set out in Title 33 Chapter 1 Sub-chapter H of the Code of Federal Regulations.
What rules apply to the qualification and conduct of security officers on ships and in port facilities? Are armed guards allowed on ships?
Both a vessel security officer (VSO) and a facility security officer (FSO) must be certified and credentialed by the USCG, for which they must have completed a USCG accepted VSO or FSO course. A VSO, among other things, must have also completed sea service (the length of time varies by the type of vessel). The specific requirements are set out in the Code of Federal Regulations.
The United States allows armed guards – subject to appropriate licensing – on US flagged ships.
What rules govern the provision of security information to port authorities?
Federal regulations in Title 33 Chapter 1 Sub-chapter H of the Code of Federal Regulations govern the provision of security information, including incident reporting, to port authorities. Maritime security incidents are reported to the captains of the port or the National Response Centre.