PART I INTRODUCTION TO MARITIME LAW

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1 Table of Contents About the Authors...vii Table of Chapters...ix Table of Contents...xiii Preface...lxv Acknowledgments...lxvii PART I INTRODUCTION TO MARITIME LAW Chapter 1 The Scope of Maritime Law...1 Definition...3 Q 1.1 What is maritime law?...3 Q How does maritime law relate to admiralty law?...3 Q How is maritime law broader than admiralty law?...3 History of U.S. Maritime Law...4 Q 1.2 Where did U.S. maritime law come from?...4 Q What are the main features of English maritime law?...4 Q How did the English admiralty courts develop?...5 Q What is the origin of U.S. admiralty courts?...5 Q What is the extent of federal admiralty jurisdiction?...5 Maritime vs. Non-Maritime Law...6 Q 1.3 How is maritime law different from other law in the United States?...6 Maritime Law Status Today...7 Q 1.4 What is the status of maritime law in the United States?...7 Q Can maritime law extend to non-maritime activities?...7 Q What is the relationship between maritime law and state law in the United States?...8 xiii

2 Maritime Law Answer Book 2016 Chapter 2 Finding Maritime Law...11 Sources of Maritime Law...12 Q 2.1 Q 2.2 Q 2.3 Q 2.4 What are the sources of U.S. maritime law?...12 What areas of the law are associated with each source?...12 What is the basis of judge-made maritime law?...13 What are the major maritime legistative acts?...13 Impact of International Conventions...14 Q 2.5 What is the impact of international conventions on maritime law?...14 U.S. Agencies Regulating Maritime Law...16 Q 2.6 What are the primary agencies that help shape maritime law?...16 International Law Sources...17 Q 2.7 Q 2.8 Q 2.9 Where can international conventions and related guidance be found?...17 How uniform is international maritime law?...18 How uniform is U.S. maritime law?...18 Chapter 3 What Constitutes a Maritime Contract?...23 Maritime Contracts Defined...24 Q 3.1 What difference does it make if a contract is a maritime contract?...24 Q 3.2 Is there a general rule for when a contract is a maritime contract?...25 Q 3.3 Which contracts are usually considered maritime contracts?...25 Q 3.4 Which contracts are usually not considered maritime contracts?...25 Q Can a vessel charter be considered a financing agreement that is not a maritime contract?...26 Mixed Contracts...26 Q 3.5 Q 3.6 What are mixed contracts?...26 How are mixed contracts treated?...26 Formation...27 Q 3.7 Q 3.8 What formalities are required for maritime contracts?...27 When is a maritime contract formed?...27 xiv

3 Table of Contents Q 3.9 Does a written maritime contract need to be in a single document?...28 Implied Terms...29 Q 3.10 What are some other features of maritime contract law?...29 Enforcement...29 Q 3.11 How are maritime contracts enforced?...29 Saving to Suitors Clause...30 Q 3.12 What is the Saving to Suitors clause?...30 PART II FOR THE VESSEL OWNER Chapter 4 Vessel Ownership and Operations...33 Vessel Ownership Defined...34 Q 4.1 How are vessels owned?...34 Ownership vs. Operation...34 Q 4.2 Q 4.3 Q 4.4 What is the difference between ownership and operation?...34 Can someone other than the title holder(s) be considered the owner of the vessel?...34 What is a bareboat charter party or charter?...35 Leasing Types...35 Q 4.5 Q 4.6 Q 4.7 What other forms of charters are used?...35 Do vessel owners or operators subcontract some of their functions?...36 How effective are vessel owner, operator and manager structures?...36 Chapter 5 Vessel Registration...39 Definition...40 Q 5.1 What is vessel registration?...40 Q 5.2 What national flag does a vessel fly?...40 Q 5.3 Which countries register vessels?...40 xv

4 Maritime Law Answer Book 2016 Kinds of Registries...41 Q 5.4 Q 5.5 Q 5.6 What is the difference between an open registry and a national registry?...41 What is the origin of open registries?...41 What are the leading registries in the world?...41 Choosing a Registry...42 Q 5.7 How does an owner choose a registry?...42 Consequences of Registry Choice...42 Q 5.8 Q 5.9 What are the consequences of a vessel registry choice?...42 Can vessels be requisitioned by the countries that register them?...43 Requirements for Registry...43 Q 5.10 Q 5.11 Q 5.12 Q 5.13 What is generally required to register a vessel?...43 What is required for new construction vessels?...43 What is required for used vessels?...44 What is required from the transferring registry?...44 U.S. Registry Requirements...45 Q 5.14 Q 5.15 Q 5.16 Q 5.17 Q 5.18 Q 5.19 Q 5.20 Which U.S. Government agency maintains the U.S. registry?...45 Which vessels are eligible to be registered by the U.S. Coast Guard?...45 Does a vessel registered with the U.S. Coast Guard have to be built in the United States?...46 Which entities qualify as U.S. citizens eligible to register a vessel with the U.S. Coast Guard?...46 Can a limited liability company register a vessel with the U.S. Coast Guard?...46 Does a U.S.-registered vessel have to employ a U.S.-citizen crew?...47 What does the U.S. Coast Guard require to register a vessel?...47 Electronic Filing...48 Q 5.21 Does the U.S. Coast Guard accept electronic filings?...48 Re-Flagging...49 Q 5.22 What U.S. Government approvals are needed to re-flag a U.S. vessel as foreign?...49 xvi

5 Table of Contents Chapter 6 Building a Vessel...51 In General...52 Q 6.1 Q 6.2 Where are commercial vessels built?...52 Are there shipyards in the United States?...52 Vessel Construction Contracts...53 In General...53 Q 6.3 Q 6.4 Is a vessel construction contract a maritime contract?...53 Are standard vessel construction contracts available?...53 Contract Elements...53 Q 6.5 What are the typical elements of a vessel construction contract?...53 Payments...55 Q 6.6 When does the buyer usually pay for the vessel?...55 Passing of Title...55 Q 6.7 When does title usually pass from the shipyard to the buyer?...55 Security Interest...55 Q 6.8 Can a buyer obtain security in a partially completed vessel?...55 Applicable Law...56 Q 6.9 What law applies to U.S. shipbuilding contracts?...56 Supervision...56 Q 6.10 Who supervises the shipyard during construction?...56 Risk of Loss...56 Q 6.11 Which party has the risk of loss if a vessel is destroyed while under construction?...56 Buyer Rights If Builder Defaults...57 Q 6.12 What are the buyer s usual rights if the builder defaults?...57 Refunds...57 Q 6.13 What is a refund guarantee?...57 xvii

6 Maritime Law Answer Book 2016 Forcing a Delivery...58 Q 6.14 Can a buyer force a shipyard to deliver a vessel?...58 Buyer s Rights on Default...58 Q 6.15 What are the builder s usual rights if the buyer defaults?...58 Recording a Mortgage...59 Q 6.16 At what point can a U.S. vessel mortgage be recorded on a vessel under construction?...59 Risk Insurance...59 Q 6.17 Can a vessel purchaser insure against risks to, or related to, the vessel while under construction?...59 Chapter 7 Selling or Purchasing an Existing Vessel...61 Arranging a Sale...62 Q 7.1 How is the sale and purchase of a vessel usually arranged?...62 Elements and Form of Agreement...63 Q 7.2 Q 7.3 What are the basic elements of agreement for a vessel sale and purchase?...63 Is there a standard form usually used in a vessel purchase and sale?...63 Offer and Acceptance...63 Q 7.4 Can a contract to sell a vessel be formed without the execution of a contract document?...63 Q Is a vessel sale contract binding before a Memorandum of Agreement or MOA is signed by both parties?...64 Elements of a Vessel Sale...64 Usual Steps...64 Q 7.5 What are the usual steps in a vessel sale and purchase?...64 Sold As Is...65 Q 7.6 What condition must the vessel be in upon delivery from the seller to the purchaser?...65 Inspection of Vessel...66 Q 7.7 Does the purchaser usually inspect the vessel to be purchased?...66 xviii

7 Table of Contents Seller/Buyer Duties...66 Q 7.8 What are the primary duties of the purchaser and seller under a typical vessel sale contract?...66 Vessel Delivery...67 Q 7.9 What happens after the seller tenders the Notice of Readiness of Delivery?...67 Purchaser Rejection...67 Q 7.10 Can the purchaser reject a vessel delivered with a defect that arose after inspection and before delivery?...67 When Risk of Loss Moves to Buyer...68 Q 7.11 What happens if the vessel is damaged after the sale contract is signed, but before the closing?...68 Closing Documents...69 Q 7.12 Q 7.13 Q 7.14 What documents is the seller usually required to deliver to the purchaser at closing?...69 How are existing mortgages and liens usually handled in a vessel purchase and sale?...69 What happens if the purchaser discovers that the purchased vessel has liens after the purchase?...70 Completing the Sale...70 Q 7.15 Q 7.16 Q 7.17 At what point in a transaction is a vessel considered sold?...70 What are the duties of the parties if a sale is not consummated?...71 Under what conditions can a sale contract be cancelled without penalty to either party?...71 Tax Considerations...71 Q 7.18 Are there tax considerations in a vessel sale?...71 Chapter 8 Vessel Chartering or Leasing...73 Charters: In General...74 Q 8.1 Is it possible to have a legally binding oral charter?...74 Q 8.2 Do charters vary by the cargo carried or the type of vessel?...74 xix

8 Maritime Law Answer Book 2016 Kinds of Charters...75 Bareboat Charter...75 Q 8.3 What distinguishes a bareboat charter from other charters?...75 Space and Other Charters...75 Q 8.4 What is a space charter?...75 Implications of a Bareboat Charter...75 Q 8.5 Why is it important whether a charter is considered a bareboat charter?...75 Q 8.6 Will the vessel owner be liable to third parties harmed through the operation of the vessel if the vessel is bareboat-chartered?...76 Q 8.7 In a bareboat charter arrangement, who is usually responsible for the condition of the vessel?...77 Q 8.8 Will the vessel owner be liable to third parties harmed through the operation of the vessel if the vessel is time- or voyage-chartered?...77 Q 8.9 Does a vessel owner have to be concerned about liability when a vessel is bareboat-chartered?...78 Vessel Owner s Warranties...78 Q 8.10 Does a vessel owner generally warrant the vessel s seaworthiness?...78 Responsibilities of Owner and Charterer...79 Q 8.11 Is a voyage charterer or time charterer liable for the vessel s seaworthiness or negligence of the vessel s crew?...79 Q 8.12 Who is responsible if a change in law during a charter period requires a modification to the vessel under charter?...79 Q 8.13 Who pays for the vessel fuel under various charters?...80 Q 8.14 Who is responsible for the vessel fuel under various charters?...80 Bill of Lading...81 Q 8.15 How do bills of lading relate to charters?...81 Terms Commonly Used in a Charter...81 Q 8.16 What are some of the basic charter terms unique to shipping?...81 Q What is a hell or high water charter hire provision?...81 Q What is FIO or FIOS?...82 Q What are demurrage, dispatch and lay days?...82 xx

9 Table of Contents Q Q Q Q Q Q What is dead freight?...83 What is vetting?...83 What are Cesser Clauses?...83 What is a Both to Blame collision clause?...84 What is general average?...84 What is a New Jason clause?...85 Chapter 9 Crewing a Vessel...87 Labor Law in a Maritime Context...89 Q 9.1 Q 9.2 Q 9.3 Are maritime labor laws comparable to landside labor laws?...89 How did the protection of seamen by courts and the law come about?...89 What protections are provided to U.S. seamen by statute?...89 Definition of Terms...90 Q 9.4 Q 9.5 Who is a seaman?...90 What are crew shipping articles?...90 Paying Seamen s Wages...90 Q 9.6 Q 9.7 Q 9.8 Q 9.9 Q 9.10 Q 9.11 Does federal law set out the timing of the payment of seamen s wages on U.S.-flag vessels?...90 Does federal law regarding payment of seamen apply to foreign vessels?...91 When can a vessel owner refuse to pay seamen s wages?...91 Do federal seamen wage statutes apply to crew members on fishing vessels?...91 Do federal seamen wage statutes apply to U.S.-flag vessels engaged in the U.S. coastwise trade?...91 Do federal seamen wage statutes apply to U.S.-citizen seamen discharged in a foreign port?...92 Overtime...92 Q 9.12 Are seamen entitled to overtime by law?...92 Whistleblower Rights...93 Q 9.13 Are seamen protected if they report vessel safety violations?...93 No Right to Strike...93 Q 9.14 Can seamen strike?...93 xxi

10 Maritime Law Answer Book 2016 The Jones Act...93 Origin and Definition...93 Q 9.15 Q 9.16 What is the Jones Act with respect to seamen?...93 What is the origin of the Jones Act for seamen?...94 Seamen s Benefits...94 Q 9.17 Q 9.18 What is maintenance and cure?...94 Who qualifies for seamen s benefits under maritime law?...94 Not Exclusive Remedy...95 Q 9.19 Is the Jones Act a seaman s exclusive remedy for injury or death?...95 Damages...95 Q 9.20 What damages are recoverable under the Jones Act?...95 Required Training...95 Q 9.21 Q 9.22 Q 9.23 What training are seamen required to have?...95 Which credentials are required for mariners?...96 Which regulatory bodies establish the training standards?...96 Maritime Labour Convention...96 Q 9.24 Q 9.25 Q 9.26 Q 9.27 Q 9.28 Q 9.29 What is the Maritime Labour Convention?...96 What is the substance of the Maritime Labour Convention?...97 What vessel certification does the Maritime Labour Convention require?...97 Do vessels registered in countries that have not ratified the Convention have to comply with the Convention?...97 Which countries have ratified the Maritime Labour Convention?...98 Has the United States adopted the Maritime Labour Convention?...98 Chapter 10 Insuring a Vessel Insurable Risks Q 10.1 What risks does a vessel face that insurance might cover? Applicable Law Q 10.2 What law applies to marine insurance? Q 10.3 How are marine insurance contracts interpreted? xxii

11 Table of Contents Definitions Q 10.4 What does it mean that marine insurance is usually pay to be paid? Q 10.5 What is uberrimae fidei? Marine Insurance Providers Q 10.6 Q 10.7 Which entities supply marine insurance? What is the International Group of P&I Clubs? Kinds of Marine Insurance Q 10.8 What are the main types of marine insurance? Policy Clauses Owner Warranties Q 10.9 What warranties does a vessel owner usually give to the insurance provider? Prompt Notice Q Does an insured need to give notice of a claim? Insurable Interest Q Is it necessary that the insured have an insurable interest? Losses Covered Q Q What losses does protection and indemnity insurance cover? What losses does hull and machinery insurance cover? Actual vs. Constructive Total Loss Q What is a constructive total loss? Institute Clauses Q What are Institute Clauses or Institute Warranties? Collisions Q Do hull and machinery policies cover vessel collisions? Wreck Removal Q Is the insurer liable to pay for wreck removal in the event of a serious accident? Subrogation Rights Q Do marine insurance policies contain subrogation rights? xxiii

12 Maritime Law Answer Book 2016 War Risks Q Q Q Do marine insurance policies cover risks arising from war or violence? How do vessel owners cope with war- or terrorism-related risks? Does the U.S. Government provide war risk insurance to vessel owners? Pollution Risks Q Which marine insurance policies cover pollution-related risks? Other Kinds of Insurance Q What other types of marine insurance are available? Chapter 11 Sources of Government Regulation of Vessels Which Countries Can Regulate Vessels? Port vs. Flag State Q 11.1 Q 11.2 Which countries regulate vessels? What is the relationship between flag-state and port-state vessel regulation? Limitations on U.S. Port-State Regulation Q 11.3 Q 11.4 What are the limits of U.S. port-state regulation with respect to foreign vessels? Can the U.S. Government regulate the foreign vessel cruise industry serving the U.S. market? Applicable Regulation International Standards Q 11.5 What is the source of standards applicable to vessels? Q 11.6 What is the IMO? Q 11.7 What are the principal international maritime conventions? Q 11.8 How are international conventions implemented in the United States? Q 11.9 How are international maritime conventions enforced in practice? Q Is there an international convention dealing with polar conditions? xxiv

13 Table of Contents U.S. Regulators Q Which federal agencies are involved in vessel inspections? Chapter 12 Environmental Regulation Regulated Vessel Discharges Q 12.1 Which vessel discharges and emissions are regulated? Applicable U.S. Laws In General Q 12.2 What are the primary federal environmental laws governing vessels? Oil Pollution Regulation OPA Q 12.3 What are the main sources of law governing oil pollution from vessels? Q 12.4 What is the rule on the discharge of oil into U.S. waters? Q 12.5 What is the U.S. legal standard of a harmful quantity of oil? Q 12.6 What is the relationship between OPA 90 and the Clean Water Act? Q 12.7 What are the major areas covered in OPA 90? Q 12.8 What is the relationship between OPA 90 and state laws? Q 12.9 Which other federal laws may potentially apply to oil spills? Regulation of Other Water Pollutants Q What else may not be discharged into U.S. waters under the Clean Water Act? General Liability Theory Q What is the general liability theory of OPA 90? Responsible Party Q Q Q Q Who is a responsible party for an oil spill from a vessel? Does the vessel owner remain a responsible party when a vessel is demise-chartered to a third party? Is the lender/owner under a lease-finance arrangement a responsible party? Does a responsible party have to be negligent to be liable for an oil spill? xxv

14 Maritime Law Answer Book 2016 Liability Limitations Q Q Q Is there a limit to the costs and damages payable by the responsible party to the federal government? Are the OPA 90 limits on liability subject to exceptions? Is there a limit to the costs and damages payable by the responsible party to other persons? Punitive Damages Q Q Can a responsible party be exposed to punitive damages for an oil spill? How does the Limitation on Liability Act work in an oil spill context? Defenses to Liability Q Q Does a responsible party have any defenses in the event of a spill? Do vessel owners or operators have to be able to show an ability to pay potential OPA 90 costs and damages? Criminal Sanctions Q Could criminal sanctions apply to oil spills? Removal Actions Q Q Who is responsible for undertaking removal actions? Who is responsible for coordinating a spill response? Oil Spill Liability Trust Fund Q What is the Oil Spill Liability Trust Fund? Practical Concerns Regarding Oily Water Discharges Q Q Q How concerned should vessel owners and operators be about operational discharges of oil and oily water? What is the cause of continuing oily water discharge violations? What is the potential impact of an oily water discharge prosecution? Ballast Water Discharges Sources of Law Q What are the main sources of law governing ballast water discharges from vessels? xxvi

15 Table of Contents Why Regulated Q Why is ballast water regulated? High Seas Ballast Water Exchange Q Q What are the basic requirements of the National Invasive Species Act of 1996? Is high seas ballast water exchange always mandatory under NISA? Ballast Water Management Program Requirement Q Q Q What actions has the U.S. Coast Guard taken since making high seas ballast water exchange mandatory? What does the Coast Guard s 2012 ballast water rule require? When will vessels be required to have Coast Guard approved ballast water management systems? EPA Requirements Q Q Q Q How is the Environmental Protection Agency regulating ballast water? What discharge limits does the Vessel General Permit contain? Does the Vessel General Permit apply to small commercial vessels? How well coordinated are Coast Guard and EPA ballast water enforcement regimes? International Requirements Q What international requirements apply to ballast water discharges? Air Emissions from Vessels Q What are the main sources of law governing air emissions from vessels? Required Certificates and Records Q Q What certificates are vessels required to have to comply with Annex VI? Are vessel operators required to maintain Annex VI compliance records? Inspections Q Are vessels subject to inspection for Annex VI compliance? xxvii

16 Maritime Law Answer Book 2016 Q What should a vessel owner do when there is no compliant fuel available? ECAs Q Q What is an ECA? Where are the MARPOL Annex VI ECAs? Chapter 13 Vessel Security, Piracy and Stowaways In General Q 13.1 Who is responsible for the security of the vessel? Regulation: MTSA and ISPS Adoption Q 13.2 Q 13.3 How did the events of 9/11 affect government regulation of vessels? When did MTSA and ISPS go into effect? MTSA and ISPS Requirements Q 13.4 Q 13.5 Q 13.6 What is the purpose of MTSA and ISPS? What are the general requirements of MTSA? How does ISPS relate to MTSA? Vessel Security Plan Q 13.7 Q 13.8 Which vessels must have vessel security plans? What are the basic elements of a vessel security plan? International Ship Security Clearance Q 13.9 What is the consequence if a vessel arrives in port without a valid International Ship Security Certificate? Crew Shore Leave Q Q How did MTSA affect the ability of vessel crews to go ashore? What notice of arrival requirements apply to vessels arriving in U.S. waters? Piracy Defined Q What is piracy? Q How prevalent is piracy around the world? xxviii

17 Table of Contents U.S. Regulation Q Q Q Q What does U.S. law provide with respect to piracy? What definition of piracy as defined by the law of nations have U.S. courts applied? Are there any proposals to change the U.S. definition of piracy? Which country has jurisdiction to prosecute an act of piracy on the high seas? Right of a Vessel s Crew to Defend Itself Q Q What rights does a vessel crew have to defend itself from piracy? What regulatory requirements apply to U.S.-flag vessels regarding defending against piracy? Ransom Demands and Insurance Q Q Are vessel owners entitled to pay pirates ransom to recover captured vessels and crew? Can a vessel owner obtain insurance to cover ransom payments? Piracy vs. Barratry Q How is piracy different from barratry? Stowaways Q Who is responsible for vessel stowaways? Chapter 14 Vessel Classification Defined Q 14.1 What is vessel classification? Classification Societies Q 14.2 Q 14.3 Q 14.4 Q 14.5 How did vessel classification get started? How are vessel classification societies regulated? Which are the major vessel classification societies? How important are classification societies to the worldwide maritime industry? Classification Certificates Q 14.6 How does the classification system work? xxix

18 Maritime Law Answer Book 2016 Q 14.7 What sort of certificates are issued by classification societies? Notations Q 14.8 What notations are used by classification societies to indicate compliance with society rules? Government Regulation and Societies Q 14.9 Q Q Is a classed vessel subject to government inspection? Are certain government inspections delegated to classification societies? Does vessel classification substitute for good vessel owner practices? Class Liability for an Accident Q Are vessel classification societies liable if the vessel is in an accident? Chapter 15 Economic Trading Restrictions The Cabotage Jones Act Definition of Cabotage Q 15.1 What is cabotage? The Jones Act Q 15.2 Q 15.3 Q 15.4 Q 15.5 Q 15.6 What is the cabotage Jones Act? What does the Jones Act restrict? Which countries have maritime cabotage laws? What is the origin of the Jones Act s restrictions? What is the purpose of the Jones Act? Other U.S. Cabotage Laws Q 15.7 Q 15.8 Are there other U.S. cabotage laws like the Jones Act? Is there a Jones Act for fishing? Penalties Q 15.9 Q What are the penalties for violating the Jones Act and related laws? Can a Jones Act vessel lose its eligibility? Regulating Agencies Q Which federal agencies have regulatory authority in connection with the Jones Act? xxx

19 Table of Contents Qualifying Vessels Q Q Q Which vessels can qualify under the Jones Act? Are there any exceptions to the U.S.-build requirement in the Jones Act? When is a vessel disqualified by being rebuilt foreign? U.S. Citizenship Requirements Q Q Q Q Who can qualify to own and operate a Jones Act vessel? Are there exceptions to the Jones Act U.S. citizenship requirements? Does the Jones Act prohibit foreign investment in U.S. maritime companies? Can a public company qualify as a Jones Act U.S. citizen? Waiver Q Q Can the Jones Act be waived? Is there a waiver process for small passenger vessels? Offshore Application of the Jones Act Q Q Does the Jones Act extend offshore? Does the Jones Act extend to offshore alternative energy projects? Definitions Cruise to Nowhere Q What is a cruise to nowhere? Marine Highway Q What are marine highways? Fair Inference Rule Q What is the fair inference rule? Chapter 16 U.S. Government Support for U.S. Vessels Background Q 16.1 Why does the U.S. Government support privately owned vessels? xxxi

20 Maritime Law Answer Book 2016 Government Support Programs General Q 16.2 What are the main U.S. Government support programs for foreign trading vessels? Maritime Security Program Q 16.3 What is the Maritime Security Program? Q What is the history of the Maritime Security Program? Q How does the Maritime Security Program work? Q What payment does the U.S. Government provide under the Maritime Security Program? Q Which vessels are eligible for the Maritime Security Program? Q When are vessels selected for the Maritime Security Program? Q Who is eligible for the Maritime Security Program? Q Is the Maritime Security Program limited to U.S. citizens? Q Do Program vessels have to be built in the United States? Q Can a Maritime Security Program vessel operate in the U.S. domestic trade? Q Are Program vessels committed to the U.S. Government in times of national emergency? Q Is it possible to enter into a VISA Agreement and commit vessel capacity without having a Maritime Security Program vessel? Q Are Maritime Security Program Agreements transferable? Q What is the inspection standard applicable to foreign-built vessels entering the Maritime Security Program? Cargo Preference Q 16.4 What is cargo preference? Q What are the current cargo preference laws and requirements? Q What is the purpose of cargo preference? Q How important is cargo preference to the maintenance of a U.S.-flag fleet? Q How does cargo preference relate to the Maritime Security Program? Q Does a U.S.-flag foreign-built vessel qualify to carry U.S. Government reserved cargoes? xxxii

21 Table of Contents Q Can a foreign-built vessel be modified outside the United States and qualify to carry U.S. Government reserved cargoes? Q Are U.S.-flag rates limited under cargo preference law? Q Does cargo preference apply to the import of goods used on federal highways? Q What is the McCumber Amendment? Vessel Repair Duty Q 16.5 What is the vessel repair duty applicable to U.S.-flag vessels? Q Does the repair duty apply to all countries? Q Does the repair duty apply to all foreign shipyard work? Q What if the U.S.-flag vessel never returns to the United States? Q How does a vessel owner apply for relief from the vessel duty? Chapter 17 Taxes The Tonnage Tax Q 17.1 What special tax provisions apply to U.S.-flag vessel owners? Q How does the tonnage tax work? Q Does the tonnage tax apply to all vessel-related income? Q How does a vessel owner or operator elect to operate under the tonnage tax? Q Can a vessel owner or operator switch back and forth between the tonnage tax and federal income tax? Q Can a partnership or a limited liability company vessel owner take advantage of the tonnage tax? Tax Provisions for Resident Owners of Foreign-Flag Vessels Q 17.2 What special tax provisions apply to U.S. resident owners of foreign-flag vessels? Q What is Subpart F? Q What is the history of foreign-source income taxation for U.S. resident vessel owners? Q What is foreign base company shipping income? Q Might foreign shipping-related income still be encompassed by Subpart F? xxxiii

22 Maritime Law Answer Book 2016 PART III FOR THE VESSEL BANKER Chapter 18 Ownership Considerations Vessel Ownership Considerations for a Banker Q 18.1 What should a banker consider before owning a vessel? Potential Liabilities Q 18.2 Is a banker open to all potential liabilities arising from a vessel if it is the vessel s owner? Q 18.3 What other liabilities might affect a banker as owner? Shield for Non-Managers Q 18.4 How does federal law shield a banker as vessel owner? Other Considerations Q 18.5 What else should a banker consider before owning a vessel? Chapter 19 Maritime Liens Definition Q 19.1 What is a maritime lien? Recordation Q 19.2 Must maritime liens be perfected by recordation? Q Can a maritime lien be created by agreement? Pre-Existing Liens Q 19.3 When a vessel is sold, does that extinguish existing maritime liens on that vessel? Termination of a Lien Q 19.4 How is a maritime lien terminated or destroyed? What a Lien Applies To Q 19.5 Does a maritime lien apply to the vessel s equipment and what the vessel might earn? Applicable Law Q 19.6 What law applies to the creation of maritime liens? Q What are the relevant factors courts use to determine the applicable law in admiralty? xxxiv

23 Table of Contents Q 19.7 What law applies to maritime liens in the United States? Q Can the choice of law have significance with regard to maritime liens? Maritime Lien Act Q Which claims give rise to maritime liens under the Maritime Lien Act? Necessaries Q Q What is the meaning of necessaries? Can anyone order necessaries on behalf of a vessel and have such order give rise to a maritime lien? Lien Prioritization Q Q Q How are maritime liens prioritized among potential vessel claims? How are maritime liens prioritized within each rank category? Can maritime liens be filed and recorded with the Coast Guard? Lien Enforcement Q 19.8 Q 19.9 How are maritime liens enforced? Who may assert a maritime lien against a vessel? Chapter 20 Vessel Mortgages In General Q 20.1 What is a ship mortgage? Preferred Ship Mortgages Defined Q 20.2 What makes a ship mortgage a preferred ship mortgage? Consequences of Preferred Ship Mortgage Status Q 20.3 What is the consequence of a ship mortgage being a preferred ship mortgage? Governing Law Q 20.4 What law governs preferred ship mortgages in the United States? xxxv

24 Maritime Law Answer Book 2016 Requirements for Status Q 20.5 What requirements must be satisfied to create a valid preferred ship mortgage under U.S. law? Recording Requirements Q 20.6 Q 20.7 Q 20.8 Q 20.9 What are the recording requirements for a U.S. preferred ship mortgage? How is a U.S. preferred ship mortgage actually recorded? Can the Coast Guard reject a mortgage filing as defective? What does it mean for a filing to be in substantial compliance with the recording requirements? Citizenship Requirements Q Does the mortgagee have to be a U.S. citizen for a U.S.-flag vessel mortgage? Special Requirements for Fishing Vessel Over 100 Feet Q Q What are the requirements for the mortgagee of a fishing vessel over 100 feet in length? Can a mortgage on a non-u.s. vessel be a preferred mortgage under U.S. law? How Does It Work? Q Q Q How does a preferred ship mortgage work? Can a preferred ship mortgage cover more than one vessel? Were vessel mortgages recognized as creating maritime liens under common law? Terms of Preferred Ship Mortgages Q Q What are the usual terms contained in a preferred ship mortgage? Is a preferred ship mortgage a stand-alone document? Mortgage Enforcement Q Q How are preferred ship mortgages enforced in the United States? What actions does a court take to enforce a mortgage? Priority Against Other Claims Q Q What is the priority of a preferred ship mortgage with regard to other claims against the vessel? What is included within the coverage of a preferred ship mortgage? xxxvi

25 Table of Contents Assignment Q Can a preferred ship mortgage be assigned? Enforcement by Non-Citizen Q How does a non-citizen mortgagee enforce a preferred ship mortgage on a U.S.-flag vessel in the coastwise trade? Termination and Release Q Q How is a preferred ship mortgage terminated? Can a mortgagee release some but not all of the vessels under a preferred fleet mortgage? Enforcing a Foreign Mortgage Q Are the procedures for foreign preferred ship mortgages the same? Chapter 21 What a Banker Needs to Know About Marine Insurance In General Q 21.1 Does a mortgagee have an insurable interest in a vessel? Covered by Owner s/operator s Policy Q 21.2 How is a lender s interest protected under marine insurance in practice? Q 21.3 What steps does a lender take to be protected under an owner/operator s marine insurance policies? Q What terms are found in an Assignment of Insurances? Q What provisions are commonly found in a Broker s Letter of Undertaking? Q How is an Assignment of Insurances negotiated? Impact of Default by Policy Owner Q 21.4 Q 21.5 Q 21.6 Q 21.7 Is a banker s interest in a vessel protected if the vessel owner or operator defaults under the insurance policy? Does an additional assured have rights under the insurance policy? How can a banker protect its interest in the vessel from the possibility of vessel owner or operator default? How does mortgagee s interest and innocent owner s interest insurance work? xxxvii

26 Maritime Law Answer Book 2016 Pollution Claims Q 21.8 Can a mortgagee protect its interest from pollution claims? Vessel Under Construction Q 21.9 How can a banker protect its interest in a vessel under construction? Impact of Insolvency Q Q Does marine insurance continue to apply if the insured becomes insolvent? How does a lender get the benefit of marine insurance when buying a marine loan package from a previous lender? Chapter 22 Bankruptcy In General Q 22.1 What makes maritime bankruptcies challenging? Impact of a Bankruptcy Filing Q 22.2 Does the filing of a bankruptcy petition in the United States affect ongoing admiralty proceedings against the debtor s property? Q 22.3 Does the filing of a bankruptcy petition terminate maritime liens? Bankruptcy Court Jurisdiction Over Debtor s Property Outside of United States Q 22.4 Does a U.S. bankruptcy court have jurisdiction over debtor s property outside the United States? Q 22.5 Are vessel mortgagees prevented from enforcing their mortgages by the bankruptcy automatic stay? Q 22.6 How can a debtor protect against vendors arresting vessels in foreign jurisdictions? Q Can a lien holder subject to the bankruptcy court jurisdiction protect its interest when the vessel is arrested in a foreign court? Q What are the critical steps in balancing the bankruptcy case with the foreign vessel arrest case? Over Maritime Liens Q 22.7 Does a U.S. bankruptcy court have jurisdiction over maritime liens? xxxviii

27 Table of Contents Q 22.8 Do maritime liens arise in the ordinary course after the filing of a bankruptcy petition? Over Maritime Liens Outside of United States Q 22.9 Does a U.S. bankruptcy court have jurisdiction over maritime liens outside the United States when the creditor has not filed a claim? Impact on Payments for Necessities Q Are payments made by a debtor for vessel necessities prior to the filing of a bankruptcy petition voidable preferential transfers? Charter Obligations Under Bankruptcy Q Must the bankrupt vessel owner continue to perform existing charters of vessels? Status of Bareboat Charters Q How are vessels bareboat-chartered to the bankrupt debtor treated by bankruptcy courts? Priority and Sale Q Does a bankruptcy court apply the order of priority of maritime liens otherwise applicable to such liens? Q Does a U.S. bankruptcy court have the authority to sell a vessel free and clear of all liens? Q What are the unique risks presented by a maritime-related bankruptcy? Q How can a vessel owner protect its vessels from arrest when faced with competing claims for payment in a maritime-related bankruptcy? Q How are maritime companies valued in a U.S. bankruptcy? Chapter 23 Federal Government Vessel Financing Programs U.S. Government Financing Programs Q 23.1 What financing programs does the U.S. federal government maintain to support U.S.-flag shipping? Title XI Government Guarantee Financing In General Q 23.2 What is Title XI government guarantee financing? Q How active has the Title XI program been? xxxix

28 Maritime Law Answer Book 2016 Approval/Denial Timing Q How long does the Title XI application review process take? Eligible Vessels and Technology Q Q Which vessels are eligible for Title XI guarantee financing? What types of shipyard technology investments are eligible for Title XI guarantee financing? Actual Cost Defined Q How does the law define actual cost which can be financed? Capital Construction Fund In General Q 23.3 What is the Capital Construction Fund program? Federal Agencies Q Which federal agencies administer CCF? Who Can Enter into CCF Agreements? Q Q How many companies are parties to CCF agreements? Which persons are eligible to enter into a CCF agreement? Permitted Sources and Uses of Funds Q Q Q Q Q Q Q Q Q What are permitted sources of CCF deposits? What are permitted CCF uses of funds? Is there an exception for the use of CCF for certain short sea shipping activities? Can a CCF be utilized for offshore supply vessels and crew boats? Is there a penalty if a vessel built with CCF funds is used in the prohibited contiguous trade? How long can CCF fund balances be maintained without being used? Can CCF be utilized to refinance a vessel? Can CCF agreements and fund balances be transferred? What is the penalty for unqualified CCF withdrawals? Capital Reserve Fund Program Q 23.4 What is the Capital Reserve Fund program? Q What are CRF qualified purposes? xl

29 Table of Contents Q Q What is the tax benefit of a CRF? How long can CRF funds be kept on deposit? PART IV FOR SHIPPERS OF GOODS AND COMMODITIES Chapter 24 Players and Terms in International Cargo Shipping Players in International Shipping Four Categories Q 24.1 What players are involved in the world of international shipping? Player Definitions Q Q Q Q What sort of persons are vessel interests? Is an ocean carrier the same as a shipper? What is an ocean tramp? What is an ocean transportation intermediary or OTI? Brokers Q What role do brokers play? Cargo Surveyors Q What functions do cargo surveyors perform? Chart of Involved Parties Q Who are the other parties involved in maritime transportation? Trade Terms Source Q 24.2 What is the source of common international trade terms? Terms Specifically Applicable to Maritime Transport Q Which terms apply specifically to maritime transport? Terms Applicable to All Modes of Transport Q Which terms apply to all modes of transport? xli

30 Maritime Law Answer Book 2016 Chapter 25 Government Economic Regulation of Liner Shipping Federal Laws Applicable to Liner Shipping Q 25.1 What are the U.S. economic laws governing liner shipping? Definitions Q 25.2 Q 25.3 Q 25.4 What is a liner? What is an ocean tramp service? What is a conference? Liner Antitrust Immunity Q 25.5 Q 25.6 Q 25.7 What antitrust immunity has been accorded ocean liner companies? How has antitrust immunity changed over time? What antitrust immunity is currently available to ocean carriers? Federal Maritime Commission (FMC) Q 25.8 Which government agency regulates ocean common carriage? FMC Filings Q 25.9 What kinds of agreements must be filed with the FMC? Q Do tariffs have to be filed with the FMC? Q Do service contracts have to be filed with the FMC? Q Do marine terminal operator agreements have to be filed with the FMC? Q Do charter parties have to be filed with the FMC? Q What is the effect of filing a subject agreement with the FMC? Q What is the process for FMC review of common carrier agreements? Pre-Filing Discussion Q Q May ocean common carriers discuss issues related to their service prior to providing notice to the FMC? Have tariffs become irrelevant with the prevalence of service agreements? FMC Enforcement Authority Q What enforcement authority does the FMC have? xlii

31 Table of Contents Other Regulated Entities Q Q Q What other ocean shipping matters are subject to federal economic regulation? How are ocean transportation intermediaries regulated? How are controlled carriers regulated? Just and Reasonable Rates Q Q What is a just and reasonable level with regard to rates or charges? What happens if a controlled carrier maintains rates or charges below a just or reasonable level? Chapter 26 Bills of Lading Definition Q 26.1 What is a bill of lading? Carriers and Shippers Q 26.2 Who are the parties to a bill of lading? Q 26.3 Who issues the bill of lading? Q 26.4 Can an ocean transportation intermediary such as a Non-Vessel Operating Common Carrier be considered a carrier? Q 26.5 Can an ocean transportation intermediary such as a freight forwarder be considered a carrier? Governing Law Q 26.6 What law governs ocean bills of lading in U.S. trade? Q 26.7 How do the Harter Act, COGSA and Pomerene Act apply to today? Q 26.8 What are the Hague, Hague-Visby and Hamburg rules? Q 26.9 What are the Rotterdam Rules? Q How do the Rotterdam Rules compare to COGSA? Q Does COGSA apply to inland transportation? Negotiable vs. Non-Negotiable Q What is the difference between a negotiable bill of lading and non-negotiable bill of lading? Q How does the type of bill of lading affect who is the proper recipient of the goods? Q What is a straight bill of lading? Q What is a through bill of lading? xliii

32 Maritime Law Answer Book 2016 Carrier Duties Under a Bill of Lading Q What is the general duty of the carrier under a bill of lading? Required Information Q Q What information must a bill of lading contain? How are bills of lading generally interpreted? Chapter 27 Liabilities and Defenses of Carriers Carrier Liabilities Q 27.1 Q 27.2 Q 27.3 Q 27.4 Q 27.5 Can a carrier impose exculpatory clauses on a shipper under current law? Can a carrier require a shipper to obtain cargo-related insurance for the benefit of the carrier? Is a carrier strictly liable for loss or damage to cargo under COGSA? Can an ocean carrier be liable formisdelivery of goods? Can the ocean carrier delegate its duty to load and stow the cargo on the vessel? Carrier Defenses Q 27.6 In general, what defenses does a carrier have under COGSA? Q Is the carrier liable for losses where the vessel is unseaworthy? Q Is the carrier liable for losses where the crew is inadequate or makes mistakes? Q How does a carrier assert a defense against a claim of vessel unseaworthiness? Q Is the carrier responsible for properly caring for the cargo on board the vessel? Q Does the carrier have a defense in the event of a vessel fire? Q What is the perils of the sea defense? Q Are carriers responsible when the goods themselves have inherent defects? Q Is there a catch-all defense available to carriers? Q Can a carrier contract away its COGSA defenses? Q Does a carrier potentially lose its defenses if the vessel engages in a deviation? xliv

33 Table of Contents Multiple Causes of Accident Q 27.7 How is fault assessed when there is more than one accident cause? Measuring Damages Cargo Damaged or Lost Q 27.8 Q 27.9 How are damages measured when cargo is damaged or lost? Is a shipper stuck with COGSA limits of liability? Delayed Delivery Q Can a shipper recover damages for a delivery delay? Making a Claim Q What does a shipper have to do to make a claim for damaged cargo? COGSA Time Limits Q What is the time limit for recovery pursuant to COGSA? Chapter 28 Marine Cargo Insurance Definition Q 28.1 What is marine cargo insurance? Who Can Obtain? Q 28.2 Who can procure marine cargo insurance? Types of Insurance Q 28.3 Q 28.4 Q 28.5 Q 28.6 What types of cargo insurance policies are available? Do all-risks and named peril insurance policies work the same way? Which marine cargo insurance policy offers the broadest coverage? What marine cargo insurance policy offers the least coverage? Standard Insurance Terms Q 28.7 Q 28.8 Q 28.9 What are the Institute Clauses A, B and C? What is with average? How are war-related risks covered? xlv

34 Maritime Law Answer Book 2016 Coverage Differences Q What other circumstances are covered by Institute Clauses? Q When does marine cargo insurance begin to apply and when does it end? Q Does a cargo owner need to arrange insurance for every shipment? Q Are all cargo insurance policies the same for all cargoes? Q Are cargo owners limited to Institute clauses? Procuring Marine Cargo Insurance Q How does a cargo owner procure cargo insurance? Q Are cargo policies standard? Cargo Owner s Obligation When Loss Discovered Q What is the cargo owner s obligation with regard to a claim? Chapter 29 Bulk Cargo Shipping In General Q 29.1 Q 29.2 What sort of cargoes are transported in bulk? What agreement is usually utilized to ship bulk cargoes? Voyage Charter Typical Terms Q 29.3 What are the typical terms in a voyage charter? Loading/Discharging Bulk Cargoes Q 29.4 Who is responsible for arranging for the loading and discharging of bulk cargoes? Timing of Delivery Q 29.5 How is the timing of the delivery of bulk cargoes handled in charters? Safe Place to Load/Unload Q 29.6 Under a voyage charter, who is responsible for ensuring that the vessel will have a safe place to load and unload its cargo? Late Vessels and Cargo Shortage Q 29.7 Can the charterer cancel a charter if the vessel is late? Q 29.8 What happens when the shipper fails to ship the agreed amount of cargo? Q 29.9 Does COGSA apply to charters for the carriage of bulk cargo? xlvi