A question arose as to whether a buyer is obliged to register its vessel and, if so, at what stage of a sale and purchase transaction it is obliged so to do.

By way of context, a disgruntled owner and his boat builder had agreed a settlement whereby the owner’s three year old superyacht, which had spent more time under repair than it had at sea, was to be sold back to the boat builder. Due to the unfamiliarity of the boat builder with the construction of such large yachts, the yacht had suffered a stream of significant mechanical defects since its delivery to the buyer culminating in an exhaust fire whilst on a trial run offshore Florida.

Initial advice was that in order to avoid sales tax the yacht should be moved into international waters. However, given the condition of the yacht that was considered an option of last resort and (as a result of the advice provided) it was decided to deliver the yacht in its Floridian berth.

The yacht was purchased by the boat builder for cash and aside from the discharge of a mortgage by the existing owner’s lender, the yacht was otherwise unencumbered at the time of the sale.

At closing, the seller delivered to the boat builder all of the delivery documentation required under the terms of the settlement agreement signed between the parties. This documentation included a bill of sale and a “clean” Transcript of Register issued by the yacht’s ship registry.

It became apparent that whilst the seller had provided all documents required in order for the buyer to proceed with the registration of the vessel, the boat builder (either as a result of its own, or its lawyers’ oversight, unfamiliarity with registration procedures, inaction or even intention), had not taken any steps to apply for the transfer of ownership of the yacht on the register.

Notwithstanding the failure (for whatever reason) of the boat builder to initiate the recordation of the transfer of ownership in the yacht in its (or a nominee’s ownership), the seller proceeded with the delivery as to fail to have done so would have risked placing it in repudiatory breach.

The question was posed as to what (if any) potential impact the boat builder’s failure to register its title on the ship register may have on the seller.

Registration – General Principles

The freedom of the high seas is one of the fundamental principles of public international law. Such freedom means the unrestricted access of vessels belonging to all nations, to all parts of the sea that are not included in territorial waters of a State. However, in order that the principle of unrestricted access to the high seas should not lead to a situation of anarchy and/or abuse, international law lays down a number of rules providing a framework for the exercise of that freedom but looks to individual States to ensure and enforce compliance with those rules through the jurisdiction exercised over their national vessels.

A cardinal rule is that jurisdiction over a vessel on the high seas resides solely with the State to which the vessel belongs. A second rule which is a corollary of the first is that all vessels using the high seas must possess a national character.

A vessel possessing no nationality – a stateless ship – enjoys no protection in international law. It is unable to engage in lawful trade since ports will deny entry to it or even refuse to let it leave.

The term generally used to describe the attribution of national character to a vessel is “registration”, meaning the entry of the vessel in the public records of a State. Thus, for example, for the purpose of many international shipping conventions, registration in a particular State is a sufficient connecting factor for regarding the vessel as possessing that State’s nationality.

Every State maintains registers in which vessels possessing the nationality of that State and flying its flag are entered. Individual States fix the conditions for the entry of vessels in their registers.

Public v Private Law

Registration means the entering of a matter in the public records. Registration is generally – but not always – not only a precondition for but also the test for a vessel’s nationality. This is the public law function of registration as opposed to the private law function. Public law is concerned with the framework of government, the function of public officials and adjustment of relations between the individual and the State. Private law is concerned with the adjusting of relations and securing of interests of and settling of disputes between individuals.

As such, it might be said that public law views a vessel in the dynamic sense of a floating community carrying with it the sovereignty of the State whose flag it flies, whilst private law sees the vessel in the static sense of a chattel, an item of moveable property over which one or more persons may have rights which the law considers worthy of protection.

The Merchant Shipping Act of 1894 explained the differences between public and private law as follows:-

“There are two points of public policy which may be suggested in these acts relating to shipping: the one a policy regarding the interests of the nation at large, relating to the question who shall be entitled to the privileges of the British flag; the other policy being similar to that which gave rise to the evidence of title in those who deal with the property in question.”

The role of the Bill of Sale – Transfer of title and risk

The bill of sale is the document used to evidence and effect transfer of ownership (i.e. property or title), in a vessel from a seller to a buyer. The delivery of the bill of sale (usually in exchange for payment of the purchase price), will operate to transfer ownership of the vessel from the seller to the buyer.

It is the universally recognised operation of the bill of sale as the document which transfers title that is at the crux of the issue in question, because what this means is that registration of a vessel cannot then be conclusive evidence of title to that vessel. In The Bineta the unpaid owner of a yacht retained possession in exercise of the unpaid seller’s lien despite the yacht being registered by and in the name of the buyer. The unpaid owner subsequently sold the yacht to a third party in whose favour it executed a new bill of sale and the court held the owner could pass title to the third party.

Accordingly, if one takes the case in point, whilst registration ensures that the owner’s title is valid against third parties, when a bill of sale is delivered by a seller to a buyer title and risk in a vessel is passed from the seller to the buyer, whether the buyer enters its details on the register or not.

As evidence of the passing of title and risk a protocol of delivery and acceptance will be signed by the seller and the buyer in duplicate originals and dated and timed by the parties which evidences the exact moment at which title and risk in the vessel has passed.

Once the bill of sale has been delivered and title and risk transferred to the buyer, it is then for the buyer to register its interest in the vessel. Notwithstanding the transfer of title, the vessel may still appear on the register as owned by the seller until the register is changed or the vessel deleted from the register. This could lead to seller being sued by a third party (searching the register) with a claim against the vessel that might have only arisen after delivery. However, assuming the claim in question did in fact arise subsequent to the transfer of title in the vessel, the seller would be able to show it is not liable because title and risk had been transferred to the buyer by the bill of sale and that transfer evidenced by the parties’ execution of the protocol of delivery and acceptance.

The fact that a vessel remains registered in a seller’s name following completion of a sale is not that unusual if one considers that when a vessel is sold and moved to another flag the seller is usually given up to a month to delete the vessel from its previous registry.

Registration – Immediate or Delayed?

In the normal course, registration of a transfer of title/ownership in a merchant vessel will take place immediately upon delivery of the vessel.

This is due to at least two overriding factors. First, the likelihood that the buyer has arranged financing to enable it to acquire the vessel will mean that the incoming lender will insist that the vessel is registered immediately upon transfer of title so as to ensure that the lender’s mortgage can be registered against the vessel simultaneously with (or as soon as possible following) the payment of the purchase price constituted in part at least by the loan advance. The registration of the mortgage gives notice of the creditor’s interest in the vessel and thus protects that interest against third parties. It also fixes priority between competing mortgages.

Secondly, if the vessel concerned is trading then it is more than likely that the buyer will be anxious to complete the formalities concerning transfer of ownership/registration in order to obtain the vessel’s new registry documents as soon as possible and not unduly delay the vessel’s departure from the delivery port.

However, in the case of a vessel that is not being financed and is not trading (in the case study above, the yacht is sitting in a damaged condition on a berth in Florida), then the demand to deal with the transfer of ownership/registration on an immediate basis are much reduced.

Conclusion

Whilst international law requires that every merchant ship be registered in a flag state, registration of a pleasure yacht is not currently compulsory (at least in the UK) unless the vessel is subject to a mortgage, or unless it is intended to sail in international waters.

In this case therefore, whilst the buyer may delay its registration of its title to the yacht on the registry, because the yacht is sitting at its berth and is unlikely to move, there is arguably little detriment to the seller during the period post-delivery that it remains noted as the registered owner but the buyer will need to complete the transfer of ownership on the register (or perhaps move the yacht to a new flag) before physically moving or otherwise using the yacht.

Stuart Plotnek
Managing Associate, Campbell Johnston Clark
[email protected]
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As courts of various jurisdictions have found over the last 150 years or so, questions that are easy to ask such as “what is the definition of a ‘ship’?” are not always so easy to answer. Following the conversion of a dumb barge into a “Special Service Floating Fish Farm”, the Singapore Courts were obliged to ask whether the result was a “floating craft of every description used in navigation”.

Vallianz Shipbuilding & Engineering Pte Ltd v Owner of the Vessel “Eco Spark” – [2023] SGHC 353, Singapore High Court (S Mohan J) – 18 December 2023

As courts of various jurisdictions have found over the last 150 years or so, questions that are easy to ask such as “what is the definition of a ‘ship’?” are not always so easy to answer – at least for the purposes of invoking the jurisdiction of their courts to arrest a “ship” in relation to the “many a quaint craft”¹ that have put to sea. One solution might be to take the position of the gentleman who dealt with the elephant by saying he could not define an elephant, but he knew what it was when he saw one.² One might not be to define a “ship or vessel”, but one knows when it is not.

So, does the picture below show a “ship”?

It has no rudders or engines, is not capable of self-propulsion, without any navigational equipment or crew, navigational lights. It has three spud legs embedded into the seabed such that it could not be towed or moved without the use of an offshore crane. Insofar as it could be towed, this would be for the sole purpose of bringing it to the fish farm site. It does not transport any person, cargo, or object. Since installation at the fish farm it has become immovable and will remain so for the duration of its operative life as a sea-based fish farm. It will not spend any part of its operative life traversing the surface of the water. Further, the vessel is unregistered and not classed. It does not pay port dues or other charges to the Maritime and Port Authority of Singapore.

Fishing for answers

This question recently came before the Singapore Courts. The central question was whether under the applicable Singapore legislation the vessel was a “floating craft of every description used in navigation”.

The case concerned the conversion of the dumb barge “WINBUILD 73” into a “Special Service Floating Fish Farm” (“ECO SPARK”). Disputes arose over the sums payable under the conversion contract. The shipyard commenced in rem proceedings against “ECO SPARK” and arrested it in Singapore on the basis that it was “[a] claim in respect of the construction, repair or equipment of a ship …” and that the court’s in rem jurisdiction over the “ship” or “barge” could be invoked pursuant to the High Court (Admiralty Jurisdiction) Act 1961. Both were challenged on the grounds that the “ECO SPARK” was not a “ship”.

In making the application the Claimant argued the “ECO SPARK” was a barge pre-conversion and remained in nature and functionality a barge post-conversion. It need not be self-propelled or have engines, and this did not affect its classification as a vessel or ship. It had spud legs while flagged and classed as a ship. Post-conversion the Vessel was to maintain its class with BV; and was launched and towed to Singapore like any other barge, with the spud legs in place. The placement of the spud legs in the seabed did not make the “ECO SPARK” immovable or a permanent fixture as they were removable and retractable. The Singapore licence required the vessel to be moved if it was a hazard to navigation or other planned sea usage and the fact that it was operating as a fish farm did not mean that it was no longer a ship. Registration was not determinative of whether the vessel was a ship; and it was similar to an oil rig which had been held to constitute ships even though they were fixed to the seabed.

The Singapore Court, after reviewing authorities from England, Ireland, Australia, and Canada thought that it was a ship such that the admiralty jurisdiction of the court was properly invoked. While the “ECO SPARK” did not possess some of the “usual attributes” associated with a ship, it did not regard the absence of those attributes as representing such a drastic departure as to disqualify the vessel from being considered a vessel used in navigation.

In doing so it thought that the definition of “ship” should be interpreted liberally, and different considerations may prevail for different purposes. The English authorities were inconsistent but what could be derived from them was that the irreducible minimum requirement is:

“the capability of the vessel to be used in navigation as a matter of its physical design and construction, ie, whether it is navigable and built to withstand the perils of the sea, irrespective of its actual current use”.

The navigability of a vessel is what gives rise to the risk and danger of it having the ability to be removed from a jurisdiction, thereby defeating legitimate in rem claims, which is one of the reasons a claimant would wish to arrest a vessel.

The “ECO SPARK” had the necessary characteristics because it was capable of navigation in the sense that it could move or be moved and was not unstable, unwieldy, and purely stationary. Although it was a fish farm it was built on top of the existing structure of the dumb barge, “WINBUILD 73”. It had been towed from Singapore to Indonesia for the conversion works to take place after which it was towed back to Singapore for delivery to the Owners. The basic design and structure of the “WINBUILD 73” remained unchanged. It was not incapable of navigation by virtue of being spudded down: the spuds could be retracted or removed and made navigable.

The use as a fish farm was not relevant. There was no need for people or cargo to be carried or for the vessel’s work to involve traversing the water regularly. Lack of classification, registration or flag were not determinative because the Owner had not maintained it in class and the Singapore regulator required it to be in class.

Comment

The English courts have in the past found the following were “ships”: a hopper barge; private motor yacht which had been stationary at its mooring for 15 years; a mobile offshore oil-drilling rig; a RIB being used for a bird watching trip around the coast of Anglesey. In Ireland a backhoe dredger consisting of a floating platform with no bow, no stem, no anchors, no rudder or any means of steering, no keel or skeg, and no means of self-propulsion which when in use was held in position on the seabed by three spud legs which were capable of being hydraulically lowered and raised; and in Canada a floating crane, were also held to be a ships.

However, the following have been held in the English courts not to be “ships”: a raft of timber; a landing-stage; a gas float moored as a beacon; a new building which had not yet been launched and upon which considerable work was required before it could be used in navigation; a new building which had been launched unfinished without engines or boilers; a pontoon crane; a houseboat; a flying boat; a seaplane; a helicopter with pontoons; and a jet-ski. In Australia an ROV; and in Canada a floating drydock, were also held not to be ships.

The judgement very usefully provides a clear analysis of these decisions from other common law jurisdictions, but it is important to bear in mind the context and/or purpose for which the definition was proposed in any case, as well as the exact wording in the relevant provision defining a “ship”. As the court pointed out, the definition of a “ship” for the purposes of deciding whether a collision is covered under an insurance policy or determining whether an offence has been committed may differ from the definition of a “ship” under legislation conferring admiralty jurisdiction and the right to arrest a ship.

The case does not therefore provide answers for questions as to whether other “quaint craft” that put to sea are “ships”, but it is a good starting point; a fuller answer will have to wait for another day.

1. See Herman Melville, Moby-Dick, Chapter 16. “You may have seen many a quaint craft in your day, for aught I know; —square-toed luggers, mountainous Japanese junks; butter-box galliots, and what not;”, ↩︎
2. Lord Justice Scrutton in Merchants Marine Insurance Co Ltd v North of England Protection & Indemnity Association (1926) 26 Ll L Rep 201 (“Merchants Marine”) at p 202 ↩︎

Chris Kidd, Director, CJC
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