In addition, Norwegian ship owners having chartered/leased in vessels on bareboat term have not been able to temporarily get a Norwegian flag during the charter period. After a few years of discussions, a proposal to amend the maritime legislation to open up for such bareboat registration has finally reached the Parliament. Below, we comment on the proposed new legislation dated 6 December 2019 from the Norwegian Government.
This article is written by Erlend Lous, partner in our Shipping, Aviation, Financing and Energy team.
Background
In our article dated 6 December 2017, we provided our comments to the consultation paper from the Norwegian government where new legislation permitting bareboat registration in and out of Norway was proposed.
After two years, the proposed legislation has finally been submitted to the Parliament, and we can expect that Norway will open up for bareboat registration/dual flag both in and out of Norwegian ship registries in the near future. The legislation is intended to apply both to the Norwegian Ordinary Ship Registry as well as the Norwegian International Ship Registry.
The proposed legislation is most welcomed by the Maritime industry in Norway. The shipping team of SVW works with Bareboat Registration of vessels on a regular basis. As per today, Norwegian ship owners with Norwegian flagged ships have been forced to reflag their vessels permanently if they need a temporary foreign flag. Also, Norwegian owners bareboat chartering in ships under leasing- or other structures have faced problems obtaining Norwegian flag on their vessels as the registered owners may lack sufficient connection to Norway or not being comfortable permanently flagging their vessels in Norway.
For our initial comments to the 2017 proposal, please refer to our article from 2017.
For general information regarding Bareboat Flagging/Dual Flag, please refer to our article of 1 August 2013 (note that this article is not fully updated on amendments in the jurisdictions described therein the last 3-4 years and must be read as examples only. In particular, we are aware that there have been developments in the French requirements).
Comments to the proposed legislation
Considering our comments to the initial proposal of 2017, the main change to note is that the proposal now allows for the registered owner of a vessel being bareboat flagged into Norway to withdraw the Norwegian bareboat registration unilaterally. The initial proposal only permitted the bareboat charterer to terminate the bareboat registration, and this would put the registered owners’ interest at risk. We are very satisfied that the ministry has changed this in the final proposal.
For a vessel bareboat flagged out of Norway, only the registered owner can re-activate the Norwegian permanent registration by giving notice that the bareboat charter is terminated (by expiry or by early termination). This makes sense, as the bareboat charterer would have no interest in reactivating the registration. However, if a bareboat charterer disputes the termination of the charter, the owner can still re-activate the Norwegian flag. If the bareboat charterers’ assistance is required to delete the foreign bareboat registration, we might have a situation where the vessel is registered in two ship registries, but as long as the owners have terminated the charter and repossessed the vessel, we are of the opinion that the owners must have a unilateral right to reactivate the underlying flag.
Another issue is registration of foreign mortgages when a vessel is bareboat flagged into Norway. We have commented, and believe, that the Norwegian registry should open up for an annotation of the foreign registered mortgage. We see that many registries, such as the Marshall Islands, allows such annotation of a foreign mortgage. If a vessel is bareboat flagged into Norway, and a third party does a vessel search in the Norwegian registry, it would be an advantage if information regarding the foreign mortgage appeared. However, the proposed legislation specifically states that no registrations can be made in respect of mortgages over vessels bareboat flagged into Norway. The argument from the ministry is that such registrations could cause confusion as to which jurisdiction should apply in respect of the mortgage. We disagree, as an annotation could make it very clear that the relevant mortgage is subject to foreign law and is registered in the underlying ship registry. In our opinion, this would further secure the mortgagee’s rights as information about the mortgage would be available in the registry of the flag of the vessel.
Also, as commented in our 2017 article, there is a potential conflict with the Norwegian Pledge Act which states that pledge over any assets registered in a Norwegian asset register, such as the ship registries, can only be perfected by registration in such register. A vessel bareboat chartered into Norway will be registered in the Norwegian ship register. The new legislation suggests a wording in the Norwegian Maritime Code/NIS Act that you cannot register mortgages and encumbrances, but say nothing about foreign mortgages over the vessel. As the discussion paper supporting the proposed legislation is very clear that the foreign mortgage should be respected, we assume a Norwegian court will upheld the foreign mortgage despite the potential conflict with the Pledge Act (provided the foreign mortgage otherwise fulfils the requirement of the Maritime Act), but it would have been an advantage if the new proposal clarified specifically that the foreign mortgages would apply.
It should also be noted that the period of bareboat registration in or out of Norway is extended to up to 10 years (initial proposal was 5 years), but always limited to the term of the bareboat charter. Extensions for 5 years could be applied for within 6 months of expiry.
For bareboat registration into Norway, the bareboat charterer must fulfil the “genuine link” and nationality requirements in the Norwegian Maritime Act/requirements of the NIS Act, not the ship owner.
A bareboat flagging out of Norway must be applied for by the registered owners. A bareboat registration into Norway must be applied for by the bareboat charterer. In both circumstances must any other party with rights in the vessel (registered owner and mortgagee) provide a written consent, as well as the other flag state involved.
Finally, the provisions of bareboat registration apply to passenger- and cargo ships, as well as rigs and movable installations/offshore units. The proposal makes it clear that the provisions do not apply to fishing vessels and leisure vessels.
End note
The general changes allowing bareboat registration in and out of Norway are most welcomed. We remain available for our clients and other interested parties to discuss possible consequences, and assist with registrations and applications. We expect the proposal will be implemented as per its suggested terms in the near future.