Will Norway open up for bareboat registration/dual flag?

News | 06.12.17

Shipping and offshore
Comments to the consultation paper dated 5 December 2017 from the Norwegian Government

Will Norway open up for bareboat registration/dual flag?

Norway has a significant fleet registered in its two ship registries – the Norwegian Ordinary Ship Registry and the Norwegian International Ship Registry. However, the Norwegian legislation does not allow bareboat registration in or out of the Norwegian ship registries. This has particularly been an issue for offshore support vessels trading on the continental shelf of various nations, hereunder Brazil, Nigeria, countries in the Caspian Sea, Canada etc., where national flag is required or gives advantages. We have also seen it for other types of vessels where charterers' requirement or preference has been their local flag for the period the vessel is on charter. We have assisted several ship owners with first re-flagging the vessels from the Norwegian ship registries to an international registry allowing bareboat registration, and then a further bareboat registration under the relevant local flag required.

For a more detailed description of bareboat registration/dual flag, please see this article. Note that this article is not fully updated on amendments in the jurisdictions described therein the last 2 – 3 years and must be read as examples only. In particular, we are aware that there have been developments in the French requirements.

In a consultation paper dated 5 December 2017 the Norwegian Government has proposed changes in legislation to open up for bareboat registration in and out of Norway. The main purpose is to develop our maritime legislation to meet the opportunities offered by other major international flags, to accommodate the need for the Norwegian maritime industry to be able to fly foreign flags in limited periods to meet local requirements under their contracts, and to prevent a drain of tonnage registered under Norwegian flag to other international flags.

Comments and points to note:
Points to note from the consultation paper (all references are to the suggested legislation and do not indicate that this will be the final legislation when passed):

Approval of foreign flags
No approval or pre-approval of flags are suggested. Some countries require approving the jurisdiction where the vessel will be bareboat flagged. The paper assumes that ship owners and mortgagees will do their own due diligence before consenting to the bareboat flagging, and this is considered sufficient.

Applications and requirements
In order to apply for a bareboat registration out of Norway, the registered owner must apply, attaching consent from mortgagees and any other having a registered interest/right in the vessel and a copy of the bareboat charter. In addition, the ship owner must attach a confirmation from the flag where the vessel shall be registered that such foreign flag allows bareboat registration in. The same requirement applies for bareboat registration into Norway, but then the application must be made by the bareboat charterer and a confirmation from the underlying flag that the relevant foreign flag allows bareboat registration out. In our experience such confirmations/certificates are issued upon the bareboat registration becoming effective and not in advance. We assume there will be a discussion both with Norwegian authorities and the relevant foreign states on the nature and timing of the confirmation. Preferably, this will be something that can be delivered on the date of registration.

The bareboat charterer must fulfil the requirement for "genuine link" and nationality requirements for registration in the Norwegian ship registries in order for the vessel to be bareboat registered into Norway.

Mortgages and encumbrances
For bareboat registration into Norway there will be a prohibition against registering mortgages and other encumbrances in Norway, as these shall be registered in the underlying registry. The paper does not discuss any consequences under the Norwegian Pledge Act. The Norwegian Pledge Act 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 it does not, in our opinion, specifically solve the potential conflict with the Pledge Act. The reason for mentioning this is that we in a previous transaction involving bareboat registration into Turkmenistan received advice that even if the Maritime Code in Turkmenistan allowed bareboat registration into Turkmenistan and acknowledged foreign mortgages, the general pledge act required registration in the local ship registry for the mortgage to be valid if enforced in Turkmenistan. We have not done a deeper analysis of the potential conflict, but highlight it as we have experienced this as an issue in other jurisdictions.

For bareboat registration out the legislation will require that mortgages and encumbrances are registered in the Norwegian registries and are subject to Norwegian law. This is the correct position under applicable international conventions. However, it is a fact that in some jurisdictions the ship owner will nevertheless need to register a separate notation, or even separate mortgage, to protect its rights.

The paper discuss whether or not notations of foreign mortgages should be allowed, but concludes that this may cause confusion of applicable jurisdiction. In respect of the latter, we disagree with the Government's conclusion. We experience several jurisdictions where notations of foreign mortgages are allowed, and we find this to be an advantage for the registered mortgagee. A condition is that it is clear that it is just a notation of a foreign mortgage in the underlying registry, and does not appear as a separate registration subject to the local jurisdiction. As an example, in Marshall Islands you can register a notation of your foreign mortgage and a transcript of the registry will clearly show that this is a Norwegian mortgage registered in the Norwegian ship registry as the underlying flag of the Vessel. For a third party the vessel appears as registered in the Marshall Islands as the vessel sails under the flag of the Marshall Islands. If no notation is allowed, the third party will when obtaining a Certificate of Ownership and Encumbrances not see any signs of the mortgage registered against the vessel. We fail to see that a notation of the mortgage, showing that in fact there is a mortgage against the vessel, will cause confusion as long as it is clear that it is a Norwegian mortgage registered in the relevant Norwegian ship registry.

Registration period and termination
Registration period is suggested to be 5 years with possibilities for extensions for further (unlimited) 5 years periods, but always limited to the duration of the bareboat charter.

When the bareboat charter expires the bareboat registration shall terminate. For bareboat registration out of Norway the ship owner shall notify the registry within 30 days of expiry of the charter. The Norwegian registry can also withdraw their permission to bareboat charter out if they otherwise become aware that the bareboat charter has terminated.

For bareboat charter into Norway, the legislation suggests that the bareboat charterer is the one who can request deletion from the bareboat registration in Norway. The ship registry can also delete if it otherwise receives information that the bareboat charter is terminated. In our opinion, the ship owner should also have an explicit right to terminate the bareboat registration. The ship owner is holding legal title to its vessel and should be entitled to delete registration. We have experienced several transactions where the bareboat charterer is not cooperating. The option for the registry to delete when becoming aware that the bareboat charter is terminated provides some comfort, but the registry is then forced to make a decision if only the ship owner notifies them of the termination and the charterers remain silent or even object.

End note
We remain available for our clients and other interested parties to discuss possible comments and consequences. We assume the proposal will be implemented, but final form and timing is unknown.