Bareboat registration in and out of Norwegian Ship Registries

On 5 December 2017 the Norwegian Ministry of Trade, Industry and Fisheries issued a consultation paper with proposed changes to the legislation for registrations of vessels in the Norwegian International Ship Registry (NIS) and the Norwegian Ordinary Ship Registry (NOR). The two Norwegian Ship Registries does not currently allow bareboat registration of vessels, but the proposal suggests to open up for such registration both into and out of NIS and NOR. The proposal is intended to meet the practical needs of the maritime industry and make the rules for vessel registration in Norway more flexible and internationally competitive.

Bareboat registration

Bareboat registration involves the parallel registration in two countries of a vessel on bareboat charter. The vessel will be registered by its owner in the ship registry of one country (the primary registry), and by the bareboat charterer in the ship registry of another country (the bareboat registry). The country of the primary registry will generally govern private law functions such as registration of ownership, mortgages and other encumbrances, as well as priority between and enforcement of such rights over the vessel. The country of the bareboat registry will however become the flag state of the vessel and its laws will generally govern public law matters relating to the vessel, such as safety, manning and environmental requirements.

Bareboat registration out of NIS/NOR

Bareboat registration out of NIS and NOR will, inter alia, enable owners to offer bareboat registration for charterers requesting same under a particular bareboat charter. It will also allow the vessel to gain access to foreign domestic markets where cabotage or other regulations makes it a requirement to fly the flag of the country of operation. The latter is particularly relevant for offshore support vessels operating in countries such as Brazil, Canada, Australia, Mexico and certain African countries. Whilst the vessel gains access to foreign domestic markets by being registered in the relevant bareboat registry, the ownership and any mortgages over the vessel will remain registered in the primary registry which may often be preferred or required by the financiers of the vessel. Such arrangement is not available at present, with the consequence being that owners are forced to delete their vessels from NIS or NOR entirely in order to get access to the relevant market.

In short, the proposed changes will enable the owner to apply for bareboat registration out of NIS for five years, with the possibility to apply for extensions of up to five year at the time. The consultation paper includes similar rules for bareboat registration out of NOR, but emphasize that these will be a particular point for consideration during the consultation phase. The proposal generally opens up for bareboat registration out and does not have any limitations to pre-approved countries for bareboat registration (as is the case in several countries). However, mortgagees and other holders of registered rights are required to consent to the vessel being bareboat registered out and it is expected that such parties will do a sufficient due diligence before providing their consent.

Bareboat registration into NIS/NOR

Bareboat registration into NIS or NOR may be desirable for Norwegian owners who are bareboat chartering a foreign flagged vessel or where Norwegian flag is otherwise required for a foreign flagged vessel (e.g. in relation to the operations for a particular end client). A practically important situation where such registration may be desirable is where a vessel registered in NIS or NOR is made subject to a sale & leaseback transaction with a foreign financing institution. In such a transaction the foreign financing institution purchases the vessel and often requires the ownership to be registered in a foreign jurisdiction, whilst the former owner charters back the vessel and currently will have to operate it under the foreign flag. Pursuant to the proposal it may be possible for the former owner to continue flying Norwegian flag by way of a bareboat registration following the implementation of the sale & leaseback transaction.  

In short, the proposed changes will enable the charterer to apply for bareboat registration into either NIS or NOR for five years, with the possibility to apply for extensions of up to five year at the time. The charterer will however need to satisfy requirements of nationality currently applicable to regular registration in NIS or NOR.

Endnote

The proposed changes have been subject to preliminary consultation with several key institutions within the industry, including the Norwegian Shipowners’ Association, the Norwegian Seafarers' Union, the Scandinavian Institute of Maritime Law and others. Although the main elements are likely to be implemented as per the proposal, the proposal and its details remain subject to a consultation process ending on 6 March 2018.

The timing for presentation of a proposal to the Norwegian Parliament and implementation of the same is uncertain.

We remain available to clients and others who wish to discuss the proposal and its potential consequences. Please do not hesitate to contact us in this respect.