ORIGIN AND DEVELOPMENT OF M ARITIME TRANSPORT

For centuries ships were main instrument of commerce and communications between nations,
many aspects of the shipping process have their roots in history. Though the development of
shipping was motivated by private enterprises and initiative but over a period of time it called
for government regulations, interventions and financial assistance in the form of subsidies etc
because of its importance and contribution to the national economy.
One key element of mankind’s strong maritime tradition has been the relationship
between seafarer and technology. This relationship changed as technology changed, in the
long evolution from wooden sailing ships to fully automated vessels. Such a technological
evolution has had both positive and negative impact. On the one hand, modern ships carry
ever-increasing quantities of cargo to its destination more efficiently. On the other hand, they
have the potential to cause harm to life, property and environment.The world has come a long
way from catamarans and sailing ships to VLCC and OBOS.1
The discoveries of 15th century marked a definite break in the history of the evolution
of shipping as an industry. The ancient channel of trade from the Orient via the
Mediterranean to Atlantic Europe was destroyed by the capture of Constantinople by the
Turks in 1453, one of the major links between the East and the West. The Ottomans (Turks)
also succeeded in blocking the routes across Syria (alternate route); leaving the Isthmus of
Suez as the only means of access for oriental goods. The Egypt imposed higher dues on the
transit area on oriental goods. These events brought economic difficulties to the
Mediterranean trading cities, and caused the western European powers to intensify their
search for new sea-route to the sources of eastern trade. In 1486, Bartholomew Diaz, the
Portuguese Navigator rounded the Cape of Good Hope and prepared the way. In 1498, Vasco
da Gama landed in Calicut in the West coast of India. His discovery of a direct route to India
shifted the center of gravity from Europe to Asia and established for the first time India’s
direct contact with western world by ocean route. The Cape route not only freed the
merchants of Atlantic Europe from charges for the Suez Isthmus transit but also enabled them
to bypass the ancient link provided by the Arab traders in the Indian Ocean. The Portuguese
defeated Arab naval resistance and established their own ports of trade in India, south-east
Asia and at Macao in China. The Portuguese brought ivory, silks, spices, and other products
from India, China and the Far East.

1
Very Large Crude Carrier and Ore Bulk Oil Carrier.
Christopher Columbus braved the Atlantic Ocean in three small sailing ships and reached the
New World—the America in 1492 some years before Vasco da Gama landed in India, but the
land discovered by him was a virgin land, sparsely populated and it took many generation of
development before a profitable return could be ensured from this land when compared to the
rich civilization that Gama found in India.
In 1519, Magellan started the voyage from Spain proved the theory that the earth was
round by sailing from east to the west, went around the world across the sea. He voyaged
from Spain to Brazil through the straits to the Pacific and to Australia and Asia and crossed
the Indian Ocean and returned to Spain via Cape of Good Hope. Spain and the Portuguese
tried to maintain these ocean routes that they discovered as their monopoly by the Treaty of
Tordesillas (M.S. Ram, 1967, Couper A.D, 1972 p.42). The Portuguese trade with India was
a Roayl monopoly; the risk was that of the King and the profits and losses were the King’s.
But the Spanish King did not monopolise the entire trade, he levied duties of trade and in
addition claimed some percentage of profit as his share.
The Portuguese plundered and drained India, they said to have returned with a cargo
that amounted to six thousand times the entire expense of his voyage. The Spaniards followed
a similar policy in their American colonies.
In the 1500s, while all trade was on the King’s account in Portugal and the King was a
partner, shared profits from the trade in Spain, the English genius showed itself in the
organization of Joint Stock Company that was organized by Royal Charter. It was one such
Joint Stock Company that was formed in 1599 to trade with India that won the Indian Empire
to the Britain, and ruled it till 1858, when the Empire was transferred to the British Crown.
by 1700 there were over 1000 British owned ships engaged in the coal trade between the
Tyne and London and the foreign tonnage was effectively driven out partly through tax
imposed on merchants who shipped coal on ships other than British owned (Couper A.D.
1972). The rise of British shipping represented a revolutionary advance in the British
economy.
By end of 1700 there were between 5,000 to 6,000 British owned merchant vessels carrying
coal and other cargoes in the coastal, continental, and overseas trade. At the same time British
seamen numbered about 100,000 which constituted the non-agricultural sector of the working
population. These developments gave a new spatial dimension to the British economy which
facilitated its subsequent industrial growth and dominance in the world.
 The raise of Britain altered the trading pattern, no longer oriental luxuries came to the
west but raw materials; and high value goods now flown opposite direction as the products of
British manufacturing industries.
America became independent in 1776 and the development of America in the 19 th
century created increased demand for transportation. The 19 th Century was also a period of
Anglo-American rivalry in ship-building; in 1815 the American tonnage was half as that of
British tonnage. Under the laissez-faire conditions of the nineteenth century British stood
supreme in shipping and at the turn of the century still possessed almost half the aggregate
world tonnage of merchant vessels. With the natural advantage of possessing large quantities
of soft wood, the US was able to produce cheaper and faster ships. The discovery of gold in
California in 1848 gave extraordinary stimulus to the shipbuilding industry. The US started
building Clipper ships (Clip means to move swiftly), it had many sails and as many as six
rows of sails to a mast designed for speed.
The period between discovery of ocean routes and ending with the emergence of
steamships also witnessed certain other developments in shipping industry. The ship owners
emerged as separate and distinct class from the merchants during this period. The General
Ship-owners’ Society founded in 1888. New classes of men such as ship brokers, cargo
brokers, marine underwriters, insurance brokers, etc. made their appearance and these
professions came to be organized. Edward Lloyds took the initiative in collecting and posting
accurate shipping intelligence and information. The publication of Lloyds Register began in
1734 giving all arrivals and departures of ships. In 1760, Lloyds underwriters formed a
society for publishing a Register of ships. The Register contained particulars of ownership,
the age, dimensions, state of the hull and equipment, etc. Accurate Register containing details
of ships helped the development of shipping insurance and under-writing.
Though the age of steam revolutionized shipping industry, the foundations of an
organized shipping industry were already well-laid during the age of sailing ships. Steam
ships said to have established and proved itself stronger with the opening of Suez Canal2 in
1869. Despite the advantages of steam ship the changeover from sail to steam was a very

2
It crosses the Isthmus of Suez, between Port Said (Mediterranean) and the Gulf of Suez. The importance of the
canal was recognized by the major powers in the Constantinople Convention of 1888, which guarantees freedom
of passage through the canal of ships of all nations in peace and war. In 1854-56, Ferdinand de Lesseps
obtained rights from Said Pasha of Egypt to establish a company to build and operate a canal to ships of all
nations for 99 years. The company’s shares were bought by French, Turks and Said Pasha, who bought half of
the company’s stock. In 1875 the Pasha was forced to sell his shares thus the UK acquired the a controlling
interest in the company. Egypt became independent in 1936, and in 1956 the Egypt’s President Gamel Abdel
Nasser nationalized the canal company 12 years before the 99 years lease was to end. After the Egypt-Israili
war in 1967, the canal was closed for 8 years.
slow process. The disappearance of sailing ships robbed the sea life of its thrill and
adventure. The steamships ensured certainty of performance and the risks of the sea became
known and predictable.
The boom in the sea-borne trade that followed the opening of the Suez Canal in 1869 gave
rise to stupendous expansion in the tonnage of the European maritime countries and this in
turn unbridled competition to secure cargo. There was also a demand for stable freight rates
—the response came in the form of co-operation among the ship-owners in establishing
Conference System to provide scheduled services between ports.
The decades after the Second World War saw a major change in this established
pattern of shipping and trade which had profound effect on maritime industry. Many of the
most important colonies attained independence. By 1960s most Asian and African countries
became independent; this development shook the established pattern of maritime trade.
Although the colonial system had disappeared, the trading links survived and Europe
continue to obtain primary commodities form developing countries to supply the
manufacturing industry.
The next important development was the replacement of wood by iron as the chief
building material for the ships. The iron ships could be built with large tonnage capacity than
the wooden ships. The maiden voyage of the first iron built ship fitted with compound engine
and screw propeller took place in 1886. The commercial success of this voyage paved way
for the ultimate triumph of the steam ship as an ocean cargo carrier. Iron soon yielded to steel
as a building material. Steel possessed a tensile strength from 25-30% more than iron. It was
homogenous in substance and uniform in quality. In 1858, the “Great Eastern”, which was
constructed with iron was said to be a land-mark in the history of change over from sail to
steam and wood to iron. Another major development was the opening of Suez Canal in 1869;
it was a crucial period in the struggle between the steam and sail. The Suez Canal and the
Red sea were unsuitable for sailing ships and the opening of the canal gave the steamer a
shorter route to the east. The decline of sailing vessels appeared to have started in 1888.
The diesel engine was invented in 19023 and the diesel oil engine dispensed the
necessity for boilers since the oil is injected directly into the cylinder on high pressure where
it is ignited by the high temperature resulting from compression of the air cylinder.
After the First World War there was a significant shift from coal to oil as a source of
energy used for propulsion. The First World War brought a tremendous destruction of ships.
As much as 12 million gross tons of shipping was destroyed. During the War the US and the
3
by Dr. Rudolf Diesel, a Bavarian.
UK increased their ship-building capacity as a result there was more tonnage (two and a half
times more tonnage) available at the end of the war in 1919 than in the beginning of 1914.
Since the inter-war period there has never been the same dominance of one nation in the
world shipping. By 1919 the Britain’s share of world tonnage was reduced to 34% while that
of US stood at 20%. Japan and USSR also started expanding their fleet and tonnage. This
resulted in over-tonnage and difficult time for shipping. To sustain their fleets many states
started providing subsidies to their shipping industry. India was the only country to have
significant number of merchant navy amongst the developing country.
By the outbreak of the First World War the British Merchant fleet stood at over
eighteen million tons. Its nearest rival, Germany, owned almost five million tons and the US
possessed two million (Couper,1972). The First World War brought about tremendous
destruction of ships; many sailing vessels were destroyed and were replaced by stream ships.
There was also, following the First World War, a significant shift from coal to oil as a source
of energy. The new type of oil fuel required changes in maritime technology and the British
shipping industry was slow to respond. A system of American government subsidies helped
increase the tonnage of the US fleet. Because of the enormous shipbuilding programme of the
US and Great Britain, the world shipbuilding capacity was multiplied.

EVOLUTION OF LEGAL CONTROLS OF MARITIME TRANSPORT

Maritime Laws were basically customs and long accepted maritime practices of
nations. The Romans and the Greeks appears to have a well regulated system of Maritime
Laws though the remnants of them have not been preserved. There are references to Maritime
Courts and Maritime Lawyers in the history of Greece, there has been references to the great
Greek Orator Demosthenese having also been a Maritime lawyer of some standing in the
ancient world.
The earliest Maritime code known to us is credited to the people of the Island of
Rhodes in the Eastern Mediterranean. “ The sea law of the Rhodeans” was in itself a
compilation of the laws and customs, which were put together between 600-800 B.C. Some
of the principal maritime customs such as sharing of general average contributions which
have survived to our own days, are traced to Rhodian law. Special Courts were functioning in
the Mediterranean Sea Ports to decide Maritime disputes in the 15 th Century, the judgment
recorded by these courts were according to customs and practices. The judgments drawn up
in the Island of Oleron off the French West Coast to a large extent used in the
Mediterranean were compiled and edited for English use by King Richard, the lion-heart,
in the 12th century.
In the era of sailing ships, the Pole star was the only guide to the sailors. The sailing
ships depended on the direction of the winds. The owners of the ships were also merchants
who traded in commodities. The governments in those days used ships owned by private
ship-owners for the imports and exports. Ship-owning was not a distinct occupation. If
there was no cargo to be carried on hire, the merchants bought cargo at one port and sold it in
the other on their own account.
Laws of Oléron are “admitted to be the foundation of all European Maritime Code”.
The Laws of Oléron were promulgated about 1150 A.D. by a Medieval Ruler from the
Island of Oléron, off the southwest Coast of France. This medieval code of maritime law,
Rôles d’Oléron was compiled in the 12th century for mariners in the Atlantic.
They soon became the basis for maritime regulations for all Northern Europe. Law of
Oléron dealt with:
 hiring of ships for sea voyages;
 safe keeping and delivery of cargo carried on ships;
 selling and hypothecation of ships and cargo;
 contribution in case of jettison;
 liability for collision between ships and the duties of pilots.
It was a very comprehensive law at the same time it reflected the medieval harshness, this
law provided that if any damage caused to the cargo then the ship-owner and his pilot “shall
be obliged to make full satisfaction of the same and if not lose his head”
It could be noted here that the law of Oléron placed absolute liability on the ship-owner. The
Monarch did not have to balance the sensibilities of vessel and cargo interests. The Monarch
simply promulgated a maritime code and everyone obeyed because, they wished their heads
to remain attached to their shoulders. This principle of absolute liability was upheld in
common law countries till early 19th century.

This rule of unlimited liability was said to have been imposed to safeguard against the danger
of theft by the master and crew or collusion between them and thieves. used to make it term
of their contract in bills of lading or charter-parties that the would deliver the goods in the
same condition in which they were received.
However, it was not unusual for them to exclude their liability by incorporating wide
exception clauses in those instruments. These clauses, commonly known as ‘expected
perils’, whenever effectively incorporated into the contract, relieved the ship-owner from the
sever liability at Common Law, but otherwise the liability remained unlimited.

Under Common Law the ship-owner was absolutely liable for the safety of goods while they
remain in his custody, that meant that the ship-owner was accountable to the cargo owners for
all the loss and damage even if there was no negligence on his part.

It was held that the reason being that the carrier was in total control of the goods and had the
total knowledge of the circumstances in which cargo was damaged and the cargo interest
were not in a position to know what happened to their goods once it left the shore.
This position was well accepted in those times that a common carrier that received certain
goods for transportation undertook the responsibility of transporting it without any loss or
damage.
The ship-owners later, contracted out the responsibility, first, for genuine causes, such as—
loss damage caused by an act of God, a public enemy, inherent vices of the goods, fault of the
shipper or in situation where goods had been made the subject of a general average sacrifice
(Common law exemptions or law of torts). Thus came strict liability.

CONTRACT OF AFFREIGHTMENT
A contract for transport or carriage of goods in a ship is called a contract of
affreightment which is either in the form of a Charter party or bill of lading. It stipulates the
rights and liabilities of parties to the contract, who are, in the international trade, nationals
of different countries.
In case of small shippers, who may move a single parcel of few kilo grams or goods
of few tons have to depend on a common carrier or the liner shipping company for
transportation. The common carrier or the liner shipping company issue bill of lading as a
receipt for goods accepted for sea transport. Small shippers do not have the ability to
negotiate terms in the bills of lading and they accept the bill of lading as stipulated by the
ship-owner. As a result an average shipper is at the mercy of the common carrier or the liner
company.Bill of lading plays a vital role in the financing of the sale of goods in international
trade by virtue of its negotiability. The stipulations in the contract of affreightment may be in
favour of one party who usually belong to politically and economically powerful country.
 a) BILL OF LADING
The international carriage of goods by sea does not just involve a contract between the
owner of the ship and the owner of the cargo. Each shipment is supported by a complex web
of contracts, including contract of sale, contract of carriage, insurance contract and
contract with banking for letter of credit 4 etc. At the centre of the web of contract lies the
bill of lading.
In a common carrier operation the ship-owner (the carrier) issues a bill of lading. 5 A
bill of lading was at one time called a “bill of loading”. There is no statutory definition of
“bill of lading”. The Privy Council held, in one of its decision, that a document in a form
beginning with the word “Received for Shipment on Board” was a bill of lading. The first use
of the expression “bill of lading” was said to have been made in 1599 A.D.
Bill of lading usually states the quantity, weight measurement etc. of the goods
shipped and it is signed by the master of the ship on behalf of the ship-owner. It is
common practice to issue bill of lading in three/four parts. The practice of issuing a set of
three original bills of lading of the same tenor may be traced back 1539 A.D. Two of them
are delivered to the shipper and one retained by the master of the ship to form part of the
“ship’s papers” and for the preparation of ships “manifest”. 6 Of the two delivered to the
shipper, one is sent by the shipper to the consignee of the goods shipped; another (third
one) is retained by the shipper. But the details are usually filled in by the shipper in all of
the bills of lading before presenting to the ship and after checking they are signed on behalf
of the ship-owner. There are certain procedures to be followed before issuing the bill of
lading.
Goods received by the ship in two ways, either alongside ship or into a shed in the
port area. When goods are received into a shed a “dock receipt” or “wharfinger’s receipt”
is given for such goods, and the goods are retained in the shed until required for loading.
When goods are received alongside a “mate’s receipt” 7 is given. When mate’s receipt is
issued the shipping company will not issue bill of lading until such time as the mate’s receipt

4
5
Airway bill is issued in case of air transport. Airway bill is issued by the carrier in three parts: one part is
marked “for the carried” and signed by the consignor; another part marked “for the consignee” and is signed by
the consignor and the carrier, and is accompany the goods; the third part is to be signed by the carrier and
delivered to the consignor. Airway bill is governed by Warsaw Convention 1929 and amended in 1955.
6
the list of cargo on board the ship. This manifest must contain full particulars of marks, numbers, quantity,
contents, shipper and consignee, with such additional particulars s may be required by the Consular authorities
of the country to which the goods are being transported.
7
A “mate’s receipt” is a temporary form of receipt given by the mate of a ship for goods which have been
received on board. This receipt is subsequently handed to the ship-owner or his representative in exchange for
the bills of lading.
is given in exchange. Goods are tallied into the vessel by tally clerks who check and keep list
of all cargo stowed in the vessel. Tallying is done by recording in books, on cards or on
sheets. The holder of the mates receipt is prima facie entitled to be issued with the Bill of
lading. Where bill of lading is not issued, the holder of the mate’s receipt is prima facie
entitled to claim delivery of goods. But the mate’s receipt is not a document of title.
When the shipment of bill of lading is received on board, the bill of lading is complete
and the particulars are placed on the ship’s manifest i.e. the list of cargo on board the ship.
This manifest must contain full particulars of marks, numbers, quantity, contents, shipper and
consignee, with such additional particulars as may be required by the Consular authorities of
the country to which the goods are being transported.
Bill of Lading serves three purposes: a) it is a document of title to goods shipped b) it
is a receipt for the goods delivered to the ship-owner c) it is the evidence of contract entered
between the shipper and the ship-owner.
A Document of Title: Bill of lading, as a document of title, enables the holder to obtain
delivery of the goods at the port of destination. The shipper “delivers” the goods by merely
transferring the bill of lading. The possession of bill of lading is equivalent to possession of
goods itself. It is called the semi-negotiable instrument also. Under CIF contract, the seller is
entitled to payment on tendering the bill of lading. This could be taken to the banks and
financial institutions as security and encash the bill of lading, the seller of the cargo wanted
his money as soon as possible after the goods had been put on board the ship.
A Receipt: The Bill of Lading indicates, inter alia the following details: i) the name of
the vessel carrying the goods ii) the port of shipment and destination iii) the name of the
consignee to whom the goods are to be delivered iv) description of the goods v) the shipping
marks or number (consignment number) which have been put on the package of the goods for
the purpose of identification vi) number of packages vii) the weight or measurement of the
goods and viii) the amount of freight and the time and place of payment thereof etc.
After duly filling the sets of bill of lading, the shipment or goods are brought
alongside—within the reach of ship’s tackle, customs entry are made in a document known as
“bill of entry” and the duties payable are paid, and goods are put on board and each copy of
the bill of lading is signed and dated on behalf of the ship-owner by the master of the ship.
After shipment one copy of the bill of lading is handed to the ship-owner to form part
of the ship’s “manifest”. The other copies of the bill of lading are collected on behalf of the
shipper, who insures the goods against marine and other risks and obtains a policy of
insurance in respect thereof.
 Evidence of the Contract: Bills of lading sets out the terms of the contract. It is the
prima facie evidence that the goods stated therein to have been delivered to the carrier have
in fact been delivered to him.
There are ‘shipped bill of lading’ and ‘received for shipment bill of lading. Received
for shipment bill of lading is mere a receipt and not a proper bill of lading.
b) COMBINE TRANSPORT BILL OF LADING
The use of containers for consolidation of cargo was one of the most important
developments in the transport industry in the later part of the 20 th century. They reduced loss
caused by congestion, delay and pilferage at ports. Improvement in the transport management
through information technology, innovative ship and other vehicle building methods also
contributed to the emergence of muti-modal transport (also called inter-modal and combined
transport) i.e. door to door carriage using two or more modes of transport. The growth of
multimodal transport brought with it the evolution of single transport documents, such as
through bill of lading or muti-modal or combined transport bill of lading. It also fuelled an
expansion of freight forwarders who not only provided packing services, warehousing,
customs clearance etc, but also undertook transport arrangement across international frontiers
involving several carriers. It is not regulated by an international convention hence there is a
“legal chaos” as to whom to sue in case of delay in delivery, loss or damage to goods, where
to sue, time limits for initiating action, or the basis and extent of the forwarder’s or carrier’s
liability.
It is issued by the combined transport or multi-modal transport operators. Often, a
through bill of lading is issued and services of sub-carriers like railways or road transport are
hired by the operators of combined transport.
It is reported that within the London Group of P & I Clubs, three of them have formed
the through Transit Marine Mutual Assurance Associations Ltd. These Clubs cover the extra
liabilities assumed by the combined transport operators, arising from door-to-door movement
of cargo.

c) CHARTERPARTY
The contract between the charterer of the ship and the ship-owner is called the
charterparty. There are no international conventions governing charterparties but are form of
a contract and are subject to usual requirements of law of contract. The terms and conditions
of charterparties had been evolved over a period of years in keeping with the growth of
maritime commerce and shipping industry. Organisations like the UK Chamber of Shipping
and the Baltic International Maritime Conference in Copenhagen have played significant
roles in evolving internationally accepted standard charterparties.
A charterparty is a contract whereby a ship-owner places his entire ship or some
principal part there of at the disposal of a merchant who is called the charterer, either for a
duration of a voyage , or series of voyages (voyage charterparty) or for a given length of time
(time charterparty).
The early merchant shipper who owned ship loaded cargo in one port and sold it in
another and on the way back purchased goods from that port or intermediary port and sold it
in his country and made huge profits. In the process the ship-owning merchants became the
capitalist who built and owned more than one ship which the merchants let them on hire or
charter. The contract entered between the hirer/charterer and the ship-owner were written on
a sheet of paper, occupying half the sheet, and again recopy the same matter in the other half.
This sheet of paper was torn—one part, retained by the ship-owner and the copied part given
to the charterer. Parting of the sheet of paper or tearing it into two pieces appear to have
given the name “Charter Party” to the contract. When there were any disputes the parties had
to produce their respective sheets and they were put together to make sure that they are
counterfoils of the same paper. This established the genuineness of the charter party.
In the modern era, Charter market occupies a central place in the organization of
maritime transport. The Baltic Exchange in London facilitate the charter business—a ship-
owner with a vessel for hire, the charterer with cargo to transport, an agent/broker to mediate
between the two; all of them come together to complete a deal—it acts as a clearing house
and an established shipping centre.
Now a days the stipulations in the Charter party is standardized, there are different
standard forms available in respect of different commodities and to cater to the peculiar
conditions of the trade. These standardized forms are given short title or code names such as
Entrocon, Baltime, Gencon etc.8 The charterer selects the charterparty form that is most
appropriate to his circumstances and the negotiations proceed on the basis of parties
accepting to enter into the contract in one of the standard form (Ram 1969, Stopford, 1988).
There are two kinds of charterparty: a) charterparty not by way of demise (time
charter and voyage charter) b) charterparty by way of demise (Bare Boat Charter (BBC)).
From the ship-owners point of view the main difference between these four different types of

8
The chambers of shipping, Baltic and International maritime conference have produced such standard charter
party forms from the accumulated wisdom and experience of charterers and owners dealing with the particular
commodity or trade.
charter is the degree of owner involvement in the shipping operation, the division of cost and
the extent to which the cargo to be transported is specified in the contract.
Voyage Charter Parties: the ship is chartered for a specific voyage e.g. ‘from
Sydney to London’ for a single voyage or from ‘Sydney to London and return’ for a round
trip or return voyage. The possession and control are not transferred to the charterer. A
single-voyage charter is generally used by the shipper who has a specific cargo to ship by sea
and does not wish to become involved in the shipping operation.
The terms are set out in a charterparty and, if all goes well, when the ship arrives on
the due date, the cargo is loaded and transported to port of discharge and discharges the
cargo and the transaction is complete. If the voyage is not complete within the terms of
charter party then there will be a claim.
Some of the important clauses in the voyage charter party are “laytime”, “demurrage”
and “despatch”. In a voyage charter, the time spent by the vessel at the port is of particular
importance to the owner because the freight is fixed only with reference to the quantity of
cargo carried and any undue detention during which he continues to incur fixed overhead
charges such as depreciation, insurance, interest on invested capital, wages etc., has a effect
of reducing his calculated profit. He is therefore anxious to limit the vessels’ stay in port to
the shortest possible time. An important clause in voyage charter party is the one stipulating
the maximum time to be allowed for cargo loading and discharging operations, i.e. the lay
time. The provision of the charterparty usually state the lay time is to commence at a specific
time after notice of readiness has been given. These dates are usually stated in the charter
party.
If the lay-time at the port specified in the charter party is seven days but the time
counted in the port is ten days, the owner submits a claim for three days demurrage to the
charterer. Demurrage is payable at a daily rate, the rate being levied pro-rata for any period
less than a day. Demurrage is not payable for extraneous causes specifically defined in the
charter party e.g. riots, strikes etc.
Conversely, if the ship spends only five days in the port, the charterer will submit a
claim for two days ‘despatch’ to the owner. The rate for ‘despatch’ and demurrage will be
given in dollars per day in the charter party.
In order to give an incentive to the charterer to try to bring actual loading/discharging
time below the laytime and thereby effect savings to owner, the voyage charter party usually
provides for payment of “despatch” money to the charterer for the time that is thus saved. In
other words, despatch money is opposite of demurrage and is a reward payable to the
charterer for completing loading and discharging faster than stipulated under the charterparty.
Customarily, despatch money is fixed at 50% of the agreed rate for demurrage.
Under the voyage charterparty, it is the duty of the ship-owner to send the ship to the
agreed or usual place of loading. He must then give notice to the charterer that the ship is
ready to load. When these conditions are fulfilled the vessel is an “arrived ship”, and the “lay-
days”9 usually begin, and the charterer will be ordinarily bound to load the cargo. It becomes
the duty of the charterer to: procure the stipulated cargo, bring the cargo to the loading place,
load a “full and complete” cargo and, load in the stipulated time. The obligation of the
charterer is absolute, and is excused only where his failure to load the cargo is due to the
ship-owner himself, or where it is expressly covered by the charter party, or where the
charterparty had been frustrated.10 In war time, loading is illegal if the port of destination is
controlled by enemies of the charterer’s state, or if a ship-owner is a subject of a state at war
with the charterer’s state.
The weight of the cargo to be carried is specified in the voyage charter and if the
charterer fails to deliver the contracted quantity or “full cargo”, the charterperty often
contains provisions that the charterer will pay freight at agreed rate on that portion of the
ships stowage space which he has not filled. This is known as dead freight which the ship
owner may claim on the quantity short delivered.
There is also Consecutive Voyage Charter Party which means a ship undertaking
series of voyages and presenting itself with dispatch and expedition for a second voyage
immediately she has discharged the cargo of the first voyage. If the ship gets some cargo at
the port of discharge and makes a trip to some other port before it comes to pick up the cargo
for a second voyage, it would not be doing a consecutive voyage. Therefore, in a consecutive
voyage charter ship will have to take its chance in getting some immediate cargo from the
port of discharge to the port of loading and whenever this is not available it has to ballast.
The cost of ballasting back will be reflected in the freight rates, which will be worked out on
the basis of the ship carrying the cargo only one way (Ram, 1969 p.133).
The shipper who is not conversant with the shipping trade and does not want to get
into it would always prefer a Voyage Charter.

9
The time allowed to the charterer for loading and discharging a ship is called “lay days”. Lay days are
reckoned either by running days or working days. Running days are consecutive days, running from one date to
another without any break or exception. “working days” are those days on which it is usual to work at the port,
Sundays and holidays are not being counted as lay days. “weather working days” are all working days on which
the weather allows work being done at the port.
10
The usual exceptions that protect the charterer are: strikes, lock-outs and labour disputes; riots and civil
commotions; accidents for which charterer is not responsible; ice, fros, fog, snow and storm.
 The “Uniform General Charter” (Gencon) of the BIMCO is a standard form of voyage
charter party. This charter party is widely used in India and elsewhere and has been designed
for general purposes rather than for any particular trade.
Following are some charterparty used for specific trade: Mediterranean Iron Ore
Charterparty, RIODOC iron charterparty, continent grain charterparty (Synacomex);
Nauyozai Charterparty, continent grain charterpery, Baltimore Berth Grain charterparty etc.
Charter party commonly used in Indian export/import trade for the movement of bulk
commodities like iron ore, food grains, fertilizer etc are: C.(ore) 7 Charterparty, Ferticon, and
Baltimore Berth Grain.
Time Charter Party:
The ship-owner lets out the vessels to a charterer for a period of some months or few
years. In Time Charter, the contract between the owner and the charterer is for the use of ship
and ship’s crew for a specific period of time that may range from few months to few years.
Under this type of Charter Party the ship-owner places the ship along with the crew and
equipment, at the disposal of the charterer, for which he pays more. The charterer decides the
type of cargo and the voyage. The charterer is responsible for supplying the ships with the
bunkers and for the payment of cargo handling operation, port charges, pilotage, towage and
ships agencies. The technical operation and navigation of the ship remain the responsibility of
the ship-owner. The possession and control of the ship are not transferred to the charter and
the ship-owner exercises these rights through the master and crew who are employed by the
ship-owner.
The time charter transferes many of the expenses and commercial responsibilities to
the Charterer from the ship-owner. During that period the ship-owner continues to pay the
operating costs of the vessel (i.e. crew, maintenance and repair), but the charterer directs the
commercial operation of the vessel and pays all voyage expenses (i.e. bunkers, port charges
and canal dues) and cargo handling costs.
Time Chartering is usually resorted to when the charterer desires to operate a vessel
for a period of time without undertaking either the financial commitments of ownership or
responsibilities of navigation and management of the vessel. While under voyage charter, the
owner undertakes to provide a vessel for the carriage of specific goods on one or several
voyages between the named port, whereas under time charter the owner undertakes to place
the vessel at the disposal of the charterer for a period of time during which the charterer
would be free to employ the vessel on his own account. The charterer takes the substantial
part in the operation of the vessel and becomes liable for the costs which are directly
incidental to the voyages on which he employs the vessel, such as cost of bunkers, port
charges, loading and unloading charges etc., while the owner meets the operational costs such
as wages, provisions, stores, insurance, repairs, survey and also other fixed costs like
depreciation, interest charges etc.
Another point of distinction between time charter and voyage charter is the basis for
calculating hire or freight. In case of voyage charter, freight is paid on the cargo carried and
is directly proportionate to the volume of cargo. In the case of time charter, the volume of
cargo has no relation to the charter hire which is fixed on the basis of carrying capacity
(deadweight tonnage) of the ship and is directly proportionate to the period of charter.
One usual clause in the Time charter is that the charterer shall not be required to pay
hire for such time as is caused by breakdown of machinery, or repairs, or other factors which
are attributed to the owner, such clause is known as “off-hire” clause.
The two standard forms of time-charterpary in common use for purposes of the Indian
trade are the Bimco Uniform Time Charter (Code name: Baltime) and the Newyork Produce
Exchange Time-Charter (Code name: New York Produce).
In a time charter, the owner must provide a warranty regarding the vessel’s
performance parameters in terms of speed and fuel consumption; the terms of hire would be
adjusted if these margins are not met.
The charter hire or the freight is determined per ton per month based on the summer
deadweight carrying capacity of the ship. Whether the charterer utilises the vessel in full or
part during the period is no concern of the owner. The charterer is liable for payment of the
agreed hire/freight in advance or periodically as stipulated in the Time Charter Party.
The Time Charter Party merely provide for the delivery of the vessel at an agreed
port, the owner is indifferent as to what the discharge port is or the time taken to reach the
port because he gets paid on the basis of the time for which ship is used by the charterer.
Though the ship-owner retains the manning and running of ship, he is not concerned
with the variable expenses incurred by the Charterer under Time Charter. The expenses such
as fuel, water boilers, port charges, pilotage and canal dues are borne by the Charterer.
The ship-owner is responsible for the payment of the crew, maintenance of the ship
for keeping it in seaworthy condition. In case of break-down of the ship, the ship-owner is
responsible and not the charterer.
The redelivery of the ship is agreed between the parties at the end of a specific period.
 Parties have the option of using standardized Time Charter Party Forms such as “The
New York Produce Exchange Form”, “Forms of 1921, 1931 and 1946” “Baltic International
Maritime Conference Form” and the “Baltic and White Sea Conference Form”.
The liner companies enter into time charter when the availability of general cargo for
transport is high and the liner companies do not have ships with them for that purpose. Liner
companies are principal time charterers. They charter tramp vessels either to replace their
vessel undergoing repairs or to meet increased tonnage in the routes in which they operate.
The freight rates are higher in case of voyage charter compare to time charter.
Another form of chartering that is resorted to occasionally is the long-term chartering.
The oil companies were the first in the field to undertake long term chartering for
transportation of oil. The programme for the disposal of surplus commodities under the US
Public Law 480, the US government entered into long-term charter to dispose of surplus
commodities. Under this scheme the US disposed of 16 millon tons of wheat and 1 million
tons of rice to India in 1960.
The long-term commitments are made between the owners and the charters either on
the basis of fixed freight rates or on the basis of variable freight rates.
The ship-owner has lien on cargo both in Time Charter Party and Voyage Charter
Party. Both the Charter Parties provide for forum clause and choice of law clause in case of
dispute. Arbitration is the usual forum.
Demise or Bare Boat Charter Parties 11: in case of the bareboat charter we have
reached the opposite end of the spectrum from the voyage charter in terms of the involvement
of the ship-owner in operating the ship.
Demise and Bare Boat Charter contemplates arrangement between the owner and the
Charterer analogous to the arrangements between a landlord and tenant for leasing real estate
property for long term. The Charterer employs the Master and the crew 12 with all the fixed
and variable expenses in connection with the operation and is in complete control of the ship
during the entire period covered by the Charter. Under this arrangement the ship-owner hands
over the vessel to the charterer who manages the vessel and pays all operating and voyage
expenses. the Master and the crew are servants of the charterer. The possession and control
vests with the charterer. The Bare Boat Charter meant the charterer stepping into the shoes of
the owner and discharging all functions of the owner. The demise charterpart later evolved
into a Bare Boat Charter.
11
Demise Charter is British terminology where as in the US it is known as Bare Boat Charter.
12
As a matter of convenience the Charterer may take all the crew member already employed by the ship-owner
and assume responsibility of paying them.
 Both under the Voyage Charter and Time Charter, the owner takes part in the
management of the ship. In a Demise Charter, his interest is only in receiving the hire
payment and getting back his ship in good condition at the end of the lease period. All
obligations arising out of the ownership of the ship are transferred except the reversionary
rights of owner.
All the Charter Parties invariably provide for a survey both at the time of delivery and
redelivery. The Demise Charter also provides for periodical joint inspection of the ship
because the ship-owner still has interest in the property and is anxious to ensure that his
property is not damaged or spoiled beyond reasonable limits.
A Charterer who has to move large quantity of goods continuously for a long period
of time thinks of a Demise Charter because he does not want to invest large capital in
building or buying ships as this capital can be used better elsewhere by him. There may be
tax reasons, the Demise Charter hire could be considered as his expenses and a Charterer may
have certain advantages by operating in such manner. In times of war, Governments who
require control of large shipping tonnage had been chartering quite a number of ships on
Demise Charter because they knew that their requirement was only temporary and there was
no need to acquire ships.
Sometimes, bareboat charter serves as “hire purchase” contract i.e. contract for the
purchase of a vessel on installment basis. Under such a contract, the owner/seller retains
formal ownership and thereby security in the vessel until the full purchase price is paid.
The bare boat charterparty commonly used in India is the standard “Barecon”
charterperty.
Bare Boat Charter hire is relatively low and the Charter hire is settled on a monthly
basis (in Time Charter it is payable in advance). The cost of marine and cargo insurance is
paid by the Charterer but the Hull insurance is still paid by the owner of the ship because his
interest in the ship is not lost.
Bare Boat Charterparty registration is a legal arrangement whereby the nationality of
the Bare Boat charter is allotted to the ship and is evidenced by flying the flag of that State
during the life of the charterparty. Numerous States offer this vessel registration option.
BBC registration is not normally the original or primary registration it is rather a
secondary registration in that the vessel is presumed to have had previous and or to have an
existing registration.
If the charterparty is a charterparty by way of demise, the master and the crew are
servants of the charter for the duration of the charterparty; consequently, where the goods of
other shipper are shipped on board the ship, the bills of lading are signed by the master of as
the servant of the charterer, not of ship-owner and each contract of affreightment is between
the shipper and charterer. In such case, the charterer is the carrier of the goods shipped and is
liable accordingly to the owner of the goods. As regards the charterer’s goods shipped on the
ship, the charterer is carrying his own goods.
In a charterparty not by way of demise, the master and crew are servants of the ship-
owner; and the ship-owner is the carrier both of goods of the charterer and those of other
shippers. The bills of lading are signed by the master as agent of the ship-owner, and the
contract of affreightment is made between the shipper and the ship-owner.
The charterparty usually contains several stipulations as to: a) the name of the ship b)
nationality of ship c) class of the ship i.e. sailing ship, steamship etc. d) registration class of
the ship at Lloyd’s e) carrying capacity of the ship f) registered tonnage of the ship g)
position of the ship at the date of the charterparty h) that the ship will be ready to load by a
given date i) that the ship will proceed forthwith to the port of loading j) cesser clause.
A detailed charterparty provides clear guidance on the allocation of liability.
There is no international convention governing charteperties although a charterparty
document is of a truly international character. There are number of terms such as “lay time”
“lay days” “despatch” demurrage, “notice of readiness” “safe port” etc. which are commonly
used in the charter parties. With the years of experience, ship-owners and charterers know
what these terms mean but even so, in the absence of an agreed definition, disputes have
often arisen in regard to their interpretation. The courts or arbitration tribunals of different
countries have sometimes given different meanings to these terms and the courts of the same
country a different or same level of jurisdiction have given different meaning at different
times. Some international bodies such as CMI and ICC are evolving common terms such as
“incoterms”. International contracts between the shipper, carrier, consignee, multimodal
transport operators, insurers, etc. contain several abbreviations such as C.I.F., F.O.B etc.
These are the terms used in the transport document, insurance document and other documents
used in the export and import of cargo. These terms were devised for mercantile convenience,
there were the products of mercantile customs got assimilated into maritime law. Over a
period of time these terms came to be interpreted differently in different jurisdictions which
caused great amount of misunderstanding. An international business association the
International Chamber of Commerce (ICC) made attempts to standardize the rules of
interpretation of these terms. The first set of rules, the INCOTERMS (International Rules for
the Interpretation of Trade Terms), was published in 1936. Since then the ICC has
periodically introduced new terms and revised existing terms to accommodate new modes of
transport system and emerging trade practices.
Tanker Chartering: Tankers are specialized bulk carriers that carry liquid cargo.
Carrying of oil in bulk in modern time appears to have started only in 1863. Liquid cargo
such as alcohol, wine, chemicals, and juices are carried in specially built tankers.
Time Charters are also very common in tanker trade, many independent owners fix
their tankers on long term time charters running up to periods of ten or more years. The time
charter is fixed on the basis of a rate per tone for a certain number of years of trading.
A tanker can carry dirty oil as well as clean oil. There is higher rate of corrosion when
carrying clean oil when compared with dirty oil. Therefore the time charter rate for carriage
of clean oil is more. In all Charters the type of oil allowed to be carried is specified. The time
charter rates for tankers are also governed by the speed of the vessel and its daily fuel
consumption.
A tanker rates are worked out on the basis of carrying oil one way and ballasting on
the return journey, after discharging the liquid cargo at the port of discharged these cargo
tankers were invariably ballasted back one way. Technological advances made it possible for
liquid tankers to carry dry bulks. an owner who has a long-term contract to carry oil with
privileges to load grain one way would be in an ideal position to use his tanker both ways.
At one time it was considered impossible to use a tanker to carry any type of dry bulk
cargo because of the problem of ventilation and the fear that grain in the holds would
deteriorate in the course of long voyage and more over unloading grain from tanker was not
an easy task. There was also problem of cleaning and making it odorless after the tanker
being loaded with oil. Modern chemistry came to aid and the process of cleaning adopted in a
tanker now make it fool-proof against all types of infestation apart from its making it clean
and odorless. Even then grains were carried in tanker only in isolated cases because it needed
shore facility to discharge the grain from the tanker. The dock side elevator in the European
ports sucked the wheat out of the tankers and blew it in a heap on the docks. This facility was
not available in all the ports and there was no other method for unloading grain from tankers
(Ram, 1968). With the spread of the use of tanker for carrying grain in recent years many
owners are making use of their tankers to carry grain one way instead of ballasting.
A sizeable quantity of grain began moving to India from US ports from 1956, as a
result of movement of surplus commodities under Public Law 480 programme of the US. The
Port in India did not have automatic unloading shore facility for unload wheat from tankers.
This problem was overcome by portable suction machines that were carried along with the
tankers and installed in them to suck the wheat from the tanks and carry them through a 20
feet pipeline to be blown in a heap on the docks. This novel experiment was devised by an
enterprising American firm in collaboration with the India Supply Mission in Washington.
Carrying dry bulk in oil tankers brought about several advantages. First of all the
transportation cost reduced, running the ship in ballast was also reduced. Tankers have better
carrying capacity, a typical dry cargo Liberty ship carried only 10,000 tons but a smallest T-2
tanker could carry 15,000 to 16,000 tons. Tankers vessels are much faster than the dry cargo
ships.
Generally chartering rates of tankers are negotiated for each voyage separately and the
negotiation is done on the basis of certain scales which set the rates of freight per ton, the
British Ministry of Transport was the first one to introduce tanker scale. Later the scale was
replaced by London Market tanker Nominal freight scale in 1958. The International Tanker
Nominal freight Scale (Inta Scale) adopted in 1962.

THE GENEVA CONVENTION ON THE HIGH SEA 1958

United Nations Law of the Sea Conference (UNCLOS-I)
It discussed the fundamental issues of:
 the ownership of the sea,
 the right of passage through it and
 the ownership of seabed
Four treaties were eventually finalized dealing with the issues of:
1) High Seas
2) The territorial seas and Contiguous Zone
3) Continental Shelf
4) The Conservation of fisheries
The treaty of the High Seas is relevant in this context. This convention defines the
high seas and established the right of the vessels flying a particular flag to proceed without
interference from other vessels. This convention also took the first step towards establishing
on an internationally accepted basis the terms on which nationality could be granted to
a merchant ship and the legal status of that ship.

Article 5 of the 1958 Convention states that:

 “Each state shall fix the conditions for the grant of its nationality to ships,
for the registration of ships in its territory, and for the right to fly its flag. Ships
have the nationality of the state whose flag they are entitled to fly. There must
exist a genuine link between the state and the ship; in particular, the state must
effectively exercise its jurisdiction and control in administrative, technical and
social matters over ships flying its flag.”

The flag state has a secondary duty, functional in nature, to effectively

exercise jurisdictional control over the internal affairs of the ship.

This concept of the need for a ‘genuine link’ was also recognized in the 1982 UN Convention
on the Law of the Sea (UNCLOS III) but again did not provide a definition.

Article 91 of UNCLOS III stipulates the requirement of a ‘genuine link’ between the
ship and the flag state. In view of the UNCLOS stipulations, every shipping company must
therefore register its ship under a flag, i.e. in a State.

Ships are mobile and can be bought and sold while on the high seas.

Similarly their cargo too can change hands while the ship is still transporting them.

Transfer of registration from one flag registry to another is also done while the ship is on high
seas.

Some FOC countries offer on-line registration without any verification of the owners to
establish link between owner and the flag state.

Ships operate in international waters, outside the jurisdiction of nation-states. there exist no
apparatus to monitor various international conventions governing activities on the high seas,
and therefore their enforcement is weak. This becomes more difficult when ships operate
under FOC.

Registration of Ships

Registration of merchant ships as a means of bestowing upon the British nationality has been
recognized in the UK ever since 1660 when the ‘Charta Maritima’(Navigation Act 1660) was
passed.
By registration, a ship is recognized as a British ship by law and thus becomes entitled to fly
the British flag, and eligible to claim the “benefits, privileges, advantages or protection
usually enjoyed by British ships.

The principle of the exclusive jurisdiction of the flag state over ships on high seas makes it
necessary that every ship which is lawfully on the high seas should have a nationality and in
order to give it a nationality, it should be registered in a state.

It is an obligation of the ship-owner under the rule of International law. Granting of

the flag to the ship is a legal duty imposed on states by both customary and conventional law
(Art. 5 of Geneva Convention of the High Seas 1958). After the registry the ship may fly the
flag of the country where it is registered and the State provides with the Certificate of
Registration as evidence of registered in that state. The registration process makes the ship an
extension of national territory while it is in international waters.

Open Register i.e. ships belonging to nationals of any country may apply for
registration (UK allows Greek, Norwegian or Danish ship-owner to register under UK flag
provided he satisfies certain requirement). And some countries’ have Closed Register i.e. it
provides registration to only those ships which belong to its nationals (Soviet Union). Some
Countries require 50% or 75% shareholding must be that of its nationals.
The number of crew required on a merchant ship depends upon regulations laid down
by the flag of registration. The economics of running a merchant ship depend on crew costs,
maintenance standards and taxation level—all of which depend on the laws governing ship
registration.

National registers and International registers. A national register is one that treats
the shipping company in the same way as any other business in the country. Certain special
incentives or subsidies may be available, but broadly speaking the shipping company is
subject to the full range of financial, company and employment regulations that apply to all
companies in that country.
The international register is one that has been set up with the specific aim of offering
ship-owners internationally competitive terms, often as a means of earning revenue for the
flag state
Freedom of navigation means freedom of ships of all nationalities to operate on the high seas.
Ships on the high seas are however, subject to the law of the flag state and this makes it
necessary that every ship which is lawfully on the high seas should be registered in a state so
that it has a nationality. Unless it has a flag (nationality) it is liable to be captured as a pirate
ship on the high seas.

An international convention on the unification of certain rules relating to maritime liens and
mortgages was adopted in 1926

LIEN: Ship-owners Lien and Maritime Lien

Lien means the ship-owner’s right to retain possession of the goods carried on board
as security for payment of freight and certain other charges.
A ship-owner has by common law a lien on goods carried for:
a) freight,
b) general average contribution13
c) salvage expenditure.
d) dead freight,14
e) demurrage,15
f) lighterage at port of discharge, and
Right to retain the goods in his possession until the freight upon them has been paid.
It does not give the ship-owner any property in goods
Can’t enable him to sell them (British Merchant shipping Act 1894, a power to sell the
goods)

It can be exercised against all goods consigned to the same person on the same voyage, even
under different bills of lading,
but not against goods on different voyages under different contract.
13
“All loss which arises in consequences of extraordinary sacrifices (jettison) made, or expenses incurred, for
the preservation of ship and cargo come within general average, and must be borne proportionately by all who
are interested” (Lawrance J., in Brirkley . Presgrave (1801) 1 East 220, 228). A particular average loss is a
partial loss fortuitously caused by a maritime peril and is different from a “general average loss”, which is a loss
voluntarily incurred for common safety. (Mitra B.C., (1972) p.82).
14
Under a charterparty the charterer undertakes to load a “full and complete cargo” —fill up the entire space
hired. The charterer is liable in damages for not producing the “full and complete cargo”; such damages are
called “dead freight”.
15
Demurrage is a sum agreed by the charterer to be paid as liquidated damages for delay beyond a stipulated or
reasonable time for loading and unloading. The charter party or bill of lading often gives the ship-owner a lien
in respect of demurrage.
Where a general average loss has occurred on a voyage, the ship-owner or master has the
right to retain the cargo until he is paid or tendered the amount due on it for general
average
MARITIME LIEN
A “maritime lien” is a claim or privilege upon a maritime res16 in respect of:
a) service done to it or
b) injury caused by it.
 It does not require possession of the res
 A maritime lien travels with the res into whosoever possession it may come.
 It is unaffected by change of ownership or registration
 There can be no maritime lien upon a res which is not a ship or her apparel or cargo.
 Maritime Lien is very unique it is very different from contractual lien.
 It is known as the right in rem i.e. a right enforceable against the whole world as
opposed to right in personam i.e. against a particular person (or the owner).
Necessity for Maritime Lien:
 A ship might need unexpected assistance from strangers when encountering perils
of the sea.
 It is an evasive sort of property which may slip out of the hands of a person.
 The owner may be far way, his financial standing unknown and the courts of
the country of registry may be inefficient or expensive to approach.
All these factors have led to the concept of “maritime lien” by which the injured party
is enabled to make the vessel herself available as security for his claim.
A maritime lien takes precedence over the claim of a mortgagee in respect of a
mortgaged ship

Maritime lien are:

 wages and other sums, (due to the officers and crew of a vessel in respect of
their employment on the vessel)
 public charges, (like the tonnage dues, harbour dues and pilotage dues etc.)
 salvage,
 contribution to general average contribution,
 claims in respect of loss of life or personal injury,
16
In the civil law, the term res signify a thing or an object. (Conscise Law Dictionary, 2007)
  claims for damage etc arising out of tort.
 The seller of a ship may have a possessory lien for the unpaid purchase price
and
 a ship repairer may have a similar lien for repairs done on the vessel.
A ship may be arrested under an authority of a court for any maritime claim. Maritime lien
attaching to the vessel at the time of the arrest have priority over other claims for which the
ship is arrested.

An international convention on the unification of certain rules relating to maritime liens and
mortgages was adopted in 1926.

Registration of Ship and Flag of Convenience

 Registration of merchant ships as a means of bestowing upon the nationality
 entitled to fly the flag of that nationality (flag being prima facie or visible evidence of
registry)
 eligible to claim the “benefits, privileges, advantages or protection”
 It bestows national character upon the vessels
 National character is required for the implementation of jurisdictional principle
The criteria for conferral of national character:
1) Closed Registry: It is the practice of state to bestow national character only to ships
wholly owned by its citizens and manned primarily with national crew.
2) Open Registry: It is the practice of a state to allow the conferment of national
character upon ships regardless of ownership, control and manning. The use of an
international open register generally involves payment of an initial registration fee and an
annual ‘tonnage tax’, which enables the register to cover its costs and make profit. In turn, the
register offers a legal and commercial environment specifically designed to suit a ship-owner
trading internationally. In general the open registers do not impose tax on profits but
subscription tax on registered tonnage, the ship-owner has complete freedom with respect to
recruitment of crew and their working conditions; shipping companies are given complete
freedom over its corporate activities such as, appointment of directors, administration of
business etc; safety standards are flexible.
The economics of running a merchant ship depend on:
crew costs,
maintenance standards and
taxation level—all of which depend on the laws governing ship registration.

Because of the interdependence between legal regulation and ship operating economics, the
choice of register has become a major issue for ship-owners.
Economics became the decisive factor that determines the flag of ship it flies (maximize
revenue and minimize costs).

Flag of Convenience
keeping in mind the competition in the market, a ship owner carefully started choosing a flag
for its ship—a convenient flag from the open registry country
The use of open registry thus came to be known as ‘Flag of Convenience’
Profit maximization has been the guiding rule or the basic criterion for choosing a flag for the
ship by the ship-owner.
A Flag of Convenience (FOC) ship is a vessel that flies flag of a country other than the
country of ownership. It enables owners to avoid high registration fees, taxes and employ
cheap labour under sub-standard conditions.

Origin
During pre and post-Napoleonic war certain European powers registered elsewhere in neutral
parts of Europe or even abroad to avoid capture and seizure.
By the First World War, the then allied traditional maritime nations registered in neutral
territories to avoid German torpedoes and capture.

World War I and II the Neutrality Act forbade US ships from sailing to belligerent ports, the
Administration encouraged the transfer of American ships to Panamanian and Honduran
registry.
Shortly afterwards, Panama adapted its laws to attract ship-owners from anywhere in the
world
Since the end of World War II Panama and Honduras have been chief recipient of vessels not
only from America but also from European countries.
Thus the two international open registers were established; later Liberia joined the two
countries as a home for American Shipping.

Anxious to avoid operation under the American flag because of stringent laws and high
running cost,17 the US tax lawyers approached Liberia to set up an advantageous regime for
ship registration, and the registration conditions in Liberia were developed specifically to
attract ship-owners to register under that flag on the payment of an annual fee.

Later Costa Rica came up with its open registry in 1953, Lebanon in 1960, Cyprus in 1966,
Somalia and Singapore in 1968 and many countries started to follow their example and set up open
registry.

In these counties there are few safety regulations and those which do exist are inadequately
enforced, offered greater tax savings.

FOC posed many problems:

1) International conventions on Merchant Shipping would not apply to Liberia, Honduras and Panama
tonnage unless these countries ratify the same. This is irrespective of the fact that their ship-owners
are nationals of the states that have ratified those Conventions.

2) the expansion and existence of flags of convenience fleet, it is thought, exerts a considerable
downward pressure on freight rates and puts at a disadvantage companies resident in high-tax
countries.

3) Flag hopping has become common practice these days, ship owners tent to switch registry
at the first sign of a crackdown by authorities for engaging in activities involving gun running, drug
smuggling, transporting illegal cargo or human trafficking.

4) FOC registry had doubled over the past years and accounts for more than 50% of world
shipping is registered under ‘flag of convenience’(FOC), Nearly 60% of tankers transporting oil
worldwide operate under FOC

5) This system was been opposed by several countries. Labour unions in the US, Europe,
Australia and Japan have accused shipping companies resorting to FOC registry and take advantage of
lax laws, thereby compromising on safety regulations and violating labour laws.

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The cost of running a tanker under the American flag is 25% higher than under foreign flag, higher labour
costs-perhaps the higher American standard of living, American flag vessels are required get their repairs done
in the US, which is double the world market or pay 50% duty on all foreign repairs (Under Two Flags, Stanford
Law Review vol.5, p.797).
 6) the system has been opposed by the seamen’s unions, particularly the International
Transport Workers’ Federation (ITF). Thus, the ITF appealed to the ILO in 1946 to carry out an
investigation into the social conditions and safety of seafarers in the FOC vessels, and the ILO
thorugh its Joint Maritme Commission carried out the investigation and prepared a report in 1947. ,
Thus the ILO came up with two Recommendations No. 107—the Seafarers Engagement (Foreign
vessels) Recommendation, 1958 and Recommendation No. 108—the Social Conditions and Safety
(Seafarers) Recommendation, 1958

7) FOC are safe haven for tax holidays and protecting unhealthy ships.