Legal and Tax Aspect of Business Tuesday, 6-9 PM Atty.

Leopoldo San Buenaventura

Clark Oliver C. Cortez

Characteristics of Maritime Transactions

Real
A vessel is essentially a personal property because it is moveable. However, the Supreme Court characterized maritime transactions as similar to transactions over real property which are effected through registration.

Hypothecary
If the vessel sinks, the liability of the owner is extinguished.

Arrastre operations are not maritime Arrastre - the operation of receiving, conveying, and loading or unloading merchandise on piers

Exception to Hypothecary Nature of Maritime Transactions

Would not apply when ship owner at fault

Case 1: Central Shipping Co. vs. Insurance Co. of N.A. Facts: The vessel carrying logs was lost at sea due to

monsoon and the improper securing of logs. Can the ship owner be excused from liability for the loss of vessel based on fortuitous event?
Held: No. Monsoon is a seasonal occurrence and could

have been anticipated and prepared for.

Case 2: Manila Steamship vs. Abdulhaman Facts: Abdulhaman bought a submarine chaser of WWII vintage, which he converted into a passenger vessel. The chaser, being at fault, collided with a new steel vessel of Manila Steamship Co and it sank (chaser). MS sued to recover for damages as Abdulhaman has other properties. Abdulhaman put up the defense his liability was extinguished by the loss of the chaser. It was proven that the chaser, being of a certain tonnage, should have been commanded by one having the qualifications of Captain and not a mere patron.

Held: Abdulhaman is still liable. The hypothecary nature will not apply when the shipowner is personally at fault due to: a) Lack of proper equipment b) Lack of proper technical training of the officers and crew

Would not apply to repairs of vessel Would not apply to vessel being made a collateral Liability under labor code
Case: Abueg vs. San Diego
Facts: A vessel of San Diego, a shipping operator, sank and a crew member died. When the heirs of the deceased sought compensation under the Workmens Compensation Law, San Diego put up the hypothecary nature of maritime transactions as defense to avoid liability, since the vessel sank. Held: San Diego is still liable since workmens compensation is an exemption to the hypothecary nature.

Would not apply to extent covered by insurance

- If vessel at fault sinks but is insured, the insurance takes place of such vessel; hence liability subsists, but only to the extent of the insurance proceeds, the excess is still hypothecary

Summation on exceptions:
The Limited Liability Rule is subject to the following:
a) The passengers injury or death is due either to fault of the ship owner or to the concurring negligence of the ship owner and the captain b) The vessel is insured c) In workmens compensation claims

Ship Mortgage Act of 1978 authorizes for the purpose of financing the construction, acquisition, purchase or initial operations of vessels, the constitution of a mortgage or any other lien on the vessel or its equipment with any financing institution

Charter Party

A written contract whereby the ship owner or the ship agent leases the vessel to transport passengers or cargo for a fixed price. A contract by which an entire ship or some principal part thereof, is leased by the owner to another person for a specified time or use.

Classifications of Charter Party

1. Contract of Affreightment
2. Bareboat or demise charter

Contract of Affreightment

The owner of a ship or other vessel leases the whole or part to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.

Two types of Contract of Affreightment:

Time charter - vessel is leased to charterer for a fixed period of time Voyage charter ship is leased for a single voyage

Bareboat / Demise Charter

The charterer mans the vessel with his own people and becomes, in effect, the owner of the voyage or service stipulated, subject to liability for damages caused by negligence.

Comparison between Contract of Affreightment and Bare Boat or Demise Charter

CONTRACT OF AFFREIGHTMENT VOYAGE OWNER COMMAND CREW SUPPLIES LIABILITY SHIP OWNER SHIP OWNER SHIP OWNER SHIP OWNER SHIP OWNER

BARE BOAT CHARTER CHARTERER CHARTERER CHARTERER CHARTERER CHARTERER

OTHER PROVISIONS RELATING TO CHARTER PARTY

Art 670 If charterers cargo is not sufficient to fill 3/5 of the capacity of the vessel, the carrier has the right to unload the cargo and put it on a smaller vessel at the expense of charterer. Art 671 if the charterers cargo exceeds 3/5 of the capacity of the vessel, the carrier cannot exercise Art 670 Art 672 if the vessel is chartered in whole by one party, the owner cannot receive the cargo of any other person because the charter party is an exclusive contract. Art 673 the owner of the vessel is liable to the charterer for damages in case the captain unduly delays the voyage

Art 674 if the charterer brings more than the agreed upon, the carrier may accept the increase in cargo and demand increase in freightage provided the vessel is not overloaded
Art 675 - if the vessel has been chartered to load cargo in another port and upon arrival in that port there is no cargo delivered, the captain has two alternatives: a) look for another cargo b) if after laydays has expired, the captain should file a marine protest and return to home port in full ballast. The charterer pays the freight in full Art 676 - no right of freightage if charterer can prove that vessel is not in condition to navigate. Art 679 Charterer may sub-charter Art 680 Charterer who cannot fill the vessel is liable for full freightage

Art 681 Charterer is liable for damages if loaded cargo subjects the vessel to forfeiture or confiscation. Carrier can open the packages of shipper to find out whether they contain items which may subject the vessel to forfeiture.

Rescission by Charterer

Before loading the vessel, cancel unilaterally by paying of freightage agreed upon. When the vessel is not up to the capacity agreed upon or the flag under which it sails differs from that agreed upon. When the vessel is not placed at the disposal of the vessel within the period agreed upon When the vessel returns due to pirates or bad weather and the charterer decides to unload but he must pay full freightage. When the vessel returns for repairs if repairs takes less than 30 days, pay freightage for voyage out; if it exceeds 30 days freightage must be paid in proportion to the distance covered.

Rescission by Owner

When the charterer fails to load the vessel and lay days expired; the charterer must still pay freightage. When the owner sells the vessel, and the new owner, despite his knowledge of the charter party decides to load the vessel with his own cargo. But should the new owner not have any cargo, he must respect the charter party.

Total Rescission Due to Fortuitous Event

War Blockade Prohibition to receive cargo Embargo of vessel by Government Inability of vessel to navigate due to no fault of captain or ship agent.

BOTTOMRY AND RESPONDENTIA

Common Elements:

Exposure of security to marine perils Obligation of debtor conditioned only upon safe arrival of the security at the point of destination

Who may Contract?

Bottomry General rule: Owner of the vessel If Owner is absent: The Captain Respondentia Only the owner of the cargo

AVERAGES
Average is defined as a damage deliberately caused, or an expense deliberately incurred due to a marine peril and which has resulted in saving of vessel and/or cargo.

General Average where both vessel and cargo were saved Particular Average where only vessel or cargo was saved.

Collision
Art. 826 states that the guilty vessel must pay for the damage caused by collision, except if the guilty vessel sinks because of its hypothecary nature.

Collision when both vessels are moving Allision when one of the vessels is stationary

Five cases covered by Collision and Allision

1.

2.

3. 4. 5.

One Vessel at Fault such vessel is liable for damage caused to innocent vessel as well as damages suffered by the owners of cargo of both vessel. Both Vessel at Fault each vessel must bear its own loss, but the shippers may go against the ship owners who will be solidarily liable. Vessel at Fault Not Known same rule as (2) Third Vessel at Fault Same rule as (1) Fortuitous Event No liability. Each bears its own loss.

Case: Villacarlos v Everett Steamanship

Facts: A fishing vessel of Philippine registry collided with a vessel from Europe. The foreign vessel was at fault but its owner was beyond the jurisdiction of the courts. The owner, however, had a shipping agent in the Philippines (Everett) but which denied liability because it was only an agent. Held: The agent was fully liable in the absence of the shipowner. The shipping agent acts as owner in the latters absence.

Salvage Law
Salvage Law provides for compulsory reward to those who brave the perils of the sea to save cargo or vessel in order to encourage such services. Whether the owner of the property saved likes it or not, he must give a reward, the maximum of which is 50% of the true value of property saved.

Four Requisites for Salvage Reward to be Warranted

There must be a valid object of salvage 2. Such subject must have been exposed to marine peril 3. Salvage services must be rendered voluntarily 4. Salvage effort must be successful
1.

Derelict
A vessel or cargo badly damaged and abandoned by the crew to the mercy of the sea. Case: Barrios vs. Go Thong Facts: Go Thong was the owner of a vessel plying the route from Mindanao to Cebu. The engine of the vessel stopped while the vessel was in the middle of the sea. The captain radioed and was told that a sister ship was on its way to tow the vessel. The sea was calm. The radio message was picked up by another vessel which approached the stranded vessel and offered to tow it. The captain of the vessel agreed and the vessel was towed. The owner of the towing vessel knew the owner of the stranded vessel and so the former waived the charges. But the captain and crew of the towing vessel complained about their respective share in the reward.

Issue: Was there salvage or towage? Held: There was no salvage because there was no marine peril. There was no danger; the sea was calm and a sister ship was nearby. Hence, there was no reward due. No compensation for towage was due on account of the waiver.

Domestic Shipping Development Act of 2004

The Act was enacted in recognition of the vitality of the shipping industry to the economic development of our country, and recognized the need to grant the industry the necessary incentives to ensure the continued viability of, and encourage investments in the domestic shipping industry.

Incentives for Domestic Ship Operators

Vat exemption within 10 years from effectivity of the Act on importation and local purchase of passenger and cargo vessels of 150 tons and above including the engine and its spare parts, life-saving, safety and rescue, communication and navigational safety equipment, and other equipment used for transport operations. Net operating loss carry-over for the next 3 consecutive taxable years

Accelerated Depreciation

Incentives for Shipbuilding and Ship Repairs

Vat exemption on importation of capital equipment, machinery, spare parts, and other materials to be used for the construction, repair, and renovation of the vessel operated in domestic trade. Net operating loss carry-over for the next 3 consecutive taxable years.

Accelerated Depreciation

Thank you!