Contributed By Ince
The UK’s port state control agency is the Maritime and Coast Guard Agency (MCA), which is an executive agency of the Department for Transport (DfT).
The Marine Accident Investigation Branch (a branch of the DfT) is empowered by statute to investigate marine casualties involving UK-registered tonnage or those that have taken place within UK territorial waters.
The UK Ship Register (UKSR) is part of the MCA and is one of the oldest and most reputable ship registers in the world.
The UK is no longer a member of the European Union (EU). However, by virtue of the Withdrawal Agreement, most EU law will continue to apply in, and in relation to, the UK until the end of the transition period on 31 December 2020. Furthermore, UK law recognises EU Regulation 4056/86 OJ 1986 L378/4, which sets out detailed rules for the application of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) to maritime transport. The Regulation was adopted to give the European Commission powers to enforce EU competition rules in relation to maritime transport.
EU Regulation 4056/86 only applies to international maritime transport services from or to one or more EU ports. Domestic maritime transport (cabotage) falls outside the Regulation. Separate legislation in relation to domestic maritime transport was adopted in 1992 (EU Regulation 3577/92 OJ 1992 L364/7). Tramp vessel services were also specifically excluded from EU Regulation 4056/86.
Article 101(1) of the TFEU prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade between EU member states and which have as their object or effect the prevention, restriction or distortion of competition within the EU, which includes maritime undertakings. Subject to Article 101(3), such agreements are void and unenforceable in respect of the provisions that restrict competition (Article 101(2)). An agreement that is caught by Article 101(1) may be exempt under Article 101(3). There are two types of exemption:
It is currently unclear how the above will change now that the UK has left the EU, except that any on-site investigative powers of the European Commission in the UK will cease.
The UKSR on its own is not in the top ten ship registries. However, the UKSR has gained a reputation for being a flag of quality and maintaining the highest standards. It is one of the best performing flags in the major port state control regimes, supported by its high position on the Paris and Tokyo Memorandum of Understanding (MoU) White Lists and its inclusion on the US Coastguard Qualship 21 Scheme.
The top ten registries at the start of 2019 comprise:
Official data from the MCA – for all merchant vessels over 100 gross tonnage (GT) – shows that the UKSR-registered merchant fleet fell by 1% in GT in the year ending December 2018. However, GT on the UKSR has grown by 16% compared with the end of 2014, following three consecutive years of growth before 2018.
Based on world fleet data (supplied by IHS Global) for trading vessels only, at the beginning of 2019, the UK-registered trading fleet:
These statistics also show, based on vessel ownership and management, that at the start of 2019:
The Red Ensign Group
The Red Ensign Group is comprised of the UKSR, the UK Crown Dependencies (Isle of Man, Guernsey and Jersey) and the UK Overseas Territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, the Falkland Islands, Gibraltar, Montserrat, St Helena and the Turks & Caicos Islands), all of which operate shipping registers.
Any vessel registered in the UK, a Crown Dependency or a UK Overseas Territory, is a “British ship” and is entitled to fly the Red Ensign flag.
The Merchant Shipping Act 1995 provides for British possessions to be categorised according to the tonnage, size and type of vessel that can be registered. Under the Merchant Shipping (Categorisation of Registries of Relevant British Possessions) (Amendment) Order 2008 (Statutory Instrument 2008 No 1243), these registers are divided into Category 1 and Category 2 flag states.
The Red Ensign Group exists to ensure consistency of quality, establish common standards, share best practice, and represent the interests of the UK Secretary of State for Transport under whose general superintendence the registers are permitted to operate. It also exists to promote the British Red Ensign as a flag of quality to the world.
If taken as a group, the Red Ensign Group would have the 10th largest registered trading fleet in the world at the start of 2019, totalling 59.6 million DWT.
The UK has ratified all the major international maritime conventions, including:
The UK has not ratified the Arrest Convention 1999, the Hamburg Rules, or the Rotterdam Rules.
Although the Hong Kong Convention 2009 on ship recycling is not yet in force and has not been ratified by the UK, aspects of it have been enacted through EU legislation which currently has a direct effect in England and Wales (EU Regulation 1257/2013). Whether the Hong Kong Convention-derived EU regime will continue to apply after the transition period following the UK’s withdrawal from the EU remains to be seen.
The UKSR authorises six leading classification societies to act as Recognised Organisations (ROs) for the survey and inspection of UK ships. Ships must generally be surveyed before registration. The following classification societies are those currently appointed by the UKSR to carry out this work:
These requirements apply to owned and bareboat chartered ships. For registration purposes, existing class certificates can often be accepted instead of costly re-survey work being required.
Alternative Compliance Scheme
Under this voluntary scheme, the survey and certification process is streamlined by minimising duplication of effort between the classification societies and the UKSR. When a ship is registered under the Alternative Compliance Scheme (ACS), it allows the classification society to perform all statutory surveys required under SOLAS, MARPOL and Load Line Conventions with the exception of ISM, ISPS and ILO 178, without a formal "appointment" by the UKSR.
Entry into the scheme is conditional upon port state control and class criteria being met.
The UKSR is divided into four parts as follows:
New Part 1 (Commercial and Commercial Yacht)
Part 1 caters for merchant ships, including workboats, tugs, large cargo ships and passenger vessels operating commercially in the UKSR.
Full registration under Part 1 requires the owner of the vessel(s) to prove ownership by submitting evidence of title covering the previous three years or, if the vessel is less than three years old, a title chain from the builder's certificate.
Part 2 (Fishing Vessels)
Owners of fishing vessels must be registered unless the vessel:
Full registration (Part 1) and simple registration (see Part 3) also apply to fishing vessels.
Part 3 (Small Ships Register or SSR)
Part 3 provides a simple form of non-title registration for eligible UK residents who own pleasure vessels that are less than 24 m in overall length. Mortgages cannot be recorded against a vessel with simple registration.
Part 4 (Bareboat Charter)
Quality ships can be bareboat-chartered into the UKSR from any other world registry and, although there is no specific legislation allowing bareboat chartering out of the UK flag, it is not prohibited. Any company or person who is eligible to be an owner can also become a charterer. As with owned ships, a representative person or a managing charterer must be appointed. There is a separate process for registering a bareboat charter.
The UK does not offer any tax discounts to companies in the shipping industry. However, the UK does operate a tonnage tax regime which effectively enables the profits of shipping companies either tax resident in, or conducting business from, the UK to pay tax at a lower rate.
Prior to the introduction of the Merchant Shipping (Registration of Ships) (Amendment) (EU Exit) Regulations 2019 (UK Statutory Instruments 2019 No 509) (the Merchant Shipping Regulations), the eligibility criteria for registration of a vessel were considered restrictive and constraining and allowed for applications from only a limited group of individuals and companies, comprising UK nationals, UK companies, EU nationals living in the UK, British Dependant Territories and bodies corporate in a European Economic (EEA) State. Not only was business lost because of these restraints, but future growth of the UK flag was also compromised, given that ship ownership is a worldwide business.
These eligibility criteria also permitted EU nationals living in the UK to register ships, but (with the limited exception of Commonwealth nationals for one small part of the register) did not allow nationals of other countries living in the UK to register. Many other Western countries do allow foreigners who have the right to live in their countries to register ships on their flag. Allowing those settled in the UK to register their ships ensures that eligibility is kept to those approved by the immigration system, but on an equal level to those from EU countries.
The purpose of the Merchant Shipping Regulations is to make amendments to the Merchant Shipping (Registration of Ships) Regulations 1993 (SI 1993/3138) (the Registration Regulations). There are three different reasons for these changes.
Firstly, these Regulations have been made in order to extend the eligibility to register a ship on the UK register to Commonwealth citizens and countries, citizens and companies of countries listed in an Annex to the Regulations, and to persons settled in the UK. This is intended to expand the UK’s role in the maritime industry, and to prevent undue competition between the UK register and the registers of the Crown Dependencies and Overseas Territories.
Secondly, these Merchant Shipping Regulations have made amendments to allow ships to bareboat charter out to another register while remaining able to return to the UK register at the end of the charterparty. This is achieved by suspending the ship’s registration. This is required to meet a need of the maritime industry and to ensure the competitiveness of the UK flag. There has also been a consequential change to the Merchant Shipping (Fees) Regulations 2018 (SI 2018/1104).
Thirdly, these Merchant Shipping Regulations amend the Registration Regulations to enable the Registrar General of Shipping and Seamen to refuse to register a ship, or to remove a ship from the Register, if the registration of that ship is prohibited by sanctions regulations.
As a result of the introduction of the Merchant Shipping Regulations, owners or bareboat charterers who want to register their vessels on the UKSR must be one of the following:
If none of the qualified owners are resident in the UK, a representative must be appointed, who is either of the following:
The approved countries in Schedule 6 are as follows:
While the UK is no longer part of the EU, until the end of the transition period at least, the sea transport of goods or passengers between two ports located within a single country, by a vessel registered in another country, ie, maritime cabotage, is still governed by EU Regulation 3577/92, which grants cabotage rights to maritime transport operators qualifying as "Community shipowners".
Under Article 2(2) of the Regulation, these include:
Third countries (outside of the EU) can perform cabotage in the UK because the latter has an open coast policy.
The cabotage regime vis-à-vis "community shipowners" may change post-Brexit, although this is not currently anticipated due to the UK’s open coast policy.
London is one of the financial centres of the world and has been one of the traditional centres for ship finance. In recent years, its primary loan market has shrunk due to the withdrawal of a number of European and UK banks from the vessel finance market; by way of example, in 2013/14, European banks still accounted for roughly three-quarters of the world’s vessel finance portfolio whereas, in 2016/17, the majority of the providers of new loans to the ship finance market were located in the Far East.
However, secondary trading of facilities has gained in popularity in the London marketplace, with many European banks looking to reduce their exposure and investment funds looking to enter the ship finance market. This is a trend that has continued and has seen a number of traditional shipping banks exit the space, to be replaced with funds or fund-backed operations and new entrants from the banking world. The vast majority of these secondary transactions at the high end were done under English law and subject to English jurisdiction.
The presence of a number of high-profile shipping companies, vessel brokers, shipping insurance companies and equity investors, as well as the prevalence of the mature English legal system and jurisdiction, not just in respect of banking but also in respect of commercial shipping and insurance transactions, is likely to ensure that London remains one of the preferred centres for ship finance.
A mortgage over a vessel registered at the UKSR will need to be registered with the UKSR in order to perfect the security created by the mortgage. Where the owner of the vessel is a UK company, the vessel mortgage, as well as any further security documents constituting a charge, must also be registered with Companies House.
This section focuses on commercial (cargo or passenger) vessels under the UK flag; that is, vessels registered with the UKSR under either Part 1 or Part 4, being (respectively) merchant ships or bareboat charters of vessels, in each case over 100 GT.
Registration with the UKSR
Assuming a vessel is registered under the UK flag, the vessel mortgage is the only financing document capable of being registered with the UKSR, and it must be so registered in order for the mortgagee to benefit from the priority claim protection afforded to statutory registered mortgages under the Merchant Shipping Act 1995 (an unregistered mortgage will still be legally binding between mortgagor and mortgagee, but will not have priority against third parties). The mortgage must be in one of two prescribed forms – Form MSF 4736 for account current mortgages and Form MSF 4737 for mortgages intended to secure repayment of principal and interest only.
It is also possible to file a notice of mortgage intent (Form MSF 4739) that will be reflected on the UKSR for a period of 30 days (but may, on written request and payment of a further fee for each renewal, be renewed for successive 30-day periods).
Registration with Companies House
If the mortgagor is a UK company in accordance with Sections 859A and 859J of the Companies Act 2006, the particulars of charge created by the mortgage and any other fixed or floating charges that such a UK company has created, in accordance with the financing arrangements (form MR01), must be registered with Companies House within 21 days of the date of creation of the relevant security in order to perfect that security. The requirement applies to the mortgage, any charges contained in assignments of insurances or earnings or in any account security or any charge over shares in another company created by such UK-registered company in respect of any repayment or other obligations.
Since the UK statutory ship mortgage is in short form, containing little more detail than to identify the ship, the parties and (in the case of principal and interest mortgages) the principal sum secured and applicable interest rate, it is common for the mortgagor to grant a collateral deed of covenant which, in effect, operates as a long form mortgage. This may also serve to charge other assets associated with the vessel and (if the grantor is a UK company) it may be registered at Companies House.
The accuracy of the Companies House register depends on chargors complying with registration requirements (it is common in a financing transaction for counsel for the chargee to submit the particulars of charge to Companies House to ensure due registration). Failure to submit particulars of charge for registration within the 21-day period allowed under Section 859A (4) of the Companies Act 2006 will result in the charge being void as against a liquidator, administrator or other creditor of the chargor and the chargee losing the priority of its security. In addition, Section 859P requires UK companies to keep available for public inspection copies of every instrument creating a charge capable of registration, and failure to do so constitutes a criminal offence.
Requirement for Translation
As noted, the mortgage of a vessel under the UK flag is in a prescribed form and, as such, must be completed in English. Regarding any documents submitted in support of the underlying Part 1 or Part 4 vessel registration, any documents not in English must be accompanied by a translation certified correct by a Notary Public.
Short particulars of any security agreements required to be registered at Companies House (essentially, any fixed or floating charge created by a UK company) must be filed using prescribed form MR01, and completed in English. The form must be accompanied by a certified true copy of the relevant security document itself and, in accordance with Section 1105 of the Companies Act 2006 (as amended), a certified translation into English if the document is in a foreign language.
A UK statutory mortgage may take one of two forms – account current, or principal and interest.
Account current is by far the most popular, as this secures all sums that are or may be owing to the lenders according to the financing at any time; whereas the principal and interest alternative secures only the "day one" amount of the loan advanced, plus an interest portion at a specified rate. Since it contains no provision for variation, the principal and interest mortgage does not cater for potential changes, whether to interest rate, total commitments, or other terms or prevailing circumstances having the potential to affect quantification of the outstanding debt during the life of the loan (which, in some cases, could exceed a decade). However, the account current form of mortgage has the capacity to secure future amounts and, as such, is generally preferred.
Mortgage and Assignments
The mortgage is generally regarded as the central piece in the financier’s security package but, in addition, it is common for lenders to take security in the form of assignments and charges over the vessel’s earnings, charterparty contracts and insurance policies. Assignments serve to assign the benefit of those rights (and none of the burdens) and are only effective at law against third-party debtors where (among other criteria) the underlying debtor to the assignor (eg in the case of insurances, the insurer), has been notified in writing of the assignment. It is common for these security interests to be created as both assignments and charges, the latter being registrable at Companies House where created by a UK company.
Fixed or Floating Charges
It is also common for security to be taken in the form of a charge over any bank accounts involved in the transaction, which may take the form of either a fixed charge, where the relevant account is blocked and which enjoys preferential benefits in the event of the chargor’s insolvency, or a floating charge, where the account holder has broad freedom to transact without the chargee’s permission until it is crystallised into a fixed charge at a later date in order to enjoy these benefits. It is also possible to take security over bank accounts by way of assignment, an alternative that would need to be employed where the accounts are held with a third-party bank as opposed to the lender bank.
Depending on the corporate nature of the borrower (ie where the borrower is a special purpose vehicle established for the purposes of the financing with no independent assets), lenders may also require a corporate guarantee from an associated entity of substance and a charge in their favour with respect to the whole of the borrower’s issued share capital.
Finally, the loan agreement, and potentially any guarantee or other security documents, are likely to contain restrictions (a negative pledge) regarding certain corporate activity, including the creation of any security to third parties over any of its assets.
The UKSR is a public registry and accordingly anyone may, on payment of a small fee (as at February 2020, a standard fee of GBP29 or, for a 24-hour service, a premium fee of GBP79), obtain on written request a transcript of registry showing details of the ship, the name and address of her owner(s) (and, if more than one owner, the division of shares in her ownership), and details of any existing mortgages (and intended mortgages). As noted above, since the statutory mortgage is in short form, available details of mortgages will be confined to the date of creation, identification of the parties, the type of mortgage – account current or principal and interest – and, in the latter case, the sum secured.
If the owner-borrower is a UK company, the mortgage should also appear in the charges section of the public register maintained by Companies House, which is accessible online by anyone on payment of a small fee. Since, in general, all fixed and floating charges created by a UK company should be registered with Companies House, a search of the register should reveal any relevant associated security arrangements (and identify the chargees thereof) entered into in connection with the vessel’s financing, such as any assignments of vessel receivables (charter earnings, insurances etc) or bank account charges.
Admiralty and Commercial Court
A writ (claim form) search can be performed for a fee (as at February 2020, GBP11) to establish whether any claims have been commenced against the vessel, which may also indicate the existence of any encumbrances over the vessel.
The UKSR will, on written request (email is acceptable) and payment of a small fee, issue a transcript of registry providing details of the vessel (identification numbers, tonnages and dimensions), its ownership, any registered mortgages and, in the case of a Part 4 bareboat registration, any leases.
The UKSR is committed to improving customer service and the client experience. To that end, the UKSR co-operates fully with clients and other ship registries to ensure that the client’s requirements are met as quickly and as smoothly as possible within the scope of the regulations within which the UKSR operates.
Such co-operation is especially relevant in the context of bareboat charter registration.
In addition, a Customer Account Manager will be responsible for all administrative functions and will guide the client through the registration process. They will remain a point of contact the whole time the client’s ship is on the UKSR, available 24 hours a day, building a long-term relationship with the client so that the client’s needs and expectations of a quality flag are met.
A Customer Service Manager (CSM) is allocated to each company. They are a qualified surveyor and will be responsible for all the company’s technical issues on all matters relating to UK ship registration.
A Client Technical Manager, who is a qualified surveyor available 24 hours a day, will ensure consistency of standards and customer service provided by the UKSR’s network of CSMs.
There is also access to technical assistance from Duty Surveyors 24 hours a day, 365 days a year. In addition, assistance is available from qualified, experienced professionals and surveyors within maritime safety, maritime policy, environmental policy and seafarer services. There is also a 24-hour vessel and mortgage premium registration service, provided all required documentation is received.
The cost of registering a mortgage is, as at February 2020, GBP101, and GBP19 for the second and each additional mortgage. Of course, other fees will apply where the vessel is contemporaneously seeking registration under the UK flag.
It is possible for a vessel to be subject to more than one mortgage. The first in time to be delivered to the UKSR for registration will obtain priority over any subsequently registered mortgages (or prior unregistered mortgages, whether or not the registered mortgagee can be shown to have had actual or constructive notice of the unregistered mortgage). The only exception to this is where a notice of intended mortgage is in effect. In that case, where the intended mortgage goes on to be created and delivered for registration within the 30-day priority period afforded by the notice, it will take priority over any other mortgage registered earlier within that period.
Similarly, Companies House will register any charges duly delivered for registration, with the slight distinction that, provided a charge is delivered within 21 days of its creation, it will be registered with priority based on the date of its creation as opposed to the date of its receipt by Companies House.
It would be usual for the original financing arrangements to prohibit the owner (as borrower) from creating further security over the vessel and related assets, certainly in the absence of the existing finance parties’ prior consent. However, this is an internal arrangement between the borrower and its lenders. As far as the UKSR or Companies House are concerned, such consent does not need to be represented or evidenced. Any further security created and presented for registration would, in the normal course, be duly registered but with lower priority as being later in time. There is no mechanism for adjusting the order of priorities as may be available in certain other jurisdictions.
Unless the pledgor is a UK company, no security created by it will be registrable at Companies House, whether or not it is a UK-registered “overseas company”, and whether or not the pledged assets are situated in the UK.
If the pledgor is a UK company, any so-called pledge created by it may be characterised from an English law perspective as a charge and, if so characterised, it will be subject to registration at Companies House.
English law recognises maritime liens and mortgages as distinct rights. Both are rights in rem, ie, rights against the ship itself. A maritime lien, eg, a repairer’s possessory lien or a lien in respect of a claim for wages, usually arises by operation of law. A mortgage, however, can only be granted by the shipowner in accordance with statute or common law. The following are types of mortgage (listed in order of priority) which will allow their holder to arrest a ship:
It is possible for the debt underlying a maritime lien to be secured by any of the above forms of mortgage, subject to an appropriate instrument of mortgage having been created, but no preferred maritime lien will constitute a mortgage in itself.
The legal effect of a UK statutory ship mortgage is that the mortgagor retains legal title to the vessel and, as such, can legally transfer it.
There is some protection (for both existing financiers and bona fide purchasers/incoming lenders) to be found in the UK prescribed form of Bill of Sale (MSF 4705), which must be used to transfer complete title to a UK-registered vessel. This requires the seller to tick a box if any registered mortgage is outstanding, and declare that the shares in the vessel being transferred are free from encumbrances. However, this protection only operates where the vessel is remaining under the UK flag (and also assumes it is being sold as part of the financing transaction). Where the vessel is being refinanced but will remain on the Register, the UKSR will make enquiries of an existing mortgagee if presented with a bill of sale where the box is not ticked. If the vessel were to be sold and re-registered elsewhere, it is possible this could happen without the knowledge of the UKSR and any existing mortgage would remain on the Register indefinitely. Deletion of the vessel from the UKSR would be prevented in this way.
As a matter of good practice, a purchaser/incoming financier should always satisfy itself that any previous financing has been repaid, in particular, by requiring any existing mortgage to be discharged and such discharge to be evidenced by a copy of the mortgage discharge form endorsed by the UKSR.
In principle, the UK government has the power to requisition UK-flagged vessels, although this has not been a common occurrence in recent history. The most notable requisition of UK-flagged vessels since the Second World War took place in 1982 during the Falklands War.
Traditional bank lending is still the most common and available form of raising loan capital for ship finance. However, private equity and other alternative finance providers, like foreign leasing companies, as well as money raised in the capital markets have in recent years gained in importance. There continues to be movement in the current ship finance market regarding the prevalence of sources of capital.
A UK statutory mortgage allows for registration of a mortgage over a single vessel only. Consequently, there is no provision for registration with the UKSR of a fleet mortgage and each vessel will be required to have an individual mortgage registered against it (this has no significant cost implications, considering the cost of registering a single mortgage was GBP101 as at February 2020).
As a matter of contract, however, it is possible for multiple vessels belonging to the same borrower, or borrowing group of companies, to either stand as security for the entire debt in respect of a joint and several loan or to be cross-collateralised by third-party charge or guarantee obligations or include cross-default provisions in the financing terms, enabling enforcement action to be taken against any financed vessel in the group in the event of a default relating to a single vessel. There are no restrictions on the amount that a single mortgage may secure.
Syndicated loans are frequently used; the form of the loan agreement is usually based on the appropriate syndicated facility agreement template produced by the Loan Market Association. This provides the mechanisms for individual financing parties to come and go without the need for amendment to the documentation. It is often the case that “day one”, the “Agent”, “Security Trustee” and “Original Lenders” are one and the same entity; but the documentation provides detailed and well-established procedures for transfer and assignment and, in particular, syndication after initial drawdown.
The flag state (state of nationality registration of the vessel) is a key consideration for lenders in ship finance transactions. It is standard for the facility agreement not only to specify that the vessel must be registered under a particular flag and remain so for the life of the facility, but also to designate that any provisions relating to the flag may not be amended without all-lender consent (whereas most provisions can be amended with the approval of a majority of lenders).
The reason for the flag’s central importance is that it is a major factor in the maintenance and enforceability of a lender’s security and hence underpins (or, perhaps more accurately, mitigates) a lender’s credit risk.
There are a host of considerations with respect to flag state that can be loosely grouped into three categories: legal/regulatory, technical, and political, with protection of security being the underlying and overarching concern with respect to all three.
Securitisation of shipping-related assets, eg receivables under charterparties, by shipping companies themselves has been used in vessel finance only sporadically. It is not a major source of finance in the industry.
As a means of refinancing by lenders or other finance providers, it might have become more common in recent years, however, and lenders are likely to request that it is included in loan documentation to keep it as an option. However, the traditional method of syndication is more common among banks.
The UK has a relatively weak position in capital market funding for shipping. There are currently no listed commercial shipping companies on the UK stock market, including AIM, but excluding companies such as Carnival plc which, although it owns and operates ships, is not primarily a shipowning company. There has been no significant upwards or downwards trend in this regard over the past years, although there was a recent discussion regarding possible dual listings.
Maritime Labour Convention
The Maritime Labour Convention 2006 (MLC) governs global shipping employment issues. The MLC derives from the Internal Labour Organisation (ILO) and was ratified by the UK in August 2013, coming into force in August 2014.
The MLC has been primarily implemented in the UK through the following legislation:
The MLC is policed in the UK by the MCA.
The EU Seafarers Directive (1999/63/EC), which was amended by Directive 2009/13/EC (giving effect to the MLC), also regulates minimum standards for seafarers' working conditions.
The Seafarers Directive was implemented in the UK by the Merchant Shipping (Hours of Work) Regulations 2002 (SI 2002/2125) (Seafarers Regulations), which were amended in 2014 following the UK's ratification of the MLC in August 2013. On 6 April 2018, the Seafarers Regulations were repealed and replaced by the Merchant Shipping (Maritime Labour Convention) (Hours of Work) Regulations 2018 (SI 2018/58) (2018 Seafarers Regulations), which consolidate the earlier statutory instruments and the underlying EU directives (Directive 2009/13/EC and Directive 2008/106/EC, as amended by Directive 2012/35/EU).
Other Statutory Rights
The Merchant Shipping (Officer Nationality) Regulations 1995 do not permit foreign nationals (other than Commonwealth citizens, EEA nationals or a national of a state other than an EEA state which is a member of the North Atlantic Treaty Organization) to serve as master of a strategic ship. This is defined as a UK ship of 500 GT or more, which is a cruise ship, a product tanker or a ro-ro ship.
There are no other requirements relating to the percentage of local seafarers working on UK-registered vessels.
Deck officers and engineer officers do require a certificate of competency if they are performing bridge watch-keeping duties or navigational duties. These are issued by the MCA. A certificate of equivalent competency would allow officers holding certificates granted by some non-UK countries to work as officers on UK-registered merchant ships. The application process may require prospective officers to provide proof relating to their standards of competency, proficiency in the English language and knowledge of relevant UK law.
Section 39(1)(a) of the Equality Act 2010 prohibits discrimination by employers against applicants in the terms offered for employment.
The Equality Act 2010 (Work on Ships and Hovercraft) Regulations 2011, SI 2011/1771 applies Part V to seafarers working wholly or partly within Great Britain (including UK waters adjacent to Great Britain) if the seafarer is on a ship registered in the UK under Part II of the Merchant Shipping Act 1995, and the ship’s entry in the register maintained under Section 8 of that Act specifies a port in Great Britain as the ship’s port of choice.
The UK government sets the National Minimum Wage (NMW). The current rates per hour are as follows:
The NMW rates are updated in line with inflation every April.
S 1(2)(b) of the National Minimum Wage Act 1998 requires that all seafarers working on ships within UK internal waters and ports are entitled to be paid at least the NMW. Section 40 states that seafarers on a UK-flagged ship will be entitled to the NMW for work performed outside the UK if they ordinarily work in the UK. Seafarers working on a non-UK flagged ship will also be entitled to the NMW for work performed outside the UK if they ordinarily work in the UK.
However, under the Equality Act 2010 (as applied by the relevant regulations), an employer can pay an individual (A) at a lower rate than another individual (B) if A is of different nationality and either:
and is not:
Regulation 6 of the 2018 Seafarers Regulations prescribes a minimum ten-hour rest period in any 24-hour period, and 77 hours in any seven-day period. Rest periods must not be divided into more than two periods, one of which must be at least six hours long.
Under Regulation 11, the master may require a seafarer to work any hours necessary for the immediate safety of the ship, persons on board or cargo, or for the purpose of giving assistance to another ship or to a person in distress at sea. A muster, drill or training session may require the participation of a seafarer during the seafarer’s hours of rest, but must be conducted in a manner which minimises disturbance of the seafarer’s hours of rest and does not induce fatigue.
The Employment Rights Act 1996 contains provisions relating to the law on unfair dismissal. It should be noted that the Act is silent as to its territorial scope. Ravat v Halliburton Manufacturing and Services Ltd (2012) UKSC 1 suggests that the question is whether the connection between the circumstances of the employment and Great Britain, and with British employment law, is sufficiently strong to enable a claim for unfair dismissal in Great Britain. Should British employment law apply, there are various reasons for fair dismissals, described in Section 98 of the Act. An employee with two years’ service may be dismissed for the following reasons:
Subsection 4 of the Act requires that where one of these reasons exists, reasonableness must still attach to the decision to dismiss. Both provisions are inextricably linked.
For seafarers, the relevant disciplinary procedure for misconduct on board is contained in the Code of Conduct for the Merchant Navy agreed between Nautilus International; the National Union of Rail, Maritime and Transport Workers (RMT) and the UK Chamber of Shipping; and approved by the MCA. This largely reflects the Acas (Advisory, Conciliation and Arbitration Service) Code of Practice on disciplinary and grievance procedures, which should be followed in all other cases of misconduct and poor performance. In non-disciplinary situations, the employer will still need to follow a fair procedure. For example, before making an employee redundant, employers have to follow procedural fairness guidelines including consultation, fair selection and taking steps to avoid or minimise redundancies.
There is no approved compensation scale for occupational injuries. Compensation would ordinarily be calculated on a case-by-case basis taking into account both general and special damages. The shipowner may be liable to pay compensation under the common law as well as any contractual compensation due under the Seafarer Employment Agreement.
The MLC does impose liability on the shipowner to compensate seafarers in relation to sickness, injury or death occurring while they are serving under a seafarer’s employment agreement or otherwise arising from their employment. They are required to provide financial security to assure such compensation in the event of death or long-term disability due to an occupational injury, illness or hazard. The MLC guidance on this point states that no particular form of financial security is prescribed and it may take the form of insurance or a bond. In reality, however, this is likely to already form part of a vessel’s P&I cover. P&I clubs have also confirmed that the remuneration to be paid and retrospective withdrawal of cover rules are waived in cases of valid seafarer death and personal injury claims. The MLC also ensures that liability for sick compensation is paid in full and without delay to the seafarer or their representative.
Where an employee is ordinarily resident in the UK, the employer is required to insure against liability for bodily injury or disease sustained in the course of their employment for at least GBP5 million (though, in practice, most insurers provide cover of GBP10 million or more).
The Merchant Shipping (Maritime Labour Convention) (Minimum Requirements for Seafarers) Regulations 2014 set out the details of any health or social security protection benefits to be provided for seafarers by shipowners in accordance with the MLC.
Shipowners are required to provide seafarers with medical care on board ship. This includes:
Shipowners must also pay basic wages to incapacitated seafarers while on board or on shore up to the time they recover or, if repatriated, until 16 weeks have elapsed since the date of the injury or commencement of sickness. After repatriation, the shipowner’s liability is only to meet the difference between state benefits paid and the level of basic wages.
Shipowners are liable to compensate seafarers for injury, loss or unemployment resulting from the loss or foundering of a ship, limited to two months following the date of the loss or foundering.
All vessels must have an on-board complaints procedure for seafarers to make a complaint relating to any matter that is alleged to constitute a breach of the requirements of the MLC.
Seafarers also have the right to complain directly to the MCA, which will investigate and can require an inspection, withdraw a ship’s Maritime Labour Certificate or even detain a vessel that fails to comply with the MLC.
Seafarers may also seek redress through the UK courts and employment tribunals.
As regards the NMW, workers can additionally report employers to HM Revenue & Customs, who will investigate and enforce payment of the NMW on the worker’s behalf.
The Merchant Shipping (Maritime Labour Convention) (Minimum Requirements for Seafarers) Regulations 2014 Part 6 deals with repatriation.
The legislation requires that shipowners repatriate seafarers in specified cases and make provision for seafarers' relief and maintenance pending repatriation. Specified cases are as follows:
Collective bargaining on a sectoral basis does not exist in the UK. Most collective bargaining is carried out on a voluntary basis on an employer-by-employer basis. The RMT is the largest UK union in this sector. In practice, collective bargaining arrangements, whether ITF or otherwise, are relatively rare in the UK and those that do exist only cover individual employers.
The Business and Property Courts of the High Court of England and Wales comprise various specialist courts including the Admiralty Court and the Commercial Court.
The Admiralty Court deals with shipping and maritime cases. These can include disputes relating to, for example: collisions, limitation of liability, salvage, ship mortgages, and claims by ship crew for unpaid wages.
The Commercial Court deals with a wide range of commercial disputes, including shipping and marine insurance cases. The England and Wales Court of Appeal (Civil Division) is the appellate court for all civil disputes, including maritime disputes. The UK Supreme Court hears all appeals from the Court of Appeal.
Section 20(2) of the Senior Courts Act 1981 (SCA) defines 19 types of maritime claims which fall within the admiralty jurisdiction of the High Court. These maritime claims include claims relating to the possession or ownership of a ship, claims for damage done by a ship, and claims for loss of or damage to goods carried on a ship, claims for salvage, etc.
Any claim listed in Section 20(2) of the SCA 1981 may be brought in personam within the Admiralty jurisdiction of the High Court, subject to certain restrictions.
Section 21 of the SCA 1981 defines which claims and in which circumstances claims listed in Section 20(2) of the SCA 1981 may be brought in rem. English law recognises the concept of maritime liens, and actions in rem may be brought in respect of maritime liens. The claims which can give rise to maritime liens are:
Naturally, much depends on the nature of the claim as to how quickly the court will act. However, the English courts, including the Admiralty Court, are highly efficient by international standards and are able to act on an urgent basis as necessary, for example in cases of ship arrest or freezing injunctions.
Both arbitration and mediation are available, by agreement between the parties, as alternative sources of conflict resolution. The parties may have agreed in the relevant contract between them to refer their disputes to arbitration and/or mediation. Alternatively, they may subsequently agree on an ad hoc basis to refer any disputes to arbitration and/or mediation.
The Admiralty and Commercial Courts will respect the parties’ choice to have their disputes dealt with in arbitration by a specialist tribunal and will be reluctant to interfere with a tribunal’s decision unless the tribunal:
The Admiralty and Commercial Courts encourage parties to consider using alternative dispute resolution because it can save costs, reduce delays and preserve commercial relationships. In suitable cases, the court will invite parties to consider whether their dispute can be resolved through alternative dispute resolution. The English courts have the discretion to stay their proceedings to allow mediation to take place. They also have the power to make an adverse costs order against a party that unreasonably refuses to take part in mediation.
Many shipping and maritime contracts provide for disputes to be dealt with in London arbitration. Most maritime arbitrations in London are dealt with by the London Maritime Arbitrators Association (LMAA). The LMAA is an association of maritime arbitrators that provides a specialist forum for dealing with maritime disputes. The LMAA Terms apply to and govern the procedure in LMAA arbitrations. The current version is LMAA Terms 2017. The LMAA also publishes mediation terms, the most recent of which are the LMAA/Baltic Exchange Mediation Terms (2009).
The Admiralty Court may order the judicial sale of any vessel subject to a claim in rem. Judicial sale may be ordered after judgment has been entered against the vessel by the court, or before judgment has been entered (ie pendente lite). In the latter case, the application for a judicial sale must be ordered by the admiralty judge, who will only grant permission where there is good reason to do so, eg, in circumstances where the continued cost of maintaining an arrested vessel would result in a material reduction in the value of the security obtained through the arrest.
The judicial sale of vessels in England and Wales is closely supervised by the court, which sets the terms of the order under which the vessel is to be sold. The admiralty marshal, an officer of the court, administers the sale itself.
Both foreign court judgments and arbitration awards are enforceable in England and Wales.
EU Member State Judgments
In the case of a foreign court judgment, different enforcement regimes apply. The Recast Brussels Regulation (Brussels I Regulation, where claims were commenced before 10 January 2015) governs the recognition and enforcement of EU member state judgments. The Lugano Convention governs the recognition and enforcement of judgments from Iceland, Norway and Switzerland. There are very few formal requirements for enforcing judgments under these regimes in England and Wales, which are automatically recognised without the need for registration.
The judgment creditor must provide the English court with a standard form certificate of enforceability from the court of origin, together with the judgment, as well as certain information relating to interest and recoverable costs. The certificate and judgment, translated as necessary, must also be served on the judgment debtor. The English court will not consider the merits of the substantive claim and only refuses enforcement in rare circumstances, eg, public policy reasons, where the judgment was obtained by fraud, or where there is a conflicting prior English judgment relating to the same cause of action and between the same parties. It remains to be seen what regime will apply for the enforcement of EU member state judgments after the transition period, now that the UK has left the EU.
Judgments from Commonwealth and Other Jurisdictions
The Administration of Justice Act 1920 applies to the enforcement of judgments from Commonwealth countries and certain other jurisdictions. The Foreign Judgments (Reciprocal Enforcement) Act 1933 applies to the recognition and enforcement of judgments from certain other countries. These Acts provide for the registration of foreign judgments so that they can be enforced in the same way as English court judgments. Again, recognition and enforcement will only be refused in limited circumstances, eg, public policy, fraud.
Judgments from countries to which the above regimes do not apply can be recognised and enforced under English common law rules. The judgment creditor must commence a new action on the judgment. This procedure is available:
Once an English judgment is obtained for the amount due under the foreign judgment, the judgment creditor can proceed to enforce in the normal way.
Foreign Arbitral Awards
With regard to foreign arbitral awards, the UK is a party to the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). As at February 2020, the New York Convention had 162 contracting states. Most foreign arbitration awards can, therefore, be enforced quite easily in England and Wales. Section 66 of the English Arbitration Act 1996 provides that, with the court’s permission, an English judgment may be entered in the terms of the arbitration award unless the tribunal lacked substantive jurisdiction to make the award.
Where a vessel is subject to a judicial sale, the proceeds of the sale are paid to the court. Where the net proceeds of the sale do not exceed the total value of all the claims against the vessel, then (unless all the claimants to the sale fund agree on an apportionment) the admiralty judge will determine priority in accordance with English law. The admiralty judge will apply English conflict of law rules in determining whether and what foreign law will apply, to rank competing substantive claims with a foreign connection (for instance, in determining the ranking of mortgages of a foreign ship inter se).
The prima facie order of priority is as follows:
True legal sister ships (ie, vessels which at the time the arrest action is brought are owned or demised chartered by the same legal person who is the owner or demise charterer of the ship in connection with which the claim arose) may be arrested in England and Wales. It should be noted that if a claimant has a maritime lien against a vessel and effects arrest on her legal sister ship, that maritime lien will be treated as a statutory lien and will rank accordingly in priority.
Affiliated or associated ships may not be arrested in England and Wales unless the claimant is able to meet the very high threshold required to “pierce the corporate veil”.
Claims subject to limitation of liability include those relating to loss of or damage to property, including damage to other ships, harbours, basins, waterways and aids to navigation occurring on board or in connection with the operation of a ship or salvage operation.
The UK exempts from limitation those claims that are exempted under Article 3 of LLMC 1976, including claims for salvage and for special compensation pursuant to Article 14 of the Salvage Convention 1989, claims for oil pollution, and claims for nuclear damage. In applying the LLMC 1976, the UK does not allow defendant shipowners to limit their liability for loss of life or personal injury suffered by passengers on seagoing ships. That said, such claims would be subject to the Athens Convention 1974 and its 2002 Protocol, which has its own limitation regime. Where the act or omission giving rise to the loss or damage is committed with the intention of causing damage, or recklessly with knowledge that it would probably result in loss or damage, then liability cannot be limited.
The limitations of liability are set out in Article 6 of the 1996 Protocol, as amended, and are calculated on the basis of a sliding scale related to the vessel’s limitation tonnage and calculated using units of account, ie, Special Drawing Rights (SDR) as defined by the International Monetary Fund (IMF). Essentially, the higher the limitation tonnage, the higher the limit. The way in which limitation is assessed means that there can be significant disparities between the quantum of a claim and the level of limitation.
A maritime claim may come to an end in one of the following circumstances:
The planned reduction in the rate of UK corporation tax from 19% to 17%, which was due to take place in April 2020, has been postponed.
In addition, during his campaign to become leader of the Conservative Party Boris Johnson, the UK prime minister, announced that he intended to introduce “free ports” into the UK. In February 2020, the UK government announced that up to ten new free ports would be opened across the UK and launched a consultation setting out its vision for free ports, with the aim of announcing the location of the new zones at the end of 2020 so that they could be open for business in 2021.
The UK, in principle, taxes UK resident companies on their worldwide income. However, there are a number of exemptions from UK tax for dividends paid by overseas companies and profits of overseas permanent establishments. Hence, the UK has moved towards a territorial system of taxation.
The time limit for applying for the restoration of a dissolved company to the register of companies is six years from the date of the company being dissolved, subject to certain limited exceptions for personal injury-related claims where there is no time limit. The effect of restoration is that the company is deemed to have continued in existence as if it had not been dissolved in the first place.
The UK has one of the largest networks of tax treaties, many of which relate to the taxation of shipping income.
Most of the UK’s agreements are based on the principle that the profits from the operation of ships in international traffic are taxable only in the country of residence of the operator of the ships. This is not the case with every treaty; some treaties instead give taxing rights to the country in which the place of effective management of the enterprise is situated. Most agreements cover only the profits from international traffic. Here follows a summary of the international tax treaties currently in force to which the UK is a signatory, as relates to the taxation of shipping income, subject to the terms of the treaty.
Treaty Terms Relating to Taxation of Shipping Income
Profits of an enterprise of a contracting state from the operation of ships in international traffic shall only be taxable in that state:
Albania, Algeria, Argentina, Armenia, Australia, Azerbaijan, Bahrain, Barbados, Belarus, Belgium, Botswana, Brazil, Bulgaria, Canada, Cayman Islands, Chile, China, Colombia, Croatia, Cyprus, Denmark, Estonia, Falkland Islands, Faroe Islands, Germany, Hong Kong, Iceland, India, Isle of Man, Japan, Jersey, Jordan, Kosovo, Kuwait, Latvia, Lesotho, Libya, Liechtenstein, Lithuania, Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Morocco, Netherlands, New Zealand, Norway, Oman, Panama, Papua New Guinea, Poland, Qatar, Saudi Arabia, Singapore, Slovenia, South Africa, South Korea, Spain, Sudan, Sweden, Taiwan, Tajikistan, Turkey, Turkmenistan, Ukraine, United Arab Emirates, Uruguay, USA and Vietnam.
Profits from the operation of ships in international traffic shall only be taxable in the country in which the place of effective management of the enterprise is situated:
Bolivia, Bosnia-Herzegovina, Czech Republic, Egypt, Ethiopia, Georgia, Israel, Italy, Luxembourg, Mauritius, Montenegro, Namibia, Pakistan, Republic of Cote d’Ivoire, Romania, Senegal, Serbia, Slovak Republic, Uganda, Trinidad and Tobago, Tunisia, Zambia and Zimbabwe.
Profits which a resident of the UK derives from operating ships shall be exempt from tax in the other country:
Antigua and Barbuda, Austria, Belize, Brunei, Fiji, Finland, France, Gambia, Ghana, Greece, Grenada, Guernsey, Guyana, Hungary, Indonesia, Ireland, Jamaica, Kazakhstan, Kenya, Kiribati, Lebanon, Malawi, Montserrat, Myanmar, Nigeria, Philippines, Portugal, Russia, Sierra Leone, Solomon Islands, Sri Lanka, St Kitts and Nevis, Swaziland, Tuvalu, Uzbekistan and Venezuela.