VES-3-02-RR:IT:EC 226808 GEV
William H. Welte, Esq.
Welte & Welte, P.A.
Harbor Square
50 Bayview Street
Camden, Maine 04843-2248
RE: Coastwise Trade; Passengers; Bareboat Charter Agreement; 46
U.S.C. App. 289
Dear Mr. Welte:
This is in response to your letters of March 12, 1996, and
April 29, 1996, on behalf of your client, Bass Harbor Marine,
seeking approval of a bareboat charter agreement. A copy of the
agreement was enclosed with your first letter to us. Our ruling
on this matter is set forth below.
FACTS:
Bass Harbor Marine of Bass Harbor, Maine, the owner of a
yacht, seeks to operate it pursuant to a bareboat charter. To
that end, a copy of its proposed bareboat charter agreement has
been submitted to Customs for review. No description or
specifications of the yacht in question were provided.
ISSUE:
Whether the charter party agreement of Bass Harbor Marine
submitted for our review is a valid bareboat charter agreement
for purposes of the coastwise laws administered by the U.S.
Customs Service.
LAW AND ANALYSIS:
Title 46, United States Code Appendix, 883 (46 U.S.C. App.
883) often called the "Jones Act", provides, in part, that no
merchandise shall be transported between points in the United
States embraced within the coastwise laws either directly or via
a foreign port, or for any
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part of the transportation, in any vessel other than a vessel
built in and documented under the laws of the United States and
owned by persons who are citizens of the United States (i.e., a
coastwise-qualified vessel). Section 289 of title 46 (46 U.S.C.
App. 289), which is more applicable to this particular case,
prohibits the transportation of passengers between points in the
United States embraced within the coastwise laws, either directly
or by way of a foreign port, in a non-coastwise-qualified vessel
(see above). We note that for purposes of 289, "passenger" is
defined as " ... any person carried on a vessel who is not
connected with the operation of such vessel, her navigation,
ownership or business" (19 CFR 4.50(b)).
In interpreting the coastwise laws (i.e., 46 U.S.C. App.
289, 883) Customs has ruled that a point in the United States
territorial waters is a point in the United States embraced
within the coastwise laws. The territorial waters of the United
States consist of the territorial sea, defined as the belt, 3
nautical miles wide, seaward of the territorial sea baseline, and
to points located in internal waters, landward of the territorial
sea baseline, in cases where the baseline and coastline differ.
In its administration of 46 U.S.C. App. 289, the Customs
Service has ruled that the carriage of passengers entirely within
territorial waters, even though the passengers disembark at their
point of embarkation and the vessel touches no other coastwise
point, is considered coastwise trade subject to the coastwise
laws. However, the transportation of passengers to the high seas
(i.e., beyond the 3 mile territorial sea) and back to the point
of embarkation, assuming the passengers do not go ashore, even
temporarily, at another United States point, often called a
"voyage to nowhere", is not considered coastwise trade. (29
O.A.G. 318 (1912)) It should be noted that the carriage of
fishing parties for hire, even if the vessel proceeds beyond
territorial waters and returns to the point of the passenger's
embarkation, is considered coastwise trade. (Treasury Decision
(T.D.) 55193(2))
With respect to chartering, the Customs Service has
consistently held that when a vessel is chartered under a bona
fide bareboat charter, the bareboat charterer is treated as the
owner of the vessel for the period of the charter, and, because
the owners are not considered "passengers" for the purposes of
the coastwise laws, the charterer is not proscribed by the
coastwise laws from using the vessel during the charter for
pleasure purposes only. A vessel chartered under a charter
arrangement other than a bareboat charter (e.g., a time or voyage
charter) and used in coastwise transportation (see discussion
above on the carriage of passengers entirely in territorial
waters or to the high seas or foreign waters) would be subject to
penalties under the coastwise laws. A vessel chartered under a
bareboat charter would also be subject to penalties if the
bareboat charterer used it in the coastwise trade (e.g., to
transport passengers (other than bona fide guests) between
coastwise points or entirely within territorial waters).
Headquarters Ruling 106049, dated April 26, 1983.
With respect to the validity of bareboat charter agreements,
the United States Supreme Court stated:
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To create a demise [or bareboat charter] the owner of
the
vessel must completely and exclusively relinquish
"possession,
command, and navigation" thereof to the demisee.... It
is
therefore tantamount to, though just short of, an
outright
transfer of ownership. However, anything short of such
a
transfer is a time or voyage charter party or not a
charter
party at all.
Guzman v. Pichirilo, 369 U.S. 698, 699-670 (1962); see also,
Leary v. United States, 81 U.S. 607, 611 (1871), 2B Benedict on
Admiralty 52 (6th Ed. 1990).
In our review of charter arrangements to determine whether
or not they are bareboat charters for Customs purposes, we have
held, in addition to the above-described principles, that:
The nature of a particular charter arrangement is a
question
of fact to be determined from the circumstances of each
case. Under a bareboat charter or demise charter the
owner relinquishes complete management and control
of the vessel to the charterer. On the other hand, if
the
owner retains a degree of management and control,
however slight, the charter is a time or voyage
charter,
and the vessel is deemed to be engaged in trade. The
crux of the matter is whether complete management
and control have been wholly surrendered by the owner
to the charterer so that for the period of the charter
the
charterer is in effect the owner. Although a charter
agreement on its face may appear to be a bareboat or
demise charter, the manner in which its covenants are
carried out and the intention of the respective parties
to relinquish or to assume complete management and
control are also factors to be considered.
(Headquarters Ruling Letter 111424, dated March 20, 1991, citing
Headquarters Ruling Letter 109638, dated July 22, 1988).
Upon reviewing the terms of the charter agreement under
consideration, we note that it is divided into the following
headings appearing on the left-hand side of the agreement: Term,
Hire & Payments; No Pets Aboard; Delivery; Insurance or Security
Deposit; Accidents; Running Expenses; Liens; Navigation Limits;
Re-Delivery & Indemnification; Restricted Use; Non-Assignment;
Transfer of Charter; Charterer's Authority Over Crew; Brokerage
Fees; Defaults; Charterer's Certification; Entire Agreement; and
Additional Conditions. Our analysis of the provisions set forth
in these headings in light of the requisite criteria of a
bareboat charter agreement discussed above is as follows.
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The first heading (Term, Hire & Payments) has been left
blank on the copy of the charter agreement forwarded for our
review. Although recognizing that the owner of the yacht may,
due to a myriad of reasons, wish to reserve the right to change
these conditions between charterers, we are nonetheless unable to
comment as to what impact, if any, the non-existent provisions of
this heading might have on the paramount question in this case
(i.e., the intention of the respective parties to relinquish or
assume complete management and control of the yacht during the
period of the charter).
The second heading (No Pets Aboard), as with the first
heading discussed above, has been left blank on the copy of the
charter agreement forwarded for our review. Notwithstanding the
absence of any specific provisions as to this heading, and in the
absence of any compelling reason to the contrary, this heading is
indicative of a restriction placed on the charterer by the owner
and suggests less than the relinquishment of the complete
management and control of the yacht to the charterer during the
period of the charter.
The third heading (Delivery) specifies the condition of the
yacht for which the owner is responsible at the time of delivery
to the charterer. The fourth heading (Insurance or Security
Deposit) provides options available to the charterer and the
responsibilities of both the owner and charterer with regard to
ensuring proper coverage in the event of damage to the yacht.
The fifth heading (Accidents) sets forth the conditions of a pro
rata rebate to the charterer in the event of any breakdown, fire,
grounding, collision or other cause not due to any fault of the
charterer which results in the charterer's loss of use of the
yacht for a period in excess of twenty-four hours. It is readily
apparent that the provisions of these three headings are of no
consequence to our determination as to the validity of the
bareboat charter agreement.
The sixth heading (Running Expenses) provides that the
"Charterer agrees to accept the yacht as herein-before provided
and to pay all running expenses during the term of the charter."
Acceptance of this provision by the charterer evidences an intent
to assume complete management and control of the yacht during the
period of the charter and the owner's relinquishment thereof.
The seventh heading (Liens) provides that the charterer
shall not incur liens against the yacht, except for crew's wages
and salvage, and to indemnify the owner for any charges, losses
or expenses in connection with any liens which may arise. This
provision is not antithetical to the validity of a bareboat
charter agreement.
The eighth heading (Navigation Limits) restricts the
geographical area in which the yacht may cruise to "U.S. Atlantic
Coastwise and Inland Tributary waters between Eastport, ME and
Cape Ann, MA." The agreement also provides that "[a]n extension
to such limitations is available upon request." It further
states, "Extensions will require an additional premium." In
this regard, we note that Customs has previously held that
geographical/navigational restrictions, in and of themselves, do
not invalidate an otherwise valid bareboat charter agreement.
(Headquarters Ruling letters 108360, dated June 12, 1986, 108418,
dated July 24, 1986, and 110984, dated July 27, 1990)
Furthermore, the granting of an extension of these limitations
upon
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the payment of an additional premium evidences an intent on
behalf of the owner to relinquish complete management and control
of the vessel once the attendant insurance requirements have been
satisfied.
The ninth heading (Re-Delivery & Indemnification) sets forth
the condition in which the charterer is to return the yacht at
the expiration of the charter and the agreement to indemnify the
owner for any loss or damage not covered by insurance. This
provision, as with the third, fourth and fifth headings discussed
above, is of no consequence to our determination of the validity
of the subject bareboat charter agreement.
The tenth heading (Restricted Use) provides that the use of
the yacht is to be restricted only insofar as it is in compliance
with Federal and State law and the laws of any other Government
within the jurisdiction of which the yacht may be at any time.
The terms of this heading are not antithetical to the validity of
this bareboat charter agreement.
The eleventh heading (Non-Assignment) states that the
"[c]harterer agrees not to assign this Agreement or subcharter
the yacht without the prior written consent of Owner." We do not
view this as evidence of a failure on the part of the owner to
relinquish complete management and control of the yacht during
the period of the charter.
The twelfth heading (Transfer of Charter) provides that, "It
is mutually agreed that full authority regarding the operation,
possession, management, and command of the yacht is hereby
transferred to Charterer for the term hereof." This provision
is reflective of the position of the Supreme Court in Guzman v.
Pichirilo, supra, as well as prior Customs rulings and evidences
an intent on the part of the owner to relinquish complete
management and control of the yacht during the period of the
charter.
The thirteenth heading (Charterer's Authority Over Crew)
provides that, "In the event the Charterer wishes to utilize the
services of a Captain and/or crew members in connection with the
operation and management of the yacht, it is agreed that said
Captain and/or crew members are agents and employees of the
Charterer and not of Owner." The heading goes on to provide, in
pertinent part, that "[t]he Captain shall receive orders from
Charterer as to ports to be called at and the general course of
the voyage,..." This further evidences an intent on the part of
the charterer to assume complete management and control of the
yacht during the period of the charter.
The fourteenth and fifteenth headings cover brokerage fees
and defaults of the agreement, respectively. These provisions
are of no consequence to the critical issue under consideration.
The sixteenth heading (Charterer's Certification) is
applicable only in the event the charterer is to personally
operate the yacht in which case he/she must certify his/her
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in seamanship and capability to operate the vessel and not permit
anyone not so qualified to operate it. While such a
certification does not invalidate an otherwise valid bareboat
charter agreement, we note that this provision further provides
as follows:
In the event that the Broker determines that the Charterer's
experience
is insufficient to ensure the safety and protection of the
yacht at the time
the yacht is delivered to Charterer, Owner, or the Broker in
the Owner's
absence, shall have the right to require that an experienced
crew member
be assigned to accompany the Charterer on the yacht, and the
Charterer
agrees to pay the standard daily rate for said crew member.
A decision
made in good faith by the Broker concerning the necessity of
adding a
crew member shall not be subject to review or challenge by
the Charterer
or any other party, and the refusal of the Charterer to
accept the crew
member and pay for his or her services shall be a default
under this
Agreement. (Emphasis added)
The fact that the owner wants his yacht operated by a
competent seaman is not problematic for purposes of determining
the validity of a bareboat charter agreement. What is
problematic in this case is the owner assigning a crew member to
the charterer. Generally, we have held that a charter
arrangement in which the captain and crew are selected by the
owner or his agent and not by the charterer, by its very nature
results in an implication that the owner may not have
relinquished complete management and control of the vessel to the
charterers. (Headquarters Ruling letters 106642, dated April 30,
1984, and 108414, dated July 24, 1986) Consequently, this
provision negates a determination that this charter agreement is
in fact a bareboat one.
The seventeenth heading (Entire Agreement) provides that the
document represents the entire agreement between the parties in
question. The eighteenth heading (Additional Conditions)
provides that in the event of a dispute, the parties will use
their best efforts to resolve the dispute. These two headings
have no impact on our determination as to the validity of the
bareboat charter agreement.
Accordingly, our analysis of the subject charter agreement
leads us to conclude that although some of the covenants
contained therein suggest that it is in fact a valid bareboat
agreement (i.e., headings 6 (Running Expenses), 11 (Transfer of
Charter), and 12 (Charterer's Authority)), others preclude our
reaching that conclusion (i.e., headings 1 (Term, Hire &
Payments), 2 (No Pets Aboard), and 16 (Charterer's
Certification)). Consequently, we find the subject charter
agreement to be other than a bareboat charter agreement for
purposes of the coastwise laws administered by Customs.
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HOLDING:
The charter party agreement of Bass Harbor Marine submitted
for our review is not a valid bareboat charter agreement for
purposes of the coastwise laws administered by the U.S. Customs
Service.
Sincerely,
William G. Rosoff
Chief
Entry and Carrier Rulings Branch