Bareboat Charters: Can a Shipowner Limit Liability to Third Parties? Answers for Owners Attempting to Navigate the Unsettled Waters in the Eleventh Circuit

• Publication year: 2010

Georgia State University Law Review

Volume 25 , „

Article 2

Issue 2 Winter 2008

3-21-2012

Bareboat Charters: Can a Shipowner Limit Liability to Third Parties? Answers for Owners Attempting to Navigate the Unsettled Waters in the Eleventh Circuit

John W Chitty

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Chitty, John W. (2008) "Bareboat Charters: Can a Ship owner Limit Liability to Third Parties? Answers for Owners Attempting to Navigate the Unsettled Waters in the Eleventh Circuit," Georgia State University Law Review: Vol. 25: Iss. 2, Article 2. Available at: http://digitalarchive.gsu.edu/gsulr/vol25/iss2/2

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BAREBOAT CHARTERS: CAN A SHIPOWNER LIMIT LIABILITY TO THIRD PARTIES? ANSWERS FOR OWNERS ATTEMPTING TO NAVIGATE THE UNSETTLED WATERS IN THE ELEVENTH

CIRCUIT

Introduction

A bareboat charter is a contractual agreement akin to the lease of a vessel whereby most of the "customary liabilities" of the owner are shifted to the charterer.¹ Some courts have raised concerns over bareboat charters—also referred to as a demise charter²—regarding the ability of owners to use the bareboat device as a means to limit liability to injured third parties. In Baker v. Raymond International, Inc. the Fifth Circuit brought force to this concern; the court held a bareboat charter would no longer shield owners from personal liability for third party injuries caused by the unseaworthiness of a vessel, even though the owner had no control over the vessel, and regardless of whether it was the owner or charterer who created the

1. The bareboat charter is best understood as the lease of a vehicle. The charterer is the lesee who, for most purposes of liability, is considered the vehicle's owner while in possession. See, e.g., Black's Law Dictionary 250 (8th ed. 2004); 70 Am. Jur. 2d Shipping § 202 (2005).

2. The terms "bareboat" and "demise" are often used interchangeably as though identical in regards to this type of charter. See 80 C.J.S. Shipping § 92 (2007) (stating "[a] 'demise charterer' or 'bareboat charterer' is one who contracts for the vessel itself and assumes exclusive possession, control, command, and navigation thereof for specified period, and the charterer furnishes the crew and maintenance for the vessel."). There is a technical difference between the two. See Thomas J. Schoenbaum, Admiralty and Maritime Law 671 n.6, 675 n.l (4th ed. 2007) (stating "[a] true 'bareboat' charter allows the charterer to select his own master and crew. If the owner provides the master and crew ... the charter is a demise, although not technically a 'bareboat' charter."). When an owner's master and crew stay on the vessel subject to the charterer's control, the agreement is a demise charter. Id. In a bareboat charter, "the owner may also rum over the vessel to the charterer without a master and crew." Robert Force, Admiralty and Maritime Law 43 (2004). The agreement and obligations of the parties are unaffected by the term used, though courts will look harder at a demise charter to see if the owner retains any control—behavior inconsistent with an intent to create a bareboat charter by surrendering complete control and possession of the vessel. See, e.g., Sheldon A. Gebb, Admiralty Law Institute: Symposium on Charter Parties: The Demise Charter: A Conceptual and Practical Analysis, 49 TUL. L. REV. 764, 768 (1975); 80 C.J.S. Shipping §§ 94-96 (2007). For purposes of this Note, the term 'bareboat' will be used unless the facts indicate the owner's master and crew remained onboard as part of the agreement.

3. See, e.g., Baker v. Raymond Int'l, Inc., 656 F.2d 173,184 (5th Cir. 1981).

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unseaworthy condition.⁴ The Baker decision created a split among federal circuits on the issue of liability to third parties.⁵ The Supreme Court declined to determine whether or not a bareboat charter would allow a shipowner to shield himself from third party liability for injuries resulting from an unseaworthy condition of his vessel.⁶ While the vast majority of circuits clearly support limited liability under a bareboat charter, the Eleventh Circuit has yet to indicate its position on this issue.

Part I of this Note provides background about bareboat charters, their uses, and how they are created. Part II addresses the duties owed to third parties by owners and charterers, the doctrine of seaworthiness, and the role of seaworthiness in a bareboat charter agreement.⁹ Part III outlines federal precedent prior to the Fifth Circuit's decision in Baker.¹⁰ The position of the Supreme Court, and the Fifth Circuit's decision in Baker, are addressed in Part TV.¹¹ Part V evaluates the state of the law following the Supreme Court's reluctance to address the issue and the split created by the Fifth Circuit Court. Part VI reviews current Eleventh Circuit cases concerning bareboat charter agreements and its reasoning for not addressing the issue.¹³ Part VII offers solutions for owners and charterers seeking to clarify and protect their interests when entering a bareboat charter agreement, regardless of the jurisdiction; parties to a bareboat agreement should utilize comprehensive contractual provisions and indemnity clauses to protect themselves and ensure their expectations are met.¹⁴

4. Id. at 184.

5. See infra Parts III, IV.B, V.

6. See infra Part IV.A.

7. See infra Parts HI, V-VL

8. See infra Part I.

9. See infra Part II.

10. See infra Part HI.

11. See infra Part IV.

12. See infra Part V.

13. See infra Part VI.

14. See infra Part VII.

2008] BAREBOAT CHARTERS 479

I. Bareboat Charters: Creation and Uses

Bareboat charters are a valuable device to "encourage enterprise," allowing owners to lease the use and services of vessels which may otherwise lay dormant while charterers gain full use and control of a vessel without the expense of actually purchasing one.¹⁵ Charters are a contractual device giving parties great leeway to modify the agreements to fit their particular needs.¹⁶ More specifically, bareboat charters are useful in allowing involved parties to freely allocate the risks and costs of doing business.¹⁷

A. Creation of a Bareboat Charter

Because a bareboat charter is not valid unless the owner transfers complete control of the vessel to the charterer, the contract should include specific language describing such a transfer as there is often a presumption against bareboat agreements.¹⁸ While courts often focus on the parties' actions and do not require specific language to find a valid bareboat charter, language should be included in the contract to show the parties' intent to transfer control.¹⁹ In transferring control,

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the owner has a duty to deliver a seaworthy vessel to the charterer. Although this duty is implied by law, the owner should still address seaworthiness by including a clause that the vessel is "tight, staunch,

15. Baker v. Raymond Int'l, Inc., 656 F.2d 173,183 (5th Cir. 1981). See, e.g., Gebb, supra note 2, at 764.

16. Force, supra note 2, at 42; see infra Part II.A; see, e.g., Gebb, supra note 2, at 774.

17. See infra Parts JJ.B, VII.

18. See Schoenbaum, supra note 2, at 671. The language should specify that the charterer "shall have the same authority as the owner of the vessel as to her management and the control of the officers" or that the charterer "shall have exclusive possession, control, and command of the vessel during the entire period of use . . . [and] shall man, victual and navigate such vessel at its own expense or by its own procurement." 80 C.J.S. Shipping § 96 (2007); Gebb, supra note 2, at 767-68 (quoting Maritime Administration Bareboat Charter Party Agreement, 46 C.F.R. § 221.13 (1974)); Guzman v. Pichirilo, 369 U.S. 698, 700 (1962) (stating that courts are "reluctant to find a demise when the dealings between the parties are consistent with any lesser relationship"); see infra Part LB, note 126 and accompanying text.

19. See, e.g., 80 C.J.S. Shipping §§ 94-96 (2007); Guzman, 369 U.S. at 700-01 (1962); Backhus v. Transit Cas. Co., 532 So. 2d 447, 449 (La. App. 1 Cir. 1988). A contract should clearly indicate the owner, charterer, and the payment amount. Force, supra note 2, at 44; see infra notes 126, 139 and accompanying text.

20. See infra Part D.B.

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strong, and in every way fitted for the service" of its intended use.²¹ An owner must also protect the remaining interest in the vessel and should insert a clause requiring the charterer to return the vessel "in as good condition, ordinary wear and tear expected, as that in which he received her."

Moderating phrases such as "more or less" or "about" should be included to indicate flexibility in the duration of bareboat charters, distinguishing them from time charters. An owner should also address whether or not the charterer is allowed to sub-charter the vessel.²⁴ Care is needed here so the owner does not appear to retain any measure of control over the charterer or vessel, possibly frustrating the creation of the bareboat agreement.²⁵ Arbitration clauses are helpful to handle possible disputes. The parties will also want to include various provisions to allocate liability, insurance, and provide for indemnity if damages are required.²⁷

B. Bareboat Charter Uses

Owners often use bareboat charters to lease their vessels while limiting their liability to third parties. Unlike other types of charters,²⁹ a bareboat charter "substantially alters the rights and

21. Force, supra note 2, at 46; see Schoenbaum, su...