Critique of the Law of the Flag

Critique of the Law of the Flag

1. 
   With unregistered ships, the flag flown is a useful contact…
   
2. 
   Where there are flags of convenience (i.e. a flag flown by a ship registered in one state, with which the ship has few or no connections, while in reality the ship is owned in, or operated from, another state) – this allows ship-owners to avoid economic consequences (high taxes, maintenance costs, etc.) by flying the flag of a state with which the ship has few or no connections (flag shock). The Court has stated that the nationality indicated by a flag of convenience is not the ships bona fide nationality.
   

• 
  Where the flag state may not really have control of its flag ships as required by the Geneva Convention (5(1)), the Law of the Sea Convention and the Third American Restatement. You need effective authority and control under these conventions.
  
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  While genuine link has been somewhat rejected by the International Court of Justice, the UN Convention on Conditions for Registration of Ships 1986, while not yet in force, has as one of its objectives the ensuring or strengthening of the genuine link between States and ships flying their flag.
  

3. 
   The UN Convention calls for the flag of the state in which the ship is bareboat chartered to be flown during that period. The registry remains open but the flag must be that where the bareboat charter is registered and not the ship itself.
   
4. 
   In cases of ad hoc, bareboat chartering out, both the original register and the flag register (where the bareboat charter is registered) are left open. [Tetley would view these merely as contacts].
   
5. 
   Italian double registry system – has outlined where law of flag applies and where law of ship’s registry applies
   
6. 
   A ship that flies more then one flag cannot claim either and may be assimilated to a ship without nationality.
   
7. 
   In the cases of federal or bi-juridical jurisdiction, the law of the flag will not indicate which law of marriage, or tort/delict of a province will apply.
   

1. 
   The U.N. Convention on Conditions for Registration of Ships 1986 (not yet in force) requires a genuine link between a State and ships flying its flag.
   
2. 
   This Convention also requires a vessel registered in one country, but bareboat chartered in a second state to fly the flag of the second state during the period of the bareboat charter. So, the law of the flag is the law of the state where the bareboat charter is registered.
   
3. 
   Italy has a double registry system clearly outlining when the law of the flag applies and when the law of the ship’s registry applies.
   
4. 
   Where a ship flies two flags, it is outside the law of either nationality it is claiming (UN Convention on the Law of the Sea).
   

1. Lifting and Piercing the Corporate Veil

• 
  Lifting and Piercing the Corporate Veil is a judicial device for solving the problem of flags of convenience. Courts have often deemed a ship not connected to the flag state, but connected rather to the state of the persons actually controlling and owning the ship. Registration is to be considered prima facie evidence of a ships nationality, but the presumption is rebuttable. At the very least the place where these persons are located is a strong contact is fixing the properly applicable law.
  

• 
  Some English courts have said that lifting the corporate veil for purpose other then arbitrary liability.
  
• 
  In The Coral Rose [1991], the U.K. Court of Appeal “lifted” and found that one corporation was 100% controlled by the ultimate parent and therefore refused the transfer of assets.
  
• 
  Also done in Chartered Mercantile Bank of India v. Netherlands…seems that nationality of a ship depends solely on her ownership and does not matter about her being registered.
  
• 
  However, in Pereira v. Utah Transport (1985), a U.S. court refused to lift the veil and found that the flying of the Liberian flag and the contractual provision that the law of the flag governs were factors that outweighed the fact that Utah was based in San Francisco. Used Lauritzen against lifting the veil.
  
• 
  In Canada, the Supreme Court recognized the lifting the corporate veil concept in Kosmopoulos v. Constitution Insurance [1987]. French courts have also done the same (Kuhr).
  
• 
  Statutes since then have pierced the corporate veil for bankruptcy legislation, etc. to hold shareholders and the like responsible.
  

• 
  Trying to find the beneficial owner (in personam means against the person and in rem means against the ship).
  
• 
  There was no reason to pierce the corporate veil (she said lift but really its pierce because she isn’t looking at the contacts but merely trying to find out who the owner is) because there was no one company that largely controlled the other companies and it was not a sham.
  
  • 
    Class Analysis:
    
    • 
      cannot lift the corporate veil unless there is a sham.
      
    • 
      see CB. 160
      

• 
  Law of flag is an imperfect indicator. Courts would be better served by developing a consistent, rational methodology to discover the properly applicable law. The best approach is the closest and most real connection.
  
• 
  Lauritzen, as applied and complemented by Romero and Rhoditis, is to be considered the governing approach.
  
• 
  Law of the flag is analogous to nationality or citizenship for person. So, just as the law of the flag is unsuitable for determining real connection to state, so is nationality where a person can have numerous passports.
  
• 
  The law of any single rule is dangerous – we should use the closest and most real connection instead – at least have all the same conflict rulings (trying to develop in the Hague).
  
• 
  Bottom Line: We need a methodology!!!
  

• 
  Canada has received all the benefits from this
  
• 
  “genuine link”
  

• 
  Rome Convention – 5(2), 6(1), 7(1), 7(2) – rules that may run against laws of the flag of the ship…
  
  • 
    Presumptions re carriers of goods, article 4(4) – if place of business is also place of discharge or loading, then that country will be the one which is most closely connected to the contract
    
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  CCQ articles 3076, 3079, 3111, 3117, 3118 – what is subject to mandatory provision of law, regardless of law chosen or law of the flag, etc.
  
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  Rome II – article 12 – definition of mandatory rules as crucial for the protection of the political, social or economic order in the Member State…
  

7. 
   
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