Nationality of Vessels on Sea Trials Under U.S. Law

In 2013, approximately 1,147 commercial and military vessels were delivered by United States shipyards. This total includes vessels of all types – 8 deep-draft vessels and structures, 219 OSVs, tugs, towboats, passenger and fishing vessels, oceangoing barges, and 920 inland freight, deck and tank barges. The process of ship construction involves several distinct stages that can be identified as: (1) a shipbuilding contract, (2) tangible personal property, (3) a ‘‘vessel,’’ and finally, (4) a ‘‘vessel of the United States.’’ Between stages 3 and 4, a shipyard and its crew will conduct sea trials for most self-propelled vessels on the inland and territorial waters of the United States and for some larger vessels on the high seas. This article will briefly look at each of these stages of a ship’s construction, the U.S. Coast Guard’s authority over the construction of a vessel, and the status of a vessel on sea trials in international waters.

Shipbuilding Contracts -

It is well settled that contracts relating to either the construction of a vessel or the supply of materials for the original construction of a vessel are not maritime contracts within the federal courts’ admiralty jurisdiction. United States’ law views contracts for the construction of a vessel as a sale of tangible personal property, treating a contract for construction of a vessel as a sale of ‘‘goods’’ within the meaning of the Uniform Commercial Code (‘‘UCC’’) under Article 2 (Sales) and other applicable state laws. Title to a vessel under construction is generally held by the shipyard until delivery; some shipbuilding contracts provide for title to pass incrementally to the buyer, usually correlating with progress payments made to the shipyard. It is unclear, however, whether the buyer’s paper evidence of title under these shipbuilding contracts is merely a disguised security interest, to be held until the completed contract work is delivered, or whether it is sufficient to support the conclusion that the shipyard and buyer are co-owners. The shipyard formally passes title to the buyer upon full payment, ‘‘delivery,’’ and acceptance of the vessel by the buyer.

Originally published in Benedict’s Maritime Bulletin on August 12, 2014.

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