Server: Netscape-FastTrack/2.01 Date: Wed, 31 Dec 1997 20:38:18 GMT Accept-ranges: bytes Last-modified: Mon, 12 May 1997 19:52:44 GMT Content-length: 23977 Content-type: text/html
March 1990
Vol. 1, No. 1
Back to the Annual Table
of Contents
Contents
Third Edition of "Time Charters" by Michael Wilford and Terence
Coghlin of London and John Kimball of New York Published by Lloyd's of
London
Seven years after the publication of the Second Edition of this highly regarded treatise a new edition has been published and is available from Lloyd's Press at $195.00 per copy. The format of the book is especially interesting in that paragraphs dealing with purely American law are distinguished from paragraphs dealing with English law by a clear "margin line" alongside each American section. It is pointed out in the Introduction to this edition that American arbitration decisions are published and do have precedential value in contrast to the position in London where awards are rarely available to persons other than those involved in the particular dispute.
{John Kimball, born in New Jersey, was graduated from Duke University and received his law degree from Georgetown University in 1975. He became a partner in 1980 and is a member of the Firm's Executive Committee. He is Adjunct Associate Professor at the New York University Law School.}
Back To Contents | Down to Site Navigation
Nicholas J. Healy Celebrates His 80th Birthday
January 4, 1990, the 80th birthday of our founding partner, Nicholas J. Healy, one of the world's foremost maritime lawyers, was marked by a luncheon in his honor at the Whitehall Club. Perennially young and active, Mr. Healy continues to come to the office at least four days a week, except for summers, which he and his wife, Margaret, spend in Ireland. He keeps up to date on developments in the law, advises clients, serves as arbitrator and edits the Journal of Maritime Law and Commerce, which has a wide international circulation in the maritime community. He is currently working, together with Prof. Joseph C. Sweeney, on a new textbook on maritime collision law which it is expected will be published in late 1990.
Mr. Healy, who was born in New York, is a graduate of The College of the Holy Cross (1931) and Harvard Law School (1934). After working for some years with a predecessor of the firm of Lamorte Burns, he entered the U. S. Navy's Judge Adjutant Advocate Department in which he served as an officer during the war years, after which he went into private practice. The firm which is now known as Healy & Baillie was established in 1948. In 1950, together with Mr. George C. Sprague, he published "Cases On Admiralty". Mr. Healy had become Adjunct Professor of Law at New York University in 1947, teaching the Admiralty course from then until 1986. John D. Kimball now teaches the course. Mr. Healy also wrote the section on Maritime Law in the 15th Edition of the Encyclopedia Britannica and later, together with Prof. David Sharpe of George Washington Law School, published a new casebook on Admiralty, in addition to writing a number of articles which have appeared in various journals. He has lectured widely on maritime law subjects and is Vice President of the Comite Maritime International and was President of the Maritime Law Association of the United States from 1964-1966. He was awarded the Meritorious Public Service Award by the U.S. Coast Guard in 1972 and was elected a Fellow of the American College of Trial Lawyers in 1985.
Back To Contents | Down to Site Navigation
U.S. Gross Freight Tax in a Nutshell
by Donna Marie Zerbo
Beginning in 1987, a foreign corporation which owns or operates a vessel may be subject to U.S. income taxation by virtue of that vessel calling at a U.S. port, unless an exemption is available. The amount of revenue derived by a foreign entity which may be subject to U.S. income taxation equals 50 per cent of all transportation income attributable to transportation which begins or ends in the United States. Transportation income includes passenger income from the operation of cruises and income from bareboat charter hire. The rate of tax applicable to a foreign owner's or charterer's U.S. source gross transportation income is 4 per cent, without allowance for deductions. Thus, the total U.S. tax cost equals 2 per cent of the entire gross income derived as a result of calling a U.S. port. A foreign corporation could be subject to such 4 per cent tax even though the voyage beginning or ending in the United States is otherwise unprofitable.
The U.S. 4 per cent gross basis tax is not collected through a system of withholding. Rather, the foreign corporation deriving U.S. source transportation income is required to file a U.S. income tax return and either pay the tax due or claim an exemption from the tax pursuant to U.S. law, or diplomatic agreement. The 4 per cent gross basis tax is not imposed where an equivalent exemption is available. Most U.S. treaty partners and other shipping nations have entered into an Exchange of Notes with the U.S. to ensure the availability of an exemption to such country's shipping interests. However, a foreign corporation must file a U.S. income tax return in order to claim the exemption. Further, the U.S. Internal Revenue Service may request the foreign ship-owning corporation to disclose the identity of its ultimate individual shareholders. Failure of such shareholders to disclose their identity will result in a loss of the tax exemption.
As previously stated, a foreign owner or charterer of a vessel may be subject to the U.S. 4 per cent gross basis tax simply because the vessel called at a U.S. port, thereby causing 50 per cent of the gross income derived from that voyage and a proportionate amount of charter hire paid with respect to such voyage to be considered U.S. source income. Moreover, the characterization of transportation revenue as U.S. source and the incidence of income taxation thereon does not end with the initial recipient of transportation income, unless the owner of the vessel is also the sole operator. Rather, every person in a chain of charter parties deriving transportation income could have a potential U.S. income tax liability causing such liability to "cascade" upon the chain. The result is that the same income is potentially subject to taxation (depending upon availability of exemption) more than once, albeit in smaller proportions. For example, if a foreign person owning a vessel were to bareboat charter the vessel to a second foreign person, who time chartered the vessel to a third foreign person, who time chartered the vessel to a fourth foreign person, who derived freight from a number of other persons, all of the foreign persons in the chain would be deriving U.S. source gross transportation income, with a potential income tax liability being imposed on one or more payments made to persons somewhere in the chain. For those corporations subject to the 4 per cent tax, the cascading issue adds another level of complexity in determining the amount of U.S. source gross transportation income to be reported on their respective U.S. income tax returns. To date, there is no guidance with respect to computing U.S. source gross transportation, cargoes, etc. is probably sufficient for the Internal Revenue Service to ascertain the identity of charterers and owners as well as an amount of U.S. source transportation income and attendant income tax attributable to each such party. Thus, it would seem logical that the vessel would become the target of an income tax lien for the non-payment of U.S. income tax or, even more egregious, the non-filing of requisite income tax returns by any party in a cascading chain.
In light of the above, it is possible that within a chain of charter parties, one or more charterers may fail to comply with U.S. income tax laws by not filing a return and paying the 4 per cent gross basis tax, and thereby cause a lien to be placed upon the vessel at some future date. Vessel owners cannot possibly control the actions of a charterer with respect to such charterer's income tax obligations to the United States. Yet, it is the owner which may incur losses due to a charterer's failure to comply with U.S. laws if the vessel is subject to seizure by the Internal Revenue Service at a later date.
Owners are at risk even in the situation where the vessel is chartered to entities which qualify for the equivalent exemption. This is because, as previously mentioned, a quid pro quo to claiming the exemption is that the foreign corporation may be required to disclose the identity of its individual shareholders. Failure to comply with such disclosure request would result in the loss of exemption with the result that the foreign corporation would subs per cent gross basis tax, and thereby cause a lien to be placed upon the vessel at some future date. Vessel owners cannot possibly control the actions of a charterer with respect to such charterer's income tax obligations to the United States. Yet, it is the owner which may incur losses due to a charterer's failure to comply with U.S. laws if the vessel is subject to seizure by the Internal Revenue Service at a later date.
Owners are at risk even in the situation where the vessel is chartered to entities which qualify for the equivalent exemption. This is because, as previously mentioned, a quid pro quo to claiming the exemption is that the foreign corporation may be required to disclose the identity of its individual shareholders. Failure to comply with such disclosure request would result in the loss of exemption with the result that the foreign corporation would subsequently be assessed the 4 per cent gross basis tax, plus penalties and interest thereon. Assessment of tax, penalties and interest could occur within 3 or more years of the filing of a tax return, at which point the owner may no longer have a relationship with the particular charterer.
Although there is uncertainty as to whether, in fact, the Internal Revenue Service will ultimately impose liens on the vessel and keep it detained, interest in the U.S. tax itself has begun to increase. This is evidenced by the fact that we have received inquiry regarding a new charter party clause being proffered which requires the charterer to reimburse owner for any resultant U.S. gross freight tax. Last year when we drafted such a clause for use by clients, we were told no one was using such clauses. Apparently, the climate is changing. Note that charter party clauses governing the U.S. gross freight tax must be carefully drafted to ensure that: (i) an owner is fully protected; and (ii) charterers are able to subcharter the vessel with adequate protection with respect to such U.S. income tax.
For more information or assistance with gross freight tax issues contact Glen T. Oxton.
Back To Contents | Down to Site Navigation
Highlights of 1989 at Healy & Baillie
1989 saw H&B become computerized - lawyers and legal assistants now have personal computers on their desks. This new departure is already proving to be highly successful, speeding up the work and greatly increasing efficiency. Glen Oxton was the enthusiast who engineered the computer revolution.
Back To Contents | Down to Site Navigation
Arlen M. Appelbaum, Jonathan S. Gaines and James A. Oswald joined as associates in 1989.
Back To Contents | Down to Site Navigation
We were pleased to have with us for extended visits persons from abroad:
Yasumasa Masamoto, from the firm of Braun Moriya of Tokyo, Japan.
Erik Myhr Nilsen, from the firm of Roll & Komnaes of Bergen, Norway. Kijune Yoo, from the firm of Kim & Cho of Seoul, Korea.
Pei Yi Zhang from Shanghai, China.
Genrong Yu, from Shanghai, China. Mr. Yu, a June 1989 graduate of the University of Maine Law School is still with us.
Back To Contents | Down to Site Navigation
Our offices were redecorated during 1989, with new carpets and refurbished reception areas. Come and see us the next time you are in New York!
Back To Contents | Down to Site Navigation
Panel Holds Cargo Responsible for General Average Contribution on Basis
That Grounding Was Not Due to Unseaworthiness Even Though Mooring Line
Parted. Majority Held That There Was No Causal Relationship Between Grounding
and Parting of Lines.
In an award rendered on December 15, 1989, Arbitrators David M. Armstrong and Lloyd C. Nelson directed cargo receivers to pay owners the sum of $584,048.03, including interest at 10-1/2% per annum in general average contribution. Arbitrator Sam V. Tranchina dissented. Healy & Baillie Parters Kimball and Singleton represented the vessel owners. The facts are as follows:
The M.V. HUANDOY grounded at Caleta Patillos, Chile on March 18, 1982 during unmooring after loading approximately 28,000 metric tons of Chilean rock salt in bulk. Caleta Patillos is an unprotected cove on the Chilean Coast, used solely for loading salt. Six fishing vessels and the rising tide eventually assisted the HUANDOY off the rocks but not before sustantial damage had been done to her double bottom tanks, and the breaching of one cargo hold.
The HUANDOY proceeded to Talcahuano, Chile for repairs, which required all cargo to be discharged from the number 5 and 6 cargo holds. Upon completion of repairs the sound salt was reloaded in those holds. The HUANDOY completed her voyage to Tampa on June 10, 1982. The cargo receiver, Processed Minerals, rejected all of the salt in No. 5 and 6 holds.
Naviera Humboldt claimed a general average contribution from cargo in the amount of $388,916 for the repairs performed in Talcahuano which were necessary to complete the voyage. Receivers Processed Minerals denied any claim for general average and asserted a claim against Naviera Humbolt for particular average in the amount of $343,537. Processed Minerals' opposition to contributing in general average was based on alleged unseaworthiness of the vessel, in particular the unseaworthy condition of one of the lines used in the unmooring. Processed Minerals contended that the parting of that line during the unmooring maneuver caused the casualty.
The majority of the arbitrators concluded that the casualty was caused by a negligent unmooring maneuver. The majority found that the parting of the mooring line was not the cause of the grounding since the ship was already on the rocks when the line parted. The majority of the arbitrators further concluded that the evidence submitted, including traction tests performed on the rope over one year after the casualty, confirmed that the rope was in serviceable condition and fit for its intended purpose, notwithstanding that the test revealed the rope's breaking strength to be only one-half of its strength when new. The arbitrators were unanimous in concluding that Processed Minerals had failed to prove that the salt rejected at the discharge port had been damaged as a result of any unseaworthiness.
The arbitrators therefore awarded Naviera Humboldt the full amount of general average claimed together with interest in the amount of $195,131, for a total award of $584,048. The arbitrators denied Processed Minerals' particular average claim in its entirety.
As an interesting post-script, the cargo interests remitted funds in full satisfaction of the award four days after the award was issued.
{Richard V. Singleton is a partner in the firm. Graduate, Gonzaga University (J.D., 1978); University of Michigan (LL.M., 1981).}
Back To Contents | Down to Site Navigation
MAINBRACE is intended to provide general information. The articles contained in MAINBRACE do not constitute legal advice. An analysis of the facts relating to a particular issue must be accomplished before legal advice can be given.
NOTE: "Mainbrace," our Firm's cable address, in nautical terminology means the brace or rope sustaining the main yard on a ship. The Staff of "Mainbrace" consists of Nicholas J. Healy, Gordon W. Paulsen, John C. Koster, Matthew A. Marion, Betty M. Waterman and Renee Kintzer.
New York Office: 29 Broadway New York, NY 10006-3293 Telephone: (212) 943-3980 Telecopier: (212) 425-0131 |
Hong Kong Office: Luk Hoi Tong Bldg., Suite 1301 31 Queen's Road Central Hong Kong Telephone: (852) 2 537-8628 Telecopier: (852) 2 521-9072 |
Connecticut Office: Stamford HarborPark 333 Ludlow Street Stamford, CT Telephone: (203) 961-7250 Telecopier: (203) 357-7909 |
New Jersey Office: 374 Millburn Avenue P.O. Box 599 06902-6987 Millburn, NJ 07041-0599 Telephone:(201) 384-2556 Telecopier:(201) 384-1081 |
Internet:Reception@Healy.com
MAINBRACE
HEALY & BAILLIE
29 BROADWAY
NEW YORK, NEW YORK 10006-3293
Home
Page Oil Pollution Charters |
MB
Newsletter WWW Links In the News |
Attorneys Firm Description Offices |
Making
Law Bibliography Search |
Email
Us Webmaster Disclaimer |