Can I Charter My Canadian-flagged Boat?

We are interested in starting a charter business, with the purchase of a 50-foot sportfishing yacht that is currently located in Canada. In one of your columns last year, you indicated that a boat must be built and registered in the United States to legally carry passengers for hire. The boat we are buying was built in the U.S., but it was sold in Canada and has always been Canadian flagged. Assuming we transfer the boat to U.S. documentation after we take delivery, would there be any legal restrictions against operating the boat in a charter business?

Based on the inquiries we receive, it appears that vessel owners are turning to chartering as a means to offset the costs of ownership at an increasing rate. As the reader noted, we addressed some of the legal requirements for chartering a private yacht in a previous installment of this column (’Ask a Maritime Attorney,’ The Log, Sept. 7, 2006 issue), but this is a complex topic and it may be helpful to look at some of the issues in greater detail.

Federal law requires a vessel to obtain a ’coastwise endorsement’ on its Coast Guard Certificate of Documentation, if it will be carrying passengers or cargo for hire within the United States. And, a boat is generally not eligible for a coastwise endorsement unless it was built and registered in this country. Under the scenario described above, the boat would seem to be eligible for charter, since it will be U.S.-built and U.S.-registered when it is placed into charter service.

Unfortunately, this question is not as straightforward as it seems. The U.S. Code of Federal Regulations provides that a vessel otherwise eligible for a coastwise endorsement will permanently lose that eligibility if it is registered in a foreign country. [46 CFR sec. 67.19(d)]. However, as a practical matter, the Coast Guard’s National Vessel Documentation Center (NVDC) regularly issues coastwise endorsements to vessels that are returned to U.S. documentation after being foreign registered, so long as the vessel measures less than 200 gross tons. The NVDC has taken the position that a 1996 amendment to a Federal statute [46 USC sec. 883] created an ambiguity that was intended to allow for a coastwise endorsement to be issued under these circumstances, and it applies the law accordingly.

Many charter boat operators ignore the requirements regarding U.S. construction, particularly where the operation carries six or fewer passengers (commonly referred to as a ’six-pack’ charter). The Coast Guard simply does not have the resources to enforce many of the regulations that apply to small charter boats, so the owners of the boats may never have a problem. However, in the event of a casualty, such as a collision or an injured passenger they may find themselves in a bad situation. An illegal charter may result in thousands of dollars in fines, and a possible denial of insurance coverage. Consult a qualified maritime attorney if you have any doubts at all about this issue.