Stewart McKelvey

VESSEL TRANSACTION BASICS AND DUE DILIGENCE NUANCES By Candace Thomas and Sadira Jan M ost business lawyers would be familiar with the standard types of legal due diligence carried out in the usual commercial purchase and sale or financing transaction. Performing minute book reviews, con- ducting public searches and, reviewing material contracts and financial statements are some of the more common due diligence best practices in busi- ness transactions. Depending upon the nature of the transaction, local expertise is required, for example in areas such as real estate, wind energy and one that is familiar to lawyers who practice in Atlantic Canada, vessel transactions. While much of the due diligence involved in vessel transactions relates to marine law which is primarily in the federal domain, there are location specific aspects to be mindful of and local counsel situated in the Atlantic provinces have both the ex- pertise and the relationships required to ensure the smooth completion of a deal involving a vessel. Canadian maritime law dates back to 1891 and the Admiralty Act, which established the Exchequer Court (the predecessor to the Federal Court of Can- ada) and granted that court authority over all mat- ters related to admiralty. The Canada Shipping Act, 2001 (the "Act") governs vessels. It provides that a vessel shall have 64 shares, which may be owned by different persons as long as they are a "quali- fied person" under the Act. A qualified person is a Canadian citizen, permanent resident or a corpora- tion incorporated under the laws of Canada or a province. There are, in addition, certain prescribed circumstances pursuant to which a foreign corpora- tion can be registered as an owner of a vessel pursu- ant to the Act. Registration under the Act is mandatory for ves- sels in commercial service and optional for pleasure craft. When acting for a party on a vessel trans- action, it is important to know that registration is not considered conclusive proof of ownership. For example, a bareboat charter is an arrangement for the hiring of a ship or a boat, usually distinct from a normal charterparty relationship in that no crew or provisions are included as part of the agreement. The bareboat charterer of a non-Canadian vessel may be listed as the owner of such vessel on the registry, if certain prescribed conditions are com- plied with, but is not in fact the legal owner of the vessel. In such instances, a simple search of the Can- adian vessel registry may not be sufficient to estab- lish conclusive ownership of the shares of a vessel. A search of the registry of the primary flag state would be necessary. The transfer of a vessel already registered on the Canadian registry from one qualified person to another is, on its face, a fairly simple process. DOING BUSINESS IN ATLANTIC CANADA SUMMER 2012 7

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