Becoming part-owner of a ship, or "quirataire" as it is known, opens the door to a shared maritime adventure. But beyond the dream, this status confers specific rights and, above all, implies financial responsibilities that it is essential to understand before committing yourself. Far from being a simple passive investor, the joint owner holds a share in the ship and participates in its legal and economic life. However, his commitment may exceed his initial investment, particularly in the event of debts. The creation of ship co-ownership It also means that each tenant must agree on the management and maintenance of the boat, which may require regular meetings and good communication. What's more, it's essential to familiarise yourself with the maritime regulations and legal obligations that govern co-ownership, to avoid any disputes between co-owners. So this maritime adventure requires not only a financial investment, but also a personal commitment to guarantee the success of the collaboration.
This article explores in detail what it means to be a joint owner. What concrete rights do you have over the ship and over your share? How can you participate in decisions and results? Is it easy to sell your shares? We then look at the often sensitive issue of liability for the debts of the co-ownership: who pays what? Is your liability unlimited? Are there ways of containing it? Finally, we'll look at the specific guarantees that can be taken out on the vessel, such as mortgages. What's more, it's crucial to fully understand the shipowners' rights to protect your interests as a co-owner. A good knowledge of these rights will enable you to navigate effectively through the complexities of maritime co-ownership. Finally, we will look at the steps you can take to ensure sound and transparent management of co-ownership and avoid potential conflicts.
The rights of the tenant: more than just an investor
Unlike a company shareholder who holds a financial security, the tenant has a genuine right of ownership, a real right, over an undivided fraction of the vessel itself. They do not contribute their share to a separate entity; they retain it. This nuance is important and underpins several of his prerogatives.
Naturally, as a co-owner, the tenant shares in the results of the operation of the vessel, whether profits or losses, in proportion to his share of the interest, as specified in article 19 of the law of 3 January 1967. The corollary of this participation in profits is the obligation to contribute to expenses and to respond to calls for funds decided by the majority for operating requirements. As we saw in our previous article, they also participate in collective decisions through their voting rights, which are also proportional to their shares.
A fundamental right of co-owners is the right to freely dispose of their share. In principle, they can sell or give away their shares whenever they wish and to whomever they wish, without needing the agreement of the other co-owners (Law 1967, art. 22). Co-ownership is therefore, by its very nature, "open". This transfer must be recorded in writing (Law 1967, art. 10) and must be rigorously publicised: it must be recorded on the ship's registration card kept by customs (Decree of 27 October 1967, art. 8 and 92).
Publication is absolutely essential. As long as it is not carried out, the transfer cannot be used against third parties. This means that the seller (the assignor) remains liable for the debts of the co-ownership arising from before the date of publication of the sale, as emphasised at the end of article 22 of the 1967 law. A recent decision by the Court of Cassation (Com. 19 May 2021, no. 19-20.155) forcefully reiterated this principle: regardless of whether the sale has taken place, if the sale is not publicised (for example, because the buyer is late in providing the documents), the seller remains liable to creditors for debts incurred prior to the date of publication. It's easy to imagine the worries of a seller faced with a negligent buyer...
The open nature of co-ownership can sometimes be perceived as a disadvantage, particularly in the case of yachting or fishing co-ownerships where personal relationships (the intuitu personae) are important. Can a clause be inserted into the initial contract requiring a partner who wishes to sell to obtain the agreement of the others? The law does not expressly provide for this, unlike company law. The question is open to debate, but if such a clause were to be accepted, its effectiveness would no doubt depend, once again, on its publication on the registration form.
However, the law sets two express limits on the freedom to transfer:
- If the sale of a share results in the vessel losing its French registration (for example, if the buyer is a national of a non-EU country and his share results in the majority of the capital being held outside the EU), the unanimous agreement of all the other co-owners is essential (Law 1967, art. 22, para. 2).
- A special case concerns co-owners who are also members of the crew. If they are made redundant, they have the right to leave the co-ownership and obtain reimbursement of the value of their shares (set by amicable agreement or by the court). This is a kind of specific right of withdrawal (Law 1967, art. 23).
Finally, the last important property right: the tenant may use his share as collateral. He has the right to mortgage his share(s) to secure his own personal debts, in accordance with the rules governing maritime mortgages (Law 1967, art. 24).
Who pays co-ownership debts? A multi-speed system
This is often the question that most worries aspiring co-owners: to what extent are my personal assets committed if the vessel generates debts? Before answering this question, you need to know which debts are binding on the co-ownership. These are all debts (contractual, tortious, legal) arising from the normal management of the vessel by the manager acting within the scope of his legal powers (remember that internal limitations on his powers are not enforceable against third parties). This also applies to debts contracted by another joint owner or a third party if the latter had received an express mandate from the joint owner or the manager. In the event of non-payment, creditors may turn against the property of the co-ownership, but also against the personal assets of the co-owners if the situation so requires. This underlines the importance of good financial management and transparency within the co-ownership. It is crucial to have a clear understanding of the financial implications in order to avoid putting personal assets at risk, especially at end of co-ownership of vessels.
Historically, case law held that all joint owners were indefinitely and jointly and severally liable for debts. This was a very harsh solution, especially when people with no knowledge of the maritime world began to invest. The law of 3 January 1967, amended on this point by a law of 26 June 1987 aimed at attracting new capital, introduced a more nuanced system, organised around the distinction between partners who are managers and those who are not. Article 20 of the 1967 law governs this complex system.
Partners who are also managers (or those who are deemed to be managers because no manager has been appointed or published) see their situation unchanged: they remain indefinitely liable on their personal assets and jointly and severally liable for all the co-ownership's debts. Joint and several liability means that a creditor can claim the entire debt from one of the managers, and then take action against the others. They cannot escape this liability by an agreement to the contrary.
Partners who are not managers benefit from a more favourable regime. While their liability is still unlimited (it may exceed the amount of their share), it is no longer joint and several by operation of law. It has become joint each non-managing tenant is only liable for debts in proportion to his share in the vessel. For example, if he holds 2 out of 24 shares (i.e. 1/12th), a creditor can only claim 1/12th of the debt from him. This system is reminiscent of that for partners in civil partnerships (Civil Code, art. 1857).
But the law goes further and offers contractual flexibility to non-managing partners. They can enter into a written agreement :
- Or limit their liability to the value of their stake in the vessel. Their commitment will then not exceed the value of their shares.
- Or the other way round, restore solidarity between them or with the managers, which no longer exists automatically.
A special case is provided for: if the management is entrusted to one or more managers who are not not co-owners. To prevent all the co-owners from offloading their joint and several liability onto an external manager (who may not be very solvent), the law requires that an agreement be drawn up stipulating that co-owners representing more than half of the interest remain indefinitely and jointly and severally liable for the debts. If such an agreement is not drawn up and published, then all the co-owners, without exception, become indefinitely and jointly and severally liable (Law 1967, art. 20, para. 4).
The absolutely essential point to remember is that all such agreements governing the liability of non-managing partners (limitation or joint and several liability) are only valid and enforceable against third parties if they have been published (Law 1967, art. 20, para. 5). This publication is made on the ship's registration form (Decree 1967, art. 92). Without this publication, the legal rules apply: joint liability for managers, joint liability for non-managers.
This system of liability, although protective on paper, has practical limits. On the one hand, the "indefinite" liability of joint managing partners may itself be capped by the general mechanisms for limiting the liability of ship operators set out in other legislation (in particular article 58 of the 1967 law itself, which refers to international conventions). On the other hand, if the joint managing tenant is a limited liability company (SARL or EURL) with a minimum capital, the guarantee offered to creditors may be weak. This is why, in practice, financial partners (banks in particular) very often require additional personal guarantees, such as a joint and several guarantee from each of the co-owners, to secure their loans.
Securing receivables: mortgaging the ship
In addition to recourse against the lessees themselves, creditors may seek to obtain security directly over the asset being operated: the vessel. The maritime mortgage is an ideal tool for this. It is important to distinguish it from the mortgage that a tenant may grant over his own share (quirat) to secure a personal debt. In this case, the entire vessel is mortgaged to secure a debt of the co-ownership itself (for example, a loan for major repairs or for the acquisition).
Who can decide on such a measure? The manager can, but not alone. Given the seriousness of the act (which could lead to the seizure and sale of the vessel in the event of non-payment), the law requires special authorisation from the co-owners. And not just any authorisation: you need the agreement of a a majority of co-owners representing at least three quarters (3/4) of the value of the property. of the vessel (Law 1967, art. 25). This is a very high qualified majority, calculated on the estimated value of the vessel and not on the number of shares, designed to protect the interests of all co-owners, including those who may be less familiar with maritime affairs.
As with the constitution of co-ownership, the mortgage must be evidenced in writing (Law 1967, art. 43), even a simple private deed will suffice. In order to be enforceable against third parties and to rank the creditor, the mortgage must be entered in a special register held by the maritime mortgage registrar, which in practice is the customs office where the ship was registered (Decree 1967, art. 15). The registration is also mentioned on the ship's registration card (Decree 1967, art. 92).
Once registered, the mortgage confers important rights on the creditor: a preferential right over the sale price of the ship compared with ordinary creditors (1967 Act, art. 47) and a right of resale, which allows the creditor to seize the ship even if it has been sold to a third party (1967 Act, art. 55). The law also protects mortgagees by prohibiting any voluntary transaction that would result in the loss of the ship's freehold status without their consent (art. 57). The purchaser of a mortgaged ship has specific procedures to protect himself from legal action, in particular by offering to pay registered creditors immediately up to the amount of the purchase price (Decree 1967, art. 21 et seq.).
Navigating the rules of ship co-ownership liability and warranties requires legal expertise. To assess your rights and obligations or structure your guarantees in the best possible way, contact our firm. Find out more about our full range of legal services in commercial lawcovering navigation and river transport.
Sources
- Law no. 67-5 of 3 January 1967 on the status of ships and other sea-going vessels (relevant articles, in particular 10, 19, 20, 22, 23, 24, 25, 43, 47, 55, 57, 58)
- Act no. 87-444 of 26 June 1987 amending Act no. 67-5
- Decree no. 67-967 of 27 October 1967 implementing law no. 67-5 (relevant articles, in particular 8, 15, 21 et seq., 92)
- Transport Code (Provisions potentially recodifying certain articles of previous texts)
- Civil Code (in particular article 1857 on liability in civil partnerships)
- Relevant case law (e.g. Cass. Com. 19 May 2021, no. 19-20.155 on the enforceability of the transfer of shares)
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