While there is no generally agreed definition, ‘flag of convenience’ or ‘open registry’ States refer, in essence, to States that permit foreign shipowners, having very little or virtually no real connection with those States, to register their ships under the flags of those States.
The flag of convenience States allow shipowners to evade national taxation and to avoid the qualifications required of the crews of their ships. In so doing, flag of convenience States give shipowners an opportunity to reduce crew costs by employing inexpensive labour, while these States receive a registry fee and an annual fee. As one of the few variables in shipping costs is crew costs, a highly competitive market within the international shipping industry prompts shipowners to resort to open registry States.
In relation to this, attention must also be drawn to a mechanism of ‘second’ or ‘international’ registries that allow for the use of the national flag, albeit under conditions which are different from those applicable for the first national registry. Examples include the Norwegian International Ship Register (NIS), the Danish International Register of Shipping (DIS) and the French International Register (RIF). The NIS and the RIF cater to some foreign controlled tonnage, while the DIS is almost only used by Danish-controlled ships. The ten largest open and international registry States that cater almost exclusively to foreign controlled ships are: Panama, Liberia, Bahamas, Marshall Islands, Malta, Cyprus, Isle of Man, Antigua and Barbuda, Bermuda, and Saint Vincent and the Grenadines.
Even though non-compliance with relevant rules is by no means peculiar to flags of convenience, there is rightly the concern that open registry States do not commit themselves to effectively enforce the observance of relevant rules and standards by vessels flying their flag with regard to, inter alia, safety of navigation, labour conditions of the crew, the regulation of fisheries and marine pollution, since strict law enforcement will have a negative effect on the economic policy of attracting ships to register. Illegal fishing by the flags of convenience is also a matter of pressing concern.
In 1986, the UN Registration Convention was adopted under the auspices of the UN Conference on Trade and Development (UNCTAD) with a view to tightening a genuine link between the flag State and the ships flying its flag. The UN Registration Convention elaborates several conditions with which the flag State shall comply. In particular, ownership of ships, manning of ships, and the management of ships and ship-owning companies constitute key elements of the tightening of a genuine link between the flag State and the ships flying its flag. However, this Convention has not entered into force. Furthermore, it appears to be questionable whether the flag of convenience States will ratify this Convention.
The problem of flags of convenience seems, broadly, to derive from international competition in the shipping and fishing industry, in which case, it is debatable whether the tightening of the requirement of a genuine link would provide an effective solution.
A further issue involves legal consequences arising from the absence of a genuine link between the flag State and the ship concerned. Should a foreign State be free not to recognise the right of the ship to fly the flag of the flag State because of the absence of a genuine link between the ship and the flag State? Considering this question, four cases merit attention.
The first example is the Magda Maria case of 1986. On 1 August 1981, the Magda Maria flying the Panamanian flag was seized by the Dutch authorities on the high seas 9 miles off the Dutch coast because of unauthorised broadcasting from the high seas. The Magda Maria was brought into port at Amsterdam harbour and broadcasting equipment on board was seized. Although the District Court of The Hague upheld the validity of the seizure by the Dutch authority, the Supreme Court quashed the decision of the District Court and remitted the case to the Court of Appeal of The Hague for retrial and decision. Before the Court of Appeal, the Procurator-General claimed that in view of the absence of a genuine link as referred to in Article 5 of the Convention on the High Seas, the Magda Maria had become stateless. Nonetheless, the Court of Appeal dismissed this claim.
According to the Court, the concept of the genuine link obliges Panama as the flag State only to exercise its jurisdiction effectively. However, ‘[i]t does not imply that the Dutch Government has the right to recognise or otherwise the right to fly the Panamanian flag which was granted to the ship by Panama’. Thus, the Court of Appeal held that ‘it cannot be said on the basis of the examination at the sitting that the MS Magda Maria was stateless on account of the absence of a genuine link’.
The second case involves the Advisory Opinion in the Constitution of the Maritime Safety Committee of the Inter-Governmental Maritime Consultative Organisation (IMCO) of 1960. In this case, the ICJ was asked to answer to the question with regard to the validity of the constitution of the Maritime Safety Committee of the IMCO. Under Article 28(a) of the Convention of the IMCO, the members of the Maritime Safety Committee consisted of fourteen members elected by the Assembly which included the world’s eighth largest shipowning countries. Nonetheless, Liberia and Panama were not elected to the Committee, although they ranked third and eighth on the world tonnage scale at that time. In the course of arguments, it was contended that the Assembly was entitled to take the concept of a genuine link into consideration in assessing the ship-owning size of each country.
However, the ICJ ruled that the concept of the genuine link was irrelevant for the purpose of the Advisory Opinion; and that the determination of the largest ship-owning nations depends solely upon the tonnage registered in the countries in question. Hence, the Court concluded, by nine votes to five, that the Maritime Safety Committee of the IMCO was not constituted in accordance with the Convention for the Establishment of the Organisation.
The third case is the 1999 M/V ‘Saiga’ (No. 2) decision. In this case, Guinea claimed that there was no genuine link between the Saiga and Saint Vincent and the Grenadines, and, consequently, it was not obliged to recognise the claims of Saint Vincent and the Grenadines in relation to the ship. ITLOS noted the fact that, in the legislative process of Article 5(1) of the Geneva Convention on the High Seas, the proposal that the existence of a genuine link should be a basis for the recognition of nationality was not adopted. Article 91 of the LOSC followed the approach of the Convention on the High Seas. Hence ITLOS concluded that the purpose of Article 91 was not to establish criteria by reference to which the validity of the registration of ships in a flag State may be challenged by other States.
The fourth example is the 2014 M/V Virginia G case between Panama and Guinea Bissau. In this case, ITLOS reaffirmed the dictum in the M/V ‘Saiga’ (No. 2) decision, stating that Article 91(1), third sentence, of the LOSC requiring a genuine link between the flag State and the ship, ‘should not be read as establishing prerequisites or conditions to be satisfied for the exercise of the right of the flag State to grant its nationality to ships’.
Overall the jurisprudence seems to suggest that a State cannot refuse to recognise the right of the ship to fly the flag of the flag State because of the absence of a genuine link. If this is the case, the only remedy for the violation of the obligation to ensure a genuine link is to report the facts concerning the absence of proper jurisdiction and control to the flag State as provided for in Article 94(6) of the LOSC. However, some doubts can be expressed regarding whether the right to report under Article 94(6) alone would be adequate to secure effective implementation of the duties of the flag State. Thus ITLOS, in its Advisory Opinion of 2015, added an obligation which is not explicitly provided in Article 94(6), stating that the flag State that received a report is:
obliged to investigate the matter upon receiving such a report and, if appropriate, take any action necessary to remedy the situation. The Tribunal is of the view that the flag State is under the obligation to inform the reporting State about the action taken. If this does not occur, State responsibility for the breach of obligations of the flag State will arise.