Zombie Ships – the Perils of Failing to Neutralize Your Vessel Ownership

Captain Black decided to sell his tug and barge to a fellow from up the coast who wanted to start a dock building business.  His wife and warmer weather begged for Black’s attention.  Black signed the bills of sale and pushed them across the sticky galley table.  Hiding his delight, Black pulled the bank draft from the buyer’s oily fingers, shook hands briefly and smiled when the buyer said “I will take care of the rest”.  He stepped out of the galley door into the driving rain thinking he had put his old tug and barge behind him for the very last time.

Many transactions involving the Canadian Register of Vessels (the “Ship Registry”), the small (commercial) vessel register and the vessel licensing system can be, and are, completed without legal help.  The sale and transfer of both pleasure and commercial registered and licensed vessels is common.  The forms and procedures required by Transport Canada are relatively straightforward and in most cases, with attention to detail, the process can go smoothly even for those unfamiliar with registration and licensing procedures.

That said, it is not uncommon for the registration and licensing of vessels, particularly the transfer of recorded ownership, not to be completed successfully.  There are a variety of reasons for this (and even more potentially negative outcomes) that mariners are wise to be aware of, particularly if they chose to buy or sell a vessel without a lawyer’s oversight.

Captain Black stirred his margarita slowly and ignored his wife grumbling about “some retirement” as he reached into her beach bag to silence his cell phone.  He had dismissed the first four calls that hour but clearly someone with no respect for Black’s new priorities was trying to reach him.  “Race Rocks ecological reserve”, “holed and hard aground”, “ crane and tanks of diesel aboard”, “registered owner”, “what is your plan”, was all Captain Black’s wife heard as she lowered her sunglasses and watched her husband’s face go from golden brown to pale yellow.  According to the coast guard back in Canada, Black still owned the tug and barge he had sold six months earlier, or at least what was left of them.

What is a Zombie Ship?

The concept of a zombie ship, but perhaps not the expression, is common.  A zombie ship is my term for a vessel whose ownership has been terminated but continues to be active without the control of the apparent (registered or licensed) owner.  In other words, zombie ships are vessels (both pleasure and commercial) that are possessed by a new beneficial owner that continue to wander the seas with the appearance of belonging to their previous owners, in many cases causing havoc.  Zombie ships are not a joke and in fact are a common problem.

How and Why are Zombie Ships Created?

Zombie ships are typically created when the purchaser of a vessel fails to successfully complete the paperwork necessary to transfer the vessel’s registration or licensing.  In most cases, the vendor is pleased to have disposed of the vessel in return for the purchase monies and does not consider the downstream consequences of the vessel remaining in their name.  There is often an assumption on the part of the vendor that the purchaser of the vessel will be eager to record themselves as the new owner of the vessel and therefore the vendor is safe to assume it will be done.  In many cases, this is a poor assumption and the vendor’s name is never removed from government records, even though their insurance on the vessel was long ago cancelled.

There are several reasons the transfer of ownership paperwork may not be completed properly.  First, some purchasers are aware that both the Canada Revenue Agency and the B.C. Minister of Finance monitor vessel purchases that are recorded with Transport Canada as a means of tracking what tax is payable on the transfer.  Some purchasers believe they can avoid transfer tax by not recording the transfer and simply leaving the vessel in the vendor’s name.  Second, the registration documents may be rejected by Transport Canada due to errors, and the purchaser fails to follow up and correct the problem so the transfer is never finalized.  The vendor of the vessel does not normally receive notice from Transport Canada that their status as owner has changed, even if the paperwork is successfully completed, so the vendor has no idea whether the paperwork is properly completed unless they check the register.  Third, the purchaser simply may not appreciate they have to do anything to complete the record of their ownership beyond a handshake and the exchange of cash and keys on the dock.  Lastly, nefarious buyers intentionally choose not to change the recorded ownership so their illegal activities with the vessel appear to be carried out in the name of someone else.

Why are Zombie Ships Dangerous?

The resulting problem for the vendor is that while they are no longer in control of the vessel, they are exposed to many different liabilities because they remain the recorded owner of the zombie ship.  There are dozens of different offences and penalties under federal legislation that apply to the “owner” of the vessel regardless of whether that person remains the beneficial owner and in possession and control of the vessel.  For example, under section 177 the Canada Shipping Act 2001, an owner is “liable for all expenses incurred in respect of” a vessel detained for a suspected oil pollution offence.  Another example of legal exposure comes from the Fisheries Act, which provides penalties for the negative impacts any vessel (not just a fishing vessel) might have on fish or fish habitat.  Section 80 provides:  “every … owner, … or person actually in charge, either as occupant or servant, shall be deemed to be jointly and severally liable for any penalties or moneys recovered under any provision of this Act or the regulations”.

Dealing with Zombie Ships

The best way to deal with a zombie ship is to prevent it from becoming one in the first place.  If you are not working with a marine lawyer, you might do this by taking responsibility for filing the appropriate transfer documentation with Transport Canada; have the purchaser complete their portion of the documentation and provide it to you with the registration fees so that you can register the transfer yourself.  Alternatively, you can closely monitor the purchaser’s steps to record the transfer and confirm with the register the transfer has occurred.   Do not, however, simply assume the purchaser will successfully register the transfer without following up to ensure it has occurred, that is how zombies are allowed to come to life.

In closing, if you have sold a vessel in recent years you should check the Ship Registry, the small (commercial) vessel register or with the vessel licensing database to ensure the buyer completed the transfer of recorded ownership successfully.  If you have not done this, there may well be a vessel that looks like it belongs to you leaving a wake of destruction along the coast.  If you do find you are the recorded owner of a vessel that no longer belongs to you, immediately contact the buyer to complete the required paperwork.  If you cannot reach the buyer or they are not cooperative, seek the assistance of a lawyer qualified to neutralize the zombie ship, ideally a marine lawyer.

Darren Williams is a partner at League and Williams Law Corporation in Victoria B.C. and can be reached for question or comment locally 250-888-0002, by emergency cell phone at 250-589-2174 or at dw@MarineLaw.ca.