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HQ 116590

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January 18, 2006

VES-3-18-RR:BSTC:CCI 116590 GOB

CATEGORY: CARRIER

Chief, Vessel Repair Unit
U.S. Customs and Border Protection
Louis Armstrong International Airport
900 Airline Highway
Room W-103-400
Kenner, LA 70062

RE: 19 U.S.C. §1466; S/S OSPREY; Vessel Repair Entry C15-0020489-1; Protest 1512-05-100091; Casualty Claim

Dear Sir:

This is in response to your memorandum of December 14, 2005, forwarding for our review the protest filed on behalf of Osprey Shipholding Corp., LLC (“protestant”) with respect to Vessel Repair Entry C15-0020489-1. Our ruling follows.

FACTS:

The S/S OSPREY (the “vessel”), a U.S.-flag vessel, incurred foreign shipyard costs. The vessel arrived in the port of Wilmington, North Carolina on December 21, 1997. A vessel repair entry was filed.

In HQ 116431, dated July 7, 2005, the petition for relief with respect to the subject entry was denied in part and granted in part.

ISSUE:

Whether the costs for which the protestant seeks relief are dutiable under 19 U.S.C. § 1466?

LAW AND ANALYSIS:

Initially, we note that the information in the file indicates that the protest, with application for further review, was timely filed under the statutory and regulatory provisions for protests. 19 U.S.C. § 1514(c)(3) and 19 CFR

Title 19, United States Code, section 1466 (19 U.S.C. §1466) provides for the payment of duty at a rate of fifty percent ad valorem on the cost of foreign repairs to vessels documented under the laws of the United States to engage in foreign or coastwise trade, or vessels intended to be employed in such trade.

Protestant’s Casualty Claim

Title 19, United States Code, section 1466(d)(1) (19 U.S.C. § 1466(d)(1)) provides that the Secretary is authorized to remit or refund such duties if the owner or master of the vessel furnishes good and sufficient evidence that the vessel was compelled by stress of weather or other casualty to put into a foreign port and make repairs to secure the safety and seaworthiness of the vessel to enable her to reach her port of destination. Section 4.14(h)(2)(i), Customs and Border Protection (“CBP”) Regulations (19 CFR § 4.14(h)(2)(i)) provides that "port of destination" means such port in the United States.

Section 1466(d)(1) and 19 CFR § 4.14(h)(2)(i) essentially set forth a three-part test, each of the elements of which must be established by good and sufficient evidence to qualify for remission:

1. a casualty occurrence;
2. an unsafe and unseaworthy condition; and 3. the inability to reach the port of destination in the U.S. without foreign repair.

19 CFR § 4.14(h)(2)(i) provides in pertinent part as follows:

. . . For the purposes of this paragraph, a “casualty” does not include any purchase or repair made necessary by ordinary wear and tear, but does include the failure of a part to function if it is proven that the specific part was repaired, serviced, or replaced in the United States immediately before the start of the voyage in question, and then failed within six months of that date.

The protestant describes certain of the pertinent facts as follows:

On September 25, 1997, while en route to the United States, the OSPREY experienced a sudden loss of power at the Strait of Gibraltar. . . . Strong vibrations and at least two distinct jolts or bumps were noticeably felt. . . . It was later found that the torque had become detached. . . . With this section of the drive train missing, the propeller was hanging and unable to turn. As a result, the ship went dead in the water, and the After Peak Tank became flooded as a result of the loose torque shaft. [Footnote omitted.] At this point and until final repairs were completed in Portugal, the ship had no ability to transit under ship’s propulsion power. . . . The necessary regulatory bodies were notified. . . . Once in Gibraltar Bay, divers surveyed the damage identifying that the torque shaft was missing and effected temporary repairs to stop the further flooding. The tailshaft and the propeller were secured with wires to prevent further loss of tailshaft components. The vessel was subsequently towed to the Lisnave Shipyard in Lisbon, Portugal, the closest shipyard with drydock availability, to undergo permanent repairs.

The protestant claims relief under 19 U.S.C. § 1466(d)(1) based upon the following assertions: it has met the evidentiary requirements in 19 U.S.C. § 1466(d)(1); b. even if evidence or a reasonable inference that the subject damage resulted from striking an unknown underwater object is required, the protestant has met that burden; and c. even if the unexpected detachment of the torque shaft was not the result of striking an underwater object, but the result of a shaft distortion caused by improperly fitted bolts, the repairs made at Gibraltar and Lisbon are remissible because the malfunction was likely due to shipyard negligence and not the result of wear and tear.

The documentation submitted by the protestant includes the following: memorandum in support of protest; submission of December 2, 2005; shipyard and vendor invoices; numerous American Bureau of Shipping (“ABS”) reports, surveys, and documents; a copy of pages of the vessel’s log; U.S. Coast Guard report; statements of the vessel master and numerous other individuals who were on the vessel; Scamp Hull Effectiveness Report; a “sequence of events” which appears to have been drafted by officials who were on the vessel or based upon their accounts; a report of The Salvage Association; various work specifications, drawings, and memoranda; and a letter from Marine Consultants, Inc.

The incident which is claimed as a casualty occurred on September 25, 1997.

The protestant has submitted ABS documentation which reflects the following was performed earlier in 1997, prior to the incident in question: drydocking survey; tailshaft survey; annual load line inspection survey; boiler surveys; and a damage repair survey. The documentation with respect to the tailshaft survey indicates that “[t]he existing tailshaft was reinstalled, connected to the coupling and considered satisfactory” and “[t]he tailshaft weardown was taken, compared with readings onboard and considered satisfactory (or bearing renewed).”

The report of The Salvage Association, dated November 3, 1997, provides in pertinent part as follows with respect to the incident of September 27, 1997:

From a divers report, supported by photographs and video tape, it was confirmed that the outboard intermediate shaft was missing in its entirety, the twelve (12) in number coupling bolts were missing at the propeller shaft flange connection, while seven (7) in number sheared coupling bolts remained in position at the sterntube shaft flange connection the other five (5) bolts were missing. The propeller shaft had visibly shifted aftwards and one propeller blade was bent aftwards and variously torn down at the edge. Additionally, the shell bottom plating was torn, fractured and buckled in way of the aft peak tank, with internals variously distorted.

One of the documents submitted by the protestant contains, in pertinent part, the following information in “a sequence of events” of September 25, 1997:

0944 Experienced heavy vibration and two severe “jolts” or “bumps’ in the aft end of the vessel.1010 No visible damage found in the engine room.1050 It was now suspected that the propeller had somehow come disconnected from the drive shaft.2015 Divers’ inspection found the following: The tail shaft between the stern tube and the propellar [sic] strut was found missing; the strut was cracked; two cracks were found in the bottom plating IWO the stern tube; two propellar [sic] blades were found damaged/bent. The cracks in the bottom plating were the source of water leaking into the Aft Peak Tank.

The statements of the numerous crewmen of the vessel are generally consistent with the statement of the vessel master, which provides, in pertinent part, as follows: “I was on the Bridge supervising the navigation watch, when I felt some vibration from the after end of the vessel. The vibration increased to a strong vibration then there occurred two distinct jolts or bumps which appeared to come from the after part of the vessel...”

The protestant submitted documentation with respect to a Norwegian court proceeding (Bergen City Court Judgement of 6/12-00 – Osprey v. Vesta, Case No. 98-2997 A/01) involving the subject incident and the protestant and its insurance company. The Norwegian court stated in pertinent part as follows (translated from Norwegian):

TNO and Det Norske Veritas find it fairly clear that the breakdown was due to distortion of the shaft, whereas JJMA considers that such distortion alone would not be sufficient to cause the shafting to break. On this basis JJMA considered other alternatives and found it most probable that loose bolts in the flange coupling were the main cause. In its assessment of the evidence the Court has no possibility of discussing the quality of the separate assessments made by professional agencies . The Court must accept that to a reasonable extent it has been established that the breakdown was wholly or partly caused by shaft distortion, loose bolts, or other and unknown factors. However, the Court does not find, on the basis of the expert reports alone, it possible to say that any one of the alternatives is the most probable cause. . . .
. . . the Court is satisfied that ABS, which is an internationally recognised classification society, performed thorough inspections [prior to the subject voyage] before issuing the classification papers. . . .
. . . Thus the Court finds that the Owner’s [the protestant’s] actions cannot be termed negligence in the insurance law sense either, and therefore finds in favour of Osprey [the protestant].

After a careful consideration of the documentation of record, we find that the protestant has provided good and sufficient evidence in support of its claim under 19 U.S.C. § 1466(d)(1). Therefore, that claim is granted with respect to the work performed in Lisbon, Portugal and Gibraltar Bay.

We note that the protestant’s submission of December 2, 2005 set forth certain costs for a tail shaft and torque shaft. We find that these costs fall within the protestant’s casualty claim.

Protestant’s Claim with respect to the Allocation of Discounts and Proration of Costs

The protestant claims that your office failed to properly apply a discount with respect to certain costs. Your office agrees with this claim. Therefore, we direct your office to apply the appropriate discounts.

With respect to the method of proration of costs, in HQ 116517, dated August 8, 2005, we stated as follows:

In essence, it appears that the petitioner claims that the proration should be performed with respect to each particular item, as opposed to a cumulative proration across all costs incurred.

We find that the petitioner's claim is without merit in that it is our determination that the proration was correctly calculated based on the cumulative amounts of the expenses.

As in HQ 116517, the proration of costs should be performed on a cumulative basis.

Protestant’s Claim with respect to Work on the Ramps

In its application of the vessel repair statute, CBP has held that modifications, alterations, or additions to the hull of a vessel are not subject to vessel repair duties. The identification of work constituting modifications vis-a-vis work constituting repairs has evolved from judicial and administrative precedent. In considering whether an operation has resulted in a nondutiable modification, the following factors have been considered. These factors are not by themselves necessarily determinative, nor are they the only factors which may be relevant in a given case. However, in a given case, these factors may be illustrative, illuminating, or relevant with respect to the issue of whether certain work may be a modification of a vessel which is nondutiable under 19 U.S.C. 1466:

1. Whether there is a permanent incorporation into the hull or superstructure of a vessel, either in a structural sense or as demonstrated by means of attachment so as to be indicative of a permanent incorporation. See United States v. Admiral Oriental Line, 18 C.C.P.A. 137 (1930). However, we note that a permanent incorporation or attachment does not necessarily involve a modification; it may involve a dutiable repair or dutiable equipment.

Whether in all likelihood an item would remain aboard a vessel during an extended lay-up.

3. Whether an item constitutes a new design feature and does not merely replace a part, fitting, or structure that is performing a similar function.

4. Whether an item provides an improvement or enhancement in operation or efficiency of the vessel.

The protestant claims that the following items are nondutiable modifications: 84, 95, 114, 132, and 149.

We find that the following items are nondutiable modifications: 84, 114, 132, and 149.

We find that the costs of item 95 are dutiable. This finding is based upon the fact that the pertinent invoice indicates repairs were performed with respect to this item. For example, the invoice for item 95 contains the following language: “4. . . . complete repairs and renewals as follows in 5, 6, 7, 8 following paragraphs work [sic]”; “. . . overhaul and refit repairs as necessary”; and “”frams lohere [sic] damaged.” Such language clearly indicates that item 95 includes dutiable repairs.

Protestant’s Claim with respect to 19 U.S.C. 1466(h)(3)

The protestant claims that certain items are eligible for treatment under 19 U.S.C. 1466(h)(3). This claim is unnecessary with respect to certain items (i.e., items on the Lisnave invoice), because relief is being granted for these items pursuant to the protestant’s casualty claim under 19 U.S.C. § 1466(d)(1). With respect to the remaining items identified in the protest pertaining to this claim, we find that they are eligible for treatment under 19 U.S.C. § 1466(h)(3). If you office believes that any of the classifications and duty rates provided by the protestant are incorrect, your office should consult the pertinent import specialist within the port.

HOLDING:

The costs for which the protestant seeks relief are under 19 U.S.C. § 1466 as discussed in the Law and Analysis section of this ruling.

You are instructed to grant the protest in part and deny the protest in part.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Glen E. Vereb
Chief

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