Legal Definitions - bottomry

Bottomry is a specialized type of loan agreement in maritime law where a shipowner pledges their vessel as security for funds needed to finance a specific voyage or for a defined period. The unique characteristic of a bottomry loan is that the lender's right to repayment is contingent upon the ship successfully completing its journey. If the ship is lost at sea due to perils of the voyage, the lender forfeits the loan amount. However, if the ship arrives safely at its destination, the shipowner is obligated to repay the loan, often with a higher interest rate reflecting the significant risk taken by the lender.

These loans are typically sought when a shipowner needs immediate funds for essential expenses related to a voyage, such as urgent repairs in a foreign port, purchasing necessary supplies, or paying crew wages, and conventional financing might not be readily available or suitable.

• Example 1: Emergency Repairs in a Foreign Port

  A cargo ship, The Ocean Wanderer, carrying valuable goods, suffers unexpected damage to its rudder during a severe storm while crossing the Pacific. It is forced to divert to a remote island port for emergency repairs. The shipowner, based thousands of miles away, needs immediate funds to pay for the repairs and continue the voyage. Unable to quickly secure traditional financing, the owner enters into a bottomry agreement with a local financier. The Ocean Wanderer is pledged as security for the loan. The financier understands that if the ship were to sink on its onward journey after repairs, they would lose their money. However, if The Ocean Wanderer safely reaches its destination, the shipowner is bound to repay the loan with the agreed-upon interest.

• Example 2: Funding a New Expedition

  A research organization plans an ambitious scientific expedition to a remote Arctic region, requiring significant upfront investment for specialized equipment, fuel, and a highly skilled crew. Traditional banks are hesitant due to the high risks associated with Arctic navigation. To secure the necessary capital, the organization's vessel, The Arctic Explorer, is put up as security under a bottomry bond. The lender provides the funds, accepting the condition that if The Arctic Explorer is lost or destroyed during the expedition, the loan will not be repaid. If the expedition is successful and the vessel returns safely, the organization will repay the loan as stipulated.

• Example 3: Seasonal Fishing Fleet Preparation

  A small fishing company owns a fleet of trawlers that require extensive maintenance, engine overhauls, and restocking of specialized nets and gear before the start of the lucrative tuna fishing season. Cash flow is currently low due to the off-season. The company decides to take out a bottomry loan on one of its key vessels, The Tuna Hunter, to cover these pre-season expenses. The lender agrees to provide the funds, knowing that their investment is tied directly to The Tuna Hunter's safe return from the upcoming fishing season. If the vessel is lost at sea during the season, the lender bears the financial loss, but if it returns, the fishing company must repay the loan.