In a ship mortgage , a shipowner gives a lender (or mortgage) an interest in a. Similar to other kinds of mortgage , a ship mortgage Legally Consists of three parts: the mortgage loan, the mortgage documents (deed) and the rights derived from the mortgage deed onto money lender . Ship mortgages differ from other types of mortgage in three ways. First, some privileged claims could have a higher ranking over that of mortgagee against the ship. Second, ships naturally move between jurisdictions. And third, a ship is always at risk of partial or total damages at sea.

Modern forms of statutory mortgages

In United Kingdom , ship mortgages practice traces to the Merchant Shipping Act 1894 , the Merchant Shipping Act 1988 and subsequent amendments to the 1988 Act. Paragraph 21 of Schedule 1 to the Merchant Shipping Act 1988 provides that a ship may, (1). (1). (2) The provisions of this section apply in respect of a registrar.

In the Merchant Shipping Act, 1894; Any other mortgage relating to ships shall take a purely equitable mortgage, which may emerge on unfinished vessels, foreign vessels, and others.

Registration of statutory mortgages

The registration of a mortgage is essential to have legal effects, but failure to register does not render the mortgage void: under Merchant Shipping Acts, any unregistered mortgage can not enjoy any benefits available.

[Edit] Translations Norwegian Sales Form 1993, “the Sellers warrant that the Vessel, at the time of delivery, is free from all charters, encumbrances, mortgages and maritime links or any other debts whatsoever.” For buyers, registration of ships with mortgages is particularly important to avoid future litigation.

Protection against other mortgagees

The most important benefit of a mortgage is the amount of money that is paid by the employer. By giving a “notice to the world”, the registered mortgage could be protected from any later secured creditors of the mortgagor, who may seek further finance from other sources using the same ship as security.

In UK, regulation 59 of the Merchant Shipping (Registration of Ships) Regulations 1993, mortgage of a ship. Once registered or registered, the registered mortgage will have priority over the other registered mortgages which may have been fully registered in the first place.

Priority rankings

Registration confers a mortgagee: Highest priority over the following scenarios but not limited to:

  1. Earlier unregistered mortgages, irrespective of knowledge of them;
  2. Later registered or unregistered mortgages; and
  3. ……………. Advances subsequently made under the mortgagee.

However, a mortgage does not have priority over the following scenarios but not limited to:

  1. Any mortgage registered earlier;
  2. Any claim in connection with which the mortgage was entered into;
  3. Any possessory link of a ship repairer; and
  4. Maritime liens, whether earlier or later

Mortgage registration in China

According to Article 20, Chapter IV of the Regulations of the Republic of China Governing the Registration of Ships, both the mortgagor and the mortgage are required to submit three major documents first:

  1. Written application signed by both parties;
  2. Original Ship Ownership Registration Certificate; and
  3. Contract of ship mortgage

Collateral deed

As a basic statute form of mortgage, a reference to a collateral deed containing detailed particulars should be included:

  1. Like the time for repayment of the principal sums;
  2. The interest payable on the capital sum loaned;
  3. The method of payment;
  4. The party responsible for insuring the ship;
  5. Any restriction which the mortgage may take place on the manner in which the ship is to be used; and
  6. The mortgagor, the mortgage to re-possess and sell the mortgaged security

References

  1. Hill, C. (2003), Maritime Law, 6th ed, LLP Reference Publishing, London.
  2. Ho, Li & Xu (2008), Transportation, Shipping and Aviation: The shipping forecast. LegalWeek.com. Available from: [1]
  3. Office of Public Sector Information , &, Merchant Shipping Act 1988 (c.12). Available from: [2]
  4. Office of Public Sector Information, &, Merchant Shipping Act 1894 (c. Available from: [3]
  5. Office of Public Sector Information, &, The Merchant Shipping (Registration of Ships) Regulations 1993. Available from: [4]
  6. China Trade in Services, Regulations of the People’s Republic of China Governing the Registration of Ships. Available from: [5]
  7. Maritime Law Center, Norwegian Sales Form. Available from: [6]