The Law of Ship Mortgages

Foreword xiii

Preface and acknowledgements xvi

Table of cases xviii

Table of legislation xx

CHAPTER 1 HISTORICAL INTRODUCTION 1

1.1 Background 1

1.2 Maritime law and ship mortgages 4

1.3 Legislative reform 8

1.4 The nature of the statutory mortgage 11

1.5 The international legacy 16

1.6 Mortgages of unregistered ships 17

CHAPTER 2 OWNERSHIP AND REGISTRATION 18

2.1 Legal ownership 18

2.2 Registration; history and development 21

2.3 The Register 24

2.4 Fishing vessels 25

2.5 Small ships 26

2.6 The nature and effect of registration 27

2.7 The certificate of registry 28

2.8 Registration and beneficial ownership - including the arrest context 29

2.9 Registration and priority 35

2.10 Other circumstances, where registration is not conclusive or relevant 38

2.11 Refusal of registration, termination and expiry of registration 39

2.12 The ship 42

2.13 Bareboat charters and registration 47

2.14 Mortgages on 'bareboat charter in' ships 49

2.15 Mortgages on 'bareboat charter out' ships 49

CHAPTER 3 SECURITY INTERESTS IN SHIPS 50

3.1 Introduction 50

3.2 Statutory mortgages - the primacy of registration 52

3.3 The form and effect of a registered statutory ship mortgage 53

3.4 Common law mortgages 55

3.5 Disguised mortgages 58

3.6 Equitable mortgages 59

3.7 Equitable charges 63

3.8 Submortgages 66

3.9 Mortgage of a share in a ship 67

3.10 Mortgages of ships under construction 68

CHAPTER 4 THE CONFLICT OF LAWS 71

4.1 Introduction 71

4.2 The general maritime law 75

4.3 International conventions 76

4.4 Property in registered ships under English domestic law 79

4.5 The mid-nineteenth-century conflicts cases (on ships and on chattels generally) 82

4.6 The cases on foreign ship mortgages 86

4.7 The cases on registered ownership and arrest jurisdiction 89

4.8 The conflict of laws dimension to priority issues 90

4.9 The WD Fairway litigation 97

4.10 Property in registered aircraft under English domestic law 106

4.11 The Blue Sky litigation 107

4.12 Conclusions on the English conflict of laws on lex situs and registered ships 110

CHAPTER 5 EXECUTION, SECURED OBLIGATIONS AND

PROPERTY COVERED 116

5.1 Parties 116

5.2 Execution 116

5.3 The form of mortgage and obligations secured 118

5.4 Multiple obligations 121

5.5 Change of parties 124

5.6 Change of obligations 124

5.7 Relationship between the mortgage and the collateral deed of covenant 127

5.8 Special fees and 'upside' sharing arrangements 129

5.9 Property covered by the mortgage 133

CHAPTER 6 REGISTRATION OF MORTGAGES 138

6.1 Introduction 138

6.2 Merchant Shipping Act 1995 139

6.3 Companies Act 2006 143

6.4 The Bills of Sale Acts 148

6.5 Reform of the registration system 149

CHAPTER 7 PRIORITY 150

7.1 Statutory registered priority 150

7.2 Agreed priority 152

7.3 Failure to register a mortgage 156

7.4 Equitable mortgages and charges 157

7.5 Floating charges; negative pledges 158

7.6 The Order of Priorities in an Order for Sale 160

7.7 Tacking of further advances 160

7.8 Tabula in naufragio 165

7.9 Priority of security over ancillary receivables 166

7.10 Marshalling 167

CHAPTER 8 MORTGAGOR'S OBLIGATIONS AND UNDERTAKINGS 174

8.1 Introduction 174

8.2 Typical express owners' undertakings 176

8.3 Certain issues on owners' undertakings 178

8.4 Sanctions 183

8.5 Consents and discretions 191

8.6 Protection of security 196

CHAPTER 9 AMENDMENT, TRANSFER AND DISCHARGE 198

9.1 Amendment 198

9.2 Correction and rectification of the Register 199

9.3 Transfer and transmission 200

9.4 Discharge 204

9.5 Consolidation 207

CHAPTER 10 LIENS 209

10.1 Introduction 209

10.2 Common law liens 210

10.3 Equitable liens 212

10.4 Maritime liens 212

10.5 Statutory liens 216

10.6 Statutory possessory liens 217

CHAPTER 11 DEFAULT, AND SELF-HELP ENFORCEMENT POWERS 219

11.1 Introduction 219

11.2 Events of Default (EODs) 222

11.3 Non-payment EODs 223

11.4 Other EODs 224

11.5 Discretions in relation to default 232

11.6 Waiver of EODs 232

11.7 Effect of an EOD 235

11.8 Default interest and break-funding 239

11.9 The lender's/mortgagee's options following a default 242

11.10 Enforcement 244

11.11 The right to take possession at common law 245

11.12 Method of taking possession 250

11.13 Factors relevant to the mortgagee's decision to take possession 253

11.14 The rights of a mortgagee in possession 259

11.15 Sale of the mortgaged ship 260

11.16 Mechanics and effect of a mortgagee's private sale 264

11.17 The mortgagee's expenses of sale 265

11.18 Application of the proceeds of sale 267

11.19 Receivership 268

11.20 Foreclosure 272

11.21 Subsequent mortgagees 273

11.22 Enforcement of security over ancillary receivables 274

CHAPTER 12 THE COURTS' PROTECTION OF THE MORTGAGOR 276

12.1 Introduction 276

12.2 Protection of the mortgagor's right to redeem 277

12.3 The mortgagee in possession's duties to the mortgagor 279

12.4 The mortgagee's exercise of its power of sale 283

12.5 Sales to self 288

12.6 Sales to favoured buyers; improper purposes 291

12.7 Are ship mortgages different from mortgages of land? 296

12.8 Derivative liability to relevant parties 302

12.9 Excluding duties 306

12.10 Anti-set-off clauses 307

12.11 Marshalling 309

12.12 The perils of intermeddling 309

12.13 The conflict of laws 310

CHAPTER 13 DUTIES AND LIABILITIES OF THE MORTGAGEE TO

THIRD PARTIES 311

13.1 Introduction 311

13.2 Mortgagee enforcing security: liability to non-demise charterers and cargo interests 313

13.3 Mortgagee enforcing security: demise (bareboat) charterers 335

13.4 Third-party purchase options 341

13.5 Liabilities of a mortgagee in possession to third parties 342

13.6 Interference with third-party property 344

13.7 Issues arising under the Partnership Act 1890 345

13.8 Wider lender liability risks 347

13.9 Equitable subordination 349

13.10 Lender liability: an attempt to summarise 350

CHAPTER 14 ENFORCEMENT BY ARREST AND COURT SALE 352

14.1 Introduction 352

14.2 The Admiralty jurisdiction of the High Court 354

14.3 Ship arrest procedure 360

14.4 Court sale procedure 373

14.5 Enforceability of the court bill of sale 387

14.6 Determination of priorities and payment out 391

CHAPTER 15 RESTRUCTURING AND INSOLVENCY 404

15.1 Introduction and background 404

15.2 Consensual restructurings 409

15.3 Schemes of arrangement under the Companies Act 2006, Part 26 412

15.4 Restructuring plans under the Companies Act 2006, Part 26A 416

15.5 The move towards restructuring globally 420

15.6 Chapter 11 (and Chapter 15) of the United States Bankruptcy Code 422

15.7 The Recast Insolvency Regulation 429

15.8 The UNCITRAL Model Law on Cross-Border Insolvency and the Cross-Border Insolvency Regulations 437

15.9 Other UK cross-border jurisdictional issues 442

15.10 Hanjin 444

CHAPTER 16 INSURANCE 446

16.1 Introduction 446

16.2 The nature of the mortgagee's interest 449

16.3 Insurance placed by the mortgagee for its own benefit 452

16.4 Co-assurance 454

16.5 Assignment 456

16.6 Notice of assignment 461

16.7 Assignment: clubs and mutual associations 465

16.8 Loss payable clauses 466

16.9 Letters of undertaking 467

16.10 Claims 470

16.11 The conflict of laws 471

16.12 Illegality risk 473

16.13 Reinsurances; assignments of reinsurances 477

16.14 Mortgagees' interest insurance 478

16.15 Mortgagees' Additional Perils (Pollution) ('MAPP') insurance 502

16.16 Mortgagees' rights insurance ('MRI') 505

16.17 Other mortgagees' insurances 507

16.18 Concluding observations 508

CHAPTER 17 SECURITY OVER EARNINGS AND CHARTERPARTIES 510

17.1 Introduction 510

17.2 The commercial background 512

17.3 Present rights and future rights 517

17.4 Partial assignments, suspensory assignments and assignments by way of charge 520

17.5 Notice of assignment 523

17.6 Legal assignments and equitable assignments 525

17.7 Certain set-off issues 527

17.8 The conflict of laws 529

17.9 Restrictions on assignment 530

17.10 Liens on sub-freights 534

17.11 Charterparties and step-in rights 536

17.12 Earnings account 542

17.13 Financial Collateral Arrangements 544

17.14 Pooling arrangements 545

17.15 Requisition compensation 545

CHAPTER 18 PRE-DELIVERY SECURITY 553

18.1 Background and Introduction 553

18.2 The builder's refund obligations 555

18.3 Refund guarantees 556

18.4 Advance payment guarantees 564

18.5 Assignment issues, control over disputes 565

18.6 Stepping in to the buyer's position 567

CHAPTER 19 SECURITY OVER SHARES 571

19.1 Introduction 571

19.2 Reasons for taking shares security 571

19.3 SPC liabilities 574

19.4 Aspects of the security documents; enforcement 576

19.5 The courts' protection of the grantor of the security 577

19.6 The conflict of laws 579

CHAPTER 20 LEASE FINANCING OF SHIPS 581

20.1 Introduction and background 581

20.2 The nature and form of a ship lease 587

20.3 Differences between financial leases and ship mortgages in relation to default and enforcement 588

20.4 Recharacterisation of financial leases 606

20.5 Liability of lessors to third parties 611

20.6 Leases and mortgages combined 616

20.7 Issues for financial lessees 618

20.8 Financial leases and secured loans; some reflections on the differences 621

Appendix 1: Statutory Material 623

A Merchant Shipping Act 1995, Part II 624

B Merchant Shipping Act 1995, Schedule 1 637

C Merchant Shipping (Registration of Ships) Regulations 1993, SI 1993/3138, Part VII (as amended) 641

D Senior Courts Act 1981, section 20(2) 646

Appendix 2: Statutory Forms 650

A Form MSF 4736 REV 1118 (Mortgage of a Ship to secure Account Current etc. other/obligation) 651

B Form MSF 4737 REV 1118 (Mortgage of a Ship to secure Principal sum and Interest) 665

C Form 4739 REV 1118 (Notice of Mortgage Intent) 678

Appendix 3: Specimen Deed of Covenant 682

Appendix 4: Institute Mortgagees' Interest Clauses - Hulls 722

Appendix 5: The Admiralty Marshal's Conditions of Sale and Bill of Sale 727

Index