What Is a Ship Mortgage?

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Ship mortgage

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Definition 1: Ship mortgage rights refer to the right of the ship mortgagee to the ship provided by the mortgagor as a guarantee of debts. When the mortgagor fails to perform its debts, it can be auctioned in accordance with the law, and the ship's auction price is given priority to be paid. Ship mortgage loan is a commonly used method of ship financing.

Definition 2: The mortgage of a ship refers to the right of a creditor to a debtor or a third party as a security for a debt. When the debtor fails to perform his debt, he can take legal measures to prioritize compensation from the price of the ship.

Chinese name

Ship mortgage

The subject matter of the ship's mortgage is the ship, including old ships and those under construction

The right to set up a mortgage on a ship is the ship owner, a person authorized by the ship owner, or a ship co-owner. The person authorized by the shipowner is usually the agent of the shipowner, who can set up a mortgage on the ship in the name of the shipowner. The owners of a ship refer to several persons who share ownership of the same ship. China's Maritime Law ^[1]

According to the Maritime Law, the mortgage of a ship shall be established, and the mortgagee and the mortgagor shall jointly register the mortgage of the ship with the ship registration authority; without registration, they shall not oppose a third party. Regarding the effectiveness of the registration of a ship's mortgage, there is an international distinction between a registration countermeasure system and a registration effective system. Registration effectism believes that the mortgage right is invalid without registration, while registration oppositionism holds that the unregistered mortgage is still valid for both the mortgagor and the mortgagee, but its effectiveness cannot counter the third party. The provisions of China's maritime law belong to registration antagonism. More than two mortgage rights can be set for the same ship, the order of which is based on the registration order. The mortgage rights registered on the same day shall be paid in the same order.

Ship mortgage registration includes the following main items:

(1) the names or names and addresses of the ship mortgagee and the mortgagee;

(2) the name, nationality, issuing authority and certificate number of the mortgaged ship;

(3) The amount of the secured creditor's right, the interest rate, and the repayment period.

The most important effect of a ship's mortgage is to give priority to its secured claims. After the mortgage of a ship is established, the mortgagee may not transfer the mortgaged ship to another person without the consent of the mortgagee. If the mortgagee transfers all or part of the creditor's right guaranteed by the mortgaged ship to another person, the mortgager's right will be transferred accordingly. When the mortgaged ship is lost, the mortgage is extinguished. Mortgage holders have the right to take priority over other creditors for insurance compensation due to the loss of a ship.

The ship mortgage has the following characteristics:

1. Intentional characterization. When a ship mortgagee and a ship mortgagee establish a ship mortgage, they shall sign a written ship mortgage contract.

2. The importance of registration. Registration should be made when setting up a mortgage on a ship. The laws of some countries provide that registration is an effective element of the ship's mortgage. The Maritime Law stipulates that registration is an antagonistic element of the ship's mortgage. Without registration, it must not be against a third party.

3. Subrogation. The law gives the ship mortgagee the right to subrogation, that is, when the mortgaged ship is lost, the ship mortgagee has the right to take priority over other creditors for insurance compensation due to the loss of the ship.

4. Attributes. The mortgage right and the secured creditor's right coexist, and if the principal creditor's right is extinguished, the security right is also extinguished. In addition, if the mortgagee transfers all or part of the creditor's rights guaranteed by the mortgaged ship to others, the mortgagee rights will be transferred accordingly.

5. Catching up. It is also known as the pursuing effect, that is, regardless of who the mortgaged ship falls into, the mortgagee of the ship may pursue the ship to exercise its rights. ^[3]

Maritime Law of the People's Republic of China

Article 9 The acquisition, transfer and extinction of the ownership of a ship shall be registered with the ship registration authority; without registration, no third party may be confronted.

Article 10 If a ship is shared by two or more legal persons or individuals, it shall be registered with the ship registration authority; without registration, it shall not be opposed to a third person.

Article 13 The first paragraph establishes the mortgage of a ship, and the mortgagee and the mortgagor jointly register the mortgage with the ship registration authority; without registration, they shall not be opposed to a third party.

Article 14 A ship under construction may establish a mortgage on the ship. To register the mortgage of a ship under construction, it shall also submit a ship construction contract to the ship registration authority.

Article 271 The law of the flag state applies to the mortgage of ships. If a ship is mortgaged before the bareboat leasing or during the bareboat leasing, the law of the original ship registration shall apply.

Case:

On March 22, 2008, Dongguan Enran Company used the "Minniansu 2" tanker to guarantee its debt of 50 million yuan to Shenzhen Cardiff Company. The two parties signed a mortgage contract, but did not go to the maritime department for relevant registration procedures. On the 5th, Dongguan Enran sold the "Finan fuel supply 2" tanker to Taizhou Donghai Shipping Co., Ltd. On August 5, 2008, Shenzhen Cardiff claimed to exercise the mortgage. At this time, Shenzhen Cardiff Company could not claim to Taizhou Donghai Shipping Co., Ltd., because the mortgage was not registered.