Overview lecture (September 2006) p. 6
Thor Falkanger
Mortgages, execution liens and maritime liens
1 Introduction
1.1. Shipping is capital demanding:
- acquisition of the ship
- running, ordinary expenses
- crew
- provisions
- insurance
- ordinary maintenance
- bunkers
- harbour/canal dues
- loading/discharging expenses
- pilotage/towage
- buffer for contingencies (extraordinary repairs, liability claims)
1.2. Equity not sufficient; a need for borrowed capital.
But shipping is risky: the lender is exposed to a number of risks, typically:
- value of assets diminishes
- damages to/loss of ship
- market fluctuations
- claims from third parties
- running income is reduced
1.3 Who will extend credit to shipping?
- banks
- suppliers of goods and/or services
building yard
crew
bunker supplier
harbour authorities
etc.
1.4. The need for security
- the ship as security
-other assets as security
- ship related (fleet mortgage, assignment of hire)
- other (deposits, mortgages on other property, guarantees from third parties)
1.5. Security in vessel can be obtained in three ways
- by contract (mortgage)
- by enforcement of claim-procedure (execution lien)
- by law (maritime lien)
Common characteristics:
- such security may give the basis for a forced sale
(as opposed to right of detention and arrest)
- a distinction between:
- the relationship between the parties
- the relationship to third parties.
The latter requires a proper registration system
- perfection
- priority
2. Mortgages on vessels
2.1. Based upon contract – within the framework provided in MC and Mortgage and Liens Act 1980 (MLA)
2.2. Creating a mortgage
- by contract, ordinary rules on entering into a binding contract
- special requirements in addition?
- writing or similar formalities?
- representation (competence) questions
- in practice: the registration requirements are decisive
2.3. Non-transferability etc. as restrictions on mortgaging, MLA § 1-3
2.3. The mortgage object
- the vessel
- appurtenances, MC § 45
- substitutes, MC § 72
- fleet mortgages
2.4. The claim secured
- now arising claim
- old claim
- future claim
- claim against a third party
- the principal claim
- additional claims (in particular: interest)
- identification/limitation of claim
MC § 42
2.5. Protection of the claim as against third parties (perfection)
- obtained through registration MC § 41
- registration requirements
MC Chap. 2
- max. for secured claim, MC § 42
- survey of rules on protection obtained through registration:
- as against other mortgages (and contractual rights)
- as against execution liens
- as against bankruptcy
- exception for maritime liens
- rights of retention in a in-between position, MC § 54
2.6. Effects
- as between the parties
- as against third parties
- basis for forced sale
3. Execution liens
3.1. A step in the process of enforcing a claim which is not voluntarily paid
3.2. Bankruptcy or individual enforcement?
3.3. The enforcement lien is created by the enforcement authorities, based upon a request from the creditor
Conditions:
- the claim is due, but not paid
- there is an enforcement basis, see Enforcement of Claims Act (ECA) Chap. 4, cf. Chap. 7
- typically a judgment
- other bases, e.g. a promissory note, a tax claim
3.4. If the conditions are present: A charge is created (by the pronouncement of the enforcement officer) on assets belonging to debtor, e.g. a vessel. Not necessary with a "link" between claim and asset
3.5. The lien thus created
- reduces to some extent the freedom of the debtor
- should be registered in order to be protected as against third parties
- may form the basis for a demand for forced sale
4. Maritime liens
4.1. Historical survey
- no personal liability (in rem- liability) and at the same time a limitation of liability system
- the need for harmonization, con-
ventions 1926, 1967, 1995
4.2. The characteristics of a maritime lien
- arises directly by operation of law
- has priority before older, registered mortgages and execution liens
- is subject to limitation
- limitation is breached by arrest
4.3. The claims secured by a maritime lien
- MC § 51
4.4. The debtor requirement
MC § 51
4.5. Priority
MC § 52
4.6. Prescription MC § 55
- period
- means of breaching prescription
4.7. Not automatically a basis for a forced sale
5. Additional remarks on forced sale
ECA Chap. 11
- a registered mortgage or execution lien is sufficient basis
- either sale by auction or by the court with the assistance of a shipbroker, following as closely as possible the rules for ordinary voluntary sales
- some principles:
- price control
- those with better priority than the claimant shall not be prejudiced by the forced sale
- the vessel is sold free of encumbrances
6. Short remarks on arrest
Arrest is a preliminary measure to protect a monetary claim, due or not due
Conditions for obtaining an arrest
- ECA Chap. 14
- important additional rules in MC Chap. 4 when the arrest object is a vessel
Effects of an arrest; in practical life: security is posted
(September 2006)