The Mortgagee's Rights to Enforce the Mortgage Execution

Abstract: Nowadays, most ship acquisition transactions are performed through the finance instruments, such as loan agreements. Whereas parties to this ship finance contracts, from one side, usually, is ship owner as borrower, and, from other side might be, financial institution, as lender – such as banks, funds or private companies. Thus, whatever principal amount of the loan would be finally agreed the lender has to establish a security over its lent funds. Accordingly, the security instrument that has been and is used worldwide in almost all ship acquisition transactions is referred therein as mortgage. From the legal point of view, ship mortgage is unique security instrument, not only because it empowers the mortgagee with broad range of rights, such as possession, but also because these rights might be realized in, almost, every jurisdiction where the ship trades. Comparing it with civil law hypothec on immoveable property, which confers no immediate rights to possession of the property. However, the broad range of mortgagee’s rights towards the ship shall not be confused with the ownership principle. Thus, for example, under the Roman fiduciary principle: the mortgagee was referred as owner who allows the mortgagor to have the use of the ship but modern ship mortgage statute provides that the mortgagee shall be deemed not to be the owner . Therefore, it may be seen that the ship mortgage and mortgagee’s legal status has been changed and so that also its powers when issue of its realization become actual. Even though, the ship financing involves local laws and regulations, tax law, administrative law, customs law, and domestic and foreign contract law, all these areas of laws referred as civil laws, the ship mortgage is one of the three major contributions of the common law to the law of maritime liens, claims and mortgages . In addition, the ship mortgage, being the security instrument attached to the loan agreement, in some aspects, involves also the maritime law. Thus, it is “hybrid” security instrument because from one side to agree and register mortgage deed parties use, for example, contract and local administrative laws, but from other side, when lender executes its rights against ship owner, the maritime private law or even international laws might be applied. Moreover, despite the fact that the ship finance market has developed standard security requirements, one of them being commonly used - mortgage deed, each creditor or bank has own additional loan pre-requirements and requests on security, involving, but not limited to, the ship owners’ undertakings and liabilities. Thus, implemented into the loan agreement and mortgage deed, and adopted to the jurisdiction of ship mortgage registration state. Therefore, in case of the breach of contractual obligations by the ship owner, the creditors, usually, have already powers to commence appropriate actions. For example, it can force the ship owner to re-pay the loan amount. The procedure of such actions, logically, is governed by the jurisdiction and laws of country agreed under the terms of Loan Agreement or Mortgage. However, as the ship trades worldwide, the procedure of enforcement may likely involve the jurisdiction of other countries – both civil law and/or maritime law. Thus, the mechanism of enforcement may vary from one jurisdiction to other, however, thanks to the International treaties, in some aspects it might be similar. Taking into account above considered, the security over a ship in a form of mortgage deed has a higher level of creditor’s interest protection when it has been so recorded by a public authority. The question here arises is the creditor’s possibilities to enforce the re-payment of debt if it has not been so recorded. As one of the intentions, is to address the issue on mortgagee’s powers under registered mortgage and non-registered mortgage. Taking as an example the case of m/v SDF, the author will analyze the possible solutions for debt recovery by un-regisered mortgagee. Therefore, the appropriate legal principles will be discussed and the common law v. civil law comparison will be presented when issues on performance of best solution and their enforcement discussed, supporting it with the mentioned law case. The great part of the research is intended to be devoted to the enforcement of mortgage execution. Thus, including but not limited to the analysis of instruments for enforcement available to mortgagee (under different jurisdictions) when its debtor is in default, for instance, for non-payment.