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Lord Justice Roskill in the Panglobal Friendship ʹ

The method of obtaining finance for ships͙may be summarised in these words. The bank
advances to one or more owning companies a large sum of money. It of course requires security.
It will take a mortgage on the ship for that security. If the ship, as often happens, is about to be
time chartered, then the bank will take an assignment of the time charter in order that the bank
as assignee can benefit from the time charter in order to reduce the mortgage debt. In addition it
will͙take an assignment of insurance policies and P and I Club cover in order that in the event of
total or partial loss of the ship the bank as the lender may be suitably secured͙The effect of this
is to ensure that the lending bank is completely secured against the insolvency of the borrower
who intends that the bank shall obtain complete priority over the claims of other creditors
against the borrower.

 
  


Modern maritime mortgage has as its basis the old Roman Institute of hypothecax Nowadays,
the best possible and most effective security a creditor may have is the pledge ʹ he can sell it,
retaining what is due to him & refunding any surplus monies to the debtorx However, ship-
owners do not have a sufficiently valuable object to hand over to the creditorsx The only object
suitable object would be shipx Therefore, pledge is impracticable since pledge is the possession
of the object in the hands of the creditorx The only valuable object must therefore be charged ʹ
right of the creditor to seize it when it is necessary and justifiedx

Particular concepts, such as the word Œ
 were introduced into our maritime legislationx
The áaltese á 
 
 ÑÔhp.234- was modeled on the UK á 
 

ʹ 1854x The English adopted the word Œmortgage͛ from the French mort and gage meaning
Œdead pledge͛x We adopted the UK statutory law of shipping mortgage and not the common-
law traditionx

Mortgages on vessels are a recognised method of raising financex Therefore, ship-owners may
make money by borrowing it as security of the ship & giving the person who lends the money an
interest in the ship as security for the loanx

ü The ship-owner Ñthe borrower- is known as the Œ

 and

ü The person lending the money is known as the Œ
x

The mortgagor remains the owner of the ship; therefore, the mortgagee incurs no liabilities with
regard to 3rd partiesx The ship-owner can carry on business as usual as long as he does not
prejudice the mortgagee͛s position by putting the ship Ñas security for the mortgage loan- at riskx
The mortgagor or owner is free to continue operating and trading the vessel as a profit-making
possession provided that he does not act in such a way as to jeopardize or put at risk the ship as
security for the mortgage loan and thus prejudice the mortgagee͛s positionx

Ôhristopher Hill ʹ ͚á    ʹ 1998 ʹ a vessel is not an ideal form of security and lists
these disadvantages:

ü Ôertain privileged claims can rank against the vessel in priority before those of a
mortgageex

ü §eing a floating object, it can move out of the jurisdiction of the courts Ñwhose aid the
mortgagee is entitled to seek-x

ü The precarious nature of a ship as security ʹ permanent exposure to partial /total

damage ʹ perils of the seasx

  
 á
 


Mortgages were incorporated into Maltese Law through the áerchant Shipping Act ʹ for the
purpose of putting up a ship/aircraft as security for a loan/ debtx Major amendments were
made to the áerchant Shipping Act in 1988 and again in 2000x

The term mortgage is not defined in our law, and therefore, one must refer to foreign sources
well as the provisions of the áerchant Shipping Act, to understand its effects, rights & dutiesx
Bowtle & ácGuiness ʹ ŒThe Law of Ship áortgages͛ ʹ 2001 ʹ a ship mortgage is ͞merely one
species of various forms of a consensual Œreal͛ security͟x

Generally, mortgages are created by means of a statutory instrumentx The mortgage agreement
may contain a separate document which is known as the 



. In the latter, the
parties will normally stipulate clauses which are not found in the statutorily defined instrument,
such as:

ü the time for repayment,

ü interest,
ü method of repayment,
ü responsibility for insuring the vessel,
ü restrictions placed by mortgage manner of use of ship, and
ü conditions for default allowing mortgagee to repossess and sell the mortgaged securityx

Mortgages are bound to statutory registration systems and non-compliance may prejudice the
rights and enforcementsx The most important advantage of registration is the obtaining of
priorityx Registration may be described as a Œnotice to the whole world͛ and protects the
mortgagee against all later secured creditors of the ship-owner and against all non-registered
mortgagesx UK law ʹ failure to register the mortgage does not invalidate but gives precedence
to later registered encumbrancesx

2
á

 
  á




ºrt.37º 37D ʹ deal with the concept of registered ships being used as particular security for
debts, claims and other obligationsx These articles are important in that they set out certain
͚unique͛ principles under our system of lawx

Under Ôivil law the patrimony of a person includes all his assets Ñpresent & future-x However,
MSA sees ship as a separate legal entity from the patrimony of ownerx

ºrt.37º ʹ Detention of ships as security for debts

ü Ships and other vessels constitute a   

     
 

 
 
 
  

 for the security of actions
and claims to which the vessel is subject. In case of bankruptcy of the owner of a ship, all
actions and claims, to which the ship may be subject, shall have preference, on the said
ship, over all other debts of the estate.

ü A ship shall include together with the ,   

, 
, etc͙ belonging to
the ship,   



   
 
 
 
.


ºrt. 37B ʹ Types of charges over ships Ñexhaustive list-

ü A ship may constitute security for a debt or other obligation either by agreement or by
operation of the law as hereinafter provided.

ü A debt or other obligation may be secured by the following 3 claims of security:

1. by means of a
 which is a    over a vessel, or

2. by a 
 
  which attaches to all the assets of a debtor including any
vessel such debtor may own, or

3. by a      upon the vessel:

Provided that special privileges arise in virtue of law and no debt or other obligation
other than those specified at law shall be secured by a special privilege.

Therefore, special privileges on a ship can only be created ex lege, provided that separate items
upon a vessel may themselves be subject to special privileges in accordance with the provisions
of the Ôivil Ôode, in security of the debts therein specifiedx ºrt.50 provides a list of debts which
are secured by a special privilege on a shipx

Possessory lien is debated to be included in this article since it is considered to be a privilegex

Special charge, does this mean that a Maltese mortgage is similar to the notion of hypothec
over a vessel, or is it more in line with the English concept of Œcharge͛â

3
This question is a mixture of continental and Anglo-Saxon notionsx The self-help remedy and
other remedies open to the mortgagee make it hard to escape the interpretation that a áaltese
mortgage is in fact a form of transfer of property by way of securityx However, this is not the
full answer ʹ one must necessarily refer to case-lawx

Ex Parte North Brisbane Finance and Insurance PTY Ltd.

This Australian case makes it clear that it would be wrong to consider the mortgagee as an
owner even by way of security, though this gives the mortgage the power to sell the ship in
given circumstancesx

It is important to note, that a mortgagee can only be considered an owner to the extent that
ownership is required for the purpose of security of the mortgage/ shipx It is a 

 

type
of ownership/interestx

ºrt.37Ô ʹ Priority of claims on ship over all other debts of owner

This article states that ships are a separate asset from the patrimony of the owner for the
security of actions and claims to which such ships are subjectx In fact, ºrt.37Ô provides for the
priority of claims Ñmortgages, general hypothecs, and special privileges- on ships over all other
debts of ownerx

ü All registered mortgages, any special privileges and all actions and claims to which a
vessel may be subject shall not be affected by the bankruptcy of the mortgagor or
shipowner.  
  


   
, on the said
vessel, over all other debts, claims or interestsof any other creditor of the bankrupt or of
any curator, trustee or receiver, acting on behalf of any other creditors.

ü Any judicial sale proceedings instituted by any registered mortgagee or privileged

creditor shall not be interrupted for any cause other than a cause that could be set up by
the owner.

ºrt.37D ʹ ºttachment and extinguishment of charges

The registration of mortgages is important in regard to 3rd partiesx ºrt.37D states that a
registered mortgage shall attach to a ship from the moment of registration until it is dischargedx
However, there is an exception to this general rule, and mortgages are also extinguished ipso
jure if:

ü mortgagee has 
 






  to the act, failure or omission in
consequence of which the ship is forfeited

ü ship 





 of a competent court within whose jurisdiction
the vessel was at the time of the sale

ü ship  
 
  
 and it is stated in the bill of sale that the ship is
being sold  
   
 
 ʹ a contrariu sensu, any other private
sale/transfer will not affect any burden on the shipx

4
Without prejudice to any other law, the special privileges specified in ºrt.50 are afforded
beneficial treatment ʹ Œdroit de suite͛ ʹ and are not extinguished by the transfer of the vessel as
stated in ºrt.37Dx

Any hypothec or privilege to which a ship may be subject shall not continue to attach to it when
the vessel is transferred to 3rd parties Ñwhether they are of a general/special nature-x On the
other hand, ºrt.50 states that when a ship is transferred to 3rd parties, privileges are not
extinguishedx

ºrt.38 ʹ áortgage of ship or share

ü A registered ship or a share in that ship may be made a security for any debt/ obligation
by means of a mortgage executed by the mortgagor in favour of the mortgagee in the
presence of, and attested by, a witness or witnesses (is an unilateral contract)

ü áortgage is indivisible

ü áortgage shall attach to any proceeds from an indemnity arising from collisions and
other mishaps as well as any insurance proceeds

ü It shall be lawful for a mortgage to be executed and registered in favour of a security

trustee. Such       

   
 of the particular
mortgage and  
 
    



 
.

ºrt.39 ʹ Registration of mortgages

ü n the production of a mortgage for registration, the registrar shall record it in the
registrar ʹ reason for this is to obtain priority (ranking is governed by date of
registration).

ü |ecorded by the registrar, in the order in time in which they are produced to him, stating
the day and hour of that record

ü Prohibited to create further mortgages over a vessel without prior written consent of the
mortgagee

ü Transfer of the ship is prohibited if it is stated in the mortgage that prior written consent
of the mortgagee is needed ʹ unless transfer is made pursuant to court order.

5
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ºrt.40 ʹ Preservation of special privileges on accessories of ship

Dpon the registration of any mortgage in the register the rights of any mortgagee shall not be
affected by:

ü the creation of any separate privilege or charge on any part of a ship; or

ü the reservation of ownership rights by a seller of any part


ºrt.41 ʹ Priority of mortgages

ü If there are more mortgages than one registered in respect of the same ship or share, the
mortgagees shall be entitled in priority, one over the other, according to the date and
the time at which each mortgage is recorded in the register.

ü It shall be lawful for any registered mortgagee to waive or postpone his rights under the
mortgage. The registrar shall, on the production to him of a demand or consent in
writing by such mortgagee, cause a note to be entered in the register.

|






There are certain remedies available to the mortgagee in the event of default of any
term/condition of the registered mortgage/document/agreement referred to in the mortgagex

ºrt.42 (1) grants extensive enforcement rights to the mortgageex

The mortgagee shall, upon giving notice to the mortgagor:

ü be entitled to  


of the ship/share therein in respect of which he is
registered ʹ as a remedy granted by law

ü have the 


 the ship/share in respect of which he is registered ʹ as a
remedy granted by law

ü have power 






   , and generally do
all such things in the name of the owner as may be required in order to maintain the
status and validity of the registration of the ship ʹ these powers/facilities available to
him in the name of/on behalf of the owner, to maintain and protect the status of the
ship and the validity of its registration

However, notwithstanding the mortgagee͛s rights, he shall not be considered the owner and the
mortgagor shall not cease to be the ownerx

6
It must be noted that although there is the absolute power to sell granted as a remedy, where
there are several mortgagees, a subsequent mortgagee can only do so with the concurrence of
every prior mortgagee unless there is a court orderx

The fact that the mortgagee is not given full ownership is to protect the mortgageex These
provisions protect the mortgagee because he is only considered owner to the extent necessary
for the security of the mortgage and not for all purposesx

Dr Leslie Grech noe vs. Dr. Emanuel Buttigeg noe ʹ 1986

The Ôourt held that the mortgage was valid limitedly to the amount of the mortgaged debtx

Ôan a mortgagee enter into possession of a ship and operate it as if he were the ownerâ

In Malta, this is still open to debatex However, in the UK there are a number of circumstances
where this would be possiblex

ºrt.42 (2) states that a registered mortgage shall be deemed to be an executive title, therefore
granting further protection to the mortgageex This implication of this is that the title is as good
as one given by court judgement and there is thus no need to go to court and deliberate on
substantive issuesx

Mortgagee must specify the amount that is due to him by means of an    served on the
mortgagor ʹ once this is done it is considered to be certain liquidated and duex

Mortgagee͛s rights are indeed powerful and the legislator has purposely tried to protect his
position as a form of economic incentive for financiers to enter into ship financing & see it as an
investmentx

áerita Bank in New Ôastle P and I ºssociation vs. Dr. Dingli noe

Interesting because it refers with approval to a number of UK cases which state that the
mortgagee owes a number of duties to the mortgagor as well as to other creditors when
exercising its right of sale of the vesselx

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ºrt.49 ʹ Recognition of foreign mortgages

A foreign mortgage shall be recognised as a mortgage with the status and all the rights and
powers specified in this Act, notwithstanding the fact that it is not entered over a registered ship.

However, such recognition is only granted if the following 4 conditions are satisfied:

ü such mortgage has been validly recorded in the registry of the country under whose laws
the ship is documented;
ü such registry is a public registry;
ü such mortgage appears upon a search of the registry and
ü such mortgage is 

 

 



  under the laws of the country where the mortgage is registered.

7
Therefore, this article gives a foreign mortgage a status equivalent to a Maltese onex

ºrt.45º ʹ ºmendment of mortgage

ü Consent needed from both mortgagee and mortgagor

ü Amended mortgage still has same priority
ü áay be done for any purpose
ü áay not be done if the obligation secured is satisfied

Possessory liens

Possessory liens entitle the creditor to retain possession over the ship until he is paid for his
worksx

ºrt.54 states that a ship repairer is afforded a special privilege on the vessel in terms on ºrt.50
(j) ʹ if only if death in contracted directly by ship owner or his agentx Any ship repairer, builder
other creditor shall have a possessory lien over the ship ʹ these cannot sell the ship but retain
possessory right over the ship until such creditor is paid for the debt due to him

The lien is extinguished when the possession of the ship is released, except if released pursuant
to a court order or judicial sale Ñcreditor enjoys the ranking as specified in ºrt.54º over
proceeds of sale of vesselx

Privileges rank as follows:

ü 2ebts falling under  (special privileges)

ü Possessory liens
ü áortgages
ü ther hypothecary and privileged Claims

Îhy are mortgages preferred by banks?

Maltese mortgages provide good security for banks and other financial instruments because
they enjoy a high ranking positionx

A shipowner may not delete a vessel from Maltese register without mortgagee͛s prior written
consent to be struck off register ʹ 1 month͛s notice is to be given to shipowner and mortgagee
by registrar of shippingx

Another advantage is that mortgages are enforced without the need of lengthy court
proceedingsx

All rights afforded to mortgagees can be stated as reasons why a mortgage would be more
advantageous to a bank than other forms of securityx