T H E L AW OF S H IP M O RTG AG ES
LLOYD’S SHIPPING LAW LIBRARY
Series editors: Hatty Sumption
and Clare Ambrose
LLOYD’S SHIPPING LAW LIBRARY
Laytime and Demurrage
seventh edition
by John Schofield
(2016)
Bills of Lading
second edition
by Richard Aikens, Richard Lord and Michael Bools
(2016)
Refund Guarantees
by Mark Davis
(2015)
Time Charters
seventh edition
by Terence Coghlin, Andrew W. Baker QC, Julian
Kenny, John D. Kimball and Thomas H. Belknap, Jr
(2015)
Voyage Charters
fourth edition
by Julian Cooke, Timothy Young QC, Michael
Ashcroft QC, Andrew Taylor, John D. Kimball,
David Martowski, LeRoy Lambert and
Michael Sturley
(2015)
Marine Insurance Legislation
fifth edition
by Robert Merkin
(2014)
Maritime Letters of Indemnity
by Felipe Arizon and David Semark
(2014)
International Cargo Insurance
edited by John Dunt
(2013)
The Law of Shipbuilding Contracts
fourth edition
by Simon Curtis
(2013)
Ship Sale and Purchase
sixth edition
by Iain Goldrein, QC,
Matt Hannaford and Paul Turner
(2013)
Admiralty Jurisdiction and Practice
fourth edition
by Nigel Meeson and John A. Kimbell
(2012)
The Law of Tug and Tow and Offshore Contracts
third edition
by Simon Rainey
(2012)
Marine Insurance: Law and Practice
second edition
by Francis Rose
(2012)
Berlingieri on Arrest of Ships
fifth edition
by Francesco Berlingieri
(2012)
P&I Clubs: Law and Practice
fourth edition
by Steven J. Hazelwood and David Semark
(2011)
The York–Antwerp Rules: The Principles and Practice
of General Average Adjustment
third edition
by Geoffrey N. Hudson and Michael D. Harvey
(2011)
London Maritime Arbitration
third edition
by Clare Ambrose, Karen Maxwell
and Angharad Parry
(2010)
Marine Cargo Insurance
by John Dunt
(2010)
Shipping and the Environment
second edition
by Colin De La Rue and Charles B. Anderson
(2009)
Ship Registration: Law and Practice
by Richard Coles and Edward Watt
(2009)
Bareboat Charters
second edition
by Mark Davis
(2005)
Enforcement of Maritime Claims
fourth edition
by D. C. Jackson
(2006)
Limitation of Liability for Maritime Claims
fourth edition
by Patrick Griggs, Richard Williams
and Jeremy Farr
(2005)
Marine War Risks
third edition
by Michael D. Miller
(2006)
Merchant Shipping Legislation
second edition
by Aengus R. M. Fogarty
(2005)
The Law of Ship Mortgages
second edition
by David Osborne, Graeme Bowtle and Charles Buss
(2016)
Hill and Messent on CMR: Contracts for the
International Carriage of Goods by Road
third edition
by Donald James Hill, Andrew Messent
and David A. Glass
(2001)
EC Shipping Law
second edition
by Vincent Power
(1999)
T HE L AW OF SH I P M O RT GAGE S
BY
DAVID OSBORNE
MA (Downing College, Cambridge),
Solicitor, Partner, Watson Farley &
Williams LLP
GRAEME BOWTLE
MA (New College, Oxford),
Solicitor, former Partner, Richards Butler
(now Reed Smith LLP)
CHARLES BUSS
BA (Exeter), Solicitor, Partner,
Watson Farley & Williams LLP
SECOND EDITION
Second edition published 2017
by Informa Law from Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Informa Law from Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2017 David Osborne, Graeme Bowtle and Charles Buss
The rights of David Osborne, Graeme Bowtle and Charles Buss to be identified as editors of this
work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs
and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or
by any electronic, mechanical, or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or retrieval system, without permission
in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered trademarks, and
are used only for identification and explanation without intent to infringe.
First edition published by Informa 2002
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Osborne, David (Lawyer), author. | Bowtle, Graeme, author. | Buss, Charles., author.
Title: The law of ship mortgages / By David Osborne, Graeme Bowtle and Charles Buss.
Description: Second edition. | New York, NY : Routledge, 2016. | Series: Lloyd’s shipping
law library
Identifiers: LCCN 2016015844| ISBN 9781138781498 (hbk) | ISBN 9781315766430 (ebk)
Subjects: LCSH: Ship mortgages—Great Britain. | Ship mortgages.
Classification: LCC KD1834.B6 .O83 2016 | DDC 346.4107/4—dc23
LC record available at https://lccn.loc.gov/2016015844
ISBN: 978-1-138-78149-8 (hbk)
ISBN: 978-1-315-76643-0 (ebk)
Typeset in Plantin
by Apex CoVantage, LLC
To Alison, Catherine, Philip and Minnie
CONTENTS
Foreword
Preface
Table of cases
Table of legislation
CHAPTER 1
1.1
1.2
1.3
1.4
1.5
1
1
3
7
10
15
OWNERSHIP AND REGISTRATION
16
Legal ownership
Beneficial ownership
Registration
The Register
Fishing vessels
Small ships
Registration procedure
Effect of registration
Refusal of registration; termination and expiry of registration
The ship
Demise charters
Mortgages on demise chartered ships
16
18
22
25
27
28
28
30
34
34
39
40
CHAPTER 3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
HISTORICAL INTRODUCTION
Background
Maritime law and ship mortgages
Legislative reform
The nature of the statutory mortgage
Mortgages of unregistered ships
CHAPTER 2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
xiii
xv
xix
xlvii
SECURITY INTERESTS IN SHIPS
Introduction
Statutory mortgages – the primacy of registration
The current form of statutory ship mortgage
Common law mortgages
Disguised mortgages
Equitable mortgages
Equitable charges
vii
41
41
44
48
50
53
54
58
CONTENTS
3.8
Submortgages
3.9
Mortgages of a share in a ship
3.10 Mortgages of ships under construction
CHAPTER 4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
CHAPTER 5
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
REGISTRATION OF MORTGAGES
Introduction
Merchant Shipping Act 1995
Companies Act 2006
The Bills of Sale Acts
Reform of the registration system?
CHAPTER 7
7.1
7.2
7.3
7.4
EXECUTION, SECURED OBLIGATIONS
AND PROPERTY COVERED
Parties
Execution
The form of mortgage and obligations secured
Multiple obligations
Change of parties
Change of obligations
Usual terms of the mortgage (the collateral deed of covenant)
Special fees and ‘upside’ sharing arrangements
Property covered by the mortgage
CHAPTER 6
6.1
6.2
6.3
6.4
6.5
THE CONFLICT OF LAWS
Introduction
Property in registered ships under English domestic law
Property in registered aircraft under English domestic law
The mid-nineteenth century cases (on ships and on chattels generally)
The early/mid twentieth century cases on foreign government action
The cases on foreign ship mortgages
The cases on ownership and arrest jurisdiction
The conflict of laws dimension to priority issues
The WD Fairway litigation
International conventions
The general maritime law
International insolvency
The Blue Sky litigation
The FPSO OSX 3 in Brazil
Conclusions on the English conflict of laws position on lex situs
PRIORITY
61
63
63
67
67
71
73
74
80
83
86
89
97
105
108
109
110
112
116
120
120
120
122
124
127
128
131
132
135
138
138
139
141
147
148
149
Statutory registered priority
Agreed priority
Security over collateral assets
Failure to register a mortgage
149
150
153
154
viii
CONTENTS
7.5
7.6
7.7
7.8
7.9
7.10
7.11
7.12
7.13
7.14
7.15
Mortgages of unregistered ships
Equitable mortgages and charges
Floating charges and priority
Mortgages of foreign-registered ships
Tacking of further advances
Tabula in naufragio
Marshalling
Invalidity
The courts’ approach to priority of security
Debt subordination
Parties to a subordination or priorities agreement
CHAPTER 8
8.1
8.2
8.3
8.4
8.5
8.6
Introduction
Deed of covenant
Certain issues on owners’ undertakings
Sanctions
Consents and discretions
Protection of security
CHAPTER 9
9.1
9.2
9.3
9.4
9.5
MORTGAGOR’S OBLIGATIONS
AND UNDERTAKINGS
AMENDMENTS, TRANSFER AND DISCHARGE
Amendment
Rectification
Transfer
Discharge
Consolidation
182
184
186
191
194
196
198
207
Introduction
Common law liens
Equitable liens
Maritime liens
Statutory liens
Statutory possessory liens
207
208
209
209
213
215
CHAPTER 11 DEFAULT, AND SELF-HELP
ENFORCEMENT POWERS
11.1
11.2
11.3
11.4
11.5
11.6
11.7
182
198
199
200
202
205
CHAPTER 10 LIENS
10.1
10.2
10.3
10.4
10.5
10.6
155
155
156
159
160
166
167
175
175
178
181
Introduction
Default
Payment defaults
Status defaults
Covenant defaults
Discretions in relation to default
Waiver of events of default
216
216
218
218
219
223
223
223
ix
CONTENTS
11.8
11.9
11.10
11.11
11.12
11.13
11.14
11.15
11.16
11.17
11.18
11.19
11.20
11.21
11.22
11.23
11.24
Effect of default
Post-default interest and break-funding
The mortgagee’s options following a default
Enforcement
The right to take possession at common law
Method of taking possession
Factors relevant to the mortgagee’s decision to take possession
The rights of a mortgagee in possession
Sale of the mortgaged ship
Mechanics and effect of a mortgagee’s private sale
The mortgagee’s expenses of sale
Application of the proceeds of sale
Receivership
Foreclosure
Subordinate mortgagees
Enforcement of collateral security
Security over shares
CHAPTER 12 THE COURTS’ PROTECTION OF
THE MORTGAGOR
12.1
12.2
12.3
12.4
12.5
12.6
12.7
12.8
12.9
12.10
12.11
Introduction
Protection of the mortgagor’s right to redeem
The mortgagee in possession’s duties to the mortgagor
The mortgagee’s exercise of its power of sale
Sales to self or favoured buyers
Are ship mortgages different?
Derivative liability to relevant parties
Excluding duties
Marshalling
The perils of intermeddling
The conflict of laws
CHAPTER 13 LIABILITIES OF THE MORTGAGEE TO
THIRD PARTIES
13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9
13.10
Introduction
Liability to non-demise charterers and cargo interests
Liability to demise (bareboat) charterers
Third party purchase options
Liabilities of a mortgagee in possession to third parties
Interference with third party property
Issues arising under the Partnership Act 1890
Wider lender liability risks
Equitable subordination
Lender liability: An attempt to summarise
x
226
228
230
233
233
239
242
248
249
252
253
255
256
260
261
262
263
266
266
267
268
272
277
286
290
293
294
294
295
297
297
299
319
326
328
329
330
332
334
335
CONTENTS
CHAPTER 14 ENFORCEMENT BY ARREST
AND COURT SALE
14.1
14.2
14.3
14.4
14.5
Introduction
The Admiralty jurisdiction of the High Court
Ship arrest procedure
Court sale procedure
Determination of priorities and payment out
CHAPTER 15 INSOLVENCY
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
15.9
15.10
15.11
15.12
15.13
15.14
338
340
346
357
370
378
Introduction
Consensual restructurings
Schemes of arrangement under the Companies Act 2006
The EU Insolvency Regulation and the significance of the COMI
Other cross-border jurisdictional issues
UK winding up (liquidation)
UK administration
UK administrative receivership
UK company voluntary arrangement (CVA)
Circumstances in which a ship mortgage can be challenged in
UK insolvency proceedings
Some European insolvency regimes of note in a shipping context
The effect of the EU Insolvency Regulation on ship
mortgage enforcement
The effect of the UNCITRAL Model Law on Cross-Border
Insolvency and the Cross-Border Insolvency Regulations on
ship mortgage enforcement
Chapter 11 of the United States Bankruptcy Code
CHAPTER 16 INSURANCE
16.1
16.2
16.3
16.4
16.5
16.6
16.7
16.8
16.9
16.10
16.11
16.12
16.13
16.14
16.15
16.16
338
378
381
383
386
390
391
395
401
403
404
414
414
419
424
430
Introduction
The nature of the mortgagee’s interest
The risks to a mortgagee
Composite interest
Assignment
The effect of notice of assignment
Assignment: Clubs and mutual associations
Loss payable clauses
Letters of undertaking
Claims
The conflict of laws
Illegality risk
Assignments of reinsurances
Mortgagees’ interest insurance
Mortgagees’ additional perils (pollution) insurance
Other mortgagees’ insurances
xi
430
433
436
438
442
453
455
456
457
461
461
462
464
465
471
471
CONTENTS
CHAPTER 17 SECURITY OVER EARNINGS
AND CHARTERPARTIES
17.1
17.2
17.3
17.4
17.5
17.6
17.7
17.8
17.9
17.10
17.11
17.12
17.13
17.14
17.15
Introduction
The commercial background
Present rights and future rights
Partial assignments and suspensory assignments
Legal assignments and equitable assignments
Notice of assignment
Certain set-off issues
The conflict of laws
Restrictions on assignment
Liens on sub-freights
Charterparties and step-in rights
Earnings account
Pooling arrangements
Financial collateral arrangements
Requisition compensation
APPENDIX 1 STATUTORY MATERIAL
A
B
C
D
Merchant Shipping Act 1995, Part II
Merchant Shipping Act 1995, Schedule 1
Merchant Shipping (Registration of Ships) Regulations 1993
(SI 1993/3138), Part VII (as amended)
Senior Courts Act 1981, section 20
APPENDIX 2 STATUTORY FORMS
A
B
C
Form MSF 4736 (Mortgage of a Ship to secure Account
Current etc. other/obligation)
Form MSF 4737 (Mortgage of a Ship to secure Principal
sum and Interest)
Form 4739 (Notice of Mortgage Intent)
473
473
475
479
481
483
484
485
488
489
492
494
499
500
501
502
509
509
519
523
526
529
529
536
542
APPENDIX 3 SPECIMEN DEED OF COVENANT
545
APPENDIX 4 INSTITUTE MORTGAGEES’ INTEREST
CLAUSES – HULLS
577
APPENDIX 5 THE ADMIRALTY MARSHAL’S CONDITIONS
OF SALE AND BILL OF SALE
583
Index
587
xii
F O R EWOR D
When I appeared in the Admiralty Court as junior counsel, sometimes seeking to
enforce a ship mortgage, at other times seeking to resist the enforcement of a ship
mortgage and on yet other occasions seeking to assert the rights of other claimants
in rem in opposition to those of the ship mortgagee, the only textbook on the
subject, The Law Relating to the Mortgage of Ships by Constant was, as the authors
of this book say, ‘quite old’ (see paragraph 3.1.1 footnote 5). When difficult issues
arose concerning the rights and duties of ship mortgagees or the competing priorities of ship mortgagees and other claimants in rem or when a shipowning company
went into liquidation and there appeared to be a conflict between the interests of
the ship mortgagees in the Admiralty Court and the interest of unsecured claimants in other courts, typically the Companies Court in the Chancery Division,
there was little guidance to be found, save in Constant (if one could locate a copy),
in those passages in Temperely’s Merchant Shipping Acts, which dealt with mortgages,
in the relatively few cases on the subject and in an examination of how similar
issues concerning mortgages of land were dealt with.
The authors of The Law of Ship Mortgages, whose firms are well known to the
Admiralty Court, obviously considered, notwithstanding the publication of recent
works dealing with the subject, that there is a place for a modern textbook seeking to deal in some detail with the many issues to which ship mortgages give rise.
The questions covered are comprehensive and include the nature of a ship mortgage (as to which there is ‘surprising uncertainty’; see paragraph 3.1.1), priorities
between mortgagees and other secured claimants, the mortgagor’s obligations, the
duties of the mortgagee to third parties (as to which there is ‘confusing case-law’;
see paragraph 13.1.1), the effect of insolvency (and in particular of cross-border
insolvency) on the rights of ship mortgagees and the relationship between the ship
mortgagee and the insurance on the ship arranged by the mortgagor. These and
other topics are covered in depth. Most helpfully, the law is not just stated but is
analysed and a critical and experienced eye cast over it.
Ships traverse the globe and so disputes concerning the enforcement of ship
mortgages may arise in one of many maritime jurisdictions. It is therefore desirable,
where Admiralty courts in different jurisdictions have to tackle the same problem,
that practitioners and courts are aware of how the particular problem has been
approached not only in England but elsewhere. This is particularly so in matters
concerning the arrest and sale of ships by the Admiralty Court. The authors have
therefore made reference to the approach of the Admiralty courts in Hong Kong,
xiii
FOREWORD
Singapore, South Africa, Canada and Malta. One example is the question of the
extent to which, if at all, a sale by the Admiralty Court can take place without
appraisal by the Admiralty Marshal but in circumstances where the mortgagee has
found a buyer and has provided the court with evidence as to the value of the
vessel (see paragraphs 14.4.12–14.4.15 and the accompanying footnotes where
there is a valuable account of the history of such sales and of the approach to the
question of the Admiralty courts in the common law jurisdictions). I suspect that
the recent decision of the English Admiralty Court dealing with this matter, for
which I was responsible, did not meet with the authors’ approval, but they have
kindly not said so in terms.
So The Law of Ship Mortgages is entitled to a warm welcome. I have no doubt
that its comprehensive, learned and critical discussion of the many issues to which
ship mortgages give rise will be of great assistance to practitioners in the field and
indeed to the judges who must decide cases concerning ship mortgages.
Mr Justice Teare
The Admiralty Judge
Royal Courts of Justice
April 2016
xiv
P RE FAC E A N D AC K N OWLED G EM EN T S
Since the first edition of this book was published in 2001 there has been a global
financial crisis and, partly as a result, a long and major downturn in many sectors of the shipping industry (still continuing in some sectors) and now in the
offshore oil industry. The finance and shipping industries, and hence the ship
finance industry, are very different from what they were in 2001. There have
also been significant developments in the case law in a number of important
areas over this period. Among these are: mortgagees’ duties on enforcement
(The Tropical Reefer and Alpstream); liabilities to charterers and cargo interests
(Anton Dürbeck v Den Norske Bank); the conflict of laws (Blue Sky and The WD
Fairway); marshalling (Highbury v Zirfin); court sales (The Union Gold) and crossborder insolvency, both within and outside the EU, including its impact on the
Admiralty jurisdiction of the High Court (The Sanko Mineral ). All this has led
to some changes in emphasis and structure from the first edition. Further and
more radical issues are potentially presented for the global shipping industry by
the fall-out from the ‘Panama papers’ affair and the impact of the trend towards
full transparency as regards all matters relating to taxation; such issues are outside
the scope of this book.
Recent legal changes which are directly relevant to this book, however, and whose
effect has not yet been fully felt include the Insurance Act 2015 and the recast
EU Insolvency Regulation. No attempt has been made to anticipate the ultimate
private law consequences of Brexit. There is renewed consideration of whether
there should be a Protocol for ships (and possibly wider maritime assets) to the
2001 Cape Town Convention on International Interests in Mobile Equipment; if
that were to come about it would necessitate an extensive re-write.
This book is not a comparative encyclopaedia of ship mortgage law (or enforcement) in different jurisdictions. Its focus is English law; no attempt is made to
address consumer protection laws, however. The international nature of ship finance,
the importance of the laws of other flag states and the impact of other laws on the
rights of a mortgagee might lead to a charge of Anglo-centric parochialism. Whilst
there is some reference to the laws of other common law jurisdictions – and to
a minimal extent to the laws of civil law jurisdictions – such a charge might well
be justified. The focus is on mortgages of British ships, although the chapters on
enforcement and insolvency necessarily relate to issues where the flag of the ship
is not relevant, or is only incidentally relevant. The authors are in any event put to
shame by the venerable and distinguished example of Benjamin Constant, whose
xv
PREFACE AND ACKNOWLEDGEMENTS
classic work,1 written nearly 100 years ago, had appendices addressing the position
under selected foreign laws. Time did not permit us to draw in contributions from
lawyers in other jurisdictions so as to follow his exemplary lead; the first edition
benefited from the Canadian law expertise of Kevin McGuinness, some of which
can still be seen in this new edition. Nor is this book a guide to ship finance. All
the authors are practitioners rather than academics, so there are inevitably references
to issues arising from practical experience – but not we think quite enough to make
it appropriate to change the name to ‘The Law and Practice of Ship Mortgages’.
We have tried to concentrate on those aspects of the law that are specific or
peculiar to ship mortgages. It is, however, necessary to some extent to address
wider areas of law, such as those relating to marine insurance, charterparties,
assignment, security generally and insolvency (two of the cases mentioned in the
first paragraph above – Alpstream and Blue Sky – relate to mortgages of aircraft).
These wider areas are covered more fully (and authoritatively) in other works and
we have referred to them where addressing the issues to the extent we believe necessary; it is hoped that an appropriate balance has been struck. One of the more
interesting (and tantalising) features of English law relating to ship mortgages is
the extent to which it stands apart from the law relating to security more generally or, on the other hand, the extent to which it is subsumed. The answer is not
always obvious – and differs according to context.
Most of this book has been a collaboration between Graeme Bowtle and David
Osborne, with the latter producing first drafts of the majority of chapters. Charles
Buss was primarily responsible for Chapter 14 and made substantial contributions
to Chapters 11, 12 and 15.
We are most grateful to the following who kindly read and commented on drafts
of all or some parts of the book and/or who have participated in valuable discussion: Elaine Ashplant, Frank Dunne, Andrew Hutcheon, Charles Smallwood, Mike
Vernell, Andrew Ward, David Warder and Martin Watson; the authors of course
remain responsible for all errors.
Peter Mellett of BankServe Insurance Services Ltd took part in very useful
background discussions on certain aspects of marine insurance practice.
Martin Karst providing excellent editorial assistance while studying for two
LLMs simultaneously at the Universities of Swansea and Aarhus, respectively; his
efforts were tireless.
There has been assistance from a number of partners of Watson Farley & Williams on references to the laws of jurisdictions other than England and Wales – in
particular Al Yudes, Chris Belisle and John Kissane on aspects of US law.
Four Brazilian law firms have been most helpful in analysing the case relating to
the FPSO OSX3 addressed in Chapter 4, section 4.14: Basch & Rameh, Kincaid,
Souza Cescon and Veirano.
The management of Watson Farley & Williams has been most supportive and
indulgent, not least in giving David Osborne a break from client work, but for
which this book would not have happened. Thanks are also due to a number of
1 Benjamin Constant, The Law Relating to the Mortgage of Ships (Syren & Shipping, Limited 1920).
xvi
PREFACE AND ACKNOWLEDGEMENTS
partners who have carried an extra burden as a result. The Information and Research
Department at the firm provided invaluable assistance and support throughout,
with Vola Walker and Helena Marshall bearing the brunt. Document production
was also heavily relied upon, with Clare Morgan and her team, along with Charlie
Homewood, being ever-cheerful and efficient.
Others who have provided background assistance, support, wisdom or influence
in one way or another (directly or obliquely – and not always knowingly) and to
whom thanks are due are: Elaine Anderson, Alan Berg, Len Berkowitz, Andrea
Bhamber, Nils Blythe, Liz Buchan, Orsolya Dobos, the late Dan Briden, Frank
Dunne (again), Mark Dougherty, Mike Edwards, Alastair Farley, Jane FreebergSarma, Michael Greville, the late Peter Hill, John Hopkins, Chloe Kenilworth, Mark
Lawson, Meinwen Llewellyn, Chris Lowe, Kirsten Middleton, Richard Munden,
Professor Edwin Peel, Douglas Potter, the late Ted Spencer, Sarah Roe, Andrew
Savage, Natasha Seel, Enrique Sibauste, Professor Baris Soyer, Richard Stephens
and Edmund Sweetman.
The authors are most grateful to Mr Justice Teare, the Admiralty Judge, for
kindly writing the foreword.
Finally, we should like to thank Caroline Church, Jackie Day and Marie Louise
Roberts for their help and guidance through the editorial process.
We have attempted to state the law as at 31 May 2016.
London EC2
Midsummer 2016
xvii
TA B L E O F CA S ES
A Company (No 005009 of 1987), Re (1988) 4 BCC 424............................................. 383
A Debtor (No 24 of 1971), Re, ex p Marley [1976] 2 All ER 1010 (Div Ct) .................. 172
Abodi Mendi, The [1939] P 178 (CA) .......................................................................... 350
Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The Product Star)
(No 2) [1993] 1 Lloyd’s Rep 397 ................................................................ 194, 195
Acrux, The (No 2) [1962] 1 Lloyd’s Rep 405 (PD & Adm) ...... 90, 107–8, 253, 338, 360, 369
Acrux, The (No 3) [1965] P 391, [1965] 1 Lloyd’s Rep 565 .......................................... 90
Adams v Scott (1859) 7 WR 213 ................................................................................. 249
Addison v Denholm Ship Management (UK) Ltd [1997] ICR 770,
[1997] IRLR 389 ......................................................................................... 38, 345
Afovos Shipping Co SA v R Pagnan & Fratelli (The Afovos) [1980] 2 Lloyd’s
Rep 469 (Com Ct) .............................................................................................. 228
Africa Export-Import Bank v Shebah Exploration and Production Co Ltd [2016]
EWHC 311 (Comm) ........................................................................................... 227
Africano, The [1894] P 141 .......................................................................................... 215
Agnew v Inland Revenue Commissioners. See Brumark Investments Ltd, Re
AIB Group (UK) plc v Hennelly Properties Ltd Ch D, 18 May 2000, affirmed
1 December 2000 (CA) ....................................................................................... 121
Air Foyle Ltd v Center Capital Ltd [2002] EWHC 2535 (Com Ct), [2003]
2 Lloyd’s Rep 753 ....................................................................................69, 75, 100
AIS Dan Bunkering Ltd v Dolphin Maritime Ltd and Dolphin Kreuzfahrten
GmbH, II Diritto Marittimo 2011, 607 ............................................................... 418
Al-Kishtaini v Shanshal [2001] EWCA Civ 264, [2001] 2 All ER (Comm) 601,
[2001] Lloyd’s Rep Bank 174 .............................................................................. 192
Alcock, Re (1883) 23 Ch D 372 (CA) ................................................................. 204, 232
Aldrich v Cooper 32 ER 402, (1803) 8 Ves Jr 382 .............................................167–9, 376
Alexander v Simms 43 ER 791, (1854) 5 De GM & G 57 ..................................... 63, 240
Alizia Glacial, The. See Handelsbanken ASA v Dandridge
Allgemeine Treuhand, AG v Owners of the Arosa Kulm (The Arosa Kulm) (No1)
[1959] 1 Lloyd’s Rep 212 (PD & Adm)................................................... 84, 95, 360
Alliance Perpetual BS v Belrum Investments Ltd [1957] 1 WLR 720 ............................... 260
Alpstream AG v PK Airfinance Sarl, sub nom PK Airfinance Sarl v Alpstream AG [2015]
EWCA Civ 1318, [2016] 2 P & CR 2 ....... 165, 177, 277, 281–4, 286, 290, 291, 319
Alpstream AG v PK Airfinance Sarl [2013] EWHC 2370 (Comm), [2014]
1 All ER (Comm) 441 ..............................................................................277–9, 319
Alston, Ex p (1868–69) LR 4 Ch App 168 .................................................................. 173
Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 ............. 367
xix
TABLE OF CASES
Amalgamated General Finance Co Ltd v C E Golding & Co Ltd [1964] 2 Lloyd’s
Rep 163 (Com Ct) ...................................................................................453–5, 458
American Express International Banking Corp v Hurley [1985] 3 All ER 564 ......... 258, 292
American Leisure Group Limited v (1) Rupert Roderick Faure Walker and (2) David Chapman
Mace [2016] EWCA Civ 445 ............................................................................... 475
Andalusian (No 2), The (1878) 3 PD 182 ...................................................................... 37
Anderson v Butler’s Wharf Co Ltd (1879) 48 LJ Ch 824................................................ 474
Andrea Ursula, The. See Medway Drydock and Engineering Co v Owners of the MV
Andrea Ursula (The Andrea Ursula)
Andrico Unity, The. See Transol Bunker BV v MV Andrico Unity (The Andrico Unity)
Angel Bell, The. See Iraqi Ministry of Defence v Arcepey Shipping Co SA (The Angel Bell)
Annangel Glory Compania Naviera SA v M Golodetz Ltd (The Annangel Glory)
[1988] 1 Lloyd’s Rep 45...............................................................................60, 492, 493
Anonymous (1696) Fort 230 ........................................................................................ 356
Ansell v Bradley (1916) 31 DLR 297, 37 OLR 142 (HC) ........................................... 249
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191........................... 226
Anton Durbeck GmbH v Den Norske Bank ASA [2005] EWHC 2497 (Comm),
[2006] 1 Lloyd’s Rep 93 ..................................................236, 303, 313–19, 329, 330
Anton Dürbeck v Den Norske Bank ASA [2003] EWCA Civ 147, [2003] QB 1160 ...... 315
Apcoa Parking Holdings GmbH, Re [2014] EWHC 3849 (Ch), [2015] 4 All ER 572 ..... 384, 385
APJ Shalin, The [1991] 2 Lloyd’s Rep 62 .................................................... 214, 362, 365
Arab Bank plc v Mercantile Holdings Ltd [1994] Ch 71 ................................................ 279
Arab Bank Plc v Zurich Insurance Co [1999] 1 Lloyd’s Rep 262, [1998] CLC 1351 ..... 442
Arantzazu Mendi, The. See Spain v Owners of the Arantzazu Mendi
Arash Shipping Enterprises Co Ltd v Groupama Transport [2011] EWCA Civ 620 ......... 191,
464, 470
Arbuthnot Leasing International Ltd v Havelet Leasing Ltd (No 2) [1990] BCC 636 (Ch)........ 405
Ardila Investments NV v ENRC NV [2015] EWHC 1667 (Comm) ...................... 450, 483
Aries Tanker Corp v Total Transport Ltd (The Aries) [1977] 1 WLR 185, [1977]
1 All ER 398, [1977] 1 Lloyd’s Rep 334 ............................................................. 486
Arkle v Henzell 120 ER 309, (1858) 8 El & Bl 828 ....................................................... 30
Armstrong Brands Ltd, Re [2015] EWHC 3303 (Ch) ................................................... 121
Arnold v Britton [2015] UKSC 36....................................................................... 177, 491
Aro Co Ltd, Re [1980] Ch 196 ............................................................................ 291, 392
Arosa Kulm, The. See Allgemeine Treuhand, AG v Owners of the Arosa Kulm
(The Arosa Kulm) (No 1)
Arosa Star, The [1959] 2 Lloyd’s Rep 396 (SC) 402 .................................................... 356
Ashborder BV v Green Gas Power Ltd [2005] EWCA Civ 619 ...................................... 393
Ashton v Corrigan (1871-72) LR 13 Eq 76 .................................................................... 54
Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223................. 194
Astrovlanis Compania Naviera SA v Linard [1972] 2 QB 611 ....................................... 438
Athenic, The (1932) 42 Ll L Rep 91 ............................................................................ 435
Atlanta, Strong v Smith, The (1896) 5 Ex CR 57 (Ex Ct Can) ....................................... 56
Atlantic Computer Systems Ltd, Re [1992] Ch 505 (CA) ........................................... 397–9
Atlantik Confidence, The [2014] 1 Lloyd’s Rep 586 (CA).......................................... 368–9
Atlas (Clark) 166 ER 162, (1827) 2 Hag Adm 48 ........................................................ 59
Atlasnavios Navegacao Lda (formerly BNavios Navegacao Lda) v Navigators
Insurance Co Ltd (The B Atlantic) [2012] EWHC 802 (Comm), [2012]
Lloyd’s Rep IR 363.............................................................................................. 468
Attorney-General v Adelaide Steamship Co Ltd (No1) ..................................................... 506
xx
TABLE OF CASES
Attorney-General v De Keyser’s Royal Hotel Ltd. See De Keyser’s Royal Hotel Ltd, Re
Attorney General for Canada v Attorney General for Ontario (Appeal No 100 of 1936)
[1937] AC 326 (PC)............................................................................................ 340
Australia and New Zealand Banking Group Ltd v Bangadilly Pastoral Co Pcy Ltd
[1978] 139 CLR 195 (HC Aus) .......................................................................... 278
Aventicum, The [1978] 1 Lloyd’s Rep 184 (Adm)..................................................... 20, 86
Babcock v Southern Pacifika, The [2012] 2 Lloyd’s Rep 423 (NZHC) ................... 208, 375
Badeley v Consolidated Bank (1888) 38 Ch D 238 (CA) ...................................... 331, 332
Baker v Adam (1910) 102 LT 248 (KB) ..................................................................... 442
Balder London (No 1), The. See Gatoil Anstalt v Omenial Ltd (The Balder London) (No 1)
Banco do Brazil v The ‘Alexandros Tsavliris’ (1987) 12 FTR 278 ................................... 314
Banco, The. See Owners of the Monte Ulia v Owners of the Banco (The Banco)
Bank of Baroda v Panesar [1987] Ch 335 .................................................................... 232
Bank of Boston Connecticut (formerly Colonial Bank) v European Grain & Shipping Ltd
(The Dominique) [1989] AC 1056 (HL), 1 Lloyd’s Rep 431 ......................... 480, 486
Bank of Credit and Commerce International SA (In Liquidation) (No 8), Re [1998]
AC 214 ........................................................... 59, 118, 124, 142, 167, 168, 171, 499
Bank of Credit and Commerce International SA (In Liquidation) (No 11), Re [1997] Ch 213 ....... 390
Bank of Liverpool and Martins Ltd v Holland (1926) 43 TLR 29 (KB) ................. 449, 482
Bank of New South Wales v O’Connor (1889) 14 App Cas 273 (PC)............................. 272
Bank of New South Wales v South British Insurance Co Ltd (1920) 4 LI L Rep
266 (CA) ..................................................................................................... 443, 464
Bank of New York Mellon v GV Films Ltd [2009] EWHC 3315 (Comm) ...................... 226
Bank of Nova Scotia v Dorval (1979) 104 DLR (3d) 121 (Ont CA) ............................ 250
Bank of Nova Scotia v Hellenic Mutual War Risk Association (Bermuda) Ltd
(The Good Luck) [1988] 1 Lloyd’s Rep 514 (Com Ct) .......................................... 458
Bank of Scotland plc v Owners of the Union Gold [2013] EWHC 1696 (Adm) ...... 288, 289,
338, 361–2, 365
Bank of Scotland v The Nel (1998) 154 FTR 168 (FC)........................................ 173, 377
Bank of Tokyo-Mitsubishi UFJ Ltd v Owners of the Sanko Mineral [2014]
EWHC 3927 (Adm) ............................................................................................ 422
Bank voor Handel en Scheepvaart NV v Slatford (No 2) [1953] 1 QB 248 ...................... 81
Bankers Trust International Ltd v Todd Shipyards Corp (The Halcyon Isle) [1981]
AC 221, [1980] 2 Lloyd’s Rep 325........87, 89, 90–5, 106, 116, 210, 211, 214, 373, 374
Bankgesellschaft Berlin v First International Shipping Corp Ltd Com Ct,
11 December 2000 ...................................................................................... 219, 220
Banner v Berridge (1881) 18 Ch D 254 ....................................................................... 255
Banque Genevoise de Commerce et de Credit v Compania Maritima di Isola Spetsai
(The Spetsai Patriot) [1964] 2 Lloyd’s Rep 329..................................................... 235
Banque Indosuez SA v Ferromet Resources 1993 BCLC 112 (Ch) .................................. 390
Banque Worms v Owners of the Maule (The Maule) [1997] 1 WLR 528, [1997]
1 Lloyd’s Rep 419 .........................62, 126, 140, 146, 164, 201, 217, 226, 227, 231,
250–2, 255, 279, 393
Barbados Trust Co Ltd (formerly CI Trustees (Asia Pacific) Ltd) v Bank of Zambia [2007]
EWCA Civ 148, [2007] 1 Lloyd’s Rep 495 ................................................. 490, 491
Barbara, The (Chegwin, Master) 165 ER 514, (1801) 4 C Rob 1.................................... 30
Barclay & Co Ltd v Poole [1907] 2 Ch 284 ....................................................... 32, 45, 46
Barclays Bank Ltd v Bird [1954] Ch 274 ..................................................................... 262
Barclays Bank Ltd v Owners of the Sailing Barge Eva (The Eva) [1950] 8 LI L
Rep 20 (PD & Adm) ........................................................................................... 506
xxi
TABLE OF CASES
Barclays Bank plc v Eustice [1995] 1 WLR 1238 .......................................................... 407
Barclays Bank plc v Zaroovabli [1997] 2 All ER 19 (Ch)................................................ 44
Barker v Stickney [1919] 1 KB 121 (CA) .................................................................... 309
Barnett Waddington Trustees (1980) Ltd v Royal Bank of Scotland plc [2015] EWHC
2435 (Ch)............................................................................................................ 230
Bartlett v Jull (1880) 28 Gr 140 (UC Ch) .................................................................. 249
Barton v Gilbert (1904) 4 OWR 406 (Div Ct) ............................................................. 271
Basic Yield Alpha Fund (Master), In re 381 BR 37 (Bankr SDNY 2008) ....................... 425
Basildon, The [1967] 2 Lloyd’s Rep 134 (PD & Adm) .........................152, 164, 197, 231,
251, 255, 435
Baumwoll Manufactur von Carl Scheibler v Furness [1893] AC 8 ............... 30, 39, 140, 320
Bazias 3 and Bazias 4, The. See Greenmar Navigation v Owners of Ships Bazias 3
and Bazias 4 and Sally Line (The Bazias 3 and The Bazias 4)
BC Land & Investment Agency v Ishitaka (1911) 45 SCR 302 ..................................... 249
BCCI (No 11) Re. See Bank of Credit and Commerce International SA (In Liquidation)
(No11), Re
BCCI (No 8), Re. See Bank of Credit and Commerce International SA (In Liquidation) (No8), Re
Bear Stearns High-Grade Credit Strategies Master Fund, Ltd, In re 389 BR 325
(SDNY 2008) ...................................................................................................... 425
Behnke v Bede Shipping Co Ltd [1927] 1 KB 649, (1927) 27 Ll L Rep 24 ....... 3, 16, 21, 123
Bell v Bank of London (1858) 3 H&N 730 (Ex), 157 ER 661...................................... 199
Bell v Blythe (1868–69) LR 4 Ch App 136.................................................................. 200
Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC
38, [2012] 1 AC 383 ........................................................................................... 219
Benwell Tower, The (1895) 8 ASP MLC 13 (PD & Adm), 72 LT 664 ......50, 123, 131, 140,
153, 158–61, 164, 184, 240, 241, 254, 255, 271, 281, 473, 474
Benyon & Co v Goddon & Son (No 1) (1877-78) LR 3 Ex D 263 .............................. 241
Berny, The. See Owners of Cargo Lately Laden on Board the Berny v Owners of the Berny
(The Berny)
Berostar, The [1970] 2 Lloyd’s Rep 403 (PD & Adm) .......................................... 213, 355
Bettyes v Maynard (1883) 49 LT 389 (CA) ................................................................. 249
Bexhill UK Ltd v Razzaq (Abdul) [2012] EWCA Civ 1376 .. 450, 478, 479, 483, 494, 496
Beynon v Goddon (1878) 3 Ex D 263 (CA) ................................................................. 307
Bibby Factors Northwest Ltd v HFD Ltd [2015] EWCA Civ 1908 ................................. 487
Bineta, The [1967] 1 WLR 121 (PD & Adm), [1966] 2 Lloyd’s Rep 419 .............. 33, 199
Black King Shipping Corp v Massie (The Litsion Pride) [1985] 1 Lloyd’s Rep 437
(Com Ct) .................................................................................................... 439, 443
Black v Williams [1895] 1 Ch 408 ......9, 32, 45, 46, 56–8, 94, 95, 141, 156, 158, 159, 165
Blanche, The (1887) 6 Asp MLC 272, 58 LT 592 (PD & Adm) ......184, 233, 235, 305,
313, 329
Blaze, The. See Keybank National Association v The Ship ‘Blaze’
Blitz, The [1992] 2 Lloyd’s Rep 441 (Adm) ................................................................ 215
Blue Sky One Ltd v Mahan Air, sub nom Blue Sky 1 [2009] EWHC 3314 (Com Ct)
(Blue Sky 1) ......................................................... 67, 69, 73, 100, 110, 115–17, 417
Blue Sky One Ltd v Mahan Air, sub nom Blue Sky 2 [2010] EWHC 631 (Com Ct) (Blue
Sky 2) 67, 73, 100, 110, 111, 115–17, 417
Bluebrook Ltd, Re [2009] EWHC 2114 (Ch), [2010] BCC 209 ........................176–8, 383
Blyth Shipbuilding & Dry Docks Co Ltd, Re (No 3) [1926] Ch 494 (CA) ........... 17, 64, 65
BMA Special Opportunity Hub Fund Ltd v African Minerals Finance Ltd [2013]
EWCA Civ 416........................................................................................................204
xxii
TABLE OF CASES
BMBF (No 12) Ltd v Harland & Wolff and Shipbuilding Heavy Industries Ltd
[2001] EWCA Civ 862 (CA) ........................................................................... 17, 64
BNP Paribas v Yukos Oil [2005] EWHC 132 (Ch)....................................................... 221
Bogart v The John Jay 58 US (17 How) 399 (1854) ...................................................... 10
Bold Buccleugh, The 13 ER 884, (1851) 7 Moo PC 267 ........................... 90, 91, 187, 210
Bond Air Services v Hill [1955] 2 QB 417 ................................................................... 294
Bow McLachlan & Co v The Camosun [1909] AC 597 (PC) .......................................... 50
Bowen v Fox, 109 ER 366, (1829) 10 B & C 41 ........................................................... 30
Bowmaker Ltd v Wycombe Motors Ltd [1946] KB 506 ................................................... 209
BRAC Rent-a-car Inter national Inc, Re [2003] EWHC 128 (Ch), [2003] 1 BCLC 470 ..... 387
Bradley v Carritt [1901] 2 KB 550 (CA), [1903] AC 253 (HL) .................................. 133
Brady-Hamilton Stevedore Co v MV Kalantiou (The Kalantiao) (1987) (4) SA 250,
[1989] ZASCA 29 ................................................................................................. 93
Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661 ........................... 194
Brancker v Molyneux (1841) 3 Man & G 84, 133 ER 1067 (CP) ................................ 137
Brice v Bannister (1878) 3 QBD 569 (CA) ...................................448, 449, 477, 479, 484
Bridge v Campbell Discount Co Ltd [1962] AC 600 ....................................................... 132
Brighty v Norton 122 ER 116 (QB), (1862) 2 B & S 312 ........................................... 232
Bristol Airport v Powdrill [1990] Ch 744 (CA) ............................................................. 320
British & Commonwealth Holdings plc (No 3), Re [1992] 1 WLR 677, [1992] BCC 58 .......178
British Concrete Pipe Association’s Agreement, Re [1983] 1 All ER 203 (CA) .................. 123
British South African Co Ltd v De Beers Consolidated Mines Ltd [1910] 2 Ch 502 (CA) ..... 360
Broadbent v Barlow 45 ER 999 (Ch), (1861) 3 De GF & J 570 .................................. 173
Broadmayne, The [1916] P 64 (CA) ............................................................................. 506
Brond v Broomhall [1906] 1 KB 571 ........................................................................... 200
Brouard v Dumaresque 13 ER 186, (1841) 3 Moo PC 457 ...................204, 252, 276, 277
Brown v Cole 60 ER 424 (Ch), (1845) 141 Sim 427 ................................................... 267
Brown v Tanner (1867–68) 18 LT Rep 624, LR 3 Ch App 597 ..............129, 140, 162,
241, 307, 316, 474
Brumark Investments, Re, sub nom Agnew v Commissioner of Inland Revenue,
[2001] UKPC 28 ................................................................................... 43, 493, 500
Buccament Bay Ltd and Harlequin Property (SVG) Ltd, Re [2014] EWHC 3130 (Ch) ......395
Buhr & Ors v Barclays Bank Plc [2001] EWCA Civ 1223 ........................................... 255
Bulk Chile, The [2012] EWHC 2107 (Com Ct), [2012] 2 Lloyd’s Rep 594 ................. 420
Bureau Wijsmuller NV v The Owners of the mv Tojo Maru (No 2) (The Tojo Maru)
[1972] AC 242, [1971] 2 WLR 970 ..................................................................... 109
Burgis v Constantine [1908] 2 KB 484 ................................................. 19, 32, 46, 49, 200
Burlinson v Hull (1884) 12 QBD 347 .......................................................................... 478
Burmah Oil Co (Burma Trading) Ltd v Lord Advocate [1965] AC 75............. 502, 503, 507
Burton & Co v English & Co (1883) 12 QBD 218 (CA) ............................................ 294
Buttermere, The Fo 211, 24 July 1883 ........................................................................... 14
Butters & OB v BBC Worldwide Ltd & OB [2009] EWHC 1954 (Ch) ......................... 497
Byzantion, The (Adjourned Hearing) (1922) 38 TLR 744 (PD & Adm),
127 LT 756, (1922) 12 Ll L Rep 419 ........................................................... 56, 360
Byzantion, The [1922] 12 Ll L Rep 9 (PD & Adm)............................................... 84, 159
Cable & Wireless plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm) ............ 497
Calm C, The, Gulf & Fraser Fishermen’s Credit Union v Calm C Fish Ltd (1974) 12
DLR (4th) 592, [1975] 1 Lloyd’s Rep 188, [1975] 3 WWR 474 (BCCA) .......249, 270
Cambridge Gas Transportation Corp v Official Committee of Unsecured Creditors of
Navigator Holdings plc [2006] UKPC 26, [2007] 1 AC 508 .................................. 390
xxiii
TABLE OF CASES
Cammell v Sewell (1858) 3 H&N 617, (1860) 5 H&N 728 (Ex Ch), 157 ER 1371 ....... 69,
74–7, 80, 104, 108, 115
Canada v Jorizons Unbound Rehabilitation and Training Society (HURTS)
1996 CanL II 3889 (FC) ..................................................................................... 314
Canary Wharf Finance plc v Deutsche Trustee Co Ltd [2016] EWHC 100 (Comm) ......... 204
Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd (the Mineral Transporter and
Ibaraki Maru) [1986] AC 1, [1985] 2 Lloyd’s Rep 303 ........................................ 301
Cape Moreton, The. See Tisand (Pty) Ltd v The Owners of the Ship mv Cape Moreton
(ex Freya) (The Cape Moreton)
Capital Finance Co Ltd v Stokes [1968] 1 All ER 573 (Ch), [1969] 1 Ch 261 (CA) ...... 55
Capital for Enterprise Fund a LP v Bibby Financial Services Ltd [2015] EWHC 2593 (Ch) ..... 397
Captain Panagos, The DP [1985] 1 Lloyd’s Rep 625 (Com Ct) .................................... 469
Carboex SA v Louis Dreyfus Commodities Suisse SA [2012] EWCA Civ 838 .................. 294
Care Shipping Corp v Latin American Shipping Corp (The Cebu) [1983] QB 1005,
[1983] 1 Lloyd’s Rep 302 .............................................................................. 60, 493
Carl Zeiss Stiftung v Rayner & Keeler Ltd [1967] 1 AC 853 (HL) .................................. 77
Case v Davidson 105 ER 980 (KB), (1816) 5 M&S 79 ............................................... 307
Castrique v Imrie (1860) 141 ER 1222, 8 CB NS 405 (Ex Ch), on appeal
(1869–70) LR 4 HL 414 ....................................................................75–7, 100, 108
Cathcart, The (1865–67) LR 1 A & E 314 (Adm) ...............5, 53, 131, 140, 184, 235, 250
Cavendish Square Holding BV v Talal El Makdessi, ParkingEye Ltd v Beavis
[2015] UKSC 67 ..................................................................133, 135, 229, 230, 438
CBRE Loan Servicing Ltd v Gemini (Eclipse 2006–3) PLC [2015] EW HC 2769 (Ch) .......180
Cebu, The (No 1) [1983] QB 1005 (Com Ct), [1983] 1 Lloyd’s Rep 302 .................... 493
Celtic King, The [1894] P 175 (PD & Adm) ....................... 30, 184, 303–5, 313, 317, 328
Cementation Piling and Foundations Ltd v Commercial Union Insurance Co plc [1995]
I Lloyd’s Rep 97 (CA) ......................................................................................... 294
Central Insurance Co Ltd v Seacalf Shipping Corp (The Aiolos) [1983] 2 Lloyd’s Rep
25 (CA) ....................................................................................................... 450, 461
Centro Latina Americano de Commercio Exterior SA v Owners of the Kommunar
(The Kommunar) (No 3) [1997] 1 Lloyd’s Rep 22 (Adm) .................................... 232
Centrobanca – Banca di Credito Finanziario e Mobiliare Spa v Deiulemar Compagnia di
Navigazione SpA and Ledi Shipping Srl, II Diritto Marittimo 2013, 557 ................ 418
Cerro Colorado, The [1993] 1 Lloyd’s Rep 58 (Adm) .....................107, 212, 356, 365, 369
Champion, The [1934] P 1 ............................................................................................. 37
Charge Card Services Ltd (No 2), Re [1987] Ch 150, [1986] 3 WLR 697 ..................... 499
Charger, The [1966] 3 All ER 117 (PD & Adm), [1966] 1 Lloyd’s Rep 670 ........ 215, 366
Charles v Jones [1887] 35 Ch D 544 ........................................................................... 255
Charmway Hong Kong Investment Ltd v Fortunesea (Cayman) Ltd [2015] HKCFI
1308, 28 July 2015 .............................................................................. 125, 386, 386
Chartbrook v Persimmon [2009] UKHL 38, [2009] 1 AC 1101 (HL) ........................... 491
Chartered Bank of India v Netherlands Steam Navigation Co Ltd (1883) 10 QBD 521.........23
Chasteauneuf v Capeyron (1882) 7 App Cas 127 (PC) ........................................... 56, 199
Cheah v Equiticorp Finance Ltd [1992] AC 472 (PC) ................................................... 150
Chem Orchid, The [2015] 2 Lloyd’s Rep 666 [76] – [82]. ............................................ 343
Cherry v Boultbee (1838) 4 My & Cr 442 (Ch), 2 Keen 319, 48 ER 651 .................... 180
China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536, [1990] 2 WLR 56,
[1989] 3 All ER 839 .........................................................................275, 287, 291–4
China Mutual Steam Navigation Co Ltd v Maclay [1918] 1 KB 33 ....................... 503, 504
Chinnery v Blackburne, 1 H Black Rep 117 ................................................................. 302
xxiv
TABLE OF CASES
Chioggia, The [1898] P 1 (PD & Adm) ................................................................ 174, 376
Chohan v Saggar [1992] BCC 306 (Ch), ([1994] BCC 134 (CA) ............................... 405
Chow Yoong Kong v Choong Fah Rubber Manufactory [1962] AC 209 .............................. 54
Chung Chi Cheung v Rex [1939] AC 160 (PC), 62 LI L Rep 151 ................................. 85
Ci4net.com Inc, Re [2004] EWHC 1941 (Ch), [2005] BCC 277 .............................. 377–8
CIMC Raffles Offshore (Singapore) Ltd v Schahin Holdings SA [2013] 2 Lloyd’s Rep 575 ......130
Citibank NA v Hobbs, Savill & Co [1978] 1 Lloyd’s Rep 368 ........................................ 61
Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166 ..................................... 134
CL Nye Ltd, Re [1971] 1 Ch 442 (CA) ....................................................................... 143
Clarke v Batters (1855) 1 K & J 242, 69 ER 447 .......................................................... 30
Clayton’s Case. See Devaynes v Noble
Clifford Chance v the Owners of the Ship or Vessel Atlantic Trader [1991] 2 Lloyd’s Rep
324 (HK HC)...................................................................................................... 343
Clore v Theatrical Properties [1936] 3 All ER 483 ......................................................... 308
CN Marine Inc v Stena Line A/B and Regie voor Maritiem Transport
(The Stena Nautica) (No 2) [1982] 2 Lloyd’s Rep 336 (CA) ............ 21, 83, 301, 321
Co-operative Group Ltd v Birse Developments Ltd [2014] EWHC 530 (TCC) ................ 491
Coggs v Bernard (1703) 2 Ld Raym 909, 92 ER 107................................................... 322
Collins v Lamport, 46 ER 1012 (Ch), (1864) 4 De GJ & S 500 .......8, 183, 233, 234, 299,
300–5, 310–19
Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd
[1995] 1 WLR 1140 (PC) ............................................................................ 443, 457
Colorado, The [1923] P 102 (CA).............................................................89–95, 116, 217
Colson v Williams (1889) 58 LJ Ch 539 ............................................................... 272, 273
Coltman v Chamberlain [1890] 25 QBD 328 ............................................................... 135
Com of Puerto Rico, The v M/V Emily S, No 94–1019 ccc, 1998 WL 938585
(DPR 28 July 1988)..................................................................................... 334, 471
Commercial First Business Ltd v Atkins [2012] EWHC 4388 (Ch)................. 195, 196, 491
Compania Colombiana de Seguros v Pacific Steam Navigation Co [1964] 1 All ER
216 (Com Ct) ..................................................................................................... 443
Compania Merebello San Nicholas SA, Re [1973] Ch 75 [1972] 2 Lloyds’ Rep 268 ...... 395
Compania Naviera Limitada v Attorney General for Palestine (The Urania) (1947–48)
81 LI L Rep 314 ........................................................................................82–3, 508
Compania Naviera Vascongodo v SS Cristina [1938] AC 485 (HL) ...................... 80, 88, 99
Comstock v Harris (1887) 13 OR 407 (Ch) ..................................................... 12, 14, 120
Connolly Bros Ltd (No 2), Re [1912] 2 Ch 25 (CA) ....................................................... 54
Constellation, The [1966] I WLR 272 (PD & Adm), [1965] 2 Lloyd’s Law Rep 538 ........392
Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The Fedora,
The Tatiana and the Eretrea II) [1986] 2 Lloyd’s Rep 441 (CA) ............................ 293
Cooden Engineering Co v Stanford [1953] 1 QB 86 ....................................................... 132
Coombes v Mansfield 61 ER 877, (1855) 3 Drew 193 .............................. 45, 64, 159, 165
Corbett v Pearce [1904] 2 KB 422.................................................................................. 38
Corona Energy, The (1977) (unreported) ...................................................................... 343
Cory Brothers v Stewart (1886) 2 TLR 508 (CA) ................................................. 313, 328
Cosco Bulk Carrier Co Ltd v Armada Shipping SA [2011] EWHC 216 (Ch) ........... 60, 493
Countess, The [1923] AC 345 (HL) .............................................................................. 215
Court Line Ltd v Aktiebolaget Gøtaverken (The Halcyon the Great) [1984] 1 Lloyd’s
Rep 283 (Com Ct) .............................................................................................. 482
Courtney & Fairbairn v Tolani Brothers (Hotels) Ltd [1975] 1 WLR 297 (CA) ............... 497
Craighall, The [1910] P 207 (CA) .................................................................................. 37
xxv
TABLE OF CASES
Credit Agricole Indosuez v BB Energy BV [2004] EWHC 750 (Comm)......................... 225
Cristina, The. See Compania Naviera Vascongodo v SS Cristina
Crouch v Martin (1707) 2 Vern 595, 23 ER 987 .......................................................... 474
Crown of Leon (Owners) v Lords Commissioners of the Admiralty (The Crown of Leon) [1921]
1 KB 595, (1920) 5 LI L Rep 74 ........................................................ 502, 505, 507
Cuckmere Brick [1971] Ch 949 (CA)........................................................... 275, 276, 280
Cuckmere Brick Co v Mutual Finance [1971] Ch 949 ................................... 274, 275, 288
Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 2 ..... 221, 227,
265, 284–6
Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 20 .... 260, 285, 286
Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2013] UKPC 25,
[2015] 2 WLR 875 .............................................................................................. 267
Cunard SS Co Ltd v Hopwood [1908] 2 Ch 564 .................................................... 56, 141
Curtis v Auber (1820) 1 Jac & W 526, 37 ER 468 (Ch)............................................... 137
Curtis v Wild [1991] 4 All ER 172 (QB)...................................................................... 345
Daimler Co v Continental Tyre & Rubber Co (Great Britain) [1916] 2 AC 307 (HL) ........ 26
Dakin v Oxley (1864) 15 CBNS 646, 143 ER 938 (CP) ............................................. 486
Dalkia v Celltech [2006] EWHC 63 (Comm), [2006] 1 Lloyd’s Rep 599 .................... 224
Dalmare SpA v Union Maritime Ltd (The Union Power) [2012] EWHC 3537
(QB Comm Ct), [2013] 1 Lloyd’s Rep 509 ........................................................... 16
David Lloyd & Co, Re (1877) 6 Ch D 339 (CA) ........................................................ 392
David Meek Plant Ltd, Re [1994] 1 BCLC 680 (Ch) ................................................... 399
David Taylor & Son Ltd v Barrett Trading Co [1953] 1 WLR 562 (CA) ........................ 191
Davis v Davis [1894] 1 Ch 393 .................................................................................. 331
De Keyser’s Royal Hotel Ltd, Re [1920] AC 508 (HL)............................................... 502–4
De Mattos v Gibson 45 ER 108 (QB), (1859) 4 De G & J 276 ....... 289, 304–15, 317, 319, 320,
322–4, 327–9, 495
De Wolf v Carvill and Smith (1865) 11 NBR 299 (CA) ............................................ 23, 45
Dean v M’Ghie 172 ER 175, (1826) 2 Car & P 387 .......................................................7
Dean, Assignees of Prince a Bankrupt v M’Ghie 130 ER (CCP) 685, (1826) 4 Bing 45 .......302
Dearle v Hall 38 ER 475 (Ch), (1828) 3 Russ 1 . 153, 154, 157, 158, 437, 451, 453, 481,
485, 493, 493
Decura IM Investments LLP v UBS AG (London branch) [2015] EWHC 171 (Comm) ..... 222
Defries, Re [1909] 2 Ch 423 ........................................................................................ 203
Den Norske Bank ASA v Acemex Management Co Ltd (The Tropical Reefer)
[2003] EWCA Civ 1559, [2004] 1 Lloyd’s Rep 1 (CA, [2003] EWHC 326
(Comm), [2003] 2 All ER (Comm) 318 ................. 140, 267, 275, 286–90, 292, 316
Denny, Mott & Dickinson Ltd v James B Fraser & Co Ltd [1944] AC 265 (HL) ........... 191
Deutsche Bank AG v Unitech Ltd [2016] EWCA Civ 119 ............................................. 131
Devaynes v Noble (1816) 35 ER 781, (1816) 8 LJ Ch 256, 1 Mer 572 ....................... 160
DH Peri, The (1862) Lush 543 (Adm) ......................................................................... 348
Diamond Alkali Export Corp v FL Bourgeois [1921] 3 KB 443 ...................................... 454
Dickinson v Kitchen (1858) 8 E&B 789 ..................................................... 10, 13, 79, 302
Didymi, The [1988] 2 Lloyd’s Rep 108 (CA) ............................................................... 497
Divine Solutions UK Ltd, Re [2003] EWHC 1931 (Ch)................................................ 399
Doe ex dem Gertrude Baroness Dacre v Mary Jane Roper Dowager Lady Dacre 126
ER 887 (CCP), (1798) 1 Bos & P 250 ................................................................ 218
Doltable Ltd v Lexi Holdings plc [2005] EWHC 1804 (Ch), [2006] BCC 918 .............. 397
Don King Productions Inc v Warren [2000] Ch 291 (CA) ...................................... 490, 491
xxvi
TABLE OF CASES
Dornoch Ltd v Westminster International BV (The WD Fairway 1) [2009] EWHC 889
(Adm) .................17, 67, 69, 70, 79, 80, 86, 97, 98, 100–2, 104, 108, 110, 111, 116–18
Dornoch Ltd v Westminster International BV (The WD Fairway 2) [2009] EWHC 1782
(Adm)................................................................. 67, 69, 70, 97, 101–4, 116–18, 407
Douglas v Culverwell (1862) 4 De G F & J 20, 45 ER 1089 (Ch).................................. 53
Douglas v Hello! [2007] UKHL 21, [2008] 1 AC ................................................ 150, 311
Douglas v Hello! and Mainstream Properties v Young [2007] UK HL 21, [2007] 2 WLR 920
150, 311, 477
Douglas v Russell 58 ER 196 (Ch), (1831) 4 Sim 524 ......................................... 479, 480
Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295 (PC) .... 55, 258, 259, 266,
269, 275, 276, 287, 290, 291, 293, 294, 316
Dowthorpe, The 166 ER 682, 1843 2 W Rob 73 ...............................................................4
Dresdner Kleinwort Ltd and Commerzbank AG v Richard Attrill [2013] EWCA Civ
394 (CA) ......................................................................................................................222
Dry Bulk Handy Holding Inc v Fayette International Holdings (The Bulk Chile)
[2012] EWHC 2107 (Com Ct)...................................................................... 60, 493
DTEK Finance BV, Re [2015] EWHC 1164 (Ch), [2015] All ER (D) 214 (Apr) ......... 385
Dudley & District Benefit Building Society v Emerson [1949] Ch 707 (CA) ...................... 44
Duke of Marlborough, Davis v Whitehead, Re [1894] 2 Ch 133 ........................................ 53
Dundee, The (1823) 1 Hag 109, 166 ER 39 (Adm)...................................................... 135
Durham Bros v Robertson [1898] 1 QB 765 (CA) ........................................ 449, 478, 482
DVB Bank SE v Shere Shipping Co Ltd [2013] EWHC 2321 (Ch) ............................... 192
Dwima 1, The [1996] 2 SLR 670 (Sing HC) ............................................................... 375
Eastern Belle, The 33 LT 214, 3 Asp MC 19 ............................................................ 45, 46
Edgeworth Capital (Luxembourg) SARL v Ramblas Investments BV [2015]
EWHC 150 (Com Ct) ......................................................................... 132, 133, 135
Edinburgh Castle, The [1999] 2 Lloyd’s Rep 362 (Adm) ....................................... 341, 361
Edmondson v Copland [1911] 2 Ch 301 ....................................................................... 204
Edward Oliver, The (1865–67) LR 1 A&E 379 ....................................................... 59, 174
Edwin Hill and Partners v First National Finance Corp plc 1989]
1 WLR 225 (CA)......................................................................................... 44, 316, 318
Ehrmann Brothers Ltd, Re [1906] Ch 697 .................................................................... 144
Eide UK Ltd v Lowndes Lambert Group Ltd [1998] I Lloyd’s Rep 389 .......................... 460
Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178 (CA), [2009]
1 Lloyds Rep 59 .................................................................................................. 125
Eliza Cornish 1, The Sp Ecc & Ad Rep 36, (1853) 164 ER 22 .....................73, 76–8, 108
Ellerman Lines Ltd v Lancaster Maritime Co Ltd (The Lancaster) [1980]
2 Lloyd’s Rep 497 (QB) (Com Ct) ...........................................60, 61, 153, 434, 492
Elmville, The (No 2) [1904] P 422 (PD & Adm).......................................................... 356
Emilia, The 1963 AMC 1447 ....................................................................................... 354
Emilie Million, The [1905] 2 KB 817 (CA) .................................................................. 215
Empress Assurance Corp v CT Bowring & Co Ltd (1905) 11 Com Cas 107 (KBD) ....... 447
Emre II, The [1989] 2 Lloyd’s Rep 182........................................................................ 314
English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700 .............. 157
Enron Director SA, Re 4 June 2002 .............................................................................. 387
Environment Agency v (1) Christopher Gibbs (2) Glenn Parker [2016] EWHC 843 (Admin) ..... 38
ERSTE Bank Hungary v Hungarian State, Case C-527/10, [2012] ILPr 38. .................. 419
Eschersheim, The [1975] 1 WLR 83 (Adm), [1974] 2 Lloyd’s Rep 188 ......................... 340
Eugenie, The (1872–75) LR 4 A&E 123 ................................................................. 59, 174
xxvii
TABLE OF CASES
Euro-Diam v Bathurst [1990] 1QB 1 (CA) .................................................................. 193
Eurobank Ergasias SA v Kallironi Navigation Co Ltd [2015] EWHC 2377 (Comm) ....... 193, 463
Eurodis Electron plc, Re [2011] EWHC 1025 (Ch), [2012] BCC 57 ............................. 388
Eurofood IFSC Ltd, Re (C–341/04) [2006] ECR I-3813, [2006] Ch 508 .............. 387, 388
European and Australian Royal Mail Co Ltd v Peninsular & Oriental Steam
Navigation Co (1866) 14 LT 704 ...................................................................... 34, 37
European and Australian Royal Mail Co Ltd v Royal Mail Steam-Packet Co,
70 ER 281, (1858) 4 K & J 676 (KB) ........................................................... 56, 248
European Directories (DH6) BV, Re [2010] EWHC 3472 (Ch), [2012] BCC 46 ....... 388, 388
Eurosun and Eurostar, The [1993] 1 Lloyd’s Rep 106 (Adm) ................................ 135, 367
Eva, The. See Barclays Bank Ltd v Owners of the Sailing Barge Eva (The Eva)
Evans v Rival Granite Quarries Ltd [1910] 2 KB 979, 999........................................... 156
Evelpidis Era, The [1981] 1 Lloyd’s Rep 54 (Com Ct) ..........................444, 445, 446, 450
Ever Success, The [1998] All ER (D) 73, [1999] 1 Lloyd’s Rep 824 (Adm) .................. 211
Everard v Kendall (1870) LR 5 CP 428......................................................................... 37
Everilda, The (1927–28) 29 Ll L Rep 238 (PD & Adm) .............................................. 361
Evpo Agnic, The [1988] 1 WLR 1090 (CA), [1988] 2 Lloyd’s Rep
411, 415 ...............................................................................20, 85, 86, 88, 103, 344
Exchange Travel (Holdings) Ltd, Re [1996] BCC 933 (Ch), affirmed [1997] 2
BCLC 579 (CA).................................................................................................. 411
Export Credits Guarantee Department v Universal Oil Products Co [1983] I WLR 399 ..... 132
Eyre v Highes (1876) 2 Ch D 148 ............................................................................... 271
Eyre v McDowell (1861) 9 HLC 619, 11 ER 871 (HL) ................................................. 55
Fairfield Shipbuilding and Engineering Co Ltd v Gardner, Mountain & Co Ltd (1911)
104 LT 288 ......................................................................................................... 458
Fairport, The (1884) 10 PD 13 .................................................................................... 240
Fairway Magazines Ltd, Re [1992] BCC 924, [1993] BCLC 643 ......................... 410, 411
Falcon, The [1981] 1 Lloyd’s Rep 13 (Adm) ................................................................ 350
Fanchon, The (1880) 5 PD 173 (Adm) .........................................184, 218, 237, 239, 303
Far East Oil Tanker SA v Owners of the Ship or Vessel Andres Bonifacio [1993] 3 SLR 521
(Sing CA) .............................................................................................................. 88
Farley, Re (1852) 2 De G M&G 936 (Ch), 42 ER 1138 ............................................. 204
Farrar v Farrars Ltd (1888) 40 Ch D 395 (CA) ...........................274, 277, 280, 284, 288
Faulkner v Equitable Reversionary Society (1858) 4 Drew 352, 62 ER 136 (VC) ........... 273
Feetum v Levy [2005] EWCA Civ 1601, [2006] Ch 584 ............................................. 402
Felixstowe Dock & Railway Co v United States Lines Inc [1989] QB 360 (Com Ct) ....... 390
Ferguson and Hutchinson, Ex p (1871) LR 6 QB 280 ...................................................... 37
Feronia, The (1868) LR 2 A&E 65 ............................................................................... 211
Ferrexpo AG v Gilson Investments Ltd [2012] EWHC 721 (Comm), [2012]
1 Lloyd’s Rep 588 ............................................................................................... 493
Fibria Cellulose S/A v Pan Ocean Co Ltd [2014] EWHC 2124 (Ch), [2014]
Bus LR 1041 ............................................................................................... 219, 421
Finnerty v Clark [2011] EWCA Civ 858, [2012] Bus LR 594 ..................................... 412
Firma C-Trade SA v Newcastle Protection and Indemnity Association Ltd (The Fanti
and the Padre Island) [1991] 2 AC 1, [1990] 2 Lloyd’s Rep 191 (HL) .......... 432, 446
First National Bank of Chicago v West of England Shipowners Mutual Protection and
Indemnity Association (Luxembourg) (The Evelpidis Era) [1981] 1 Lloyd’s Rep 54
(Com Ct) .................................................................................................... 444, 450
Fletcher & Campbell v City Marine Finance Ltd [1968] 2 Lloyd’s Rep 520 ...... 41, 50, 203,
250, 252, 266, 268, 287
xxviii
TABLE OF CASES
FNCB Ltd v Barnet Devanney & Co Ltd [1999] 2 All ER (Comm) 233 (CA) ........438, 442
Foakes v Beer (1884) 9 App Cas 605........................................................................... 203
Foreign Economics & Technical Co-operation Co of China v MV Beluga Sydney
(30 December 2011, Civ Ct) ............................................................................... 418
Foresight Driller II, The [1995] 1 Lloyd’s Rep 251 ............................................... 223, 225
Foster v Driscoll [1929] 1 KB 470 (CA) ............................................................... 193, 463
Fournier v The Owners of the Margaret Z (1993 NZLR 111 (NZ HC)........................... 375
FP and CH Matthews Ltd, Re [1982] Ch 527 (CA), [1982] 2 WLR 495 ...................... 411
France v Clark (1883) 22 Ch D 830 ............................................................................. 52
Fraser Shipyard and Industrial Centre Ltd v Expedient Maritime Co (1999) 31 JMLC 460........ 376
Fratelli Sorrentino v Buerger [1915] 3 KB 367 (CA) ..................................................... 495
Freightline One, The [1986] 1 Lloyd’s Rep 266 (Adm).................................. 215, 366, 372
French Marine, The v Cie Napolitaine (1921) 8 Ll L Rep 345, [1921] 2 AC 494 (HL) .........60
G & C Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914]
AC 25 (HL) ........................................................................................ 2, 42, 53, 122
G&N Angelakis Shipping Co SA v Compagnie National Algerienne de Navigation
(The Attika Hope) [1988] 1 Lloyd’s Rep 439 (Com Ct) ................................. 60, 493
Gale v Laurie (1826) 5 B&C 156 ................................................................................ 135
Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] CLC 1103 ........................... 194
Gapp v Bond (1887) 19 QBD 200 (CA) ................................15, 17, 35, 37, 64, 136, 147
Gardiner v Cazenove (1856) 1 H & N 423, 156 ER 1267 (Ex) ...................................... 53
Gardner v Cazenove 156 ER 1267 (Ex), (1856) 1 H&N 423 ............................. 5, 53, 307
Gas Float Whitton No 2, The [1897] AC 337 (HL) ......................................................... 37
Gaskell v Gosling. See Gosling v Gaskell
Gatoil Anstalt v Omenial Ltd (The Balder London) (No 1) [1980]
2 Lloyd’s Rep 489 (Com Ct) ...................................................... 450, 475, 482, 484
Gatoil International Inc v Arkwright-Boston Manufacturers Mutual Insurance Co [1985]
AC 255 (HL), [1985] 1 Lloyd’s Rep 181 ............................................................. 342
Gee v Liddell [1913] 2 Ch 62 .............................................................................. 172, 291
General Accident Fire and Life Assurance Corp Ltd v Midland Bank Ltd [1940]
2 KB 388 (CA) ........................................................................................... 435, 438
General Bills Ltd v The Ship ‘Betty Ott’ [1990] 3 NZLR 715 (NZ HC)....................... 93–5
Gibson v Dill (1880) 19 NBR 565 (CA) ........................................................................ 31
Gibson v Ingo (1847) 6 Hare 112, 67 ER 1103 ............................................................. 30
Gill v Newton (1866) 14 LT 240 ................................................................................. 249
Gladman v Hothersall [1936] OWN 358 (HC) ............................................................. 250
Glencore v Metro Trading International Inc [2001] 1 ALL ER 103 (Com Ct) ................... 69
Global Marine Drilling Co v Triton Holdings Ltd (The Sovereign Explorer) [2001]
1 Lloyd’s Rep 60 (Ct Sess) .................................................................................... 38
Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396 ......... 225
Golden Falcon, The [1981] 1 Lloyd’s Rep 13 (SC)........................................................ 373
Gomba Holdings Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 (CA), [1992]
3 WLR 723, [1992] 4 All ER 588 ........................................................ 231, 254, 377
Good Luck, The [1988] 1 Lloyd’s Rep 514 (Com Ct), affirmed [1990]
2 WLR 547 (CA), [1992] 1 AC 233, [1991] 2 WLR 1279 (HL).............190, 457–60
Gordillo v Weguelin (1877) 5 Ch D 287 (CA) ............................................................... 229
Goring, The [1988] 1 AC 831(HL) .................................................................................3
Gosling v Gaskell [1897] AC 575 ................................................................................. 257
Graham Joint Stock Shipping Co v Merchants Marine Insurance Co Ltd [1924]
AC 294 (HL) ...................................................................................................... 443
xxix
TABLE OF CASES
Grangeside Properties Ltd v Collingwood Securities Ltd [1964] 1 All ER 143 (CA)............. 53
Gray v GTP Group Ltd [2011] EWHC 1772 (Ch), [2011] BCC 869 .......................... 501
Gray v Thames Travis Ltd [2008] EWCA Civ 713, [2009] 1 AC 1339 (HL) ................ 191
Great Pacific Navigation (Holdings) Corp Ltd v mv Tongli Yantai (Appeal No 559 of 2011) .......87
Green v Briggs, 67 ER 1219 (Ch), (1848) 6 Hare 395 ................................................. 307
Greenberg v Rapoport (1970) 10 DLR (3d) 737 (Ont HC)........................................... 250
Greenmar Navigation v Owners of Ships Bazias 3 and Bazias 4 and Sally Line
(The Bazias 3 and The Bazias 4) [1993] QB 673, [1993] 2 WLR 854, [1993]
2 All ER 964, [1993] 1 Lloyd’s Rep 101 ..................................................... 348, 351
Gregos, The [1985] 2 Lloyd’s Rep 347 (Adm) .............................................................. 208
Greshanne, The (1996) 125 FLR 342 (Aus) ................................................................. 342
Grupo Hotelero Uvasco SA v Carey Value Added SL [2013] EWHC 1039
(Comm)........................................................................................................221, 222, 225
Guiseppe Di Vittorio, The [1998] 1 Lloyd’s Rep 136 (CA) ............................................... 39
Gulf Venture (No 2), The [1985] 1 Lloyd’s Rep 131 (Adm) ........................... 314, 353, 358
Gustaf, The (1862) Lush 506 ....................................................................................... 212
H Russell Sea Foods Ltd v Mason & Mason (1979) 36 NSR (2d) 322, 64 AR 322 (NSSC) .... 51
Haddington Island Quarry Co Ltd v Huson [1911] AC 722 ........................................... 273
Haji-Ioannou v Frangos [1999] 2 ALL ER (Comm) 865, [1999] 2 Lloyd’s Rep 337 ......20, 86
Halcyon Isle, The. See Bankers Trust International Ltd v Todd Shipyards Corp
(The Halcyon Isle)
Halcyon Skies, The (No 1) [1977] QB 14, [1976] 1 Lloyd’s Rep 461 .................... 210, 356
Halcyon Skies, The (No 2) [1977] 1 Lloyd’s Rep 22 (Adm) ...........................232, 235, 242
Halcyon the Great (No 1), The [1975] 1 WLR 515 (Adm), [1975] 1 Lloyd’s Rep 518 .......366, 367
Halcyon the Great (No 2), The [1975] 1 Lloyd’s Rep 525 (Adm).......................... 364, 366
Hanak v Green [1958] 2 Q 9 .............................................................................. 453, 485
Handelsbanken ASA v Dandridge (The Alizia Glacial) [2002] EWCA Civ 577,
[2002] 2 Lloyd’s Rep 421 .................................................................................... 468
Hans Brochier Holdings Ltd v Exner [2006] EWHC 2594 (Ch), [2007] BCC 127 ........ 388
Harlow, The [1922] P 175.............................................................................................. 38
Harmonie, The (1841) 166 ER 539 (Adm) (1841) Wm Rob 178 ................. 208, 350, 351
Harrods (Buenos Aires) Ltd (No 2) [1992] Ch 72 (CA)................................................ 315
Hart v Herwig (1872–73) 8 LR Ch App 860 ................................................................. 21
Hashmi v IRC [2002] EWCA Civ 981, [2002] BPIR 974 ........................................... 405
Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc [2016] EWHC
782 (Ch) ..................................................................................................... 133, 181
Heath v Pugh (1881) 6 QBD 345 (CA) ...................................................................... 260
Heather Bell, The [1901] P 143 (PD & Adm), affirmed [1901] P 272 (CA)......184, 236, 239,
303–5, 316, 329
Hellas Communications (Luxembourg) II CSA, Re [2009] EWHC 3199 (Ch),
[2010] BCC 295.......................................................................................... 388, 388
Henderson v Astwood [1894] AC 165............................................................................ 283
Henrich Born, The (1886) 11 App Cas 270 (HL) ......................................................... 210
Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] QB 233 (CA), [1973]
2 Lloyd’s Rep 333 ............................................................................................... 486
Hermann v Hodges (1873) LR 16 Eq 18........................................................................ 54
Hickson v Darlow (1883) 23 Ch D 690 (CA) .............................................................. 249
Highbury Pension Fund Management Co v Zirfin [2013] EWHC 238 (Ch), [2013]
3 All ER 327, reversed [2013] EWCA Civ 1283 (CA), [2014]
Ch 359 ................................................................................... 169–72, 173, 174, 377
xxx
TABLE OF CASES
Highlander, The (1843) 2 W Rob 109 (Adm), 166 ER 696 .......................................... 237
Hill v Spread Co Trustee Ltd [2006] EWCA Civ 542, [2007] 1 WLR 2404 ........... 407, 409
Hinde v Blake (1841) 11 LJ Eq 26 (VC) ..................................................................... 271
HLB Kidsons (a Firm) v Lloyd’s Underwriters [2007] EWHC 1951 (Comm), [2008]
Lloyd’s Rep IR 237.............................................................................................. 442
HLB Kidsons (a Firm) v Lloyd’s Underwriters [2008] EWCA Civ 1206, [2009]
1 Lloyd’s Rep 8 ........................................................................................... 441, 442
Hockin v The Royal Bank of Scotland plc [2016] EWHC 925 (Ch) ............... 196, 475, 483
Hodson v Deans [1903] 2 Ch 647................................................................................ 277
Holme v Brunskill (1877–78) LR 3 QBD 495 (CA) ..................................................... 130
Holroyd v Marshall, 11 ER 999, (1862) 10 HL Cas 191, [1861–73]
All ER 414 .................................................................................... 55, 136, 156, 479
Holt v Heatherfield Trust Ltd [1942] 2 KB 1 ..........................................452, 453, 484, 485
Honshu Gloria (No 2), The [1986] 2 Lloyd’s Rep 67 (Adm) .........................135, 365, 367
Hooper v Gumm (1866–67) LR 2 Ch App 282 ................... 2, 14, 17, 46, 73, 78–80, 88, 95,
96, 100–102, 117
Hopkinson v Rolt (1861) 9 HL Cas 514, 11 ER 829.............................160, 161, 165, 474
Horlock, The (1877) 2 PD 243 (PD & Adm) 3 Asp MLC 421................................. 23, 32
Hughes v Metropolitan Railway (1877) 2 App Cas 439 (HL) ........................................ 224
Hughes v Pump House Hotel Co Ltd (No 1) [1902] 2 KB 190 (CA) ............................. 449
Hughes v Williams (1806) 12 Ves Jr 493, 33 ER 187 (Ch)............................................ 272
Hull Rope Works Co Ltd, The v Adams (1895) 73 LT 446 (DC) .................................... 136
Humorous, The, The Mabel Vera [1933] P 109 (PD & Adm) .................................. 135, 136
Huntingdon v Huntingdon (1702) 2 Bro Parl Cas 1 ...................................................... 172
Hyde Management Services Pty Ltd v FAI Insurances Ltd [1979] Qd R98, affirmed
(1979) 144 CLR 541 ........................................................................................... 204
I Congreso del Portido, The [1978] QB 500 (Adm), [1981] 1 All ER 1092 (CA),
[1983] 1 AC 244 (HL) .................................................................................20, 321
IBJ Whitehall Bank & Trust Co v The Owners of the mv ‘Big Red Boat III’ (No 992 of 2000) ...... 368
IBJ Whitehall Bank & Trust Co v The Owners of the mv ‘Oceanic’ (No 982 of 2000) ........ 368
ICL Vikraman, The [2003] EWHC 2320 (Comm), [2004] 1 All ER (Comm) 246,
[2004] 1 Lloyd’s Rep 21 ...................................................................................... 445
ICS Ltd v West Bromwich BS [1998] 1 All ER 98 (HL), [1998] 1 WLR 896 ................ 491
Immacolata Concezione, The (1883) 9 PD 37 ................................................................ 212
Indah Kiat International Finance Co BV, Re [2016] EWHC 246 (Ch) ................... 384, 389
Inglis v Robertson International AG [1898] AC 616 ......................................................... 69
Inglis v Usherwood 102 ER 198 (KB), (1801) 1 East 515 ............................................ 104
Innisfallen, The (1865–67) LR1 A & E 72 (Adm) ............................... 8, 53, 140, 298, 303
Innsbruck Inc v The Owners of the Ship or Vessel ‘CC Orient’ [1985] HKCFI 237
(HK SC), [1985] 1 HKC 115, HCAJ 296/1984 .................................................. 319
Interedil SRL v Falimento Interedil SRL (C–396/09) [2011] ECR I–9915,
[2011] All ER (D) 195 (Oct) ....................................................................... 387, 388
International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986]
Ch 5134 .............................................................................................................. 491
International Leisure Ltd v First National Trustee Co UK Ltd [2012] EWHC 1971
(Ch), [2013] Ch 346 ........................................................................................... 258
International Westminster v Okeanos Maritime Corp [1988] Ch 210, [1987] 3 WLR 339 ..... 395
Involnert Management Inc v Aprilgrange Ltd [2015] EWHC 2225 (Com Ct) ......... 436, 438
Ioannis Daskalelis, The [1974] 1 Lloyd’s Rep 174 (SCC), 1973 AMC 176 ............. 90, 373
Ipsos SA v Dentsu Aegis Network Ltd [2015] EWHC 1726 (Comm) ............................. 222
xxxi
TABLE OF CASES
Iraqi Ministry of Defence v Arcepey Shipping Co SA (The Angel Bell) [1979]
2 Lloyd’s Rep 491 (Com Ct) ........56, 84, 85, 95, 103, 105, 159, 360, 434, 442, 444,
455, 457, 464
Isabella Shipowner SA v Shagang Shipping Co Ltd [2012] EWHC 1077 (Comm) .......... 301
Islamic Republic of Iran Shipping Lines v Steamship Mutual Underwriting Association
(Bermuda) Ltd [2010] EWHC 2661 (Comm),[2011] 1 Lloyd’s Rep 195...... 191, 463
Islamic Republic of Iran v Berend [2008] EWHC 132 (QB)....................................... 69, 99
Itex Itagrani Export SA v Care Shipping Corp (The Cebu) (No 2) [1990] 2 Lloyd’s Rep
316 ................................................................................................................ 60, 493
Jackson v Vernon 126 ER 69 (CCP), (1789) 1 H BL 19 .......................................... 5, 302
Jade, The [1976] 1 WLR 430 (HL), [1976] 2 Lloyd’s Rep 1 ....................................... 342
James Duthie v Lord Advocate (1893) 20 R 241 ........................................................... 200
James W Elwell, The [1921] P 351 (PD & Adm)................................................... 356, 370
Jane, The 23 LT 211 .......................................................................................................5
Japp v Campbell (1887) 57 LJ QB 79 .......................................................................... 271
Jarguh Sawit, The [1998] 1 SLR 648 (Sing CA) ............................................................ 88
Jarlinn, The [1965] 1 WLR 1098 (PD & Adm), [1965] 2 Lloyd’s Rep 191 .................. 350
Jarvis Brake, The [1976] 2 All ER 886 (Adm), [1976] 2 Lloyd’s Rep 320 ........... 350, 365
Jeancharm Ltd v Barnet FC [2003] EWCA Civ 58 ...................................................... 229
Jefferson Bank & Trust Co v Van Niman 722 F 2d 251 (5th Cir 1984) ......................... 368
Jenkins v Jones (1860) 2 Giff 99, 66 ER 43 (VC)........................................................ 273
Jogoo, The [1981] 1 WLR 1376 (QB) 1380 ................................................................. 354
John Farley, Re (1852) 2 De G M & G 936, 42 ER 1138 (CG) .................................. 232
John Morris v Royal Bank of Scotland Plc (Ch D, 3 July 2015) ..................................... 490
John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503 .................................................. 373
Johnny Two, The [1992] 2 Lloyd’s Rep 257 (Adm) ....................................................... 349
Johnson v Royal Mail Steam Packet Co (1867–68) LR 3 CP 38 .....................289, 310, 316
Jones v Humphreys [1902] I KB 10.............................................................................. 449
Jones v Morgan [2001] EWCA Civ 995 ............................................................... 134, 135
Jotunheim, The [2004] EWHC 671 (Comm), [2005] 1 Lloyd’s Rep 181 ...................... 228
JSC BTA Bank v Mukhtar Ablyazov [2010] EWHC 1779 (Comm) ............................. 256
JSD Corp PTE Ltd v Al Waha Capital PJSC [2009] EWHC 3376 (Ch) ....................... 497
Jupiter (No 3), The [1927] P 250 .................................................................................. 81
Jupiter, The [1924] P 236 (CA) ............................................................................... 80, 88
K/S Merc-Scandia XXXII v Lloyd’s Underwriters (The Mercadian Continent) [2001]
EWCA Civ 1275, [2001] 2 Lloyd’s Rep 563 (CA) .............................................. 439
Kaliningrad, The and The Nadezhda Krupskaya [1997] 2 Lloyd’s Rep 35 (Adm) ........... 319
Kapitan Temkin, The [1998] 2 SLR (R) 537 ................................................................... 87
Kapoor v National Westminster Bank plc [2011] EWCA Civ 1083, [2012] I All ER 1201..... 449,
450, 482
Katingaki, The [1976] 2 Lloyd’s Rep 372 (Adm) ......................................................... 208
Kaupthing Singer & Friedlander Ltd (in administration) (No 2), Re [2011] UKSC 48,
[2012] 1 AC 804 ................................................................................................. 180
Keith v Burrows (1876) 1 CPD 722, (1877) 2 CPD 163 (CA) .......... 10, 13–15, 183, 234,
237, 239, 262, 269, 303, 304, 307, 474
Kendall, Ex p (1811) 17 Ves 514.................................................................................. 167
Kennedy v De Trafford [1896] 1 Ch 762 (CA), [1897] AC 180 (HL) ........... 273, 274, 288
Kennedy v Nealls (1897) 1 NB Eq 455 ........................................................................ 271
Keroula, The (1886) 11 PD 92........................................................................... 8, 53, 298
Keybank National Association v The Ship ‘Blaze’ [2007] 2 NZLR 271 (NZ HC) ....... 95, 96
xxxii
TABLE OF CASES
Kleinwort Benson Ltd v Sherkate Sahami Sakht (The Myrto) (No 2) [1984] 2 Lloyd’s
Rep 341 (Adm) ................................................................................................... 312
Kleovoulos of Rhodes, The [2003] EWCA Civ 12, [2003] 1 All ER (Comm) 586,
[2003] 1 Lloyd’s Rep 138 .................................................................................... 468
Knightsbridge Estates Trust Ltd v Byrne [1939] Ch 441, [1938] 4 All ER 618 ............... 134
Kommunar (No 3), The [1997] 2 Lloyd’s Rep 22 (Adm) .............................................. 348
Kong Magnus, The [1891] P 223 .................................................................................. 212
Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 (HL) ......... 133–5
Kubjangha v Ekpenyong [2002] EWHC 1567 (Ch), [2002] 2 BCLC 597 .................... 405
Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19 ...................... 69
Lacon v Liffen (1862) 4 Giff 75, 66 ER 626 (VC)......................................................... 62
Laconia, The [1977] AC 850, [1977] 1 Lloyd’s Rep 315 .............................................. 232
Lady Tahilla, The [1968] 1 Lloyd’s Rep 168 (CA) .......................................................... 50
Laemthong Pride, The (1997) 149 ALR 675, (1997) 190 CLR 181............................... 344
Laming & Co v Seater (1889) 16 Sess Case (4th Ser) 828, 26 Sc LR 500 ..... 1, 183, 236,
238, 303, 328, 432
Lancashire Cotton Spinning Co, Re (1887) 35 Ch D 656 (CA) ...................................... 392
Lancaster, The. See Ellerman Lines Ltd v Lancaster Maritime Co Ltd
Langton v Horton (1842) 1 Hare 549, 66 ER 1149 (VC) ............................................ 137
Langton v Horton 49 ER 479, (1842) 5 Beav 9 ......................................................... 5, 53
Larner v Fawcett [1950] 2 All ER 727 (CA) ................................................................ 208
Latter v Colwill [1937] 1 All ER 442 (CA) .................................................................. 228
Lauritzencool AB v Lady Navigation [2005] EWCA Civ 579, [2005]
2 Lloyd’s Rep 63 (CA) .........................................................301, 308, 321, 329, 495
Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1995] Ch 152 (CA) ........ 308, 309
Law Guarantee and Trust Society v Russian Bank for Foreign Trade [1905]
1 KB 815 (CA) .............................................. 56, 183, 184, 239, 303, 305, 316, 432
Lazar v Allianz SpA (Chiturlas and another intervening) (C–350/14) [2016]
1 WLR 835 .......................................................................................................... 318
LBG Capital No 1 Plc v BNY Mellon Corporate Trustee Services Ltd [2015]
EWCA Civ 1257; affirmed on appeal in [2016] UKSC 29 .................................. 491
LCC v Allan [1914] 3 KB 642 (CA) ........................................................................... 308
Ledingham-Smith, Re [1993] BCLC 635 (Ch) 640 .............................................. 410, 411
Lehman Brothers International (Europe) (in administration), In the Matter of [2012]
EWHC 2997 (Ch) 500, 501
Lehman Brothers International (Europe) (In Administration), Re [2012] EWHC 2997
(Ch), [2014] 2 BCLC 295 ................................................................................... 501
Lehman Brothers Luxembourg Investments SARL v Lehman Brothers
UK Holdings Limited (In Administration) [2016] EWHC 617 (Ch) ................ 179, 181
Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986] AC 785
(HL) 809 ............................................................................................................. 321
Leoborg (No 2), The [1963] 2 Lloyd’s Rep 268 (PD & Adm) ....................... 213, 215, 355
Leoborg (No 4), The [1964] 1 Lloyd’s Rep 380 (PD & Adm) ............................... 373, 375
Les Laboratoires Servier v Apotex Inc [2014] UKSC 55, [2015] AC 430 ....................... 193
Lewis v Love [1961] 1 WLR 261, [1961] 1 All ER 446 ............................................... 124
Leyland Daf Ltd: Buchler v Talbot, Re [2004] AC 298 ..................................................... 58
Lictor Anstalt v Mir Steel UK Ltd [2011] EWCH 3310 (Ch), [2012] EWCA Civ 1397,
[2014] EWHC 3316 (Ch) ............................................................................. 44, 318
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 (HL),
[1993] 3 All ER 417 .....................................................................455, 490, 491, 496
xxxiii
TABLE OF CASES
Litsion Pride, The [1985] 1 Lloyd’s Rep 437 ................................................................ 439
Liverpool & London P&I v m/v ‘Queen of Leman’ 296 F 3d 350 (5th Cir) 2008 ........... 374
Liverpool Borough Bank v Turner (1860) 29 LJ Ch 827 .......................... 8, 57, 94, 96, 161
Liverpool Borough Bank v Turner, 70 ER 703, (1860) 1 J&H 159, 30 LJ Ch 379,
affirmed 45 ER 175, 2 De GF & J 502 ......................18, 19, 22, 23, 45, 57, 73, 165
Liverpool Marine Credit Co v Hunter (1867) LR 4 Eq 62, on appeal (1867–68) LR 3 Ch
App 479 .................................................................................... 77, 79, 80, 105, 117
Liverpool Marine CreditCo v Wilson (1871–1872) LR 7 Ch App 507 (CA) ...... 11, 13, 153,
160, 161, 262, 307, 473, 494
Lloyd v European & North American Rlwy (1878) 18 NBR 194 (CA) ............................ 55
Lloyd v Guibert (1865–66) LR 1 QB 115 (Ex Ch) 127 ......................... 85, 103, 105, 109
Lomas v JFB Firth Rixson Inc, [2012] EWCA Civ 419, 2 Lloyd’s Rep 548 .................. 196
Lombard North Central plc v Butterworth [1987] QB 527 (CA) ..................................... 228
Lord Kensington v Bouverie (1855) 7 De G M & G 134, 44 ER 53 (Ch) ..................... 271
Lord Strathcona Steamship Co Ltd, The v Dominion Coal Ltd (1925) 23 Ll L Rep 145
(PC), [1926] AC 108 ........................................................................................... 309
Lord Strathcona Steamship Co Ltd, The v Dominion Coal Ltd (No 2) [1925] P 143
(PD & Adm)........................................................................................................ 309
Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 ....................................... 228, 229
Lorentzen v Lydden and Co Ltd [1942] 2 KB 202........................................................... 81
Lorentzen v White Shipping Co Ltd (1942) 74 LI L Rep 161......................... 309, 495, 497
Lovegrove, ex parte Lovegrove & Co (Sales) Ltd, Re [1935] Ch 464 (CA) ........................ 53
Lozman v City of Riviera Beach, Fla, 133 S Ct 735 (2013) .................................... 38, 346
Lumley v Wagner 1 De G M&G 604, 42 ER 687 (QB) .....................................306–8, 317
Lune Metal Products Ltd in Administration, Re [2006] EWCA Civ 1720 ........................ 493
Luther v Sagor [1921] 3 KB 532, (1921) 7 LI L Rep 218 ............................................. 77
Lutz v Bäverie [2015] EUECJ C-557/13 (16 April 2015) ............................................ 413
Lymington Marina Ltd v MacNamara [2007] EWHC Civ 151 ..................................... 194
Lyrma (No 2), The [1978] 2 Lloyd’s Rep 30 (Adm) .................................................... 212
M’Iver v Humble 104 ER 1053 (Adm), (1812) 16 East 169 ............................................8
M’Larty v Middleton (1861) 4 LT 852, (on appeal (1862) 10 WR 218) .............. 204, 268
Mac, The (1882) LR 7 PD 126 ............................................................................. 38, 345
Mac-Jordon Construction Ltd v Brookmount Erostin Ltd [1992] BLCC 350, [1994]
CLC 581 (CA) .................................................................................... 151, 306, 309
Macleod v Jones (1883) 24 Ch D 289 (CA) ................................................................ 249
Macmillan Inc v Bishopsgate Investments Trust plc (No 3) [1995] 1 WLR 978 (Ch),
affirmed [1996] 1 WLR 387 (CA) ........................................................... 69, 99, 102
Mainstream Properties v Young [2007] UKHL 21, [2008] 1 AC 1 ......................... 150, 311
Maira (No 2), The [1986] 2 Lloyd’s Rep 12 (HL) ....................................................... 436
Maira (No 3), The [1990] 1 AC 637, [1990] 1 Lloyd’s Rep 225.......................... 294, 295
Makdessi v Cavendish Square Holdings BV. See Cavendish Square Holding BV v
Talal El Makdessi
Mallone v BPB Industries plc [2002] EWCA Civ 126 ................................................... 194
Manchester Ship Canal Co v Horlock [1914] 2 Ch 199 (CA) .................................... 34, 34
Mangles v Dixon, 10 ER 278 (1852) 3 HLC 702 (PC).................................474, 487, 488
Manifest Lipkowy, The [1989] 2 Lloyd’s Rep 138 (CA) ................................................ 372
Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Sea Star) [2001]
UKHL1, [2003] 1 AC 469 (HL) ........................................................................ 439
Manks v Whiteley [1911] 2 Ch 448.............................................................................. 169
Manning v AIG Europe UK Ltd [2006] EWCA Civ 7, [2006] Ch 610 ................. 179, 181
xxxiv
TABLE OF CASES
Manor, The [1907] P 339 (CA) ........................183, 184, 234–7, 239, 269, 303, 312, 316,
328, 432
Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholos H) [1996]
AC 211 (HL), [1995] 2 Lloyd’s Rep 299 ............................................................. 189
Marco Polo Seatrade BV, Re Case No 11–13634 (Bankr SDNY 27 September 2011)... 424
Mardina Merchant, The [1975] 1 WLR 147 (Adm), [1974] 2 Lloyd’s Rep 424............. 351
Mardorf Peach & Co Ltd v Attika Sea Carriers Corp of Liberia (The Laconia) [1997]
AC 850 (HL), [1977] 1 Lloyd’s Rep 315 ............................................................. 224
Margo L, The [1998] 1 HKEC 767 ............................................................................. 362
Marianne, The [1891] P 180 (PD & Adm) .................................................................. 343
Marine Craft Constructors Ltd v Erland Blomqvist (Engineers) Ltd [1953]
1 Lloyd’s Rep 514 (QB) ........................................................................................ 38
Mariola Marine Corp v Lloyd’s Register of Shipping (The Morning Watch) [1990]
1 Lloyd’s Rep 547 (Com Ct), [1991] ECC 103 ................................................... 190
Maritime Trader, The [1981] 2 Lloyd’s Rep 153 (Adm) ............................................ 20, 86
Marlex Petroleum Inc v The Ship Hai Rai [1984] 4 DLR (4th) 739 (FC), on appeal
[1987] 1 SCR 57 ................................................................................................... 91
Marley Co v Cast North America (1983) Inc (The ‘Cast Husky’) (1995) 405 LMLN
(Fed Ct (on Trial Div) 31 March 1995) ................................................................ 87
Marriott v The Anchor Reversionary Co Ltd (1860) 66 ER 191 (VC), 2 Giff 457,
affirmed 45 ER 846 (Ch), (1861) 3 De G F & J 177 ...................248, 270, 273, 275
Marshall v Cottingham [1982] Ch 82 ........................................................................... 259
Marshall, In re 300 BR 507, 510 (Bankr CD Cal 2003) aff’d, 403 BR 668
(CD Cal 2009) aff ’d, 721 F 3d 1032 (9th Cir 2013) ........................................... 425
Martin P, The [2003] EWHC 3470 (Comm Ct), [2004] 1 Lloyd’s Rep 389......... 186, 343
Martinson v Clowes (1882) 21 Ch D 857, affirmed (1885) 52 LT 706 (CA) ............... 277
Mary Ann, The (1865) LR 1 A&E 8 ............................................................................ 211
Mathison v Clarke (1854) 3 Drew 3 ............................................................................ 281
Matthie v Edwards (1867) 63 ER 817 (Ch), on appeal 16 LJ Ch 405 (LC) ................ 273
Matthison v Clarke (1854) 3 Drew 3, 61 ER 801 (Ch) ................................................ 254
Maule, The. See Banque Worms v Owners of the Maule (The Maule)
Maxima, The (1878) 4 Asp MLC 21 (PD & Adm) .......................233, 237, 305, 313, 329
Maxwell Communications Corp plc (No 2), Re [1993] 1 WLR 1402, [1994]
1 ALL ER 737, [1993] BCC 369 ........................................................................ 178
Mayor of Southport, The v Morris [1893] 1 QB 359 ........................................................ 37
MC Bacon Ltd, Re [1990] BCC 78 (Ch), [1990] BCLC 324 .............................. 409, 410
McDougall v Aeromarine of Emsworth Ltd [1958] 1 WLR 1126 QB (Com Ct),
2 Lloyd’s Rep 343 ................................................................................................. 16
McEntire v Crossley Bros Ltd [1895] AC 457 .................................................................. 43
McGrath v Riddell, Re HIH Casualty and General Insurance Ltd [2008] UKHL 21,
[2008] 1 WLR 852 .............................................................................................. 391
McHugh v Union Bank of Canada [1913] AC 299 (PC) .......................................... 272–5
McLean v Grant (1843) 3 NBR 50 (CA) ...................................................................... 31
MCP Altona, The (2013) 225 ACWS ........................................................................... 354
Medforth v Blake [2000] Ch 86 (CA) [1999] 3 All ER 97 ........................... 258, 275, 287
Medway Drydock & Engineering Company Ltd v Owners of the mv Andrea Ursula
(The Andrea Ursula) [1973] QB 265 (PD & Adm), [1971] 1 Lloyd’s Rep 145 .....20, 321
Meftah v Lloyds TSB Bank plc [2001] 2 All ER (Comm) 741 .............................. 275, 287
Mellersh v Brown (1890) 45 Ch D 225 ........................................................................ 229
Melli Bank v Holbud Ltd [2013] EWHC 1506 (Com Ct) ............................................ 192
xxxv
TABLE OF CASES
Menelaou v Bank of Cyprus UK Ltd [2015] UKSC 66 ................................................. 158
Merchants Marine Insurance v North of England P & I Assoc (1926) 26 LI L Rep 201 ..... 37
Merck KGaA v Merck Sharpe & Dohme Corp [2014] EWHC 3867 (Ch) ..................... 112
Merdeka, The [1982] 1 Lloyd’s Rep 401 (Adm) ................................................... 349, 350
Merest v Murray (1866) 14 LT 321 (VC).................................................................... 249
Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303 ................... 44, 284, 285, 319
Michael v Miller [2004] EWCA Civ 282, [2004] 2 EGLR 151 (CA) ................... 276, 277
Michael v Musgrave [2011] EWHC 1438 (Adm) ......................................................... 345
Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013]
EWCA Civ 200 ................................................................................................... 196
Midland Bank v Wyatt [1995] 1 FLR 697 (Ch) ........................................................... 405
Milasan, The [2000] 2 All ER (Comm) 803, [2000] 2 Lloyd’s Rep 458 (Com Ct) ...... 438
Miller v Davis Lumber Co Ltd (1969) 69 WWR 161 (BCSC) ....................................... 250
Mills v HSBC Trustees (Cl) Ltd [2011] UKSC 48, [2012] 1 AC 804 ........................... 180
Mingren Development, The [1979] HKCU 19................................................................ 354
Miriams, Re [1891] 1 QB 594 ..................................................................................... 474
Mister Broadloom Corp (1968) v Bank of Montreal (1983) OR (2d) 368 (CA) .............. 232
Mitsubishi Corp v Eastwind Transport Ltd [2004] EWHC 2994 (Com Ct) .................... 294
Mondel v Steel (1841) 8 M & W 858, 151 ER 1052 (Exch Ct) ................................... 486
Monica S, The [1968] P 741 [1967] 2 Lloyd’s Rep 113 ........................128, 214, 253, 256
Monmouth Coast, The (1921) 8 LI L Rep 36 and (1992) 12 LI L Rep 22 ................... 369
Monolithic Building Co Ltd, Re [1915] 1 Ch 643 (CA) ................................................ 143
Moor v Anglo-Italian Bank (1879) 10 Ch D 681 ......................................................... 394
Moore v Shelley (1883) 8 App Cas 285 (PC) ............................................................... 232
More OG Romsdal Fylkesbatar AS v Demise Charterers of the Jotunheim
(The Jotunheim) [2004] EWHC 671 (Comm), [2005] 1 Lloyd’s Rep 181 ............ 321
Morris v Bank of India [2005] EWCA Civ 693 ................................................... 383, 442
Morrison v Parsons 127 ER 1136 (CCP), (1810) 2 Taunt 407 ..................................... 307
Morritt, Re (1886) 18 QBD 222(CA) ............................................................................ 52
Mortgage Express (an unLtd Co) v Countrywide Surveyors Ltd [2015]
EWCA Civ 1110 ................................................................................................. 223
Mount I, The [2002] EWCA Civ 68 (CA) ................ 64, 65, 456, 461, 471, 480, 482, 483
MPOTEC Gmbh [2006] BCC 86 ................................................................................ 388
Mudlark, The [1911] P 116 (PD & Adm) .............................................................. 37, 345
Mulkerins v PWC [2003] UKHL 41............................................................................ 474
Multiservice Bookbinding Ltd v Marden [1979] Ch 84 ................................................... 134
Mumatz, Re v Ahmed [2011] EWCA Civ 610.............................................................. 382
Muscat v Smith [2003] EWCA Civ 962 (CA) ............................................................. 453
Mutual Energy Ltd v (1) Starr Underwriting Agents Ltd (2) Travelers Syndicate
Management Ltd [2016] EWHC 590 (TCC) ........................................................ 437
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553 ........225
Myers v Willis (1856) 18 CB 886, 139 ER 1621 (CP) ................................................... 53
Myrto (No 1), The [1978] 1 Lloyd’s Rep 11 (CA), [1977] 2 Lloyd’s Rep 243 (Adm) ..... 287,
289, 290, 310–4, 354, 358, 359
Myrto (No 2), The [1984] 2 Lloyd’s Rep 341 (Adm) ........................................351, 353–4
Naamloose Vennootschap Stoomvart Maatschappij ‘Vredobert’ v European Shipping Co Ltd
[1926] LI L Rep 210 ............................................................................................ 21
Nagasaki Spirit, The [1994] 2 SLR(R) 165 .................................................................. 354
Naim Molvan v Attorney General for Palestine [1948] AC 351 (PC) ................................ 24
Nancy, The [1985] 1 Lloyd’s Rep 625 (Com Ct) ......................................................... 469
xxxvi
TABLE OF CASES
Nancy, The [2013] EWHC 2116 (Com Ct) ................................................................. 193
Nanfri, The [1979] AC 757 (HL), [1978] QB 927 (CA)................................ 60, 493, 493
Narada, The [1977] 1 Lloyd’s Rep 256 (Adm) ............................................................ 208
National Bank of Australasia v United Hand-in-Hand & Band of Hope Co (1879) 4 App
Cas 391 (PC) 406 ....................................................................................... 249, 271
National Bank of Greece SA v Pinios Shipping Co No 1 (The Maira) [1990] 1 AC
637 (HL), [1990] 1 Lloyd’s Rep 225, [1989] 3 WLR 185, [1988]
2 Lloyd’s Rep 126 (CA) ...................................................................... 229, 295, 436
National Crime Agency (formerly Serious Organised Crime Agency) v Szepietowski. See Serious
Organised Crime Agency v Szepietowski
National Flying Services Ltd, Re [1936] 1 Ch 271 ........................................................ 259
National Iranian Oil Co v Banque Paribas (Suisse) SA (The Bos Energy) 1993 (4)
SA 1 (AD) ........................................................................................................... 354
National Provincial Bank Ltd v Katz and Others [1960] Ch 179 (Ch) ........................... 376
Navemar, The (1938) 303 US 68 ..................................................................... 80, 85, 103
Neilson v Overseas Projects Corp of Victoria Ltd [2005] HCA 54 ...................................... 99
Nel, The (1997) 140 FTR 271 ..................................................................................... 363
Nel, The. See Bank of Scotland, The v The Nel
Neptune, The 12 ER 584 (PC), (1835) III Knapp 94 .......................................................8
Neptune, The 166 ER 81 (Adm), (1824) 1 Hag Adm 227 ............................................ 210
New Bullas Trading Ltd, Re [1994] BCC 36 (CA) ........................................................ 500
New Hampshire Insurance Co v MGN Ltd [1997] LRLR 24 ............................435, 438–42
Newdigate Colliery, Re [1912] 1 Ch 468 (CA) .............................................................. 259
Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 (PC) ............. 453, 485
Nicholas H, The. See Marc Rich & Co AG v Bishop Rock Marine Co Ltd (The Nicholos H)
Nicolaos Pappis, The [1921] 9 Ll L Law Rep 493 (PD & Adm).............................. 55, 159
Nike European Operations Netherlands BV v Sportland Oy in liquidation [2015]
EUECJ C-310/14................................................................................................. 413
Noakes & Co Ltd v Rice [1902] AC 24 (HL) ...................................................... 133, 134
Nobahar- Cookson v The Hut Group Ltd [2016] EWCA Civ 128;.......................... 294, 488
Nordglimt, The [1988] QB 183 (Adm), [1987] 2 Lloyd’s Rep 470................................ 347
Nordic Trustee ASA & OSX 3 Leasing BV v OSX Petróleo E Gás SA, [2016]
EWHC 25 (Ch) ............................................................................................... 420–1
Nordic Trustee ASA v Banco BTG Pactual S/A – Cayman Branch Decision No 8848
of 3 February 2016 ...................................................................................... 113, 133
Nordic Trustee ASA v OGX Petróleo E Gás SA (Em Recuperaçăo Judicial) [2016]
EWHC 25 (Ch) ........................................................................................... 113, 420
Nordstjernen, The 166 ER 1126 (Adm), (1857) Swab 260 ............................................ 208
Nore Challenger, The [2005] EWHC 421 (Comm), [2001] 2 Lloyd’s Rep 103 .............. 356
Norman v Federal Commission of Taxation (1963) 109 CLR 9 (Aus HC) ....................... 448
North Brisbane Finance and Insurances Pty Ltd, Ex parte [1983] 2 Qd R 684 .................. 13
North Eastern 100A Steamship Insurance Co v Red ‘S’ Steamship Co Ltd (1905) 10 Com
Cas 245 (KBD), (1906) 12 Com Cas 26 (CA) .................................................... 456
North Shore Ventures Ltd v Anstead Holdings [2011] EWCA Civ 230 ............................. 131
Northern Valley, The (unreported) July 1985.................................................................... 20
Northsea Base Investment Ltd and Others, Re [2015] EWHC 121 (Ch) .................. 388, 388
O/Y Wasa SS Co Ltd and Others v Newspaper Pulp and World Export Ltd (1948–49)
82 LI L Rep 936 (KB) .......................................................................................... 81
OBG v Allan [2007] UKHL 21, [2008] 1 AC, [2007] 2 WLR 920 .....150, 151, 311, 313,
319, 325, 327, 329, 477
xxxvii
TABLE OF CASES
Ocean Enterprise, The [1997] 1 Lloyd’s Rep 449 (Adm) ......................................... 33, 200
Odessa, The [1916] 1 AC 145 ........................................................................................ 52
OGX Petroleo E Gas SA, Re [2016] EWHC 25 (Ch) ................................................... 392
Oleg Chvetsov v Alex Matuzny [2011] EWHC 248 (QB) .............................................. 221
Olympic Airlines SA, Re [2015] UKSC 27.................................................................... 388
Omnium d’Enterprises v Sutherland [1919] 1 KB 618 (CA) .......................................... 495
On Demand Information plc v Michael Gerson (Finance) plc [2002] UKHL 13,
[2003] 1 AC 368 ................................................................................. 228, 320, 321
Oresundsvarvet AB v Lemos (The Angelic Star) [1988] 1 Lloyd’s Rep 122 (CA) ............ 228
Orion Finance Ltd v Crown Financial Management Ltd (No 1) [1996] 2 BCLC 78,
[1996] BCC 621.............................................................................................. 43, 54
Orme v Wright (1839) 3 Jur 972 (RC) ......................................................................... 273
Ousel, The [1957] 1 Lloyd’s Rep 151 ........................................................................... 215
Owners of Cargo Lately Laden on Board the Berny v Owners of the Berny
(The Berny) [1979] QB 80, [1977] 2 Lloyd’s Rep 533 ......................................... 345
Owners of Cargo Lately on Board the Nazym Khikmet v Owners of the Nazym Khikmet
(The Nazym Khikmet) [1996] 2 Lloyd’s Rep 362 (CA) .............................. 19, 87, 88
Owners of the Monte Ulia v Owners of the Banco (The Banco) [1971]
2 WLR 335 (CA), [1971] 1 Lloyd’s Rep 49 ........................................................ 340
Owners of the Motor Vessel Tojo Maru v NV Bureau Wijsmuller [1972] AC 242 (HL) ...........3
Owners of the SS Crown of Leon v Admiralty Commissioners [1921] 1 KB 595, (1920)
5 Ll L Rep 74 ............................................................................................. 502, 504
Owners of the Stolt Kestrel, The v the Owners of the Niyazi S [2015]
EWCA Civ 1035 ......................................................................................... 341, 347
Owusu v Jackson (Case C-281/02) [2005] QB 801 (ECJ), [2005] 1 Lloyd’s Rep 452 ... 315
P Samuel & Co Ltd v Dumas (The Gregorios) [1924] AC 431, (1924) 1 LI L
Rep 21.................................................................... 84, 433, 435, 438, 440, 441, 466
Pacific and General Insurance v Hazell [1997] BCC 400 (Com Ct) ............................... 393
Pacific Basin IHX Ltd v Bulkhandling Handymax AS [2011] EWHC 2862 ................... 194
Pacific Challenger, The [1960] 1 Lloyd’s Rep 99 (PD & Adm) .................. 84, 95, 159, 360
Palk v Mortgage Services Funding plc [1993] Ch 330 (CA) ....................261, 275, 276, 279
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 All ER 581 (HL) .. 439
Pan Oak, The [1992] 2 Lloyd’s Rep 36 (Adm) ............................................ 135, 136, 367
Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161
(HL), [1994] 1 Lloyd’s Rep 365 .................................................... 61, 263, 487, 488
Panglobal Friendship, The. See Savill & Co (The Panglobal Friendship)
Paragon Finance plc v Nash [2001] EWCA Civ 1466 ................................................... 194
Paragon Finance plc v Pender [2005] EWCA Civ 760, [2005] 1 WLR 3412 .. 201, 234, 269
Paramount Airways, Re [1993] CH 223 (CA), 240 ....................................................... 407
Parita, The [1964] 1 Lloyd’s Rep 199 (Adm) ............................................................... 365
Parker – Tweedale v Dunbar Bank plc (No 2) [1991] Ch 26 (CA) 33 ............................ 253
Parker v National Farmers Union Mutual Insurance Society Ltd [2012] EWHC 2156
(Com Ct), [2013] Lloyd’s Rep IR 253 ................................................................. 441
ParkingEye Ltd v Beavis. See Cavendish Square Holding BV v Talal El Makdessi
Paul & Frank Ltd v Discount Bank (Overseas) Ltd (1967) Ch 348 ............................... 142
Paydeck Services, Re [2010] UKSC 51 ......................................................................... 383
Peer International Corp and others v Termidor Music Publishers Ltd and others [2003]
EWCA Civ 1156, [2004] 2 WLR 849, [2004] Ch 212 ........................................... 81
Penn v Lockwood (1850) 1 Gr 547 (CA)...................................................................... 271
Percy, The 3 Hagg 402 .....................................................................................................4
xxxviii
TABLE OF CASES
Peregrine Systems Ltd v Steria Ltd [2004] EWHC 275 (TCC) ...................................... 226
Performing Rights Society v London Theatre of Varieties [1924] AC 1 (HL) ...................... 450
Perks v Clark [2011] EWCA Civ 1228, [2001] 2 Lloyd’s Rep 431 ........................ 38, 345
Permina 108, The [1978] 1 Lloyd’s Rep 311 (Sing CA) ............................................... 344
Petition of Right, Re, sub nom Shoreham Aerodrome [1915] 3 KB 649 (CA) ................ 502–4
Petone, The [1917] P 198 (PD & Adm)........................................................ 213, 355, 356
Petromec Inc v Petroleo Brasileiro SA [2005] EWCA Civ 891......................................... 497
PFTZM Ltd (in liq), Re [1995] BCC 280 .................................................................... 383
Philippine Admiral, The [1977] AC 373 .................................................................. 81, 117
Pickaninny, The [1960] 1 Lloyd’s Rep 533 (PD & Adm) .............................................. 376
Pittourtou, Re [1985] 1 All ER 285 (Ch) ..................................................................... 172
PK Airfinance Sarl v Alpstream AG. See Alpstream AG v PK Airfinance Sarl
Plasycoed Collieries Co Ltd v Partridge, Jones & Co Ltd [1912] 2 KB 345 ...................... 325
Pledge v White [1896] AC 187 ..................................................................................... 206
Polpen Shipping Co Ltd v Commercial Union Insurance Co Ltd [1943] KB 161 ................. 38
Polzeath, The [1916] P 241 (CA) ................................................................................... 26
Port Line Ltd v Ben Line Steamers Ltd [1958] 2 QB 146, [1958] 2 WLR 551 ....... 309, 505
Portsea, The 166 ER 175, (1827) 2 Hag Adm 84 .............................................................4
Portsmouth City Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC) ................ 196
Powell v Broadhurst [1901] 2 Ch 160 ........................................................................... 203
Prentice v Consolidated Bank (1886) 13 OAR 69 (CA) ................................................. 273
Prest v Petrodel [2013] UKSC 34 ..................................................................... 20, 87, 344
Primacom Holding GmbH v Credit Agricole [2012] EWHC 3746 (Ch),
[2013] BCC 201.................................................................................................. 384
Priscilla, The 167 ER 1 (Adm), (1859) Lush 1............................................................. 173
Product Star (No 2), The [1993] 1 Lloyd’s Rep 397 (CA) ............................................ 221
Protector Endowment Loan and Annuity Co, The v Grice (1880) 5 QBD 592 (CA) ......... 228
PST Energy 7 Shipping LLC v OW Bunker Malta Ltd (the Res Cogitans) [2016]
UKSC 23, [2015] EWCA Civ 1058 ........................................................... 136, 367
Public Australia of Queensland v Fortress Credit Corp (Aus) II Pty Ltd [2010] 241
CLR 286 ............................................................................................................. 130
Puglia di Navigazione Spa v Cambiaso & Risso Marine Spa, II Diritto Marittimo
2013, 198, Droit Maritime Francois 2012, 131 .................................................... 418
Pyle Works, Re (1890) 44 Ch D 534............................................................................. 394
Queen of the South, The [1968] P 449 (PD & Adm), [1968] 2 WLR 973......215, 351, 366,
369, 372
Queen on the Application of Cukurova Finance International Ltd, The, Cukurova
Holdings AS v HM Treasury v Alfa Telecom Turkey Ltd [2008] EWHC 2567
(Admin) ....................................................................................................... 142, 267
Queen, The v St John Shipbuilding & Dry Dock Co Ltd (1982) 126 DLR 353
(Fed CA) ............................................................................................................... 38
Quennell v Maltby [1979] 1 All ER 568 (CA) 572......................................................... 44
R (on the application of Bancoult) v Foreign Secretary [2009] 1 AC 453 (HL) ................ 340
R v Carrick District Council ex parte Prankherd [1999] 2 WLR 489 (QB) ........................ 38
R v Goodwin (Mark) [2006] 1 WLR 546 (CA Crim) .................................................. 345
R v Goodwin [2005] EWCA Crim 3184, [2006] 1 Lloyd’s Rep 432 ...................... 38, 147
R v Secretary of State for Transport, ex p Factortame Ltd (No 3) (C-221/89)
[1992] 1 QB 680, [1991] ECR 1–3095 ................................................................ 27
R v Secretary of State for Transport,, ex p Factortame Ltd (No 2) [1991]
AC 603 .................................................................................................................. 23
xxxix
TABLE OF CASES
Raffeisen Zentralbank Österreich AG v Five Star Trading LLC (The Mount I) [2001]
EWCA Civ 68 (CA), [2001] CLC 843 ...................213, 443, 445–52, 461, 462, 478,
480, 481, 489
Rainbow Line Inc v m/v ‘Tequila’ 480 F 2d 1024 US Court of Appeals (2nd Cir) 1973 ......... 374
Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 (SC) ............. 491
Raja v Austin Gray (A Firm) [2002] EWCA Civ 1965 ................................ 223, 275, 291
Ralli Brothers v Compania Naviera Sota y Aznar [1920] 2 KB 287 (CA) .............. 193, 463
Ram Narain v Radha Kishen Moti Lai Chamaria Firm (1929) LR 57 Ind App 76 ........ 144
Rama, The [1996] 2 Lloyd’s Rep 281 (Adm) ............................................................... 375
Rank Enterprises Ltd v Gerard [2000] 1 Lloyd’s Rep 403 ............................................. 253
Rayford Homes Ltd (in Administrative Receivership), Re [2011] EWHC 1948 (Ch),
[2011] BCC 715......................................................................... 163, 166, 177, 178
Rayner v Preston (1881) 18 Ch D 1 (CA) ................................................................... 434
Real Estate Development Co, Re [1991] BCLC 210 (Ch) ............................................... 395
Re Aro [1980] Ch 196 (CA) ....................................................................... 291, 392, 424
Re Atlas Bulk Shipping A/S, [2012] Bus LR 1124 ........................................................ 421
Reeve v Lisle [1902] AC 461 (HL) ...................................................................... 124, 134
Reeves v Capper (1838) 5 Bing 136, 132 ER 1057 ..........................................................2
Regazzoni v KC Sethia (1944) Ltd [1958] AC 301 .............................................. 193, 463
Reid v MacBeth & Gray [1904] AC 223 (HL) .............................................................. 65
Reina (No 2), The [1963] 2 Lloyd’s Rep 513 (PD & Adm).......................................... 371
Reiter Petroleum Inc v The Ship ‘Sam Hawk’ [2015] FCA 1005, [2016] 1 Lloyd’s
Rep 253 (FCA) ............................................................................................. 91, 373
Remblance v Octagon Assets Ltd [2009] EWCA Civ 581, [2010] 2 ACC ER 688 .......... 293
Rene, The [1922) 12 LI L Rep 202 (PD & Adm) ........................................................ 215
Re Salmon and Woods, ex parte Gould (1885) 2 Morr 137 (DC) ................................ 135–6
Rhodes v Buckland (1852) 16 Beav 212, 51 ER 759 (Ch)............................................ 249
Rich v Aldred 87 ER 968 (KB), (1705) 6 Mod 216 ..................................................... 322
Ringdove, The (1858) 7 LT 340, 166 ER 1151 (Adm), (1858) Sw 310 .................. 49, 197
Rio Grande Do Sol Steamship Co, Re (1877) 5 Ch D 282 (CA) .................................... 392
Ripon City, The [1897] P 226, affirmed [1898] P 78 (HL)............................. 91, 210, 237
River Rima, The [1987] 3 All ER 1 (CA), [1987] 2 Lloyd’s Rep 106, affirmed
[1988] I WLR 758 (HL), [1988] 2 Lloyd’s Rep 193 .................................... 136, 342
Robillard v The St Roch & Charland (1921) 62 DLR 145......................................... 31, 32
Rodenstock GmbH, Re [2011] EWHC 1104 (Ch) ................................................. 384, 384
Ronald Elwyn Lister v Dunlop Canada Ltd (1982) 135 DLR (3d) 1 (SCC)................... 232
Rose, The (1873) LR 4 A&E 6 ............................................................... 32, 141, 199, 200
Rowland v Divall [1923] 2 KB 500 (CA) .................................................................... 277
Royal Bank v 273050 British Columbia Ltd (1991) 12 CBR (3d) 263 (BCSC) ............... 55
Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 ...................................... 131
Royal Bank of Scotland plc v McCarthy [2015] EWHC 3626 (Ch) ......................... 44, 318
Royal Hellenic Government v Vergottis Ltd (1945) 78 LI L Rep 292 (KB) ...................... 503
Royscot Spa Leasing Ltd v Lovett [1995] BCC 502 (CA) ...................................... 406, 407
Rubin v Eurofinance SA [2012] UKSC 46, [2013] 1 AC 236....................................... 391
Rubin v Eurofinance SA [2013] 1 AC 236.................................................................... 423
Rusden v Pope (1868) LR 3 Ex 269, 37 LJ Ex 137, 18 LT 651, 16 WR 1122 (Ex) ...... 56,
240–2, 131
Russell v Russell (1783) 1 Bro CC 269, 28 ER 1121 (Ch) ............................................. 55
Russian Bank for Foreign Trade v Excess Insurance Co Ltd [1918] 2 KB 123............. 82, 507
Russland, The [1924] P 55, (1923) 15 Ll L Rep 16 ............................................. 212, 361
xl
TABLE OF CASES
Rust v McNaught (1918) 144 LT Jo 440 (CA) ............................................................ 208
Ruta, The [2000] 1 WLR 2068 (Adm) 2075, [2000] 1 Lloyd’s Rep 359 ............. 212, 376
Ruth Kayser, The (1925) 23 LI L Rep 228 (PD & Adm) ............................................. 365
Saetta, The [1994] I All ER 851 (Adm), [1993] 2 Lloyd’s Rep 268 ............................. 136
Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd [2015] EWHC 2002 (Ch) ............196
Saint Anna, The [1980] 1 Lloyd’s Rep 180 (Adm) ....................................................... 136
Salmon and Woods ex parte Gould, Re (1885) 2 Morr 137 (DC) ............................ 135, 136
Saltri III Ltd v MD Mezzanine SA SICAR [2012] EWHC 3025 (Com Ct),
[2013] 1 All ER [123(f) ........................................................... 175–9, 216, 276, 278,
279, 284–6, 288, 293
Samuel v Jarrah Timber & Wood Paving Corp [1902] 2 Ch 1 (CA),
affirmed [1904] AC 323 (HL) ............................................................. 124, 133, 134
Samuel v Jones (1862) 7 LT 760 (VC) .......................................................................... 56
Sandeman v Scurr (1866–67) LR 2 QB 86 .................................................................. 320
Sanko Holdings Co Ltd (formerly The Sanko Steamship Co Ltd),
Jinichi Tabata (as foreign representative of Sanko Holdings Co Ltd) v
Glencore Ltd. [2015] EWHC 1031 (Ch) ............................................................... 423
Sanko Mineral, The, The Bank of Tokyo-Mitsubishi UFJ Limited v the Owners
of the mv Sanko Mineral [2014] EWHC 3927 (Admlty) ........................................ 422
Sanko Steamship Co Ltd and in the matter of the Cross-Border Insolvency
Regulations 2006 [2015] EWHC 1031 (Ch) .......................................................... 422
Santley v Wilde [1899] 2 Ch 474 (CA) ................................................................ 133, 134
Sara, The [1899] 14 AC 209 ...........................................................................................4
Sarah, The [2011] 1 Lloyd’s Rep 546 (OH)................................................................. 342
Saudi Prince, The [1982] 2 Lloyd’s Rep 255 (Adm) ....................................................... 20
Savill & Co (The Panglobal Friendship) [1978] 1 Lloyd’s Rep 368 (CA) ...............61, 153, 434
Saxon King, The 1975 Fo 253 ..................................................................................... 371
Scandinavian Trading Tanker Co AB v Flota Petrolera Eucatoriana
(The Scaptrade) [1983] 2 AC 694 (HL), [1983] 2 Lloyd’s Rep 253.................228, 301
Sceptre, The (1876) 3 Asp MLC 269 (PD & Adm) ........................................................ 23
Sea Friends, The [1991] 2 Lloyd’s Rep 322 (CA) ......................................................... 343
Sea Glory Maritime Co v Al Sagr National Insurance Co (The Nancy)
[2013] EWHC 2116 (Com Ct), [2014] 1 Lloyd’s Rep 14............................ 191, 463
Sea Urchin, The [2014] SGHC 24 ....................................................................... 354, 363
Seath v Moore (1886) IR 11 App Cas 350 (HL) ........................................................... 64
Seawolf Tankers Inc v Pan Ocean Co Limited [2015] EWHC 1500 (Ch) ........................ 420
Secretary of State for the Environment, Food and Rural Affairs v Feakins
[2007] BCC 54 (CA) .......................................................................................... 409
Secretary of State v Tjolle [1998] 1 BCLC 333 (Ch) ..................................................... 382
Selectmove, Re [1995] 2 All ER 531 (CA) .................................................................... 203
Selwyn v Garfit (1888) 38 Ch D 273 (CA) ................................................................. 249
Seraglio, The (1885) 10 PD 120 ................................................................................... 350
Serious Organised Crime Agency v Szepietowski [2013] UKSC 65,
[2014] AC 338 (SC), [2011] EWCA Civ 856, [2011] Lloyd’s Rep
FC 537 (CA) ........................................................................153, 168, 169, 171, 172
Sextum, The [1982] 2 Lloyd’s Rep 532 ........................................................................ 344
Sheil, Ex p (1877) 4 Ch D 789 (CA) .................................................................. 331, 332
Shepard v Jones (1882) 21 Ch D 469 (CA) ................................................................. 271
Shillito v Biggart [1903] 1 KB 683 (Com Ct) ...................................................... 307, 474
Ship ‘Betty Ott’, The v General Bills Ltd [1992] 1 NZLR 655 (CA) ....................49, 94–6, 159
xli
TABLE OF CASES
Shizelle, The [1992] 2 Lloyd’s Rep 444 (Adm) ........................................ 15, 51, 147, 155
Shoreham Aerodrome. See Petition of Right, Re
Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 (Ch) .................. 500
Sierra Nevada, The (1932) 42 LI L Rep 309 (Court of Session) .................................. 215
Silia, The [1981] 1 Lloyd’s Rep 534 (Adm) ................................................. 135, 136, 367
Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA
Civ 1409, [2004] 1 WLR 997 ....................................... 259, 275, 276, 283, 287, 316
Simon Arthur McKay v Centurion Credit Resources LLC [2011] EWHC 3198 .................... 194
Simpson v Fogo (1860) I John & H 18 (KB), 70 ER 644, (1863)
1 Hem & M 195, 71 ER 85 ............................................................................ 76, 77
Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36 ............................... 391
Sir James Laing & Sons Ltd v Barclay, Curle & Co [1908] AC 35 (HL) ......................... 64
Sisters, The (1804) 165 ER 731, 5 C Rob Ad 155 ......................................................... 73
Skelwith (Leisure) Ltd v Alan Armstrong [2015] EWHC 2830 (Ch) .................. 58, 62, 201
Slavenburg’s Bank NV v Intercontinental Natural Resources Ltd [1980]
1 WLR 1076, [1980] 1 All ER 995 .............................................................. 452, 489
Smit Tak International Zeesleepen Bergingbedrijf BV v Selco Salvage
[1988] 2 Lloyds’ Rep 398 (Ch) ........................................................................... 174
Smith v The Owners of the SS Zigurds [1934] AC 209 (HL) ......................................... 485
Société Générale de Paris v Tramways Union Co (1884) 14 QBD 424 (CA) .................... 485
Société Navale de l’Ouest v Sutherland (1920) 4 LI L Rep 58 (KB) .............................. 495
Socimer International Bank Ltd v Standard Bank London Ltd
[2008] EWCA Civ 116 ................................................................................ 194, 196
Socony Mobile Oil Co Inc v West of England Ship Owners Mutual Insurance
Association Ltd (The ‘Padre Island’) [1989] I Lloyd’s Rep 239 (CA) ...................... 438
Softley, ex parte Hodgkin, Re (1875) LR 20 Eq 746 (Bkrptcy Ct) .................... 56, 63, 64, 147
South Coast Boatyard (In Voluntary Liquidation), James Barber v
Barry Burke, Patrick Hickey and Mallinson Wood Products Ltd
[1980] ILRM 186 .................................................................................... 36, 52, 148
Southern Steamship Agency Inc v MV Khalij Sky 1986 (1) SAf-LR 485 .......................... 91
Sowman v David Samuel Trust Ltd [1978] 1 All ER 616 (Ch) ...................................... 259
Spain v National Bank of Scotland (The El Condado) 1939 SLT 317
(Sess), (1939) 63 LI L Rep 330............................................................................. 81
Spain v Owners of the Arantzazu Mendi (Arantzazu Mendi, The) [1939]
AC 256 .......................................................................................................... 82, 350
Span Terza, The [1984] I WLR 27, [1984] 1 Lloyd’s Rep 119 (HL),
[1982] 1 Lloyd’s Rep 225 (CA) ................................................................... 136, 344
Sparti, The [2000] 2 Lloyd’s Rep 618 (Hong Kong HC) ............................................. 213
Spectrum Plus (in liquidation), Re [2005] UKHL 41, [2005] 2 AC 680 ..................... 156, 500
Spermina, The (1923) 17 Ll L Rep 17 (PD & Adm) .................................................... 215
Spirit of Aquarius, The (Adm, 9 June 1992) ............................................................ 59, 155
Spirit of the Ocean (1865) 12 LT 239 (Adm) 240, (1865) Br & L 336,
167 ER 388 ..................................................................................................... 31, 46
St George, The [1926] P 217 (PD & Adm), [1925] LI L Rep 482.................................. 59
St John v Bullivant (1881) 45 UCQB 614 ........................................................... 136, 137
St John’s Pilot Commissioners v Cumberland Railway Co [1910] AC 208 (HL) ...................... 37
St Olaf, The (1877) Asp MLC 268, 2 PD 13................................................................. 30
St Tudno, The [1916] P 291 (PD & Adm) ...................................................................... 26
Standard Chartered Bank Ltd v Walker [1982] 1 WLR 1410 (CA) [1982]
3 All ER 938 ....................................................................................... 275, 287, 291
xlii
TABLE OF CASES
Standard Rotary Machine Co Ltd, Re (1906) 95 LT 829............................................... 157
Stanford International Ltd, Re [2010] EWCA Civ 137, [2011] Ch 33 ........................... 388
Stapleton v Haymen (1864) 2 H & C 918 (Ct Ex) ......................................................... 32
State of Netherlands v Youell [1997] 2 Lloyd’s Rep 440 (Com Ct) ......................... 435, 438
Steedman v Scofield [1992] 2 Lloyd’s Rep 163 (Adm) ............................................ 38, 345
Stena Nautica (No 2), The [1982] 2 Lloyd’s Rep 336 .................................................. 322
Stevens v Theatres Ltd [1903] 1 Ch 857 ....................................................................... 260
Stewart v Franey (Ch D, 16 June 2016) ........................................................................ 59
Stinne Peter, The (1986) ............................................................................................... 343
Stocnzia Gdanska SA v Latreefers Inc (No 2) [2001] 2 BCLC 116 (CA) ...................... 395
Stone Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) [2008]
EWCA Civ 644 ................................................................................................... 442
Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537 (CA) ................................................ 53
Strandhill, The [1926] SCR 680 ..................................................................................... 91
Stream Fisher, The [1927] P 73 .................................................................................... 215
Sugarman v CIS Investment LLP [2014] EWCA Civ 1239 ........................................... 491
Sunberrry Properties Ltd v Innovate Logistics Ltd [2008] EWCA Civ 1321 ..................... 399
Sundance Cruises Corp, SCI Cruises Inc v The American Bureau of Shipping
(The ‘Sundancer’) [1994] 1 Lloyd’s Rep 183 (CA) ............................................... 190
Sunport Shipping Ltd v Tryg Baltica International (UK) Ltd (The Kleovoulos
of Rhodes) [2002] EWHC 225 (Comm), [2003] Lloyd’s Rep IR 27 ..................... 468
Svitzer Salvage BV v Celia Schiffahrtsgesellschaft MNH & Co Reederei KG,
II Diritto Marittimo 2013, 69 .............................................................................. 418
Swan & Cleland’s Graving Dock & Slipway Co v Maritime Insurance Co
and Crashaw [1907] 1 KB 116 ..................................................................... 434, 456
Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 (CA)......................42, 55, 59, 151, 309
Synergy Ltd v Zeus Petroleum Ltd [2011] EWHC 3382 (Comm) .................................. 497
Synod v De Blaquière (1880) 27 Gr 536 (Ont Ch) 549 ................................................ 271
Szepietowski v Serious Organised Crime Agency. See Serious Organised
Crime Agency v Szepietowski
Tacoma City, The [1991] 1 Lloyd’s Rep 330 (CA) ........................................ 210, 356, 357
Tagus, The [1903] P 44 (PD & Adm) ............................................................................ 84
Tailby v Official Receiver (1888) 13 App Case 523 (HL) .......................... 54, 55, 136, 479
Tancred v Delagoa Bay and East Africa Railway Co (1889) 23 QBD 239....................... 478
Taunton, Delmard, Lane and Co, Re [1893] 2 Ch 175 ................................................... 453
Television Trade Rentals, Re [2002] EWHC 211 (Ch), [2002] BPIR 859 ....................... 391
Tergeste, The [1903] P 26 (PD & Adm) ........................................................ 208, 212, 375
Tervaete, The [1922] P 259 .................................................................................... 91, 213
Theta, The [1894] P 280 (PD & Adm) ........................................................................ 375
Thompson v Clark (1862) 7 LTR 269, 3 F&F 181, 176 ER 82 (NP) 183,
(1862) 7 LTR 269 ........................................................................................... 11, 55
Thompson v Smith 56 ER 145, (1815) 1 Madd 395..................................................... 6–8
Thornhill v Manning 61 ER 174 (Ch), (1851) 1 Sim (NS) 451 ................................... 267
Three Rivers DC v Bank of England [1996] QB 292 (CA) ............................................ 450
Tian Sheng No 8, The [2000] 2 Lloyd’s Rep 430 (HKCFA) ............................... 20, 31, 86
Tisand (Pty) Ltd v The Owners of the Ship MV ‘Cape Moreton’ (ex ‘Freya’)
(The Cape Moreton) [2005] FCAFC 68 ................................... 17, 20, 22, 85, 86, 88,
89, 101, 104, 106
Titan Europe 2006–3 plc v Colliers International UK plc [2015] EWCA Civ 1083 .................223
Tito v Waddell (No 2) [1997] Ch 106........................................................................... 317
xliii
TABLE OF CASES
Tjaskemolen (No 2), The [1977] Lloyd’s Rep 476 ......................................................... 348
Tjaskemolen, The [1997] 2 Lloyd’s Rep 465 (Adm) ........................................................ 20
Todd Shipyards Corp v The Ship Ioannis Daskalelis [1974] SCR 1248,
[1974] 1 Lloyds Rep 174 ....................................................................................... 91
Tojo Maru, The. See Bureau Wijsmuller NV v The Owners of the mv Tojo Maru (No 2)
Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903]
AC 414 (HL) ...................................................................................................... 494
Tolten, The [1946] P 135 (CA)..................................................................................... 210
Tomlin v Luce [1889] 43 Ch D 191 ............................................................................. 291
Toms v Wilson (1863) 4 B & S 440, 122 ER 524 (CA) ................................................ 232
Tonnelier v Smith (1897) 2 Com Cas 258 (CA) ..................................................... 60, 242
Tor Line AB v Altrans Group of Canada Ltd [1984] I WLR 48 (HL) ............................. 294
Torre Asset Funding Ltd & Anr v The Royal Bank of Scotland plc [2013]
EWHC 2670 (Ch) ........................................................ 175, 177, 178, 196, 218, 222
Trade Indemnity Co Ltd v Workington Harbour and Dock Brand [1937] A C I...................... 130
Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372 ...............294, 488
Trans-Tec Asia v m/v ‘Harmony Container’ 518 F 3d 1120 US CA (9th Cir) 2008 ................374
Transol Bunker BV v MV Andrico Unity (The Andrico Unity) (1987)
(3) SA 794,1989 (4) SA 325 (SCA) ........................................................ 93, 94, 109
Tremont, The (1841) 1 WM Rob 163 ................................................................... 107, 369
Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd [2009] EWCA
Civ 290, [2010] QB 86 ........................................................................................ 488
Triodos Bank NV v Dobbs [2005] 2 Lloyd’s Rep 588 ................................................... 130
Triton Marine Fuels Ltd v m/v ‘Pacific Chukotka’ 575 F 3d 409 US CA
(4th Cir) 2009 ..................................................................................................... 374
Tropaioforos, The [1960] 2 Lloyd’s Rep 469 (Com Ct) ................................................. 438
Tropical Reefer, The. See Den Norske Bank ASA v Acemex Management Co Ltd
Troubadour, The (1865–67) LR 1 A & E 302 (Adm) .................................................... 240
Trustees Executors & Agency Co Ltd v Inland Revenue Commissioners
(The Natalie) [1973] Ch 254, [1973] 2 WLR 248, [1973]
1 All ER 563, [1973] 1 Lloyd’s Rep 216 ......................................... 80, 99, 100, 117
Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 (PC).............. 268, 275, 277–9, 282
Tulk v Moxhay 41 ER 1143 (Ch), (1848) 2 Ph 774 ............................................ 306, 308
Turiddu, The [1988] CLC 1043 (Adm), [1998] 2 Lloyd’s Rep 278
(CA), affirmed [1999] 2 Lloyd’s Rep 401, [1999] CLC 1737 (CA) ........... 210, 356, 357
Turnbull v Owners of the Strathnaver (The Strathnaver) (1875) 1 App
Cas 58 (PC) ........................................................................................................ 232
Turnbull v Woolfe (1861) 66 ER 336 (Ch), 7 LT 483 ................................................... 456
Turpin v Maupin, 26 BR 987 (Bankr SD Ohio 1983) .................................................. 425
Turtle Bay, The [2013] SGHC 165............................................................................... 362
Two Ellens, The (1869–72) LR 3 A&E 345 (Adm) ........................................................ 214
Two Ellens, The (1871–73) LR 4 PC 161 ....................................................................... 91
TXU Europe Group plc, Re [2004] 1 P & CR D 20........................................................ 59
Ugland Trailer, The. See Welsh Irish Ferries Ltd, Re (The Ugland Trailer)
Union Bank of London v Ingram (No 2) (1882) 20 Ch D 463...................................... 260
Union Bank of London v Lenanton (1878) 3 CPD 243 (CA) .................................. 64, 147
Union Gold, The. See Bank of Scotland Plc v The Owners of the Union Gold
(The Union Gold)
Union Power, The [2012] EWHC 3537 (Comm), [2013] 1 Lloyd’s Rep 509 ............... 16, 361
United Bank of Kuwait v Sahib [1997] Ch 107 (CA) ................................................... 485
xliv
TABLE OF CASES
United Sav Ass’n of Tex v Timbers of Inwood Forest Assoc, Ltd (In re Timbers
of Inwood Forest Assocs, Ltd), 848 US 365 (1988) ............................................. 429
United States of America v Nolan [2015] UKSC 63 .......................142, 265, 267, 285, 501
Upcerne, The [1912] P 160 ............................................................................................ 37
Urban Ventures Ltd v Simon Robert Thomas and Nicholas O’Reilly as
Administrators of Black Ant Company plc [2016] EWCA Liv 30 ..................... 129, 163
V Rankin’s Mechanical Contracting Ltd v First City Dev Ltd (1985) 40 RPR
238 (NSTD)........................................................................................................ 271
Valiant, The LMLN, Dec 7, 1979................................................................................ 371
Van Gansewinkel Groep BV, Re [2015] EWHC 2151 (Ch) .................................... 384, 385
Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969]
1 QB 607 (CA) ................................................................................................... 485
Varna, The [1993] 2 Lloyd’s Rep 253 (CA) ................................................. 346, 347, 349
Vasilia, The [1972] 1 Lloyd’s Rep 51 (Adm) ................................................................ 213
Venture, The (1908) P 218 (CA) .............................................................................. 32, 46
Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2014]
EWCA Civ 1349, [2015] 1 Lloyd’s Rep 32 ........................................................ 437
Virtu Fast Ferries Ltd v The Ship ‘Cape Leveque’ [2015] 2 Lloyd’s Rep 222 ..................... 64
Von Rocks,’ The ‘ [1998] 2 Lloyd’s Rep 198 (Ireland SC) ....................................... 38, 345
Vostok Shipping Co Ltd v Confederation Ltd [1999] NZCA 220,
1 NZLR 37 ...................................................................... 20, 22, 75, 87–9, 103, 106
Wait, Re [1927] 1 Ch 606 (CA) .................................................................................... 21
Walford v Miles [1992] 2 AC 128 (HL) ....................................................................... 497
Wallingford v Mutual Society (1880) 5 App Cas 685 (HL) ............................................ 228
Wallis v Woodyear (1855) 2 Jur NS 179 ........................................................................ 169
Walter D Wallet, The [1893] P 202 (PD & Adm)........................................................... 232
Ward v Beck 143 ER 265 (CP), (1863) 13 CBNS 668 .......................................... 5, 8, 53
Wardley International Bank Inc v Naispit Bay Vessel v Mobil Oil Corp
841 F 2d 259 (9th Cir 1988) .............................................................................. 335
Watson v Duff, Morgan & Vermont (Holdings) Ltd [1974] 1 WLR 450 (Ch) .................. 144
Watson v RCA Victor Inc (1934) 50 Ll L Rep 77 ........................................................... 38
Watson, ex parte Official Receiver in Bankruptcy, Re (1890) 25 QBD 27 (CA).................. 53
Watts v Shuttleworth 158 ER 510 (Ex), (1860) 5 H & N 235 ...................................... 292
WD Fairway 1, The. See Dornoch Ltd v Westminster International BV
[2009] EWHC 889
WD Fairway 2, The. See Dornoch Ltd v Westminster International BV
[2009] EWHC 1782
Webb v Smith (1885) 30 Ch D 192 (CA) .................................................................... 174
Weeks v Ross [1913] 2 KB 229 ...................................................................................... 38
Weisgard v Pilkington [1995] BCC 1108 (Ch) .............................................................. 411
Welsh Development Agency v Export Finance Co Ltd [1992] BCLC 148,
[1992] BCC 2701 ............................................................................................ 43, 54
Welsh Irish Ferries Ltd (The Ugland Trailer), Re [1986] Ch 471, [1985]
2 Lloyd’s Rep 372 (Ch D) ..................................................................... 60, 492, 493
West v Williams (1899) 1 Ch 132 (CA) ................................................................ 160, 161
Western Bulk Shipowning III AS v Carbofer Maritime Trading APS
(The Western Moscow) [2012] EWHC 1224 (Com Ct) .................................... 60, 493
Westport (No 2), The [1965] 1 WLR 871 (PD & Adm), [1965] 1 Lloyd’s Rep 549 ...............365
Whistler International Ltd v Kawasaki Kisen Kaisha Ltd (The Hill Harmony)
[2001] 1 AC 638 (HL), [2001] 1 Lloyd’s Rep 147 .............................................. 300
xlv
TABLE OF CASES
White v City of London Brewery Co (1889) 42 Ch D 237 (CA) .................................... 272
White v Davenham Trust Ltd [2010] EWHC 2748 (Ch), affirmed
[2011] EWCA Civ 747 (CA) ............................................................................... 412
Whitworth v Rhodes (1850) 20 LJ Ch 105 ................................................................... 249
Wiley v Crawford & Fenwick (1861) 1 B & S 253, 121 ER 709 ..................................... 30
Willem III, The (1869–72) LR 3 A & E 487 (Adm) ..................................................... 351
William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454
(HL), [1904] 1 KB 387 ..........................................................................54, 444, 450
Williams v Allsup (1861) 10 CB NS 417 ..................................................................... 208
Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81 (CA) ....................443–6, 449, 450, 483
Williams v Price (1824) 1 Sim & St 581, 57 ER 229 (Ch) (VC) ................................. 271
Wilson v Kelland [1910] 2 Ch 306 ...................................................................... 157, 485
Wilson v Wilson (1872) 14 LR Eq 32 (Ch) ...........................................153, 234, 240, 307
Winkworth v Christie, Manson and Woods Ltd [1980] Ch 496 .......................................... 69
Wolff v Vanderzee (1869) 20 LT 350 (VC) .................................................................. 249
Wood v Bell (1856) 5 E & B 772, 119 ER 669 (QB) ..................................................... 64
Wood v Sureterm Direct Ltd & Capital Insurance Services Ltd [2015] EWCA Civ 839; ................... 491
Wragg v Denham (1836) 2 Y & C 117 (KB), 160 ER 335 .....................................................270
Xenos v Aldersley (The Evangelismos) 14 ER 945 (PC), (1858) 12 Moo PC 352 .......................232
Yolanda Barbara, The [1961] 2 Lloyd’s Rep 337 (PD & Adm) ...............................................204
Yorkshire Bank plc v Hall [1999] 1 WLR 1713 (CA) [1999] 1 All ER 879 ........................ 275, 287
Young ex p Jones, Re [1896] 2 QB 484 ...............................................................................331
Yuta Bondarovskaya, The [1998] 2 Lloyd’s Rep 357 (Adm) ...................................................344
Zamora, The [1916] 2 AC 77 (PC) ....................................................................................503
Zeeland Navigation Co Ltd v Banque Worms (The Foresight Driller II) [1995]
1 Lloyd’s Rep 251 ..................................................................187, 194, 195, 220, 224, 279
Zeeland Navigation Co Ltd v Banque Worms [2002] EWHC 1307 (Comm),
[2002] All ER (D) 63 ...............................................................279–81, 282, 283, 286, 287
Zephyr, The [1985] 2 Lloyd’s Rep 529 (CA) ........................................................................460
Zigurds, The [1932] P 113 (PD & Adm) ........................................................................ 84, 95
xlvi
TA B L E O F L EG IS LAT ION
National Legislation
UK Statutes
Administration of Justice Act 1956
(c 46) ............................. 4, 90, 253, 340
s 3(4)............................................ 321
ss 45–48 ....................................... 338
Sch 1 ............................................ 338
Administration of Justice Act 1970
(c 31) ................................................... 4
Admiralty Court Act 1840 (c 65) ........4, 340
s 3 ................................................ 340
s 6(1)(b) ....................................... 340
s 62(2) .......................................... 340
Agricultural Credits Act 1928 (c 43) ......138
Air Navigation and Transport
Act 1920 ............................................ 73
Bank Charter Act 1833 (c 55) ................. 6
Banking Act 2009 (c 1) ....................... 142
Bills of Sale Act 1854 (c 36).................. 10
s 7 ................................................ 10
Bills of Sale Act 1878
(c 31) .................... 3, 17, 35, 52, 63, 64,
136, 138, 147
s 4 ............3, 15, 17, 36, 64, 138, 139
s 13 .............................................. 147
Bills of Sale Amendment Act 1882
(c 43) ......... 12, 17, 35, 52, 136, 138, 147
s 4 .............................................. 136
Bovill’s Act. See Partnership Law
Amendment Act 1865
British Nationality Act 1981
(c 61) ..................................... 26, 27, 28
British Overseas Territories Act 2002 (c 8)
s 2(3)...................................... 17, 139
Chancery Amendment Act 1858
(c 27) ............................................... 311
Charitable Uses Act 1601 (c 4) ........... 428
Civil Aviation Act 1968 (c 61) ............... 74
s 16(1) ............................................ 74
Civil Aviation Act 1982 (c 16)
s 86(1) ............................................ 74
Civil Contingencies Act 2004 (c 36)
s 22(3) .......................................... 507
Civil Jurisdiction and Judgments Act 1982
(c 27)
s 3A(1) ......................................... 315
Civil Jurisdiction and Judgments Act 1991
(c 12)
s 1(1)............................................ 315
Companies Act 1948 (c 38)
s 95 ................................................ 61
s 228(1) ........................................ 392
s 231 .................................... 291, 392
Companies Act 1985 (c 6)
s 36A ............................................ 203
s 396(1)(e).................................... 179
Companies Act 2006 (c 46) .......... 52, 120,
129, 130, 138, 141, 145,
146, 156–8, 325, 380,
383, 393, 401
Pt 25 .............141, 142, 146, 153, 162
Pt 25 Ch 1 ................................... 120
s 6(3).............................................. 36
s 44 ...................................... 120, 121
s 44(1) .......................................... 121
s 44(2) .......................................... 121
s 44(5) .......................................... 121
s 46 ................................ 52, 120, 203
s 46(2) .......................................... 121
s 47 .............................................. 120
s 250 ............................................ 383
s 382(3) ........................................ 403
s 859 ........................ 36, 43, 161, 175
s 859A ..... 53, 138, 452, 489, 492, 501
s 859C .......................................... 146
xlvii
TABLE OF LEGISLATION
s 859D ..................143, 145, 151, 161
s 859E .......................................... 144
s 859F .......................................... 144
s 859G ......................................... 145
s 859H ..................138, 143, 452, 489
s 859H(4) ..................................... 143
s 859K.......................................... 146
s 859L .......................................... 144
s 859L(2) ..................................... 144
s 859L(4) ..................................... 144
s 859M ......................................... 143
s 859O.......................................... 144
s 859P .......................................... 145
s 860 ............................................ 157
s 862 ............................................ 146
s 869(6)(b) ................................... 143
s 871 ............................................ 257
s 895(2)(b) ................................... 384
ss 895–9 ....................................... 383
s 895I(6)....................................... 143
s 899 ............................................ 176
s 1068 .......................................... 143
s 1112 .......................................... 145
Company Directors Disqualification
Act 1986 (c 46)
s 22(5) .......................................... 383
Compensation (Defence) Act 1939
(c 75) ....................................... 504, 506
s 4 ................................................ 507
s 14(1) .................................. 505, 506
s 29 .............................................. 506
s 38 .............................................. 506
Consumer Credit Act 1974 (c 39) ......... 44
Consumer Rights Act 2015
(c 15) ......................................... 44, 227
s 2(3)............................................ 227
s 62(4) .......................................... 227
s 63(1) .......................................... 227
Sch 2 Pt 1 .................................... 227
Constitutional Reform Act 2005 (c 4)
Sch 11 Pt 1 ................................. 340
Sch 11 para 1(1)............................... 4
Contracts (Applicable Law) Act 1990
(c 36) ............................................... 119
Contracts (Rights of Third Parties)
Act 1999 (c 31) ................457, 460, 464
Conveyancing Act 1881 (c 41) ............. 255
Crown Proceedings Act 1947 (c 44) .......506
Defence of the Realm
Act 1914 .................................. 502, 503
Emergency Powers (Defence) Act 1939
(c 62) .............................................. 504
Encouragement of British Shipping and
Navigation Act 1849 (c 29) ................ 71
Enterprise Act 2002
(c 40) ................395, 396, 399, 401, 499
s 251 ............................................ 499
Finance Act 1949 (c 47)
s 28(2) ............................................ 99
Finance Act 2003 (c 14)
s 125 ................................................ 3
Finance Act 2006 (c 25)
s 1 ................................................ 43
Sch 8 .............................................. 43
Fishing Vessels (Safety Provisions) Act
1970 (c 27) ........................................ 29
Foreign Limitation Periods Act 1984
(c 16) ............................................... 212
Fraudulent Conveyances Act 1571
(c 5) ................................................... 10
Harbour, Docks and Piers Clauses Act
1847 (c 27)
s 44 ...................................... 215, 366
s 74 .............................................. 364
Hovercraft Act 1968 (c 59) .................... 37
s 2(3)............................................ 345
Immigration Act 1971 (c 77) ............... 352
Indemnity Act 1920 (c 48) .................. 504
Insolvency Act 1986 (c 45) ...256, 384, 410
Pt I ....................................... 403, 406
Pt IV ............................................ 405
Pt IV Ch VI .................................. 411
Pt V .............................................. 405
Pt VIII .......................................... 406
s 1(1)............................................ 403
s 1(3)............................................ 403
s 1(4)............................................ 403
s 3(a) ............................................ 394
s 4(3)............................................ 403
s 9(3).................................... 257, 396
s 11(3) .......................................... 321
s 28(1) .......................................... 402
s 29(2) .................................. 400, 402
s 29(2)(a) ..................................... 396
s 37 .............................................. 258
s 40 .............................................. 499
ss 72A–H .............................. 396, 402
s 72B ............................................ 402
s 72E ............................................ 402
ss 91–6 ......................................... 391
xlviii
TABLE OF LEGISLATION
ss 97–106 ..................................... 391
ss 117–62 ..................................... 391
s 123 ............................................ 411
s 128(1) ........................................ 392
s 129 ............................................ 392
s 130(2) ................................ 291, 392
s 130(3) ........................................ 393
s 175 ............................................ 499
s 175(2)(b) ................................... 395
s 176ZA........................................ 395
s 176A .......................................... 395
s 178 ............................................ 180
s 178(2) ........................................ 394
s 178(4)(b) ................................... 394
ss 178–82 ..................................... 394
s 213 ............................................ 383
s 214 .................................... 332, 383
s 221 ............................................ 395
s 221(4) ........................................ 395
s 230 ............................................ 257
s 238 ............... 404, 407, 408, 411–13
s 238(3) ........................................ 408
s 238(4) ........................................ 408
s 238(4)(a).................................... 409
s 238(4)(b) ................................... 409
s 238(5) ........................................ 408
s 239 ............. 205, 404, 409, 410, 412
s 239(4) ........................................ 410
s 239(4)(b) ................................... 410
s 239(5) ........................................ 410
s 240(1) ........................................ 411
s 240(2) ........................................ 411
s 240(2)(a).................................... 411
s 240(2)(b) ................................... 411
s 241 ............................................ 408
s 243 ............................................ 408
s 244 ............. 132, 135, 404, 412, 413
s 244(2) ........................................ 413
s 244(3) ........................................ 412
s 244(4) ........................................ 413
s 244(4)(b) ................................... 413
s 244(4)(d) ................................... 413
s 245 .....................404, 411, 412, 451
s 245(2) ........................................ 412
s 245(3) ........................................ 412
s 245(4) ........................................ 412
s 245(5) ........................................ 412
s 251 ............................................ 383
s 386 .................................... 395, 499
s 423 .................................102, 404–9
xlix
s 423(1) ........................................ 404
s 423(1)(a).................................... 409
s 423(1)(c).................................... 409
s 423(2) ................................ 405, 406
s 423(3) ........................................ 405
s 423(4) ........................................ 405
s 424(1) ........................................ 406
s 425 ............................................ 406
s 425(2) ........................................ 407
s 426 ............................................ 391
s 426(11) ...................................... 391
s 436 ............................................ 413
Sch A1.......................................... 403
Sch A1 para 3 ............................... 403
Sch A1 para 12(g) ........................ 403
Sch A1 para 20(1)(a) .................... 403
Sch A1 para 20(2) ........................ 403
Sch A1 para 20(3) ........................ 403
Sch A1 para 20(5) ........................ 403
Sch A1 para 20(6) ........................ 403
Sch A1 para 32(2) ........................ 403
Sch B1.......................................... 396
Sch B1 para 2............................... 396
Sch B1 para 3(1) .......................... 396
Sch B1 para 3(1)(a) ...................... 397
Sch B1 para 3(1)(b)...................... 397
Sch B1 para 3(2) .......................... 396
Sch B1 para 3(3) .......................... 396
Sch B1 para 3(4) .......................... 396
Sch B1 para 4............................... 396
Sch B1 para 5............................... 396
Sch B1 para 6............................... 396
Sch B1 para 11 ............................. 401
Sch B1 para 14 ..............400, 402, 411
Sch B1 para 14(2) ........................ 400
Sch B1 para 14(2)(a) .................... 400
Sch B1 para 14(2)(b).................... 400
Sch B1 para 14(3) ........................ 400
Sch B1 para 14(3)(c) .................... 400
Sch B1 paras 14–21 ...................... 400
Sch B1 para 15 ............................. 400
Sch B1 para 17 ............................. 402
Sch B1 para 22 ............................. 411
Sch B1 para 25 ............................. 402
Sch B1 para 26 ............................. 402
Sch B1 para 27(2) ........................ 400
Sch B1 para 28(1) ........................ 402
Sch B1 para 35(2)(A) ................... 400
Sch B1 para 36 ............................. 401
Sch B1 para 39 ............................. 402
TABLE OF LEGISLATION
Sch 4 .............................................. 30
Sch 8 .............................................. 30
Law of Property Act 1925
(c 20) ............55, 63, 166, 251, 252, 326
s 36 .............................................. 153
s 85 ................................................ 55
s 88(1) .......................................... 252
s 93(1) .................................. 205, 206
s 94 ...................................... 163, 164
s 94(1) .......................................... 163
s 94(1)(a) ..................................... 163
s 94(1)(b) ............................. 163, 164
s 94(1)(c) ............................. 163, 164
s 94(4) .......................................... 163
s 95(1) .......................................... 205
s 99 .............................................. 326
s 99(13) ........................................ 326
s 101 .............. 62, 126, 146, 164, 201,
251, 255, 256, 393, 435
s 101(1)(ii) ........................... 164, 251
s 101(1)(iii) .......................... 256, 435
ss 101–7 ............................. 52, 56, 63
s 103 .....................126, 164, 251, 255
s 103(iii) ....................................... 251
s 105 .................................... 254, 255
s 106 ...................................... 62, 201
s 106(1) .................................. 62, 201
s 108 ............................................ 435
s 108(1) ........................................ 164
s 108(2) ........................................ 164
s 109(1) ................................ 256, 257
s 109(2) ........................................ 258
s 109(5) ........................................ 257
s 109(7) ........................................ 259
s 110 ............................................ 393
s 114 ............................................ 202
s 116 ............................................ 126
s 136 ............... 64, 443–5, 447–51, 453,
454, 474, 477–84
s 198 ............................................ 161
s 205 .................................... 164, 251
s 205(i) ......................................... 255
s 205(xvi) ..................................... 255
s 205(xx) ...................................... 255
Sch 4 .............................................. 11
Law of Property (Miscellaneous
Provisions) Act 1989 (c 34) .......... 52, 55
s 1 ...................................... 120, 203
s 1(8)............................................ 152
Sch 1 para 6(a) ............................. 152
Sch B1 para 40(1)(b).................... 401
Sch B1 para 43(2) ................ 397, 399
Sch B1 para 43(3) ........................ 398
Sch B1 para 44(7) ........................ 401
Sch B1 para 49 ............................. 399
Sch B1 para 70 ..................... 398, 399
Sch B1 para 71 ............................. 399
Sch B1 para 71(1) ........................ 398
Sch B1 para 71(2) ........................ 398
Sch B1 para 71(3) ........................ 398
Sch B1 para 71(3)(b).................... 398
Sch B1 para 72 ............................. 398
Sch B1 para 72(3) ........................ 398
Sch B1 para 73 ............................. 398
Sch B1 para 73(2) ........................ 399
Sch B1 para 74 ............................. 399
Sch B1 para 74(1)(a) .................... 399
Sch B1 para 74(1)(b).................... 399
Sch B1 para 74(2) ........................ 399
Sch B1 para 75 ..................... 397, 399
Sch B1 para 88 ............................. 399
Sch B1 para 90 ............................. 401
Sch B1 para 92 ............................. 401
Sch B1 para 93 ............................. 401
Sch B1 para 94 ............................. 401
Sch B1 para 96 ............................. 400
Sch B1 para 111(1) ...................... 398
Sch B1 para 111(1A) ............ 401, 403
Sch 1 .................................... 256, 258
Sch 2A para 2............................... 402
Sch 2A para 3............................... 402
Sch 2A para 6............................... 402
Sch 2A para 7............................... 402
Sch 4 para 6 ................................. 394
Sch 6 .................................... 395, 499
Insurance Act 2015 (c 4) .......196, 430, 436,
437, 439–41, 443,
453, 454, 466, 461
s 12 .............................................. 443
s 55(2) .......................................... 440
Interpretation Act 1978 (c 30)
s 17(2)(b) ....................................... 29
Joint Stock Companies Act 1844
(c 110) ................................................. 6
Judicature Act 1873 (c 77) .......... 233, 314
Land Charges Act 1972 (c 61) .......138, 161
Land Registration Act
2002 (c 9) ............................ 30, 62, 138
s 48 .............................................. 163
s 49 .............................................. 163
l
TABLE OF LEGISLATION
Merchant Shipping Act 1854
(c 104) ........................5, 8, 9,12–14, 18,
19, 23, 32, 42, 45, 47–49,
57, 58, 72, 73, 78–9, 123,
147, 165, 184, 251, 299,
300, 307, 314, 326
s 18 ........................................ 72, 100
s 19 ................................................ 72
ss 20–9 ........................................... 72
s 23 .......................................... 72, 73
s 38 ................................................ 72
s 39 ................................................ 72
s 43 .................19, 23, 57, 58, 73, 165
s 44 ................................................ 72
s 50 ................................................ 30
s 53 ................................................ 72
s 55 .......................................... 18, 73
s 57 .......................................... 13, 18
s 66 ............................................ 9, 10
ss 66–75 ................................... 47, 73
s 67 .......................................... 12, 48
s 69 ...........45, 49, 159, 160, 161, 164
s 70 .................. 8, 182, 298–302, 304,
305, 311, 313, 316
ss 76–83 ......................................... 73
s 191 ............................................ 374
Sch 1 ............................................ 123
Merchant Shipping Act 1862 (c 63)
s 3 ............................... 19, 23, 45, 58,
159, 161, 165
Merchant Shipping Act 1894
(c 60) .....................9, 12, 13, 17–19, 22,
23, 31, 45, 47, 48, 82,
105, 122, 124, 127,
128, 251, 433, 508
s 1 ................................................ 82
s 2 ........................................ 82, 117
s 11(a) .......................................... 105
s 13 ........................................ 72, 105
s 15 ................................................ 30
s 24 ................................................ 18
s 24(1) ............................................ 31
s 27 ............................................... 18
s 31 ........................................ 48, 164
s 31(1) .......................................... 123
ss 31–8 ..............47, 48, 105, 250, 266
s 33 ...........12, 49, 149, 161, 164, 182
s 34 .................................. 8, 298, 311
s 35 ...............................250, 251, 252
s 38 .............................................. 164
Law of Property (Miscellaneous
Provisions) Act 1994 (c 36) .............. 186
s 11(2)(b) ..................................... 315
Law Reform (Frustrated Contracts)
Act 1943 (c 40)
s 2(5)(a) ....................................... 354
Limitation Act 1980 (c 58) .................. 212
Lloyd’s Act 1871 (c 21) ........................... 6
Manchester Canal Act 1896................. 215
Marine Insurance Act 1906
(c 41) ........................430, 437, 439, 454
Pt 2 .............................................. 430
Pt 3 .............................................. 430
Pt 5 .............................................. 430
s 1 ........................................ 36, 469
s 5 ................................ 84, 433, 435
s 14 .............................................. 435
s 14(1) .................................... 14, 433
s 14(2) .......................................... 435
s 15 .............................................. 434
s 16 .............................................. 469
s 17 ...............................196, 441, 460
ss 17–20 ....................................... 443
s 18 ...................................... 430, 439
s 19 .............................................. 430
s 20 .............................................. 439
s 21 .............................................. 430
s 27(3) .......................................... 436
s 33(1) .......................................... 440
s 33(2) .......................................... 440
s 33(3) ...................440, 443, 458, 459
ss 36–41 ....................................... 440
s 39(5) .......................................... 466
s 41 ............... 462, 463, 464, 469, 470
s 50 ..............................153, 442, 444,
445, 446, 447, 450,
451, 453, 454
s 50(1) .......................................... 442
s 50(2) ...................443, 444, 446, 447
s 50(3) ...........................442, 444, 457
s 52(2) .......................................... 460
s 53 .............................................. 453
s 53(1) .......................................... 460
s 53(2) .......................................... 453
s 55 .............................................. 443
s 63(1) ...................................... 97, 98
s 68 .............................................. 469
s 79(1) ...................................... 97, 98
s 85(3) .......................................... 432
s 91(2) .......................................... 430
li
TABLE OF LEGISLATION
s 85(2) ............................................ 26
s 123 .............................................. 29
s 144(3) .......................................... 25
s 153 ...................................... 52, 332
s 153A .......................................... 332
s 153A(7) ............................... 52, 332
s 154 ...................................... 52, 332
s 163 ............................................ 433
s 165 ............................................ 432
s 170 .............................................. 19
s 181 .............................................. 19
s 185 ............................................ 246
ss 185–90 ....................................... 36
s 190 .................................... 212, 341
s 208 ............................................ 215
s 240 ............................................ 215
s 252 ............................................ 215
s 285 ............................................ 215
s 310 .............................................. 37
s 311 .............................................. 37
s 313 ................................ 34, 37, 345
s 313(1) .......................................... 38
Sch 1 ................. 9, 12, 15, 22, 24, 25,
28, 33, 48, 50, 119, 139,
156, 234, 269, 332
Sch 1 para 1 ......... 19, 45, 57, 58, 104
Sch 1 para 1(1) ................ 19, 57, 104
Sch 1 para (1)(c) .......................... 119
Sch 1 para 1(2) .......57, 159, 161, 165
Sch 1 para 2 ....................... 18, 31, 48
Sch 1 para 7 ................................. 139
Sch 1 para 7(1) .............. 48, 123, 139
Sch 1 para 7(2) ...................... 48, 139
Sch 1 para 7(3) ...................... 48, 139
Sch 1 para 7(4) ...................... 48, 139
Sch 1 para 8 ........12, 49, 149, 152, 161
Sch 1 para 8(1)......45, 49, 149, 159, 164
Sch 1 para 8(2) ...................... 49, 149
Sch 1 para 9 .............49, 62, 141, 200,
233, 249, 251–3,
255, 261, 393
Sch 1 para 9(1) ...................... 13, 201
Sch 1 para 9(2)......13, 49, 151, 261, 262
Sch 1 para 10.........8, 12, 52, 182, 298,
299, 311, 316, 328, 332
Sch 1 para 10(4)............................. 58
Sch 1 para 11 ................. 62, 200, 202
Sch 1 para 12 ............................... 202
Sch 1 para 13 ............................... 203
Sch 11 .......................................... 212
s 56 .......................................... 19, 45
s 57 ................................................ 19
s 58 ................................................ 19
s 70 ................................................ 23
s 532H ................................. 250, 251
s 533B .......................................... 251
s 742 .............................................. 37
Merchant Shipping Act 1921 (c 28)
s 1(1)(c) ......................................... 37
Merchant Shipping Act 1988
(c 12) ................................. 9, 23, 27, 47
s 3 ................................................ 23
s 4 ................................ 23, 117, 416
Merchant Shipping Act 1995
(c 21) ..................... 12, 17, 19, 23–4, 30,
33, 34, 37, 43, 48, 50–2,
55, 63, 64, 69, 73, 82,
122, 138, 139, 143–7, 154–8,
161, 164, 202, 215, 246,
327, 345–6, 506
Pt I .............. 15, 25–6, 29, 30, 31, 35,
37, 50, 82, 138, 139, 147,
149, 155, 189, 234, 269, 508
Pt II .................. 15, 24–5, 28, 29, 31,
35, 37, 38, 43, 50, 51,
82, 138–40, 147, 149,
155, 234, 269, 508
Pt III ................15, 25, 28, 30, 43, 44,
50, 51, 82, 140, 147, 508
Pt IV ................................ 25, 82, 508
s 1(1).............................................. 25
s 1(3)........................................ 25, 69
s 6 ................................................ 24
s 8 .................................. 25, 46, 198
s 8(2).................................... 105, 117
s 9 ........................................ 82, 508
s 9(2)(b) ......................................... 40
s 9(5).............................................. 29
s 13 .......................................... 30, 56
s 14 .............................................. 374
s 15 ................................................ 28
s 16(3) ......................... 14, 19, 21, 52,
183, 328, 332
s 16(4) .................................... 34, 188
s 17(1) ............................................ 40
s 17(7) ............................................ 25
s 17(11) .......................................... 39
s 25(1) ............................................ 31
s 41 .............................................. 211
s 85 ................................................ 25
lii
TABLE OF LEGISLATION
Merchant Shipping Amendment Act 1855
(c 91)
s 21 ................................................ 99
Merchant Shipping Amendment Act 1862
(c 63) ........................................... 9, 233
s 3 .......................................... 57, 73
Merchant Shipping (Liabilities of Shipowners
and Others) Act 1958 (c 62)
s 3(1)............................................ 246
Merchant Shipping (Registration etc.)
Act 1993 (c 22) ................ 9, 23, 39, 47,
48, 73, 105
Navigation Act 1381 .............................. 71
Navigation Act 1489 .............................. 71
Navigation Act 1540 (c 14) ................... 71
Navigation Act 1650 .............................. 71
Navigation Act 1651 .............................. 71
Navigation Act 1660 (c 18) ........5, 22, 46, 71
s 10 .................................... 22, 46, 71
New Parishes Act 1844 (c 94)
s 9 .............................................. 105
Partnership Act 1890
(c 39) ...........294, 297, 330, 335, 382, 412
s 2 .............................................. 330
s 2(3).............................132, 330, 332
s 3 ........................... 132, 330–2, 334
s 9 .............................................. 330
Partnership Law Amendment Act 1865
(c 86) ............................................... 334
s 2(3)(d) ....................................... 331
s 3 .............................................. 331
s 5 .............................................. 331
Patents Act 1977 (c 37) ....................... 138
Port of London Act 1968 (c xxxii)
s 39 .............................................. 215
Powers of Attorney Act 1971 (c 27) ........121
s 1(1)............................................ 152
s 4 .............................................. 498
s 4(1)............................................ 393
Private International Law (Miscellaneous
Provisions) Act 1995 (c 42)
s 9(5).............................................. 99
s 11 .............................................. 315
s 11(1) .......................................... 318
s 12 .............................................. 315
Proceeds of Crime Act 2002 (c 29)
s 266 ............................................ 171
Registered Designs Act 1949 (c 88) ........138
Registering of Vessels Act 1823
(c 41) ......................................... 8, 9, 47
liii
s 3 ................................................ 14
s 43 ................. 5, 7, 8, 12, 14, 42, 47,
53, 182, 298, 299, 301, 302
Registry Act 1786 (c 18) ..................... 5, 7
Registering of British Vessels Act 1845
(c 89) ................................. 9, 18, 23, 63
s 34 .................................... 18, 57, 72
s 37 ...................... 13, 18, 23, 31, 49,
57, 72, 73, 78
s 57 ................................................ 57
Repeal of the Bubble Act 1825
(c 110) ................................................. 6
Sale of Goods Act 1893 (c 71)
s 4 ................................................ 16
s 48(2) .................................... 33, 200
s 62 ................................................ 16
Sale of Goods Act 1979 (c 54) .........16, 361
s 12(1) .......................................... 277
s 17 .......................................... 17, 18
s 19 .............................................. 367
s 41 .............................................. 213
Senior Courts Act 1981
(c 54) .......... 4, 19, 90, 214, 327, 340, 506
s 6(1)................................................ 4
s 20 ...................................... 213, 249
s 20(1) .......................................... 341
s 20(1)(m) .................................... 342
s 20(2) .................................. 214, 341
s 20(2)(a) ................33, 327, 341, 342
s 20(2)(b) ..................................... 341
s 20(2)(c) ..............214, 240, 341, 342
s 20(2)(d) ............................. 341, 342
s 20(2)(e) ..................................... 341
s 20(2)(e)–(r) ................ 20 , 214, 253,
343, 344
s 20(2)(f) ...................................... 341
s 20(2)(g) ..................................... 341
s 20(2)(h) ..................................... 341
s 20(2)(j) ................................ 74, 341
s 20(2)(k) ..................................... 341
s 20(2)(l) ...................................... 341
s 20(2)(m) .............136, 342, 343, 356
s 20(2)(n) ....................... 90, 208, 342
s 20(2)(o) ..................................... 342
s 20(2)(p) ..............186, 341, 342, 343
s 20(2)(q) ..................................... 342
s 20(2)(r) ...................................... 342
s 20(2)(s) ...................................... 342
s 20(4)(b)(ii)................................... 87
s 20(7)(c) ............................. 339, 341
TABLE OF LEGISLATION
s 13 .............................................. 208
Trade Marks Act 1994 (c 26) .............. 138
Trustee Act 1925 (c 19)
s 40 .............................................. 127
s 63 .............................................. 256
Unfair Contract Terms Act 1977
(c 50) ....................................... 227, 294
s 2 .............................................. 227
s 3 .............................................. 227
s 11 .............................................. 488
s 26 .............................................. 488
Sch1 para 1(e) .............................. 227
ss 20–4 ..........................105, 338, 340
s 21 .............................................. 249
s 21(3) ............................ 74, 209, 345
s 21(4) .....................19, 214, 343, 345
s 21(4)(b) ....................................... 86
s 21(4)(b)(ii)................................... 86
s 24(1) .................................... 35, 345
s 37(1) .......................................... 256
s 153(4) ........................................ 295
Shipping and Navigation Act 1786
(c 60) ..................................... 22, 71, 72
s 1 ................................................ 72
s 3 .......................................... 71, 72
s 5 ........................................ 72, 105
s 8 ................................................ 72
s 10 ................................................ 72
s 11 ................................................ 72
s 12 ................................................ 72
s 15 ................................................ 72
s 17 ................................................ 18
Stamp Act 1891 (c 39)
Sch 1 ................................................ 3
State Immunity Act 1978 (c 33)
s 10 ........................................ 81, 117
Statute of Elizabeth. See Charitable Uses
Act 1601
Supreme Court of Judicature Act 1873
(c 66) ................................... 4, 480, 486
s 17 ................................................ 64
s 25(6) .................................. 448, 474
Supreme Court of Judicature Act 1875
(c 77) ............................................... 486
Supreme Court of Judicature
(Consolidation) Act 1925 (c 49) ...........74
s 22(1) .......................................... 506
Supreme Court Act 1981. See Senior Courts
Act 1981
Territorial Sea Act 1987 (c 49)
s 1(1)(a) ....................................... 344
Third Parties (Rights against Insurers)
Act 1930 (c 25) ............................... 452
Third Parties (Rights against Insurers)
Act 2010 (c 10) ............................... 452
s 9(6).................................... 432, 452
s 19 .............................................. 430
Torts (Interference with Goods) Act
1977 (c 32) ...................................... 329
s 1 .............................................. 329
s 2(1)............................................ 321
s 12 .............................................. 208
UK Statutory Instruments
Air Navigation Order 2009 (SI 2009/3015)
art 5 ............................................... 73
art 5(4) ........................................... 73
Civil Partnership Act 2004 (Amendments
to Subordinate Legislation) Order 2005
(SI 2005/2114) ................................... 29
Civil Proceedings and Family Proceedings
Fees (Amendment) Order 2015
(SI 2015/576)................................... 347
Civil Proceedings Fees (Amendment)
Order 2011 (SI 2011/586)
Sch 1 para 11(1)........................... 348
Sch 1 para 11(2)........................... 372
Civil Procedure Rules 1998 (SI
1998/3132) .........165, 256, 346, 348, 370
Pt 7(6) .......................................... 347
Pt 12 ............................................ 359
r 25(1)(f ) ..................................... 347
Pt 35 PD ...................................... 362
Pt 37.4) ........................................ 256
Pt 61 ............................................ 346
r 61.3(3)(b) .................................. 347
r 61.3(4) ....................................... 359
r 61.3(5) ....................................... 347
r 61.3(5)(a)................................... 349
r 61.5(1)(a)................................... 346
r 61.5(1)(b) .................................. 346
r 61.5(3)(a)................................... 348
r 61.5(4) ............................... 346, 349
r 61.7 ........................................... 348
r 61.8(2) ....................................... 349
r 61.8(7)(b) .................................. 351
r 61.8(8) ....................................... 353
r 61.9(1) ....................................... 359
r 61.9(3)(a)........................... 359, 370
r 61.9(3)(a)(iii) ............................. 359
liv
TABLE OF LEGISLATION
Financial Collateral Arrangements
(No. 2) Regulations 2003
(Amendment) Regulations 2009
(SI 2009/2462) ......................... 265, 501
Financial Markets and Insolvency
(Settlement Finality and Financial
Collateral Arrangements)
(Amendment) Regulations 2010
(SI 2010/2993) ......................... 265, 501
Fishing Vessels (Safety Provisions)
Rules 1975 (SI 1975/330) ............ 29, 34
Hong Kong (British Nationality)
Order 1986 (SI 1986/948)............ 26, 28
Insolvency Rules 1986
(SI 1986/1925) ................................. 256
r 4.75(1)(e) ................................... 394
r 4.88(1) ....................................... 393
r 4.88(2) ....................................... 394
r 4.90 .......................................... 394
r 4.97 .......................................... 394
r 4.99 .......................................... 393
Insolvency (Amendment) Rules 2005
(SI 2005/527)................................... 394
Insolvency (Northern Ireland)
Order 1989 (SI 1989/2405) .............. 384
International Interests in Aircraft
Equipment (Cape Town Convention)
Regulations 2015 (SI 2015/912) ..........107
Land Registration Rules 2003
(SI 2003/1417) ................................... 30
Limited Liability Partnerships (Application
of Companies Act 2006) Regulations 2009
(SI 2009/1804)
Pt 9 ...................................... 120, 138
Limited Liability Partnerships (Application
of Companies Act 2006) (Amendment)
Regulations 2013 (SI 2013/618) ..........146
Merchant Shipping (Fees) Regulations
2006 (SI 2006/2055) ........................ 139
Merchant Shipping (Fishing Vessels –
Tonnage) Regulations 1988
(SI 1988/1909) ................................... 29
Merchant Shipping (Registration
of Ships) Regulations 1993
(SI 1993/3138) .......... 15, 17, 23, 35, 40,
48, 49, 104, 122, 139,
149, 188, 199, 202, 508
reg 1 ............................................... 19
reg 1(2) ........................................ 183
reg 2(1) .......................................... 25
r 61.9(4) ....................................... 360
r 61.9(5) ....................................... 359
r 61.10(1) ..................................... 358
r 61.10(2) ..................................... 361
r 61.10(3) ......................359, 368, 370
r 61.10(4) ..................................... 371
Pt 61PD para 3(3) ........................ 347
Pt 61PD para 3(6)(1)(a) ............... 349
Pt 61PD para 3(9) ........................ 347
Pt 61PD para 3(12) ...................... 346
Pt 61PD para 5(2) ........................ 349
Pt 61PD para 5(7) ........................ 352
Pt 61PD para 7(1) ........................ 349
Pt 61PD para 9(2) ........................ 368
Pt 61PD para 9(3) ........................ 358
Pt 61PD para 9(5) ........................ 368
Pt 61PD para 14(1) ...................... 347
Companies Act 2006
(Amendment of Part 25)
Regulations 2013
(SI 2013/600)........................... 142, 143
reg 2 ............................................. 143
reg 3 ..............................143, 146, 157
Sch 1 ............................................ 143
Co-operation of Insolvency Courts
(Designation of Relevant Countries
and Territories) Order 1986
(SI 1986/2123) ................................. 391
Co-operation of Insolvency Courts
(Designation of Relevant Countries)
Order 1996 (SI 1996/253)................ 391
Co-operation of Insolvency Courts
(Designation of Relevant Country)
Order 1998 (SI 1998/2766) .............. 391
Cross-Border Insolvency Regulations
2006 (SI 2006/1030) ............... 380, 389,
419, 420
Sch art 3 ...................................... 390
Sch art 21..................................... 219
Defence (General) Regulations 1939
(SI 1939/927)........................... 504, 508
Financial Collateral Arrangements
(No. 2) Regulations 2003
(SI 2003/3226) .................142, 265, 266,
285, 412, 501
reg 3 ............................................. 501
reg 4 ............................................. 501
reg 8 ............................................. 501
reg 10 ........................................... 501
reg 17 ........................................... 501
lv
TABLE OF LEGISLATION
reg 95 ............................................. 29
reg 108 ........................................... 30
reg 109(1)....................................... 30
reg 109(2)....................................... 30
Sch 1 ...................................... 29, 122
Sch 2 .............................................. 29
Sch 3 .............................................. 29
Merchant Shipping (Registration of
Ships) (Amendment) Regulations
1994 (SI 1994/541) .................... 17, 139
Merchant Shipping (Registration of
Ships) (Amendment) Regulations
1998 (SI 1998/2976) .................. 17, 139
Merchant Shipping (Registration of
Ships) (Tonnage Amendment)
Regulations (SI 1998/1915) ...........17, 139
Merchant Shipping (Registration of Ships
and Tonnage) (Amendment) Regulations
(SI 1999/3206) ..................... 17, 29, 139
Merchant Shipping (Small Ships Register)
Regulations 1983 (SI 1983/1470) ..........25
Merchant Shipping (Tonnage) (Fishing
Vessels) (Amendment) Regulations
1998 (SI 1998/1916) .......................... 29
Merchant Shipping (Tonnage) Regulations
1997 (SI 1997/1510) .......................... 29
Pt IIA ............................................. 29
Mortgaging of Aircraft Order 1972
(SI 1972/1268) ........................... 74, 138
Offshore Installations (Offshore Safety
Directive) (Safety case etc.) Regulations
2015 (SI 2015/398) ........................ 35–6
Overseas Companies (Execution of
Documents and Registration of
Charges) Regulations 2009
(SI 2009/1917) ..................121, 145, 203
Overseas Companies (Execution of
Documents and Registration
of Charges) (Amendment)
Regulations 2011
(SI 2011/2194) ......................... 145, 147
reg 23 ........................................... 147
reg 24 ........................................... 147
reg 25 ........................................... 147
Recreational Craft Regulations 2004
(SI 2004/1464) ................................... 44
Rules of the Supreme Court 1965 (SI
1965/1776)
Ord 75 r 5 ............................ 338, 349
Ord 75 r 5(6) ............................... 346
reg 2(5)(d) ...................................... 26
reg 2(6) ............................ 31, 32, 199
reg 3 ......................................... 25, 28
reg 3(a)........................................... 25
reg 6 ............................................... 19
reg 6(1) .......................................... 58
reg 6(2) .......................................... 58
reg 7 ............................................... 26
reg 8 ............................................... 27
reg 12 ............................................. 27
reg 13(2) ........................................ 27
reg 14(1) ........................................ 27
reg 14(2) ........................................ 27
reg 15 ............................................. 27
reg 18(2) ........................................ 27
reg 19 ............................................. 27
reg 22(2) ........................................ 29
reg 24 ............................................. 29
reg 28 ............................................. 29
reg 31 ............................................. 29
reg 36(3) ........................................ 34
reg 39 ............................... 29, 34, 188
regs 39–42 .................................... 188
reg 41 ..................................... 34, 188
reg 42 ..................................... 34, 188
reg 42(2) ........................................ 34
reg 56 ................................... 188, 253
reg 56(1) ........................................ 34
reg 56(5) ........................................ 21
reg 57 ............................. 48, 122, 139
reg 57(a) ....................................... 139
reg 57(b) ...................................... 139
reg 58 ........................................... 139
reg 59 ................................... 141, 149
reg 59(1) ...................................... 149
reg 59(1)(a) .................................. 149
reg 59(1)(b) .................................. 149
reg 59(3) ...................................... 149
reg 59(5) .............................. 141, 149
reg 59(6) ...................................... 141
reg 59(7) ...................................... 141
reg 60 ................................... 200, 202
reg 61 ................................... 200, 202
reg 62 ........................................... 203
reg 62(2) ...................................... 204
reg 71 ........................................... 189
reg 72 ........................................... 189
reg 72(1) ...................................... 189
reg 89 ............................................. 28
reg 91 ......................................... 25, 8
lvi
TABLE OF LEGISLATION
Treaty of Lisbon (Changes in
Terminology) Order 2011
(SI 2011/1043) ........................... 17, 139
Treaty of Lisbon (Changes in Terminology
or Numbering) Order 2012 (SI
2012/1809) ....................................... 139
Australia
Admiralty Act 1988
s 3(1).............................................. 64
s 17 .......................................... 20, 88
s 18 ................................................ 20
s 19 ................................................ 20
Shipping Registration Act 1981,
No. 8 ........................................... 13, 22
s 38(1) ............................................ 13
s 40 ................................................ 13
s 41 ................................................ 13
Bahamas
Merchant Shipping Act
s 37 ............................................. 249
Canada
Marine Liability Act SC 2001, c 6
s 139 ............................................ 373
Shipping Act, RSC 1985 (c S-9) ............ 22
Cayman Islands
Merchant Shipping Law
(2011 Revision) .................................. 34
Commonwealth of the Bahamas
Merchant Shipping Act 1976 (c 268)
s 3(2).............................................. 23
s 6 ................................................ 23
Cyprus
Merchant Shipping (Registration of
Ships, Sales and Mortgages)
Law 1963 (Law 45/1963
as amended) ....................... 23, 164, 250
s 31 .............................................. 164
s 35 .............................................. 250
s 37 .............................................. 249
s 38 .............................................. 164
France
Civil Code
Art 1690 .......................................... 461
Code de Commerce
Article L620 ..................................... 414
Germany
Insolvency Act (Insolvenzordnung
vom 05.10.1994, Stand
17.07.2015).............................. 414, 425
Law of the Flag Act 1951 ...................... 40
Limited Liability Companies Act (Gesetz
betreffend die Gesellschaften mit
beschränkter Haftung vom 20.04.1892,
Stand 17.07.2015 (GmbHG)) .......... 414
s 64 .............................................. 414
Greece
Bankruptcy Law No 3588/2007 ........... 414
Hong Kong
Merchant Shipping (Registration) Ordinance
s 47 ...............................................................249
Ireland
Revenue (No 2) Act 1864
s 4 .......................................... 99, 100
Isle of Man
Merchant Shipping Registration
Act 1991 ............................................ 33
Italy
Royal Decree 267/1942
s 160............................................... 414
Malta
Code of Organisation and Civil
Procedure Act (Cap 12) ................... 362
s 364 ............................................ 362
Merchant Shipping Act 42(1)(b) .......... 249
New Zealand
Admiralty Act 1973 ............................... 20
Personal Property Securities
Act 1999 ............................................ 96
s 90 ................................................ 96
Public Act 1952 No 49 .......................... 22
Ship Registration Act 1992
s 70 .......................................... 95, 96
Shipping and Seaman
Act 1952 ...................................... 22, 94
s 421 .............................................. 49
Panama
Código de Comercio
Article 1527 .................................. 249
lvii
TABLE OF LEGISLATION
Law No 55 of 2008
Article 260...................................... 85
Republic of Ireland
Bills of Sale (Ireland) Act 1879...... 36, 148
Companies Act 1963 ..................... 36, 148
Singapore
Merchant Shipping Act (Ch179,
1996 Rev Ed) ............................. 23, 249
United States
Admiralty Jurisdiction Regulation
Act No 105 1983 ......................... 20, 87
s 11(4)(c) ..................................... 374
Admiralty Jurisdiction Regulation
Act No 87 1992 ............................... 374
Code of Federal Regulations (CFR)
Title 31 Pt 515 (Cuban Assets
Control Regulations) ..................... 192
Title 31 Pt 535 (Iranian Assets
Control Regulations) ..................... 192
Commercial Instruments and Maritime
Liens Act.......................................... 374
Comprehensive Iran Sanctions,
Accountability, and Divestment
Act 2010 .................................. 191, 433
Merchant Marine Act 1920
(P.L. 66-261).............................. 10, 118
Oil Pollution Act 1990 .........187, 188, 247,
332, 334, 471
s 2704 .......................................... 247
Ship Mortgage Act 1920 ................ 10, 118
Uniform Fraudulent Conveyance
Act 1919 .......................................... 428
Uniform Fraudulent Transfer
Act 1984 ......................................... 428
US Code Title 11
(Bankruptcy) ................. 380, 383, 419,
424, 428
Ch 1 s 105 ................................... 425
s 109 ............................................ 425
Ch 5 s 506(b) ............................... 429
Ch7 .............................................. 428
Ch 9 ............................................. 425
Ch 11 ............... 380, 383, 390, 424–9,
428, 429
s 1101–1174 ................................. 380
s 1104 (a)(1), (2) .......................... 426
Ch15 ............................................ 425
s 1520 .......................................... 425
s 1517(b)(1) ................................. 425
s 1529 .......................................... 425
US Code Title 28 (Judiciary and Judicial
Procedure)
s 1921 ......................................... 372
US Code Title 33 (Navigation and
Navigable Waters)
s 2701 .......................................... 471
s 2702 .......................................... 471
s 2716(a) ...................................... 471
s 2704 ......................................... 247
US Code Title 37 (Pay and Allowances
of the Uniformed Services)
s 2701(26)(vi) ............................... 333
US Code Title 46 (Shipping)
ss 911–984 ............................ 10, 118
s 951 ...................................... 10, 118
ss 31301–43 ............................ 10, 118
ss 31341–3.................................... 374
s 31324(b) ...................................... 13
s 31325................................... 10, 118
EU Law
Treaties and Conventions
Agreement on the European Economic
Area [1994] OJ L1/03
Art 28............................................. 26
Art 31............................................. 26
Convention on the Law Applicable
to Contractual Obligations (Rome
Convention)
Art 3 .............................................. 94
Art 4 .............................................. 94
Art 12..................................... 65, 462
Art 12(1) ...................................... 462
Art 12(2) .......................462, 488, 489
Treaty establishing the European
Community [1997] OJ C340/03 26
Art 39............................................. 26
Art 43............................................. 26
Directives
Directive 2002/47/EC of 6 June 2002
on financial collateral arrangement
[2002] OJ L168/43 ................ 142, 265,
267, 501
Directive 2009/20/EC of 23 April 2009 on
the insurance of shipowners for
lviii
TABLE OF LEGISLATION
obligations [2008] OJ L177/6
(Rome I) .............99, 119, 175, 191, 462
Art 3 .............................................. 94
Art 4 .............................................. 94
Art 7 ............................................ 463
Art 9 ............................................ 191
Art 9(2) ................................ 191, 463
Art 9(3) ................................ 193, 463
Art 14......................65, 462, 488, 489
Art 14(1) ................................ 65, 488
Art 14(2) ................................ 65, 488
Art 14(3) ...................................... 488
Art 28........................................... 462
Regulation 267/2012 concerning
restrictive measures against Iran
[2012] OJ L88/1 ..................... 191, 433
Regulation 1257/2013 of 20 November
2013 on ship recycling [2013]
OJ L330/1 ........................................ 369
Regulation 269/2014 of 17 March 2014
concerning restrictive measures in
respect of actions undermining or
threatening the territorial integrity,
sovereignty and independence of
Ukraine [2014] OJ L78/6 ................. 192
Regulation 833/2014 concerning restrictive
measures in view of Russia’s actions
destabilising the situation in Ukraine
[2014] OJ L229/1............................. 192
Regulation 960/2014 of 8 September
2014 amending Regulation (EU)
No 833/2014 concerning restrictive
measures in view of Russia’s actions
destabilising the situation in Ukraine
[2014] OJ L271/3) ........................... 192
Regulation 2015/848 of 20 May 2015
on insolvency proceedings [2015] OJ
L141/19 ............. 110, 379, 386, 415–18
Art 2(9)(iv) ....................416, 417, 418
Art 3(1) ........................................ 389
maritime claims [2009]
OJ L131/128 .................................... 433
Directive 2013/30/EU of 12 June 2013
on safety of offshore oil and gas
operations [2013] OJ L178/66 ............ 36
Regulations
Regulation 2137/85 of 25 July 1985 on the
European Economic Interest Grouping
[1985] OJ L199/1
Art 1 .............................................. 27
Regulation 1346/2000 of 29 May 2000
on insolvency proceedings [2000] OJ
L160/1 .........110, 245, 338, 379, 381, 386,
387, 389, 390, 395, 401, 414–19
Recital 13 ............................. 386, 389
Art 2(g) .........................416, 417, 418
Art 2(h) ................................ 388, 419
Art 3 ............................................ 386
Art 3(1) ................................ 387, 395
Art 3(2) ................................ 388, 419
Art 4 .................................... 415, 416
Art 4(2)(m) .................................. 413
Art 5 .......................................415–19
Art 5(1) ................................ 415, 418
Art 5(2) ........................................ 418
Art 5(25) .......................415, 416, 418
Art 8(68) ...................................... 416
Art 11......................................417–18
Art 13................................... 413, 417
Art 14................................... 417, 418
Regulation 44/2001 of 22 December
2000 on jurisdiction and the
recognition and enforcement of
judgments in civil and commercial
matters [2000] OJ L12/1 ........... 318, 384
Regulation 1013/2006 of 14 June
2006 on shipments of waste
[2006] OJ L190/1........................369–70
Regulation 864/2007 of 11 July 2007
on the law applicable to noncontractual obligations [2007]
OJ L199/40 (Rome II) ............ 175, 296,
318, 330, 332
Art 4 .................................... 318, 330
Art 4(1) ........................................ 318
Art 4(2) ................................ 318, 330
Art 14........................................... 296
Regulation 593/2008 of 17 June 2008
on the law applicable to contractual
International Treaties and
Conventions
Convention on Conditions for Registration
of Ships 1986 (UN) ................... 24, 106
Convention on the High
Seas 1958................................. 106, 113
Art 5 .............................................. 24
Art 6 .............................................. 24
lix
TABLE OF LEGISLATION
Liens and Mortgages
1967 ..............................................68, 106
Art 1 .............................................. 92
International Convention on Civil
Liability for Bunker Oil Pollution
Damage 2001 ........................... 247, 433
International Convention on Civil
Liability for Oil Pollution
Damage 1969 ........................... 247, 433
International Convention on Maritime
Liens and Mortgages 1993 ...... 68, 106, 374
Art 2 .............................................. 10
International Convention on Salvage 1989
Art 3 .............................................. 36
Art 23........................................... 212
International Convention on the Arrest
of Ships 1999 ...................106, 256, 340
International Convention on the
Establishment of an International Fund
for Compensation for Oil Pollution
Damage 1971 ................................... 247
International Convention relating
to the Arrest of Sea-Going
Ships 1952 .......................101, 105, 340,
343, 386
Art 1(1) ........................................ 341
Art 1(1)(q) ............................. 92, 341
International Convention relating to the
Limitation of the Liability of Owners
of Sea-Going Ships 1957 .................. 246
International Maritime Organization
Protocol of 1992 to amend the
International Convention on the
Establishment of an International
Fund for Compensation for Oil
Pollution Damage of 18 December
1971......................................... 247, 433
Lugano Convention on Jurisdiction
and Enforcement of Judgments in
Civil and Commercial Matters 1988
Art 2 ............................................ 315
Art 5(5) ................................ 315, 318
UNCITRAL Model Law on Cross-Border
Insolvency 1997 ............. 245, 338, 380,
384, 388–90, 419,
425, 428
Art 3 ................................................ 390
Art 15 .............................................. 113
Art 28 .............................................. 425
Art 29 .............................................. 425
Convention on International Interests
in Mobile Equipment 2001
(Cape Town) .....................106, 107, 110
Aircraft Protocol ............106, 107, 110
Convention on the Law of Sea
1982 (UN) ........................105, 112, 115
Art 90............................................. 85
Art 91....................... 24, 85, 106, 114
Art 92............................................. 24
Convention on Limitation of Liability for
Maritime Claims 1976 ............. 246, 247
Art 1(2) ........................................ 246
Art 1(5) ........................................ 247
Art 1(6) ........................................ 246
Art 4 ............................................ 246
Art 15(5)(b) ................................... 36
Convention on Private International Law
(Bustamante Code) 1928 ....... 108, 113,
114, 373
Art 77............................................. 97
Art 277 ................................. 166, 373
Art 278 ......................................... 113
Convention on the Territorial Sea and the
Contiguous Zone 1958
Art 3 ........................................... 344
Draft International Convention on Foreign
Judicial Sales of Ships and their
Recognition 2012 ..............107, 108, 370
Hong Kong International Convention for
the Safe and Environmentally Sound
Recycling of Ships 2009 ................... 369
International Convention for the Safety of
Life at Sea (SOLAS) 1974 ............... 432
International Convention for the
Unification of Certain Rules relating to
the Limitation of Liability of Owners of
Sea-going Vessels 1924 ..................... 246
International Convention for the
Unification of Certain Rules of Law
relating to Maritime Liens and
Mortgages 1926 ........68, 106, 108, 113,
114, 374
Art 1 .......................92, 105, 106, 113
Art 2(5) ........................................ 374
Art 9 ............................................ 374
Art 14........................................... 114
Arts 274–84 .................................. 108
Art 278 ......................................... 108
International Convention for the Unification
of Certain Rules relating to Maritime
lx
CHAPTER 1
Historical introduction
1.1 Background
1.1.1 Coote on Mortgages1 says of ship mortgages: ‘No species of mortgage security
requires greater circumspection than that we are about to consider.’ The objective
of this book is to set out circumspectly the modern law of ship mortgages. The
risks of lending against the security of ships were noted in a nineteenth century
Scottish case:2
. . . the mortgagee of a ship holds a security over a floating subject which in the very
act of use is liable to be withdrawn from the jurisdiction of the courts of the country
in which the right of the mortgagee is constituted, and which also in the act of use is
exposed to the perils of the sea.
The features of lending against the security of ships reflected by this last remark
show themselves in a number of legal issues touched upon in this book which
arguably make ship mortgages different in certain respects from mortgages over
other property (both real and personal), including: the nature and extent of the
mortgagee’s duties to the mortgagor on enforcement;3 liabilities to charterers and
cargo interests;4 issues relating to priority;5 the application of the equitable doctrine
of marshalling;6 and the effect of liens.7
1.1.2 Security interests in property developed in the legal systems of many early
civilisations8 and in particular in Roman law.9 In England the use of property
as security was known to the common law from the earliest of times. Initially
1 Coote, The Law of Mortgages (2nd edn, 1837) 327.
2 Laming & Co v Seater (1889) 16 Sess Case (4th Ser) 828, 26 Sc LR 500, 504.
3 See Chapter 12, especially section 12.6 (Are ship mortgages different?).
4 See Chapter 13, section 13.2 (Liability to non-demise charterers and cargo interests).
5 See Chapter 7, section 7.7 (Floating charges and priority) and section 7.9 (Tacking of further
advances).
6 See Chapter 7, section 7.11 (Marshalling).
7 See Chapter 10.
8 GEM de Ste Croix, ‘Ancient Greek and Roman Maritime Loans’ in Harold Edey and BS Yamey
(eds), Debits, Credits, Finances & Profits (Sweet & Maxwell 1974). See also Edward Cohen, Athenian
Economy and Society: A Banking Perspective (Princeton University Press 1992) 140, 148, 161, 163.
9 JB Moyle, Imperatoris Justiniani Institutionum Libri Quattor (5th edn, OUP 1923) 326–331.
1
HISTORICAL INTRODUCTION
mortgages were limited to land10 but mortgages could also be granted on chattels.11
In summary a mortgage was a transfer by the owner of its legal title in property
to the mortgagee on condition that the legal ownership would be retransferred
to the owner on payment of the mortgage debt: the owner retained possession
of the property and its income unless and until it defaulted in repayment of the
debt when the mortgagee could foreclose on the mortgage and take possession
of the property. In the seventeenth century equity had intervened to protect the
owner by requiring the mortgagee to retransfer the legal title in the property
to the owner on payment of the debt notwithstanding that the legal date for
repayment had passed. In G&C Kreglinger v New Patagonia Meat & Cold Storage Company Ltd12 Lord Parker described the intervention of equity as follows:
Taking the simple case of a mortgage by way of conveyance with a proviso for reconveyance on payment of a sum of money upon a specified date, two events might happen. The mortgagor might pay the money on the specified date, in which case equity
would specifically perform the contract for reconveyance. On the other hand the
mortgagor might fail to pay the money on the date specified for that purpose. In this
case the property became at law an absolute interest in the mortgagee. Equity, however,
did not treat time as the essence of the transaction, and hence on failure to exercise
what may be called the contractual right to redeem there arose an equity to redeem
notwithstanding the specified date had passed . . . The equity to redeem which arises
on the failure to exercise the contractual right of redemption, must be carefully distinguished from the equitable estate, which, from the first remains in the mortgagor
and is sometimes referred to as an equity of redemption.
1.1.3 Although a species of chattel,13 ships, or at least registered ships, are not
like ordinary chattels.14 The registration regime for ships has both a public law
function and private law consequences.15 The private law consequences mainly
manifest themselves in the conflict of laws treatment of the transfer of proprietary
10 Charles Harpum, Stuart Bridge, Martin Dixon, Megarry & Wade on The Law of Real Property
(8th edn, Sweet & Maxwell 2012) paragraphs 24–007–24–018.
11 Reeves v Capper (1838) 5 Bing 136, 132 ER 1057. Among the secondary sources which address
mortgaging of chattels are: ELG Tyler and NE Palmer, Crossley Vaines on Personal Property (5th edn, Butterworths 1973) Part IV; Edward F Cousins and Ian Clarke, Cousins on the Law of Mortgages (3rd edn,
Sweet & Maxwell 2010) paragraphs 22–01–22–07 and 22–31 to 22–32; Ewan McKendrick, Goode on
Commercial Law (4th edn, LexisNexis UK and Penguin Books 2010) 629 (hereafter in this chapter, ‘Goode
on Commercial Law’); Louise Gullifer, Goode on Legal Problems of Credit and Security (5th edn, Sweet &
Maxwell 2013) (hereafter in this chapter, ‘Goode LPCS’); Richard Calnan, Taking Security (3rd edn, Jordans 2013) paragraphs 3.30–3.34; Falcon Chambers and Sir Paul Morgan (eds), Fisher and Lightwood’s
Law of Mortgage (14th edn, LexisNexis 2014) Chapter 16; Michael Bridge, Personal Property Law (4th edn,
OUP 2015) Chapter 8; Hugh Beale, Michael Bridge, Louise Gullifer, Eva Lomnicka, The Law of Security
and Title-Based Financing (2nd edn, OUP 2012) (hereafter in this chapter ‘Beale et al’).
12 [1914] AC 25 (HL) 35.
13 See Chapter 2, paragraphs 2.1.1 and 2.1.2.
14 ‘A ship is not like an ordinary personal chattel; it does not pass by delivery, nor does the possession of it prove the title to it. There is no market overt for ships; in the case of American ships the laws of
the United States provide the means of evidencing the title to them’; Hooper v Gumm (1866–67) LR 2 Ch
App 282, 290 (Turner LJ). These words have frequently been quoted in later cases and are also quoted
again later in this book; see Chapter 2, paragraph 2.1.4, Chapter 3, paragraph 3.2.5 and Chapter 4,
paragraph 4.4.6.
15 See Chapter 2, paragraphs 2.3.1 and 2.3.6.
2
HISTORICAL INTRODUCTION
interests16 and in the ousting of certain doctrines of equity by the statutory regime
for the registration of title and mortgages.17 Further indicators of the differences
between ships and other chattels are: the potential availability of specific performance in respect of a contract for the sale of a ship;18 the exclusion of ships from
the application of the Bills of Sale Acts;19 and the long-standing exemption of
transfers of ships from stamp duty.20
1.2 Maritime law and ship mortgages
1.2.1 Maritime law, as law crossing national boundaries, has an ancient history,
which can be traced as far back as the Rhodian law of the eighth or ninth centuries
BC.21 The special nature of maritime law was reflected in England by its being
subject to the jurisdiction of a separate court, the High Court of Admiralty, whose
practitioners and judges were Doctors of Civil Law and members of Doctors’
Commons. Maritime law was thus a distinct specialism, set apart from the law
practised and developed by the courts of common law and equity. There was longrunning rivalry between those courts and the High Court of Admiralty, with
competition for influence and jurisdiction, going back to Tudor times and beyond,
and with the High Court of Admiralty generally losing.22 The High Court of
Admiralty underwent a resurgence of influence, however, under William Scott,
Lord Stowell between 1798 and 1827, which continued during the tenure of
Dr Stephen Lushington as Admiralty Judge between 1838 and 1867.23 The High
Court of Admiralty ceased to exist in the massive reorganisation that took place
16 See, generally, Chapter 4.
17 On registration generally, see Chapter 2. See also Chapter 3, section 3.2 (Statutory mortgages – the
primacy of registration); Chapter 7, section 7.4 (Failure to register a mortgage) and paragraphs 7.7.8,
7.9.6 and 7.9.9.
18 Behnke v Bede Shipping Co Ltd [1927] 1 KB 649, (1927) 27 Ll L Rep 24.
19 Bills of Sale Act 1878 (41 & 42 Vict c 31), s 4, which excludes ‘transfers or assignments of any ship
or vessel or any share thereof ’ from the definition of ‘bill of sale’.
20 For a long time the exemption was given by the Stamp Act 1891, Schedule 1. The exemption is
now given by the Finance Act 2003, s 125 which, with effect from 1 December 2003, eliminated stamp
duty in relation to all assets other than shares and marketable securities.
21 William Tetley QC, ‘The General Maritime Law – the Lex Maritima (with a brief reference to the
Ius Commune in arbitration law and the conflict of laws)’ 20 Syracuse J Int’l L & Com 105. See also
William Tetley, Maritime Liens and Claims (2nd edn, Les Éditions Yvon Blais Inc 1989) Chapter 1 (in
relation to the historical development of maritime law) and Chapter 14 (in relation to ship mortgages,
including their historical development).
22 On the history of the Admiralty Court and Admiralty jurisdiction generally see: WS Holdsworth,
A History of English Law (3rd edn, Methuen 1920) Volume 1, 544–561 and Volume V, 100–103 and
120–129; FL Wiswall Jr, The Development of Admiralty Jurisdiction and Practice since 1800 (Cambridge
1970) 5–7 (hereafter in this chapter, ‘Wiswall’); Harold Potter, An Historical Introduction to English Law
and its Institutions (Sweet & Maxwell 1932) Part II Chapter VII; Theodore FT Plucknett, A Concise History
of the Common Law (5th edn, Butterworths 1956) Chapter 5. See also The Goring [1988] (1) AC (HL)
831, 846, 847 (Lord Brandon) and the argument of counsel in the context of jurisdiction in salvage cases.
See further the summary of the relationship between the jurisdiction of the courts of common law and
the High Court of Admiralty by Lord Diplock in The Owners of the Motor Vessel Tojo Maru v NV Bureau
Wijsmuller [1972] AC 242 (HL) 291 (another salvage case).
23 Wiswall (n 22) Chapters 1 and 2.
3
HISTORICAL INTRODUCTION
by the Supreme Court of Judicature Act 187324 but re-emerged in that reorganisation as the Probate, Divorce and Admiralty Division, one of the five divisions of
the new High Court of Justice. The Probate, Divorce and Admiralty Division was
abolished by the Administration of Justice Act 1970,25 which constituted the Admiralty Court as part of the Queen’s Bench Division of the High Court.
1.2.2 The ship mortgage is, however, not derived from the lineage of ancient,
civil law-influenced maritime law. The jurisdiction of the High Court of Admiralty
traditionally extended to the ancient institution of bottomry, i.e. hypothecation of
a ship’s hull to secure expenses and to ensure the safe continuation of a voyage,26
but not to mortgages, until that jurisdiction was conferred by the Admiralty Court
Act 1840.27 Ship mortgages originally fell under the jurisdiction of the courts of
common law and equity, reflecting that they were the extension into a maritime
context of a land-based concept, i.e. the chattel mortgage. There appears to have
been some latitude granted to mortgagees by the courts before 1840, at least to
intervene in, if not initiate, proceedings. In The Dowthorpe28 Dr Lushington observed
shortly after the passing of the 1840 Act and referring to an earlier case:
A mortgagee, undoubtedly, at that time, could not initiate proceedings in the Court
of Admiralty; but it is quite a different question, whether he could not intervene to
protect his interest when a suit was already exercised by parties competent to do so . . .
Now the evident consequence of that judgment,29 if carried to its full extent, would
result in this: that supposing the law of this Court, with respect to mortgagees, remained
unaltered, in no case could the mortgagee of a ship (and mortgagees of ships are of
everyday occurrence) appear in a suit to protect his interest. The question is now set
at rest by the late Act of Parliament; but I am inclined to think that, although previous
to the passing of the Act 3 & 4 Victoria, a mortgagee could not have initiated a suit
in this Court, yet he might have intervened for the protection of his interest.
The effect of the jurisdictional division is dramatically illustrated by The Portsea30 in
1827 where a ship mortgage was not recognised by the High Court of Admiralty.31
24 36 & 37 Vict c 66.
25 Repealed and replaced by the Supreme Court Act 1981, s 6(1). (The Supreme Court Act 1981 was
renamed the Senior Courts Act 1981 by the Constitutional Reform Act 2005, Schedule 11, paragraph
1(1).)
26 Wiswall (n 22), 9, 10. Writing in 1920 Constant observed:
In the course of a case [The Sara 14 AC 209] in 1899 it was remarked that the telegraph had almost killed
bottomry bonds, and the combined effect of the vastly improved systems of foreign communication and
credit of modern times and the master’s lien for disbursements which is now recognised by Statute has
been to relegate bottomry bonds to an obscurity from which they are hardly likely to emerge.
Benjamin Constant, The Law Relating to the Mortgage of Ships (Syren & Shipping Ltd, 1920) (hereafter
in this chapter, ‘Constant’) paragraph 71. On bottomry bonds further see Chapter 3, paragraph 3.7.4.
27 3 & 4 Vict c 65.
28 166 ER 682, 1843 2 W Rob 73.
29 Referring to The Percy 3 Hag 402.
30 166 ER 175, (1827) 2 Hag Adm 84.
31 Goddard points out that not only did the Admiralty Court not have jurisdiction over British ship
mortgages until the Admiralty Court Act 1840 but it was only given jurisdiction over foreign mortgages
by the Administration of Justice Act 1956; Kathleen S Goddard, ‘“Yes, we have no bananas” : reflections
on ship mortgages and The Tropical Reefer ’ [2006] LMCLQ 202.
4
HISTORICAL INTRODUCTION
1.2.3 In the seventeenth and eighteenth centuries, in order to raise finance for
businesses, partnerships or in some cases joint stock companies were often formed.
However it would appear that shipowning was financed on a different basis because
it tended to be part of the business of a merchant and not a separate business.32
Ships were divided into a number of shares and these shares were usually distributed
between several merchants so that a merchant might hold a few shares in a number
of ships. Ships were thus owned through special shipowning ‘partnerships’. Certainly,
until the end of the eighteenth century the means by which ships were owned and
financed did not seem to require extensive use of mortgages.33 A voyage or venture
might have been financed by a bottomry bond, usually as a matter of unforeseen
necessity, but this was not a method suitable for the financing of the ship itself.34
1.2.4 The Navigation Act 166035 had introduced a system of registration of
ownership of foreign-built ships and this system was extended in 169636 to all
English-built ships.37 Therefore if an owner wanted to grant a legal mortgage
on a registered British ship it had to execute a bill of sale transferring legal
ownership in the ship to the mortgagee and the mortgagee could register the
bill of sale in the register book as owner; on redemption of the mortgage there
would be a re-transfer of legal ownership to the owner by the mortgagee.38 The
risk in this arrangement was that the transferee would purport to be the outright
owner and refuse to reconvey the ship on payment of the debt, as happened in
The Jane.39 In view of this risk, or perhaps because the transfer of registered
title was regarded as too cumbersome, the owner might grant a mortgage by
executing the bill of sale and delivering it to the mortgagee but without registering the bill of sale in the register book – i.e. in effect grant an equitable
mortgage.40 In Jackson v Vernon,41 where the issue was whether a mortgagee not
in possession was liable for the price of stores delivered to the ship on the orders
of the owner, the mortgage was constituted by an absolute bill of sale (which
it seems was not registered) and a deed poll executed by the owner granting the
32 Ralph Davies, The Rise of the English Shipping Industry in the 17th and 18th Centuries (2nd impression,
David & Charles 1972) (hereafter in this chapter ‘Davies’) Chapter V.
33 ibid 81: ‘Until the eighteenth century was very far advanced, shipowning was no man’s trade;
instead it was a minor function of people whose most important interests and investments lay elsewhere.
Most shipowners were merchants, most merchants were at some time shipowners, but shipowning
claimed only a small proportion of each man’s capital, and received a correspondingly small share of his
time and attention.’ (By kind permission of the publishers.)
34 ibid 84, 85.
35 12 Car 2 c 18.
36 7&8 Gul 3 c 22, s17. The Shipping and Navigation Act 1786 (26 Geo 3 c 60) extended the registration requirement to all owners of British ships over 15 tons.
37 See Chapter 2, section 2.3 (Registration) for an overview of the development of the registration regime.
38 See Constant (n 26) paragraph 21 and the cases there referred to: Langton v Horton 49 ER 479
(Ch), (1842) 5 Beav 9; Gardner v Cazenove 156 ER 1267 (Ex Ct), (1856) 1 Hurl N 423; Ward v Beck
143 ER 265 (CP), (1863) 13 CBNS 668; The Cathcart (1865–67) LR 1 A&E 314 (Adm). It is interesting
that all these cases are after the modified form of bill of sale (by way of security) was introduced by the
Registering of Vessels Act 1823, s 43 and all but one are after the introduction of the statutory mortgage by
the Merchant Shipping Act 1854. See Chapter 3, paragraph 3.5.1. See also paragraph 1.3.4 below, n 56.
39 23 LT 211. The case is referred to in Constant (n 26) at paragraph 21.
40 In The Jane (ibid) there was a delay of four years in registering the bill of sale.
41 (1789) 1 H BL 114, 126 ER 69 (CP).
5
HISTORICAL INTRODUCTION
mortgagee the power to sell the ship but providing that if the amount secured
was repaid to the mortgagee, then the mortgagee would reconvey the ship to the
owner. Whilst the registration of a bill of sale intended to be by way of security was
potentially risky for the transferor, conversely the risk inherent to the ‘mortgagee’
of an equitable, unregistered transfer by way of security was that the owner would
fraudulently either sell the ship to a bona fide purchaser without notice or grant
another mortgage which would be registered and take priority over the equitable
mortgage. The use of bills of sale in a mortgage context (i.e. a registered bill of
sale in favour of the mortgagee combined with an unregistered deed of defeasance)
was commented on in Thompson v Smith in 1815,42 where the Vice Chancellor,
Sir Thomas Plumer said:
It is correct to say that there cannot be an equitable interest in a ship not notified to
the Custom House; because if there might be an absolute bill of sale registered, and
a separate deed of defeasance not registered, the Act would be baffled and foreigners
might be secretly possessed of the ownership of the ship.
He went on, however, to recognise the then practice of effecting mortgages within
the constraints of the Registry Acts.43
1.2.5 By the first half of the nineteenth century various changes were taking place which increased the need for ships to be mortgaged or facilitated their
being mortgaged, albeit still by the unsatisfactory method of an outright title
transfer bill of sale (whether or not registered). The use of steam propulsion and
iron construction began to develop, resulting in ships that were larger and faster
but more expensive. The old model of ships being owned by a group of merchants appears to have begun to give way to the emergence of a new breed of
shipowner.44 Developments in corporate law gave rise to different methods of
owning ships than the old way of ownership of shares by individuals45 and led
to the establishment of large, corporate shipping companies providing regular
liner services, such as the Peninsular and Oriental Steam Navigation Company,
incorporated by Royal Charter in 1840. Just as the developments in corporate
law facilitated growth and the ability to raise finance, so developments in banking law ensured the increased availability of finance. The Bank Charter Act 1833
permitted the establishment in the London region of banks that did not issue
banknotes.46 Finally, developments in the sophistication of marine insurance in
the nineteenth century47 must have been a factor in making lending against the
42 56 ER 145, (1815) 1 Madd 395.
43 See also paragraph 1.3.4 below.
44 David Souden, The Bank and the Sea: The Royal Bank of Scotland Group and the Finance of Shipping
since 1753 (The Royal Bank of Scotland Group 2003) 69 (hereafter in this chapter, ‘Souden’).
45 The repeal of the Bubble Act in 1825 and the Joint Stock Companies Act 1844 facilitated the use of
unincorporated companies. Incorporation by charter with limited liability was made possible by legislation
in 1825, 1834 and 1837. See PL Cottrell, ‘The Steamship on the Mersey, 1815–80’ in PL Cottrell and
D H Aldcroft (eds), Shipping,Trade and Commerce; Essays in Memory of Ralph Davies (Leicester University
Press 1981).
46 Souden (n 44) 77.
47 See Joel Mokyr (ed), The Oxford Encyclopaedia of Economic History (OUP 2003) Volume 3, 89, 90.
Lloyd’s was incorporated by Act of Parliament in 1871 (Lloyd’s Act 1871 (34 Vict c 21)).
6
HISTORICAL INTRODUCTION
security of ships more attractive; with a ship properly insured and a mortgagee, by
one means or another, having direct access to the proceeds payable on a total loss
it was able to recover if the ship were lost – in marked contrast with the position
of the holder of a bottomry bond.48
1.2.6 Research into the history of shipowning at the port of Ipswich49 indicates
that during the mid-nineteenth century the number of different owners of a ship
tended to reduce, with ownership by a single owner becoming increasingly common. The number of owners describing themselves as ‘shipowners’ also increased.50
1.3 Legislative reform
1.3.1 The unsatisfactory use of a standard bill of sale as a form of mortgage in
respect of a registered ship was particularly apparent in the context of the prescriptive registration regime that had existed since the Registry Act 1786, as commented
on by Sir Thomas Plumer in Thompson v Smith.51 If a bill of sale used as a mortgage
was registered it led to confusion about who was the owner. This problem was
addressed by the Registering of Vessels Act 1823,52 s 43, which provided that:
. . . when any Transfer of any Ship or Vessel , or any Share or Shares thereof shall be
made only as a Security for the payment of a Debt or Debts, either by way of Mortgage
or of Assignment to a Trustee or Trustee, for the Purpose of selling the same for the
payment of any Debt or Debts, then and in every such Case the Collector and Comptroller of the port where the Ship or Vessel is registered shall in the Entry in the Book
of Registry, and also in the endorsement on the Certificate of Registry in manner
hereinbefore directed, state and express that such Transfer was made only as security
for the Payment of a Debt or Debts, or by way of Mortgage or to that Effect: and the
Person or Persons to whom such Transfer shall be made, or any Person or Persons
claiming under him or them as a Mortgagee or Mortgagees or a Trustee or Trustees
only, shall not by reason thereof be deemed to be the Owner or Owners of such Ship
or Vessel, Share or Shares thereof, nor shall the Person or Persons making such Transfer
be deemed, by reason thereof, to have ceased to be an Owner or Owners of such Ship
or Vessel, any more than if no such Transfer had been made except so far as may be
necessary for the Purpose of rendering the Ship or Vessel, Share or Shares, so transferred available by way of Sale or otherwise, for the Payment of the Debt or Debts for
securing the payment of which such Transfer shall have been made.
1.3.2 Accordingly, a mortgage on a ship would be granted by the owner executing a bill of sale to the mortgagee transferring ownership to the mortgagee but on
registration the fact that the bill of sale was by way of security would be noted on
the register and the certificate of registry.53 However there was no procedure set
48 See Chapter 3, paragraph 3.8.4 in relation to bottomry bonds.
49 Hugh Moffat, Ships and Shipyards of Ipswich 1700–1970 (Malthouse Press 2002). Ipswich was a
major port in national terms from early times until well into the twentieth century.
50 ibid Chapters 3 and 5. Moffat provides snap-shots of the local registered ownership information
in 1830 and 1870. This is consistent with the position described by Souden (n 44) and with the general
position on ownership described by Davies (n 32).
51 n 42. See paragraph 1.2.4 above.
52 4 Geo 4 c 41.
53 See Dean v M’Ghie, 172 ER 175, (1826) 2 Car & P 387.
7
HISTORICAL INTRODUCTION
out for the discharge of the mortgage on redemption and therefore the mortgagee
would have had to execute a bill of sale re-transferring ownership to the owner.
1.3.3 The wording of the Registering of Vessels Act 1823, s 43 to the effect that
a mortgagee shall not be deemed to be the owner, nor shall the person making
the transfer cease to be the owner:
except so far as may be necessary for the purpose of rendering the Ship or Vessel, Share
or Shares, so transferred available by way of Sale or otherwise, for the Payment of the
Debt or Debts for securing the payment of which such Transfer shall have been made
has been carried through with some changes of language in the subsequent Merchant Shipping Acts,54 notwithstanding that the 1854 Act introduced the new
concept of the statutory mortgage. This language appears to be directed at exempting a mortgagee from the liabilities that arise from being a shipowner. The interpretation that the courts have put on this language has had an effect on the rights
and obligations of a ship mortgagee, in particular as regards its position in relation
to third parties. This is addressed in Chapter 13.55
1.3.4 Before the Registering of Vessels Act 1823 a mortgagee in order to register
the bill of sale that granted the mortgage had to comply with the nationality requirements of the statute under which it was registered. Accordingly, a person who was
not qualified to own a British registered ship could not be granted a title transfer
mortgage on the ship.56 The nationality requirement in the registration statutes was
important for political and commercial reasons since it ensured that ‘aliens’ could
not become owners of – and therefore control – British ships. In M’Iver v Humble57
Bayley J commented that ‘the object however of the Registry Acts was to inform the
government whether the owners were British and prevent ships belonging to foreigners from being registered under the British flag’.58 It is arguable that the provision in
section 43 that ‘a Mortgagee . . . shall not by reason thereof be deemed to be the
Owner . . .’ had the effect of removing this nationality requirement for a mortgagee
but it is improbable that such a significant change in the law would have been made
in this oblique way. The mortgage transferred legal title to the mortgagee and if the
mortgagee foreclosed its mortgage on a default by the owner then it would become
the registered owner of a British registered ship.59 It is probable that the only intention of this provision in section 43 was to ensure that, unless and until the mortgagee
took possession of the ship, the owner remained responsible for the operation of
54 The Merchant Shipping Act 1854 (17 & 18 Vic c 104) s 70; the Merchant Shipping Act 1894, s 34;
the Merchant Shipping Act 1995, Schedule 1, paragraph 10.
55 See especially Chapter 13, section 13.2 (Liability to non-demise charterers and cargo interests) and
the discussion of Collins v Lamport 46 ER 1012 (Ch), (1864) 4 De GJ & S 500.
56 Notwithstanding the innovation of the Registering of Vessels Act and even after the statutory mortgage was introduced by the Merchant Shipping Act 1854, it seems that outright transfers by bill of sale
continued to be used as security. See n 38 and the cases there referred to. Also The Innisfallen (1866) LR 1
A & E 72; The Keroula (1886) 11 PD 92. See further Chapter 3, paragraph 3.5.1.
57 104 ER 1053 (Adm), (1812) 16 East 169, 176.
58 See also: Thompson v Smith (n 42) and paragraph 1.2.4 above; The Neptune 12 ER 584 (PC), (1835)
III Knapp 94; Liverpool Borough Bank v Turner (1860) 29 LJ Ch 827, 830–831; Ward v Beck 143 ER 265
(CP), 266; Collins v Lamport (n 55) (Lord Westbury LC).
59 On the obsolescence of foreclosure, see paragraph 1.4.9 below and Chapter 11, section 11.21
(Foreclosure).
8
HISTORICAL INTRODUCTION
the ship and the mortgagee did not become responsible for the liabilities and debts
incurred by the owner in the operation of the ship. Accordingly, even after 1823 it
would seem that a legal, registered mortgage could only be granted to a mortgagee
who was qualified to own a British ship.
1.3.5 The provisions of the 1823 Act relating to mortgages were re-enacted in
statutes of 1825, 1833 and 1845.60 The Merchant Shipping Act 1854,61 in contrast,
introduced an entirely new system for mortgages of registered ships.
Section 66 of the 1854 Act provided:
A registered Ship or any Share therein may be made a security for Loan or other
valuable Consideration and the instrument creating such security hereinafter termed
‘a Mortgage’ shall be in the Form Marked I in the Schedule hereto or as near thereto
as the circumstances permit.
In Black v Williams Vaughan Williams J explained the purpose of the 1854 Act
in the following terms:62
The Act . . . was passed for the benefit of commerce, and in order that English ships
might be easily dealt with by English shipowners. The Legislature has recognised that
occasions arise when it is to the interest of the whole community that people should be
able to raise money on ships by sale or mortgage, and in the interests of the general
public it has therefore provided that registered titles in the statutory form shall have a
priority, thus enabling those who are disposed to purchase or lend money upon ships
to do so with perfect confidence that their titles will not be over-ridden by priority being
obtained by equitable unregistered titles which happen to be prior in point of time, and
which, for reasons of their own, the owners of those equitable titles have not thought fit
to convert into the legal form, or to register in the way pointed out by the statute.
1.3.6 The introduction of the statutory mortgage by the 1854 Act was, however,
in no sense a full statutory security code with the degree of clarity and coherence
that that might have brought. Rather, it was a change achieved in a tantalisingly
brief and obscure manner, leaving it to the courts to interpret and fill the gaps,
often with confusing results. This in turn has led mortgagees over the years to
address the uncertainties to the extent possible by express language in a deed of
covenant or other document.63
1.3.7 The mortgage registration provisions were substantially re-enacted in the
Merchant Shipping Act 1894 and ultimately in Schedule 1 of the Merchant Shipping Act 1995. The form of mortgage set out in the 1854 Act was amended by the
1894 Act and a new form was set out in the Merchant Shipping Act 1988 – which
initially applied to fishing vessels but was subsequently extended to all ships by
the Merchant Shipping (Registration etc.) Act 1993.
1.3.8 The use and development of the ship mortgage in the United Kingdom
in the nineteenth century appears to have run in parallel with the development
at various times in the same century of the maritime hypothec in different civil
60
61
62
63
6 Geo 4 c 110 (1825), 3 & 4 Geo 4 c 55 (1833) and 8&9 Vic c 89 (1845).
17 &18 Vic c 104 (as amended by the Merchant Shipping Amendment Act 1862).
[1895] 1 Ch 408, 421.
See Chapter 3, paragraph 3.3.7.
9
HISTORICAL INTRODUCTION
law jurisdictions.64 This reinforces the view that the ship mortgage (and its civil law
equivalent) are creatures of the Industrial Revolution and the growth of trade and
finance in the nineteenth century rather than of ancient maritime law. In the
United States the developments in relation to ship mortgages were to a degree
equivalent to those in the United Kingdom; in 1854 the Supreme Court held that
ship mortgages were not maritime contracts and therefore not within the admiralty
jurisdiction.65 The status and priority of ship mortgages was not properly established
in the United States until the Ship Mortgage Act of 1920.66
1.3.9 Just as the need for a workable regime for mortgaging ships became necessary domestically and internationally so there was need domestically for a regime
for taking security over general chattels. In the mid-nineteenth century mortgages
of general chattels without possession passing to the mortgagee were facilitated
by the Bills of Sale Act 1854,67 which introduced a public registration system for
such mortgages; before that, non-possessory chattel mortgages were liable to be
struck down by the Fraudulent Conveyances Act 1571.68
1.4 The nature of the statutory mortgage
1.4.1 The statutory ship mortgage introduced by the 1854 Act has sometimes been
considered to be a title transfer mortgage. In Keith v Burrows at first instance
Lindley J stated:69
. . . the mortgagee of a ship, like the mortgagee of any other property, acquires an
ownership in the ship, viz, such ownership as the mortgagor has to give. A first mortgagee will thus acquire the whole ownership in the ship, but only of course as security
for his money. Second and other mortgages will only acquire the interest left in the
mortgagor, or, in other words his right to redeem . . .
Although the decision at first instance was reversed on appeal the nature of a ship
mortgage was not addressed by the Court of Appeal70 or the House of Lords71 as
64 William Tetley QC, ‘Maritime Law as a Mixed Legal System (with particular reference to the distinctive nature of American maritime law, which benefits from both its civil and common law heritages)’
(1999) 23 Tul Mar LJ 317.
65 Bogart v The John Jay 58 US (17 How) 399 (1854). See Grant Gilmore and Charles L Black Jr,
The Law of Admiralty (The Foundation Press Inc 1957) paragraph 9–47 (hereafter in this chapter, ‘Gilmore &
Black’).
66 The Ship Mortgage Act of 1920 (Merchant Marine Act, ch 250, § 30, 41 Stat 1000 (current version
at 46 USC §§ 31301–31343 (2012))) which codified the position in relation to ‘preferred mortgages’ was
extended to foreign ship mortgages in 1954 (Act of June 29, 1954, ch 419, 68 Stat. 323, codified as 46
USC § 951, current version at 46 USC § 31325 (2012)). See the Tetley article referred in n 21. See also
Gilmore & Black (n 65), Chapter IX.
67 17 & 18 Vic c 36. Ships are exempt from the Bills of Sale Acts; see paragraph 1.1.3. The exemption
in the Bills of Sale Act 1854 was in section 7 by virtue of the definition of ‘Bill of Sale’.
68 13 Eliz c 5. See Goode on Commercial Law (n 11) 629.
69 (1876) 1 CPD 722.
70 (1877) CPD 163.
71 (1877) 2 App Cas 636 (HL).
10
HISTORICAL INTRODUCTION
it was not relevant to the issue in dispute in the higher courts. However Lindley J’s
analysis was not disapproved.72 In Dickinson v Kitchen73 Lord Campbell LJ said:
The ship was mortgaged, and the mortgage registered according to the requirements
of sect 66 of the Merchant Shipping Act, 1854; and by virtue of that mortgage the
property in the ship passed prima facie74 to the mortgagee. He was thereby the owner
of the ship, unless his rights to that ownership are restrained by any other part of the
Act.
Constant,75 writing in 1920, summarised his view of the position as follows:
If the owner of a ship mortgages her by means of a legal mortgage, he thereby conveys
the legal property in her to the mortgagee. All that remains to the mortgagor is the
equitable right to redeem the mortgage, and if the mortgagor wishes to execute a
second mortgage upon the same ship, this second mortgagee can only be given an
equitable interest, because the mortgagor had, at the time of the second mortgage,
parted with the legal property and was a mere equitable owner. Therefore, where you
get a mortgage from a mortgagor who is not possessed of the legal estate in the mortgaged property or where the necessary formalities required to be observed in order to
pass the legal estate to the mortgagee have not been carried out, the mortgage is merely
an equitable one.
In Liverpool Marine Credit Company v Wilson76 James LJ commented that a first
mortgagee had a ‘legal right’ but a second mortgagee only had an ‘equitable
right’.
1.4.2 A different view was expressed in Thompson v Clark77 in which counsel
submitted, ‘the mortgage of a ship would not, even in the case of a first mortgage, pass the property’, to which Blackburn J commented, ‘that might be so
in a strict legal sense’ and subsequently in his judgment held, ‘In the case of a
ship, although it be mortgaged, the estate remains in the mortgagor, and there
the analogy to land ceases, and the mortgagee has no other security but that of
registration.’78
1.4.3 The direct judicial authority from the nineteenth century on the nature
of a statutory mortgage is thus sparse and equivocal. On a detailed analysis there
are characteristics of a statutory ship mortgage that are not consistent with a
title transfer mortgage. Although the statutory form states that the owner does
‘hereby mortgage’ the ship,79 it does not track the terminology of a bill of sale
by which title is transferred but is in certain respects similar to the form of a
legal charge by way of mortgage set out in Form No.1 in the Fourth Schedule
72 The judgment of Lindley J is analysed in detail (and criticised) in Alison Clarke, ‘Ship Mortgages’
in Norman Palmer and Ewan McKendrick (eds), Interests in Goods (2nd edn, LLP 1998) (hereafter in
this chapter, ‘Clarke’).
73 (1858) 8 E&B 789, 120 ER 293.
74 Emphasis added, not in original text.
75 Constant (n 26), paragraph 41.
76 (1871–72) LR 7 Ch App 507.
77 (1862) 7 LTR 269, 3 F&F 181, 176 ER 82 (NP) 183, (1862) 7 LTR 269.
78 The reference to mortgages of land was of course to the position before the Law of Property Act
1925.
79 MSF 4705.
11
HISTORICAL INTRODUCTION
of the Law of Property Act 1925.80 Also, section 4 in the mortgage form that
deals with the discharge of the mortgage refers to, ‘This within written security
is now discharged’ which is more indicative of a release of a charge rather than
a retransfer of ownership.
1.4.4 There is no nationality requirement for a mortgagee. If the effect of the
mortgage were to transfer legal ownership to the mortgagee then logically the
consequence would be that a non-qualified person would become legal owner of
the ship and if the mortgagee took possession a legal owner in possession. Paragraph 10 of Schedule 1 of the Merchant Shipping Act 1995 states:
Where a ship or share is subject to a registered mortgage then–
(a) Except so far as may be necessary for making the ship or share available as a
security or the mortgage debt, the mortgagee shall not by reason of the mortgage be treated as owner of the ship or share; and
(b) The mortgagor shall be treated as not having ceased to be owner of the ship
or share
This is ultimately derived from the part of section 43 of the 1823 Act which said
that ‘a Mortgagee . . . shall not by reason thereof be deemed to be the Owner . . .
of such Vessel’, a provision set out in almost identical terms in all subsequent
statutes regulating ship registration. As previously mentioned81 this provision may
have been included in the 1823 statute only to exempt the mortgagee from any
liability that it may otherwise have incurred resulting from the operation of the
ship by the owner and was not intended to abrogate the nationality requirements
for ownership. However since 1854 there has been no restriction on the nationality
of a mortgagee and this is probably because the mortgage was not considered to
transfer legal ownership in the ship to the mortgagee rather than as a result of the
statutory exemption. In Comstock v Harris82 the court had to decide whether an
alien could become a registered mortgagee of a British ship. Having considered
the statutory provisions the court decided that there was nothing to prohibit a
mortgage being granted to an alien:
Where an owner desires to mortgage out of the country, when it may be to an alien
there is no provision for closing the registry as in the case of a sale to an alien . . . in
all these particulars a marked distinction appears to drawn between owners and mortgagees. And mortgagees cannot become owners by virtue of their mortgage for the
remedy is not by foreclosure but by sale.
1.4.5 The Merchant Shipping Act 1995 regulates priority of registered mortgages
by reference to the time of registration,83 as did the Merchant Shipping Act 189484
80 In contrast, the form of security bill of sale relating to mortgaging of a chattel set out in the Schedule to the Bills of Sale Amendment Act 1882 looks different from the form of statutory ship mortgage.
81 Paragraphs 1.3.3 and 1.3.4 above.
82 (1887) 13 OR 407.
83 Merchant Shipping Act 1995, Schedule 1, paragraph 8.
84 Section 33.
12
HISTORICAL INTRODUCTION
and, before it, the Merchant Shipping Act 1854.85 Notice is expressly excluded
by statute in relation to the determination of priority as between registered mortgages.86 There is no room in the statutory regime for different types of registered
mortgage – i.e. a first, legal (title transfer) mortgage and a subsequent, equitable
mortgage. The essential nature of all registered mortgages must be the same.87
1.4.6 The 1854 Act and all subsequent statutes gave the registered mortgagee
an express power of sale on default by the owner.88 This is another indicator that
all registered mortgages are of the same essential nature. A subsequent mortgagee
may only exercise its power of sale with the consent of a prior mortgagee or under
an order of a court of competent jurisdiction.89 In Ex parte North Brisbane Finance
and Insurances Pty Limited 90 the court had to consider the position under the Commonwealth Shipping Registration Act 1981 of Australia which re-enacted (with
minor modifications) the provisions of the Merchant Shipping Act 1894 in relation to ship mortgages. Section 38(1) of that Act provided, ‘A ship or a share in a
ship may be made security for the discharge of an obligation by way of mortgage
under this Act’ and section 40 stated, ‘A mortgage of a ship or a share in a ship
does not have the effect of the mortgagee becoming, or the mortgagor ceasing to
be, owner of the ship or share except to the extent necessary to make the ship or
share available as a security under the mortgage.’ The court held that:
Section 40 of the Act in substance confers on the mortgagee of a ship the status of
the holder of a statutory charge by way of security, not that of a legal owner of the
ship as in the case of a mortgage under the general law. It is in this context that s 41
confers on the ship’s mortgagee a power absolutely to dispose of the ship and to give
effectual receipts in respect of the disposal. Without that power a mortgagee of a ship
would have to look elsewhere, and probably to the court, for assistance in selling a
ship of which it was not the owner.
It is submitted that this is an accurate analysis of the statutory ship mortgage and
although this decision would not be binding on an English court it is a judgment
that would be of persuasive effect.91
1.4.7 The pre-1854 legislation required a transfer by way of security to be
endorsed on the certificate of registry in the same way as any other transfer.92
The requirement for endorsement of a statutory mortgage on the certificate of
85 Section 67. The Merchant Shipping Act 1854 referred to the time of registration whereas the
Merchant Shipping Act 1894 referred less precisely to the date. This was tightened up by the Merchant
Shipping Act 1995, Schedule 1, paragraph 8 which once again refers to the time of registration.
86 See the sections of the statutes referred to in the preceding three footnotes. The wording of the Merchant Shipping Act 1995, Schedule 1, paragraph 8 differs from the equivalent wording in the two predecessor statutes by excluding ‘any other matter’ rather than just notice. See also Chapter 3, section 3.2 (Statutory
mortgages – the primacy of registration). See further Chapter 7, especially paragraph 7.7.9.
87 Despite the remarks of James LJ in Liverpool Marine Credit Company v Wilson (n 76).
88 The statutory power of sale is currently contained in the Merchant Shipping Act 1995, Schedule 1,
paragraph 9(1).
89 ibid, paragraph 9(2).
90 [1983] 2 Qd R 684.
91 However, as pointed out by Clarke (n 72) Keith v Burrows does not appear to have been cited in
North Brisbane Finance.
92 Registering of British Vessels Act 1845 (8 & 9 Vict c 89) s 37.
13
HISTORICAL INTRODUCTION
registry was absent from the Merchant Shipping Act 185493 but the requirement
for endorsement of a transfer remained.94 This strongly indicates that the new type
of statutory mortgage was not by way of title transfer.95
1.4.8 It is reasonable to conclude that the regime introduced by the Merchant
Shipping Act 1854 was a continuation and refinement of a policy, evidenced by
the Registering of Vessels Act 1823, s 43,96 of not confusing the identity of owner
and mortgagee – an issue, for operational reasons, of more significance in relation
to ships than in relation to chattels generally.
1.4.9 In practice on a default by the owner the mortgagee’s primary remedy is
to exercise its power of sale. If it were the case that the statutory ship mortgage
was a title transfer mortgage then in theory the mortgagee would in addition
have the power to foreclose the mortgage by extinguishing the mortgagor’s right
of redemption. There is no provision in the statute for a mortgagee to exercise a
power of foreclosure and the registration regulations make no provision for the
registration of a transfer of registered ownership to the mortgagee if a mortgage
is foreclosed. It is certainly the case that foreclosure has almost never been used
since the Merchant Shipping Act 1854, the only case where it is known to have
applied being The Buttermere.97 The conclusion is that foreclosure is either not
available98 – or if available it is simply obsolete in relation to ships as it now is in
relation to land, since at least the end of the nineteenth century.99
1.4.10 Whether a registered statutory ship mortgage constitutes a statutory charge
by way of legal mortgage or a title transfer mortgage is in practice usually not important100 because the mortgagee’s principal remedy in any event will be its express or
statutory power of sale. It is difficult to discern the intention of Parliament on the issue
at a distance of over a century and a half – if indeed Parliament had any intention
at all in the matter. There is persuasiveness in the idea that the Registering of Vessels
Act 1823,101 s 3 was a first, intermediate, attempt to address the problem caused by
the need to use outright title transfer as a means of mortgaging, and that the matter
was further and more effectively addressed in the 1854 Act by the introduction of a
new form of statutory charge by way of legal mortgage, with the mortgagee’s legal
93 See Dickinson v Kitchen (1858) 8 E&B 789, 120 ER 293 (QB).
94 The Merchant Shipping Act 1854 (17 & 18 Vict c 104) s 45.
95 The requirement for a mortgage to be endorsed on the certificate of registry was a requirement
of United States law and was a significant issue in Hooper v Gumm (1866–67) LR 2 Ch App 282. This
reflects that a US ship mortgage is by way of title transfer. The US requirement for endorsement of a
mortgage on the certificate of registry only ceased in 1989; a copy of the mortgage must still be carried on
US-registered vessels (46 USC 31324(b)). On Hooper v Gumm see Chapter 4, paragraphs 4.4.6 and 4.4.7.
96 See paragraph 1.3.1 above.
97 Fo 211, July 24 1883. The case is referred to in Michael Thomas and David Steel (eds), Temperley’s
Merchant Shipping Acts (Vol 11 of British Shipping Laws) (7th edn, Stevens & Sons 1976) paragraph 76 and
in Nigel Meeson and John A Kimbell, Admiralty Jurisdiction and Practice (4th edn, LLP 2011) (hereafter
in this chapter, ‘Meeson and Kimbell’) paragraph 10.186.
98 This is the view expressed in Clarke (n 72) at 690. It is also supported by Comstock v Harris (n 82).
99 See further Chapter 11, section 11.21 (Foreclosure).
100 In either case a mortgagee is excluded from statutory liabilities under the Merchant Shipping
Act 1995, s 16(3) and has an insurable interest in the mortgaged ship under the Marine Insurance Act
1906, s 14(1).
101 26 Geo 3 c 18.
14
HISTORICAL INTRODUCTION
interest being perfected by registration. This is suggested in paragraph 1.4.8 above
and is supported by the factors and arguments set out in paragraphs 1.4.3–1.4.9
above. The weight of modern commentary is also in favour of the statutory charge
theory rather than the title transfer theory. Clarke102 gives an exhaustive analysis of the
statutes and cases, including a critique of Keith v Burrows103 and convincingly argues
in favour of the statutory charge theory. Her view is endorsed in Goode LPCS104 and
by Mandaraka-Sheppard.105 Meeson and Kimbell also regard the Keith v Burrows title
transfer theory as ‘no longer appropriate to a registered statutory mortgage under the
1995 Act . . .’.106 Further support for the statutory charge theory is provided by Beale
et al.107 These modern views are to be preferred to the title transfer theory espoused
by Constant.108 It is suggested that that view is now outdated. From a historical perspective the mortgage of a registered British ship was never a creature of maritime
law but was – initially, briefly and rather unsatisfactorily – a creature of the common
law before becoming (in 1854) a creature of statute.
1.5 Mortgages of unregistered ships
1.5.1 The position in relation to mortgages of unregistered ships is complete different. In the case of ships that are not registered at all or are registered otherwise than
pursuant to the Merchant Shipping Act 1995 in Part I or Part II (full registration),109
the private law provisions of Schedule 1 of the 1995 Act have no application and
the position is governed by common law.110 The Bills of Sale Act 1878, s 4 expressly
excludes ‘transfer and assignments of any ship or vessel or any share thereof’111 and
therefore has no application to unregistered ships. In The Shizelle112 the question was
whether a mortgage on an unregistered ship113 created a legal mortgage or merely
an equitable mortgage. After carefully considering the matter the court held that a
title transfer mortgage could be granted on an unregistered ship and that such a
mortgage would be a legal mortgage and not merely an equitable mortgage.
102 n 72.
103 1876 1 CPD 722.
104 n 11, paragraph 2–21.
105 Aleka Mandaraka-Sheppard, Modern Maritime Law Volume II; Managing Risks and Liabilities
(3nd edn, Informa 2013).
106 n 97, paragraph 10.46.
107 n 11, paragraph 14.40.
108 See paragraph 1.4.1 above.
109 See Chapter 2, section 2.4 (The Register).
110 See Chapter 3, section 3.4 (Common law mortgages).
111 Gapp v Bond (1887) 19 QBD 200 (CA). See further Chapter 6, section 6.4 (The Bills of Sale Acts).
112 [1992] 2 Lloyd’s Rep 444 (Adm). Such a mortgage is a ‘common law mortgage’. See Chapter 3,
paragraph 3.1.5 and section 3.4 (Common law mortgages). See also Chapter 6, section 6.4 (The Bills
of Sale Acts).
113 The vessel was a yacht which was not registered at the time of its being mortgaged and was then
sold. After the sale the buyers registered it under the Merchant Shipping (Small Ships Register) Regulations 1983, similar to registration under Part III pursuant to the Merchant Shipping Act 1995 (i.e. registration of small ships, not subject to the private law provisions in Schedule 1; see Chapter 2, section 2.4
(The Register)). No significance was attached to this registration (after the sale), and the judgment treated
the ship as if it was unregistered throughout. Clarke (n 72) at 686 takes issue with this but it is submitted
that nothing turns on this point.
15
CHAPTER 2
Ownership and registration
2.1 Legal ownership
2.1.1 Ships are personal property, the legal ownership of which is governed by the
rules of common law as it may be modified by applicable statute. Legal ownership in
personal property is based on possession and the person with the superior possessory
right has the apparent title to the property.1 Legal ownership in ships may be acquired
in the same manner as legal ownership is acquired in other personal property,2 e.g.
under a will, by order of a court, by gift, pursuant to contract or by operation of insolvency law. A ship usually will be acquired by contract either as a new ship under a
shipbuilding contract between the buyer and the builder or as a second-hand ship under
a contract of sale between the owner and the buyer. As will be seen in this chapter,
and elsewhere in this book, whether a ship is a registered British ship, a foreign-registered
ship or a ship that is not registered at all is fundamentally important in a number of
respects to the position of a mortgagee and in relation to proprietary rights generally.
2.1.2 As a ship is a chattel,3 the Sale of Goods Act 1979 (as amended) will
apply to a contract for the construction4 or purchase of a ship. In Behnke v Bede
Shipping Co Ltd Wright J said:5
It is curious that it has not been decided whether a ship comes within the description of
‘goods’ under [section 4 of the Sale of Goods Act 1893]. Sect. 62 of the Act defines
‘goods’ as ‘all chattels personal other than things in action and money.’ A ship is clearly
a chattel personal. It is true that some provisions of the [Sale of Goods] Act do not apply
to it, e.g., the rule as to market overt. A British ship is also a chattel which is subject to
special rules as to registration and transfer under the Merchant Shipping Act.
The terms of the Sale of Goods Act as to quality and fitness for purposes apply
to a ship no less than to any other chattel unless excluded by clear language.6
1 Ewan McKendrick, Goode on Commercial Law (4th edn, LexisNexis UK and Penguin Books 2010)
(hereafter in this chapter, ‘Goode on Commercial Law’) 36. See Chapter 13, section 13.3 (Liability to
demise (bareboat) charterers) in relation to the legal possessory rights of a demise charterer.
2 Goode on Commercial Law (n 1) 40–41.
3 Although not an ‘ordinary’ chattel; see Chapter 1, paragraph 1.1.3. See further Chapter 3, section 3.1
(Introduction).
4 McDougall v Aeromarine of Emsworth Ltd [1958] 1 WLR 1126 QB (Com Ct), 2 Lloyd’s Rep 343
(Diplock J). See also Simon Curtis, The Law of Shipbuilding Contracts (4th edn, LLP 2012).
5 [1927] 1 KB 649, 659. In that case an order for specific performance was granted in respect of a
contract for the sale of a ship – an indicator of the difference between ships and ordinary chattels. See
Chapter 1, paragraph 1.1.3.
6 Dalmare SpA v Union Maritime Ltd (The Union Power) [2012] EWHC 3537 (QB Comm Ct), [2013]
1 Lloyd’s Rep 509.
16
OWNERSHIP AND REGISTRATION
2.1.3 Although a ship is a chattel the Bills of Sale Acts 1878 and 1882 do not
apply because section 4 of the Bills of Sale Act 1878 specifically excludes ships
(whether registered or not) from the application of these Acts.7 An owner may
register a ship under the Merchant Shipping Act 1995 and the Merchant Shipping (Registration of Ships) Regulations 19938 if he is able to comply with the
requirements of that Act and the Registration Regulations.9
2.1.4 Section 17 of the Sale of Goods Act 1979 (as amended) provides:
(1) Where there is a contract for the sale of specific or ascertained goods the
property in them is transferred to the buyer at such time as the parties to the
contract intend it to be transferred
(2) For the purpose of ascertaining the intention of the parties regard shall be had to the
terms of the contract, the conduct of the parties and the circumstances of the case.
In the case of a new ship the shipbuilding contract will usually provide for title to
pass to the buyer on delivery,10 although some shipbuilding contracts provide for
title in the ship to pass to the buyer as the ship is constructed.11 In the case of a
second-hand ship the sale contract will generally provide for title in the ship to
pass on physical delivery when the contract price is paid and the bill of sale handed
to the buyer.12 In Hooper v Gumm13 Turner LJ said:
A ship is not like an ordinary personal chattel; it does not pass by delivery, nor does
the possession of it prove the title to it. There is no market overt for ships; in the case
7 Gapp v Bond (1887) 19 QBD 200 (CA) (Lord Esher MR). See Chapter 1, paragraph 1.1.3 for other
differences between ships and chattels generally.
8 SI 1993/3138, as amended by SI 1994/541, SI 1998/1915, SI 1998/2976, SI 1999/3206, SI
2011/1043 and the British Overseas Territories Act 2002, s 2(3) (hereafter in this chapter, the ‘Registration
Regulations’). See Appendix 1C.
9 The permissive registration regime contrasts with the compulsory registration regime which applied
under the Merchant Shipping Act 1894 and predecessor statutes; see paragraph 2.3.5 below.
10 See article VII, paragraph 5 of the Shipbuilding Contract of the Shipowners Association of Japan
(the ‘SAJ Form’), which provides:
Title to and risk of loss of the VESSEL shall pass to the BUYER only upon delivery and acceptance thereof
having been completed as stated above; it being expressly understood that, until such delivery is effected,
title to and risk of loss of the VESSEL and her equipment shall be in the BUILDER. . . .
11 Re Blyth Shipbuilding & Dry Docks Co [1926] Ch 494 (CA); BMBF (No. 12) Ltd v Harland & Wolff
Shipbuilding & Heavy Industries Ltd [2001] EWCA Civ 862, [2001] CLC 1552. Transfer of title on delivery is the norm in Asian shipbuilding contracts, which tend to be based on the SAJ Form. Title transfer
during construction is more common in Europe in contracts based on the Association of West European
Shipbuilders form, or in the construction of more complex structures used in the offshore oil and gas
industries. See further Chapter 3, section 3.10 (Mortgages of ships under construction).
12 Cl 8 (a) NSF Saleform 2012 provides:
In exchange for payment of the Purchase Price the Sellers shall provide the Buyers with the following
delivery documents:
(i) Legal Bill(s) of Sale in a form recordable in the Buyer’s Nominated Flag State, transferring
title of the Vessel and stating that the Vessel is free from all mortgages, encumbrances and
maritime liens or any other debts whatsoever . . .
(vi) Certificate of Deletion of the Vessel from the Vessel’s registry or other official evidence of
deletion appropriate to the Vessel’s registry at the time of delivery. . . .
13 (1867) LR 2 Ch App 282, 290. This passage has already been noted in Chapter 1, paragraph 1.1.3
and has been quoted in subsequent cases, for example Tisand (Pty) Ltd v The Owners of the Ship MV Cape
Moreton (ex ‘Freya’) (The Cape Moreton) [2005] FCAFC 68 and Dornoch Limited v Westminster International
BV (TheWD Fairway) [2009] EWHC 889 (Adm); also in secondary sources, for example Arnold D McNair,
The Law of the Air (Butterworths 1932) 141. Hooper v Gumm is a case which will be returned to in Chapter 4.
17
OWNERSHIP AND REGISTRATION
of American ships the laws of the United States provide the means of evidencing the
title to them. In ordinary cases of purchases of property not purchased in market overt
the purchasers are bound to inquire into the title to the property purchased by them.
Title to a registered ship does not pass solely by delivery, because in order to be
registered as owner the buyer must register the bill of sale with the Registrar of
Ships.14 The requirement for transfer of title by bill of sale is a long-established
feature of the merchant shipping legislation. Registering of British Vessels Act
184515 required sale of a registered ship to be by:
Bill of Sale, or other Instrument in Writing, containing a Recital of the Certificate of
Registry of such Ship or Vessel, or the principal Contents thereof, otherwise such Transfer
shall not be valid or effectual for any Purpose whatever, either in Law or in Equity16
and further provided:
That no Bill of Sale or other Instrument in Writing shall be valid and effectual to pass
the property in any Ship or Vessel, or in any Share thereof, or for any other Purpose,
until such Bill of Sale or other Instrument in Writing shall have been produced to the
Collector and Comptroller of the Port at which the Ship or Vessel is already registered.17
That Act required the bill of sale to recite the contents of the certificate of registry.18 The Merchant Shipping Act 185419 carried through the requirement for
transfer to be by bill of sale and prescribed a form.20 The 1854 Act required an
executed bill of sale to be produced to the registrar for registration21 – but did not
go so far as the Registering of British Vessels Act 1845 in denying any effect to an
unregistered bill of sale.22 These provisions of the 1854 Act appeared in the Merchant Shipping Act 189423 in essentially the same terms; the current equivalent is
the Merchant Shipping Act 1995, Schedule 1, paragraph 2.
2.1.5 In the case of unregistered ships the position is governed by section 17 of
the Sale of Goods Act 1979 (as amended) and the sale contract will usually provide that title is to pass on delivery. Although a bill of sale may not be necessary
to transfer title to an unregistered ship, the sale contract will generally require the
owner to provide a bill of sale on delivery as evidence of the transfer of ownership.
2.2 Beneficial ownership
2.2.1 The legal owner may hold the ship in trust for a beneficial owner in the
same way that other personal property may be held on trust. In the case of a
registered ship only the legal owner of the shares in the ship may be registered
14 The Merchant Shipping Act 1995, Schedule 1, paragraph 2.
15 8 & 9 Vict c 89.
16 ibid, s 34.
17 ibid, s 37.
18 ibid, s 34. The requirement for a bill of sale to recite the contents of the certificate of registry had
also been a feature of an earlier statute, the Shipping & Navigation Act 1786 (26 Geo 3 c 60) s 17.
19 17 & 18 Vict c 104.
20 ibid, s 55.
21 ibid, s 57.
22 The significance or otherwise of the omission of the words denying effect to an unregistered bill of
sale was considered in Liverpool Borough Bank v Turner (1860) 70 ER 703 (VC); affirmed (1860) 45 ER
715 (Ct Ch). See paragraph 2.2.1 below.
23 57 & 58 Vict c 60, ss 24 and 27.
18
OWNERSHIP AND REGISTRATION
and regulation 6 of the Registration Regulations provides, ‘no trust, express, implied
or constructive may be registered by the Registrar’. Paragraph 1 of Schedule 1 to
the 1995 Act, however, provides:
(1) Subject to any rights and powers appearing from the register to be vested in
any other person, the registered owner of a ship or of a share in a ship shall
have the power absolutely to dispose of it provided that disposal is made in
accordance with this Schedule and registration regulations.
(2) Sub-paragraph (1) above does not imply that interests arising under contract
or other equitable interests cannot subsist in relation to a ship or a share in a
ship; and such interests may be enforced . . . in the same manner as in respect
of any other personal property.
Accordingly the legal ownership in a ship and the equitable or beneficial ownership
may be vested in different persons.24 The principles now contained in regulation
6 of the Registration Regulations and paragraph 1 of Schedule 1 to the 1995 Act
have old statutory antecedents. The prohibition on registration of trusts was contained in the Merchant Shipping Act 1854.25 In Liverpool Borough Bank v Turner 26
this led to effect being denied in equity to an unregistered transfer. That decision
was reversed by statute.27 The Merchant Shipping Act 1894 continued to reflect
the position so reached28 and that is now found, with some change of language,
in Schedule 1 to the 1995 Act and in the Registration Regulations.29
2.2.2 Generally the duties and liabilities imposed on the owner under the 1995 Act
are imposed on the registered owner if the ship is registered, or on the legal owner
if the ship is not registered.30 Section 16(3) of the 1995 Act31 provides, however:
Where any person is beneficially interested, otherwise than as mortgagee, in any ship
or share in a ship registered in the name of some other person as owner, the person
so interested shall, as well as the registered owner, be liable to any pecuniary penalties imposed by or under this Act or any other Act on the owners of registered ships.
According to regulation 1 of the Registration Regulations, ‘beneficial ownership’
is to be ‘determined by reference to every beneficial interest in that vessel, however
arising (whether held by trustee or nominee or arising under a contract or otherwise), other than an interest held by any person as mortgagee’.
2.2.3 The term ‘beneficial ownership’ in the 1995 Act would probably be construed by the courts in the same way that they have construed the term in cases
under the Senior Courts Act 1981 relating to the arrest of ships. The meaning of
‘beneficial ownership’ in the context of the statutory right to arrest was addressed
in The Nazym Khikmet.32 In order to arrest a ship in respect of a claim under
24 Burgis and Others v Constantine [1908] 2 KB 484, 498 (Fletcher Moulton LJ).
25 17 & 18 Vict c 104, s 43.
26 (1860) 70 ER 703 (KB); affirmed (1860) 45 ER 715.
27 Merchant Shipping Act 1862 (25 & 26 Vict c 63) s 3.
28 57 & 58 Vict c 60, ss 56 and 57.
29 Merchant Shipping Act 1995, Schedule 1, paragraph 1 and reg 6 of the Registration Regulations.
30 See Merchant Shipping Act 1995 ss 170 and 181 in relation to liability for oil pollution.
31 The predecessor of this section was the Merchant Shipping Act 1894, s 58.
32 Owners of Cargo Lately on Board the Nazym Khikmet v Owners of the Nazym Khikmet (The Nazym
Khikmet) [1996] 2 Lloyd’s Rep 362. This was a ‘sister-ship’ arrest pursuant to section 21(4) of what was
then the Supreme Court Act 1981. A Ukrainian state-owned enterprise (BLASCO) was the ‘relevant
19
OWNERSHIP AND REGISTRATION
sections 20(2)(e)–(r) of the Senior Courts Act 1981, the ship must be in the same
beneficial ownership at the time of the arrest as it was when the claim arose.33
In New Zealand34 it has been decided that a seller that has passed title and possession of a Russian-registered ship to a buyer had ceased to be the ‘beneficial
owner’ for the purposes of the New Zealand arrest legislation35 despite the fact
that the seller remained registered as owner on the Russian register at the time
of arrest. A similar result was reached in the Federal Court of Australia.36 The
arrest of a ship for a claim against the seller where the ship remained registered
on the Liberian flag in the name of the seller at the time of arrest was held to
be invalid on the grounds that the seller had ceased to be the ‘owner’ within
the meaning of the Australian arrest legislation.37 Beneficial ownership in the
context of arrest jurisdiction has been held to extend to the interest of a demise
charterer38 but this has been subsequently disapproved39 and is surely incorrect.
2.2.4 The beneficial owner is a person owning the shares in the ship either
directly or through a trust. Single shipowning companies in the same group having the same ultimate holding company are not in the same beneficial ownership40
and the court will not lift the corporate veil except in the case of fraud, where it
is clear that legal ownership has been transferred to avoid legal liability.41 In The
Evpo Agnic Lord Donaldson MR said:42
person’ liable on the in personam claim but was held not to be the ‘beneficial owner’ of the arrested ship;
the ‘beneficial owner’ was the state of Ukraine.
33 The ship can also be arrested if the person who would have been liable in personam when the claim
arose is the disponent owner under a demise charter at the time of the arrest: Senior Courts Act 1981, s 21(4).
34 Vostok Shipping Co Ltd v Confederation Ltd [1999] NZCA 220, [2000] 1 NZLR 37.
35 The Admiralty Act 1973 (in materially the same terms as the Senior Courts Act 1981 of the United
Kingdom).
36 Tisand (Pty) Ltd v The Owners of the Ship MV ‘Cape Moreton’ (ex ‘Freya’) (The Cape Moreton) [2005]
FCAFC 68.
37 The Admiralty Act 1988, ss 17, 18 and 19. The Nazym Khikmet (n 32), Vostok Shipping v Confederation (n 34) and The Cape Moreton (n 36) also touch upon important conflict of laws issues which are
addressed in Chapter 4, paragraphs 4.7.3–4.7.5.
38 Medway Drydock & Engineering Company Ltd v The ‘Andrea Ursula’ (Owners) (The Andrea Ursula)
[1971] 1 Ll L Rep 145.
39 The I Congreso del Partido [1978] I QB 500, 537, 538.
40 The Maritime Trader [1981] 2 Lloyd’s Rep 153 (Adm) and The NorthernValley (unreported) July 1985.
41 The Aventicum [1978] 1 Lloyd’s Rep 184 (Adm); The Saudi Prince [1982] 2 Lloyd’s Rep 255 (Adm);
and The Tjaskemolen [1997] 2 Lloyd’s Rep 465 (Adm). There are no special rules relating to the transfers
of ships and the courts will apply the ordinary rules relating to the circumstances in which the corporate
veil should be lifted. English law relating to lifting or piercing the corporate veil has been developed by
recent cases in a way which restricts or even doubts the existence of the doctrine. The leading case is now
Prest v Petrodel [2013] UKSC 34 in which it was confirmed that the doctrine exists but that it is limited to
circmstances where ‘a person is under an existing legal obligation or liability or subject to an existing legal
restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a
company under his control’ (Lord Sumption at [35]). The laws of some other jurisdictions adopt a much
more liberal approach, such as the United States, specifically in a maritime context involving attachment
and garnishment under Rule B of the Supplemental Rules for Admiralty or Maritime Claims and South
Africa under the associated ship arrest procedure in the Admiralty Jurisdiction Regulation Act No. 105
of 1983, as amended. See further Chapter 14, paragraph 14.2.11.
42 [1988] 1 WLR 1090 (CA), [1988] 2 Lloyd’s Rep 411, 415; see also The I Congreso del Partido [1978]
QB 500 (Adm), [1977] 1 Lloyd’s Rep 536; Haji-Ioannou v Frangos [1999] 2 ALL ER (Comm) 865 (CA),
[1999] 2 Lloyd’s Rep 337, 353 and The Tian Sheng No. 8 [2000] 2 Lloyd’s Rep 430 (HKCFA) 438.
20
OWNERSHIP AND REGISTRATION
. . . in real commercial life, thus far at least, registered owners, even when one-ship
companies, are not bare legal owners. They are both legal and beneficial owners of all
the shares in the ship and any division between the legal and equitable interests occurs
in relation to the registered owner itself, which is almost always a juridical person. The
legal property in its shares may well be held by A and the equitable property by B,
but this does not affect the ownership of the ship or of the shares in that ship. They
are the legal and equitable property of the company.43
2.2.5 The circumstances in which beneficial ownership will be created by contract will be limited because, as Professor Goode points out:44
Until the property passes to the buyer or possession has been delivered to him, his
rights appear to rest solely in contract and he apparently has no interest of any kind
in the goods pending acquisition of the legal title. Thus, he does not, it seems, acquire
an equitable interest in the goods or an implied right of security under the contract.
This statement of the general position in relation to chattels is valid in respect of
ships.45 This remains so even though the buyer of a ship potentially has available
the remedy of specific performance.46 In Hart v Herwig47 specific performance
was granted to the purchaser of a ship.
2.2.6 A beneficial interest in a ship therefore usually will only be created by an
express trust. This principle is not affected by Vostok Shipping v Confederation48 or
The Cape Moreton.49 In each of those cases the buyer had acquired possession, a
bill of sale had been delivered and title had passed.50 The only issue, in the context of the applicable arrest legislation, was the effect of registration continuing in
the seller’s name at the time of arrest. The reference in the Merchant Shipping
Act 1995, s 16(3) to a person ‘beneficially interested, otherwise than as mortgagee’
therefore extends to a buyer of a registered ship to whom title and possession51
have passed even though the transfer of title has not been registered but does not
extend to a buyer under an executory sale and purchase contract where title and
possession have not yet passed. This differs from the position in relation to registered land where an equitable interest passes on execution of a contract for sale.52
43 But see the Registration Regulations, reg 56(5), where in certain circumstances the ownership of a
share in a body corporate is relevant to the beneficial ownership of a fishing vessel.
44 Goode on Commercial Law (n 1) 237. See also Re Wait [1927] 1 Ch 606 (CA) 636 (Atkin LJ).
45 See Naamloose Vennootschap Stoomvart Maatschappij ‘Vredobert’ v European Shipping Co Ltd [1926]
Ll L Rep 210; See also Nigel Meeson and John A Kimbell, Admiralty Jurisdiction and Practice (4th edn,
Informa 2011) (hereafter in this chapter, ‘Meeson and Kimbell’) paragraph 10–17.
46 See Behnke v Bede Shipping Co Ltd (n 5). See also CN Marine Inc v Stena Line A/B and Regie Voor
Maritiem Transport NV (The ‘Stena Nautica’) (No. 2) [1982] 2 Lloyd’s Rep 336 in which, on unusual facts,
there were competing demise charterers, each with an option to purchase. Specific performance was
denied to one but granted to the other; 348 (Lord Denning MR).
47 (1872–73) 8 LR Ch App 860. One of the judges (Sir G Mellish LJ at 865) made a remark to the
effect that the purchaser was to be considered the owner in the view of the Court of Equity but it is suggested that this goes too far.
48 n 34.
49 n 36.
50 See paragraph 2.2.3 above.
51 It might be sufficient for a beneficial interest to pass through the transfer of title alone, without
possession.
52 See n 123 below.
21
OWNERSHIP AND REGISTRATION
2.3 Registration
2.3.1 Ship registration under national laws performs both a public law function
and a private law function.53 The historical British shipping statutes, driven by a
mercantilist desire to ensure that trade to and from Britain was carried out by
British ships, regulated the private law function to an extent that was prescriptive,
intrusive and, from a modern perspective, surprising. The distinction between the
public law and private law functions of ship registration was made in Liverpool
Borough Bank v Turner at first instance54 and is now reflected by the latter being
addressed in Schedule 1 to the Merchant Shipping Act 1995, which is headed
‘Private Law Provisions for Registered Ships’.
2.3.2 The Navigation Act 166055 introduced a system of ship registration into
English law. It required that the owner of every foreign-built ship made an oath
before a customs officer at the home port of the ship that:56
. . . such Ship or Vessel was bona fide and without Fraud by him or them bought for
a valuable Consideration, expressing the Sum, as also the Time, Place and Persons
from whom it was bought . . . and that no Foreigner directly or indirectly hath any
Part, Interest or Share therein . . .
This section further provided that, after making the oath, the customs officer would
issue the owner with a certificate declaring that the ship belonged to the port
where the oath was made and that the ship was entitled to the privileges of a
registered English ship. The customs officer at each port had to maintain a register
of all such ships and send a duplicate of his register to the Chief Officer of Customs in London. This method of registering ships at their ‘home port’ continued
until 1994, when a single central register was established.
2.3.3 The registration system was amended by a series of statutes during the eighteenth century and early nineteenth century,57 and the Merchant Shipping Act 1894
set out a detailed registration system for the United Kingdom, its dominions and
the colonies. This registration system lasted well, but with the change from Empire
to Commonwealth and the granting of independence to many former colonies the
concept of a ‘British flag’ fleet soon became outdated. Many Commonwealth countries enacted their own merchant shipping legislation replacing the 1894 Act,58 and
some countries established ‘open’ registries in which ownership was not restricted
53 For an analysis of the principles behind ship registration see Richard Coles and Edward Watt, Ship
Registration: Law and Practice (2nd edn, LLP 2009) (hereafter in this chapter ‘Coles and Watt’) especially
Chapter 1; also Chapters 2–4. See also Chapter 1, paragraph 1.1.3.
54 (1860) 70 ER 703, 708 (Page Wood VC). In earlier times the distinction between the public law and
private law aspects of the regulation of shipping was not so clear or obvious, with the Privy Council being
concerned with matters relating to both trade and defence - and especially the areas which impacted on
both, such as prize and requisition. See David Rogers, By Royal Appointment:Tales from the Privy Council the Unknown Arm of Government (Biteback Publishing 2015) especially 113, 136, 181, 242, 243 and 299.
On the prerogative power of requisition, see Chapter 4, paragraph 4.5.5 and Chapter 17, section 17.15
(Requisition compensation).
55 12 Car 2 c 18, An Act for the Encouraging and Increasing of Shipping and Navigation.
56 ibid, s 10. In 1696 this was extended to English-built ships by 7 & 8 Gul III c 22, s 17. See Chapter 1,
paragraph 1.2.4.
57 One of the most significant being the Shipping and Navigation Act 1786, 26 Geo 3 c 60.
58 For example: the Shipping Registration Act 1981, No. 8, 1981 in Australia; the Shipping and Seaman Act 1952, Public Act 1952 No. 49 in New Zealand; and the Canada Shipping Act, RSC 1985, c S-9.
22
OWNERSHIP AND REGISTRATION
to those of British or Commonwealth nationality.59 Other Commonwealth countries
limited ownership to their own nationals60 although of course those nationals still
had the right to register their ships in the United Kingdom under the 1894 Act.
2.3.4 It is perhaps surprising to find that even though the late nineteenth century was the heyday of free trade and laissez-faire in England, the 1894 Act still
largely followed the mercantilist theories that had influenced earlier legislation and
imposed a mandatory registration system. Whether or not a ship was a British ship
was determined by ownership not by registration.61 If an owner had the right to
register under the 1894 Act, it was under a duty so to do and failure to register
would render the ship liable to forfeiture.62 The high point of mercantilist statutory control had been reached by the Registering of British Vessels Act 1845,63
which denied any effect to an unregistered bill of sale.64 The omission of this from
the Merchant Shipping Act 185465 did not deter the courts from denying effect
to an unregistered interest in Liverpool Borough Bank v Turner 66 but that decision
was overruled by statute.67 A bona fide purchaser for value of a registered ship
(or registered shares in a ship) takes free from any fraud affecting the seller’s title
provided the purchaser has no notice of the fraud.68 Even if a purchaser with registered title has notice of an unregistered interest he takes free of it unless there
is some ‘further recognition or adoption’ of the interest.69
2.3.5 The registration system in the United Kingdom was completely revised by the
Merchant Shipping Act 1988, which amended the ownership qualification requirements70 and replaced the obligation to register with an entitlement to register.71 The
1988 Act (and the subsequent Merchant Shipping (Registration, etc.) Act 1993,72
which introduced a central register) were consolidated by the Merchant Shipping
59 Commonwealth of the Bahamas Merchant Shipping Act 1976 c 268 as amended, ss 3(2) and 6;
ships over 1,600 net tons may be registered regardless of the nationality of the owner.
60 See the Republic of Cyprus Merchant Shipping (Registration of Ships, Sales and Mortgages) Law
1963, Law No. 45 of 1963 as amended; also the Merchant Shipping Act (Chapter 179 of Singapore,
1996 rev edn).
61 Chartered Bank of India v Netherlands Steam Navigation Co Ltd (1883) 10 QBD 521, 535 (Brett LJ).
62 The Merchant Shipping Act 1894, s 70. See also The Sceptre (1876) 3 Asp MLC 269 (PD & Adm).
63 8 & 9 Vict c 89.
64 ibid, s 37.
65 17 & 18 Vict c 104.
66 (1860) 70 ER 703, where Page Wood VC gives a mercantilist view of the historic purpose of the
merchant shipping legislation; affirmed (1860) 45 ER 715.
67 Merchant Shipping Act 1862 (25 & 26 Vict c 63), s 3.
68 The Horlock (1877) 2 PD 243. Sir Robert Phillimore invoked the Merchant Shipping Act 1854,
s 43 (‘No notice of any trust, express, implied or constructive shall be entered in the register book . . .’).
See paragraph 2.8.4 below.
69 DeWolf v Carvill and Smith (1865) 11 NRR 299 300, 301 (Parker J). The unregistered interest was a
mortgage which the mortgagee had elected not to register against the seller’s title. The judgment of Parker
J was upheld by the Court of Appeal, albeit with equivocal and half-hearted endorsement by Ritchie J.
70 Merchant Shipping Act 1988, s 3.
71 ibid, s 4.
72 The 1993 Act widened the ownership qualification in the 1988 Act to comply with EC law following R v Secretary of State for Transport, ex p Factortame (No. 2) [1991] AC 603. See Nicholas Gaskell
and Alison Clarke, ‘Sailing Towards Consolidation: The Merchant Shipping (Registration, etc.) Act 1993’
(1994) 2 LMCLQ 146. See further paragraph 2.5.1 below.
23
OWNERSHIP AND REGISTRATION
Act 1995. The position today is governed by the latter Act73 and by the Registration Regulations.74 Since 1988 the position is that only those ships registered under
the Merchant Shipping Act and ships under 24 metres owned by persons qualified
to own British ships are regarded as British ships. Accordingly, a ship owned by a
limited company registered in the United Kingdom may, for example, be registered
as a British ship or registered in a foreign country, provided the laws of that country
so permit. Generally, the country in which a ship is registered is a matter of selection
for the owner, and the owner will take into account such matters as taxation, crewing
and other operational costs when selecting the country of registration.
2.3.6 A ship with no nationality enjoys no protection under international law
and is liable to forfeiture.75 Such a ship will also be unable to trade.76 Article 5 of
the Geneva Convention on the High Seas 1958 provides:77
(1) Each State shall fix conditions for the grant of its nationality to ships, for the
registration of ships in its territory and for the right to fly its flag. Ships have
the nationality of the State whose flag they are entitled to fly. There must exist
a genuine link between the State and the ship; in particular, the State must
effectively exercise its jurisdiction and control in administrative, technical and
social matters over ships flying its flag.
(2) Each state shall issue to ships to which it has granted the right to fly its flag
documents to that effect.
Article 6 further provides:
(1) Ships shall sail under the flag of one State only, and, save in exceptional cases
expressly provided for in international treaties or in these articles shall be subject
to its exclusive jurisdiction on the high seas. A ship may not change flag during
a voyage or while in port of call, save in the case of a real transfer of ownership
or change of registry.
(2) A ship which sails under the flags of two or more States, using them according
to convenience, may not claim any of the nationalities in question with respect
to any other State, and may be assimilated to a ship without nationality.
Generally, ‘dual’ registry – that is, concurrent registration under the laws of two
states – is not permitted except in the case where a demise charterer registers his
demise charter in a state that permits dual registry.78
73 The Merchant Shipping Act 1995, Part II is set out in Appendix 1A. The private law provisions in
Schedule 1 of the Act are set out in Appendix 1B.
74 See paragraph 2.4.3 below for the qualification requirements under the Registration Regulations.
See Appendix 1C which sets out the Registration Regulations.
75 Naim Molvan v Attorney General for Palestine [1948] AC 351 (PC). See Coles and Watt (n 53) Chapter 1.
76 For example the Merchant Shipping Act 1995, s 6 provides:
(1) An officer of customs and exercise shall not grant a clearance or transire for any ship until the master
of such ship has declared to that officer the name of the nation to which he claims that the ship belongs,
and that officer shall thereupon enter that name on the clearance or transire.
(2) If a ship attempts to proceed to sail without such clearance or transire, the ship may be detained
until the declaration is made.
77 These Articles are restated (with minor amendments) in Arts 91 and 92 of the UN Convention on
the Law of Sea 1982 which came into force in 1984. The UN Convention on the Conditions for the Registration of Ships 1986 (which sets out registration requirements in more detail) has not yet come into force.
78 See section 2.11 (Demise charters).
24
OWNERSHIP AND REGISTRATION
2.4 The Register79
2.4.1 In the United Kingdom, the Register is divided into four parts, as follows:
Part I
in which ships owned by persons qualified to own British ships (which
are not fishing vessels registered in Part II of the Register or small
ships registered in Part III of the Register) are registered.
Part II in which fishing vessels are registered; fishing vessels may be registered
with ‘full registration’ or ‘simple registration’.80
Part III in which small ships are registered.
Part IV in which ships chartered by demise to persons qualified to own a
British ship may be registered.
A ship may not be registered in more than one part of the Register. It is only
possible to register mortgages on ships registered in Part I or Part II (if it is a full
registration). It is not possible to register mortgages on fishing vessels registered
in Part II (if it is simple registration),81 small ships registered in Part III82 or demise
chartered ships registered in Part IV:83 the private law provisions in Schedule 1 of
the 1995 Act do not apply to ships so registered.
2.4.2 Section 1(1) of the 1995 Act provides that:
A ship is a British ship if –
(a)
(b)
(c)
(d)
the ship is registered in the United Kingdom under Part II of the Act; or
the ship is . . . a Government ship . . . ; or
the ship is registered under the law of a relevant British possession; or
the ship is a small ship other than a fishing vessel and –
(i) is not registered under Part II; but
(ii) is wholly owned by qualified owners; and
(iii) is not registered under the law of a country outside the United Kingdom.
The term ‘United Kingdom ship’ describes a ship registered in the United Kingdom
under Part II of the Merchant Shipping Act 1995.84 There is a central register of
British ships registered in the United Kingdom i.e. ‘United Kingdom ships’.85 ‘United
Kingdom ship’ has a wider meaning in relation to health and safety issues86 and in
relation to the power to detain ships where there has been oil pollution from a ship
in United Kingdom waters.87 For those purposes it means a ship registered in the
United Kingdom or a ship that is not registered in any other country and that is
owned wholly by British citizens, citizens of a British Dependent Territory or British
79 See the Merchant Shipping Act 1995, s 8 which provides for a central register of British ships
for all registrations of ships in the United Kingdom and reg 2(1) of the Registration Regulations which
divides the Register into four parts. See generally Coles and Watt (n 53) Chapter 25 on registration in the
United Kingdom.
80 Reg 3 of the Registration Regulations.
81 Reg 3(a) of the Registration Regulations.
82 ibid, reg 91.
83 The Merchant Shipping Act 1995, s 17(7).
84 Merchant Shipping Act 1995, s 1(3).
85 Merchant Shipping Act 1995, s 8.
86 ibid, s 85.
87 ibid, s 144(3).
25
OWNERSHIP AND REGISTRATION
Overseas citizens or a body corporate which is established under the laws of, and
which has its principal place of business, in the United Kingdom.88
2.4.3 The following persons are qualified to own ships registered in Part I of
the Register:89
(a) British citizens;
(b) non-United Kingdom nationals who are nationals of a country in the
European Economic Area90 exercising their right of freedom of movement
of workers or right of establishment;91
(c) British overseas territories citizens;
(d) British overseas citizens;
(e) persons who are British subjects under the British Nationality Act 1981;
(f) British Nationals (Overseas) under the Hong Kong (British Nationality)
Order 1986;
(g) bodies corporate incorporated in a country in the European Economic Area;
(h) bodies corporate incorporated in a British possession92 having their principal
place of business in such British possession or the United Kingdom; and
(i) a European Economic Interest Grouping formed under Article 1 of Council
Regulation 2137/85 and registered in the United Kingdom.
2.4.4 Each ship is divided into 64 shares and each share or number of shares
may be owned jointly by up to five persons. Joint owners are deemed to be one
person and cannot sever the joint ownership or dispose in severalty of their interest
in the ship.93 If 33 or more shares in the ship are owned by one or more persons
or companies in the categories listed above, then the ship may be registered in
Part I of the Register provided that the person or any of the persons owning the
majority shares is resident in the United Kingdom, or, if the owners are a body
corporate, the body corporate has a place of business in the United Kingdom, or,
where this is not the case, a representative person is appointed in relation to the
88 ibid, s 85(2).
89 Reg 7 of the Registration Regulations.
90 The countries in the European Economic Area are:
Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic
Denmark, Estonia, Finland, France, Germany, Greece, Hungary
Iceland, Ireland, Italy, Latvia, Lithuania, Liechtenstein, Luxembourg
Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia
Slovenia, Spain, Sweden, United Kingdom.
91 In accordance with Art 39 or Art 43 of the Consolidated Version of the Treaty establishing the
European Community [1997] OJ C340/03 (as they now are) or Arts 28 or 31 of the Agreement on
the European Economic Area [1994] OJ L1/03.
92 British possessions are:
Jersey, Guernsey, Isle of Man, (which are Crown Dependencies) Anguilla, Bermuda, British Antarctic
Territory, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Cyprus Sovereign Base
Areas (Dhekelia and Akrotiri), Falkland Islands, Gibraltar, Montserrat, Pitcairn Island, St Helena, the
Turks and Caicos Islands and South Georgia.
In relation to what is meant by ‘having their principal place of business . . . in the United Kingdom’ see
Daimler Co v Continental Tyre & Rubber Co (Great Britain) [1916] 2 AC 307 (HL); The St Tudno [1916]
P 291 (PD & Adm) and The Polzeath [1916] P 241 (CA).
93 Reg 2(5)(d) of the Registration Regulations.
26
OWNERSHIP AND REGISTRATION
ship. In the case of British overseas citizens and British subjects under the British
Nationality Act 1981 the consent of the Secretary of State is required if the owner
or one of the owners is not resident in the United Kingdom.94
2.4.5 A representative person must be a person resident in the United Kingdom
or a body corporate incorporated in a country in the European Economic Area
that has a place of business in the United Kingdom.95 Any document to be served
on the owner under the Merchant Shipping Acts will be deemed to be properly
served on the owner if served on the representative person.96
2.5 Fishing vessels
2.5.1 If the ship is to be used for or in connection with fishing for sea fish for profit, then
different rules apply. In the Merchant Shipping Act 1988, the United Kingdom government had imposed a limitation on the ownership of a British fishing vessel, but this
limitation was finally held to be unlawful under the EC Treaty in R v Secretary of State
for Transport, ex parte Factortame Ltd (No. 3).97 The rules were amended and the revised
qualifications for owning a British fishing vessel now appear in the Registration Regulations. In summary, a British fishing vessel can only be registered if the legal and beneficial
ownership in the ship is vested wholly in one or more of the following categories:98
(a) British citizens;
(b) non-United Kingdom nationals who are nationals of a country in the
European Economic Area exercising their right of freedom of movement
of workers or right of establishment;
(c) bodies corporate incorporated in a country in the European Economic
Area with a place of business in the United Kingdom;
(d) a European Economic Interest Grouping formed under Article 1 of Council
Regulation 2137/85 and registered in the United Kingdom; or
(e) a local authority in the United Kingdom.
A share owned by a qualified person and a non-qualified person is treated as owned
by a non-qualified person.99 In addition to the ownership requirement, the fishing
vessel must be managed and operated from the United Kingdom and any charterer
or manager must be qualified to own a British fishing vessel.100 If the fishing vessel
is owned by a qualified person who is not resident in the United Kingdom then a
representative person in the United Kingdom must be appointed.101 The Secretary
of State has power to dispense with the requirement that a particular person is
not a British citizen or a national of a country in the European Economic Area if
that individual has resided in the United Kingdom and has been involved in the
fishing industry in the United Kingdom for a significant period of time.102
94 ibid, reg 8.
95 ibid, reg 18(2).
96 ibid, reg 19.
97 [1992] 1 QB 680 (ECJ), Case C-221/89, [1991] ECR I-3095.
98 Reg 12 of the Registration Regulations.
99 ibid, reg 13(2).
100 ibid, reg 14(1).
101 ibid, reg 14(2).
102 ibid, reg 15.
27
OWNERSHIP AND REGISTRATION
2.5.2 A British fishing vessel can be registered with full registration, meaning
that the private law provisions of Schedule 1 to the 1995 Act apply, or by simple
registration. A mortgage can be registered against a ship with full registration but
not against a ship with simple registration.103
2.5.3 If a fishing vessel that is entitled to be registered in Part II of the Register
is not so registered and is not registered under the law of any other country, and
fishes for profit, then the vessel is liable to forfeiture and the owner, the master
and any charterer commit an offence.104
2.6 Small ships
2.6.1 A small ship – that is a ship under 24 metres in overall length – which is
not a fishing vessel or a submersible vessel may be registered in Part III of the
Register if the owner is ordinarily resident in the United Kingdom and is within
the following categories:105
(a) British citizens;
(b) non-United Kingdom nationals who are nationals of a country in the
European Economic Area exercising their right of freedom of movement
of workers or right of establishment;
(c) British overseas territories citizens;
(d) British overseas citizens;
(e) persons who are British subjects under the British Nationality Act 1981;
(f ) persons who are British nationals (overseas) under the Hong Kong (British
Nationality) Order 1986; or
(g) Commonwealth citizens not within the above categories.
2.6.2 Registration under Part III is prima facie evidence of ownership but the
provisions of Schedule 1 of the 1995 Act (transfers by bill of sale and registration of mortgages) do not apply to small ships.106 As there is no provision for the
registration of mortgages or charges on small ships, an owner can only grant a
common law legal mortgage or an equitable mortgage on a small ship in the manner explained in Chapter 3.107
2.7 Registration procedure
2.7.1 In order to register a ship in Part I of the Register, the owner must select
a name for the ship and also select a port of choice. The proposed name must be
approved by the Registrar and the rules governing the selection and approval of
the name are set out in Schedule 1 to the Registration Regulations. The port of
choice must be selected from the ports listed in Schedule 2 to the Registration
Regulations and completed in a box in the Application to Register (Form MSF
103
104
105
106
107
ibid, reg 3.
Merchant Shipping Act 1995, s 15.
Reg 89 of the Registration Regulations.
ibid, reg 91.
See Chapter 3, section 3.4 (Common law mortgages) and section 3.6 (Equitable mortgages).
28
OWNERSHIP AND REGISTRATION
4740). The selection of a port of choice is cosmetic or sentimental only (appearing
on the ship’s stern) and does not have the significance of the previous age-old
system of registration at a particular port.108 The owner must produce to the Registrar a builder’s certificate, in the case of a new ship, or a bill of sale, in the case
of a second-hand ship.109 If the ship was previously registered under the law of a
country other than the United Kingdom, then the owner will have to produce a
certified extract of the foreign register showing that the seller was the registered
owner110 and will also have to produce to the Registrar a certificate of the deletion
of the ship from the foreign register.111 If the owner is a body corporate, evidence
of due incorporation must be produced to the Registrar.112
2.7.2 The owner must complete and submit an Application to Register (Form
MSF 4740) and a Declaration of Eligibility (Form MSF 4727 or 4728 FV). If
the ship does not already have a valid tonnage certificate, the owner must arrange
for the ship to be measured and a tonnage certificate issued under the tonnage
regulations.113 When the owner has submitted these documents to the Registrar
and paid the prescribed fee, the Registrar will issue a carving and marking note
allocating an official number to the ship.114 The owner then must arrange for the
ship to be ‘marked’115 and the carving and marking note verified by an inspector
of marks, usually a surveyor from the classification society. The owner then returns
the carving and marking note to the Registrar, who issues the certificate of registry.
The certificate of registry is valid for five years.116
2.7.3 In the case of a fishing vessel, in order to register the ship in Part II of the
Register with full registration, the owner must complete all the documents required
for a registration in Part I, and must also produce a safety certificate issued under
the Merchant Shipping Act 1995.117
2.7.4 In order to register a ship in Part III of the Register, a different procedure
must be followed. The owner must complete an application form MSF 4701. On
receipt of the duly completed application form and payment of the prescribed fee,
the Registrar will register the ship in Part III of the Register and issue a certificate
of registry to the owner, who then must paint or affix the registration number to
the ship within one month of the date of issue of the certificate of registry.118
108 See paragraph 2.3.5 above. See further Chapter 4, paragraph 4.9.16 and paragraph 4.15.8.
109 Reg 28 of the Registration Regulations. In the case of a pleasure vessel and a fishing vessel, title
must be established for the previous five years or three years respectively.
110 Reg 22(2) of the Registration Regulations.
111 Merchant Shipping Act 1995, s 9(5).
112 Reg 24 of the Registration Regulations.
113 Merchant Shipping (Tonnage) Regulations 1997, SI 1997/1510 as amended by SI 1998/1916, SI
1999/3206 and SI 2005/2114. See the Merchant Shipping (Fishing Vessels – Tonnage) Regulations 1998,
SI 1988/1909 as amended by SI 1998/1916 and SI 1999/3206 in relation to fishing vessels, unless Pt IIA
of the Merchant Shipping (Tonnage) Regulations 1997 applies.
114 Reg 31 of the Registration Regulations.
115 See Schedule 3 to the Registration Regulations.
116 Reg 39 of the Registration Regulations.
117 Merchant Shipping Act 1995, s 123; Fishing Vessels (Safety Provisions) Rules 1975 (SI 1975/330)
(as amended). These regulations were made under the Fishing Vessels (Safety Provisions) Act 1970
(repealed) but remain in force by virtue of s 17(2)(b) of the Interpretation Act 1978.
118 Reg 95 of the Registration Regulations.
29
OWNERSHIP AND REGISTRATION
2.7.5 The certificate of registry is not a document of title, although it is documentary evidence of title. It is further provided in regulation 109(1) of the Registration Regulations119 that:
A certificate of registry shall be used only for the lawful navigation of the ship, and
shall not be subject to detention by reason of any title, lien, charge or interest whatever
had or claimed by any owner, mortgagee or other person to, on, or in the ship.120
A certificate of registry cannot therefore be used in any circumstances to create a
security interest in the ship. Indeed, it is an offence for someone to refuse to deliver
up the certificate of registry to the person who requires it for the purposes of
operating the ship.121 When the registration of the ship expires then the certificate
of registry must be returned to the Registrar for cancellation. If the Registrar is
satisfied that the certificate of registry has been lost, destroyed or damaged he has
power to issue a duplicate certificate of registry.122
2.8 Effect of registration
2.8.1 The registration of the ship does not conclusively prove that the registered
owner is the true legal owner. This is one respect in which the ship registration
system differs from the land registration system.123 The Register of Ships is merely
prima facie evidence of ownership. In Baumwoll Manufactur von Carl Scheibler v
Furness Lord Herschell LC said:124
Although the Legislature has now taken greater security to see that the person registered as owner is properly registered than it had done before, all that it has done is
119 This substantially re-enacts the first sentence of the Merchant Shipping Act 1854, s 50 of which
was carried through into the Merchant Shipping Act 1894, s 15.
120 See also Merchant Shipping Act 1995, s 13.
121 Reg 109(2) of the Registration Regulations; see also The Barbara (1802) 4 C Rob 2, 165 ER 514; Gibson
v Ingo (1847) 6 Hare 112, 67 ER 1103; Bowen v Fox (1829) 10 B & C 41, 109 ER 366; Clarke v Batters (1855)
1 K & J 242, 69 ER 447; Wiley v Crawford & Fenwick (1861) 1 B & S 253, 121 ER 709; The St Olaf (1877) Asp
MLC 268, 2 PD 13; Arkle v Henzell (1858) 8 El & Bl 828, 120 ER 309; The Celtic King [1894] P 175.
122 Reg 108 of the Registration Regulations.
123 See the Land Registration Act 2002 and the Land Registration Rules 2003.The land registration system
has many advantages over the ship registration system and a persuasive case can be made for reforming the ship
registration rules on the lines of the land registration rules. Under the land registration system the registered
owner has an indefeasible title to the land in the majority of cases, depending on the class of title allocated.This is
subject to the qualification that in certain limited circumstances (Schedule 4 of the Land Registration Act 2002)
the Register of Title may be rectified or altered. There are certain circumstances in which compensation may be
payable to a person who suffers any loss as a result of such change but this is applicable only to rectification not
alteration (Schedule 8 of the Land Registration Act 2002).The Register of Title is the conclusive proof of title. A
buyer of registered land receives a transfer from the seller but does not become the legal owner or registered proprietor until the transfer is registered with the Land Registry. Until the time of registration the seller remains the
legal owner, but holds the land on bare trust for the buyer who is therefore the equitable owner in the intervening
period. A mortgage or charge is valid as between the parties from the date of execution; however a mortgage will
not operate as a legal mortgage until it is registered at the Land Registry. The Land Registry operates a priority
notice system so that a person intending to enter into a transaction relating to the registered land can obtain a
priority search certificate. This will state if any adverse entries have been registered after a stated date and will
be valid for 30 business days. If the relevant transfer or mortgage (together with the duly-completed application
for registration) is lodged at the Land Registry within the priority period, it will not be adversely affected by
any other interest (other than an overriding interest) which does not appear in the priority search certificate. If
another person applies for a priority search certificate after the first priority search certificate is issued, the second
priority search certificate will give notice that the first priority search certificate has been issued.
124 [1893] AC 8 (HL) 20.
30
OWNERSHIP AND REGISTRATION
to make the register prima facie evidence of ownership. In fact it assumes that anybody
may displace altogether the statutory effect which has been given to it by proving what
the facts really are.125
There is indication from later cases that the Register is conclusive except in cases
of fraud126 or circumstances where the corporate veil would be pierced.127 For most
purposes a transcript of register issued by the Registrar is in practice accepted as
evidence of title and of registered mortgages.128 Under the Registration Regulations
the Registrar is entitled to amend the Register to correct a clerical error or where
‘sufficient evidence is produced to satisfy him that the entry is incorrect. . .’.129
2.8.2 In the case of a ship not registered in Part I or with the full registration
under Part II of the Register, legal title will pass to the buyer on delivery of the
ship or at such other moment of time that the sale contract so provides. However,
in the case of a ship registered in Part I or with full registration under Part II of the
Register, paragraph 2 of Schedule 1 to the Merchant Shipping Act 1995 provides:
(1) Any transfer of a registered ship, or a share in such a ship, shall be effected by
a bill of sale satisfying the prescribed requirements, unless the transfer will
result in the ship ceasing to have a British connection.
(2) Where any such ship or share has been transferred in accordance with subparagraph (1) above, the transferee shall not be registered as owner of the ship
or share unless –
(a) he has made the prescribed application to the registrar; and
(b) the registrar is satisfied that the ship retains a British connection and that
he would not refuse to register the ship.
2.8.3 The predecessor to section 25(1) of the 1995 Act was the Merchant Shipping Act 1894, s 24(1). Just as the registration regime is not conclusive, neither
is it exclusive. Interests falling short of registered title will be recognised, as demonstrated by cases set against the background of the 1854 Act or the 1894 Act.130
In The Spirit of the Ocean Dr Lushington said:131
I apprehend that it is the duty of the vendee, and his interest also, to register his title,
as without registration the vendee would not be entitled to the whole benefits of ownership. But apart from registration, the execution of the bill of sale entirely divests the
125 This has not always been the case. See the Registering of British Vessels Act 1845 (8 & 9 Vict c 89),
s 37 which denied any effect in law or equity to an unregistered bill of sale. See paragraph 2.1.4 above.
There is no doubt that the court will look behind the Register in cases of fraud; see: McLean v Grant
(1843) 3 NBR 50 (CA); Gibson v Dill (1880) 19 NBR 565 (CA); Robillard v The St Roch and Charland
(1922) 62 DLR 145. See Meeson and Kimbell (n 45) paragraphs 10.22–10.29.
126 See Meeson and Kimbell (n 45) paragraphs 10.26–10.29 and the cases there referred to.
127 See the comments made in The Tian Sheng No. 8 [2000] 2 Lloyd’s Rep 430 (HKCFA) 433. See
also paragraph 2.2.4 above.
128 See cl 8 of NSF Saleform 2012: a seller has to produce: ‘Certificate or Transcript of Registry . . .
evidencing the Sellers’ ownership of the Vessel and that the Vessel is free from registered encumbrances
and mortgages. . .’.
129 Reg 2(6) of the Registration Regulations.
130 The Spirit of the Ocean (1865) 12 LT 239 (Adm); TheVenture (1908) P 218 (CA); Burgis v Constantine
[1908] 2 KB 484 (CA).
131 (1865) 12 LT 239 (Adm) 240, also reported in (1865) Br & L 336, 167 ER 388 (although this
report does not include Dr Lushington’s comments quoted in the main text). See also Stapleton v Haymen
(1864) 2 H & C 918 (Ct Ex) and Robillard v The St Roch & Charland (1921) 62 DLR 145, 151 in which
it was held that a bill of sale which did not comply with the statute did not transfer title.
31
OWNERSHIP AND REGISTRATION
title of the vendor. Such is the case by the ordinary law of nations, and I think, too,
by the municipal law of this country. Registration is but the record of a fact done – a
record of the sale, not the sale itself.
2.8.4 The beneficial ownership of the ship will pass to the buyer on the delivery of
the bill of sale,132 but until the bill of sale is registered with the Registrar of Ships, the
seller retains power to transfer the legal title to a third party. Accordingly, until the buyer
registers its title to the ship, it does not acquire absolute legal title to the ship as the
seller can validly dispose of the ship to a third party who will obtain a legal title to the
ship (provided it has no notice of the prior transfer). In The Horlock Phillimore J said:133
. . . the question arises whether the plaintiff, who is to be assumed also to have purchased
from the registered owner certain shares for valuable consideration and without notice
of fraud, has a good legal and equitable title. Now the section, the construction of which
governs this case, is the 43rd section of the Merchant Shipping Act, 1854134 . . . the
words of that section are: –
‘No notice of any trust, express, implied, or constructive, shall be entered in
the register book or receivable by the registrar; and, subject to any rights and
powers appearing by the register book to be vested in any other party, the
registered owner of any ship or share therein shall have power absolutely to
dispose in manner hereinafter mentioned of such ship or share, and to give
effectual receipts for any money paid or advanced by way of consideration.’
. . . the material point in the case must turn upon the plain meaning of the section
of the Act of Parliament to which I have referred, and . . . the predominance of authority in the cases cited before me would sustain this proposition, viz., that a purchaser
purchasing from an owner of registered property for a valuable consideration without
any notice of fraud, and combining therefore a legal and equitable title, is not liable
to have such title impeached on the ground of fraud to which he was not a party; such
fraud being between the person who at the time of the purchase appeared on the
register as owner and another person. I should observe here that the ownership is still
registered, according to the bill of sale in question.
2.8.5 If an incorrect entry is made in the Register the court has jurisdiction to
order rectification in any proceedings relating to ownership.135 However, the claim
of a bona fide purchaser without notice of a previous fraud takes precedence over a
claim for rectification, which will not be made so as to prejudice the rights of such
a person.136 If a fraudulent seller were to sell a ship, first, to a buyer who delays in
registering title and, again, to a second innocent buyer who does register title, the
first buyer will have a claim against the seller. If the first buyer has taken possession
of the ship (even though it has not registered its title) it is difficult to see how the
second buyer would not be on notice of the first buyer’s rights.137 If, however, the
seller remains in possession it seems that, of the two buyers, the second buyer who
132 See paragraphs 2.2.3 and 2.2.5 above.
133 The Horlock (1877) 2 PD 243 (PD & Adm) 248–249.
134 17 & 18 Vict c 104.
135 The Rose (1873) LR 4 A&E 6. The Registrar also has power to correct the Register: reg 2(6) of
the Registration Regulations; see paragraph 2.8.1 above.
136 The Horlock (1877) 2 PD 243 (PD & Adm), 3 Asp MLC 421.
137 Even if the second buyer is on notice of the rights of the first buyer it might still be the case, based
on Black v Williams [1895] 1 Ch 408 and Barclay & Co Limited v Poole [1907] 2 Ch 284, that the second
32
OWNERSHIP AND REGISTRATION
is registered has the better claim to possession and could, if the seller refused to give
up possession, arrest the ship pursuant to the Senior Courts Act 1981, s 20(2)(a)138
in furtherance of its claim to possession. The circumstances described would be
unusual in practice but in any event show the importance of prompt registration.139
2.8.6 There are circumstances where the seller may have a legal right to resell the
ship even where the original buyer has registered the bill of sale with the Registrar
of Ships.140 In such circumstances, where the seller has legally resold the ship to
a subsequent buyer, the subsequent buyer may have to apply to the court for a
declaration that it, rather than the first buyer, is the legal owner of the ship and is
entitled to be registered as such. If such an order is made, the Registrar will then
register the subsequent buyer as registered owner.141
2.8.7 It is a feature and result of the legislative history in relation to registration,142
and consistent with the cases referred to above, that registration is a requirement of
obtaining legal title. In other words, only the registered owner of a ship to which the
private law provisions of the Merchant Shipping Act 1995 apply can be the holder
of legal title. This is admittedly not expressly stated anywhere in the legislation.143
2.8.8 If a ship registered in Part I or Part II (full registration) of the Register
becomes a total loss and the Merchant Shipping Acts therefore cease to apply to
it, then a bill of sale will not be necessary to transfer the legal title in the ship.144
2.8.9 Various provisions of the Merchant Shipping Act 1995 have been extended
by Order in Council to certain British possessions.145 Some British possessions have
their own laws addressing the registered ownership and mortgaging of ships.146
When taking a mortgage over a ship registered in a British possession it is advisable to take advice from local lawyers.
(registered) buyer would prevail against the first buyer who delayed in registering his title. See Chapter 3,
section 3.2 (Statutory mortgages – the primacy of registration).
138 ‘. . . any claim to the possession or ownership of a ship or to the ownership of any share therein’.
139 See also Chapter 3, section 3.2 (Statutory mortgages – the primacy of registration). See further
Chapter 4, section 4.7 (The cases on ownership and arrest jurisdiction).
140 The Bineta [1967] 1 WLR 121 (PD & Adm) [1966] 2 Lloyd’s Rep 419. The owner of a registered
ship sold it to the first buyer and delivered the bill of sale to him, which was then registered with the Registrar.
When the first buyer failed to pay the balance of the purchase price the original owner exercised her right of
resale as an unpaid seller under of the Sale of Goods Act 1893, s 48(2) and sold the ship to the second buyer,
who then applied to the court for a declaration that he was the legal owner of the ship and entitled to be registered as such. Brandon J, relying on the decision in The Rose (1873) LR 4 A & E 6, made the order asked for.
141 See The Ocean Enterprise [1997] 1 Lloyd’s Rep 449 (Adm) 453 as to the power of the Admiralty
Court to rectify the Register. See also reg 2(6) of the Registration Regulations.
142 See paragraphs 2.3.2–2.3.5 above.
143 Clarke suggests caution on this issue whilst describing it as ‘logically attractive’ and cites cases
going the other way. The following statement is certainly valid:
The classic judicial analysis of the nature of proprietary interests in British ships took place at a relatively
early stage in the development of equity and at a time when registration of title to property of any description was in its infancy. It is doubtful whether they would stand up to modern scrutiny.
(Alison Clarke, ‘Ship Mortgages’ in Norman Palmer and Ewan McKendrick (eds), Interests in Goods
(2nd edn, LLP 1998)).
144 Manchester Ship Canal Co v Horlock [1914] 2 Ch 199 (CA); The European & Australian Royal Mail
Co Ltd v The Peninsular & Oriental Steam Navigation Co (1866) 14 LT 704.
145 See n 92 for the current list of British possessions. The private law provisions in the Merchant
Shipping Act 1995, Schedule 1 can be extended to British possessions.
146 See, for example, the Merchant Shipping Law (2011 Revision) of the Cayman Islands and the
Merchant Shipping Registration Act 1991 of the Isle of Man.
33
OWNERSHIP AND REGISTRATION
2.9 Refusal of registration, termination and expiry of registration
2.9.1 The Registrar has the power to refuse to register a ship, even though it otherwise complies with requirements set out in the Registration Regulations, on the
grounds that the ship does not comply with the environmental or safety requirements
of the Merchant Shipping Acts. The Registrar can also refuse registration in Part II of
the Register if the fishing vessel does not have a safety certificate under the Fishing
Vessels (Safety Provisions) Rules 1975147 or if the ship has undertaken not to operate
as a fishing vessel under a European Commission scheme for decommissioning or
similar arrangement.148 Once the ship is registered, it can be deregistered by the
Registrar on several grounds, including: application by the owner for deregistration;
the ship ceasing to be eligible for registration, e.g., by having been transferred to
persons not qualified to own a British ship; the ship becoming a total loss;149 the
ship failing to comply with the environmental or safety requirements of the Merchant
Shipping Acts; or, in the case of a fishing vessel, if it ceases to be licensed to fish.
2.9.2 Termination of registration under the Registration Regulations does not
affect any undischarged registered mortgage.150
2.9.3 Registration is valid for a period of five years, unless terminated earlier
under the Registration Regulations. At the end of the five-year period it expires
unless it is renewed.151 If no application for renewal is made the Registrar shall
notify each mortgagee of the expiry of the registration.152 It is thought that the
benefit of section 16(4), which preserves undischarged registered mortgages on
termination of registration, applies equally to expiry of registration.153 The procedure for renewal of registration for ships registered under Part I or Part II of the
Register is set out in regulations 41 and 42 of the Registration Regulations, with
the Registrar issuing a renewal notice to the owner at least three, but not more
than six, months before expiry of the registration.
2.10 The ship
2.10.1 The registration provisions discussed in this chapter apply to a ship as defined
in the Merchant Shipping Act 1995. As so defined a ship ‘includes every description
of vessel used in navigation’ so the definition is not exclusive.154 With the development
of the exploitation of oil and gas resources offshore new types of structure were
developed such as drilling platforms, mobile drilling rigs, floating production, storage
147 SI 1975/300 (as amended).
148 Reg 36(3) of the Registration Regulations.
149 Manchester Ship Canal Co v Horlock [1914] 2 Ch 199 (CA); reg 56(1)(c) of the Registration Regulations.
150 Merchant Shipping Act 1995, s 16(4).
151 Reg 39 of the Registration Regulations.
152 Reg 42(2) of the Registration Regulations.
153 This common-sense interpretation is supported by the wording of reg 100 of the Registration
Regulations in relation to surrender of the certificate of registry (‘On the termination, whether by expiration of the registration period or otherwise . . .’). The mortgagee will in any event wish to ensure that if
the owner fails to take steps to renew registration the mortgagee can do so as the owner’s attorney-infact under the security power of attorney in the deed of covenant. See the form of deed of covenant in
Appendix 3, clause 6.2(c) and clause 14.
154 Merchant Shipping Act 1995, s 313. The definition in the Senior Courts Act 1981, s 24(1) is
substantially the same.
34
OWNERSHIP AND REGISTRATION
and offloading facilities (FPSOs), floating storage units (FSUs), floating storage and
regasification units (FSRUs) and, most recently, floating liquefied natural gas facilities
(FLNGs).155 Whether a structure is a ship for British registration purposes, i.e. whether
it is eligible to be registered as a British ship, will most likely depend on the interpretation and application of the words ‘used in navigation’.156 An internationally-trading
ship is subject to the laws of the country of registration (flag state control) and when
in port is also subject to the laws of the country in which the port is situated (port
state control). However, non-ship structures, whether or not registered as ships, are
subject to the regulatory regime for offshore installations or the equivalent157 of the
country in whose territorial waters or exclusive economic zones they are located.
2.10.2 There are various areas where the rules relating to ships differ from the
rules relating to non-ship structures and five such areas will be briefly considered.
The test for what is or is not a ship is specific to the context and the test may differ from one area to another. First, ownership and security: the law of the register
governs the creation of registrable proprietary interests, whether in respect of ownership or security. This general statement is subject to any local law issues158 and
also subject to a close examination of the English conflict of laws position, which is
addressed in Chapter 4. If a structure is not registered as a ship the rules relating
to the ownership and security interests in chattels of the country in whose territorial waters the structure is located will apply. Accordingly, questions of ownership
and security interests in a non-ship structure operating in the territorial waters of
the United Kingdom will be governed by the English law of chattels or Scottish
law of res mobilis (as the case may be). The difference is important in relation to
creditors’ rights. A lender may obtain a registrable mortgage on a registered ship
but it will not be able to obtain such a mortgage on an unregistered non-ship
structure. In English law a mortgagee may obtain a chattel mortgage on a non-ship
structure that will give the same security rights as a mortgage on an unregistered
ship159 but, unless the non-ship structure is a ship or vessel within the meaning of
the Bills of Sale Act 1878, if the owner is an individual or a general partnership
the mortgage will need to be registered under the Bills of Sale Acts; only ships or
vessels are excluded from the application of these Acts.160 If a non-ship structure
155 FLNG facilities are the equivalent to gas what FPSOs are to oil. Shell’s Prelude FLNG facility is
registered as an Australian ship.
156 See paragraph 2.10.8 below and the cases on what is or is not a ship for different purposes.
157 As an example of the extensive regulatory regime applicable to offshore installations, in response
to the Deepwater Horizon incident in the Gulf of Mexico, the European Commission published the Offshore Safety Directive (Directive 2013/30/EU of the European Parliament and the Council of 12 June
2013 on safety of offshore oil and gas operations) which has been implemented in the United Kingdom by
the Offshore Installations (Offshore Safety Directive) (Safety case etc.) Regulations 2015 (SI 2015/398).
158 See the way in which this issue has arisen recently and dramatically in relation to an FPSO registered on the Liberian register and operating in the Brazilian exclusive economic zone; Chapter 4, section 4.14
(FPSO OSX 3 in Brazil).
159 See Chapter 3, section 3.4 (Common law mortgages) and paragraph 3.6.3.
160 Bills of Sale Act 1878 (41 & 42 Vict c 31) s 4, as amended by the Bills of Sale Act (1878) Amendment Act 1882 (45 & 46 Vict c 43). See Gapp v Bond (1887) 19 QBD 200 (CA). On the Bills of Sale Acts
see further Chapter 3, paragraphs 3.4.2 and 3.4.4 and Chapter 6, section 6.4 (The Bills of Sale Acts).
Ownership of substantial non-ship structures by individuals (or general partnerships) so as potentially to
engage the Bills of Sale Acts is most unlikely in practice.
35
OWNERSHIP AND REGISTRATION
is owned by an English company or limited liability partnership the mortgage
will, as with any charge, be registrable under the Companies Act 2006, s 859.161
2.10.3 Second, it is possible to arrest a ship in an Admiralty action in rem in order
to enforce a maritime claim but it is not possible to commence in rem proceedings and arrest a non-ship structure, i.e. which does not fall within the definition
of ‘ship’ in the Senior Courts Act 1981, s 24(1).162 A creditor may apply to the
court for an injunction to prevent such a structure’s removal from the jurisdiction,
but this is a less effective remedy. Also, those who have maritime claims against a
‘ship’ (as so defined) may have either a maritime lien or a statutory lien against a
ship which will give them priority to other creditors,163 but if the maritime claim
arises in connection with a non-ship structure then the creditor will not obtain
such a lien and its claim will usually rank equally with the unsecured creditors.
2.10.4 Third, ships are subject to the law of salvage but non-ship structures are
not. Article 3 the Salvage Convention 1989 provides:
This Convention shall not apply to fixed or floating platforms or to mobile offshore
drilling units when such platforms or units are on location engaged in the exploration,
exploitation or production of sea-bed mineral resources.
2.10.5 Fourth, ships generally have the right to limit their liability to third parties,
under sections 185–190 of the Merchant Shipping Act 1995. Non-ship structures
have no such right. Article 15(5)(b) of the Convention on Limitation of Liability
for Maritime Claims 1976 states:
This Convention shall not apply to . . . floating platforms constructed for the purpose
of exploring or exploiting the natural resources of the sea-bed or the subsoil thereof.
2.10.6 Fifth, the insurance position in relation to non-ship structures may be different. The Marine Insurance Act 1906, s 1 defines a contract of marine insurance
161 See Chapter 6, section 6.3 (Companies Act 2006). The issue of what is a ‘ship’ – or on the other
hand a ‘vessel’ – and its impact on the relationship between the regime for registration of company charges
and that for registration of bills of sale under Irish legislation was thrown into sharp relief by In the Matter
of South Coast Boatyard (In Voluntary Liquidation), James Barber v Barry Burke, Patrick Hickey and Mallinson
Wood Products Ltd [1980] ILRM 186. The Supreme Court held that yachts (owned by a company) were not
ships so as to engage the requirement for a charge over a ‘ship’ to be registered under the Companies Act
1963, s 99 but that they were ‘vessels’ with effect that they fell within the exemption from registration of a
charge which if created by an individual would require registration as a bill of sale (the Bills of Sale (Ireland)
Act 1879, s 4 excluding from the definition of bill of sale a transfer or assignment of any ‘ship or vessel’). The
result was that security over the yachts which had not been registered as a charge pursuant to the Companies
Act 1963, s 99 was not void for non-registration as against a liquidator. The issue would not now arise in
England in the same way because of the wide terms of the Companies Act 2006, s 859A (See Chapter 6,
section 6.3 (Companies Act 2006)) but would have arisen under the old regime for registration of charges
pursuant to the Companies Act 1985, ss 395 and 396 and provisions of the Bills of Sale Acts. Walsh J made
the following statement, in words as incisive as they are evocative, near the end of his judgment:
The court is, in my opinion, entitled to have regard to the way in which English was spoken and used
in 1963. If, in that year, any Irishman or, indeed, Englishman went to Dun Laoghaire during the sailing
season and saw the many yachts in the harbour and was asked by a linguistic philosopher how he would
describe the vessels in the harbour, he would say that the British Rail vessel was a ship, that the yachts
were yachts and the rowing boats boats. If he were pressed on what he called yachts, he would say that
they were vessels. He would never dream of calling any of the yachts there, irrespective of their size, ships.
162 See Chapter 14, paragraphs 14.2.14–14.2.19.
163 See Chapter 10.
36
OWNERSHIP AND REGISTRATION
as an undertaking to indemnify ‘against marine losses, that is to say, the losses
incident to a marine adventure’.164
2.10.7 Non-ship structures operating in the oil and gas industries are generally
subject to laws and regulations which are outside the scope of this book.
2.10.8 There are no consistent rules for deciding whether a structure is a ship or
a non-ship structure and for deciding the regulatory regime under which they should
be governed.165 As has been seen above, the Merchant Shipping Act 1995 defines a
‘ship’ as including ‘every description of vessel used in navigation’.166 Section 310 of
the 1995 Act gives the Secretary of State power to extend the Act (except Parts I
and II) to hovercraft167 and section 311 gives power to provide ‘that a thing designed
or adapted for use at sea and described in the order is or is not to be treated as a
ship for the purposes of any specified provision of this Act . . . ’. Until an order is
made under section 311, only ships within the definition can be registered under
the 1995 Act. In practice, the decision as to whether a structure is a ship for the
purposes of Part II of the Merchant Shipping Act 1995 is taken on technical grounds
by a surveyor from the Maritime and Coastguard Agency. There are no decisions
of the courts concerning the criteria to be used in deciding whether a structure is
a ship or not for registration purposes, but there are many cases in which the court
has had to decide whether a structure is a ship for other purposes. However, it is
difficult to discern any consistent approach by the courts to the question from an
analysis of these cases – or, at least, the cases illustrate the wide range of objects
that are potentially ships and the impossibility of having a test that can be applied
in all cases and in different legal contexts.168 One trend which can be discerned is
164 See Graham Barnes, The Insurance Aspects of Shipping and Offshore Financing (Peter Mellet ed,
3rd edn, BankServe Insurance Services Ltd 2016) 135–152 for a review of insurance issues in relation to
offshore oil and gas units.
165 The Comité Maritime International (CMI) and the Canadian Maritime Law Association produced a draft ‘Convention on Offshore Units, Artificial Islands and Related Structures Used in the
Exploration for and Exploitation of Petroleum and Seabed Mineral Resources’. The CMI currently has an
international working group on ‘vessel nomenclature’. See further William Hooper, ‘The FLNG Facility:
A Jurisdictional Enigma’ (Stone Chambers, 2015).
166 See paragraph 2.10.1 above: Merchant Shipping Act 1995, s 313. The Merchant Shipping Act
1894, s 742 had defined a ‘ship’ as including ‘every description of vessel used in navigation not propelled
by oars’, and a ‘vessel’ was defined as including ‘any ship or boat, or any other description of vessel used in
navigation’: this was extended by s 1(1)(c) of the Merchant Shipping Act 1921 to include ‘every description of lighter, barge or like vessel used in navigation’.
167 See the Hovercraft Act 1968.
168 Everard v Kendall (1870) LR 5 CP 428 – barges propelled by oars were held not to be ships; Ex parte
Ferguson and Hutchinson (1871) LR 6 QB 280 (Blackburn J) – a fishing coble fitted with oars and sails was held
to be a ship; The European and Australian Royal Mail Co Ltd v The Peninsular & Oriental Steam Navigation Co
(1866) 14 LT 704 – a sailing ship which had had its masts and rigging removed and was used for coal storage
was held not to be a ship for the purposes of a transfer of title; The Mac (1882) LR 7 PD 126 – a hopper barge
held to be a ship; The Mudlark [1911] P 116 – a hopper barge held to be a ship; The Harlow [1922] P 175 – a
barge held to be a ship; The Champion [1934] P 1 – a barge held to be a ship; The Craighall [1910] P 207 (CA) –
a landing stage, floating but fixed, was held not to be a ship; The Gas FloatWhitton No. 2 [1897] AC 337 (HL) – a
gas float anchored as a light beacon held not to be a ship; The Upcerne [1912] P 160 – a floating gas buoy held
to be a ship; The Andalusian (1878) 3 PD 182 – a ship under construction launched into the river Mersey
collided with another ship; as the ship was not registered it was held not to be a ship for limitation purposes;
Gapp v Bond (1887) 19 QBD 200 – a dumb barge held to be a ‘ship or vessel’; Merchants Marine Insurance v
North of England P & I Assoc (1926) 26 Ll L Rep 201 – a pontoon crane held not to be a ship; St John’s Pilot
Commissioners v Cumberland Railway Co [1910] AC 208 (HL) – barges (which were towed by tugs) included in
the definition ‘every ship that navigates’; The Mayor of Southport v Morris [1893] 1 QB 359 – a passenger launch
37
OWNERSHIP AND REGISTRATION
a tendency for the courts to adopt a narrow approach in cases involving dangerous
use of jet skis but a broader approach in a commercial context.169 In one case a
particular type of jet ski was held not to be a vessel for the purposes of the Merchant
Shipping Acts. Sheen J also analysed the phrase ‘used in navigation’ in the statutory
definition.170 The meaning of ‘used in navigation’ was addressed in a later case involving a criminal prosecution for dangerous use of a jet ski (of a different type) and it
was held that it was not ‘used in navigation’.171 In contrast, a broader approach has
generally been taken in cases involving maritime structures used in the offshore oil
and gas industry.172 The commercial significance and varieties of the latter types of
asset is enormous and ever-growing; when addressing issues relating to such assets
it is desirable for the courts to adopt an approach that is pragmatic and consistent,
at least within each different context in which the issue arises.173
2.10.9 The issue of what constitutes a ship (or sometimes vessel) for different
purposes and in different contexts is not one confined to English law. The Supreme
Court of the United States considered in Lozman v City of Riviera Beach, Fla,174
whether a houseboat was a ‘vessel’ as used in the Rules of Construction Act 1 USCA
§ 3 so as to be capable of being made subject to a maritime lien; the houseboat in
used on a lake held not to be a ship because it was not used in navigation; Weeks v Ross [1913] 2 KB 229 – a
motor launch used on the River Exe held to be a ship; Polpen Shipping Co Ltd v Commercial Union Insurance Co
Ltd [1943] KB 161 – a flying boat held not to be a ship for the purposes of the Marine Insurance Act 1906;
Watson v RCAVictor Inc (1934) 50 Ll L Rep 77 – a seaplane held not to be a ship; Corbett v Pearce [1904] 2 KB
422 – a personal injury case in which the question in issue was whether the person working on a spritsail barge
was a seaman; the barge held to be a ship and the person therefore a seaman; Marine Craft Constructors Ltd v
Erland Blomqvist (Engineers) Ltd [1953] 1 Lloyd’s Rep 514 (QB) – a pontoon held to be a ship or vessel; The
Queen v St John Shipbuilding & Dry Dock Co Ltd (1982) 126 DLR 353 (Fed CA) – a floating crane held to be
a ship; The Von Rocks [1998] 2 Lloyd’s Rep 198 (Ir SC) – backhoe dredger registered in Sweden held to be a
ship for the purposes of the 1952 Arrest Convention; Steedman v Scofield and Another [1992] 2 Lloyd’s Rep 163
(Adm) – a jet ski held not to be a vessel; Addison v Denholm Ship Management (UK) Ltd [1997] ICR 770 – a
floating accommodation unit held to be a ship; R v Carrick District Council ex parte Prankherd [1999] 2 WLR
489 (QB) – a private yacht liable to pay ship dues but this did not include mooring charges; Global Marine
Drilling Co v Triton Holdings Ltd (The Sovereign Explorer) (23 November 1999, unreported) – a mobile drilling
unit held to be a ship for the purpose of the 1952 Arrest Convention; Perks v Clark [2001] EWCA Civ 1228,
[2001] 2 Lloyds Rep 431 – a jack-up drilling rig held to be a ship; R v Goodwin [2005] EWCA Crim 3184,
[2006] 1 Lloyd’s Rep 432 – a jet ski (of a different type from that in Steedman v Scofield) held not to be a ship
because it was not ‘used in navigation’ (the Merchant Shipping Act 1995, s 313(1)). Environment Agency v (1)
Christopher Gibbs (2) Glenn Parker [2016] EWHC 843 (Admin) - a houseboat held not to be a vessel within
the meaning of the Environment Agency (Inland Waterways) Order 2010; this is the most recent English case
in this area and contains a full review of the previous English cases by Teare J.
169 See further Chapter 14, paragraphs 14.2.14–14.2.19 in the context of the Admiralty Court’s
jurisdiction.
170 Steedman v Scofield [1992] 2 Lloyds Rep 163, 166.
171 R v Goodwin [2005] EWCA Crim 3184, [2006] 1 Lloyd’s Rep 432. See Graeme Bowtle, ‘A vessel
used in navigation?’ (2007) 1 LMCLQ 19.
172 See for example Addison v Denholm Ship Management (UK) Ltd [1997] 1 CR 770 – a floating
accommodation unit held to be a ship; Global Marine Drilling Co v Triton Holdings Ltd (The Sovereign
Explorer) (23 November 1999, unreported) – a semi-submersible drilling rig held to be a ship; Perks v Clark
[2001] EWCA Civ 1228, [2001] 2 Lloyd’s Rep 431 – a jack-up drilling rig held to be a ship.
173 See Simon Rainey QC, ‘What is a “Ship” under the 1952 Arrest Convention?’ (2013) 1 LMCLQ
50 for a full review and critique of the English and Commonwealth cases in this area. See also the comments of Longmore LJ in Perks v Clark [2001] EWCA Civ 1228 [59] (quoted in the Rainey article).
174 133 S Ct 735 (2013).
38
OWNERSHIP AND REGISTRATION
question was held not to be a ‘vessel’.175 The Comité Maritime International (CMI)
has established an International Working Group on ‘vessel nomenclature’ to look
into the issue across the maritime laws of different jurisdictions. As noted in paragraphs 2.10.1 and 2.10.8 above, the issue has the greatest commercial significance
in relation to maritime structures in the offshore oil and gas industries. The recent
and ongoing litigation in Brazil involving the FPSO OSX 3176, where the nature
and use of the asset is one of the issues, highlights that significance.
2.11 Demise charters
2.11.1 Under a demise or bareboat charter177 the charterer is given possession of
the ship and assumes the responsibility for the entire operation of the ship, in
particular the employment of the officers and crew, the repair and maintenance
of the ship, the provision of supplies and fuel and all other operational matters,
and, usually, for the insurance of the ship.178
2.11.2 A demise charter may be entered into as a commercial operational charter
when a charterer requires complete operational control of the ship but does not
want to own the ship for financial or commercial reasons; or it may be entered
into as a financial leasing arrangement.
2.11.3 It is possible in certain countries for the demise charterer to register the ship
in a demise charter register and to operate the ship under the laws of that country.179
The legal title to the ship remains registered in the name of the legal owner in the
registry of the country of primary registration, but there is a dual registration of the
ship by the demise charterer in the demise charter register of another country. The law
of the country of primary registration continues to govern matters of legal title and
mortgages, but (if the law of the country of primary registration so permits) the law
of the country of charter registration governs the operation of the ship; for example,
matters relating to safety equipment and construction, loadlines and manning. Sometimes dual registration is permitted under bilateral agreements between countries and
sometimes under the legislation of the country permitting the charter registration.180
2.11.4 The Merchant Shipping (Registration etc.) Act 1993 for the first time
allowed ships demise chartered to persons qualified to own British ships to be
175 As noted in n 168 a houseboat was held not to be a ‘vessel’ within the meaning of an English
statute in Environment Agency v (1) Christopher Gibbs (2) Glenn Parker [2016] EWHC 843 (Admin).
176 See Chapter 4, section 4.14 (FPSO OSX 3 in Brazil).
177 See Mark Davis, Bareboat Charters (2nd edn, LLP 2005).
178 Merchant Shipping Act 1995, s 17(11) defines ‘bareboat charter terms’ as the ‘hiring of the ship
for a stipulated period on terms which give the charterer possession and control of the ship, including the
right to appoint the master and crew’. See also The Guiseppe Di Vittorio [1998] 1 Lloyd’s Rep 136 (CA)
156–158 and the cases there cited, in particular Baumwoll Manufactur von Carl Scheibler v Furness [1892]
1 QB 253 (CA) and [1893] AC 8 (HL). See also Chapter 13, section 13.3 (Liability to demise (bareboat)
charterers) on the nature and effect of a demise charter in relation to the position of a mortgagee.
179 See generally Coles and Watt (n 53) Chapter 3.
180 Dual registry in its present form dates from 1951, when the then Federal Republic of Germany
passed the Law of the Flag Act which permitted ships demise chartered to German owners to be operated
under the German flag. The Republic of Panama established a registry for chartered ships in 1973 and
certain other countries have also enacted legislation to establish such registries, in particular the Republic
of Liberia, the Republic of Cyprus, the Commonwealth of the Bahamas, the Commonwealth of Australia,
the Philippines and the Russian Republic.
39
OWNERSHIP AND REGISTRATION
registered as British ships. However, no provision was made for ‘charters out’,
so that ships registered as British ships could be demise chartered to non-British
interests and dual registered under a foreign register. Accordingly, any British
ship demise chartered to a foreign demise charterer still must comply with all the
United Kingdom regulatory requirements, even if it is also registered in a foreign
country. Section 17(1) of the Merchant Shipping Act 1995 sets out the conditions
for dual registration. The ship must be:
(a) registered under the law of a country other than the United Kingdom;
(b) chartered on bareboat charter terms to a charterer who is a person qualified to own a British ship; and
(c) chartered in circumstances where the conditions of entitlement to registration under section 9(2)(b) are satisfied.181
Accordingly, a person who has demise chartered a ship from the registered owner
and wants to register the ship for the duration of the demise charter under British
registration may do so if that person is qualified to own a British ship.
2.12 Mortgages on demise chartered ships
2.12.1 There is no provision in the Registration Regulations for the Registrar to
register or note on the Register of a ship registered by virtue of a demise charter
the fact that the owner has granted a mortgage on the ship.182 The charterer of
course cannot grant any mortgage on the ship, as it does not have legal title in it.
2.12.2 Certain registries in which demise chartered ships are registered do permit the mortgagee to note on the bareboat charter register the fact that the ship
is subject to a mortgage registered in the country of primary registration, so that
anyone searching the bareboat charter register will have notice of the mortgage.
The fact that it is not possible to do this in the United Kingdom does not of itself
affect the validity or enforceability of the mortgage. The nature of the interest of a
demise charterer and the respective rights of a mortgagee and a demise charterer
are addressed in Chapter 13.183
181 That is, it must comply with the Registration Regulations.
182 This contrasts with the position in relation to mortgages of United Kingdom aircraft which are
registered in the name of a charterer by demise; see Chapter 4, paragraph 4.3.1.
183 Section 13.3 (Liability to demise (bareboat) charterers).
40
CHAPTER 3
Security interests in ships
3.1 Introduction
3.1.1 The historical introduction in Chapter 1 has touched upon the nature of a
registered ship mortgage under English law, noting that there is surprising uncertainty on the legal classification of a statutory mortgage but firmly concluding that
it is a sui generis form of statutory charge by way of legal mortgage.1 Chapter 2
has addressed the ownership and registration of ships. The nature of a ship mortgage was commented on as follows by Roskill J in Fletcher and Campbell v City
Marine Finance Ltd:2
There is not a great deal of law regarding ships’ mortgages but it is broadly true that
the general law relating to mortgages is equally applicable to ships’ mortgages.
Roskill J went on to quote a passage from the then current edition of Temperley:3
A mortgage of a ship is in general governed by the same principles, legal and equitable,
as govern mortgages of other personal chattels, but the peculiar characteristics of
ships as securities and the system of registration of ownership, bills of sale and certificates of sale, have necessitated certain statutory provisions as to registration and transfers
of mortgages and certificates of mortgages.4
It is therefore necessary to have an understanding, at least in outline, of the law
relating to consensual security over chattels generally as an underpinning of an
understanding of the law relating to ship mortgages.5 This is especially so in
1 See Chapter 1, section 1.4 (The nature of the statutory mortgage).
2 [1968] 2 Lloyd’s Rep 520, 533.
3 Sir William McNair and John Honour (eds), Temperley’s Merchant Shipping Acts (6th edn, Stevens &
Sons 1963) paragraph 58.
4 See Chapter 1, paragraph 1.1.3 on the differences between ships and chattels generally.
5 For secondary sources on the law relating to security over chattels see the books referred to in
Chapter 1, paragraph 1.1.2, n 11. The main published works on English law relating to ship mortgages,
some of which are now quite old, are: Benjamin Constant, The Law relating to the Mortgage of Ships (Syren &
Shipping Ltd 1920) (hereafter in this chapter, ‘Constant’); Nigel Meeson, Ship and Aircraft Mortgages (LLP
1989); Alison Clarke, ‘Ship Mortgages’ in Norman Palmer and Ewan McKendrick (eds), Interests in Goods
(2nd edn, LLP 1998) (hereafter in this chapter ‘Clarke’); Aleka Mandaraka-Sheppard, Modern Maritime
LawVolume II: Managing Risks and Liabilities (3rd edn, Informa 2013) Chapter 6; Nigel Meeson and John
A Kimbell, Admiralty Jurisdiction and Practice (4th edn, LLP 2011) Chapter 10 (hereafter in this chapter,
‘Meeson and Kimbell’); Michael Thomas and David Steel, Temperley’s Merchant Shipping Acts (Volume 11
of British Shipping Laws) (7th edn, Stevens & Sons 1976). See also James Milnes Holden, The Law and
Practice of Banking:Volume 2, Securities for Bankers’ Advances (Pitman 1993) Chapter 27.
41
SECURITY INTERESTS IN SHIPS
relation to non-statutory mortgages, i.e. unregistered mortgages over registered
ships6 or mortgages over unregistered ships.7 It will be apparent in various places
in this book that the position of a registered mortgagee of a registered ship is
fundamentally different from the position of a mortgagee of an unregistered ship,
let alone the position of an unregistered mortgagee of a registered ship, in particular
as regards remedies and priority. The main types of consensual security over chattels generally are:8
• a legal mortgage;
• an equitable mortgage; and
• an equitable charge.
3.1.2 A legal mortgage is a transfer of title for the purposes of security subject
to a right of the mortgagor in equity to redeem and call for re-transfer upon payment of the secured debt. The courts will look at the substance of a transaction
to determine whether what is in the form of an outright transfer or sale is in fact
by way of security.9 Before the introduction of the statutory mortgage by the
Merchant Shipping Act 185410 it was by this method that ships were mortgaged,
i.e. by bill of sale, the practice appearing to have developed during the latter part
of the eighteenth century.11 There was statutory recognition of the cumbersome
and unsatisfactory nature of this method of mortgaging by the introduction of a
‘half way house’ transfer expressed to be way of security in 1823.12
3.1.3 An equitable mortgage can arise in two circumstances. First, where the
interest of the mortgagor in the property is equitable rather than legal, so he cannot
transfer a legal interest. Secondly, by one means or another, where the legal owner
of property intends or tries to create a legal mortgage by transfer of title but fails.
This was explained by the Court of Appeal in Swiss Bank Corp v Lloyds Bank Ltd.13
3.1.4 The nature of an equitable charge was also discussed by Buckley LJ in
Swiss Bank Corp v Lloyds Bank Ltd.14 He said (somewhat confusingly):
An equitable charge may, it is said, take the form either of an equitable mortgage or
of an equitable charge not by way of mortgage. . . . An equitable charge which is not
an equitable mortgage is said to be created when property is expressly or constructively
made liable, or specifically appropriated, to the discharge of a debt or some other
obligation, and confers on the chargee a right of realisation by judicial process, that is
to say, by the appointment of a receiver or an order for sale.
6 Rare in practice and likely to be by accident rather than design.
7 See section 3.4 (Common law mortgages), section 3.6 (Equitable mortgages) and section 3.7
(Equitable charges).
8 The diverse and complicated nature of English law relating to secured transactions generally has
long given rise to calls for reform and simplification. The latest initiative is a draft Secured Transactions
Code issued in July 2015 (for discussion) by the Financial Law Committee of the City of London Law
Society.
9 G&C Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25, 47 (Lord Parker).
10 17 & 18 Vict c 104.
11 See Chapter 1, especially paragraph 1.2.4.
12 The Registering of Vessels Act 1823 (4 Geo 4 c 41) s 43. See Chapter 1, especially paragraph 1.3.1.
13 [1982] AC 584 (CA). See paragraph 3.6.2 below.
14 [1982] AC 584 (CA) 594–595.
42
SECURITY INTERESTS IN SHIPS
3.1.5 The expression ‘common law mortgage’ of a ship is used to refer in this
book to a legal mortgage, i.e. a mortgage involving a transfer of legal title. On the
basis that a legal mortgage of a registered ship can only be created by registration
of a mortgage in the statutory form,15 a common law mortgage can only be created
in respect of an unregistered ship (or a ship registered under Part II with simple
registration or under Part III).16 See further section 3.4 (Common law mortgages).
It follows that an unregistered mortgage in statutory form of a registered ship is not
a common law (legal) mortgage but an equitable mortgage. It also follows that if,
as is frequently the case, language is included in the deed of covenant relating to
a registered ship which mortgages the ship such language does not create a legal
mortgage but, again, only an equitable mortgage.17
3.1.6 There are other forms of consensual security interest, or quasi security
interest, over ships that should be mentioned for the sake of completeness. A
possessory lien can arise by operation of applicable law, which will be the physical lex situs of the ship, but it is often supplemented, or even sometimes created,
by contract.18 A leasing arrangement where the interest of the lessor is essentially
financial and the lessee retains the economic interest in the ship, through a bargain
purchase option or sales agency and other rights, is in substance a form of quasisecurity but will generally be given effect to under English law in accordance with
its form rather than its substance.19 Similarly, with a hire purchase or conditional
sale agreement where title remains in the hirer or conditional seller until (as the
case may be) called for by the hirer or automatically transferred at the end of
the relevant period. Such transactions involving bank lessors were common when
UK tax legislation gave capital allowances to the lessor but the tax position has
changed and they are now seen much less frequently.20 Leasing structures are still
sometimes found that involve other jurisdictions where the tax rules remain
favourable – for example the Japanese operating lease (JOL) and the Japanese operating lease with call option (JOLCO) – but the general trend worldwide is to close
down tax-enhanced structures. Different types of leasing transactions that do not
15 This is the view, supported by the authors and many other commentators, that a statutory mortgage of a registered ship is not a title transfer mortgage but a sui generis form of statutory charge by way
of legal mortgage, with registration being necessary to create a legal interest. See Chapter 1, section 1.4
(The nature of the statutory mortgage).
16 See Chapter 2, paragraph 2.5.2 and section 2.6 (Small ships) in relation to registered ships to which
the private law provisions of the Merchant Shipping Act 1995 do not apply.
17 The inclusion of a mortgage clause in the deed of covenant is in some respects an unnecessary
duplication. Its main purpose, through wide language, is to ensure that property which is or might not
be caught by the language of the statutory mortgage is mortgaged; see Chapter 5, section 5.9 (Property
covered by the mortgage). The mortgage clause in the deed of covenant would constitute a valid equitable
mortgage of the ship in the, albeit unlikely, event that there is failure to register the statutory mortgage as
a charge pursuant to the Companies Act 2006, s 859 but the deed of covenant is so registered.
18 On liens generally, see Chapter 10.
19 McEntire v Crossley Bros Ltd [1895] AC 457. Issues of recharacterisation arise in different circumstances and give rise to complex issues of contractual interpretation. See, just by way of example; Welsh
Development Agency v Export Finance Co Ltd [1992] BCLC 148, [1992] BCC 2701, Orion Finance Ltd v
Crown Financial Management Ltd (No. 1) [1996] 2 BCLC 78; Re Brumark Investments (Agnew v Commissioner of Inland Revenue) [2001] UKPC 28, [2001] 2 AC 710.
20 The change to the capital allowances position was made by the Finance Act 2006, s 1 and
Schedule 8.
43
SECURITY INTERESTS IN SHIPS
involve tax benefits but that, for example, give off-balance sheet treatment to the
lessee are not uncommon. In recent years there has been major growth in leasing
by leasing companies affiliated with Chinese banks and this has become a major
source of financing in Asia – and potentially elsewhere.21
3.1.7 In the case of unregistered ships, and also small ships registered in Part
III of the Register, hire purchase and conditional sale arrangements are common
and are not driven by tax benefits or corporate balance sheet issues. In most cases,
the ships in question will be pleasure craft owned by consumers.22 The forms used
with respect to such transactions will be based on a demise charter and the statutory consumer protection requirements will apply to the transaction.
3.2 Statutory mortgages – the primacy of registration
3.2.1 The history and significance of the statutory system of registration of ships
has been referred to in Chapter 1 and will be further referred to in Chapter 4 in
a conflict of laws context.23 In Chapter 2 it was seen that a bona fide purchaser
of legal title to a ship who obtains registered title without notice of a prior equitable
interest takes free of that interest.24 Further, that registration is prima facie rather
than conclusive evidence of title.25 These principles in relation to title correspondingly affect the position of a mortgagee reliant on the title of its mortgagor.
3.2.2 The normal rule with respect to the competing claims of a mortgagee (who
enjoys a registered interest in property) and a person who enjoys a subsequently
created interest in, or right to use, that property (whether or not registered) is
that the mortgagee’s claim ranks as a claim paramount.26 This rule is in some
important respects qualified in relation to ships, e.g., with respect to maritime
liens.27 As will be seen in Chapter 13 the law in relation to the position of a ship
mortgagee as against a charterer is complex and difficult, and differs in a number
of respects from the comparable law in relation to other assets, especially land.28
21 The JOL, JOLCO and Chinese lease have all migrated to the shipping industry from the aviation
industry. Seaspan Corporation is an owner and lessor of container ships, with a business model based on
that of the major aircraft lessors.
22 See the Consumer Credit Act 1974 (as amended) and the Consumer Rights Act 2015. See also
the Recreational Craft Regulations 2004 (SI 2004/1464) (as amended). This book does not address
consumer rights law.
23 See especially, in Chapter 4, section 4.2 (Property in registered ships under English domestic law).
24 Chapter 2, paragraph 2.8.4.
25 Chapter 2, paragraph 2.8.1.
26 See generally, Dudley & District Benefit Building Society v Emerson [1949] Ch 707 (CA) 718 (Lord
Evershed MR); Quennell v Maltby [1979] 1 All ER 568 (CA) 572 (Templeman LJ). See also Edwin Hill
and Partners v First National Finance Corporation plc [1989] 1 WLR 225 (CA), Meretz Investments NV v
ACP Ltd [2007] EWCA Civ 1303 (CA) and The Royal Bank of Scotland plc v Michael Patrick McCarthy
[2015] EWHC 3626 (Ch). But compare Barclays Bank plc v Zaroovabil [1997] 2 All ER 19 (Ch) and Lictor
Anstalt v Mir Steel UK Ltd [2011] EWHC 3310 (Ch), [2012] EWCA Civ 1397, [2014] EWHC 3316 (Ch).
27 See Chapter 10 in relation to maritime liens.
28 See Chapter 13, section 13.2 (Liability to non-demise charterers and cargo interests) and section
13.3 (Liability to demise (bareboat) charterers). See also Chapter 7, section 7.11 (Marshalling) where it
is suggested that the law relating to ship mortgages is or should be different in certain respects from the
law relating to mortgages of land.
44
SECURITY INTERESTS IN SHIPS
3.2.3 The crucial effect of registration, and correspondingly disastrous effect of
failing to register, in relation to mortgages of registered ships is neatly shown by a
number of cases from the nineteenth and early twentieth centuries. In The Eastern
Belle29 a registered mortgagee prevailed over a previous buyer that had neglected to
register his transfer. The mortgagee did not have notice of the interest of the buyer –
and assumed that the seller from whom he took his mortgage, who remained as
registered owner – was the sole beneficial owner. However, it is clear from Black
v Williams30 that absence of notice of a previous unregistered interest is not necessary for the holder of a registered mortgage to prevail. A registered mortgage took
priority over an earlier unregistered charge of which the registered mortgagee had
actual notice.31 Reliance was placed on the Merchant Shipping Act 1854, s 69,32
which was held to give priority over an unregistered mortgage, a fortiori, as well as
determining the priority as between registered mortgages. A similar result has been
reached in the earlier case of Coombes v Mansfield.33 Applying the principle in Black
v Williams, in Barclay & Co Limited v Poole34 a purchaser of shares in a ship whose
transfer was registered took free of a prior but unregistered mortgage of which he
had notice – with the Merchant Shipping Act 1894, s 5635 being invoked. Earlier,
in De Wolf v Carvill and Smith36 a purchaser with registered title prevailed over an
unregistered mortgage granted by the seller even though the purchaser had notice
of the mortgage. An unregistered mortgage will also take subject to a prior equity,
29 33 LT 214, 3 Asp MC 19.
30 [1895] 1 Ch 408.
31 The earlier security interest in Black v Williams was a floating, i.e. equitable, charge under a debenture. As Calnan points out (Richard Calnan, Taking Security (3rd edn, Jordans 2013) paragraph 7.273)
this would rank behind a later, registered mortgage in any event but this seems to have been ignored by
Vaughan Williams J. It appears from the report that the debentureholder did exercise its right to call for
specific mortgages of the ships but such mortgages were granted after registration of the mortgages in
favour of the prevailing financier and were never registered; this was not relevant to the decision. The
basis of the decision was that a prior unregistered interest (without paying attention to the nature of that
interest other than that it was equitable by reason of non-registration) of which a later registered mortgage
had actual notice was defeated by that mortgage.
32 17 & 18 Vict c 104: ‘If there is one mortgage registered of the same ship or share therein, the
mortgagees shall notwithstanding any express, implied or constructive notice, be entitled in priority one
over the other, according to the date at which each instrument is recorded in the register-books, and
not according to the date of each instrument itself ’; [1895] 1 Ch 408, 420 (Vaughan Williams J). The
current equivalent statutory provision is the Merchant Shipping Act 1995, Schedule 1, paragraph 8(1).
The wording in paragraph 8(1) differs from the equivalents in the Merchant Shipping Act 1854 and the
Merchant Shipping Act 1894 in that it says, ‘(and not by reference to any other matter)’. This appears
to be wider than the wording in the predecessor statutes and might have an impact on certain priority
issues; see Chapter 7, paragraph 7.7.9. In Black vWilliams Vaughan Williams J had earlier in the judgment
considered the effect of the Merchant Shipping Act Amendment Act 1862 (25 & 26 Vict c 63) s 3, which
has overruled the effect of Liverpool Borough Bank v Turner (1860) 70 ER 703 (VC), 1 J&H 159, 2 DF &
J 502 in denying altogether any effect to equitable interests.
33 61 ER 877, (1855) 3 Drew 193.
34 [1907] 2 Ch 284.
35 ‘. . . subject to any rights and powers appearing by the register book to be vested in any other persons, the registered owner of a ship or of a share therein shall have power absolutely to dispose in manner
in this Act provided of the ship or share, and to give effectual receipts for any money paid or advances by
way of consideration.’ (The current statutory equivalent is the Merchant Shipping Act 1995, Schedule 1,
paragraph 1.)
36 (1865) 11 NBR 299 (CA). Reference was made to Liverpool Borough Bank v Turner (n 32) but not
to the fact that its effect had been reversed by the Merchant Shipping Act 1862, s 3; 311 (Carter LJ).
45
SECURITY INTERESTS IN SHIPS
absent conduct of the prior equity-holder requiring its interest to be lost: Burgis v
Constantine.37 In other words, where the equities are equal the first in time prevails.
3.2.4 The cases referred to in paragraph 3.2.3 above illustrate that the important
distinction, where a ship is registered, is between interests that are registered and
those that are not – whether those interests be by way of sale or mortgage. If a
mortgage of any type over a registered ship is unregistered it will be defeated by
a registered interest by way of sale or mortgage, irrespective of notice. Conversely,
a registered mortgage will take priority over an unregistered transfer of title or an
unregistered mortgage, again irrespective of notice.38
3.2.5 A central public register39 is maintained by the Registrar General of Shipping and Seamen for all British ships registered in the United Kingdom. The effect
of registration of a ship has been seen in Chapter 2.40 The Register is prima facie
evidence as to the title of the ship (including the existence of mortgage security),
but it is open to any person interested in the matter to tender evidence to the effect
that the true state of affairs is different from that which appears on the Register.
Where, however, an innocent third party deals in good faith with those who have
registered interests in a ship on the strength of those interests, that innocent person
will normally be protected from the claims of others adverse in interest. Nevertheless, the obligation lies on any such person to investigate the title to the ship:41
A ship is not like an ordinary personal chattel; it does not pass by delivery, nor does
the possession of it prove the title to it. There is no market overt for ships. . . . In
ordinary cases of purchases of property not purchased in market overt the purchasers
are bound to inquire into the title to the property purchased by them. They cannot
shut their eyes and ears and claim the benefit of want of notice; and if they think
proper to buy without inquiring into the title of the persons from whom they buy, they
must be held to be affected with notice of what would have appeared if the inquiry
had been made.
3.2.6 As explained in Chapter 2, a system of registration for ships was introduced by the Navigation Act 1660.42 The system of registration thereby created
was extensively revised in the late eighteenth and early nineteenth centuries. These
statutes followed a similar approach towards the creation of a ship mortgage: the
mortgage was created by a transfer of title to the mortgagee under a bill of sale.43
This bill of sale was then registered with the Registrar, although from 1823 the
37 [1908] 2 KB 484. The beneficial owner of a ship which was registered in the name of a nominee
prevailed over a subsequent mortgagee whose mortgage was ordered to be deleted from the register on
grounds of fraud – but who then unsuccessfully argued that he nonetheless had an equitable interest
which should prevail over that of the beneficial owner. See also The Spirit of the Ocean (1865) 12 LT 239
(Adm); The Venture (1908) P 218 (CA).
38 The Eastern Belle, Black v Williams, Barclay v Poole; see paragraph 3.2.3 above. Clarke (n 5) 684
indicates that some types of equitable interests may in certain circumstances prevail over a registered
mortgage.
39 Merchant Shipping Act 1995, s 8.
40 See Chapter 2, section 2.8 (Effect of registration).
41 Hooper v Gumm (1866–67) LR 2 Ch App 282, 290 (Turner LJ).
42 12 Car 2 c 18, s 10. See Chapter 2, section 2.3 (Registration).
43 On the statutory development of the ship mortgage see Chapter 1, section 1.2 (Maritime law and
ship mortgages) and section 1.3 (Legislative reform).
46
SECURITY INTERESTS IN SHIPS
fact that the transfer was by way of a mortgage and not an absolute transfer was
noted on the register book;44 the fact that the ship was mortgaged was also noted
by endorsement on the certificate of registry. As seen in Chapter 1, this approach
towards the creation of a ship mortgage was fundamentally changed with the
enactment of the Merchant Shipping Act 1854, which introduced a statutory form
of mortgage.45
3.2.7 The 1854 Act did not specify the precise legal nature of the mortgage.
Nevertheless, the form of mortgage set out in the Schedule to that Act provided
in clear terms that the security that was conveyed created a right in rem as security
for the performance of the debt to which the mortgage related. In this respect, the
general tenor of the security is reflected in the charging clause of Form I:
I, the undersigned A.B. of [ ] in the County of [ ] in consideration of £ this Day lent
to me by C.D. of [ ] in the County of [ ] do hereby for myself and my Heirs covenant
with the said C.D. firstly, that I, or my Heirs, Executors or administrators, will pay to
the said C.D. the said Sum of £ together with Interest thereon at the Rate of; and for
better securing the said C.D. the Repayment in manner aforesaid of [ ] the said Principal Sum and Interest I hereby mortgage to the said C.D. shares of which I am the
Owner in the Ship above particularly described.
Lastly, I A.B. for myself and my Heirs, covenant with the said C.D. and his Assigns,
that I have Power to mortgage in manner aforesaid the above mentioned Shares, and
that the same are free from Incumbrances.
3.2.8 Sections 66–75 inclusive of the 1854 Act, which related to mortgages, were
carried forward in much the same terms in sections 31–38 inclusive of the Merchant
Shipping Act 1894.46 The 1894 Act governed the registration of ship mortgages both
in the United Kingdom and across the Empire. This statute remained in force in
England for nearly a century, and in many parts of the Commonwealth it continues
in force unaltered today. However, the Merchant Shipping Act 1988 introduced
a separate register for fishing boats and a new form of statutory mortgages for
fishing boats, and the Merchant Shipping (Registration etc.) Act 1993 modernised
the registration system and established a central register for British ships.
3.2.9 As seen above in relation to the effect of registration of a mortgage and,
conversely, the effect of failure to register a mortgage,47 the system of mortgage
registration – existing alongside, or being a feature of, the system of ship registration
since at least 185448 – is a system that does not exist in relation to any other type
of chattel. This unique significance of the system of registration of ships and ship
mortgages provides strong arguments for distinguishing ships from other chattels
so as to displace the law that otherwise applies in two distinct areas: the conflict of
laws position in relation to voluntary transfer of a proprietary interest and certain
44 Registering of Vessels Act 1823, s 43.
45 See Chapter 1, paragraph 1.3.5.
46 See Chapter 1, paragraph 1.3.7.
47 Paragraphs 3.2.3 and 3.2.4 above.
48 And, arguably, since the Registering of Vessels Act 1823 (4 Geo 4 c 41). See Chapter 1, paragraph
1.3.1.
47
SECURITY INTERESTS IN SHIPS
equitable rules relating to priority. These two issues are addressed, respectively, in
Chapter 4 and in Chapter 7.49
3.3 The current form of statutory ship mortgage
3.3.1 The regime of the 1894 Act finally came to an end with the enactment of
the Merchant Shipping Act 1995. The 1995 Act replaced the 1894 Act and the
statutes that had amended it. The approach to ship mortgages contained in the 1995
Act is in substance, though not in form, very similar to that set out in the 1854
legislation. The statutory provisions relating to ship mortgages are now set out in
Schedule 1 of the 1995 Act and in the Merchant Shipping (Registration of Ships)
Regulations, 1993, which were made under the authority of the Merchant Shipping
(Registration, etc.) Act 1993 but remain in force as amended.50
3.3.2 The relevant provisions in Schedule 1 still follow the same general approach
found in sections 31–38 of the 1894 Act. Sub-paragraph 7(1) of Schedule 151
provides that a registered ship or share in a registered ship may be made security
for the repayment of a loan or the discharge of any other obligation. The instrument creating such a security (which is described as a ‘mortgage’) must be in
the form prescribed or approved under the Regulations.52 The charging clause in
the present forms of statutory mortgage53 is similar in language to the wording
of the statutory mortgage under the 1854 Act. Form MSF 4736 provides that:
For the purpose of better securing to the mortgagee(s) the sums/obligation mentioned
above. I/we hereby mortgage to the mortgagee(s) [ ] shares of which I/we are the
owners in the ship described above and in its appurtenances. Lastly, I/we for myself/
ourselves, hereby declare that I/we have the power to mortgage in the manner aforesaid
the above-mentioned shares and that they are free from encumbrances save as appears
by the registry of the above ship.54
3.3.3 Sub-paragraph 7(3) of Schedule 1 goes on to require the Registrar to
register any mortgage that is executed in accordance with sub-paragraph (2).
Mortgages are required to be registered in the order in which they are produced
to the Registrar for the purposes of registration.55 When a mortgage was created
by a bill of sale, it was necessary to endorse the existence of the mortgage on the
49 See especially Chapter 7, section 7.7 (Floating charges and priority) and section 7.9 (Tacking of
further advances).
50 See Chapter 2.
51 Paragraph 7 of Schedule 1 is based upon and differs very little from section 31 of the 1894 Act
and section 67 of the 1854 Act.
52 Merchant Shipping Act 1995, Schedule 1, paragraph 7.2 and the Merchant Shipping (Registration
of Ships) Regulations 1993, reg 57. Clarke (n 5) draws attention to the fact that the form of the statutory
mortgage is no longer prescribed directly by statute as previously by the Merchant Shipping Act 1894;
the form is now as approved by the Secretary of State.
53 Forms MSF 4736 and MSF 4737. See Appendix 2.
54 Form MSF 4737 omits the alternative word ‘obligation’ in line 1. The words in italics ‘save as
appears by the registry of the above ship’ are optional and to be included if there is an existing registered
mortgage. See further Chapter 7, paragraph 7.9.5.
55 Merchant Shipping Act 1995, Schedule 1, paragraph 7(4). On the position and procedure when
a mortgage is produced to the Registrar for registration and there is already a registered mortgage, see
Chapter 7, paragraph 7.9.5.
48
SECURITY INTERESTS IN SHIPS
certificate of registry,56 but this requirement ceased with the introduction of the
statutory mortgage by the 1854 Act.57
3.3.4 Where two or more mortgages are registered in respect of the same ship
or share, generally, the priority of mortgages between themselves is determined by
the order in which the mortgages are registered.58 Reference to ‘any other matter’ is specifically excluded from consideration with respect to determination of
registered priority.59 Common law and equitable rules on priority are thus disapplied in relation to the priority of registered mortgages as between themselves.60
Sub-paragraph 8(2) further provides that:
Registration regulations may provide for the giving to the registrar by intending mortgagees of ‘priority notices’ in a form prescribed by or approved under the regulations
which, when recorded in the register, determine the priority of the interest to which
the notice relates.
3.3.5 Where two or more mortgages are registered in respect of the same ship
or share, the subsequent mortgagee is prohibited (except under the authority of an
order of a court of ‘competent jurisdiction’) from selling the ship or share without
the concurrence of the holder(s) of ‘every prior mortgage’.61 The consequences of
a breach of this provision are not stated. If a subsequent mortgagee were to try to
sell the ship a prior mortgagee would be entitled to obtain an injunction preventing
the sale. In practice, a buyer will not ‘accidentally’ complete a sale where a prior
registered mortgage is outstanding, unless this is agreed to be the position.
3.3.6 The power of sale granted by paragraph 9 of Schedule 1 is conferred
only upon registered mortgagees. It follows that if a mortgage is not registered as
required, then the mortgagee will have no statutory power of sale. This point was
expressly commented upon by the New Zealand Court of Appeal in The Ship Betty
Ott v General Bills Ltd62 in the following terms:
Registration is not obligatory in the case of a mortgage, but the statutory power of
sale in s. 421 is only conferred on a registered mortgagee. It follows that registration
56 Registering of British Vessels Act 1845 (8 & 9 Vict c 89) s 37. As to the effect of such endorsement,
see The Ringdove (1858) 7 LT 340, 166 ER 1151 (Adm) 311–312.
57 See Chapter 1, paragraph 1.4.7.
58 Merchant Shipping Act 1995, Schedule 1, paragraph 8(1). Paragraph 8 is the successor to section
33 of the 1894 Act which, in turn, was the successor to section 69 of the 1854 Act. Registered priority
is addressed in Chapter 7, section 7.1 (Statutory registered priority), including reserving priority by a
priority notice. See Chapter 7 generally on priority issues as between mortgages.
59 The words excluding ‘any other matter’ in the Merchant Shipping Act 1995, Schedule 1, paragraph
8(1); the exclusion of ‘any other matter’ was an innovation and replaced specific exclusion of notice in
each of the two predecessor statutes. The change in the statutory language might have significance; see
Chapter 7, paragraph 7.7.9.
60 This statement is subject to some uncertainty in relation to the position on tacking of further
advances; see Chapter 7, section 7.9 (Tacking of further advances). The position in relation to priority as
between a ship mortgage and a floating charge is addressed in Chapter 7, section 7.7 (Floating charges
and priority).
61 Merchant Shipping Act 1995 Schedule 1, paragraph 9 (2).
62 [1992] 1 NZLR 655 (NZ HC) 660 (MacKay J). This case discussed section 421 of the New
Zealand Shipping and Seaman Act 1952, which is the equivalent of paragraph 9 of Schedule 1 of the
English Merchant Shipping Act 1995.The decision of the New Zealand Court of Appeal was overturned
by statute; see Chapter 4, paragraphs 4.8.7–4.8.9. See also Burgis v Constantine [1908] 2 KB 484 (CA).
49
SECURITY INTERESTS IN SHIPS
is necessary before a mortgage in the statutory form can create a legal charge on the
vessel.
The statutory scheme . . . provides a statutory method for the transfer of ownership
and for the creation of mortgages which in both cases involves registration. Unregistered
interests may be created, but they will create only equitable interests.
Certain procedural benefits also accrue to the holder of a registered ship mortgage.63
3.3.7 As noted above, the form of ship mortgage now employed is prescribed by
statute. Like other common types of security interest, most modern ship mortgages
are created by way of detailed formal agreements between the creditor and debtor
that specify the respective rights, obligations and liabilities of the parties. Whilst
a statutory form is required for the purposes of registration, that form does not
meet the normal expectations and requirements of a commercial lender. There will
usually be a wide range of matters that require specific contractual provision that
cannot be included in the registered document. Such details are usually put into
a collateral deed, referred to in the statutory form and that operates as a supplement to it, i.e. a deed of covenant.64 It is a matter of judgement what is included
in the deed of covenant and what in the credit facility agreement or equivalent
document.65 The statutory mortgage will refer to both documents for the purpose
of defining the secured obligations and the default triggers.
3.3.8 As discussed in Chapter 1, there has been some uncertainty about whether
a registered statutory mortgage takes effect as a transfer of title, i.e. as a ‘traditional’ mortgage – or whether it is a form of sui generis statutory legal charge. The
modern and preferred view is that it is the latter.66 This means that each registered
mortgage has the same legal status67 rather than, as would be the case if the traditional view were followed, the first registered mortgage being a legal mortgage
by way of title transfer and any subsequent mortgage necessarily being equitable.
3.4 Common law mortgages
3.4.1 A registrable ship mortgage of the statutory type can be created only against
a vessel registered under either Part I of the Merchant Shipping Act or Part II
(with full registration), and then only in accordance with the mortgage provisions
of the Merchant Shipping Act 1995. Small ships, i.e. under 24 metres in length,
not being fishing vessels or submersible vessels may be registered under Part III
of the Register. However, since Schedule 1 to the 1995 Act does not apply to small
ships or to fishing vessels registered with simple registration rather than full registration they can only be mortgaged otherwise than by way of a registrable statutory mortgage.68 It is clear that a common law mortgage that transfers the legal
title in a ship can still be created with respect to any unregistered ship, a small
63 See, generally, Bow McLachlan & Co v The Camosun [1909] AC 597 (PC).
64 The Benwell Tower (1895) 8 Asp MC 13, 72 LT 664 (Adm), 669. See also The Lady Tahilla [1968]
1 Lloyd’s Rep 168 (CA); Fletcher & Campbell v City Marine Finance Ltd [1968] 2 Lloyd’s Rep 520 (QB).
65 See Chapter 8.
66 See Chapter 1, section 1.4 (The nature of the statutory mortgage).
67 See Chapter 1, paragraphs 1.4.5 and 1.4.6.
68 See Chapter 2, paragraph 2.5.2 and section 2.6 (Small ships).
50
SECURITY INTERESTS IN SHIPS
ship registered under Part III of the Merchant Shipping Act or a fishing vessel
registered under Part II with simple registration.69 In The Shizelle70 it was held that
a mortgage on an unregistered ship constituted a common law mortgage of personal property. However, only the first mortgage against an unregistered ship can
be a legal mortgage. All subsequent mortgages are equitable in nature, and are
secured only against the mortgagor’s equity of redemption, rather than the legal
title to the ship.
3.4.2 In The Shizelle a common law mortgage by way of title transfer over an
unregistered ship took priority over the rights of a purchaser without notice. The
result would have been different if the mortgage had been equitable, since then
the bona fide purchaser of a legal interest without notice would have taken free
of it. The judge (His Honour Adrian Hamilton QC) expressed sympathy for the
purchaser and also pointed out the lacuna created by the Bills of Sale Acts not
applying to ships or vessels.71 This means that a potential purchaser from an individual or individuals of a ship that is not registered under the Merchant Shipping
Act (or that is only registered as a small ship under Part III or as a fishing vessel
registered under Part II with simple registration) has no way of carrying out a
search to check if the ship is mortgaged.72 The number of pleasure craft (and also
fishing vessels and other small working boats) falling into this gap is not inconsiderable.73 Where the seller is an English company the purchaser can search the
Companies Act register of charges or obtain a copy of the mortgage from the
seller’s registered office (which it can also do if the seller is an overseas company
with a registered place of business).74 If the mortgage is an equitable mortgage the
actual notice thereby obtained by the purchaser will mean that the purchaser takes
subject to it.75 If the buyer does not have actual notice of an equitable mortgage
it is thought not to be bound by constructive notice by reason of the Companies
Act registration of the mortgage: a potential purchaser is not a person expected
to search the charges register. If the mortgage (whether legal or equitable) has not
69 See, generally, H Russell Sea Foods Ltd v Mason & Mason (1979) 36 NSR (2d) 322, 64 AR 322
(NSSC), 345).
70 [1992] 2 Lloyd’s Rep 444 (Adm), 450. See Chapter 1, section 1.5 (Mortgages of unregistered
ships).
71 See Chapter 6, section 6.4 (The Bills of Sale Acts).
72 As Meeson and Kimbell (n 5) point out at paragraph 10.66, the lacuna is created by all ships and
not just registered ships to which the private law provisions of the Merchant Shipping Act 1995 apply
being excluded from the scope of the Bills of Sale Acts. This is in contrast with the position in relation to
aircraft, where only registered aircraft are excluded.
73 The outcome of The Shizelle and the position generally in relation to mortgages of unregistered
ships would probably not have been a surprise to Constant. Writing in 1920 he briskly observed (Constant
(n 5), paragraph 13):
Little need be said with regard to the mortgaging of ships which are not registered under the Act. Such
mortgages require no registration under either the Merchant Shipping Acts or the Bills of Sale Acts in
order to make them effective as passing the legal interest to the mortgagee.
However, Clarke criticises the decision: Clarke (n 5) 685. On the Bills of Sale Acts see Chapter 6, section 6.4 (The Bills of Sale Acts).
74 See Chapter 6, paragraph 6.3.11.
75 If the mortgage is a legal mortgage the buyer takes subject to it irrespective of notice, as was the
case in The Shizelle.
51
SECURITY INTERESTS IN SHIPS
been registered as a charge against the selling company there is then an interesting
question as to whether it is void as against the purchaser. The answer would seem
to be that it is, on the basis that an unregistered charge is void against a creditor
of the company – and the purchaser would be a creditor of the company by reason
of having a claim in damages against the selling company for selling in breach of
a warranty of freedom from encumbrances.76
3.4.3 A common law mortgage does not need to be in any particular form, provided it is clear from the document which creates it that the owner is mortgaging
and transferring title to the ship to the mortgagee as security for the payment of a
debt or the discharge of some other obligation. The mortgage need not be in the
form of a deed. However, if a deed is used, then sections 101–107 of the Law of
Property Act 1925 will apply. These give the mortgagee certain statutory powers
with respect to the mortgage, including a statutory power of sale. Whether a deed
has been used is determined by reference to the Law of Property (Miscellaneous
Provisions) Act 1989, which governs the form and execution of such instruments,
and by the Companies Act 2006, s 46 in the case of companies subject to that
Act. Even where a common law mortgage is not by deed a power of sale arises
under common law by virtue of the mortgagee having legal title, at least after
taking possession.77
3.4.4 As discussed in Chapter 2,78 certain structures possess a pronounced
maritime character yet might fall outside the statutory definition of ship for registration purposes – such as, for example, drilling rigs and mobile platforms. If a
maritime structure is not capable of being registered as a ship under the Merchant
Shipping Act 1995, then the only method of granting a legal mortgage is by way
of common law mortgage. However, in the improbable event that such a structure
is owned by an individual rather than a limited company, then the mortgage may
have to comply with the Bills of Sale Acts 1878 and 1882.79
3.4.5 Only a registered mortgagee has the benefit of the Merchant Shipping
Act 1995, Schedule 1, paragraph 10.80 Other provisions, however, operate for the
benefit of any mortgagee, or restrict liability to the registered owner.81
76 The English regime for registration of company charges now applies to charges over all types of
property, subject to some limited exceptions (Companies Act 2006, s 859A). This was not the case under
the previous regime of the Companies Act 1985, ss 395 and 396. Only charges over types of property
listed in section 396 of the 1985 Act were required to be registered, ‘a charge on a ship or aircraft, or any
share in a ship’ being listed. A similar regime in the Republic of Ireland gave rise to an interesting result
In the Matter of South Coast Boatyard Ltd (In Voluntary Liquidation), James Barber v Barry Burke, Patrick
Hickey and Mallinson Wood Products Ltd [1980] ILRM in relation to yachts which were not registered as
ships and over which charges were created which were not registered as company charges; see Chapter 2,
paragraph 2.10.2, n161.
77 Re Morritt (1886) 18 QBD 222(CA). See also two cases relating to pledge and the power of sale:
France v Clark (1883) 22 Ch D 830; The Odessa [1916] 1 AC 145.
78 Section 2.10 (The ship).
79 See Chapter 6, section 6.4 (The Bills of Sale Acts).
80 ‘. . . (a) except so far as may be necessary for making the ship or share available as a security for
the mortgage debt, the mortgagee shall not by reason of the mortgage be treated as owner of the ship or
share . . .’.
81 The Merchant Shipping Act 1995, s 16(3) excludes any mortgagee from the liability imposed on
persons beneficially interested in a ship. Sections 153 and 154 in relation to liability for oil pollution
specifically apply to the registered owner (section 153A(7)).
52
SECURITY INTERESTS IN SHIPS
3.5 Disguised mortgages
3.5.1 Notwithstanding the statutory regime for the mortgaging of registered ships
it is still theoretically possible to create a mortgage of a registered ship by outright
title transfer by bill of sale; such an outright transfer will be treated as being by
way of security where it can be shown that the parties intended it to serve such
limited purpose.82 Before the introduction of the modified form of bill of sale
(by way of security) by the Registering of Vessels Act, s 43 this was of course the
only way of mortgaging a ship. The practice continued after that and even after
the statutory mortgage was introduced in 1854 until at least as late as the 1880s.83
The motive was presumably to disguise the fact that the owner was raising money
on security:
Everyone can understand why transfers are made in this form rather than in the form
of mortgages. Merchants are unwilling to appear to be borrowers; and therefore prefer
to make absolute transfers with an undertaking on the part of the mortgagee that the
vessel shall be re-transferred on payment of the sum advanced.84
If such a device were to be used and it was found indeed to be a security rather than
an outright sale, in the case of a transferor which is an English company it would be
necessary to try to register it as a charge under the Companies Act 2006, s 859A in
order to avoid the risk of the security being void as against a liquidator, an administrator or any creditor of the transferor company. A person taking such a disguised
mortgage runs the risk from the liability perspective, through being the registered
owner, of being held to the form of the transaction rather than its substance.85
82 G. & C. Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1914] AC 25 (HL), 47 (Lord
Parker of Waddington):
. . . a legal mortgage has generally taken the form of a conveyance with a proviso for reconveyance on the
payment of money by a specified date. But a conveyance in this form is by no means necessarily a mortgage.
In order to determine whether it is or is not a mortgage, equity has always looked to the real intention of the
parties, to be gathered not only from the terms of the particular instrument but from all the circumstances
of the transaction, and has always admitted parol evidence in cases where the real intention was in doubt.
Only if according to the real intention of the parties the property was to be held as a pledge or security for
payment of the money, and as such to be restored to the mortgagor when the money was paid, was the
conveyance considered to be a mortgage. Further, the mortgage might be given to secure not only a single
money payment but a series of money payments extending over many years, and again the money secured
might or might not, according to the circumstances, constitute a debt due from mortgagor to mortgagee.
There might also be a mortgage by way of security for something other than a money payment or series
of money payments, for example, mortgages by way of indemnity.
See also Gardiner v Cazenove (1856) 1 H & N 423, 156 ER 1267 (Ex), 437 (Watson B); Myers v Willis
(1856) 18 CB 886, 139 ER 1621 (CP); Ward v Beck (1863) 13 CB (NS) 668, 143 ER 265 (CP); The Innisfallen (1866) LR 1 A & E 72 (Adm), 75 (Dr Lushington). See also (in the real property context) Douglas v
Culverwell (1862) 4 De G F & J 20, 45 ER 1089 (Ch); Re Duke of Marlborough, Davis v Whitehead [1894]
2 Ch 133; Re Watson, ex parte Official Receiver in Bankruptcy (1890) 25 QBD 27 (CA); Re Lovegrove, ex parte
Lovegrove & Co (Sales) Ltd [1935] Ch 464 (CA); Grangeside Properties Ltd v Collingwood Securities Ltd
[1964] 1 All ER 143 (CA); Stoneleigh Finance Ltd v Phillips [1965] 2 QB 537 (CA).
83 See, for example, Langton v Horton 49 ER 479, (1842) 5 Beav 9; Gardner v Cazenove 156 ER
1267 (Ex), (1856) 1 Hurl & N 423; Ward v Beck 143 ER 205 (CP), (1863) 13 CBNS 668; The Cathcart
(1865–67) LR 1 A&E 314 (Adm); The Innisfallen (1866) LR 1 A&E 72; The Keroula (1886) 11 PD 92.
See Chapter 1, paragraph 1.3.4, n 56.
84 Ward v Beck (1863) 143 ER 265 (CP) 267.
85 See paragraph 3.4.5 above.
53
SECURITY INTERESTS IN SHIPS
3.5.2 To be contrasted with a situation in which the parties knowingly use outright
title transfer as a security device (unlikely today) is a situation in which outright
transfer is used and is intended to take effect as such but the overall circumstances
of the transaction lead the court to recharacterise it as in reality as being by way
of security. This issue of so-called ‘true sale’ arises in securitisation transactions,
most commonly involving some form of receivable. It is vital that the transfer of
the asset to a securitisation vehicle is by way of outright transfer or ‘true sale’ and
is not recharacterised as a secured transaction.86 It is relatively unusual, although
not unheard of, for ships themselves to be transferred to a securitisation vehicle.
In such cases the transaction will be analysed in accordance with its proper law
to determine that there is a ‘true sale’ and legal opinions will be required. Such
opinions are complex and beyond the scope of this book.87
3.6 Equitable mortgages
3.6.1 One type of equitable mortgage is that necessarily arising when the mortgagor’s
interest in the asset is equitable rather than legal.88 Otherwise, an equitable mortgage
is a contract that operates so as to give rise to a security enforceable in equity in
order to carry into effect the apparent intent of the parties.89 Unlike a legal mortgage,
an equitable mortgage may be granted by general words90 and with respect to future
property.91 Despite the guidance provided by these general principles, the term ‘equitable mortgage’ is one of the most confusing in English legal terminology, largely
because the same term is used to describe several very different types of security
interest. In a traditional common law mortgage, the essential feature is the transfer
of legal title to the mortgagee. That vesting is, however, conditional. It is subject to
a contractual right of redemption, provided the mortgagor pays the debt or performs
86 For insolvency risk purposes and usually also accounting purposes.
87 English law on recharacterisation of sales as security is complex but the courts have a tendency to
give effect to the form of documents chosen by the parties, unless that is a sham which does not reflect
the parties’ intention. The leading modern cases on sale versus security are: Chow Yoong Kong v Choong
Fah Rubber Manufactory [1962] AC 209; Welsh Development Agency v Export Finance Co Ltd [1992]
BCLC 148, [1992] BCC 2701; Orion Finance Ltd v Crown Financial Management Ltd (No. 1) [1996]
2 BCLC 78, [1996] BCC 621. In the context of assignment (rather than mortgage) there is a helpful
analysis in AG Guest and Ying Khai Liew, Guest on the Law of Assignment (2nd edn, Sweet & Maxwell
2015) paragraphs 5–20–5–27.
88 Paragraph 3.1.3 above. Re Connolly Bros Ltd (No. 2) [1912] 2 Ch 25 (CA) 31 (Cozens-Hardy MR).
89 See, generally, Ashton v Corrigan (1871) LR 13 Eq. 76; Hermann v Hodges (1873) LR 16 Eq 18.
90 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 (HL), in which Lord Macnaghten stated with respect to an equitable assignment, 462:
But, says the Lord Chief Justice, ‘the document does not, on the face of it, purport to be an assignment
nor use the language of an assignment.’ An equitable assignment does not always take that form. It may be
addressed to the debtor. It may be couched in the language of command. It may be a courteous request.
It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is
necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person. If the debtor ignores such a notice, he does so at his peril. If the assignment be
for valuable consideration and communicated to the third person, it cannot be revoked by the creditor or
safely disregarded by the debtor.
This statement of principle is widely considered to set down a general rule with respect to the flexibility
of creating equitable interests in property.
91 See, for instance, Tailby v Official Receiver (1888) 13 App Cas 523 (HL).
54
SECURITY INTERESTS IN SHIPS
the obligation secured. From early times, the courts of equity expanded the contractual
right to a general equitable right of redemption that would apply even where the
contractual right had lapsed or was otherwise suspended, whether by law or under
the terms of the contract, so that eventually the mortgagor became entitled to redeem
despite any provision to the contrary. Indeed, a mortgage cannot include a provision
that is contrary to the right of redemption, any such provision being void as a clog
on the equity. The right of redemption remains until it is terminated by foreclosure,
power of sale or the exercise of some other remedy inconsistent with redemption. It
is the existence of this equitable right of redemption which gives rise to the possibility
of non-legal (i.e. equitable) mortgages. Thus, an equitable mortgage arises where the
owner of an asset whose interest is already subject to a legal mortgage grants a further
mortgage.92 Any such mortgage constitutes a transfer of the mortgagor’s equitable
right of redemption to the mortgagee. Where, however, a legal mortgage is a ‘charge
by way of legal mortgage’ under the Law of Property Act 1925, s 85 or is a statutory
mortgage subsequent mortgages will also be legal mortgages.93
3.6.2 An equitable mortgage has been defined as a mortgage:
created when the legal owner of the property constituting the security enters into some
instrument or does some act which, though insufficient to confer a legal estate or title
in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a
contract so to do. . . . The essence of any transaction by way of mortgage is that a
debtor confers upon his creditor a proprietary interest in property of the debtor . . .
and that the proprietary interest is redeemable. . . .94
Thus, an equitable mortgage arises where the owner deposits the title deeds to real
property with a creditor.95 An equitable mortgage also arises where the owner enters
into a contract to grant a mortgage to a creditor, and credit is advanced on the strength
of this undertaking, but for some reason a formal mortgage is never granted.96 Finally,
an equitable mortgage arises where there is some defect in the grant of a legal mortgage,97
or where for some reason it is not possible to create a legal mortgage.98
92 Thompson v Clark (1862) 3 F & F 181, 176 ER 82 (NP) 183. (1862) 7 LTR 269. The case related to a
ship mortgage where it was noted that the position is or might be different from that in relation to (pre-the Law
of Property Act 1925) mortgages of land because of the system for registration of ship mortgages; see Chapter 1,
section 1.4 (The nature of the statutory mortgage).The statement is, however, correct as a matter of general law.
93 This is the effect of the statutory regime in relation to ship mortgages now contained in the Merchant Shipping Act 1995, on the basis of the view that a statutory ship mortgage is not a title transfer
mortgage but the shipping equivalent of a ‘charge by way of legal mortgage’. See Chapter 1, section 1.4
(The nature of the statutory mortgage).
94 Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 (CA) 594–595 (Buckley LJ). See also the
description of an equitable mortgage in Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295
(HL) 311 (Lord Templeman).
95 See, for instance, Russell v Russell (1783) 1 Bro CC 269, 28 ER 1121 (Ch). Note, however, that
this method of creating a mortgage is now excluded in the case of land by the Law of Property (Miscellaneous Provisions) Act 1989.
96 See, for instance, Eyre v McDowell (1861) 9 HLC 619, 11 ER 871 (HL); Capital Finance Co Ltd v
Stokes [1968] 1 All ER 573 (Ch), 577; affirmed [1969] 1 Ch 261 (CA).
97 The Nicolaos Pappis (1921) 9 Ll L Rep 493; Royal Bank v 273050 British Columbia Ltd (1991) 12
CBR (3d) 263 (BCSC), 268.
98 For instance an equitable mortgage may be created in future goods, but not a legal mortgage:
Lloyd v European & North American Rlwy (1878) 18 NBR 194 (CA). See also Holroyd v Marshall 11 ER
999, (1862) 10 HLC Cas 191 (HL); Tailby v Official Receiver (1888) 13 App Case 523 (HL).
55
SECURITY INTERESTS IN SHIPS
3.6.3 The above principles apply with some modification in the ship mortgage
context.99 The deposit of the builder’s certificate of an unfinished ship creates an
equitable mortgage.100 In the case of an unregistered ship, all mortgages except
the first must be equitable mortgages because the legal title to the ship has been
transferred to the first mortgagee. In the case of a registered ship, an unregistered
mortgage101 will constitute an equitable mortgage of the ship.102 In addition, with
respect to both registered and unregistered ships, equitable mortgages against a
ship may arise by virtue of:
• an agreement to create a legal mortgage;
• an agreement to grant an enforceable security interest to the mortgagee;
• a foreign mortgage (i.e. a mortgage on a foreign registered ship which is
valid under English equitable principles even though it may not be valid
under the law of the country of the ship’s registration);103
• a debenture issued by the owner over its property, including ships.104
However, an equitable mortgage by way of the deposit of the certificate of registry
cannot be created, as any such deposit is in contravention of section 13 of the
1995 Act and is therefore unenforceable.
3.6.4 In some cases an equitable mortgage arises because there was a clear
intention to create a legal mortgage, and that intention has been defeated due to
some failure to follow a prescribed formality or other defect, while in other cases
an equitable mortgage will arise because it is simply not possible to deal with the
legal title to the ship, or because the ship itself is not registered.105 As an equitable
mortgage can be created in different ways, there is no particular form that must
be followed in order to create such a mortgage. As with a common law mortgage,
if an equitable mortgage is created by deed, then sections 101–107 of the Law of
Property Act 1925 apply, so as to confer a statutory power of sale.
3.6.5 The vulnerability of an unregistered mortgage of a registered ship has been
shown in paragraphs 3.2.3 and 3.2.4 above.106
99 This being a feature of the broader proposition that ship mortgages are in general a peculiar species
of chattel mortgage. See, generally, European & Australian Royal Mail Co Ltd v Royal Mail Steam Packet
Co (1858) 4 K & J 676, 70 ER 281 (VC); Samuel v Jones (1862) 7 LT 760 (VC); Rusden v Pope (1868)
LR 3 Ex 269, 37 LJ Ex 137, 18 LT 651, 16 WR 1122 (Ex). See however, Chapter 1, paragraph 1.1.3 for
differences between ships and chattels generally.
100 Re Softley, ex parte Hodgkin (1875) LR 20 Eq 746 (Bkrptcy Ct).
101 As to the dangers of relying upon an unregistered equitable mortgage, see The Atlanta, Strong v
Smith (1896) 5 Ex CR 57 (Ex Ct Can). See also paragraphs 3.2.3 and 3.2.4 above and the cases there
referred to in relation to the vulnerability of unregistered interests; but compare The Byzantion (1922)
127 LT 756 (PD & Adm), 38 TLR 744.
102 Black vWilliams [1895] 1 Ch 408; Law Guarantee and Trust Society v Russian Bank for Foreign Trade
[1905] 1 KB 815 (CA).
103 The Byzantion (1922) 38 TLR 744 (PD & Adm), 127 LT 756; The Angel Bell [1979] 2 Lloyd’s
Rep 491 (QB Com Ct).
104 Black vWilliams [1895] 1 Ch 408; Law Guarantee and Trust Society v Russian Bank for Foreign Trade
[1905] 1 KB 815 (CA); Cunard SS Co v Hopwood [1908] 2 Ch 564.
105 See, generally, Chasteauneuf v Capeyron (1882) 7 App Cas 127 (PC); Re Softley, ex parte Hodgkin
(1875) LR 20 Eq 746 (Bkrptcy Ct).
106 In Black vWilliams (n 30) the unregistered interest was a charge rather than a mortgage but it was
absence of registration that was crucial rather than the nature of the interest.
56
SECURITY INTERESTS IN SHIPS
3.6.6 Sub-paragraph 1(1) of Schedule 1 to the 1995 Act provides that, subject to
any rights and powers appearing from the Register to be vested in any other person,
the registered owner of the ship has the absolute power to dispose of it. However,
the effect of this provision is qualified by sub-paragraph 1(2), which states that:
Sub-paragraph (1) above does not imply that interests arising under contract or other
equitable interests cannot subsist in relation to a ship or a share in a ship; and such
interests may be enforced by or against owners and mortgagees of ships in respect of
their interest in the ship or share in the same manner as in respect of any other personal property.
By virtue of this provision, an equitable mortgage is enforceable against the owner who
granted it. Section 34 of the Registering of British Vessels Act 1845107 provided that:
. . . when and so often as the Property in any Ship . . . be sold . . . the same shall be
transferred by Bill of Sale, or other Instrument in Writing . . . otherwise such Transfer
shall not be valid or effectual for any Purpose whatever either in Law or in Equity.
Section 37 of that Act required the registration of all bills of sale or other instruments in writing. These sections were re-enacted with amendment in 1854, with the
omission in section 57 of the words ‘otherwise such transfer shall not be valid or
effectual for any purpose whatever in law and equity’. In addition, section 43 of the
1854 Act provided that no notice of any trust was to be entered in the register book.
3.6.7 In Liverpool Borough Bank v Turner,108 the court held that the effect of these
statutory provisions was that equitable mortgages could not be enforced against registered ships. The owners of the ship had given a letter which created an equitable
charge against the ship. After they became bankrupt, the question arose as to whether
any effect could be given to that letter against the owners’ trustee in bankruptcy. It
was held that the 1854 Act precluded the recognition of such equitable interests.
3.6.8 The equitable mortgage at issue in Liverpool Borough Bank v Turner case
was cast in the following terms:109
In consideration of your continuing the account of Robert Lamont and making further
advances, we agree we will, whenever required, assign to you . . . all our right, share
and interest in the screw steamship Italian, for the purpose of securing all sums of
money.
The Vice-Chancellor, whose judgment was affirmed on appeal, held that the effect
of the relevant section of the 1854 Act was that mortgages could only be created
in accordance with that section, so that an equitable mortgage which did not
comply with the section was void and of no effect. In his decision in Black v Williams Vaughan Williams LJ discussed the impact of this ruling and how it led to
the enactment of the present rule:110
The commercial world regarded that decision as a great hardship; and in the result
the Legislature, by enacting sect. 3 of the Merchant Shipping Act Amendment Act,
107
108
109
110
8 & 9 Vict c 89. See Chapter 2, paragraph 2.3.4.
(1860) 1 J & H 159 (VC), 70 ER 703, on appeal 29 LJ Ch 827 (Ch ct).
(1860) 29 LJ Ch 827.
[1895] 1 Ch 408, 417–418.
57
SECURITY INTERESTS IN SHIPS
1862, gave effect to the view of the mercantile community, and in effect provided that
equitable titles should be recognised.
That provision was not a statement of the law which was to prevail in future, but
the section declared what had been the state of the law under sect. 43 of the Act of
1854 as it originally stood. It did not profess to create a new law, but it did profess
to declare what was the true meaning of the Act of 1854 as it was passed.
3.6.9 The 1862 Act provided a statutory reversal of what was viewed as the
judicial misinterpretation of the 1854 Act.111 Section 3 of the 1862 Act provided:
It is hereby declared that the Expression ‘Beneficial Interest’, whenever used . . .
includes Interests arising under Contract and other equitable Interests; and the Intention of the said Act is that, without Prejudice to the Provisions contained in the said
Act for preventing Notice of Trusts from being entered in the Register Book or received
by the Registrar and without Prejudice to the Powers of Disposition . . . conferred by
the said Act on registered Owners and Mortgagees . . . Equities may be enforced
against Owners and Mortgagees of Ships in respect of their Interest therein, in the
same Manner as Equities may be enforced against them in respect of any other Personal
Property.
The present law follows much the same line. Paragraph 1 of Schedule 1 and subsection 10(4) of the 1995 Act contemplate the making of regulations ‘precluding
notice of any trust being entered in the Register or being receivable by the Registrar
except as respects specified classes or descriptions of ships or in specified circumstances’. Regulation 6, paragraph 1 of the Registration Regulations provides that,
subject to limited exceptions set out in paragraph 2, no express, implied or constructive trust may be registered by the registrar.
3.6.10 There is doubt about whether an equitable mortgage gives an implied
right to take possession.112 There will often be an express right to take possession
in an equitable mortgage.
3.6.11 It is necessary to distinguish between an equitable mortgage and an unregistered, equitable transfer of a legal mortgage. The latter was at issue in Skelwith
(Leisure) Limited v Alan Armstrong,113 where Newey J pointed out the distinction.114
3.7 Equitable charges
3.7.1 It is possible to create equitable charges against ships in much the same way
as equitable mortgages may be created. Indeed, the distinction between an equitable
mortgage and an equitable charge is not always clear.115 The floating charge is
perhaps the most widespread and important form of equitable charge frequently
encountered in practice.
111 See, generally, Black v Williams (n 30).
112 The argument that it does in relation to real property was expressed in HWR Wade, ‘An Equitable
Mortgagee’s Right to Possession’ [1955] LQR 204.
113 [2015] EWHC 2830 (Ch). See paragraph 3.8.4 below.
114 ibid [36].
115 Understanding the distinction is not helped by judges sometimes using the expressions ‘mortgage’
and ‘charge’ interchangeably; see Gerard McCormack, Registration of Company Charges (3rd edn, Jordans
2009) paragraph 106 (hereafter in this chapter, ‘McCormack’) and the reference there to the judgments
of Lord Millett and Lord Hoffmann in Re Leyland Daf Ltd: Buchler v Talbot [2004] AC 298.
58
SECURITY INTERESTS IN SHIPS
3.7.2 The courts have explained the nature of an equitable charge in a number
of cases.116 In Re TXU Europe Group plc,117 after explaining that whether or not
an equitable charge is created depends on the express or ‘inferred’ intention of
the parties but that an expression of intention is not determinative if the evidence
points to a different legal effect, Blackburne J went on to say:
Equally, it is irrelevant that the parties may not have realised that the legal effect of
the transaction into which they have entered gives rise to an equitable charge if, upon
a proper understanding of the admissible evidence, that is its legal effect.
3.7.3 In The Spirit of Aquarius118 the following acknowledgement of receipt was
held to create an equitable charge over a registered vessel:
I, Jeremy John Mahony of the above address, acknowledge receipt of £30,000 from
Laurence Bristow of Brooklands Baynard’s Park Cranleigh Surrey. The monies to be
a loan to J J Mahoney. The total amount to be repayable on the sale of the boat ‘Spirit
of Aquarius’ this boat being a sunseeker 39 Cobra registered number . . . .119 The
monies to be secured on the abovementioned boat.
The vessel was sold to a buyer without notice of the charge. In the context of a costs
hearing it was observed that the equitable charge was extinguished by the sale.
3.7.4 A bottomry bond is a contract under which the owner or, more commonly,
the master of a ship borrows money in circumstances of unforeseen necessity or
distress to enable him or her to pay for necessaries or repairs and despatch of
the vessel for the completion of its voyage. Traditionally, the contract involved
the pledge of the keel or ‘bottom’ of the ship as a symbol of the whole ship for
repayment of the amount borrowed.120 So long as the ship survives, the lender
may recover the money owing with interest by bringing an action to enforce the
claim but if the ship is lost the lender makes no recovery.121 Such bonds are now
obsolete and are of interest only to the legal historian.122 Although they bear a
116 See Re BCCI (No. 8) [1998] AC 214, 216 (Lord Hoffmann) and Re TXU Europe Group plc [2004] 1
P & CR D 20[35] (Blackburne J). Both cases are referred to in McCormack at paragraphs 1.08 and 1.10. See
also Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 (CA) 594–595 (Buckley LJ), paragraph 3.1.4 above.
117 [2004] 1 P&CR D 20 [35].
118 QB 9 June 1992. For a recent case showing the willingness of the courts to find the creation of an
equitable charge (in the context of land) see Stewart v Franey (Ch D, 16 June 2016).
119 The registered number was completed in the original.
120 Respondentia is the equivalent form of security over cargo. It appears, however, that the use of the
term ‘respondentia’ fell into disuse and the term ‘bottomry’ became used to refer to security over not just
the ship itself but also security over freight and cargo. See, for example, The Edward Oliver (1865–67) LR
1 A&E 379 and The Eugenie (1872–75) LR 4 A&E 123 which are cases on marshalling as against holders
of bottomry bonds; see Chapter 7, paragraph 7.11.14.
121 The Atlas (1827) 2 Hag Adm 48, 166 ER 162 (Adm), 53. As to the effect on the rights of the
mortgagee, see The St George [1926] P 217 (PD & Adm), [1925] Ll L Rep 482.
122 See Chapter 1, paragraph 1.2.2. The obsolescence of bottomry bonds by the twentieth century,
noted in n 26 to paragraph 1.2.2 and caused by the advance of modern communications, is further confirmed by the following from Lawrence Duckworth, An Encyclopaedia of Maritime Law (2nd edn, Pitman
& Sons 1908):
The practice of giving a bottomry bond is now almost always confined to the master, and not to the owner
of a ship, though, of course, the owner may give such a security. Having in mind, however, the advances of
telegraphy, it would seem that such an instrument might be dispensed with. The master’s power would, at
the present time, seem to be confined to those places only where there is no telegraphic communication.
59
SECURITY INTERESTS IN SHIPS
superficial relationship to an equitable charge they are in essence a form of marine
hypothecation, having their origins in maritime law rather than in the common law
or equity. They thus have a different provenance from the ship mortgage, which,
as set out in Chapter 1, has its origins in the common law and equity rather than
maritime law, before being modified, if not reinvented, by statute. Since the origins
of the bottomry bond are distinct from those of the ship mortgage, it cannot be
seen as a link (missing or otherwise) between maritime law and the ship mortgage.
3.7.5 Clause 18 of the New York Produce Exchange form of time charter
provides that the charterer of a ship will have a lien on the ship for all moneys
paid in advance but not earned. The effect of this clause was considered in The
Lancaster.123 The wording of the clause in question was as follows:
That the Owners shall have a lien upon all cargoes, and all sub-freights for any amounts
due under this Charter, including General Average contributions, and the Charterers
to have a lien on the Ship for all monies paid in advance and not earned, and any
overpaid hire or excess deposit to be returned at once. Charterers will not suffer, nor
permit to be continued, any lien or encumbrance incurred by them or their agents,
which might have priority over the title and interest of the owners in the vessel.
Following a collision, the ship was deemed a constructive total loss. The proceeds of
the assigned insurance policies were collected by the broker, who began paying the
money so collected to the defendant mortgagees as assignees of the insurances. These
payments were halted under a Mareva injunction, the plaintiff charterers claiming
that they were entitled to a lien on the ship, extending to the insurance proceeds,
under clause 18 in respect of the hire that had been paid in advance but not earned
at the time of the collision. Robert Goff J held that this clause did not create an
equitable charge against the ship, but merely gave the charterers a right to restrain
the owners from resuming control of the ship on the expiry of the charter term. As
such, it had the effect of a type of negative charge. The mortgagees prevailed.
3.7.6 It is difficult to reconcile The Lancaster with the cases that have held that
an owner’s lien on sub-freights is an equitable charge.124 It seems incongruous to
construe the first part of the first sentence of clause 18 as conferring an equitable
charge, while the second part is construed only as conferring a negative right to
prevent the owners from resuming control of the ship for the owners’ own use
and purpose until the completion of the charter.125 To give the second part of the
123 Ellerman Lines Ltd v Lancaster Maritime Co Ltd (The Lancaster) [1980] 2 Lloyd’s Rep 497 (QB
(Com Ct)).
124 On the owner’s lien on sub-freights see Chapter 17, section 17.10 (Liens on sub-freights). The
main cases are The Nanfri [1979] AC 757 (HL); Care Shipping Corporation v Latin American Shipping
Corporation (The Cebu) [1983] QB 1005,[1983] 1 Lloyd’s Rep 302; Re Welsh Irish Ferries Ltd (The Ugland
Trailer) [1986] Ch 471, [1985] 2 Lloyd’s Rep 372; Annangel Glory Compania Naviera SA v M Golodetz Ltd
(The Annangel Glory) [1988] 1 Lloyd’s Rep 45 (Com Ct); G&N Angelakis Shipping Co SA v Compagnie
National Algerienne de Navigation (The Attika Hope) [1988] 1 Lloyd’s Rep 439 (Com Ct); Itex Itagrani Export
SA v Care Shipping Corp (The Cebu) (No. 2) [1990] 2 Lloyd’s Rep 316; Cosco Bulk Carrier Co Ltd v Armada
Shipping SA [2011] EWHC 216 (Ch); Western Bulk Shipowning III AS v Carbofer Maritime Trading APS
(The Western Moscow) [2012] EWHC 1224 (Com Ct); Dry Bulk Handy Holding Inc v Fayette International
Holdings (The Bulk Chile) [2012] EWHC 2107 (Com Ct).
125 See, generally, Tonnelier v Smith (1897) 2 Com Cas 258 (CA), 265 (Rigby LJ); The French Marine v
Cie Napolitaine (1921) 8 Ll L Rep 345, [1921] 2 AC 494 (HL).
60
SECURITY INTERESTS IN SHIPS
first sentence of clause 18 such a limited interpretation seems – at least on first reading –
to adopt a view inconsistent with the express wording and apparent intent of the parties.
3.7.7 In The Lancaster, Robert Goff J explained that the difference in the treatment of the two liens (for, in fact, neither is a ‘lien’ as that term is generally
understood) seems to lie in the disruptive effect on ship financing that would result
if the two parts of clause 18 were interpreted in the same manner.126 An analysis
of the charterer’s lien raises doubt as to whether this rationale is convincing. The
lien of the charterer is to secure the payment of any hire paid in advance which
is repayable when the charter is terminated. The clause gives the charterer an
equitable charge on the ship to secure this repayment. Without this provision the
charterer would have to rely on a statutory lien under section 20(2)(h) of the Senior
Courts Act 1981. This clause in the charter would give the charterer an equitable
charge on the ship which would advance the priority of the charterer’s claim. In
his judgment, Goff J explained the basis for his decision in the following terms:127
I cannot imagine that banks who make advances to shipowners on the usual security would
ever expect to find that charterers could assert any such priority, or that it would even
occur to charterers to register their liens . . . under section 95 of the Companies Act 1948.
The answer to this is, however, that the lien created in favour of the charterer, as
an equitable charge, would almost invariably rank after the legal interest of any
registered mortgagee and therefore the charterer would not be asserting a claim in
priority to the mortgagee. The views expressed by Goff J in The Lancaster echoed
and took support from what Roskill LJ had said in The Panglobal Friendship128 about
the position of secured ship financiers. That case was also an attempt by a charterer
to invoke its ‘lien’ to attach insurance proceeds. Lord Denning MR and Browne
LJ did not share Roskill LJ’s concern for preserving the financing status quo.129
3.8 Submortgages
3.8.1 A submortgage is a mortgage of a mortgage, in which the original mortgagee
assigns to the submortgagee the debt due under the mortgage to the original
mortgagee and transfers the mortgage to the submortgagee as security for a loan
or other obligation. The amount secured by the submortgage can never exceed the
amount secured by the original mortgage. Essentially, it is a form of assignment
of an account receivable and the security held in respect of that receivable. Submortgages of ship mortgages are not common. However, where such an interest
is encountered, its form and nature will depend upon whether the statutory form
of mortgage has been used or a common law (or equitable) mortgage. In the case
126 [1980] 2 Lloyd’s Rep 497, 500.
127 The Lancaster [1980] 2 Lloyd’s Rep 497, 501–502.
128 Citibank NA v Hobbs, Savill & Co (The Panglobal Friendship) [1978] 1 Lloyd’s Rep 368 (CA).
129 The case was on a preliminary procedural point and subsequently settled. It should be noted in
this context that, based on the judgement of Lord Goff in Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The
Trident Beauty) [1994] 1 WLR 161 (HL), [1994] 1 Lloyd’s Rep 365, where earnings have been assigned
and paid to the assignee the charterer will not be able to recover against the assignee and will only have
its lien on the ship as security for its claim against the shipowner. See Chapter 17, paragraph 17.7.3.
61
SECURITY INTERESTS IN SHIPS
of a statutory mortgage, a registered submortgage involves the transfer of title to
the mortgage to the submortgagee. In the case of a common law mortgage or an
equitable mortgage, the interest of the original mortgagee is charged by the
submortgagee.
3.8.2 Generally, submortgages are granted by deed. If the principal mortgage
is a registered statutory mortgage, then the mortgagee will transfer that mortgage
to the submortgagee on terms that the mortgage will be retransferred back on
repayment of the amount advanced by the submortgagee. The transfer of mortgage
must be registered under paragraph 11 of Schedule 1 of the 1995 Act.130 Default
by the original mortgagee in making payments owed to the submortgagee gives rise
to no right of enforcement of the mortgage. Accordingly, the submortgagee can
take no action against the ship or owner unless and until the underlying mortgage
becomes enforceable.
3.8.3 Just as it is possible to create an equitable mortgage against a ship, so
too it is possible to create an equitable submortgage. It seems that a deposit of
a registered mortgage of a ship creates a valid security by way of an equitable
submortgage.131
3.8.4 If the submortgagee of a registered statutory mortgage does not obtain
a registered transfer of the mortgage its ability to exercise the statutory power
of sale is open to question. This issue arose in relation to a submortgage of real
property in Skelwith (Leisure) Limited v Alan Armstrong132 where it was held that
the unregistered transferee of a charge by way of legal mortgage, i.e. an equitable
owner of the charge, was not, on the construction of the Land Registration Act
2002, entitled to exercise the statutory power of sale under the Law of Property
Act 1925, s 101. The transferee was, however, held to be entitled to exercise the
statutory power of sale by virtue of being a person entitled ‘to receive and give
a good discharge for the mortgage money’ within the Law of Property Act 1925,
s 106(1). The transferee was also entitled to sell the property as attorney-in-fact of
the original mortgagor because the powers of the initial chargee as attorney-in-fact
had been transferred to the transferee within the terms of the power of attorney. It
is likely that, despite the first point turning on the wording of the Land Registration Act 2002, a similar result would apply in relation to an unregistered transferee
of a statutory ship mortgage so that it would not be able to exercise the statutory
power of sale under the Merchant Shipping Act 1995, Schedule 1, paragraph 9. It
is doubtful whether the position of an unregistered transferee of a statutory ship
mortgage would be saved, as was the case in Skelwith, by the Law of Property
Act, ss 106 and 101 in view of the decision in The Maule133 to the effect that the
statutory power of sale under section 101 does not apply to registered mortgages
of ships. The position of the unregistered transferee might, subject to the applicable
wording, be saved by reliance on a transfer of the power of attorney contained in
130 See Chapter 9, section 9.3 (Transfer).
131 Lacon v Liffen (1862) 4 Giff 75, 66 ER 626 (VC), 85 (Sir John Stuart VC); on appeal, 32 LJ
Ch 315.
132 [2015] EWHC 2830 (Ch).
133 [1997] 1 WLR (PC). See Chapter 11, paragraph 11.16.4.
62
SECURITY INTERESTS IN SHIPS
the deed of covenant within the scope of the terms of the power of attorney as
granted by the mortgagor. If the submortgage relates to a common law mortgage or
an equitable mortgage rather than a registered mortgage the question of a transfer
of the statutory power of sale under the Merchant Shipping Act 1995 does not
arise but the issues relating to the power of sale under the Law of Property Act
1925134 and the power of attorney would be relevant.
3.9 Mortgages of a share in a ship
3.9.1 A ship may have one, two or several owners. Under the scheme of registration provided for in the 1995 Act, the ownership of a ship is divided into 64
shares,135 and no more than this number of persons may be registered as the owners
of any one ship. Up to five persons may be registered as the joint owners of a ship
or share. Smaller interests than a one sixty-fourth share can only be accommodated
through the use of a trust. A mortgage may be taken over all the shares in the
ship, or over one or more such shares. It is always shares in a registered ship that
are mortgaged; a mortgage of all the shares creates in effect a mortgage of the
whole ship. Where the mortgage is taken over a majority of the shares in the ship,
it seems that the mortgagee (on realising its security) has the right to assume
control of the ship.136
3.9.2 Generally, however, a mortgagee of only some of the shares stands in a very
different position from the mortgagee of the whole ownership interest of ship. The
mortgagee takes possession of the shares by giving notice to the managing owner of
the ship. All that such a notice accomplishes, however, is to put the mortgagee in
the shoes of the mortgagor. Essentially, the mortgagee is entitled to the mortgagor’s
share of earnings and other distributions that are to be made in respect of the ship,
net of all expenses properly chargeable against the minority owner’s share.137
3.10 Mortgages of ships under construction
3.10.1 There is no system in the United Kingdom for the registration of ships
under construction. Before a ship can be registered under the 1995 Act, it must
be substantially complete. It follows that the statutory form of mortgage provided
for under that Act cannot apply to a ship under construction. Any mortgage must
arise under either the common law or in equity.138
3.10.2 Mortgages of ships are excluded from the scope of the Bills of Sale Act,
and that exception applies whether or not a ship is registered or unregistered
134 If a common law mortgage or equitable mortgage is by deed the Law of Property Act, ss 101–107
applies; see paragraph 3.6.4 above.
135 The requirement for division into 64 shares was introduced by the Registering of British Vessels
Act 1845 (8 & 9 Vict c 89). Before then ships appear to have been divided into differing and random
numbers of shares. See Hugh Moffat, Ships and Shipyards of Ipswich 1700–1970 (Malthouse Press 2002) 4.
136 This is based on an obiter dictum of Dr Lushington in The Elizabett and Jane (1841) 1 WM Rob
278 where there was a mortgage of 32/64th of the shares, i.e. not a majority of the shares.
137 Alexander v Simms (1854) 5 De GM & G 57, 43 ER 791.
138 Re Softley, ex parte Hodgkin (1875), LR 20 Eq 746 (Bkrptcy Ct).
63
SECURITY INTERESTS IN SHIPS
under the Merchant Shipping Act 1995.139 If the owner is a limited company then the
Bills of Sale Act does not apply,140 but if the owner is an individual, then the question of
whether or not a mortgage on a ship under construction has to be registered depends
upon at what point a ship under construction becomes a ship. The matter is not free from
doubt, but in this context perhaps the word ‘ship’ should be given a broad commercial
meaning to include a ship from the time the keel is laid until the time it is scrapped or
becomes a total loss, rather than the restricted meaning of a completed ship.141
3.10.3 The extent to which a ship under construction can be mortgaged depends
upon the terms of the shipbuilding contract.142 If the property and title in the ship as
it is constructed pass to the buyer, then the buyer has a title that it can mortgage at
common law. If, however, the property and title in the ship remain with the shipbuilder
until delivery,143 then the only interest that the buyer can assign is its contractual
rights under the terms of the shipbuilding contract. Moreover, if the shipbuilder
retains title until delivery, then the shipbuilder may grant a security interest on the
ship under construction. Similarly, any floating charge granted by the shipbuilder
over its general undertaking will also give rise to a security interest against the ship
to the extent that title to the ship under construction remains with the shipbuilder.
3.10.4 The assignment of the buyer’s rights under a shipbuilding contract by
way of security will usually constitute an equitable assignment.144 If title in the ship
is transferred to the buyer during the course of construction, the assignment will
transfer to the mortgagee by way of charge all of the buyer’s right, title and interest
in the ship as it is constructed and the buyer’s interest in any insurance on that
ship. If title is not so transferred, the assignment transfers the buyer’s rights and
powers under the shipbuilding contract, including the right to take delivery of the
ship and will also assign the buyer’s right under any refund guarantee issued to
139 Union Bank of London v Lenanton (1878) 3 CPD 243 (CA); Gapp v Bond (1887) 19 QBD 200 (CA).
See also Chapter 6, section 6.4 (The Bills of Sale Acts).
140 Mortgages and charges of chattels made by a corporation are exempt from registration under the
Bills of Sale legislation: Bills of Sale (1878) Amendment Act 1882, s 17.
141 Section 4 of the Bills of Sale Act 1878 excludes ‘transfers or assignments of any ship or vessel or
any share thereof ’. Quaere whether a structure can be described as a ship until it is seaworthy. Is it sufficient to prove that the building of a ship has commenced, or must the ship be completed before it comes
within the scope of s 4? See also Chapter 6, section 6.4 (The Bills of Sale Acts). In the context of what a
‘ship’ is for arrest jurisdiction purposes, the issue is addressed by statute in Australia where the Admiralty
Act 1988 (Cth), s 3(1) excludes from the definition of ship ‘a vessel under construction that has not been
launched’. See Virtu Fast Ferries Ltd v The Ship ‘Cape Leveque’ [2015] 2 Lloyd’s Rep 222. In Coombes v
Mansfield 61 ER 877, (1855) 3 Drew 193 the ship was registered and mortgaged before it was launched;
the circumstances giving rise to the case pre-dated the Merchant Shipping Act 1854.
142 See, generally, Wood v Bell (1856) 5 E & B 772, 119 ER 669 (QB); Sir James Laing & Sons Ltd v
Barclay, Curle & Co [1908] AC 35 (HL); Seath v Moore (1886) IR 11 App Cas 350 (HL); Re Blyth Shipbuilding & Dry Docks Co Ltd [1926] Ch 494 (CA); BMBF (No. 12) Ltd v Harland &Wolff and Shipbuilding
Heavy Industries Ltd [2001] EWCA Civ 862 (CA).
143 In the Shipbuilders’ Association of Japan form, the title to the ship passes to the buyer on delivery;
but in the Association of West European Shipbuilders form, the title passes to the buyer as the ship is
constructed. See Simon Curtis, The Law of Shipbuilding Contracts (4th edn, LLP 2012).
144 Re Softley, ex parte Hodgkin (1875) LR 20 Eq 746 (Bkrptcy Ct); Union Bank of London v Lenanton
(1878) 3 CPD 243 (CA). Whether the assignment of a shipbuilding contract constitutes an equitable
assignment or a legal assignment satisfying the requirements of the Law of Property Act 1925, s 136 will
depend on its terms. In a different context, see The Mount I [2002] EWCA Civ 68 (CA). This case is
analysed in detail in this context in Chapter 16, paragraphs 16.5.8–16.5.20.
64
SECURITY INTERESTS IN SHIPS
secure the repayment with interest of the pre-delivery instalments paid by the buyer,
if the contract is terminated lawfully by the buyer or the ship under construction
becomes a total loss for the purposes of the shipbuilding contract.
3.10.5 Even where the mortgage attaches to a ship while it is in the process of
construction, it does not necessarily follow that all material that is or may be used
in the construction of that ship will also be subject to the mortgage. In order for
components and other material used in the construction of a ship to be covered
by a mortgage they must have been clearly appropriated to it. Where there is no
evidence of appropriation, the mortgage will not attach and the materials will
form part of the general estate of the builder, and will be liable to the claims of
the builder’s creditors generally in the event of the liquidation of the builder. The
evidence of appropriation must be clear. So it has been said:145
For appropriation . . . there must be some definite act, such as the affixing of the property
to the vessel itself, or some definite agreement between the parties which amounts to
an assent to the property in the materials passing from the builders to the purchasers.
It is not sufficient to show that the builder intended to make use of the materials
in the construction of the ship. In Reid v MacBeth & Gray146 a contract for the
construction of a ship provided that materials brought into the shipyard to be used
in its construction would become the property of the buyer. Certain steel plates
were sitting in a railyard and had been designated by a surveyor in Lloyd’s inspection certificates as intended for incorporation into the ship. As they were not yet
within the shipyard, it was held that they were not covered by the provision of the
contract passing ownership to the purchaser. Therefore they formed part of the shipbuilder’s property on its bankruptcy.
3.10.6 The cases on security over ships under construction are from a time
when the United Kingdom was a major shipbuilding nation. If security is taken
over the physical material of a ship under construction the lex situs will determine
the incidence of proprietary interests since the asset is a tangible movable.147 Where
security is taken over a shipbuilding contract the applicable law of the contract,
which will often be English law, will determine the matters referred to in the Rome
I Regulation, Article 14(1) and (2).148
145 Re Blyth Shipbuilding & Dry Docks Co Ltd [1926] Ch 494 (CA) (Sargant LJ), 518.
146 [1904] AC 223 (HL).
147 See Lord Collins of Mapesbury with specialist editors, Dicey, Morris and Collins on the Conflict of
Laws (15th edn, Sweet & Maxwell 2012), rule 133. See Chapter 4, paragraph 4.1.5.
148 Article 14(1) and (2) of the Rome I Regulation reads:
(1) The relationship between assignor and assignee under a voluntary assignment or contractual
subrogation of a claim against another person (the debtor) shall be governed by the law that
applies to the contract between the assignor and the assignee under this Regulation.
(2) The law governing the assigned or subrogated claim shall determine its assignability, the
relationship between the assignee and the debtor, the conditions under which the assignment
or subrogation can be invoked against the debtor and whether the debtor’s obligations have
been discharged.
See The Mount I on this issue in the context of a contract of insurance (decided when the Rome Convention, Article 12 was the predecessor to the Rome I Regulation, Article 14); see Chapter 16, section 16.11
(The conflict of laws). However, legal advice in the country where the builder (and refund guarantor) is
65
SECURITY INTERESTS IN SHIPS
3.10.7 The focus of this book is on security over completed ships and not
on either security over rights under a shipbuilding contract or security over the
material of incomplete ships in the course of construction but some brief observations follow. The terms of payment under a shipbuilding contract will depend on
custom and practice in the country where the ship is built149 and potentially the
state of the market and the relative bargaining position of the parties. If payment
is ‘front-ended’ the buyer might expect title to pass in phases during construction
and against payment of each instalment. If payment is ‘back-ended’ the buyer is
likely to be less concerned to obtain title during construction. Even where payment is front-ended local practice and market conditions might well result in title
passing only at delivery, with the buyer relying on a refund guarantee from the
builder’s bank, as is the case with most Asian shipbuilding contracts, where practice is determined by the Shipbuilders’ Association of Japan form or variants of
it.150 Since the builder retains title until delivery it can give security over the ship
under construction to its financiers, unless it is agreed in the shipbuilding contract
that that is prohibited.
3.10.8 In some Western European and Nordic countries there is a ‘construction
register’ maintained either centrally or with the local harbour master. This enables
title to a ship under construction to be registered and security to be granted. For
as long as and to the extent that title remains with the builder, it can grant security to its financiers in accordance with local law. Upon title to the newbuilding
passing in phases to the buyer, title can be registered in the buyer’s name in the
construction register and security granted by the buyer to its financiers in accordance with local law.
located is still advisable to ensure that the position under the applicable law of the contract, and any judgment on that issue, would be recognised and enforced in the jurisdiction where construction takes place.
149 See paragraph 3.10.3 above.
150 See n 143.
66
CHAPTER 4
The conflict of laws
4.1 Introduction
4.1.1 This chapter addresses primarily the question of the law which, by application of English conflict of laws principles, governs the proprietary aspects of a
registered ship mortgage. The answer that most lawyers would instinctively give
is that the voluntary creation or transfer of a proprietary interest in a registered
ship, whether by way of sale or security, is governed by the law of the ship’s
register and not by the law of the physical location of the ship (the lex situs).1
However, it is not possible to state this unquestioningly.2 The issue arose relatively
recently in relation to ships, albeit not in relation to mortgages or other registered
interests, in a case that was decided in two phases (The WD Fairway).3 Shortly
afterwards the issue arose in a case relating to mortgages of aircraft, again in a
case decided in two phases (Blue Sky).4 The result of Blue Sky was that a mortgage
1 Among the main secondary sources which address or touch upon the lex situs issue which is the main
focus of this chapter are: Lord Collins of Mapesbury with specialist editors, Dicey, Morris and Collins on
the Conflict of Laws (15th edn, Sweet & Maxwell 2012) (hereafter in this chapter, ‘Dicey’) Chapters 22
and 24; Janeen M Carruthers, The Transfer of Property in the Conflict of Laws (OUP 2005); J Fawcett and J
Carruthers (eds), Cheshire, North and Fawcett: Private International Law (14th edn, OUP 2008) (hereafter
in this chapter, ‘Cheshire, North and Fawcett’) Chapter 29; Fawcett, Harris and Bridges, International Sale of
Goods in the Conflict of Laws (2005 OUP); Norman Bentwich, Westlake’s Private International Law (6th edn,
Sweet & Maxwell 1922) (hereafter in this chapter ‘Westlake’) especially Chapter VII; R H Graveson, The
Conflict of Laws (2nd edn, Sweet & Maxwell 1952) (hereafter in this chapter ‘Graveson’) Chapter 10; PA
Lalive, The Transfer of Chattels in the Conflict of Laws (Oxford 1955) especially 157–193; GA Zaphiriou, The
Transfer of Chattels in Private International Law (University of London, the Athlone Press 1956) (hereafter
in this chapter ‘Zaphiriou’); Adrian Briggs, Private International Law in English Courts (OUP 2014) (hereafter in this chapter ‘Briggs’) Chapter 9; JHC Morris, ‘The Transfer of Chattels in the Conflict of Laws’
(1945) BYIL 232 (hereafter in this chapter, ‘Morris’).
2 ‘Matters relating to creation and perfection will usually be governed by the law of the state of registration as the legally attributed situs of the ship.’(Sir Roy Goode, ‘Battening down your security interests:
How the shipping industry can benefit from the UNIDROIT Convention on International Interests in
Mobile Equipment’ [2000] LMCLQ 161, 163). Note the cautious ‘usually’. Constant was also less than
definite: ‘It is submitted, however, though with some little hesitation, that the law of the ship’s flag is that
which prima facie governs a maritime mortgage where a conflict of laws arises’ (Benjamin Constant, The
Law Relating to the Mortgage of Ships (Syren & Shipping Ltd 1920) paragraph 83 (hereafter in this chapter
‘Constant’).
3 Dornoch Limited v Westminster International BV (The WD Fairway) [2009] EWHC 889 (Adm) (hereafter in this chapter, ‘The WD Fairway 1’) and [2009] EWHC 1782 (Adm) (hereafter in this chapter, ‘The
WD Fairway 2’).
4 Blue Sky One Ltd v Mahan Air [2009] EWHC 3314 (Com Ct) (hereafter in this chapter, ‘Blue Sky 1’)
and [2010] EWHC 631 (Com Ct) (hereafter ‘Blue Sky 2’).
67
THE CONFLICT OF LAWS
expressed to be governed by English law executed and registered over a United
Kingdom registered aircraft when it was physically located in the Netherlands was
held to be invalid as a security interest because it did not satisfy the requirements
of Dutch domestic law for the creation of security over an aircraft. The focus of
this chapter is specifically how the issue as regards registered ships is treated as
a matter of the English conflict of laws. At the risk of overgeneralisation, recognition of the law of the ship’s register is the international norm as regards ships,
based on principles of comity and, possibly, on some residual application or
survival of the lex maritima.5 The position worldwide cannot, however, be taken
for granted. This is indicated by the long-standing but not widely accepted attempts
to address the issue of recognition of foreign mortgages by international conventions, namely the Maritime Liens and Mortgages Conventions of 1926, 1967 and
1993.6 The recognition of foreign mortgages has recently arisen in litigation in
Brazil, still current at the time of writing, in relation to the FPSO OSX 3.7 The
English law issue – if indeed there is an issue at all – is not as such an issue
relating to the recognition of foreign ship mortgages in a general sense. It is,
rather, whether the rigid English conflict of laws application of the lex situs to the
creation or transfer of a proprietary interest in a tangible movable,8 irrespective
of any express choice of law, applies to registered ships – whether United Kingdom
registered ships or foreign registered ships.
4.1.2 The underlying issue in relation to ships was succinctly summarised by
McNair:9
The question of situs may become relevant for the following purposes:
(i)
to determine the validity of (a) a voluntary, or (b) an involuntary, transfer of
the ownership or possession of the ship;
(ii) as to (a), to determine the validity of a sale or mortgage or testamentary
disposition;
(iii) as to (b), to determine the validity and effect of a judgment in rem, or some
non-judicial act by a Government, affecting a ship.
McNair was only concerned with involuntary and not with voluntary transfers
(which are the main focus of this chapter) and, of the different types of involuntary
transfer, mainly with requisition.10
5 See Ole Böger, ‘The Cape Town Convention and Proprietary Security over Ships’ (2014) 19
Uniform Law Review 24, 28. However, it is there noted, referring to Philip Wood, Conflict of Laws and
International Finance (2nd edn, Sweet & Maxwell 2007) 14–075 that ‘. . . a handful of jurisdictions are
reported not to recognise ship mortgages under a foreign law of the flag’. Both the 1926 Brussels Maritime Liens and Mortgages Convention (not widely ratified) and the 1993 Geneva Convention on
Maritime Liens and Mortgages (not yet in force) recognise the law of the flag in relation to the creation
of mortgages; see section 4.10 (International conventions). On the relevance (or lack of it) of the lex
maritima in English law see, however, section 4.11 (The general maritime law).
6 See section 4.10 (International conventions).
7 See section 4.14 (FPSO OSX 3 in Brazil).
8 See paragraphs 4.1.3, 4.1.5 and 4.4.1 below.
9 Sir Arnold D McNair, ‘Problems connected with the Position of the Merchant Vessel in Private
International Law, with particular reference to the Power of Requisition’ (1945) 31 Transactions of the
Grotius Society 30 (hereafter in this chapter, ‘McNair (1945)’).
10 On requisition, see section 4.5 (The early/mid twentieth century cases on foreign government
action); also Chapter 17, section 17.15 (Requisition compensation).
68
THE CONFLICT OF LAWS
4.1.3 The issue in relation to aircraft and lex situs had been a matter of international
debate and uncertainty for some time.11 Blue Sky 112 put an end to the uncertainty as
a matter of English law unless and until it is overruled by a higher court. Aircraft are
no different from other tangible movables in the English conflict of laws; the creation
or transfer of a proprietary interest is governed by the lex situs, following the rule in
Cammell v Sewell.13 Further, the lex situs for this purpose means the domestic law of
the situs and does not include its conflict of laws rules. If the conflict of laws rules
of the lex situs would refer the issue to the law of another country that is not given
effect to under English law; in other words the doctrine of renvoi does not apply.14
4.1.4 It is necessary to look into matters in some detail in order to address
squarely the English conflict of laws position on the following issues presented by
the Blue Sky cases15 and The WD Fairway cases:16
(a) If a United Kingdom registered ship17 is in, say, Rotterdam at the time a
mortgage in the form prescribed pursuant to the Merchant Shipping Act
199518 is executed and registered, is the proprietary effect of that mortgage
invalid if it does not comply with the requirements of Dutch domestic law
for a valid ship mortgage?
(b) On facts that are otherwise the same, is the position the same or different if
the ship in question is registered on, say, the Liberian register and the mortgage is in a form required by, and registered in accordance with, Liberian law?
The question at (a) above presents in relation to ships the exact equivalent of the
issue that was decided in relation to aircraft by Blue Sky 1.19
4.1.5 The relevant rules and exceptions in Dicey20 are as follows:21
Rule 128 – The law of a country where a thing is situate (lex situs) determines whether
(1) the thing itself is to be considered an immovable or a movable; or
11 See SA Bayitch, Aircraft Mortgages in the Americas (U of Miami Press 1960) Chapter VIII; GN
Calkins Jr, ‘Creation and International Recognition of Title and Security Rights in Aircraft’ (1948) 15 J of
Air Law & Commerce 156; CS Doskow, ‘Transitory Chattels and Stationary Law: A Proposal to Facilitate
Secured Financing of Aircraft Employed in International Flight’ (1959) 26 J of Air Law & Commerce 36;
Lalive (n 1) 191. English cases on aircraft which foreshadowed Blue Sky 1 are: Air Foyle v Center Capital
[2002] EWHC 2535 (Com Ct), [2003] 2 Lloyd’s Rep 753 and Kuwait Airways Corp v Iraqi Airways Co
(Nos. 4 and 5) [2002] UKHL 19; see also David Osborne, ‘Lex situs and aircraft’ [2004] LMCLQ 303. See
further section 4.13 (The Blue Sky litigation). In contrast to the English common law position the 2001
Cape Town Convention on International Interests in Mobile Equipment and the related Aircraft Protocol
make the issue go away for ‘international interests’; see paragrahs 4.10.4 and 4.13.6 below.
12 n 4.
13 (1858) 3 H & N 617; (1860) 5 H & N 728 (Ex Ch); 157 ER 1371. This has been followed in numerous cases, the most significant of which are: Inglis v Robertson International AG [1898] AC 616; Winkworth v
Christie, Manson and Woods Ltd [1980] Ch 496; Macmillam Inc v Bishopsgate Investment Trust plc (No. 3)
[1996] 1 WLR 387 (CA); Glencore v Metro Trading International Inc [2001] 1 ALL ER 103 (Com Ct).
14 Blue Sky 2 (n 4)[151]–[185], [200], [203]. See also Islamic Republic of Iran v Berend [2008] EWHC
132 (QB) [19]–[31]; TheWD Fairway 1 (n 3) [80]–[89]; TheWD Fairway 2 (n 3) [4], [8]. See further below,
section 4.9 (The WD Fairway litigation) and section 4.13 (The Blue Sky litigation).
15 n 4. See further section 4.13 (The Blue Sky litigation).
16 n 3. See further section 4.9 (The WD Fairway litigation).
17 See the Merchant Shipping Act 1995, s 1(3) for the definition of ‘United Kingdom ship’.
18 Form MSF 4763 or Form MSF 4737.
19 n 4.
20 n 1, especially paragraphs 22R-001 to 22–060 and paragraphs 24R-001 to 24–049.
21 Reproduced by permission of Thomson Reuters (Professional) UK Limited.
69
THE CONFLICT OF LAWS
(2) any right, obligation or document connected with the thing is to be considered
an interest in an immovable or in a movable.
Rule 129 – The situs of things is determined as follows:
(1) . . . . .
(2) . . . . .
(3) subject to the Exception hereinafter mentioned, a chattel is situate in the country
where it is at any given time.
Exception 1 – A merchant ship may at some times be deemed to be situate at her port
of registry.
Rule 133 – The validity of a transfer of a tangible movable and its effect on the proprietary rights of the parties thereto and of those claiming under them in respect
thereof are governed by the law of the country where the movable is at the time of
the transfer (lex situs).
(1) A transfer of a tangible movable which is valid and effective by the law of the country
where the movable is at the time of the transfer is valid and effective in England.
(2) Subject to the Exception hereinafter mentioned, a transfer of a tangible movable which is invalid and ineffective by the law of the country where the movable
is at the time of the transfer is invalid or ineffective in England.
Exception – If a tangible movable is in transit, and its situs is casual or not known, a transfer
which is valid and effective by its applicable law will semble be valid and effective in England.
4.1.6 The issue will be approached with a review of the following main issues
(other issues being touched upon in passing):
(a) the history and background in relation to ownership interests in ships
under English domestic law, and their mortgaging – as compared and
contrasted with the position in relation to aircraft;
(b) mid-nineteenth century cases (on ships and chattels generally);
(c) early/mid-twentieth century cases on foreign government action;
(d) cases on foreign ship mortgages;
(e) cases on the jurisdiction to arrest;
(f) the conflict of laws dimension to priority issues;
(g) The WD Fairway 122 and The WD Fairway 2.23
Although the main focus of this chapter is the lex situs issue as it may or may not
relate to ship mortgages the approach is to examine the issue against the wider
background of other conflict of laws issues that have arisen in relation to ships, in
particular as regards the significance of the law of the register in different contexts.
Some of these other issues might not be directly relevant to the lex situs issue.
Nevertheless, no apology is made for taking a discursive approach, not least because
the courts themselves have sometimes, for better or worse, been liberal in applying
cases relating to one area to another area.24
22 N 3.
23 N 3.
24 See paragraphs 4.5.1, 4.7.1 and 4.9.4 below.
70
THE CONFLICT OF LAWS
4.1.7 One conflict of laws issue that is not addressed in any detail in this chapter –
or indeed elsewhere in this book – is the enforcement of foreign judgments in
England. Enforcement in England of foreign judgments in rem is touched upon in
paragraph 4.4.2 below.25 Enforcement in England of foreign judgment in personam
is a large topic outside the scope of this book.26
4.1.8 Conflict of laws issues relating to enforcement and to collateral security
other than the mortgage itself, i.e. insurances, earnings and bank accounts, are
touched upon in other chapters.27
4.2 Property in registered ships under English domestic law
4.2.1 Ships and shipping have been regulated by English law since the Middle Ages.
The main issues behind the legal controls were: defence and the need to be able to
requisition ships;28 and the wish to control and expand trade. The latter was reflected
by a series of Navigation Acts spanning several centuries from at least the fourteenth
century29 until their repeal in 1849.30 The purpose of the Navigation Acts was to ensure
that English (and subsequently British) goods were carried in English (or British) ships
and that imported goods were similarly so carried.31 This was an essential ingredient
of the policy of ‘mercantilism’, which lasted until replaced by the policy of free trade.32
4.2.2 In order for mercantilism to be implemented it was necessary to control
and regulate the ownership of ships. A system of registration for ships was first
introduced by the Navigation Act 1660.33 The Shipping and Navigation Act 178634
expanded a comprehensive registration regime, the most notable features of which
were: compulsory registration for all ships having a deck or being of 15 tons or
more which are owned by British subjects (widely defined to include overseas territories etc.);35 the entitlement and requirement for ownership of British ships by
British subjects not extending to subjects ‘whose usual residence is in any Country
25 See also paragraph 4.10.5 below in relation to the ‘Draft International Convention on Foreign
Judicial Sale of Ships and their Recognition’.
26 On enforcement of foreign judgments generally see Dicey (n 1) Chapter 14 and DC Jackson, Enforcement of Maritime Claims (4th edn, LLP 2005) paragraphs 27.45–27.57 (hereafter in this chapter, ‘Jackson’).
27 On enforcement, see Chapter 12, section 12.11 (The conflict of laws); on security over insurances,
see Chapter 16, section 16.11 (The conflict of laws); on security over earnings, see Chapter 17, section
17.8 (The conflict of laws); on security over bank accounts, see paragraph 17.12.7, cross-referring to
section 17.8 (The conflict of laws).
28 See Sir William Holdsworth, ‘The Power of the Crown to Requisition British Ships in a National
Emergency’ (1919) 35 LQR 12 (hereafter in this chapter, ‘Holdsworth (1919)’).
29 Navigation Act 1381. The Privy Council also exercised control over both the trading and naval
functions of shipping; see David Rogers, By Royal Appointment:Tales from the Privy Council – the Unknown
Arm of Government (Biteback Publishing 2015); see chapter 2, paragraph 2.3.1, n 54.
30 An Act to amend the Laws in force for the Encouragement of British Shipping and Navigation
1849 (12 & 13 Vict c 29).
31 There were significant Navigation Acts in 1381, 1489, 1540, 1650 and 1651. See H Moyse-Bartlett,
A History of the Merchant Navy (George G Harrap & Co 1937) 33, 78, 127.
32 ibid 226–227. The repeal of the Navigation Acts (in 1849) came shortly after the repeal of the Corn
Laws (also in 1849); each repeal was a feature of the free trade movement.
33 12 Cha 2 c 18, s 10. See also Chapter 2, section 2.3 (Registration).
34 26 Geo 3 c 60.
35 ibid, s 3.
71
THE CONFLICT OF LAWS
not under the Dominion of his Majesty’;36 a prescribed form of certificate of
registry;37 a restriction on selling, lending or otherwise disposing of the certificate
of registry;38 a prescribed form of oath of ownership;39 a requirement for measurement as condition to registration;40 and a requirement for surrender and cancellation
of the certificate of registry upon any foreigner acquiring ownership of the ship or
any part or share of, or interest in, the ship.41 The Act also prevented foreign-built
or, subject to certain exceptions, foreign-repaired ships from being eligible for the
privileges of a ship owned by British subjects.42
4.2.3 The shift from mercantilism to free trade, leading to the repeal of the
Navigation Acts,43 did not result in a weakening of the regime for the regulation
of the ownership of ships as reflected by the Shipping and Navigation Act 178644
and subsequent statutes.45 On the contrary, the Merchant Shipping Act 185446
continued and further developed many of the concepts which had been introduced
by the earlier Acts, such as: a British ownership requirement for British ships;47
compulsory registration for British owned ships;48 a prescribed form of certificate
of registry;49 the requirement for a declaration of ownership;50 detailed provisions
relating to measurement;51 and a requirement for surrender of the certificate upon
a non-qualifying change of ownership.52
4.2.4 The statutes embodied the concept of a ship belonging to a particular port:
That the Port to which any Ship or Vessel shall hereafter be deemed and taken to
belong, within the intent and meaning of this Act, shall be, and is hereby declared to
be, the Port from and to which such Ship or Vessel shall usually trade.53
This later became:
The port or place at which any British ship is registered for the time being shall be
considered her port of registry or the port to which she belongs.54
36 ibid, s 8.
37 ibid, s 3.
38 ibid, s 15.
39 ibid, s 10.
40 ibid, s 12.
41 ibid, s 15.
42 ibid, s 1, s 11.
43 n 32.
44 n 34.
45 Ship Registry Act 1845 (8 & 9 Vict c 89) s 34 required sale of a registered ship to be by way of bill
of sale ‘otherwise such Transfer shall not be valid or effectual for any Purpose whatever, either in Law or
in Equity’. Section 37 of the same Act provided that ‘no Bill of Sale or other Instrument in Writing shall
be valid and effectual to pass the Property in any Ship or Vessel, or in any Share thereof, or for any other
Purpose, until such Bill of Sale or other Instrument in Writing shall have been produced to the Collector
and Comptroller of the Port’.
46 17 & 18 Vict c 104.
47 ibid, s 18.
48 ibid, s 19.
49 ibid, s 44.
50 ibid, ss 38, 39.
51 ibid, ss 20–29.
52 ibid, s 53.
53 The Shipping and Navigation Act 1786 (26 Geo 3 c 60), s 5.
54 The Merchant Shipping Act 1854 (17 & 18 Vict c 104), s 23. This was carried into the Merchant
Shipping Act 1894, s 13 without material amendment, apart from the deletion of ‘or place’ after ‘port’.
72
THE CONFLICT OF LAWS
4.2.5 The provisions of the Merchant Shipping Act 1854 in relation to property
in registered ships are noteworthy. Transfer by bill of sale of any registered ship or
share in a ship was the compulsory method of transfer.55 No notice of any trust
was to be entered in the register book and the registered owner had the absolute
power of disposal.56 Mortgages were to be in a prescribed form, with a number
of sections dealing with mortgages and the position of mortgagees.57 At least by
the time of this major piece of legislation, therefore, there was a comprehensive
and prescriptive regime in relation to property in British ships centred on a system of registration. A ship ‘belonged’ to its port of registry and that was where a
sale or mortgage had to be registered.58 It was found necessary for convenience
of transactions to introduce a system to enable mortgages and sales to take place
and be registered outside the country of the port of registry by ‘certificates of
mortgage and sale’ providing for the registration of sales and mortgages with a
British consul abroad.59
4.3 Property in registered aircraft under English domestic law60
4.3.1 For the purposes of the analysis in this chapter it is useful to compare and contrast
ships and aircraft. A register of United Kingdom aircraft was established pursuant to
the Air Navigation Act 1920. The UK Register of Civil Aircraft is now maintained
electronically by the Civil Aviation Authority. Aircraft can be registered in the name of
either the owner or a charterer by demise subject in either case to its satisfying the
criteria for registration.61 The register is not a register of title.62 If a mortgage is granted
by the holder of legal title where the aircraft is registered in the name of a charterer
by demise the register will show the name of the charterer by demise (as ‘registered
owner’), the mortgagor and the mortgagee as well as the date of the mortgage.
There is no provision equivalent to this in the Merchant Shipping Act 1995, reflecting that the age-old
system for registration at a port had been replaced by a central register by the Merchant Shipping
(Registration etc.) Act 1993. See further paragraphs 4.6.4 and 4.9.16 below.
55 The Merchant Shipping Act 1854, s 55. The bill of sale had already become the customary method
of transferring title of ships; see The Sisters (1804) 165 ER 731, 5 C Rob Ad 155, 159 (Sir William Scott);
also The Eliza Cornish 1 Sp Ecc & Ad Rep 36, (1853) 164 ER 22 and Hooper v Gumm (1866–67) LR 2 Ch
App 282, 291 (Turner LJ). Indeed, the Merchant Shipping Act 1854 retreated in one respect from the high
point of mercantilist control reflected in the Ship Registry Act (1845) (8 & 9 Vict c 89), s 37 which had
denied any effect to an unregistered bill of sale. That did not appear in the Merchant Shipping Act 1854.
56 The Merchant Shipping Act 1854, s 43. This section was the subject of the decision in Liverpool
Borough Bank v Turner (1860) 1 J&H 159 (VC), 70 ER 703, 30 LJ Ch 379; affirmed 2 De GF & J 502,
45 ER 175 to the effect that all unregistered interests were excluded and of no effect. This was overruled by the Merchant Shipping Amendment Act 1862 (25 & 26 Vict c 63) s 3 of which preserved the
enforceability of equitable interests even though they remained incapable of registration. See Chapter 3,
paragraphs 3.6.6–3.6.9.
57 The Merchant Shipping Act 1854 ss 66–75.
58 ibid, s 23.
59 ibid, ss 76–83. The old system for registration at an individual port has now been replaced by a
centralised system of registration; see paragraphs 4.9.16 (especially n 345) and 4.15.8 below.
60 See further section 4.13 (The Blue Sky litigation).
61 See the Air Navigation Order 2009, paragraph 5. Under paragraph 5(4) if an aircraft is demise chartered to a qualified person the CAA may allow it to be registered even if it is owned by a person not qualified.
62 The form of confirmation of registration issued by the Civil Aviation Authority contains the statement, ‘Please note that the UK Register of Civil Aircraft is not a register of legal ownership and entry in
the Register does not confirm legal title.’
73
THE CONFLICT OF LAWS
4.3.2 It was not possible to register a mortgage against an aircraft registered on
the UK Register of Civil Aircraft until the Mortgaging of Aircraft Order 1972.63
This is a brief statutory instrument made pursuant to the Civil Aviation Act 1968.64
There is no prescribed form of mortgage. A mortgage of a United Kingdom registered aircraft is no different from the mortgage of any other chattel.
4.3.3 There is a stark contrast between the detailed and prescriptive way in which
the law has over a long period regulated title to, and the mortgaging of, British
ships and the light touch applied to the equivalent issues in relation to United
Kingdom registered aircraft.
4.3.4 Some of the early commentators on aircraft drew comparisons with ships
but this approach was firmly rejected by two important early authorities. Spaight65
made his position clear by heading a section of his book ‘The Maritime Precedent
a Misleading One’. McNair66 approved Spaight’s remarks67 and headed a section
of his own book ‘Cases in which the Analogy of the Ship Is Rejected’.68 He considered issues in relation to liens, concluding that the concept of the maritime lien
did not generally apply to aircraft69 and devoting most of a chapter to explaining
that the statutory right of arrest in respect of ships did not apply to aircraft.70 He
summarises the position succinctly as follows:71
The aircraft is not, as a matter of English Common Law, a new kind of ship, but is a
piece of movable property to which certain specific marine characteristics have been
and will be attached by legislation, and which is thereby gradually developing a legal
quality sui generis.
4.3.5 The provision for the mortgaging of UK registered aircraft made by delegated legislation in the form of the Mortgaging of Aircraft Order 1972 has not
been such as to distinguish aircraft from chattels generally, as shown in section 4.13
(The Blue Sky litigation).
4.4 The mid-nineteenth century cases
(on ships and on chattels generally)
4.4.1 Cammell v Sewell 72 established the principle that the transfer of a proprietary
interest in a chattel73 is governed by the law of the place where it is at the time of
63 SI 1974/1268.
64 The Civil Aviation Act 1968, s 16(1); now the Civil Aviation Act 1982, s 86(1).
65 J M Spaight, Aircraft in Peace and the Law (Macmillan 1919) 17–20.
66 Arnold D McNair, The Law of the Air (Butterworths 1932).
67 ibid paragraph 91.
68 ibid 138.
69 ibid 140, 141. (This is subject to the statutory exception for salvage. See now the Senior Courts
Act 1981, ss 20(2)(j) and 21(3).)
70 ibid Chapter 8. (The then applicable statutory provisions in relation to arrest were contained in the
Supreme Court of Judicature (Consolidation) Act 1925.)
71 ibid 93.
72 n 13; see also the other cases noted there which have applied the principle in Cammell v Sewell.
73 English conflict of laws uses the expression ‘tangible movable’ to apply to chattels. Ships are a type
of tangible movable in the English conflict of laws, although it is suggested in paragraph 4.9.13 below that
there is an argument for reviewing the binary characterisation of assets as either movable or immovable
74
THE CONFLICT OF LAWS
transfer. The principle was expressed in argument before the Court of Exchequer as
follows: ‘If personal property is disposed of in a manner binding according to the law
of the country where it is, that disposition is binding everywhere.’74 That statement
was quoted with approval on appeal to the Court of Exchequer Chamber.75 The
personal property in question was a cargo of timber from a Prussian-registered ship
wrecked in Norway. It was sold by public auction, with the sale confirmed by a decision of the Superior Court of Trondheim. The dispute was between the cargo underwriters and buyers who bought the cargo in England from the original buyers in
Norway. The Court of Exchequer thought that the Norwegian sale was ‘in the nature
of a judgment in rem’ and should be recognised on that basis.76 However, the Court
of Exchequer Chamber (Byles J dissenting) upheld the result in the court below but
on different grounds. Without lengthy reasoning Crompton J and Cockburn CJ upheld
the sale simply on the basis that it was valid in accordance with Norwegian law.77
4.4.2 Against this background, it is now necessary to turn to some early cases
that relate to the way the English courts have treated foreign judicial proceedings
relating to British registered ships subject to a mortgage. In Castrique v Imrie,78
French proceedings taken while a British ship was in France were upheld against the
mortgagee. The Court of Exchequer Chamber and the House of Lords found that
the French court had made a mistake in respect of both English and French law.
French law should have applied English law as the law of the register. Even though
it was found that the French court was wrong in law its decision was given effect
to. The majority in the House of Lords79 held that the French proceedings were
in rem and should therefore be given effect to. This had also been the reasoning of
the majority in the Court of Exchequer Chamber,80 which had reversed the finding
by the Court of Common Pleas81 that the French proceedings were in personam
and should not be recognised. However, one judge in the Court of Exchequer
Chamber82 and one judge in the House of Lords83 did not decide the case on the
basis of the French proceedings being in rem but followed the wider reasoning of
Cammell v Sewell.84 Bramwell B in the Court of Exchequer Chamber85 regarded
the issue of whether or not there was a judgment in rem as irrelevant. Keating J
under English law as regards ships. Not all legal systems adopt the same approach to the characterisation of ships and aircraft. For example Russian law characterises Russian-registered ships and aircraft as
immovable; in relation to Russian-registered ships see Vostok Shipping Co Ltd v Confederation Ltd [1999]
NZLA 200, 1 NZLR 39[9] (paragraph 4.7.3 below) and in relation to Russian-registered aircraft see Air
Foyle v Center Capital Ltd [2002] EWHC 2535 (Comm), [2003] 2 Lloyd’s Rep 753.
74 (1858) 157 ER 615, 3 H & N 617, 638.
75 (1860) 157 ER 1371, 5 H & N 728, 744.
76 3 H & N 617.
77 5 H & N 728.
78 (1860) 141 ER 1222, 8 CB NS 405 (Ex Ch); on appeal (1869–70) LR 4 HL 414.
79 (1869–70) LR 4 HL 414.
80 8 CB NS 405.
81 (1860) 141 ER 1062, 8 CB NS 1.
82 8 CB NS 405, 430 (Bramwell B). The comment of Pollock CB in argument before the Court of
Exchequer was cited with approval.
83 (1869–70) LR 4 HL 414, 437–39 (Keating J). Reference was made to Cammell v Sewell in the
Court of Exchequer Chamber.
84 n 13.
85 n 80.
75
THE CONFLICT OF LAWS
in the House of Lords86 thought that the French proceedings were in personam
but that Cammell v Sewell applied. Also in the House of Lords, Blackburn J said
when referring to the principle in Cammell v Sewell: ‘. . . and it may very well be
said that the rule commonly expressed by English lawyers, that a judgment in rem
is binding everywhere, is in truth but a branch of that more general principle’.87
4.4.3 There are some slightly earlier cases where the English courts upheld the
rights of a mortgagee of a British ship against the rights of a buyer in a foreign sale.
In The Eliza Cornish88 a British ship was sold in Portuguese territory by public auction instigated by the master. The sale was successfully contested by the mortgagee
in English proceedings. Dr Lushington referred to ‘the general maritime law’ and
stated that effect will only be given to local law to the extent it conforms.89 The
Portuguese sale does not appear to have been regarded as a judicial proceeding.
Dr Lushington went on to say:
Now, I know of no right which the purchaser of a ship in a foreign country, such ship
not belonging to that country, has to call for the interposition of the lex loci contractus,90
save, indeed, in one case only where the title is derived from the decree of a competent
Court administering the law in its own jurisdiction, and by its decree conferring a title.
This case was decided before Cammell v Sewell and was disapproved in that case.91
4.4.4 Simpson v Fogo92 arose out of the non-recognition by Louisiana law in the
nineteenth century of mortgages not involving delivery of possession. A British ship
subject to mortgage was arrested in New Orleans by a trade creditor. It was sold
there in a judicial sale free of the mortgage. Upon it being sailed to England it
was arrested by the mortgagee. In English proceedings it was held that the rights
of the mortgage prevailed over those of the purchaser in the Louisiana court sale.
At first instance93 Page Wood VC found that the Louisiana proceedings were in
personam rather than in rem and followed the decision of the Court of Common
Pleas in Castrique v Imrie.94 He also briefly considered the decision of the Court
of Exchequer in Cammell v Sewell,95 which had found that the sale in Norway in
that case was ‘in the nature of a judgment in rem’, and therefore did not follow it.96
86 n 79.
87 (1869–70) LR 4 HL 414, 429 (Blackburn J).
88 (1853) 1 Sp Ecc & Ad 36, 164 ER 22.
89 ibid 45.
90 The lex loci contractus of the sale was also the lex situs of the ship. Reference is made throughout
the judgment to the former rather than the latter, reflecting the developing state of the law at the time.
91 5 H & N 728, 745. ‘If this case be an authority for the proposition that a law of a foreign country of
the nature of the law of Norway, as proved in the present case, is not to be regarded by the Courts of this
country, and that its effect as to passing property in the foreign country is to be disregarded, we cannot
agree with the decision; and, with all the respect due to so high an authority in mercantile transactions,
we do not feel ourselves bound by it when sitting in a Court of error’ (Crompton J).
92 (1860) 1 John & H 18 (KB), 70 ER 644, (1863) 1 Hem & M 195, 71 ER 85.
93 (1860) 1 John & H 18.
94 8 CB (NS) 1. That decision was subsequently overturned by the Court of Exchequer Chamber
(8 CB NS 405) and ultimately by the House of Lords ((1869–70) LR 4 HL 414).
95 3 H & N 617.
96 The decision of the Court of Exchequer in Cammell v Sewell was upheld but on different and wider
grounds.
76
THE CONFLICT OF LAWS
The first instance decision in Simpson v Fogo97 was upheld on appeal.98 By then,
Castrique v Imrie had gone to the Court of Exchequer Chamber, where the majority held that the proceedings were in rem. That was distinguished in Simpson v Fogo
on appeal on the grounds that the Louisiana sale was not in rem. Cammell v Sewell,
which by then had gone to the Court of Exchequer Chamber, was distinguished
on the basis that Norwegian law gave the master a power to convey good title.99
Simpson v Fogo was itself distinguished in Castrique v Imrie when that case went to
the House of Lords.100 It has also been disapproved in later cases.101
4.4.5 The disapproval of The Eliza Cornish102 in Cammell v Sewell 103 and the distinguishing of Simpson v Fogo104 in Castrique v Imrie105 (as well as its disapproval
in later cases) make The Eliza Cornish and Simpson v Fogo of doubtful authority.
Further doubt was cast by another case involving Louisiana law, Liverpool Marine
Credit Company v Hunter.106 British creditors of the owner of a mortgaged British
ship, apparently knowing full well of the danger of Louisiana law to mortgagees,
opportunistically arrested the ship in New Orleans. The mortgagees put up bonds
securing the arresting creditors’ claims in order to have the ship released. Proceedings were brought in England by the mortgagees to restrain the arresting creditors
from suing on the bonds. The proceedings failed both at first instance107 and in the
Court of Appeal.108 It was held that the arresting bondholders succeeded because
they owed no duty to the mortgagee even though they had acted ‘unjustly and
inequitably’.109
97 (1860) 1 John & H 18.
98 1 Hem & M 195.
99 ibid.
100 (1869–70) LR 4 HL 414, 436 (Blackburn J), 445 (Lord Hatherley). Ironically, Lord Hatherley
(then Page Wood VC) had decided Simpson v Fogo both at first instance (1 John & H 18) and on appeal
(1 Hem & M 195).
101 Luther v Sagor [1921] 3 KB 532, (1921) 7 Ll L Rep 218, 225 (Scrutton LJ): ‘[Simpson v Fogo] can
perhaps be treated as retaliation by English Courts on foreign states whose tribunals refuse to recognise
rights acquired by English law.’ See also Carl Zeiss Stiftung v Rayner & Keeler Ltd [1967] 1 AC 853 (HL)
922 (Lord Reid).
102 (1853) 1 Sp Ecc & Ad 36, 164 ER 22.
103 3 H & N 617; on appeal 5 H & N 728.
104 (1860) 1 John & H 18, 1 Hem & M 195.
105 (1869–70) LR 4 HL 414.
106 (1867) LR 4 Eq 62; on appeal (1867–68) LR 3 Ch App 479.
107 The judge was Page Wood VC (later Lord Hatherley) who foreshadowed his own doubt about his
judgments in Simpson v Fogo which he also showed in Castrique v Imrie in the House of Lords ((1869–70)
LR 4 HL 414).
108 The Court of Appeal, whilst approving the decision of Page Wood VC in Simpson v Fogo, distinguished it on the dubious grounds that it was not Louisiana law itself which was found objectionable
in Simpson v Fogo but the decision of the Louisiana court: (1867–68) LR 3 Ch App 479, 484 (Lord
Chelmsford LC).
109 ibid. See Lalive (n 1), 69. See also Morris (n 1) for a view that ‘. . . Liverpool Marine Credit Co v
Hunter does not shake the authority of Simpson v Fogo, which was expressly approved by the Lord Chancellor. Both judgments emphasise that no question of title to the ship was in issue; if it had been the result
might have been different.’ ‘The present case involves no direct questions as to the plaintiff ’s property
in the ship; but it rests upon the ground of its being inequitable for the Defendants to have instructed
proceedings against Lafone in New Orleans, which they knew would result in the attachment of the ship
to the disregard of the Plaintiff ’s title as mortgagees of which the Defendants were fully aware’ (Liverpool
Marine Credit Co v Hunter (1867–68) LR 3 Ch App 479, 484 (Lord Chelmsford)).
77
THE CONFLICT OF LAWS
4.4.6 The Eliza Cornish,110 Simpson v Fogo,111 and Liverpool Marine Credit Company v
Hunter112 all related to the position of mortgagees of British ships in foreign judicial
proceedings.113 In Hooper v Gumm114 the issue was the position of the mortgagee
of a United States-registered ship in relation to a subsequent (non-court) sale in
England, which was the lex situs and also both the lex loci actus and the lex loci
contractus. The buyer took title free of the mortgage on the grounds that he was a
bona fide purchaser for value without notice. The mortgage was not endorsed on
the certificate of registry as then required by US law. This appears to have been
deliberate on the part of the mortgagee in order to facilitate a sale outside the
US.115 It is reasonable to assume that the case would have been decided differently
had the mortgagee not been involved in the facilitation of a sale. The owner had
committed a fraud upon the mortgagee in arranging a sale through their agent
and keeping the proceeds. The mortgagee, who as a matter of United States law
held legal title, was found to have authorised a sale by the owner. If the mortgagee
had not been complicit in facilitating a sale, not least by failing to endorse the
mortgage on the certificate of registry, the buyer rather than the mortgagee would
have suffered the loss caused by the owner’s fraud.116 It was in this context that
Turner LJ made the frequently quoted comment:117
A ship is not like an ordinary personal chattel; it does not pass by delivery, nor does the
possession of it prove the title of it. There is no market overt for ships; in the case of American ships the laws of the United States provide the means of evidencing the title to them.
If a similar case were to take place now before the English courts it would surely
be decided in favour of the mortgagee because any potential buyer would be
expected to search the register, just as at the time the case was decided and in the
absence of modern communications118 a potential buyer of a United States ship
110 (1853) 1 Sp Ecc & Ad 36, 164 ER 22.
111 (1860) 1 J & H 18, 70 ER 644, (1863) 1 Hem & M 195, 71 ER 85.
112 (1867) LR 4 Eq 62; (1867–68) LR 3 Ch App 479.
113 Although as noted in paragraph 4.4.3 the Portuguese sale in The Eliza Cornish does not appear to
have been regarded as a judicial proceeding.
114 (1866–67) LR 2 Ch App 282.
115 ibid 287 (Lord Chelmsford LC), 291 (Turner LJ). The master of the ship had been given a power
of attorney by the owner authorising sale of the ship. (The master was also a registered mortgagee but his
mortgage was similarly not endorsed on the certificate of registry.) The use of powers of attorney in favour
of the master to facilitate the sale abroad of internationally trading US registered ships would appear to have
been common in the first half of the nineteenth century, reflecting the long periods which sailing ships spent
in foreign parts out of contact with their home port; see Susan Fels (ed), Charles Tyng, Before the Wind: The
Memoirs of an American Sea Captain 1808–1833 (Viking Penguin 1999) 113.There is no reason to suppose that
the use of such powers of attorney was not also common in relation to British registered ships in the first half
of the nineteenth century. Indeed, it is likely that the system of certificates of mortgage and sale introduced
by the Merchant Shipping Act 1854 (see paragraph 4.2.5 above) was a statutory refinement of the practice.
116 ibid 287, 288 (Lord Chelmsford LC), 290, 291 (Turner LJ).
117 ibid 290 (Turner LJ). See: Chapter 1, paragraph 1.1.3; Chapter 2, paragraph 2.1.4; Chapter 3,
paragraph 3.2.5.
118 The requirement of United States law that a mortgage be endorsed on the certificate of registry
ceased to apply in 1989. Constant (n 2) (50, 51) appears to have misread the case in referring to the mortgage as not being ‘registered’. It was registered but had not been endorsed on the certificate of registry.
The endorsement of a mortgage on the certificate of registry used to be a requirement of English law: the
Ship Registry Act 1845 (8 & 9 Vict c 89) s 37. As noted in Chapter 1, section 1.2 (Maritime law and ship
mortgages) and section 1.3 (Legislative reform), mortgages used to be effected by outright title transfer, so
78
THE CONFLICT OF LAWS
might be expected to view the certificate of registry.119 However the case is analysed,
it is clear that English domestic law was applied by the court.120
4.4.7 In view of the way Hooper v Gumm has been interpreted121 the judgments
should be analysed carefully. There is no express reference to the lex situs. The ship
was physically in England at the time of the sale but English law was also both
the lex loci actus and the lex loci contractus. At the beginning of his judgment Lord
Chelmsford LC says:
His122 legal title to the ship would, of course, be determined by American law; but the
contract of sale and the effect of the intervention of the title of a bona fide purchaser
for valuable consideration must be governed by the law of England, where the contract
was made.123
Turner LJ hinted more strongly but not conclusively at the lex situs:
. . . and it may be right for one therefore to say, that in my opinion the law of this
country ought to govern the decision of the case, for the purchase of the ship, on
which the rights of the question depend, was made and completed in this country.124
Before making his frequently quoted remark about a ship not being like an ordinary
personal chattel Turner LJ made an observation about the importance of respecting
rights acquired under the laws of foreign states, not least because of the risk otherwise that foreign states would not respect the rights of mortgagees of British
ships.125 The observation led into a statement that regard must be had to American
shipping law with effect that ‘the legal interest in the ship was at the time when
the Appellant became the purchaser of her, well and effectively vested in the Plaintiff
Hooper’. Turner LJ then went on to address the circumstances and significance
of the mortgage not being endorsed on the certificate of registry, which is where
he made his observation about a ship not being like an ordinary personal chattel.126
The certificate of registry would have been kept on board the ship, i.e. at the place
which was the lex situs and also the lex loci actus and the lex loci contractus. This
a mortgage was required to be endorsed on the certificate of registry in the same way as any other transfer.
The requirement for endorsement in relation to mortgages ceased when the Merchant Shipping Act 1854
(17 & 18 Vic c 104) introduced the new concept of the statutory mortgage; see Dickinson v Kitchen (1858)
8 E & B 789, 120 ER 293 (QB). The abandonment of the requirement for a mortgage to be endorsed on
the certificate of registry is one of the factors indicating that the statutory mortgage is not a title transfer
mortgage; see Chapter 1, paragraph 1.4.7.
119 Turner LJ did not affirmatively state that the buyer was under a duty to inspect the certificate of
registry. It appears from the judgment of both Lord Chelmsford LC and Turner LJ that the mortgagee’s
failure to endorse the certificate of registry was but one element, albeit an important one, of the mortgagee’s facilitation of the sale.
120 See Zaphiriou (n 1), 182.
121 See Dicey (n 1) paragraph 22–058 (Exception 1 to Rule 129). Also The WD Fairway 1 (n 3). See
paragraph 4.9.7 below.
122 i.e. Hooper, the plaintiff mortgagee.
123 (1866–67) LR 2 Ch App 282, 286 (Lord Chelmsford LC).
124 ibid 289 (Turner LJ).
125 This doubtless refers to the issues which arose in relation to the non-recognition of British (and
other foreign) ship mortgages under the laws of Louisiana. See Simpson and Fogo (1860) 1 J & H 18 (which
was cited in argument). The issue arose again in Liverpool Marine Credit v Hunter (1867) LR 4 Eq 62;
(1867–68) LR 3 Ch App 479. See paragraphs 4.4.4 and 4.4.5 above.
126 (1886–67) LR 2 Ch App 282, 289–90 (Turner LJ).
79
THE CONFLICT OF LAWS
might go some way to explaining the result of the case. As pointed out at paragraph 4.4.6 above, the certificate of registry no longer has the significance it had
before modern communications facilitated a search of the register itself. Interestingly, there is no reference in Hooper v Gumm to Cammell v Sewell.127 This is possibly
not surprising. At the time of Hooper v Gumm, Cammell v Sewell was a one-off case
and had not achieved the status of the fons et origo of a general principle that it
subsequently acquired through being applied in later cases.128 In any event, the
judgments in Hooper v Gumm reflect the application of equitable principles to
contract as much, if not more than, the application of a rule about transfer of
property in accordance with the physical lex situs.129 It was also significant that
perfection of the mortgage in accordance with the law of the country of registration had (deliberately on the part of the mortgagee) not taken place.130
4.5 The early/mid twentieth century cases on
foreign government action131
4.5.1 The cases on foreign government action and foreign registered ships are
included for sake of completeness. They have a public international law element
and so do not have a direct bearing on the private international law issue of the
law applicable to transfers not involving government action. Despite this, they have
confusingly been invoked in that context.132 Many of the cases referred to below
in this section were reviewed and analysed by McNair.133
4.5.2 Two cases arising, respectively, out of the Russian Revolution134 and the
Spanish Civil War135 appeared to prefer the law of the register over the physical
lex situs in giving extraterritorial effect to nationalisation or requisition action by
the government of the law of the register in respect of ships physically located in
England or Wales. However, these cases were decided on the basis of the law of
sovereign immunity at the time.136 It was regarded as significant in one of them,
127 n 13.
128 See the cases referred to at n 13.
129 In this context, it might have been significant that Hooper v Gumm was a Chancery case, as was
Liverpool Marine Credit Co v Hunter. The dictum of Lord Chelmsford LC quoted above distinguishes
clearly between contract and property.
130 See Morris (n 1) 245, 246. That learned commentator regards the ratio of Hooper v Gumm as being
the conduct of the mortgagee: ‘Accordingly to this view, Hooper v Gumm need cause no difficulty since if
the court had inquired whether by American (or Massachusetts) law the conduct of the mortgagee would
have postponed him to a purchaser in America (or Massachusetts), it must surely have discovered that he
would have lost his title. There was therefore no real conflict of laws in Hooper v Gumm at all.’ Cheshire
regarded Hooper v Gumm as being decided on the basis of estoppel (GC Cheshire, Private International
Law (Oxford 1935) 343, 344).
131 See generally Dicey (n 1) 25R-001-25-016 (Rule 137). See also Lord McNair and AD Watts, The
Legal Effects of War (4th edn, Cambridge 1966) (hereafter in this chapter, ‘McNair and Watts’) 428–445.
132 For example in Trustees Executors & Agency Co Limited v IRC [1973] Ch 254, which was itself cited
in The WD Fairway 1; see paragraph 4.9.4 below (n 3).
133 See McNair (1945) (n 9).
134 The Jupiter [1924] P 236 (CA).
135 The Cristina [1938] AC 485 (HL). In The Navemar [1938] 303 US 68 a similar result was reached
in relation to a Spanish-registered ship by a United States Circuit Court of Appeals. See McNair and
Watts (n 131) 442.
136 Dicey [n 1) 25–008.
80
THE CONFLICT OF LAWS
The Cristina, that the requisition by the Spanish government was for public rather
than for private or commercial use.137
4.5.3 The position was made more doubtful or unclear by Lorentzen v Lydden and
Company Limited.138 That case gave extraterritorial effect to a wartime decree of
the Norwegian government that requisitioned Norwegian-registered ships outside
the territory of Norway then occupied by Germany and owned by companies
domiciled, carrying on business or registered in the German-occupied area.139
The case related to a claim brought by the curator appointed pursuant to the
decree against a charterer for breach of an English law charterparty, i.e. an English
chose in action.140 Lorentzen v Lydden was overruled by the Court of Appeal in
Peer International Corp and others v Termidor Music Publishers Ltd and others.141 That
case confirmed that English law will not give effect to a foreign law purporting
to divest the owners of property situated in England; there is no exception to this
rule because the foreign law is not confiscatory and provides for compensation.142
4.5.4 Peer International was concerned with English copyright but it validated
earlier cases relating to foreign government action and ships which gave effect to
the physical lex situs rather than the law of the register. Those cases are The Jupiter
(No. 3)143 and the Scottish case Government of the Republic of Spain and another v
National Bank of Scotland (The El Condado).144 In each of them no effect was given
to decrees of the government of the register. The reasoning in The Jupiter (No. 3) was
that the vessel was not in the territory of the USSR at the time of the nationalisation
decrees.145 The El Condado followed The Jupiter (No. 3) on this point both at first
instance and on appeal. Sovereign immunity was pleaded unsuccessfully in The El
137 The inapplicability of sovereign immunity to ships used in commerce was confirmed by The Philippine Admiral [1977] AC 373 (PC). The ‘absolute theory’ of sovereign immunity applied in The Cristina
was expressly disapproved in The Philippine Admiral at 397 (Lord Cross of Chelsea). See now the State
Immunity Act 1978, s 10.
138 [1942] 2 KB 202. See McNair andWatts (n 131) 441–445 on the uncertainty created by Lorentzen
v Lydden; also McNair (1945) (n 9).
139 The decree was issued on 18 May 1940 as German forces were overrunning Norway.
140 See also O/Y Wasa SS Co Ltd and Others v Newspaper Pulp and World Export Ltd (1948–49) 82 Ll
L Rep 936 (KB), which followed Lorentzen v Lydden.
141 [2003] EWCA Civ 1156, [2004] 2 WLR 849, [2004] Ch 212 affirming Bank voor Handel en
Scheepvaart NV v Slatford [1953]1 QB 248, in which Lorentzen v Lydden had not been followed. In Briggs
(n 1) at paragraphs 9.142 and 9.143 there is an eloquent lament for Lorentzen v Lydden and what that
author calls ‘benevolent seizure’. It is hard to disagree. There does not now appear to be any public policy
exception to the rule against foreign expropriation of property in England, irrespective of context. The
Norwegian decree that was at issue in Lorentzen v Lydden was one of the legal bases in World War II for
the greater part of the Norwegian merchant fleet being brought under the operation and control of the
Norwegian government in exile through the agency of the Norwegian Shipping and Trade Mission (NORTRASHIP) based in London and New York and time chartered to the United Kingdom Ministry of War
Transport. Non-recognition by an English court of the effect of the decree in 1942 is hard to imagine in
the exigent circumstances. See Atle Thowsen ‘Business goes to war: The Norwegian merchant navy in
Allied War Transport’ in Patrick Salmon (ed), Britain and Norway in the Second World War (HMSO 1995).
See further David Osborne, ‘Foreign Law and Property in England’ (2004) 63 CLJ 567.
142 Peer International [2003] EWCA Civ 1156, [2004] Ch 212, [39] and [46]–[48] (Aldous LJ).
143 [1927] P 122 (PD & Adm); on appeal [1927] P 250 (CA).
144 1939 SLT 317 (Sess), (1939) 63 Ll L Rep 330. The case was cited with approval in Peer International [32].
145 Another point might have been that Her Majesty’s Government did not recognise the government
of the USSR at the time of the nationalisation decrees, but this point does not appear to have been argued.
81
THE CONFLICT OF LAWS
Condado and in reliance on a selective reference to the judgment of Lord Atkin in
The Cristina; the attempt to invoke sovereign immunity failed because, unlike in The
Cristina, the Spanish Republican government was not being impleaded but was itself
invoking the jurisdiction of the court.146 Sovereign immunity was, however, pleaded
in another case arising out of the Spanish Civil War, Government of the Republic of
Spain v SS Arantzazu Mendi (the Arantzazu Mendi).147 This was a dispute in which
both the Republican and the Nationalist sides purported to requisition another ship
registered in Bilbao when she was outside Spanish waters. The Nationalist government, which was at the relevant time recognised by Her Majesty’s Government as
being in de facto administrative control of large parts of Spain (including Bilbao),
successfully invoked sovereign immunity. In the context of involuntary transfers by
foreign government decree, therefore, previous doubt about whether the law of the
register displaced the physical lex situs has been dispelled in favour of the latter.
4.5.5 The power of requisition by royal prerogative in relation to British ships,
with particular regard to ships on the high seas or in foreign ports, was topically
considered by Holdsworth in 1919148 and was revisited by McNair in 1945.149 Each
of them concluded that the prerogative power of requisition extends to British ships
in foreign ports, Holdsworth more strongly than McNair. Holdsworth traced the
prerogative power of requisition to the Middle Ages and referred to the expression
‘Ships of the King’s Ligeance’ used in medieval statutes.150 The strong link between
British ownership and registration in the Merchant Shipping Act 1894 and earlier
statutes constituted by the ownership qualification151 and, especially, the obligation
to register152 has arguably been weakened by the more relaxed ownership qualification in the current Merchant Shipping Act153 and the absence of an obligation to
register.154 This might cast some doubt on the current application of the thesis as
regards the jurisdictional extent of the power of requisition by exercise of the royal
prerogative put forward firmly by Holdsworth and, more tentatively, by McNair.155
146 It was not decided whether the Republican government was recognised by Her Majesty’s Government as the de facto government in administrative control of Bilbao, where the ship was registered.
147 [1939] AC 256 (HL).
148 Holdsworth (1919) (n 28).
149 McNair (1945) (n 9).
150 5 Rich 2 c 3 and 6 Rich 2 c 8.
151 Merchant Shipping Act 1894, s 1.
152 ibid, s 2.
153 Merchant Shipping Act 1995, s 9 and Merchant Shipping (Registration of Ships) Regulations
1993 (SI 1993/3138), as amended, Part III (registration on Part I of the Register) and Part IV (registration of fishing vessels on Part II of the Register).
154 See Chapter 2, paragraph 2.3.5.
155 The prerogative power of requisition was exercised in the Suez crisis in 1956 and the Falklands War
in 1982 by Orders in Council which were in materially identical terms. Each Order referred to British ships
‘wherever the ship may be’. There were examples in both conflicts of ships being requisitioned outside the
United Kingdom without objection by the owners; both the passenger liner/cruise ship Canberra and the
schools’ cruise ship Uganda were requisitioned in the Mediterranean mid-cruise; see Kenneth L Privratsky,
Logistics in the FalklandsWar (Pen & Sword 2014) 28, 29. This contrasts with the terms of the Proclamation
of 3 August 1914, which applied to British ships only in British waters. The requisitioning of a British ship
outside British waters was held by Bailhache J in Russian Bank for Foreign Trade v Excess Insurance Co Ltd
[1918] 2 KB 123 to be ultra vires the Proclamation. The decision was criticised by Holdsworth (Holdsworth
(1919) (n 28)) and also by McNair (McNair (1945) (n 9)). The prerogative power of requisition is to be
distinguished from requisition by statute. In Comparia Naviera Limitada v Attorney General for Palestine
82
THE CONFLICT OF LAWS
Other aspects of requisition are addressed in Chapter 17, section 17.15 (Requisition compensation).
4.6 The cases on foreign ship mortgages
4.6.1 Ships engaged in international trade, unlike many other types of chattel,156
require constant supply, servicing and maintenance. Debts giving rise to a lien on
a ship will be incurred under the laws of one jurisdiction but it might be a different
jurisdiction where the ship is arrested. How the law of the jurisdiction of arrest (the
lex fori) addresses claims arising under other laws is one of difficulty and controversy
that has still not been fully and satisfactorily settled, certainly under English law.157
Much of the difficulty arises from, first, the distinction reflected in English law, not
always clearly, between substantive rights and procedural remedies158 and, secondly,
the importance and nature of ownership as regards jurisdiction to arrest.159
4.6.2 This is not the place for an analysis of the history and development of
English law relating to liens on ships and the arrest of ships, or the current state
of the law on those subjects. The issues will be familiar to practitioners and some
of them are covered briefly in Chapter 10 or in Chapter 14. The main issues
are: the development of the maritime lien in English law; the distinction between
maritime liens and statutory liens; the claims for which a ship can be arrested; and
the order of priority of claims against a ship and its proceeds. Reference must be
made to other specialist works for full treatment of these and related matters.160
The concern here with these issues is limited to the impact which they might have
on the rights of a mortgagee – and whether they are relevant, directly or indirectly, to
the issue of determining which law applies to a voluntary transfer of a proprietary
interest in a ship, whether by way of sale or mortgage.
4.6.3 There are cases spanning approximately a century where mortgages of
foreign-registered ships have been recognised without reference to any conflict
of laws issue, i.e. the mortgage has been recognised in accordance with the law of
(The Urania) (1947–48) 81 Ll L Rep 314 a Panamanian-registered ship was requisitioned pursuant to
statute without the validity of the requisition (as opposed to the amount of compensation) being disputed.
156 The feature of ships noted here applies also to some extent to aircraft.
157 See section 4.8 (The conflict of laws dimension to priority issues).
158 In CN Marine Inc v Stena Line A/B and Regie voor Maritiem Transport (The Stena Nautica) (No. 2)
[1982] 2 Lloyd’s Rep 336 the conflict of laws issue in relation to a dispute about a right to acquire title
to a Swedish flag ship located in the Netherlands was mooted by Lord Denning MR (at 347), with the
potential choices being English law as the governing law of one contract (or, alternatively, as the lex fori),
Canadian law as the governing law of a competing contract, Dutch law as the lex situs or Swedish law as the
law of the register. The proprietary issues did not need to be addressed in relation to specific performance,
however, because damages were held to be an adequate remedy for one of the parties.
159 See section 4.7 (The cases on ownership and arrest jurisdiction).
160 These works include: Jackson (n 26); Sarah Derrington and James Turner, The Law and Practice
of Admiralty Matters (OUP 2007) (hereafter in this chapter ‘Derrington and Turner’); D Rhidian Thomas,
Maritime Liens (Stevens and Sons 1980); Nigel Meeson and John A Kimbell, Admiralty Jurisdiction and
Practice (4th edn, LLP 2011) (hereafter in this chapter ‘Meeson and Kimbell’); Aleka Mandaraka-Sheppard,
Modern Maritime Law Volume II: Managing Risks and Liabilities (3rd edn, Informa 2013); William Tetley,
Maritime Liens and Claims (2nd edn, International Shipping Publications, Les Editions Yvon Blais Inc
1998) (hereafter in this chapter ‘Tetley’) Francesso Berlingieri, Berlingieri on arrest of ships: a commentary
on the 1952 and 1999 arrest conventions (4th edn, Informa 2006).
83
THE CONFLICT OF LAWS
the register without any point being taken about whether the ship was physically
located at its country or port of registry at the time of creation of the mortgage
and, if not, whether the law of the physical situs applied to the creation of the
mortgage.161 The position of the mortgagee as such is taken as read; the cases
often relate to the relative priority of the mortgage in relation to other claims.
The Tagus162 involved a priority dispute between the mortgagee of an Argentinian
vessel and the master and crew in respect of their wages lien. In The Byzantion163
there are strong dicta that the law governing a mortgage is the law of the register.
The ship was intended to be registered on Greek flag but was not registered on
any flag at the time the mortgagee sought to enforce an unregistered mortgage.
In P Samuel & Co Ltd v Dumas (The Gregorios)164 Viscount Cave said,
I accept the finding of the learned trial judge that before you can have a valid mortgage
on a Greek ship under Greek law the ship and the mortgage must be registered in
Greece, and the mortgage must be for a specific sum and not merely for the balance
of a current account.165
In The Zigurds166 there was a priority dispute among the mortgagee of a Latvian
ship, necessaries men, stevedores and repairers. The Arusa Kulm167 and The Pacific
Challenger168 involved the rights of mortgagees of, respectively, a Panamanian and
a Liberian flag ship; in none of these cases was any issue raised relating to the law
of the physical situs at the time of the granting of the mortgage. The issue was,
however, more directly addressed in The Angel Bell.169 Donaldson J held that Panamanian law governed a mortgage of a Panamanian ship. The physical location of
the Angel Bell at the time the mortgage was executed is not apparent from the report
of the case and was not referred to in the judgment of Donaldson J. The mortgage
had not been permanently registered in Panama before expiry of the period of
provisional registration. This meant that, based on expert evidence on Panamanian
law, the mortgagee had no right in rem against the ship by reason of the mortgage
but was nevertheless held to be an equitable mortgagee as a matter of English law
by virtue of a separate (English law) oral agreement to grant a mortgage and assign
the insurance policies. This oral agreement formed the basis of the mortgagee’s
claim to insurance proceeds as original assured, as loss payee and as assignee.
161 There is an absence of reference to any significance of the physical situs in the commentaries. In
referring to mortgages over non-British flag ships Temperley states, ‘The nature of the rights conferred
by such instruments will fall to be determined by the law of the flag’ (Michael Thomas and David Steel
(eds), Temperley’s Merchant Shipping Acts (7th edn, Stevens & Sons 1976)).
162 [1903] P 44 (PD & Adm).
163 [1922] 12 Ll L LR 9 (PD & Adm).
164 [1924] AC 431, (1924) 1 Ll L Rep 21.
165 The ship was unregistered but was to be registered on Greek flag. The owner had executed an English form statutory mortgage and a deed of covenant which included an agreement to execute and register a
Greek mortgage and an assignment of insurances. This gave this mortgagee an equitable interest sufficient
to give it an insurable interest under the Marine Insurance Act 1906, s 5. The case is of great significance in
relation to the issues of mortgagees and insurance; see Chapter 16, especially paragraphs 16.4.1 and 16.4.2.
166 [1932] P 113 (PD & Adm).
167 Allgemeine Treuhand AG v The Arusa Kulm (Owners) (The Arusa Kulm) [1959] 1 Lloyd’s Rep 212
(PD & Adm). See Meeson and Kimbell (n 160) 130, 131 for a discussion of this and some of the other cases.
168 [1960] 1 Lloyd’s Rep 99 (PD & Adm).
169 [1979] 2 Lloyd’s Rep 491 (Com Ct). See Andrew Tettenborn, ‘Maritime securities and the conflict of laws – some problems’ [1979] LMCLQ 404.
84
THE CONFLICT OF LAWS
4.6.4 One feature of Donaldson J’s judgment in The Angel Bell 170 that should be
noted at this point is the ‘geographical fiction’ (or metaphor) that a ship is a floating
piece of the territory of its country of register. This is referred to in a number of
cases171 and by a number of commentators.172 It is also reflected by the formulation
of Dicey’s Exception 1 to Rule 129(3): ‘A merchant ship may at some times be
deemed to be situate at her port of registry’.173 McNair and Watts state:174
There is a considerable amount of authority in favour of the existence of a rule that
the essential nature of merchant ships and their peculiar connection with the State
whose flag they fly keep them notionally within the territorial jurisdiction of the flag
state, wherever physically they may be.
The authors continue that it is unnecessary and erroneous to call them floating
portions of that state’s territory, noting that this is ‘a dangerous and misleading
metaphor’,175 before going on to analyse the cases on government action.176 This
warning is surely correct – but McNair and Watts’ earlier reference to ‘notionally
within the territorial jurisdiction of the flag state’ might equally be subject to the
same stricture. Legal concepts involving fictions or metaphors – or which rely on
words like ‘deem’ or ‘notional’ – are slippery and dangerous. This is especially true
when applied to a concept as fundamental to the conflict of laws analysis as situs.
This point is returned to in more detail below.177
4.6.5 The cases referred to in this section indicate that when dealing with registered mortgages of foreign ships the English courts look to the law of the register178
and do not apply the conflict of laws analysis that is applied in relation to chattels
generally. This has been achieved without express resort to international convention179
but is consistent with principles of international comity and the spirit (at least)
of the 1982 UN Convention on the Law of the Sea, Articles 90 and 91.180 It also
170 [1979] 2 Lloyd’s Rep 491 (Com Ct) 495.
171 Lloyd v Guibert (1865–66) LR 1 QB 115, 127; The Navemar [1938] 303 US 68, 74, The Evpo Agnic
[1988] 1 WLR 1090 (A), 1096B (Lord Donaldson).
172 For example, Westlake (n 1), 197.
173 See paragraph 4.1.5 above. Dicey (n 1) paragraphs 22R-023, 22E-057, 058, 059, 060.
174 McNair and Watts (n 131) 441.
175 ibid. See also the remarks of Lord Atkin disapproving the ‘floating portion of the flag state’ theory
or metaphor in Chung Chi Cheung v Rex [1939] AC 160 (PC), 62 Ll L Rep 151, 156.
176 See section 4.5 (The early/mid twentieth century cases on foreign government action).
177 See paragraphs 4.9.13 and 4.9.14 below.
178 Subject to the unusual facts in The Angel Bell (n 169) where, despite the general position (endorsed
by Donaldson J) that the law of the register governs a mortgage, there was held to be an English law
equitable mortgage of a Panamanian-registered ship created by oral agreement.
179 See section 4.10 (International conventions).
180 Article 90, Right of navigation:
Every State, whether coastal or land-locked, has the right to sail ships flying its flag on the high seas.
Article 91, Nationality of ships:
(1) Every State shall fix the conditions for the grant of its nationality to ships, for the registration of
ships in its territory, and for the right to fly its flag. Ships have the nationality of the State whose
flag they are entitled to fly. There must exist a genuine link between the State and the ship.
(2) Every State shall issue to ships to which it has granted the right to fly its flag documents to that effect.
See, however, comments in The Cape Moreton (paragraph 4.7.4 below) on the limited effect of some
other international conventions on private law issues; see further paragraph 4.10.3 below.
85
THE CONFLICT OF LAWS
reflects the reality that the laws of many flag jurisdictions stipulate, in varying ways,
the form or substance of a registered mortgage, even if they may not require in terms
that a registered mortgage be expressly governed by the law of that jurisdiction.181
4.7 The cases on ownership and arrest jurisdiction
4.7.1 The significance or otherwise of registered ownership has arisen in relation
to the jurisdiction to arrest. This issue might at first appear to be one that has
limited direct relevance to the issue of the law that applies to the voluntary transfer
of a proprietary interest in a ship. It is useful background and context, however;
further, one of the cases referred to below on arrest jurisdiction182 was one of the
few cases cited in The WD Fairway 1.183 For the purposes of the ability to arrest
pursuant to the Senior Courts Act 1981, s 21(4)(b)184 ‘owner’ in relation to a registered ship means registered owner. In the Evpo Agnic185 common shareholding
and directors of single-purposes shipowning companies did not mean that the
‘owner’ is the common shareholder rather than the registered owner, i.e. the corporate veil was not pierced.186 Further, the ‘relevant person’ within the meaning of
section 21(4)(b) (i.e. the person who would be liable on the claim in an action in
personam) was held to be the registered owner.187 The attempt to assert a claim that
arose in respect of one ship against another ship owned by a different single-purpose
company therefore did not get off the ground. Having established that the ‘owner’
and the ‘relevant person’ were the registered owner of the ship in respect of which
the claim arose there would only have been a right to arrest the ‘sister-ship’ if the
registered owner of the first ship was the ‘beneficial owner’ (within the meaning of
section 21(4)(b)(ii)) of the sister-ship ‘and of that there is no evidence whatsoever’.188
The approach in The Evpo Agnic was endorsed in Haji-Ioannou v Frangos189 and in
The Tian Sheng No. 8.190 The willingness of the English courts to respect in an arrest
context the separate registered ownership of ships owned by companies in the same
group is shown by The Aventicum191 and The Maritime Trader.192
181 See Chapter 3, section 3.3 (The current form of statutory ship mortgage). It is not a specific
requirement of Liberian and Marshall Islands law that a mortgage be governed by the law of the register
but the recording of a mortgage takes effect as an implicit choice of that law. Article 260 of Law No 55 of
2008 of Panama stipulates certain requirements for a registered Panamanian mortgage.
182 Tisand (Pty) Ltd v The Owners of the Ship MV Cape Moreton (ex Freya) (The Cape Moreton) [2005]
FCAFC 68. See paragraph 4.7.4 below.
183 n 3. See section 4.9 (The WD Fairway litigation).
184 Previously the Supreme Court Act 1981; name changed by the Constitutional Reform Act 2005,
Schedule 11, paragraph 1(1).
185 [1988] 1 WLR 1090, 1096 (Lord Donaldson MR).
186 ibid 1095, 1096. The use of single-purpose shipowning companies in the United Kingdom
appears to have been developed in the late 1870s, especially in Liverpool. See PL Cottrell, ‘The Steamship
on the Mersey, 1815–80’ in PL Cottrell and DH Aldcroft (eds), Shipping, Trade and Commerce: Essays in
Memory of Ralph Davis (Leicester University Press 1981).
187 [1988] I WLR 1090, 1096.
188 ibid 1096 H. The decision in The Evpo Agnic is criticised by Derrington and Turner (n 160) paragraphs 5.16–5.19.
189 171 [1999] 2 Lloyd’s Rep 337, 353 (Lord Bingham CJ).
190 [2000] 2 Lloyds Rep 430 (HK Ct).
191 [1978] 1 Lloyd’s Rep 184.
192 [1981] 2 Lloyd’s Rep 153. See Derrington and Turner (n 160) paragraph 5.25.
86
THE CONFLICT OF LAWS
4.7.2 Some other jurisdictions, including those whose law is common law based,
are more ready to pierce the corporate veil in the context of arrest than the English
courts.193 In India the court in Mumbai held that the ‘owner’ of a ship was not the
registered owner if different from the person having the right to sell, dispose of or
alienate all of the shares in the ship.194 The position is similar in Singapore.195 The
Cour de Cassation in France held in 1997 in relation to associated ship arrest that the
claimant would have to show that associated companies were ‘fictitious’, which could
be done, for example, by showing that earnings from one ship were used by the ship’s
owners to discharge the debts of the associated ship.196 South Africa gives an express
and broad ability by statute to arrest associated ships. It is possible to arrest a ship
for the debts of an associated ship if there is evidence that the company that owns
the ship against which the claim arose is in the same control as the company that
owns the arrested ship.197 For this purpose, control is de facto control. However, the
associated ship claim will not rank above the claim of a mortgagee of the arrested ship.
4.7.3 In The Nazym Khikmet198 it was necessary to examine issues of Ukrainian
law to determine whether Black Sea Shipping Co (BLASCO) was the ‘beneficial
owner’ of a ship that was arrested in respect of a claim arising in connection with
another ship.199 The register showed the arrested ship registered in the names of
‘USSR-BLASCO’.200 The facts and Ukrainian law indicated that the Ukrainian
state rather than BLASCO was not only ‘beneficial owner’ but legal and beneficial
owner. The effect of an intervening transfer on the right to arrest was addressed in
the New Zealand case Vostok Shipping Co Ltd v Confederation Ltd.201 The ship was
on the high seas when the transfer took place and was provisionally registered on
the Belize register in the name of the transferee. The ship arrived in New Zealand
(when a bill of sale was executed) and was arrested for a claim against the transferor
before deletion of the ship from the Russian register. The arresting party argued that
the transferor remained the ‘beneficial owner’ for the purposes of the right to arrest
under the applicable New Zealand statute. This argument failed both at first instance
and on appeal. The issue was determined in accordance with New Zealand law as
the lex fori.202 However, New Zealand law looked to the law of the register (Russian
law) and held that, despite the expert evidence of the arresting party, the transfer
was effectively complete so as to make the transferee and not the transferor the
193 It is difficult to pierce or lift the corporate vessel under English law; see Prest v Petrodel [2013]
UKSC 34. See Chapter 2, paragraph 2.2.4, n 41.
194 Great Pacific Navigation (Holdings) Corporation Ltd v MV Tongli Yantai (Appeal No. 559 of 2011).
195 The Kapitan Temkin [1998] 2 SLR (R) 537.
196 Marley Company v Cast North America (1983) Inc (The ‘Cast Husky’) (1995) 405 LMLN (Fed Ct
(on Trial Div) 31 March 1995).
197 Admiralty Jurisdiction Regulation Act No. 105 of 1983.
198 Owners of Cargo Lately on Board the Nazym Khikmet v Owners of the Nazym Khikmet (The Nazym
Khikmet) [1996] 2 Lloyd’s Rep 362 (CA).
199 Supreme Court Act 1981 (since re-designated the Senior Courts Act 1981), s 20(4)(b)(ii).
200 USSR was the predecessor nation to Ukraine. The register had not been updated following
Ukrainian independence.
201 [1999] NZCA 220, 1 NZLR 37.
202 ibid [25], [26] (Blanchard J). The (controversial) majority decision of the Privy Council in Bankers Trust International Limited v Todd Shipyards Corporation (The Halcyon Isle) [1981] AC 221 was cited in
argument and referred to in the judgment.
87
THE CONFLICT OF LAWS
beneficial owner for the purposes of Russian law. The Nazym Khikmet was referred
to as authority for this approach.203 It is not clear whether, and if so how much, the
court’s view was influenced by the fact that the ship was on the high seas when the
substantive transfer (which included transfer of possession) took place.204
4.7.4 The relationship between ownership and registration in the context of
jurisdiction to arrest came up again in the Australian case The Cape Moreton.205
The issue was similar to that in Vostok Shipping.206 The ship was sold but there was
delay in having it deleted from registration in the seller’s name on the Liberian
register. It was however registered in the buyer’s name on the Hong Kong register.
In the meantime cargo interests with a damage claim against the seller arrested the
ship in Australia. Was the seller, which at the time of arrest remained registered
as owner on the Liberian register, the ‘owner’ for the purposes of the Admiralty
Act 1998, s 17? The Federal Court of Australia gave a wide-ranging review of the
Australian, English and other authorities, including, among many other cases, The
Evpo Agnic,207 The Nazym Khikmet 208 and Vostok Shipping.209 The judgment also
mentioned Hooper v Gumm,210 The Cristina211 and The Jupiter,212 as well as touching upon the history of the English and Australian ship registration legislation and
international conventions. Australian law, as the lex fori, was applied to the issue
in the absence of evidence of foreign law. On that basis the seller was held not to
be the ‘owner’. Before reaching that conclusion, and following its full review of
the authorities, the court made comments in strong support of law of the register
as the lex situs, regarding issues of ownership to be properly determined by that
lex situs as relating to property – rather than to be determined by the lex fori as
relating to procedure.213 The lex fori will sometimes be the same as the law of the
physical situs at the time of the transfer but frequently they will be different.214 It
makes sense in arrest cases for the lex fori to have regard to the law of the register
in determining issues of ownership despite some authority the other way.215 It is
203 [1999] NZCA 220 [26] (Blanchard J) and [40] (Gault J).
204 ibid [5] (Blanchard J), [36] (Gault J).
205 Tisand (Pty) Ltd v The Owners of the Ship MV Cape Moreton (ex Freya) (The Cape Moreton) [2005]
FCAFC 68.
206 n 201.
207 n 185.
208 n 198.
209 n 201.
210 n 114.
211 n 135.
212 n 134.
213 [2005] FCAFC 68 [123]–[129], [146]–[148]. In referring to the law of the country of the register
as the lex situs the court in The Cape Moreton did fall into, or at least was in danger of falling into, the
‘geographical metaphor’ trap which is criticised in paragraph 4.6.4 above and in paragraph 4.9.13 below.
214 In The Nazym Khikmet the ship was on the high seas at the time of transfer. The location of the
ship at the time of transfer in The Cape Moreton is not apparent from the report of the case.
215 See Paul Myburgh, ‘Conflict of Laws and Vessel Ownership – “The Cape Moreton”’ [2005]
LMCLQ 430. Myburgh strongly supports the law of the register approach over the lex fori approach,
despite the latter being followed by the courts of Singapore (Far East Oil Tanker SA v Owners of the Ship
or Vessel Andres Bonifacio [1993] 3 SLR 521 (Sing CA); The Jarguh Sawit [1998] 1 SLR 648 (Sing CA)).
Myburgh notes the irony of the way that, having supported the lex situs (or rather law of the register)
approach, the court in The Cape Moreton ended up applying the lex fori for lack of evidence of foreign law.
88
THE CONFLICT OF LAWS
unduly narrow and formalistic to regard the issue as exclusively that of procedure
to be decided according to the lex fori. The appropriate delineation between matters of property or substance and matters of procedure has shown itself to be a
matter of great controversy, as indicated by the cases on priority referred to in
the next section below.
4.7.5 Timely completion of legal formalities is important but it is correct and
not surprising that Vostok Shipping216 and The Cape Moreton217 were decided in the
way they were. In each case an arresting party unsuccessfully tried to take advantage of delays in completing de-registration formalities. The issue can have great
practical significance not only in relation to consensual sales but also in relation
to judicial sales if, following such a sale in one jurisdiction, the ship’s register in
another jurisdiction fails promptly to delete the registration of the ship in recognition of the effect of the foreign judicial sale.218
4.7.6 Two South African cases in relation to whether a claim is to be classified as a
maritime lien for the purposes of arrest jurisdiction are addressed in paragraph 4.8.5 below.
4.8 The conflict of laws dimension to priority issues
4.8.1 The Colorado219 involved a priority dispute between the holder of a hypothèque
registered over a French-registered vessel and necessaries men. The Court of Appeal
held that it was necessary to look to French law to determine the nature of a hypothèque
(which is not a concept known to English law), then to decide what was the closest
English law equivalent to a hypothèque so as to determine priority in accordance with
the rules of the lex fori. The imprecise nature of this exercise in judicial analogy is
shown by different ways in which it was expressed by the three members of the Court
of Appeal. Bankes LJ,220 having rejected the argument that the hypothèque ‘must
therefore for all purposes of priority be treated without further enquiry as an English
mortgage and given priority as such’ went on to refer to the hypothèque as being for
priorities purposes ‘in the same class as a maritime lien or the right created by an
English mortgage’. Scrutton LJ221 said that it was equivalent to a maritime lien. Atkin
LJ222 said it was ‘a right closely resembling a maritime lien’. The result was that the
hypothèque took priority over the lien of the necessaries men, which was the opposite
of the result which would have been reached in a case before the French court. What
is the correct interpretation of this difficult case – and indeed whether it was correctly
decided – has produced far-reaching ripples that have not yet subsided.
4.8.2 Disagreement over the correct interpretation of The Colorado lies behind the
split advice of the Privy Council in The Halcyon Isle.223 That case was a dispute in
216 n 201.
217 n 205.
218 See paragraph 4.10.5 below in relation to the Draft International Convention on Foreign Judicial
Sales of Ships and their Recognition (the ‘Beijing Draft’).
219 [1923] P 102 (CA).
220 ibid 106, 107.
221 ibid 109.
222 ibid 112.
223 Bankers Trust International Ltd v Todd Shipyards Corporation (The Halcyon Isle) [1981] AC 221
(PC), [1980] 2 Lloyd’s Rep 325.
89
THE CONFLICT OF LAWS
Singapore between the mortgagee of a British-registered ship and a United States
repairer. Under United States law a repairer has a maritime lien which takes priority
over a mortgage. Under Singapore law, which was the same as English law, a repairer
only has a statutory lien which ranks behind a mortgage.224 Should the issue be decided
according to United States law as the lex causae or Singapore law as the lex fori? The
Singapore Court of Appeal took the former approach and thus held in favour of the
repairer.225 The Privy Council, by a 3:2 majority, reversed the decision of the Singapore
Court of Appeal and held in favour of the mortgagee. The reasoning of the majority,
as set out in the judgment of Lord Diplock, can be summarised as follows:226 issues
of priority are to be determined in accordance with the lex fori;227 the class of maritime liens, i.e. liens which rank ahead of a mortgage, is well-established and closed,228
not least because one of the features of a maritime lien is that is survives a change
of ownership;229 a maritime lien is initially inchoate, creating no immediate property
right, and only has legal consequences when it is enforced;230 the priority which a
maritime lien enjoys is to be determined by the lex fori as if the events giving rise to
the claim had occurred there;231 and the decision of the Supreme Court of Canada
in The Ioannis Daskalelis232 is based on a misunderstanding of The Colorado.233 Lord
Salmon and Lord Scarman constituted the dissenting minority. They took a different
view of the history and nature of the maritime lien and gave a wider interpretation to
The Colorado by looking to French law for the purposes of determining not only the
nature of the hypothèque but also its priority.234
4.8.3 The Halcyon Isle has been the subject of much comment, with many commentators disagreeing with the view taken by the majority,235 which is also at odds
224 Senior Courts Act 1981 (previously the Supreme Court Act 1981), s 20(2)(n). The position was the
same at the time under the Administration of Justice Act 1956 and the corresponding Singapore legislation.
225 Judgment given on 8 December 1977, by the Court of Appeal in Singapore (Wee Chong Jin
CJ, Chua and Rajah JJ). The Singapore Court of Appeal followed the decision of the Supreme Court of
Canada in The Ioannis Daskalelis [1974] 1 Lloyd’s Rep 174 (SCC), 1973 AMC 176.
226 The decision of the majority was foreshadowed by The Acrux [1965] P 391, [1965] 1 Lloyd’s Rep 565.
227 It is usual for the arrest jurisdiction to determine priority in accordance with its laws and procedural rules. Some jurisdictions, however, look to the law of the ship’s register to determine what is a
maritime lien; for example, Greece, Panama and South Korea.
228 [1981] AC 221 (PC) 232–234.
229 ibid 329.
230 ibid 234F. (See the explanation of the nature of a maritime lien in The Bold Buccleugh 13 ER 884
(PC) 880, (1851) 7 Moo PC 267).
231 [1981] AC 221 (PC) 235F.
232 n 225.
233 The Halcyon Isle [1981] AC 221 (PC) 236E–238B.
234 ibid 248–250 (Lord Salmon and Lord Scarman).
235 The critics of the majority include: Tetley (n 160) and also Professor William Tetley QC, ‘Maritime Liens in Conflict of Laws’ in James Nafziger and Symeon C Symeonides (eds), Law and Justice in a
Multi-StateWorld: Essays in Honour of Arthur T von Mehren (Transnational Publishers 2002); Jackson (n 26)
paragraphs 26.169–26.178; Derrington and Turner (n 160) paragraphs 4.50, 4.51; Cheshire, North and
Fawcett (n 1) 92–94; His Honour Judge Steven Rares, ‘Maritime Liens, Renvoi and Conflicts of Law: The
far from Halcyon Isle’ [2014] LMCLQ 183; David R Owen, ‘US maritime liens and the new arrest and
attachment rules’ [1985] LMCLQ 424 (which gives a United States perspective, comparing the ‘substantive’ approach to maritime liens in the US with the ‘procedural’ approach in England); for a lonely US
view in favour of the position of the majority in The Halcyon Isle see Michael M Cohen, ‘In Defence of
the Halcyon Isle’ [1987] LMCLQ 152. Dicey (n 1) at paragraph 7-041 appears to support the majority
position or at least does not openly criticise it. (In a different context at paragraph 7-018, Dicey criticises
an obiter dictum of Lord Diplock or confines it to maritime liens.)
90
THE CONFLICT OF LAWS
with the position reached in many cases in other common law jurisdictions.236 The
issues lying behind the controversy include: the conceptual nature of, and difference between, substance and procedure; the nature of a maritime lien; whether
all maritime liens should be treated in the same way; and the policy of the ‘correct’ priority between a mortgagee and the holder of a maritime lien under the
lex causae when the dispute is determined in accordance with a different lex fori.
It is not within the scope of this book to go into the controversy fully let alone
to come down conclusively on one side or the other. It is, however, instructive to
look again at the three judgments of the members of the Court of Appeal in The
Colorado, which are brief and somewhat opaque237 and have given rise to different
interpretations.238 The fundamental problem with these judgments is the impression they give that the French hypothèque was, or at least was for some purposes
like, a maritime lien. All three judgments contain statements to this effect.239 It is
surely unarguable that a French hypothèque was then, and is still, in substance a
type of mortgage. It is a consensual form of security that is registered against the
ship. Bankes LJ only makes one reference to a maritime lien when, referring to
the hypothèque, he said:240
. . . and though not capable of exact description in terms applicable to well-recognised
English rights, it yet had attributes which entitled it to rank on a question of priorities
in the same class as a maritime lien or the right created by an English mortgage.
Scrutton LJ said of the hypothèque:241
It is proved to be, not a right of property in the ship, but a right to arrest the ship in
the hands of subsequent owners to satisfy a claim against a previous owner. But such
a right is the same as a maritime lien as described by Mellish LJ in The Two Ellens
((1872) L.R. 4 P.C. 161), by Gorrell Barnes J in The Ripon City ([1897] P. 226, 241),
and by this Court in The Tervaete ([1922] P. 259, 264).
In the next paragraph of his judgment Scrutton LJ refers to the hypothèque as
‘equivalent to a maritime lien’. Atkin LJ said:242
The appellants say that the respondents’ right is to be determined by French law, and
by that law it is not a right of property, but a right to have the ship seized and sold
by judicial authority, and to be paid the proceeds – not absolutely, but after payment
has been made to certain classes of creditors, including necessaries men.
236 See, for example in Canada: The Strandhill [1926] SCR 680; Todd Shipyards Corporation v The Ship
Ioannis Daskalelis [1974] SCR 1248, [1974] 1 Lloyds Rep 174; Marlex Petroleum Inc v The Ship Hai Rai
[1984] 4 DLR (4th) 739 (FC), on appeal [1987] 1 SCR 57; in South Africa: Southern Steamship Agency
Inc v MV Khalij Sky 1986 (1) SAf-LR 485; in Australia: Reiter Petroleum Inc v The Ship ‘Sam Hawk’ [2015]
FCA 1005, [2016] 1 Lloyd’s Rep 253 (FCA). This decision is under appeal.
237 Paragraph 4.8.1 above.
238 Paragraph 4.8.2 above.
239 Paragraph 4.8.1 above. The analogy between hypothéques and maritime liens appears in the judgment of Sir John Jervis CJ in The Bold Buccleugh (1851) 7 Moore 267 (PC), 13 ER 884. See the passage
quoted in Chapter 10, paragraph 10.4.2. (This was not referred to in the Court of Appeal judgments in
The Colorado.)
240 [1923] P 102 (CA) 107.
241 ibid 109.
242 ibid 111.
91
THE CONFLICT OF LAWS
Atkin LJ went on to say he found that argument ‘attractive’ but dismissed it on
the basis of the unclear evidence of what French law was, before saying he was
not prepared to differ from the judge at first instance:243
. . . who, I think, came to the conclusion that the only right given was the right to
have the ship seized and the proceeds applied to payment of the hypothèque, notwithstanding a change of ownership – a right closely resembling a maritime lien.
It is suggested that to the extent that the three judgments appear to be saying that
the hypothèque is a maritime lien they are making a loose comparison only and, if
more than that, one which is misguided. For the purposes of the decision it was
not important whether the hypothèque was treated as a maritime lien or as a mortgage because as a matter of English procedural law they each rank ahead of the
lien of a necessaries man. As stated above, it is clearly a species of mortgage in the
broad sense. That the three members of the Court of Appeal were deflected from
that conclusion can only be explained by the fact that a hypothèque is different from
an English mortgage in that it does not confer an immediate property right and a
right to enforce by taking possession but a right to arrest (but which, as with an
English mortgage, follows the ship into the hands of a subsequent owner).244
4.8.4 It is the judgment of Scrutton LJ that contains the strongest remarks to
the effect that the hypothèque is a maritime lien. Those remarks were addressed by
Lord Diplock in The Halcyon Isle:245
The only question in The Colorado was whether a hypothèque executed and registered
in France over a French ship created a proprietary right in the ship which the Court
would recognise as similar enough in legal character to an English mortgage to justify
awarding it the priority over the claim of the necessaries lien to which a mortgage
would be entitled in English246 law. This is not a problem that would have troubled the
Court of Admiralty when it was manned by civil lawyers; they would have known all
about the legal concept of hypothèque. An examination of the expert evidence of French
law, which can be found in the report of the case in 16 Aspinall’s Maritime Law Cases,
at pp. 145 to 147, discloses that, contrary to what Lord Justice Scrutton said at [1923]
P at p. 109, a hypothèque does constitute a jus in rem or right of property in the ship
that is created consensually to secure a debt; although unlike an English mortgage, it
gives no right to take possession of the res. There is nothing inchoate about it; it
requires registration and is enforceable by judicial sale.
243 ibid 111, 112.
244 See in particular the quote from Scrutton LJ’s judgment. Even though there are not insignificant differences between an English (or other common) law mortgage and a French (or other civil) law
hypothèque the closeness between the two forms of instrument is shown by the way they are referred to side
by side in a number of international conventions. The 1926 Brussels Convention on Maritime Liens and
Mortgages, Article 1 refers to ‘Mortgages, hypothecations, and other similar charges upon vessels, duly
effected in accordance with the law of the Contracting State to which the vessel belongs, and registered in
a public register either at the port of the vessel’s registry or at a central office . . .’. The 1967 Brussels Convention on Maritime Liens and, Mortgages, Article 1 refers to ‘Mortgages and “hypothèques”’ on seagoing
vessels, before going on to refer to ‘registration in accordance with the law of the State where the vessel is
registered’. The 1952 Brussels Arrest Convention, Article 1(q) refers to ‘the mortgage or hypothecation
of any ship’. The draft International Convention on Foreign Judicial Sales of Ships and their Recognition
(see paragraph 4.10.5 below) refers to ‘any mortgage or hypothèque on a Ship’.
245 [1981] AC 221 (PC) 237A–C.
246 Emphasis in the original text.
92
THE CONFLICT OF LAWS
Lord Diplock went on to say:247
In describing the right created by hypothèque in French law as being equivalent to a
maritime lien in English law . . . Lord Justice Scrutton can only have been speaking
loosely.
4.8.5 Both The Colorado and The Halcyon Isle were priorities disputes. In The
Halcyon Isle Lord Diplock noted that another feature of a maritime lien apart from
the priority given to it is that it follows the ship into new ownership,248 although
that was not an issue in either case. The issue of whether a claim constituted a
maritime lien was relevant in a third context, namely the right to arrest under
applicable statute, in two South African cases: Transol Bunker BV v MV Andrico
Unity (The Andrico Unity)249 and Brady-Hamilton Stevedore Co v MV Kalantiou (The
Kalantiao).250 These two cases followed the majority view in The Halcyon Isle.251
The judgment of Marais J in The Andrico Unity at first instance is full and cogent,
with an illuminating analysis of the confusion surrounding The Colorado and the
split decision in The Halcyon Isle, including a fuller and more clearly expressed
analysis than the one at paragraph 4.8.3 above.252 Marais J emphasised the difference between a foreign mortgage (which was what the hypothèque in The Colorado
surely was in substance, if not in form) and a foreign maritime lien of a type that
would not arise if the circumstances had occurred under the lex fori:
When, therefore, a Court dealing with competing claims to priority in the distribution
of a limited fund is asked to recognise a foreign maritime lien which would not arise
under the Court’s own system of law, it is being asked to supplant its own law in that
regard by a foreign law. When a Court is asked to recognise a foreign mortgage, it is
not being asked to go so far. It is merely being asked to enforce a contract of mortgage
which the parties have entered into in a foreign jurisdiction.253
4.8.6 The position of the majority in The Halcyon Isle has the merit of simplicity in treating the claim of the repairer as if it had arisen in England.254 This is
arguably a type of fiction; but the view of the minority arguably involves a different fiction – that the issue of priorities is being litigated in the jurisdiction of
247 [1981] AC 221 (PC) 237D.
248 ibid 234C.
249 (1987) (3) SA 794; affirmed on appeal 1989 (4) SA 325 (SCA).
250 (1987) (4) SA 250; affirmed on appeal [1989] ZASCA 29.
251 The South African courts were bound by statute to apply English law as it would be applied by
the English High Court on 1 November 1983. As a decision of the Privy Council The Halcyon Isle is not
bound to be followed by the English High Court but is highly persuasive. The point was taken into account
by the court in both South African cases.
252 1987 (3) SA 794, 813–819.
253 The Andrico Unity (1987) 3 SA 794, 812H (emphasis in the original text). The passage which
begins with the text quoted was cited with approval by Ellis J in The Betty Ott at first instance (General
Bills Ltd v The Ship ‘Betty Ott’ [1990] 3 NZLR 715 (NZ HC)). The decisions in The Andrico Unity and The
Kalantiao have been criticised by South African commentators. On The Andrico Unity see Hilton Staniland, ‘Foreign maritime liens not to be recognised in South Africa (The Andrico Unity)’ [1990] LMCLQ
491. On both cases see Hercules Booysen, ‘The recognition of foreign maritime liens in South African
law: a final word by the appellate division’ [1991] ICLQ 151. An earlier article by Professor Staniland
reviews The Colorado, The Halcyon Isle and, critically, the judgment of Marais J in The Andrico Unity: Hilton
Staniland, ‘The Halcyon Isle revisited: a South African perspective’ [1989] LMCLQ 174.
254 [1981] AC 221 (PC) 230E–231D (Lord Diplock).
93
THE CONFLICT OF LAWS
the lex causae rather than that of the lex fori. The authors do not take a definitive
position on whether the view of the majority or that of the minority is ‘correct’.255
The views expressed here are in summary: The Colorado has often been misinterpreted, not surprisingly in view of the difficult and opaque language of the
judgments; the explanation or correction, by Lord Diplock in The Halcyon Isle, of
statements by Scrutton LJ in The Colorado is compelling; as is the analysis in the
judgment of Marais J at first instance in The Andrico Unity.
4.8.7 Regardless of whether the approach of the majority or that of the minority
in The Halcyon Isle is correct the confusion caused by the split decision (and the
underlying disagreement on the interpretation of The Colorado) is at least partly
responsible for the capricious result reached by the New Zealand Court of Appeal
in The Betty Ott.256 Whereas The Halcyon Isle was a classic priority dispute between
a mortgagee and a trade creditor The Betty Ott was a dispute between two financial creditors. An Australian company (WH) granted a debenture in favour of a
bank (Westpac), which included a specific charge over all vessels. An individual
(B) acquired the vessel with funds advanced to WH by another financial creditor
(GB). B declared himself to hold the vessel on trust for another company (WP).
WP granted a debenture in favour of GB and B granted a mortgage over the
vessel in favour of GB. This sequence of events took place over several months,
during which period the vessel remained unregistered. Subsequently, the vessel
was registered on the Australian ships’ register in the name of B and the mortgage
granted by B in favour of GB was also registered on the Australian register. The
vessel was sold by court sale in New Zealand. The sale proceeds were insufficient
to satisfy in full the claims of both Westpac and GB. It was not contested that the
equitable interest of WP (as beneficial owner) and the equitable interest of Westpac
(as secured party) each continued in existence.257 The judge at first instance (Ellis J)
found in favour of GB as registered mortgagee, citing the statement by Page Wood
VC in Liverpool Borough Bank v Turner about the policy behind registration,258 The
Colorado as authority for looking at the substance of the Australian mortgage and
Black v Williams259 on a registered mortgage taking priority over an earlier equitable
interest. This was reversed on appeal to the Court of Appeal where it was held that
the interest of Westpac took priority over that of GB. The reasoning for not giving
priority to a registered foreign (Australian) mortgage included regarding it as an
unregistered mortgage for the purposes of the New Zealand Shipping and Seaman
Act 1952, citing the decision of the majority in The Halcyon Isle260 as authority for
exclusive application of the lex fori and a misreading (or at least a reading out of
255 It has been suggested that the effect of the Rome Convention, Articles 3 and 4 (now the Rome
I Regulation, Articles 3 and 4) is that a case in the United Kingdom today on the facts of The Halcyon
Isle would be decided differently. See William Tetley, International Conflict of Laws (Common, Civil and
Maritime) (International Shipping 1994) 580–581 and Aleka Mandaraka-Sheppard, Modern Maritime
Law Volume II; Managing Risks and Liabilities (3rd edn, Informa 2013) 183, 184.
256 The Ship ‘Betty Ott’ v General Bills Ltd [1992] 1 NZLR 655 (CA).
257 ibid 658 [50].
258 (1860), 29 LJ Ch 827, 830.
259 [1895] 1 Ch 408. See Chapter 3, section 3.2 (Statutory mortgages – the primacy of registration).
260 [1981] AC 221 (PC).
94
THE CONFLICT OF LAWS
context) of an obiter statement about the priority of mortgages by Lord Diplock
in that case.261
4.8.8 This decision has been justifiably criticised.262 Even if the view of the
majority in The Halcyon Isle is accepted as correct it is not appropriate or supportable to extend its application from maritime liens to foreign registered mortgages.
This flies in the face of common sense and the many cases where the effectiveness
of foreign registered mortgages has been acknowledged.263 If a similar case arose
before the English courts it would not be decided in the same way. The Betty Ott
was promptly overruled by statute in New Zealand.264
4.8.9 Before leaving the case, however, it can to some extent be explained, if not
defended, by its unusual facts. GB was aware of Westpac’s position. Most of the
rights of the relevant parties were equitable. The only legal interests were those of
B, as owner of the vessel on bare trust for WP, and GB as legal mortgagee under
the mortgage granted by B and (eventually) registered in favour of GB. As between
Westpac and GB, but for the registered mortgage in favour of GB, the position
would have been that the first equity in time (i.e. Westpac’s) prevailed. The registration of the vessel in the name of B (as bare trustee for WP) and the registration of
the mortgage granted by B in favour of GB should have meant that the registered
mortgage prevailed over Westpac’s equitable interest, irrespective of the notice that
GB had of Westpac’s interest. That would have been the effect of the application of
Black vWilliams265 to the position of a foreign mortgagee – which Westpac could have
avoided by ensuring that it took a registered mortgage ahead of GB.266 Although
the result of the case is wrong in principle it is in one way not inequitable on the
unusual facts and is an example of the adage that hard cases make bad law.
4.8.10 Another case from New Zealand to be noted is The Blaze.267 The issues
were curiously similar to those in Hooper v Gumm268 although that case was not
mentioned in the judgment, which was the hearing of an application for summary
261 ibid 233H. Lord Diplock said:
In view of the reference hereafter to be made to The Colorado [1923] p102 it is also relevant to note that for
the purpose of priority of ranking inter se mortgages fall into two classes: (1) British registered mortgages
(which can only be upon British ships) and (2) other mortgages, British or foreign (which can be upon
either British or foreign ships). British registered mortgages rank in priority to all other mortgages and
rank inter se in order of date of registration. All other mortgages regardless of whether they are British or
foreign rank inter se in order of date of creation.
262 See in particular Paul Myburgh, ‘Recognition and Priority of Foreign Ship Mortgages – The Betty
Ott’ [1992] LMCLQ 155 and Paul Myburgh, ‘Conflict of Laws and Vessel Ownership’ [2005] LMCLQ
430. The first edition of this work was also critical.
263 For example, The Zigurds (n 166), The Arosa Kulm (n 167), The Pacific Challenger (n 168) and The
Angel Bell (n 169). See paragraph 4.6.3 above.
264 The Ship Registration Act 1992, s 70. See Paul Myburgh, ‘The New Zealand Ship Registration
Act 1992’ [1993] LMCLQ 444. The eminently sensible and cogent judgment of Ellis J at first instance
was thus vindicated and rehabilitated (The Betty Ott [1990] 3 NZLR 715 (NZ HC)). It is consistent with
the views expressed here about The Colorado; see paragraph 4.8.3 above.
265 [1895] 1 Ch 408.
266 [1992] 1 NZLR 655 (CA) [20]–[25], from which it appears that Westpac potentially had sufficient
time and opportunity to insist on being granted a mortgage and having it registered ahead of that of GB.
267 Keybank National Association v The Ship ‘Blaze’ [2007] 2 NZLR 271 (NZ HC).
268 n 114. See paragraphs 4.4.6 and 4.4.7 above.
95
THE CONFLICT OF LAWS
judgment. A yacht registered on the United States register was mortgaged by its
former individual owner to Keybank. The yacht was sold successively by the original
owner to another individual owner and then on to a company (BC) controlled by
the initial individual purchaser. It remained on the United States register subject
to the mortgage in favour of Keybank. The original owner defaulted in its obligations to Keybank, which sought to enforce its mortgage against the yacht in New
Zealand, where it had arrived before the sale to BC. The individual initial buyer
and BC as ultimate buyer each filed financing statements under the New Zealand
Personal Property Securities Act 1999 (the ‘PPSA’) in respect of their interest
after the arrest by Keybank (and shortly after that Keybank filed its own financing statement). It was held that the United States mortgage in favour of Keybank
took priority over the interest of BC. This was at least partly because of the effect
of the Ship Registration Act 1992, s 70 (introduced to overrule The Betty Ott),269
even though the wording of section 70 was not directly on point in relation to
an issue between a mortgagee and a subsequent purchaser.270 Any protection
given to the buyer by its prior PPSA filing was held, as a matter of construction
of the PPSA and its application or not to vessels of the relevant size, to be of no
effect as against Keybank.271 The judge referred favourably to The Betty Ott at
first instance,272 the dictum by Page Wood VC about the policy of registration in
Liverpool Borough Bank v Turner 273 and a number of commentators.274 In a strong
echo of Hooper v Gumm,275 but without reference to that case, it was argued by
the purchaser that Keybank as mortgagee had acquiesced in the sale and should
lose its rights by reason of the PPSA, s 90.276 That argument was dismissed on the
grounds that the PPSA as a whole had no application277 in the circumstances. A
similar argument based on general equitable principles was also dismissed.278 The
Blaze is perhaps not the strongest authority, being an application at first instance
for summary judgment without full reference to the relevant authorities, not least
Hooper v Gumm.279 It does, however, indicate a move back in the right direction
in New Zealand after the wrong-headed reasoning of the Court of Appeal in The
Betty Ott.280
4.8.11 The controversy surrounding the conflict of laws aspects of priority issues
in common law jurisdictions is avoided in those Latin American countries that have
269 n 256.
270 [2007] 2 NZLR 271 (NZ HC) [47]–[56].
271 ibid [57]–[67].
272 [1990] 3 NZLR 715 (NZ HC) 722 (Ellis J).
273 (1860) 29 LJ Ch 827, 830–834.
274 Including the first edition of this book.
275 n 114.
276 PPSA, s 90.
277 [2007] 2 NZLR 271 (NZ HC) [83]–[85].
278 ibid [86]. The US register number was clearly carved into a conspicuous piece of structural
wood on the yacht. Although there was no requirement of US law for the mortgage to be endorsed on
the certificate of registry (in contrast to the position when Hooper v Gumm was decided) the position on
suppression of the mortgage and acquiescence in the sale is to be contrasted with that in Hooper v Gumm.
279 n 114.
280 n 256.
96
THE CONFLICT OF LAWS
fully adopted the Bustamante Code.281 Article 277 of that Code expressly applies
the law of the ship’s register to the determination of priority issues. A number of
other jurisdictions, such as Greece and South Korea, apply the law of the register
(lex navis) to priority issues.
4.9 The WD Fairway litigation282
4.9.1 This case, decided in two phases, does not relate to transfer by judicial
action, transfer by government action, to jurisdictional issues as affected by ownership or to priority issues. Rather, it relates directly and expressly to the question
of which law governs the proprietary aspects of a transfer of a ship, other than
by judicial or government action. It is significant because, surprisingly, it is thought
to be the first time this issue has been so directly addressed. The unusual facts
can be summarised as follows. The vessel was a large suction hopper dredger, a
specialist and unusual type of vessel, operating in a limited market. It became a
constructive total loss (‘CTL’) following a collision. The owner tendered notice
of abandonment to the hull underwriters who, in accordance with established insurance practice, refused to accept the notice but agreed to treat the owner in the
same position as if it had issued a claim form. The wrecked vessel was towed to a
naval dockyard in Thailand where it remained at all relevant times. The hull underwriters paid in full in respect of the CTL and in full their proportion of the salvage/
wreck removal claim. The owner did not want the vessel to fall into the hands of
one of a limited number of competitors by being sold on the open market by the
underwriters, nor did the owner even want the vessel to be physically inspected
by any competitors before any sale. The owner therefore tried to buy the wrecked
vessel back from the underwriters but was not prepared to pay anything like the
amount which the underwriters regarded as the open market value. The owner,
soon after most but not all underwriters had elected to take over the vessel, purported to sell the vessel, without the knowledge or consent of the underwriters,
to an affiliated company for nominal consideration (€1,000).283 The vessel was
registered on the Netherlands register until immediately before the sale, at which
point it was de-registered and was not re-registered on any register at the time
of sale. Following the sale those underwriters that had not previously elected to
take over the vessel did so elect.284
4.9.2 There were nine issues for determination, the first seven of which related
to the effect under English law, including under the Marine Insurance Act 1906,
s 63(1) and/or s 79(1), of the payments by hull underwriters, the election by the
majority of underwriters to take over the vessel and the rights of underwriters
281 The Convention on Private International Law (The Bustamante Code), Havana, 20 February
1928. See further paragraph 4.10.6 below and section 4.14 (FPSO OSX 3 in Brazil).
282 n 3.
283 The owner acknowledged that it was liable to the underwriters for the open market value of the
vessel (whatever that was) but by purporting to sell the vessel to an affiliated company sought to prevent
an actual sale by the underwriters in the open market.
284 [2009] EWHC 889 (Adm) [19] for the summary of agreed facts.
97
THE CONFLICT OF LAWS
(if any) as against the company which bought the vessel.285 The conclusion of
Tomlinson J on the first seven issues as far as relevant to the matters of concern
here can be summarised as follows: the election by the majority of underwriters
to take over the vessel was effective for the purposes of the Marine Insurance Act
1906, s 63(1) and/or s 79(1) so as to give the relevant underwriters a beneficial
interest under a trust;286 whether the election by those underwriters to take over
the vessel before the sale meant that their equitable interest survived the sale would
depend on whether the purchaser was the bona fide purchaser of a legal interest
without notice – but those underwriters who only elected to take over the vessel
after the sale did not thereby acquire an equitable interest if the purchaser had
obtained legal title.287
4.9.3 It is the eighth and ninth issues that are of direct interest here:
(8) What is (or are) the relevant system (or systems) of law for determining the incidence of proprietary interests in the vessel prior to, at the time of, and after the purported transfer of the vessel to the Fourth Defendant?
(a) English law, as the law of the Excess Policy and of the Primary Policy or the
lex fori?
(b) the lex situs?
(9) If the answer to (8) includes the lex situs, what is or was the lex situs of the vessel?
(a) Dutch law?
(b) Thai law?
It was agreed by the parties that the answer to issue 8 was the lex situs.288 Did lex
situs for this purpose means its domestic law or its law including its conflict of
laws rules? (i.e., in the case of the latter, so as to apply the doctrine of renvoi).
Tomlinson J declined at this stage to answer that question in the abstract but did,
after some detailed analysis of the authorities, express the preliminary view that
renvoi should not be applied.289
285 ibid [14] for the list of ‘phase 1 issues’. Further issues were left for a second hearing (summarised
at [53]). The Marine Insurance Act 1906, s 63 (1) says:
(1) Where there is a valid abandonment the insurer is entitled to take over the interest of the
assured in whatever may remain of the subject-matter insured, and all proprietary rights
incidental thereto.
The Marine Insurance Act 1906, s 79(1) says:
(1) Where the insurer pays for a total loss, either of the whole, or in the case of goods of any
apportionable part, of the subject-matter insured, he thereupon becomes entitled to take over
the interest of the assured in whatever may remain of the subject-matter so paid for, and he
is thereby subrogated to all the rights and remedies of the assured in and in respect of that
subject-matter as from the time of the casualty causing the loss.
286 [2009] EWHC 889 (Adm) [58]–[63]. (At [63] there is reference to 64 shares of the vessel which
is misplaced as it was not registered on a register where division into such shares applies.)
287 ibid [64].
288 However, counsel for the underwriters had second thoughts about this concession; ibid [17].
289 ibid [80]–[89]. Tomlinson J concluded (at [87]) that he would be ‘rowing against a strong tide’ if
he decided that reference to the lex situs in relation to transfers of movable property included the choice
98
THE CONFLICT OF LAWS
4.9.4 Tomlinson J then considered issue 9, i.e. whether the lex situs of the vessel
was Dutch law (the law of the register) or Thai law (the law of the physical situs).
The starting point was Dicey’s Exception 1 to Rule 129,290 and the commentary
in Dicey stating that when a vessel is within territorial or national waters the reasons for ascribing her a situs at her port of registry are not compelling, and the
artificial situs is displaced by the actual situs. Dicey291 cited Trustees Executors and
Agency Co Limited v IRC292 in support of the displacement of the artificial situs by
the physical situs. That case related to the interpretation of a taxing statute293 that
exempted from estate duty ‘any property passing on the death which is situate out
of Great Britain. . .’. The property in question was a yacht registered in Jersey that
was berthed at Southampton for about ten months of the year and was there at the
time of the owner’s death. It is not surprising that, having regard both to the facts
and issue in dispute, this was held not to be property ‘situate outside Great Britain’.
The way the case appears to have been argued and the judgment itself are not
illuminating on issues relating to the law to be applied to voluntary dispositions of
property in ships. Counsel for the defendants (the Inland Revenue Commissioners)
referred in argument to a number of the cases on transfer of property by foreign
government action.294 This prompted Pennycuick VC to refer to a dictum in The
Cristina295 that: ‘It must be noted in the present case that the Cristina, even when
in the Cardiff docks, may have, as being a foreign merchant ship, a different status
from an ordinary chattel on land.’ This was dismissed by Pennycuick VC as not
going ‘very far’.296 That is certainly correct bearing in mind that the issue in The
Cristina (and the other early/mid twentieth century cases on foreign government
action)297 was very different from that in Trustees Agency Co v IRC. Counsel for
the plaintiff taxpayer cited in argument the Revenue (No. 2) Act 1864, s 4 (which
was still then in force) which expressly extended the imposition of estate duty to
any United Kingdom registered ship regardless of physical location at the time of
death, deeming the ship ‘to have been at the time aforesaid in the port at which
she may be registered’. Counsel for the taxpayer argued that the absence of an
of law or private international law rules of the situs. The authorities cited by Tomlinson J as constituting
that tide included: Macmillam Inc v Bishopsgate Investment Trust plc [1995] 1 WLR 978 (Millett J at first
instance) and Islamic Republic of Iran v Berend [2007] EWHC 132 (QB), [2007] 2 All ER (Comm) 132.
A different approach was applied by the High Court of Australia in Neilson v Overseas Projects Corporation
of Victoria Limited [2005] HCA 54. Tomlinson J also noted the strong support for the doctrine of renvoi
expressed by Professor Adrian Briggs, ‘Decisions of British Courts in 2007: B. Private International Law’
[2007] BYIL 588. Renvoi has been negated by EU and domestic legislation, beginning with Rome I and
the Private International Law (Miscellaneous Provisions) Act 1995, s 9(5), which prompted Professor
Briggs to write ‘In Praise and Defence of Renvoi’ (1998) 47 ICLQ 877.
290 [90], referring to the 14th edition of Dicey. The report of the case incorrectly refers to Dicey’s Rule
120 instead of Rule 129. See paragraph 4.1.5 above for Rule 129 and Exception 1.
291 The edition of Dicey at the time of the case was the 14th edition. See now the 15th edition of Dicey,
Rule 129 Exception 1 at [22E-057] to [22-060] where further cases are cited and there is comment on
the remarks of Tomlinson J.
292 [1973] Ch 254.
293 Finance Act 1949, s 28(2).
294 See section 4.5 (The early/mid twentieth century cases on foreign government action).
295 Compania Naviera Vascongodo v SS Cristina [1938] AC 485 (HL) 509 (Lord Wright).
296 [1973] Ch 254, 263.
297 See section 4.5 (The early/mid twentieth century cases on foreign government action).
99
THE CONFLICT OF LAWS
exemption from tax for foreign-registered ships implied that such ships were not
subject to tax in the first place. Pennycuick VC turned the argument round and
noted that absence of a ‘corresponding provision’ that deemed foreign-registered
ships to be located outside the United Kingdom. Both counsel for the taxpayer and
the learned judge seem to have failed to appreciate that the Revenue (No. 2) Act
1864, s 4 was enacted against the background of the ownership requirement for
British registered ships and compulsory registration requirement for ships owned
by British subjects or other qualified persons.298 In view of this it is not surprising
that the government of the day sought to ensure that ships registered in any port
of the United Kingdom did not escape the tax net by reason of their physical
location. That section of the statute implied neither one thing nor the other about
the position in relation to foreign-registered ships. Further, the case related to the
passing of property on death. In reviewing Trustees Agency Co v IRC in The WD
Fairway 1 Tomlinson J concluded that ‘[t]he reasoning in the Trustees Agency case,
unsurprisingly, has [no] real relevance to the question of by what system of law a
transfer of title to a ship should be regarded as governed’.299
4.9.5 Tomlinson J noted that Castrique v Imrie300 was not relevant to the issue,
being a case on the recognition in England of a foreign judgment in rem.301
4.9.6 At the same time as quoting Dicey’s Exception 1 to Rule 129 in relation to ships Tomlinson J also quoted the equivalent Exception 2 in relation to
aircraft.302 He noted that Dicey cited Air Foyle Limited v Center Capital Limited 303
in relation to aircraft, where the issue of whether the law of the register displaced
the physical lex situs was not argued.304 Noting that the issue was often made academic in relation to ships where there were foreign judicial proceedings involving
a judgment in rem305 he went on to say: ‘Nor however was it suggested that there
is any sensible reason why the rule for aircraft should be any different from that
for ships.’306 Although it might not have been suggested there, it is here suggested
that there is a world of difference between aircraft and ships in this context.307
4.9.7 It was agreed by the parties that following the vessel’s de-registration from
the Netherlands register its lex situs became Thai law.308 In addressing the issue of
whether before de-registration the lex situs was Thai law or Netherlands law the
judgment then turned to a consideration of Hooper v Gumm.309 It is a reflection
298 Merchant Shipping Act 1854 (17 & 18 Vict c 104) s 18.
299 [2009] EWHC 889 (Adm) [92]. Trustees Agency Co v IRC, like Hooper v Gumm (1866–67) LR 2
Ch App 282, was a Chancery case – and, unlike Hooper v Gumm, it was moreover a tax case. It is indeed
a flimsy base from which to build principles relating to the voluntary transfer of registered ships in the
English conflict of laws.
300 (1869–70) LR 4 HL 414.
301 The WD Fairway 1 (n 3) [94].
302 Dicey (n 1) 22–061; The WD Fairway 1 (n 3) [90].
303 [2002] EWHC 2535 (Com Ct), [2003] 2 Lloyd’s Rep 753.
304 Or at least not seriously argued; ibid 763.
305 Castrique v Imrie (n 78). In Air Foyle the foreign judicial proceedings were held not to be in rem
([2003] 2 Lloyd’s Rep 753, 764).
306 The WD Fairway 1 (n 3) [95].
307 See section 4.2 (Property in ships under English domestic law) and section 4.3 (Property in registered aircraft under English domestic law). See also section 4.13 (The Blue Sky litigation).
308 The WD Fairway 1 (n 3) [95].
309 (1866–67) LR 2 Ch App 282.
100
THE CONFLICT OF LAWS
of the difficulty of pinpointing the ratio of Hooper v Gumm310 that it was cited by counsel
for the defendant owner as supporting the application of the law of the register – but
Tomlinson J held it to be authority for the opposite view, i.e. the application of the
law of the physical situs. The only other shipping case referred to in the judgment is
The Cape Moreton,311 which related to an analysis of the meaning of ownership for the
purposes of the statutory Australian arrest jurisdiction giving effect to the 1952 Arrest
Convention312 and that supported the country of registration as the lex situs. Tomlinson
J preferred to follow Hooper v Gumm with which he thought The Cape Moreton was ‘at
odds’ – his view of Hooper v Gumm being that it decided that English law governed
the sale of a ship which was physically in England.313 The learned judge also said it
would be ‘a departure from Hooper v Gumm’ to argue that, had the vessel not been
de-registered from the Netherlands register at the time of the sale, Netherlands law
would have applied to the sale.314 Accordingly, Tomlinson J held that Thai law was the
lex situs of the vessel at all relevant times, both before and after de-registration from
the Netherlands register. It was left open for the future hearing whether ‘Thai law’
meant Thai domestic law or Thai law including its principles of conflict of laws.315
4.9.8 Having left the issue of renvoi open from the first hearing, Tomlinson J
held in The WD Fairway 2316 that renvoi should not apply, with effect that Thai law
as the lex situs meant Thai domestic law, without reference to Thai conflict of laws
principles.317 He said:
It follows that the relevant system of law for determining the incidence of proprietary
interests in the vessel prior to, at the time of and after the purported transfer of the vessel to Nigerian Westminster, the Fourth Defendant, is the domestic law of Thailand.318
It was held that the underwriters acquired no proprietary interest in the vessel
under Thai domestic law prior to its de-registration. (Nor, had it been applicable,
would they have acquired any proprietary interest under Netherlands law.319)
4.9.9 Following deletion of the vessel from the Netherlands register it was sold
to a Nigerian affiliated company for nominal consideration. It appears that deletion
from the Netherlands register took place before the sale because, not surprisingly,
there could have been difficulty in having a Dutch notary participate in the execution of a notarial deed for the sale, as required for the transfer of Netherlandsregistered vessels, when the sale was at a clear undervalue.320
310 See paragraph 4.4.7 above.
311 See paragraph 4.7.4 above.
312 The International Convention for the Unification of Certain Rules relating to the Arrest of Seagoing Ships, Brussels, 10 May 1952.
313 [2009] EWHC 889 [100].
314 ibid [101].
315 Tomlinson J had provisionally indicated his preference for the former view; The WD Fairway 1
(n 3) [80]–[89].
316 n 3.
317 ‘There is no principle in Thai private international law application of which will better serve the
object of the English conflict rule than will application of Thai domestic law’ (TheWD Fairway 2 (n 3) [4]).
318 ibid [8]. In the context of the facts of the case and Tomlinson J’s comments elsewhere the reference
to ‘incidence of proprietary interests in the vessel’ while the vessel remained on the Netherlands register
must be taken to exclude a voluntary transfer of legal title.
319 ibid [24]–[51].
320 ibid [97].
101
THE CONFLICT OF LAWS
4.9.10 Even though the underwriters acquired no proprietary interest before the
sale and the Nigerian purchaser acquired legal title to the vessel it was held that the
sale was a transaction defrauding creditors so as to be capable of being set aside
pursuant to the Insolvency Act 1986, s 423. Tomlinson J exercised his discretion to
set it aside.321 After such a detailed consideration of the conflict of laws issues an
air of bathos is created by the case being ultimately decided on a different issue.
4.9.11 The WD Fairway 1 and The WD Fairway 2 are authority for the application of the law of the physical situs to disposals of proprietary interests in ships
falling short of registered interests. The unusual facts meant that the court was
considering the position in relation to (i) the incidence by operation of law of a
proprietary interest short of legal title in a registered ship and (ii) a transfer of title
in an unregistered ship. There are statements that might appear to apply the law
of the physical situs to a disposal of registered title.322 Those statements are obiter
and, it is submitted, based on a misreading of Hooper v Gumm.
4.9.12 The issue remains of what, if anything, the case has to say about the law
that applies to registered transfers of proprietary interests. There are a number of
statements on this in The WD Fairway 1. The first of these is when Tomlinson J
is considering the renvoi issue but refusing to give a definite view in the abstract:
A further reason for caution in this case is my belief that in relation to the question
of legal or registered title to a merchant vessel, many legal systems might well by reference to what we could perhaps characterise as a conflicts rule look to the law of the
place of registration.323
Again, when considering Hooper v Gumm and regarding it as authority for the
application of the law of the physical situs, Tomlinson J says:
That of course does not preclude the law of the physical situs referring to the law of
the place of registry in order to determine questions of pre-existing legal title, particularly where legal title depends on registration. That is precisely what happened in
Hooper v Gumm.324
Further on when commenting again on Hooper v Gumm Tomlinson J says:
Furthermore if my approach to Issue 8 is correct, it cannot be excluded that the lex
situs would give effect to a statute of the flag state governing the transfer of rights
created or recognised by that statute.325
It was also emphasised that the law of the physical situs was relevant to determining
the existence or priority of interests falling short of registered title or ownership.326
321 ibid [123]–[166].
322 The WD Fairway 1 (n 3) [101]; see paragraphs 4.9.4 and 4.9.6 above.
323 ibid [89].
324 ibid [97].
325 ibid [100].
326 ibid [98] and [102], the latter in the context of considering Macmillan Inc v Bishopsgate Investments
Trust plc (No. 3) [1995] 1 WLR 978 (Ch), affirmed [1996] 1 WLR 387 (CA). Counsel for the plaintiff
underwriters had cited remarks by Millet J ([1995] 1 WLR 978, 994B–995F) in support of the application
of the lex loci actus rather than the lex situs. That was rejected ([17]). Despite a (contentious) comment
that ‘there is little to distinguish a ship’s register from a share register’ ([102]) the detailed review of the
102
THE CONFLICT OF LAWS
4.9.13 It is necessary to ask how these comments sit with the findings in The WD
Fairway 2 that the application of the law of the physical situs in that case means the
domestic law without reference to principles of conflicts of laws; the comments seem
to be applying renvoi, albeit in a very specific context. The most obvious answer is that,
consistent with the cautious and specific (rather than abstract) addressing of the renvoi
issue by Tomlinson J, the way is left open to apply this limited and specific form of renvoi
in cases relating to issues involving rights that by the law of the register are capable of
registration. However, another answer might be that the issue is to be seen not as an
application of renvoi at all but as a question of characterisation. Rule 128 of Dicey327 states:
The law of a country where a thing is situate (lex situs) determines whether (1) the
thing itself is to be considered an immovable or a movable.
It would not be a major embellishment or at least clarification of this rule to acknowledge that ships have a special or unique status that could involve the lex situs looking
to the law of the register in respect of registrable rights, whether ships are characterised
by the lex situs as movable or immovable328 – or as neither. In other words, the binary
characterisation of movables and immovables is not adequate to deal with ships. This
approach of course acknowledges and assumes that the lex situs means the law of the
physical situs. Looking at things in this way exposes the fallacy and danger of the ‘geographical fiction’ that equates a ship to a floating piece of the territory of the country
of its register329 so as to deem its situs to be that country. If there is any uncertainty
about what the situs is it becomes impossible to go on to apply Dicey’s Rule 129 – at
least without introducing the unsatisfactory and equivocal deeming language of Exception 1 to Rule 129.330 It would surely be better to dispense with the geographical
fiction, acknowledge that the lex situs for ships is the law of the physical situs and – by
one means or another in relation to registered ships – give appropriate effect to issues
which are addressed by the law of the register.331
4.9.14 No consideration was given in The WD Fairway litigation to Dicey’s Rule
133 and its Exception.332 The reference in Exception 1 to ‘casual’ alongside ‘not
known’ prompts thoughts about the way in which ships (and aircraft) are different
from other chattels. Movement is essential to their nature rather than incidental. The
position both at first instance and the Court of Appeal in Macmillan v Bishopsgate should be seen in the
context of that case, which related to intangible movables, as noted by Tomlinson J at [17].
327 n 1.
328 Ships, at least Russian-registered ships, are regarded as immovables under Russian law. See Vostok
Shipping Co Ltd v Confederation Ltd [1999] NZLA 220, 1 NZLR 37 [9].
329 Lloyd v Guibert (1865–66) LR 1 QB 115 (Ex Ch) 127; The Navemar (1938) 303 US 68, 74; The
Angel Bell [1979] 2 Lloyd’s Rep 491 (Com Ct); The Evpo Agnic [1988] 1 WLR 1090 (CA) 1096B (Lord
Donaldson). See paragraph 4.6.4 above.
330 Exception 1 to Rule 129: ‘A merchant ship may at some time be deemed to be situate at her port
of registry.’ See paragraph 4.1.5 above.
331 This approach, including a modification of the rules of characterisation, is favoured by Lalive,
although he does acknowledge that the law of the physical situs may treat foreign ships in the same way as
ordinary movables and apply its domestic law – and that ‘must be taken into account by courts of other
countries’. He also gives some credence to the geographical metaphor but adds: ‘There is no doubt that
a fictitious situs may be ascribed to a ship, ie that the law of the flag may govern, but only in so far as the
actual lex situs of the ship allows it’ (Lalive (n 1) 190, 191).
332 See Rule 133 and the Exception set out at paragraph 4.1.5 above.
103
THE CONFLICT OF LAWS
trading pattern of an internationally trading ship means that it is often ‘in transit’,
with its location habitually changing. This points to application of the Exception
to internationally trading ships, so as to engage the applicable law – which in the
case of a transfer of a proprietary interest capable of registration in a registered
ship is the law of the register. The Exception to Rule 133 would certainly apply to
cargo on board a ship, so why not also to the ship itself ? The commentary to the
Exception in Dicey is brief and, in relation to ships, refers back to Rule 129(3),
Exception 1.333 It is submitted that the Exception to Rule 133 should be given
greater and independent prominence in relation to ships.
4.9.15 Issues that are to be addressed by registration in relation to British ships
are excluded by statute from any general conflict of laws rule in respect of chattels.
This was alluded to in The WD Fairway 1 where Tomlinson J quoted Schedule 1,
paragraph 1 of the Merchant Shipping Act 1995 after stating: ‘The British Register
deals only with legal title.’334 The evolution of the comprehensive and prescriptive
registration regime in relation to British ships has been noted above.335 For British ships, the statutory regime for registration of specific proprietary interests had
already been well established by the time the lex situs rule began to be developed by
case-law.336 Tomlinson J’s pointing out that the ‘British Register deals only with legal
title’337 alludes to the way in which interests short of registered title or registered
mortgages have been, and are, addressed. The historical development of the treatment of unregistered interests in British ships has been described in Chapter 3.338 The
statement about the British register quoted above is correct and, so far as it goes, is
understandable in the context of The WD Fairway cases, which relate to proprietary
interests which were not registered interests (as Tomlinson J stated immediately
before his statement about the British Register). This part of the judgment in
The WD Fairway 1339 is an inconclusive consideration of The Cape Moreton340 which,
as seen above,341 is itself inconclusive, although containing comments favourable to
the application of the law of the register in relation to the issues before the court.
333 The commentary also refers to aircraft and refers back to Rule 129(3), Exception 2 which is the
equivalent to Exception 1 in relation to ships.
334 The WD Fairway 1 (n 3) [98]. The Merchant Shipping Act 1995, Schedule 1, paragraph 1(1) and
(2) reads:
(1) subject to any rights and powers appearing from the register to be vested in any other person, the
registered owner of a ship or of a share in a ship shall have power absolutely to dispose of it provided that disposal is made in accordance with this Schedule and the registration regulations.
(2) Sub-paragraph (1) above does not imply that interests arising under contract or other equitable interest cannot subsist in relation to a ship or a share in a ship; and such interests may
be enforced by or against owners or mortgagees of ships in respect of their interest in the
ship or share in the same manner as in respect of any other personal property.
335 Section 4.2 (Property in ships under English domestic law).
336 Cammell v Sewell (n 13) is the fons et origo of the modern lex situs rule (see paragraph 4.4.1 above)
although its earliest application is believed to be Inglis v Usherwood 102 ER 198 (KB), (1801) 1 East 515.
337 n 334 (emphasis added).
338 See especially section 3.2 (Statutory mortgages – the primacy of registration), section 3.4 (Common law mortgages), section 3.6 (Equitable mortgages) and section 3.7 (Equitable charges). See also
Chapter 2, section 2.2 (Beneficial ownership) and section 2.8 (Effect of registration).
339 n 3 [97]–[100].
340 n 205.
341 Paragraph 4.7.4 above.
104
THE CONFLICT OF LAWS
4.9.16 The origins of the ‘geographical fiction’342 might be the statutory concept
of British ships ‘belonging’ to a port of registry. This was embodied in statute at
least as early as the Shipping and Registry Act 1786343 and continued to be a feature
up to and including the Merchant Shipping Act 1894344 but was dropped when a
central register, rather than registration at an individual port, was created by the
Merchant Shipping (Registration, etc.) Act 1993.345 It appears that a purely domestic law concept might have strayed into the conflict of laws.346 The rules relating
to mortgages of registered British ships are statute-based and probably outside the
conflict of laws.347 It might seem anomalous if the law relating to British registered
ships and foreign registered ships were to differ. If this were to be the case it could
perhaps be explained by the historically unique way in which the ownership of British ships has been regulated – even though the mercantilist driving forces behind
that regulation have long gone. One way of seeing it would be as a preservation by
statute of the old lex domicilii theory (mobilia sequuntur personam), which pre-dated
the lex situs theory.348 The conclusion below, however, is that ultimately British and
foreign registered ships are not treated differently in practice.349
4.10 International conventions
4.10.1 The focus so far in this chapter has been on the English common law
conflict of laws position. There has been no mention so far of international conventions, apart from the possible and implicit influence of the 1982 UN Convention
on the Law of the Sea.350 The 1952 Arrest Convention351 has been widely incorporated into domestic law, including in the United Kingdom.352 The Arrest
342 See paragraph 4.6.4 above.
343 26 Geo 3 c 90, s 5.
344 See the Merchant Shipping Act 1894, ss 11(a) and 13. On the provisions of the Merchant Shipping
Act 1854, see paragraphs 4.2.4 and 4.2.5 above.
345 Itself repealed and replaced by the Merchant Shipping Act 1995. See now section 8(2) of the 1995
Act. The centralised regime of registration still retains the concept of a port of choice but this is merely
cosmetic; see Chapter 2; paragraph 2.7.1. The ships’ register at a local port was typically located in the
custom house, often an impressive Georgian or Victorian building. Some of those buildings have been put
to other official use, others are used for commercial purposes (at least one is known to house a restaurant)
and yet others are semi-derelict. The historical records previously kept at the local ships’ registers are split
between local records offices and a collection at the National Archives at Kew.
346 It is believed that the geographical fiction was first applied to a foreign-registered ship in Lloyd v
Guibert (1865–66) LR 1 QB 115 (Ex Ch) 127 (Willes J). In support of this reference was made to the
English statutes 18 & 19 Vict c 91, s 21 and 24 & 25 Vict c 94, s 9. The concept of ships ‘belonging’ has also
strayed into international conventions, e.g., the 1926 Maritime Liens and Mortgages Convention, Article 1.
347 See paragraph 4.9.15 above. See also Andrew Tettenborn, ‘Maritime securities and the conflict
of laws – some problems’ [1980] LMCLQ 404 where, commenting on The Angel Bell (n 169) on the law
governing a foreign mortgage, the following appears as the first footnote: ‘The mortgages of British ships,
wherever they are, of course come under the Merchant Shipping Act 1894 ss 31–38.’
348 See Westlake (n 1) 183–191; also Morris (n 1). ‘The Transfer of personal property must be regulated by the law of the owner’s domicile, and if valid by that law ought to be so regarded by the Court of
every other country where it is brought into question’ (Liverpool Marine Credit Co v Hunter (1867–68) LR 3
Ch App 479, 483 (Lord Chelmsford)).
349 See paragraph 4.15.8 below.
350 See paragraph 4.6.5 above.
351 The International Convention for the Unification of Certain Rules relating to the Arrest of Seagoing Ships, Brussels, 10 May 1952.
352 See now the Senior Courts Act 1981, ss 20–24 in the United Kingdom. See section 4.7 (The cases
on ownership and arrest jurisdiction).
105
THE CONFLICT OF LAWS
Convention also forms the basis for the statutory arrest jurisdiction in New Zealand353 and Australia.354 The 1999 Geneva Convention on the Arrest of Ships came
into force in 2011; there are currently only 11 states that are parties. The 1926
Brussels Maritime Liens and Mortgages Convention355 has not been widely ratified –
and has not been ratified by the United Kingdom. The 1926 Maritime Liens and
Mortgages Convention recognises the significance of the law of the country of
registration in relation to mortgages.356 In The Halcyon Isle357 the 1926 Maritime
Lien and Mortgages Convention was referred to only to make the point that its
non-ratification by the United Kingdom reflected its policy of keeping the number
of maritime liens to a minimum.358
4.10.2 Further attempts have been made by international convention to bring unity
to the conflict of laws position in relation to the recognition and relative priority of
mortgages and maritime liens – but without widespread endorsement. The 1967 Brussels Convention on Maritime Liens and Mortgages was an attempted refinement of
the 1926 Convention but it has never come into force. The subsequent 1993 Geneva
Convention on Maritime Liens and Mortgages came into force in September 2004
after the required number of ratifications or accessions were reached. At the time of
writing, 29 states are parties. As with the 1926 Convention, the 1993 Convention
recognises the law of the country of registration in relation to mortgages.359
4.10.3 In its wide-ranging review of the authorities the Federal Court of Australia in The Cape Moreton referred briefly to the 1958 Geneva Convention on
the Law of the High Seas and the 1986 Geneva Convention on Conditions for
Registration of Ships in promoting the need for a ‘genuine link’ between a ship
and its country of registration. However, it was noted that the Conventions were
‘not concerned with the role of the register as an element of title or as a record
of title, in particular for the purposes of arrest’.360
4.10.4 The lack of traction achieved by the three conventions on Maritime Liens
and Mortgages contrasts with the success of the 2001 Cape Town Convention on
International Interests in Mobile Equipment and the related Aircraft Protocol,
which each came into force in March 2006. Currently, 71 states have ratified or
353 See Vostok Shipping Co Ltd v Confederation Ltd (n 201). See paragraph 4.7.3 above.
354 See The Cape Moreton (n 205). See paragraphs 4.7.4, 4.9.7 and 4.9.15 above. In that case it was
noted at [106] that the concept of ‘owner’ in the Arrest Convention was wider than registered owner.
355 The International Convention for the Unification of Certain Rules relating to Maritime Liens and
Mortgages, Brussels, 10 April 1926.
356 ‘Mortgages, hypothecations, and other similar charges upon vessels, duly effected in accordance
with the law of the Contracting State to which the vessel belongs, and registered in a public register either
at the port of the vessel’s registry or at a central office, shall be regarded as valid and respected in all the
other contracting countries’ (Article 1)
357 Bankers Trust International Ltd v Todd Shipyards Corporation (The Halcyon Isle) [1981] AC 221 (PC).
358 ibid 240F (Lord Diplock). The 1926 Maritime Liens and Mortgages Convention sets out a wider
list of maritime liens (taking priority over a mortgage) than applies under English law. See further Chapter
14, paragraph 14.5.17.
359 The International Convention on Maritime Liens and Mortgages, 1993, Article 2.
360 The Cape Moreton (n 205). The 1986 Geneva Convention on Conditions for Registration of Ships
is not yet in force. As indicated by the remarks of the Federal Court of Australia in The Cape Moreton,
the focus of that Convention, as of that of the 1958 Geneva Convention on the Law of the High Seas, is
public law rather than private law. The 1982 United Nations Convention on the Law of the Sea (Article 91)
also embodies the principle of ‘genuine link’.
106
THE CONFLICT OF LAWS
acceded, including the United Kingdom.361 The Cape Town Convention adopts a
radically different approach from the maritime conventions. It is not a conflict of
laws convention but creates a supra-national type of ‘international interest’.362 One
of the reasons for the success of the Cape Town Convention has undoubtedly been
the impetus produced by support of the manufacturers of wide-body aircraft, Airbus
and Boeing, together with other industry support363 and distinguished academic and
professional involvement in conceiving and completing the project.364 The issue of
whether ships should be included in the Cape Town Convention was there from
the start. The first draft included a reference to ships. This was deleted following
a view that the approach adopted by the Cape Town Convention was unnecessary
or inappropriate to ships.365 Professor Sir Roy Goode made an early plea for the
shipping industry to join the Cape Town party.366 Other commentators have noted
the contrast between the approaches of the two industries.367 At the time of writing
security interests over ships are being reviewed by an International Working Group
established by the Comité Maritime International (CMI).
4.10.5 Work is also being progressed under the auspices of the CMI, and is further
advanced, in relation to the international recognition of judicial sale of ships. This
is designed to avoid ships being re-arrested in other jurisdictions for pre-judicial
sale debts368 and also to ensure that the flag state de-registers a ship following a
judicial sale in another jurisdiction.369 A draft convention entitled ‘Draft International
Convention on Foreign Judicial Sales of Ships and their Recognition’ was prepared
at the CMI Assembly in Beijing in October 2012, was amended at subsequent
CMI assemblies in Dublin (2013) and Hamburg (2014) and was presented to the
361 The Convention and Aircraft Protocol were implemented in the United Kingdom with effect
from 1 November 2015 by the International Interests in Aircraft Equipment (Cape Town Convention)
Regulations 2015 (SI 2015/912).
362 Whether an interest which is completely independent of national law is achieved by the Cape
Town Convention has been questioned: see William Glaister, Robert Murphy, Marisa Chan, Ellie Donne
and Julian Acratopoulo, ‘Lex Situs after Blue Sky: is the Cape Town Convention the Solution?’ (2012) 1
Cape Town Convention Journal 3.
363 The project was sponsored from inception by UNIDROIT, which was joined, first, by the International Air Transport Association (IATA) and, subsequently, by the International Civil Aviation Organization (ICAO) as co-sponsors. There are also Protocols for rail equipment, space assets and mining and
construction equipment.
364 Professor Sir Roy Goode chaired the UNIDROIT Study Group; Jeffrey Wool chaired the Aviation
Working Group.
365 Principally from the United Nations Conference on Trade and Development (UNCTAD) and
the International Maritime Organization (IMO).
366 Sir Roy Goode, ‘Battening down your security interests: How the shipping industry can benefit
from the UNIDROIT Convention on International Interests in Mobile Equipment’ [2000] LMCLQ 161.
367 Andrew Tetley, ‘Security Interests in Ships and Aircraft’ [2006] NZLR 689; Ole Böger, ‘The Cape
Town Convention and Proprietary Security over Ships’ (2014) 19 Uniform Law Review 24. Graham
Vinter, David Lee, Gareth Price, Project Finance (Sweet & Maxwell 2013) at paragraph 11-030 note what
the authors refer to as the ‘curious distinction’ between ships and aircraft. The curiousness of the distinction can be explained by the historic difference in the way the law on proprietary interests has developed
in relation to the two types of asset.
368 See paragraph 4.7.5 above.
369 See The Acrux [1962] 1 Lloyd’s Rep 405 which arose from the refusal of the Italian registry authorities to delete an Italian-registered ship on the strength of an Admiralty Marshal’s bill of sale. The English
law position, i.e. that the Admiralty Marshal’s bill of sale transfers title free of all liens and encumbrances,
was established by The Tremont (1841) 1 WM Rob 163. See also The Cerro Colorado [1993] 1 Lloyd’s Rep 58.
107
THE CONFLICT OF LAWS
CMI in final form at the CMI Assembly in New York in May 2016. The mischiefs
at which the draft Convention are aimed are not issues in the English conflict of
laws because of the status given to Admiralty court sales370 and the long-standing
recognition of dispositions of interests in tangible movables in accordance with the
lex situs371 and, specifically, the recognition of a foreign judgment in rem.372 The
current Draft Convention defines a mortgage as ‘any mortgage or hypothèque on
a ship in the State of Registration and recognised as such by the law applicable in
accordance with the private international law rules of the State of Judicial Sale’.373
4.10.6 One further international convention that should be mentioned again374
is the Bustamante Code,375 not least because it has featured, alongside the 1926
Brussels Maritime Liens and Mortgages Convention, in the Brazilian litigation
related to the FPSO OSX 3.376 This has been adapted by a number of Latin
American countries and is a wide-ranging private international law convention
with provisions specifically relating to security over ships.377
4.10.7 Conventions that aim, amongst other things, to create international recognition of foreign-registered mortgages are essentially an extension of comity
(or possibly even the lex maritima). The fact that none of the Maritime Liens
and Mortgages Conventions has been ratified by the United Kingdom does not
indicate a motive to preserve an English conflict of laws lex situs rule in relation
to mortgages of foreign-registered ships. There has been no indication that this is
the English law position.378 Rather, the main obstacle to the United Kingdom’s
ratification has been its position on maritime liens.379
4.11 The general maritime law
4.11.1 While touching upon the effect (or lack of effect) of international conventions on the English conflict of laws issues it is appropriate to go further back and
be reminded that the ‘general maritime law’ (lex maritima) is, at least to some
extent, part of the English common law. Westlake380 attached considerable significance to it, citing remarks by Dr Lushington in The Eliza Cornish.381 The nature
370 See The Acrux (No 2) [1962] 1 Lloyd’s Rep 405 (PD & Adm). See further Chapter 14, paragraph
14.4.31.
371 Cammell v Sewell and the other cases referred to at n 10.
372 Castrique v Imrie (1860) 141 ER 1222, 8 CB NS 405 (Ex Ch); on appeal (1869–70) LR 4 HL
414. See paragraph 4.4.2 above.
373 The words ‘and recognised as such . . .’ are a source of potential confusion in the context of the
issues addressed in this chapter.
374 See paragraph 4.8.11 above.
375 The Convention on Private International Law (Bustamante Code), Havana 20 February 1928.
376 See section 4.14 (FPSO OSX 3 in Brazil).
377 Articles 274–284, in particular Article 278.
378 Pace certain remarks of Tomlinson J in The WD Fairway 1 (n 3) referred to in paragraphs 4.9.4
and 4.9.6 above. The general position is indicated by the cases referred to in section 4.6 (The cases on
foreign ship mortgages).
379 See paragraph 4.10.1 above.
380 (n 2) 191–194.
381 (1853) 1 Sp Ecc & Ad 36 164 ER 22. See also Graveson (n 1) 23, 24.
108
THE CONFLICT OF LAWS
of the general maritime law was however considered elusive in Lloyd v Guibert382
where Willes J said:
In truth, any general, much more any universal maritime law, binding upon all nations
using the highway of the seas in time of peace, except when limited as administered
in some court, is easier longed for than found.383
Willes J also stressed that, whatever the general maritime law was, it was in the context
of English law as administered and applied by the English courts. Tetley writing in
1985 regarded the lex mercatoria (law merchant) and the lex maritima (general maritime law) as ‘almost forgotten’ and lamented the move into ‘nationalistic shells’.384
4.11.2 In the context of the law of salvage Lord Denning MR sought to invoke
the general maritime law in The Tojo Maru:385
We should therefore eschew our common law notions and seek for the principles of
the maritime law. The Court of Admiralty has always encouraged those who go to the
rescue of others in distress. This is high policy.386
This was, however, rejected by the House of Lords.387 Lord Diplock in particular
roundly rejected the idea of the general maritime law forming part of English law
except in one narrow area:
Outside the special field of ‘prize’ in times of hostilities there is no ‘maritime law of the
world’ as distinct from the internal municipal laws of its constituent sovereign states,
that is capable of giving rise to rights or liabilities enforceable in English courts.388
4.11.3 Even if, contrary to the words of Lord Diplock in The Tojo Maru, the lex
maritima were to be a significant element generally in English law, it has been seen
in Chapter 1 that ship mortgages are not creatures of maritime law but initially
of the common law and now of statute389. It would therefore be surprising and
possibly anomalous if the lex maritima as such had a direct bearing on the issue
with which this chapter is concerned.
4.12 International insolvency
4.12.1 Various conflict of laws or other international or cross-border issues relating
to international insolvency are addressed in Chapter 15, especially: section 15.4
(The EU Insolvency Regulation and the significance of the COMI); section 15.5
382 (1865–66) LR 1 QB 115 (Ex Ch).
383 ibid 124, 125.
384 Tetley (n 160) 523, cited in Transol Bunker BV v MV Andrico Unity (The Andrico Unity) (1978) 3
SA 794, 803B.
385 NV BureaWijsmuller v The Owners of the MV Tojo Maru (No. 2) (The Tojo Maru) [1970] P 21 (CA),
[1969] 2 Lloyd’s Rep 193.
386 [1970] P 21 (CA), 62 (Lord Denning MR).
387 [1972] AC 242 (HL), [1971] 1 Lloyd’s Rep 341.
388 [1972] AC 242, 290 (Lord Diplock). For a discussion of the issue under United States law in the
context of salvage see The Honorable Paul V Niemeyer, ‘Applying Jus Gentium to the Salvage of the RMS
Titanic in International Waters’ in John D Kimball (ed), The Healy Lectures on Admiralty Law 2005–2015
(Informa Law 2016).
389 See Chapter 1.
109
THE CONFLICT OF LAWS
(Other cross-border juridictional issues); section 15.11 (Some European insolvency
regimes of note in a shipping context); section 15.12 (The effect of the EU Insolvency Regulation on ship mortgage enforcement); section 15.13 (The effect of the
UNCITRAL Model Law on Cross-Border Insolvency and the Cross-Border Insolvency Regulations on ship mortgage enforcement); and section 15.14 (Chapter 11
of the United States Bankruptcy Code).
4.12.2 As is suggested in Chapter 15390 certain provisions of the EU Insolvency
Regulation391 refer to the law of the register in ways that are unclear and potentially problematic.
4.13 The Blue Sky litigation
4.13.1 This book is not the place for a detailed examination of the conflict of
laws position in relation to the transfer of proprietary interests in aircraft; other
works should be referred to for that.392 Nevertheless it is necessary to look at some
aspects of the Blue Sky cases,393 not least because they refer to The WD Fairway 1.
Most of the interest is with that part of Blue Sky 2 that relates to the position of
a mortgagee of a United Kingdom registered aircraft. The case focuses on the
physical location of the aircraft at the time of execution of the mortgage. Before
looking at the case as it relates to the United Kingdom registered aircraft it is
worth briefly mentioning two other aspects of the litigation.
4.13.2 In Blue Sky 1 the validity of a purported transfer of title (not by way of
security) in an aircraft was addressed but on the basis of contractual issues that
made it unnecessary to consider the proprietary aspects.394
4.13.3 The location of one of the aircraft in Blue Sky 2 was unknown at the time
of execution of the mortgage, which was expressed to be governed by English law.
The mortgage was held to be valid on the basis English law applied, although the
reason for this conclusion is not expressly clear from the judgment. It could have
been an application of the principle in Dicey Rule 18(2).395 More likely, however,
it was an application of the Exception to Rule 133.396 The location of the aircraft
was not known, so as clearly to engage the wording of the Exception.397
390 Paragraphs 15.12.3–15.12.6.
391 Council Regulation (EC) 1346/2000 of 29 May 2000 on insolvency proceedings [2000] OJ
L160/1 (as available). This is to be recast by EP and EC Regulation (EU) 2015/848 (EC Doc 6500/96
of 20 May 2015 on insolvency proceedings [2015] OJ L141/19. See Chapter 15, section 15.4 (The EU
Insolvency Regulation and the significance of the COMI).
392 The main sources are: Dicey (n 1); Cheshire, North & Fawcett (n 1); Graham McBain (ed), Aircraft
Finance: Registration, Security and Enforcement Volume 2 (Thomson, Sweet & Maxwell) (hereafter in this
chapter ‘McBain’). Many of the other sources referred to in n 1 also touch upon aircraft but since most
of them were written the position has moved on because of the Blue Sky cases themselves and because of
the impact of the Cape Town Convention and Aircraft Protocol (see paragraph 4.10.4 above).
393 Blue Sky 1 (n 4) and Blue Sky 2 (n 4)
394 See McBain (n 392) A.13, ‘Conflict and property issues not addressed in Blue Sky 1’.
395 Blue Sky 2 [130], [151], [202]. Dicey Rule 18(2) states: ‘In the absence of satisfactory evidence of
foreign law, the court will apply English law to such a case’. See McBain (n 392) A.13.
396 See Rule 133 and its Exception set out in paragraph 4.1.5 above.
397 See paragraph 4.9.14 above in relation to the less clear reference to ‘casual’ in the Exception to
Rule 133.
110
THE CONFLICT OF LAWS
4.13.4 Another aircraft (the so-called ‘third aircraft’, registered on the United
Kingdom register) was located at Schiphol airport in the Netherlands when a mortgage, expressed to be governed by English law, was executed and registered. This
mortgage was held to give the mortgagee no proprietary claim against the aircraft.
The judge (Beatson J) held that Dutch domestic law applied to the mortgage.
Dutch domestic law requires security equivalent to a mortgage over an aircraft to
be in the form of a Dutch law hypotek. Dutch conflict of laws rules would look
to the law of the register to determine the validity of security over a non-Dutch
registered aircraft. This, however, would have required renvoi to be applied which
Beatson J firmly refused to do. He held that the validity of the mortgage had to
be determined in accordance with Dutch domestic law, as the lex situs, without
reference to Dutch conflict of laws rules.398 Beatson J reviewed the cases on renvoi
together with academic commentary and, in particular, the more tentative and factbased approach taken by Tomlinson J in The WD Fairway 1, which he rejected.399
He disapplied renvoi on the basis that not to do so – or at least to leave the issue
to be decided on a case-by-case basis – would create uncertainty.400
4.13.5 The facts of The WD Fairway cases and Blue Sky 2 have significant differences. In The WD Fairway the issues related to (i) the incidence by operation
of law of a proprietary interest short of legal title in a registered ship and (ii) a
voluntary transfer of title in an unregistered ship. Blue Sky 2 related to a voluntary
transfer of title (by way of mortgage) in a UK-registered aircraft. It is important
to bear this in mind when reading the judgment of Beatson J in Blue Sky 2. In
particular Beatson J stated:401 ‘In [The WD Fairway 1] at [93] and [103] Tomlinson J
rejected the submission that he regard the place of registration of a ship as its
situs.’ Whilst that is correct so far as it goes it does not, with respect to Beatson J,
reflect fully what Tomlinson J said in The WD Fairway 1. Paragraph [103] of the
judgment is one of the several places where Tomlinson J made the point that
on issues of registration the lex situs could have regard to the law of register402 –
issues that Tomlinson J was not required to address in The WD Fairway but that
Beatson J was addressing in Blue Sky 2. Tomlinson J clearly recognised that the
law of the register could not be ignored, at least in the context of ships, in respect
of matters which that law addressed. Beatson J in Blue Sky 2 did not pick up on
this theme, which was flagged by Tomlinson J in several obiter dicta scattered
398 Blue Sky 2 [151]–[185], [200], [203]. See McBain (n 392) A.13.
399 ibid [157]–[163] on the cases on renvoi; [164]–[185] specifically in relation to The WD Fairway 1
and The WD Fairway 2.
400 ibid [185]. The uncertainty identified by Beatson J contrasts with the uncertainty of applying the
domestic law of the situs to a habitually moving aircraft.
401 ibid [154]. Beatson J refers here to Dicey Rule 120 (‘a chattel is situated in the country where it
is at any given time’). In those parts of the judgment in The WD Fairway 1 to which Beatson J referred,
however, Tomlinson J had begun by referring to the two Exceptions (specific to ships and aircraft respectively) to Dicey Rule 129. As noted above at n 290 paragraph [90] of TheWD Fairway 1 incorrectly refers to
Dicey Rule 120 instead of to Rule 129. It is clear that Rule 129 rather than Rule 120 was being addressed
by Tomlinson J because it is Rule 129 which has the two Exceptions which Tomlinson J quoted. It is possible that a numbering error in the judgment (or the report) in The WD Fairway 1 might have led to some
confusion in Beatson J’s review of The WD Fairway 1.
402 See paragraph 4.9.12 above.
111
THE CONFLICT OF LAWS
throughout his judgment in The WD Fairway 1.403 The dicta in The WD Fairway 1
about the relevance of the law of the register and how the lex situs should not be
prevented from referring to it in respect of relevant issues may be seen as indicating a form of renvoi or, alternatively, as an issue of characterisation.404 Whilst it
is a pity that Beatson J did not reflect the approach indicated by Tomlinson J in
relation to the relationship between the lex situs and the law of the register, the
fact that he did not do so can perhaps be explained in the context of the overall
approach of Beatson J in his judgment. If the approach of Tomlinson J does indicate
a special form of renvoi, Beatson J’s firm rejection of renvoi would have prevented
him from adopting the approach, just as it prevented him from adopting the factbased approach of Tomlinson J to renvoi generally.405 On the other hand, if the
approach of Tomlinson J is in reality raising an issue of characterisation, that issue
could be more difficult to apply to aircraft than to ships because of their different history and background as regards proprietary interests – not least in English
domestic law.406
4.13.6 The effect of Blue Sky has been mitigated by implementation in the
United Kingdom of the 2001 Cape Town Convention on International Interests in
Mobile Equipment and the Aircraft Protocol.407 The implementing statutory instrument expressly side-steps the English law lex situs issue in relation to international
interests408 but the position at common law remains; the lex situs rule as applied
in Blue Sky still applies to English common law mortgages of aircraft.
4.14 FPSO OSX 3 in Brazil409
4.14.1 This is a book on English law and this chapter is specifically concerned
with the English conflict of laws. The international recognition of foreign mortgages is a cognate but different issue. The position in relation to international
conventions410 is testament to this, as is the recent and continuing litigation in
Brazil relating to the FPSO OSX 3, arising from the insolvency of the Brazilian
OGX group. The case has been heard at first instance and in the São Paulo
403 ibid.
404 See paragraph 4.9.13 above.
405 Renvoi was again rejected, in a different context, in Merck KGaA v Merck Sharpe & Dohme Corp
[2014] EWHC 3867 (Ch).
406 See section 4.2 (Property in ships under English domestic law) and section 4.3 (Property in
registered aircraft under English domestic law).
407 The International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015,
S1 2015/912. See paragraph 4.10.4 above on the Cape Town Convention.
408 Reg 6(3) of the Regulations provides:
the international interest has effect where the conditions of the Cape Town Convention and the Aircraft
Protocol are satisfied (with no requirement to determine whether a proprietary right has been validly created or transferred pursuant to the common law lex situs rule).
409 It is perhaps misleading and begs a question to refer to the FPSO as being ‘in Brazil’, since it is in
the exclusive economic zone but outside either the territorial limit or the contiguous zone; see the 1982
United Nations Convention on the Law of the Sea.
410 Section 4.10 (International conventions). The recognition of foreign mortgages under United
States law is expressly addressed by statute without any need to resort to international conventions or the
common law; see Chapter 1, paragraph 1.3.8, n 66 and paragraph 4.15.8. below, n 447.
112
THE CONFLICT OF LAWS
Appeals Court.411 It is being further appealed to the Superior Court of Justice in
Brasilia. The case arises against the background of low oil prices leading to serious
problems worldwide in the offshore oil exploration and production industry.
4.14.2 The OSX 3 is an FPSO412 owned by OSX Leasing BV, a Netherlands
company, and is registered in its name on the Liberian ships’ register. It is made
available by a 20-year charter or contract to another company in the same larger
group and is operating in the Brazilian exclusive economic zone.413 The chartering
company is in insolvency proceedings under Brazilian law;414 the owning company
is subject to insolvency proceedings in the Netherlands. OSX 3 is subject to a
registered Liberian mortgage in favour of Nordic Trustee ASA (‘Nordic’) securing
US$500 million of bonds placed in the Norwegian market. Banco BTG Pactual S/A
(a Brazilian bank acting through a branch in the Cayman Islands, ‘BTG’) brought
proceedings in Brazil against the registered owner of OSX 3 seeking payment of
an unsecured debt claim of approximately US$27 million. Nordic intervened as
mortgagee in those proceedings. In 2015 the Brazilian court of first instance held
Nordic’s Liberian mortgage to be invalid. Nordic appealed to the São Paulo State
Appeals Court but the appeal was not successful.
4.14.3 The main issues in the judgment of the Appeals Court can be summarised
as follows.415 Brazil is a party to both the 1926 Brussels Convention,416 and to the
Bustamante Code,417 each of which gives effect to the recognition of mortgages
registered in accordance with the law of the flag.418 Liberia is a party to neither
the Brussels Convention nor the Bustamante Code. Nordic’s mortgage was as a
411 Nordic Trustee ASA v Banco BTG Pactual S/A – Cayman Branch Decision No. 8848 of 3 February
2016 of the 13th Chamber of Private Law of São Paulo State Appeals Court, on appeal from the São
Paulo 29th Civil Court of Central Court.
412 An FPSO is a floating production, storage and offloading unit, in effect a combined production
unit and floating oil refinery.
413 i.e. within 200 nautical miles of the Brazilian coast but outside the 12 nautical mile territorial
limit. See the 1958 UN Convention on the Law of the Sea.
414 A dispute between the owner and the charterer, OGX Petróleo E Gás SA, found its way to the
English courts when the charterer sought to stay an English arbitration pursuant to Article 15 of the
UNCITRAL Model Law on Cross-Border Insolvency, as implemented by the Cross Border Insolvency
Regulations 2006: Nordic Trustee ASA v OGX Petróleo E Gás SA (Em Recuperaçăo Judicial) [2016] EWHC
25 (Ch). See Chapter 15, paragraphs 15.13.3 and 15.13.8.
415 This summary is based on a free translation from Portuguese. The discussion of the case is based
on dialogue with four Brazilian law firms: Basch & Rameh, Kincaid, Souza Cescon and Veirano.
416 The International Convention for the Unification of Certain Rules relating to Maritime Liens and
Mortgages, Brussels, 10 April 1926. See section 4.10 (International conventions).
417 The Convention on Private International Law (Bustamante Code), Havana, 20 February 1928. The
Bustamante Code is a wide-ranging conflict of laws convention among certain Latin American countries.
418 The Brussels Convention, Article 1 states:
Mortgages, hypothecations and other similar charges upon vessels, duly effected in accordance with the
law of the contracting State to which the vessel belongs, and registered in a public register either at the
port of the vessel’s registry or at a central office, shall be regarded as valid and respected in all the other
contracted countries.
The Bustamante Code, Article 278 states:
Maritime hypothecation, privileges and real guaranties, constituted in accordance with the law of the flag,
have extraterritorial effect even in those countries the legislation of which does not recognise nor regulate
such hypothecation.
113
THE CONFLICT OF LAWS
result not recognised by the Brazilian court.419 The Appeals Court did not regard
there to be sufficient evidence of an ‘international customary norm’ giving effect
generally to foreign mortgages. The position under various other domestic laws
was regarded as irrelevant. The description of risks in the prospectus for the bonds
referred to difficulties in enforcing ship mortgages in accordance with the law of
the place where the ship may be at the time of enforcement; this was regarded as
indicating that Nordic (or rather the bondholders for whom it acted as trustee)
had accepted the Brazilian law risks.420 There was consideration of the Brazilian
conflict of laws position, which appears to apply initially a lex situs approach but
with a lex domicilii approach in respect of mobile assets.421 In this case this lex
domicilii was regarded as Netherlands law, as the place of incorporation of the
owning company, OSX Leasing BV. There was evidence that Netherlands law
would have recognised the mortgage. The lex domicilii approach as an alternative
to the lex situs approach was held not to apply, however, on the grounds that the
FPSO was not regarded as mobile for these purposes because it was chartered on
a long-term basis to another company in the OSX group for exploration in the
Brazilian exclusive economic zone for 20 years.
4.14.4 The Appeals Court did not endorse certain aspects of the judgment at
first instance, which had refused to give effect to registration of the FPSO on
the Liberian register and hence the mortgage on the grounds that the Liberian
register was a ‘flag of convenience’, with BTG invoking the 1982 UN Convention on the Law of the Seas and the ‘genuine link’ requirement of Article 91.422
The judgment of the Appeals Court, rather, placed reliance on Liberia not being
a party to either the Brussels Convention or the Bustamante Code.423 There are
passages in the Appeals Court judgment that indicate that, regardless of flagging
choice and registered ownership, assets located in Brazilian waters on a long-term
419 The Brussels Convention, Article 14 states:
The provisions of this Convention shall be applied in each contracting State in cases in which the vessel
to which the claim relates belongs to a contracting State, as well as in any other cases provided for by the
national laws.
Nevertheless, the principle formulated in the preceding paragraph does not affect the right of the contracting States not to apply the provisions of this Convention in favour of the nationals of a non-contracting State.
This feature of the Brussels Convention, in particular the second part of Article 14, was not expressly
referred to in the judgment of the Appeals Court but it is implicit in the judgment.
420 This aspect of the judgment is only one of those which is contentious. The bond prospectus language was the general language of a type included in all such prospectuses in relation to debt secured by
ship mortgages. It is aimed at procedural difficulties with enforcement and not at a specific Brazilian law,
lex situs issue. Leaving this case to one side, mortgagees would not enforce a mortgage in Brazil out of
choice in any event. There are known to be two recent examples of major offshore assets being relocated
from Brazil to facilitate enforcement.
421 See paragraph 4.9.16 above for brief reference to the old lex domicilii theory in the English conflict
of laws.
422 See paragraph 4.10.3 above .
423 As noted in section 4.10 (International conventions) the Brussels Convention has not been widely
ratified. The Bustamante Code is an exclusively Latin American conflict of laws convention. Unlike Liberia, Panama is a party to both the Brussels Convention and the Bustamante Code.
114
THE CONFLICT OF LAWS
basis are essentially Brazilian assets that can and should be registered on Brazilian flag – and that if this is not done the parties must accept the consequences.424
4.14.5 A motion for clarification or reconsideration of the Appeals Court’s
decision was dismissed on 1 June 2016. The Appeals Court decision has caused
understandable concern among financiers of maritime assets operating in the
Brazilian offshore oil industry, where non-Brazilian ownership and registration is
common. There is a whiff of political risk about the judgment; it found in favour
of a Brazilian creditor at the expense of non-Brazilian financing parties.
4.14.6 The case has potential implications not just for assets operating in the
Brazilian offshore oil industry but also for internationally trading vessels that call at
Brazilian ports. These wider implications might be less dramatic, on the basis that
the Brazilian conflict of laws lex domicilii argument advanced by the mortgagees
would appear to have succeeded in the case of an internationally trading vessel.
Nevertheless, based on views expressed by a number of Brazilian lawyers, it is
respectfully suggested that the Appeals Court decision is wrong in principle. The
result of the appeal to the Superior Court of Justice will be awaited with great
interest. There are a number of issues to be taken on appeal, not least that the
FPSO operates in the Brazilian exclusive economic zone (i.e. within a limit of 200
miles from the shore) and not in either the territorial sea or the contiguous zone,
within the meaning of the 1982 United Nations Convention on the Law of the Sea.
4.14.7 If another case were to come before the Brazilian courts a different result
might arise, depending on the location of the court and the underlying facts. Further, Brazilian law relating to precedent is developing and is certainly not as rigid
as in common law jurisdictions.
4.14.8 It should further be noted that the Brazilian litigation in relation to OSX
3 is, in essence, related to recognition of foreign mortgages in a broad and general
sense. The case does not appear to have focused specifically on the location of the
FPSO at the time the Liberian mortgage was granted and registered – although,
as noted above, the decision attaches significance to the argument that the FPSO
was intended to be located in Brazil, or at least in the Brazilian exclusive economic zone, for a long period of time. Specific focus on the place where an asset
is at the time of the creation or transfer of a proprietary interest appears to be a
particular feature of the English conflict of laws, from Cammell v Sewell 425 to the
Blue Sky cases.426
4.14.9 The OSX 3 litigation might give impetus to a debate about whether the
Cape Town Convention should be extended to ships and maritime assets generally.427
424 The judgment refers to the possibility of foreign ownership (and non-Brazilian registration) with
ability to fly the Brazilian flag by reason of a bareboat registration. In these circumstances a Brazilian mortgage is not possible but only a mortgage registered on the non-Brazilian underlying register. The judgment
states that this does not lead automatically (emphasis added) to the recognition of the validity of the foreign
mortgage. Based on the judgment, such recognition would only be given if the jurisdiction of the foreign
flag is a party to either the Brussels Convention or the Bustamante Code. The Liberian registration of
the FPSO would doubtless have been acknowledged by Brazilian law in the regulatory and tax contexts.
425 n 13.
426 n 4.
427 See Paragraph 4.10.4 above. In addition to this debate there is probably a stronger and easier case
for there to be a Protocol to the Cape Town Convention relating to containers.
115
THE CONFLICT OF LAWS
Indeed, it raises the question of whether a Protocol to the Cape Town Convention
should operate in relation to ships and maritime assets, regardless of whether an
asset is or is not a ship for various purposes of domestic law. In the context of offshore assets in the oil and gas industries, it would also be necessary to address and
overcome the fact that the Cape Town Convention relates to ‘mobile equipment’,
in view of the finding so far in the OSX 3 case that the FPSO is not ‘mobile’, at
least for the purposes of Brazilian domestic law.
4.15 Conclusions on the English conflict of
laws position on lex situs
4.15.1 It will be amply apparent from this chapter that a number of aspects of
the English conflict of laws position relating to ships are confused and unclear.
This is most pronounced in relation to the priorities issues arising from the decisions in The Colorado428 and The Halcyon Isle.429 The general law maritime has long
ceased to have any significant impact, if it ever did, and attempts to promote the
recognition of foreign mortgages by international convention have not been very
successful – either in England or internationally.
4.15.2 A pernicious tendency in this area is the use of metaphors or analogies.
These cause confusion rather than clarity. The first example is those statements
in The Colorado that seek to compare a French law hypothèque to a maritime lien.430
Another is the geographical metaphor or fiction that a ship is somehow to be treated
as a floating piece of the territory of its state of registration.431 A third is the view
that aircraft are the same as, or are like, ships for certain purposes.
4.15.3 It is apparent from the analysis above that ships and aircraft are to be
treated differently as regards the incidence and transfer of proprietary interests.432
This is reflected by The WD Fairway cases and by the Blue Sky cases. It is also
consistent with the different historical development of the way proprietary interests
in each type of asset are treated under English law – although, apart from Tomlinson J’s brief reference to the British Register in The WD Fairway 1,433 this did not
feature in either piece of litigation. In relation to both ships and aircraft, however,
the potential reasoning arising from the reference to ‘casual’ in the Exception to
Dicey Rule 133 has not been sufficiently explored.434
4.15.4 The early and mid-twentieth century cases on expropriation or requisition
by government action have little light to shed on issues relating to voluntary transfers of proprietary interests.435 They are set against the background of a position in
428 [1923] P 102 (CA).
429 Bankers Trust International Ltd v Todd Shipyards Corporation (The Halcyon Isle) [1981] AC 221
(PC).
430 See paragraph 4.8.1 above.
431 See paragraphs 4.6.4 and 4.9.13 above.
432 See section 4.2 (Property in ships under English domestic law) and section 4.3 (Property in
registered aircraft under English domestic law).
433 See paragraph 4.9.15 above.
434 See paragraph 4.9.14 above.
435 See section 4.5 (The early/mid twentieth century cases on foreign government action).
116
THE CONFLICT OF LAWS
relation to sovereign immunity that has since changed436 – and in any event the
subject-matter of the cases is different.437
4.15.5 Hooper v Gumm438 and Liverpool Marine Credit v Hunter439 are overdue for
a re-assessment and do not necessarily withstand scrutiny as authorities in favour
of the physical lex situs.440
4.15.6 The commentaries have often been riddled with short-hand treatment,
elision, conflation and resulting confusion,441 with insufficiently clear focus on the
proprietary effect of voluntary transfer as opposed to other issues, such as government requisition and expropriation, and jurisdiction in criminal law.
4.15.7 There has never been any suggestion in case-law that the lex situs principle
would be applied to a mortgage of a UK or British registered ship in the way it
was applied in the Blue Sky cases442 to the mortgage of a UK registered aircraft.
The cases referred to in section 4.6 (The cases on foreign ship mortgages) do not
suggest that the lex situs principle would be applied to a mortgage of a foreignregistered ship – and indeed, are authority for the contrary view.
4.15.8 Is there after all, however, a distinction between British-registered ships
and other registered ships in relation to this issue? British ships have historically
been treated specially and were subject to a uniquely prescriptive registration
regime.443 The registration regime for British ships has in recent times changed in
two respects, which might have some bearing on the issue under discussion. First,
the obligation to register ships owned by qualifying persons444 ceased to apply in
1988.445 Secondly, the centuries-old system of registration at ports throughout the
United Kingdom was replaced by a central register maintained by the Registrar
General of Shipping and Seamen.446 It is submitted that, irrespective of whether
the comparatively recent change in the registration regime for British ships has
made a difference, the historical treatment of British ships does distinguish them
from United Kingdom-registered aircraft and indeed other chattels but nevertheless the position on lex situs and the transfer of proprietary interests that under the
law of the applicable register are capable of registration is ultimately no different
in relation to foreign-registered ships than in relation to British-registered ships.
The answer to the question put in paragraph 4.1.4(b) is therefore the same as the
436 The Philippine Admiral [1977] AC 373 and the State Immunity Act 1978, s 10. See paragraph
4.5.1 above.
437 Note in particular the reference to those cases in Trustees Executors and Agency Co Limited v IRC
[1973] Ch 254 and the treatment of that case in The WD Fairway 1; see paragraph 4.9.4 above.
438 n 114.
439 n 106.
440 See paragraphs 4.4.5–4.4.7 above.
441 Including Dicey (n 1) Chapter 24.
442 n 4.
443 See Chapter 2, section 2.3 (Registration) and section 4.2 (Property in ships under English domestic law). See also paragraph 4.9.16 above.
444 Latterly, the Merchant Shipping Act 1894, s 2.
445 The Merchant Shipping Act 1988, s 4.
446 The Merchant Shipping Act 1995, s 8(2). See paragraph 4.9.16 above.
117
THE CONFLICT OF LAWS
answer to the question put in paragraph 4.1.4(a) – even though the reasoning and
authority necessary to reach the same answer may be different.447
4.15.9 Is it significant that the aircraft mortgages in Blue Sky were, as English
law chattel mortgages, title transfer mortgages whereas a UK statutory ship mortgage is, in the authors’ view, a form of statutory ‘charge by way of legal mortgage’
rather than a title transfer mortgage?448 It is thought not: a statutory charge by
way of legal mortgage still conveys a proprietary interest449 even though it does not
transfer legal title. It is not necessary to rely on this formalistic distinction between
types of security in order to distinguish between ships and aircraft in this context.
4.15.10 The incidence or transfer of a proprietary interest that is not capable of
registration under the law of the ship’s register will be determined in accordance with
the domestic law of the physical situs, without reference to its conflict of laws principles.450
4.15.11 The answer to the questions posed in paragraph 4.1.4(a) and (b) above
is ‘no’ – i.e. the proprietary effect of a mortgage of a registered ship (or any other
transaction which is capable of registration in accordance with the law of the ship’s
register and that is registered), whether the ship is registered in the United Kingdom
or elsewhere, does not need to comply with the requirements of the law of the
physical situs in order to be valid – possibly provided that such law acknowledges
that the law of the ship’s register governs such matters.451
4.15.12 The proviso immediately above relating to the recognition by the law
of the physical situs of the law of the ship’s register in relation to transactions that
are capable of registration is included out of caution and to reflect remarks made
by Tomlinson J in The WD Fairway 1.452 Those remarks were obiter in view of the
facts in the WD Fairway cases. As indicated above, the conceptual basis for them
is not entirely clear.453 It is submitted that the English conflict of laws position is
that the creation or transfer of proprietary rights that require registration under the
law of the ship’s register will be determined in accordance with that law regardless
of the position taken by the law of the physical situs.
4.15.13 It should not be forgotten that the system of registration for British ships
means that the law of the place where the register is located is, on the basis of the
447 By way of comparison and contrast, the position of ship mortgages under United States law has
been regulated by statute, both as regards US-registered and foreign (non-US) registered ships. The Ship
Mortgage Act of 1920 (Merchant Marine Act, ch 250, 41 Stat. 1000, codified as 46 USC ch 25, §§ 911–
984 (5 June 1920), current version at 46 USC §§ 31301–31343 (2012)) which codified the position in
relation to ‘preferred mortgages’ was extended to foreign ship mortgages in 1954 (Act of 29 June 1954,
ch 419, 68 Stat. 323, codified as 46 USC § 951, current version at 46 USC § 31325)(2012)). There is no
suggestion that there is any lex situs issue in relation to mortgages over either US ships or non-US ships.
448 See Chapter 1, section 1.4 (The nature of the statutory mortgage).
449 See the wording of Dicey (n 1) Rule 133; paragraph 4.1.5 above. Even an equitable charge is ‘a
species of charge which is a proprietary interest granted by way of security’; Re Bank of Credit and Commerce International SA (No. 8) [1988] AC 214 (HL), 216 (Lord Hoffmann).
450 See above, paragraphs 4.9.3–4.9.11. It should not be forgotten, however, that in the WD Fairway
cases all parties agreed that the relevant system of law for determining the incidence of proprietary interests in the vessel prior to, at the time of, and after the purported transfer of the vessel was the lex situs.
Counsel for the underwriters had second thoughts about this concession.
451 Paragraphs 4.9.12 and 4.9.13 above.
452 ibid.
453 See paragraph 4.9.13 above.
118
THE CONFLICT OF LAWS
thesis put forward in this chapter, the law that governs the transfer of registrable
proprietary interests. For a British ship registered in a relevant British possession454
the law in question will be the law of that British possession.455 The centralisation
of the registration system in the United Kingdom456 means that, by reason of the
location of the Registrar General of Shipping and Seamen in Cardiff, the relevant
law for all United Kingdom-registered ships is the law of England and Wales.457
4.15.14 Where a marine asset is not registered as a ship:
(a) the domestic law of the physical situs determines the incidence or transfer
of a proprietary interest;458 and
(b) if the asset is outside the territorial jurisdiction of any state the incidence
or transfer will be governed by the applicable law.459
4.15.15 Finally, it should be remembered that this issue is about the proprietary, rather than the contractual, effect of a mortgage. As regards the contractual
undertakings contained in a deed of covenant or foreign mortgage the position
will be determined by the Contracts (Applicable Law) Act 1990 and the Rome
Convention for documents entered into on or after 1 April 1991 or by the Rome I
Regulation for contracts entered into on or after 17 December 2009. Accordingly,
it is possible to agree that contractual matters are governed by a law other than
the law of the ship’s register.460
454 The Merchant Shipping Act 1995, s 1(1)(c).
455 The private law provisions in the Merchant Shipping Act 1995, Schedule 1 can be extended by
Order in Council to apply to British possessions (see section 315 of the 1995 Act). Some British possessions, such as the Isle of Man and the Cayman Islands, have their own legislation dealing with the
registration and mortgaging of ships. It is submitted that the application of the law of the register to the
transfer of a proprietary interest would override any express choice of different law to govern the deed of
covenant as regards proprietary (rather than contractual) matters, so that the law of the register applies
to the proprietary effect of any charging clause in the deed of covenant. It is common in relation to ships
registered in British possessions and indeed registered on different registers, such as the Bahamas, which
follow the English law model of a statutory mortgage, for the deed of covenant to be expressed to be
governed by English law. On contractual, rather than proprietary, matters see paragraph 4.15.15 below.
When taking a mortgage over a ship registered on a different register – or even in a British possession –
local legal advice should be obtained.
456 See paragraphs 4.9.16 and 4.15.8 above.
457 Despite the devolution settlement and some increasing divergence between Welsh and English
law, for the purposes of the issues and areas which are the subject of this book, English law and Welsh law
currently remain one and the same. The position under the old system for registration at a specific port
in practice made no difference because the Merchant Shipping Act 1894 applied to the whole United
Kingdom with the result that English, Scots and Northern Irish law relating to the registered mortgages
of registered ships was in effect the same. In the case of mortgages of unregistered ships, however, the lex
situs rule applies so that the transfer or creation of a proprietary interest in such a ship located in Scotland
or Northern Ireland will be governed by Scottish or Northern Irish law, as applicable; the position in
relation to unregistered ships is obviously not affected by the centralisation of the system of registration.
458 See also Chapter 2, section 2.10 (The ship).
459 This statement is an extension, but it is thought an appropriate one, of Dicey (n 1) Exception to
Rule 133. See Rule 133 and its Exception set out in paragraph 4.1.5 above.
460 See n 455 in relation to the common practice of having deeds of covenant in respect of British
ships which are not United Kingdom ships and in respect of non-British registered ships governed by
English law. In relation to non-contractual matters, see Chapter 12, paragraph 12.11.3.
119
CHAPTER 5
Execution, secured obligations
and property covered
5.1 Parties
5.1.1 The parties to the mortgage will be the registered owner and the mortgagee.
The mortgage form is a deed poll rather than a deed inter partes, and therefore
only requires execution by the registered owner. If all the shares in the ship are
subject to the mortgage then the registered owners of those shares will jointly be
the parties to the mortgage. If the shares in the ship are owned severally, then
there will have to be a separate mortgage form signed for each registered owner
that is mortgaging its shares. The full name, address and principal place of business has to be stated on the mortgage form and this has to accord with the details
contained in the Register.
5.1.2 In the case of the mortgagee, the full name and address and principal place
of business must be stated. However, there is no restriction on the nationality of
the mortgagee and any corporation or other person or legal entity (whether or not
known to English law) can be the mortgagee.1
5.2 Execution
5.2.1 The mortgage form must be executed as a deed by the owner (be it an
individual or a corporation) and delivered to the mortgagee. If the mortgage is
executed by an owner who is an individual, then that execution must comply with
section 1 of the Law of Property (Miscellaneous Provisions) Act 1989, and the
execution clause on the mortgage form sets out these requirements.
5.2.2 If the mortgage is executed by a company to which the Companies Act
2006 applies, then the form of execution must comply with section 44 (Execution of Documents), section 46 (Execution of Deeds) or section 47 (Execution
of Deeds by Attorney).2 For limited liability partnerships (LLPs) Part 9 of the
Limited Liability Partnerships (Application of Companies Act 2006) Regulations
2009 (SI 2009/1804) applies Chapter 1 of Part 25 of the Companies Act 2006
1 Comstock v Harris (1887) 13 OR 407 (Ch).
2 The form of statutory mortgage distinguishes between and refers to the separate execution requirements of the laws of Scotland and Northern Ireland.
120
SECURED OBLIGATIONS AND PROPERTY COVERED
with such modifications as are necessary to apply it to LLPs. If the mortgage is to
be executed by a statutory corporation or a corporation formed by royal charter,
then the mortgage must be executed under the corporate seal, unless an alternative method of execution is provided for in the document of incorporation or the
corporation’s by-laws.
5.2.3 The Overseas Companies (Execution of Documents and Registration of
Charges) Regulations 2009,3 modifying section 44 of the Companies Act 2006, govern the execution of mortgages by an overseas company in England. Section 44(1)(b)
states that a document is executed by an overseas company ‘if it is executed in
any manner permitted by the laws of the territory in which the company is incorporated for the execution of documents by such company’. Section 44(2) states
that a document that:
(a)
(b)
is signed by a person who, in accordance with the laws of the territory in which
the overseas company is incorporated, is acting under authority (express or implied)
of that company, and
is expressed (in whatever form of words) to be executed by the company,
has the same effect in relation to that company as it would have in relation to a
company incorporated in England and Wales and Northern Ireland if executed
under the common seal of a company so incorporated. Section 44(5) provides
protection for a ‘purchaser’ in good faith for valuable consideration (which includes
a lessee, mortgagee or other person who for valuable consideration acquires an
interest in property) if a document purports to be signed in accordance with section 44(2).
5.2.4 Individual owners or a company can appoint an attorney-in-fact to execute
a mortgage on their behalf. The power of attorney must expressly give the attorney
the power to execute the mortgage as a deed, but although any such authority
must be itself set out in a deed, it may be of either a specific or general nature.4
5.2.5 An escrow is a written instrument evidencing some obligation between
two or more persons that is executed by one party (the obligor) and given on
the condition that the instrument will become effective only on the fulfilment of
some stated condition, such as the advance of funds. If that condition is satisfied,
the instrument may be delivered and it will then take effect. Otherwise, it never
comes into effect and may not be delivered.5 Generally, a ship mortgage may be
executed in escrow and will not be effective until the escrow condition is fulfilled.6
3 SI 2009/1917.
4 Powers of Attorney Act 1971.
5 AIB Group (UK) plc v Hennelly Properties Ltd Ch D, 18 May 2000, affirmed 1 December 2000 (CA).
6 Issues arising from leaving documents undated – which is not the same as executing documents in
escrow – are shown by Re Armstrong Brands Ltd (in Administration) [2015] EWHC 3303 (Ch). A loan
agreement and debenture were signed by a director and by another director and the company secretary
but were left undated. By the time they were dated one of the directors had ceased to be in office. The
documents were held to have been validly executed, distinguishing between execution and delivery (the
Companies Act 2006, s 46(2), which presumes execution and delivery to be simultaneous but allows for
the possibility that they are not).
121
SECURED OBLIGATIONS AND PROPERTY COVERED
5.3 The form of mortgage and obligations secured
5.3.1 In order to be registrable a ship mortgage must be in one of two prescribed
forms, namely Form MSF 4736, the ‘Mortgage of a Ship to Secure Account Current etc./Other Obligation’, or Form MSF 4737, the ‘Mortgage of a Ship to Secure
Principal Sum and Interest’. The 1995 Act also provides that the instrument creating a ship mortgage must be in a form prescribed by or approved under the
Registration Regulations. Regulation 57 deals with the form of mortgage and
provides that:
A mortgage produced for registration under Schedule 1 . . . shall be in a form approved
by the Secretary of State, in each case with appropriate attestation.
Although the layout or format of these mortgage forms has changed, the actual
text has changed little over the past 150 years.7 Practitioners have had to work
within the scope of the printed forms as best they can. Perhaps the time has come
to simplify the forms so that the transaction secured by the mortgage can be stated
in straightforward terms.
5.3.2 Form MSF 4736 secures an account current, that is, an account or arrangement between the mortgagor and the mortgagee where the balance secured may
fluctuate from time to time; Form MSF 4737 secures a fixed principal amount
and interest. Although it is usual for a ship mortgage to be granted to secure a
specific loan (quite often made for the purchase of the ship in question), longstanding practice has been to use the MSF 4736 account current/other obligation
form (or its predecessor) rather than the MSF 4737 principal sum and interest
form (or its predecessor). Form MSF 4737 is prescriptive and inflexible, securing
only a specified amount of principal and interest (at a fixed rate), requiring the
dates for repayment to be set out. As a result it is hardly ever used in practice; the
same applied to the old ‘principal sum and interest’ Form Nos. 11 and 11a under
the Merchant Shipping Act 1894. Where Form MSF 4736 (account current/other
obligation) is used there is no requirement to set out the full details of the transaction. Instead, the transaction may be defined by reference to the loan agreement,
other applicable documents and the deed of covenant that will set out details of
the transaction, the method of repayment and the basis of interest calculation.8
5.3.3 A mortgage can secure not only the repayment of a debt, but any other
obligation. So, for instance, in G & C Kreglinger v New Patagonia Meat & Cold
Storage Co Ltd Lord Parker said:9
7 But note the ability to secure ‘other obligations’ by Form MSF 4736 as an alternative to securing an
‘account current’; see paragraphs 5.3.3 and 5.4.6 below.
8 The old Form Nos. 12 and 12a of account current mortgage prescribed by the Merchant Shipping
Act 1894 referred in the printed language to the sums secured or ‘whether by way of principal or interest’.
Attempts by practitioners to expand this by adding the words ‘or otherwise’ into the printed language
were generally rejected by Registrars, leading practitioners to cover off the point by language in the space
provided in the printed form and/or in the deed of covenant. Form MSF 4736 addresses this issue by
including the words ‘or otherwise’ in the printed language.
9 [1914] AC 25 (HL), 47.
122
SECURED OBLIGATIONS AND PROPERTY COVERED
There might also be mortgages by way of security for something other than a money
payment or series of money payments, for example, mortgages by way of indemnity.
The 1854 Act10 provided that a mortgage could secure a loan ‘or other valuable
consideration’. Similar wording appeared in section 31(1) of the 1894 Act. The
courts have never decided what ‘other valuable consideration’ in this context means,
but in practice the Registrar has accepted mortgages securing all forms of contractual liability other than loans, for example guarantee and indemnity obligations and
obligations under acceptance and revolving credit facilities. If there was any doubt
as to the nature of the obligations that could be secured by a ship mortgage in
account current form, this doubt has been removed by the express words of paragraph 7(1) of Schedule 1 of the Merchant Shipping Act 1995, which provides:
A registered ship, or share in a registered ship, may be made a security for the repayment of a loan or the discharge of any other obligation.
The term ‘obligation’ includes any promise to do or not to do a particular act.11
5.3.4 Thus, there is a great deal of flexibility and latitude about what can be
secured by a statutory mortgage, subject to the limits imposed by the printed
form.12 Loans with a floating interest rate or with ability to switch from a fixed to
floating rate (and vice versa) can be secured. Loans that provide for the currency
of repayment to be in different currencies can also be secured. It seems that any
obligation can be secured if that obligation can be expressed as, or reduced to, a
liability to pay a sum of money – for example, by way of liquidated or unliquidated
damages for breach of a contractual undertaking.
5.3.5 Mortgages have sometimes been used to secure an obligation of the
mortgagor to transfer title to the ship in specified circumstances. Such mortgages
have been a feature of some leasing transactions where the lessee has control of
disposal of the leased ship through rights as the lessor’s sales agent. A mortgage
of this type operates as an effective negative pledge to encumber legal title and in
practice block a sale by the lessor/mortgagor in breach of the relevant contractual
provisions. It might also provide security to the lessee in the event of the lessor’s
insolvency. If there were to be a transfer in breach of such a provision the mortgage would secure a claim for damages (either unliquidated or, if specified, liquidated) payable by the lessor/mortgagor arising from breach of contract. Despite
the potential ability of the purchaser of a ship to obtain specific performance13
the ability of a mortgagee to rely on a mortgage to compel transfer of title to a
specified purchaser is uncertain.
10 The form of mortgage set out in Schedule I to the 1854 Act contained a note stating ‘Alter Covenant as may be necessary so as to secure a general Balance of Accounts or otherwise, as the Case may
require’.
11 Re British Concrete Pipe Association’s Agreement [1983] 1 All ER 203 (CA).
12 The Registrar has indicated some limited flexibility in allowing additional typed riders to more fully
describe the secured obligations. It is always necessary, however, to bear in mind the words of Bruce J in
The Benwell Tower (1895) 8 Asp MC 13, 72 LT 664 (Adm) 667, 669 about the need to keep within the
confines of the statutory form.
13 Behnke v Bede Shipping Co Ltd [1927] 1 KB 649; see Chapter 2, paragraph 2.1.2.
123
SECURED OBLIGATIONS AND PROPERTY COVERED
5.3.6 If a mortgagee itself has an option to purchase there are two principles
that are engaged. First, the rule against clogs on the equity of redemption and
unconscionable collateral advantages is likely to make the option unenforceable,
whether or not the mortgage purports expressly to secure the option.14 Secondly, the
rule against a mortgagee being able to exercise its power of sale to sell to itself.15
5.3.7 There is no reason in principle why a statutory mortgage cannot secure
liabilities of a third party where the mortgagor itself does not have any personal
liability by way of guarantee for the third party’s liabilities – i.e., a so-called ‘third
party charge’.16 Form MSF 4736 seems to give greater flexibility in this respect than
the old Form No. 12a prescribed by the Merchant Shipping Act 1894. The latter
form, by marginal note (a), indicated that the account current had to be between
the mortgagor and the mortgagee, which taken literally means that a third party
charge where the account current is between a third party and the mortgagee is not
contemplated.17 Form MSF 4736, when used with its account current alternative,
also indicates that the account current is between the mortgagor and the mortgagee.
However, Form MSF 4736 has an alternative ‘other obligation’ formulation that
points to greater flexibility and the ability to describe an ‘other obligation’ that
does not involve personal liability of the mortgagor to the mortgagee. There is still
some doubt based on the form, however, because a literal reading of section 2 of
Form MSF 4736 indicates that, as with an account current, an ‘other obligation’
must be between the mortgagor and the mortgagee. Leaving aside textual analysis
of the statutory form and its marginal notes, it is advisable for the mortgagor to
have personal liability to the mortgagee out of practical expediency. In a jurisdiction where it becomes necessary to enforce a mortgage, the concept of a third
party charge might be unknown and cause delay to the enforcement process (or
worse) – especially where it is necessary to have a monetary judgment against the
mortgagor. If, for commercial reasons, the mortgagor requires that it has no personal liability, in practice this can be accommodated by a limited recourse liability,
i.e. limited to the amount actually recovered by the mortgagee from the proceeds
of the ship. To give this full effect it would need to extend to the indemnities and
expenses for which the mortgagor would otherwise be personally liable under the
terms of the deed of covenant.
5.4 Multiple obligations
5.4.1 It is still not uncommon for a ship mortgage to secure a bilateral loan made
by a single mortgagee bank to the owner. However, it is increasingly common – and
14 Samuel v Jarrah Timber & Wood Paving Corp [1902] 2 Ch 1 (CA), affirmed [1904] AC 323 (HL);
Reeve v Lisle [1902] AC 461 (HL). (In the latter case an option to purchase in favour of a mortgagee
entered after the mortgage and not related to it was held to be valid.) See also Lewis v Love [1961] 1 WLR
261, [1961] 1 All ER 446. See further paragraphs 5.8.6–5.8.11 below.
15 See Chapter 12, section 12.5 (Sales to self or favoured buyers).
16 ‘A proprietary interest provided by way of security entitles the holder to resort to the property only
for the purpose of satisfying some liability due to him (whether of the person providing the security or a third
party) . . .’ (emphasis added): Re Bank of Credit and Commerce International SA (No. 8) [1998] AC 214,
226 E (Lord Hoffmann)
17 This did not always deter practitioners from using the old Form No. 12a to secure third party charges.
124
SECURED OBLIGATIONS AND PROPERTY COVERED
is probably now the norm rather than the exception – for secured shipping loans
to take syndicated form.18 In such a transaction there are multiple obligations owed
to different parties. The lenders are owed principal and interest (and other amounts
payable on contingencies, such as increased costs) on their several participations
in the loan. They are also owed their respective share of fees and indemnity payments, including to the extent they are called upon to indemnify the agent or the
security trustee. There might also be arrangers who wish to be secured for fees.
The agent and the security trustee, although having the benefit of a several indemnity from the lenders, will require an indemnity from the mortgagor and for that
indemnity to be secured, just as the indemnity from the mortgagor to the lenders
should be secured. There might be a related interest rate and/or currency swap
facility, provided by the same institutions as are lenders, or by different ones. The
agent and the security trustee might be different institutions, or the same institution acting in different capacities. The identity of the lenders will probably change
over the life of the transaction as initial lenders sell down to new lenders. The
same could happen in relation to the swap providers.
5.4.2 The need to accommodate what is in substance a number of different
transactions under a single statutory mortgage has led to the mortgage being
granted in favour of a security trustee holding for the benefit of the various creditor parties and for the statutory mortgage and the other documents to describe a
single ‘account current’ into which all the different elements are gathered.19 The
security trustee is the legal mortgagee; the various other creditor parties only have
an equitable interest.20
5.4.3 Another reason for having the mortgage granted in favour of a security
trustee is to ensure continuity of the security in circumstances where there is a
change in the identity of any of the other underlying parties – mostly notably and
usually a change in the lenders or the swap providers. The methods by which
18 This is often the case even when initially there is only one lender; the use of a syndicated form of
document rather than a bilateral form assists subsequent selldown.
19 The use of a single mortgage to secure a number of different obligations should not obscure the
need for intercreditor and priorities issues to be addressed among the different creditors. This is either
done in an intercreditor agreement – or quite frequently, where all the relevant creditors are a party, by
language in the facility agreement itself.
20 Even where security is held by a security transferee banks in some jurisdictions require to be named
on the face of the mortgage for regulatory or other reasons. In civil law jurisdictions which do not have a
trust concept there can be legal and practical difficulties – of differing levels of seriousness – in security
being held by a trustee. For example, a mortgage over a Greek-flag ship must be registered in favour of
all the creditor parties, which makes subsequent transfers cumbersome because an amendment to the
mortgage is required. Where a mortgage is registered in favour of a security trustee even though, as stated
above, only the security trustee as registered mortgagee is the legal mortgagee the ability of other creditor
parties to take direct and independent action against the owner in relation to the secured debt (but not
the security itself) is a matter of contract to be determined by the terms of the underlying document. The
long-standing position in the syndicated loan market is that individual lenders have an independent right
to sue for that portion of the syndicated debt which is owed to them. This position was held not to be
the case in the Hong Kong case Charmway Hong Kong Investment Ltd v Fortunesea (Cayman) Ltd [2015]
HKCFI 1308, 28 July 2015. It is widely thought that the decision is incorrect and would not be followed
by an English court; out of caution the Loan Market Association (LMA) has amended its forms of facility
agreement. In English law bond issues the position has customarily been different from that in syndicated
loans, namely that only the bond trustee can sue; see Elektrim SA v Vivendi Holdings 1 Corporation [2008]
EWCA Civ 1178 (CA), [2009] 1 Lloyds Rep 59.
125
SECURED OBLIGATIONS AND PROPERTY COVERED
original lenders leave a syndicated loan agreement and new lenders come in vary
but they frequently involve novation.21 Novation of a secured obligation (i.e., in this
context, the release of the obligation owed to the original creditor and the creation
of a new obligation owed to the new creditor) runs the risk of the security being
released.22 If the facility contemplates further advances it is necessary to ensure that
new lenders who, under the terms of the method of transfer, become obliged to
make further advances are secured for those advances. Having the security held by a
security trustee for the benefit of all lenders (and, where applicable, swap providers)
from time to time allows changes in the identity of the underlying beneficiaries of
the security to occur without the security being lost; the security continues to be
held by the trustee for the benefit of the class of lenders (or swap providers) from
time to time. This does not work if the security is held by a security agent rather
than a security trustee because an agency is representative and transparent whereas
a trust is separate and independent. It is not possible to be an agent for a party
not identified at inception.23
5.4.4 The gathering together of a number of transactions involving different
liabilities to different parties into a single ‘account current’ between the mortgagor and the security trustee involves in effect the creation of a separate ‘parallel
debt’ between the mortgagor and the security trustee, which is distinct from the
multiple underlying debts created by the transaction documents. It will be stated
in the documents that the parallel debt (of the one part) and the other debts (of
the other part) are indeed distinct but that satisfaction of one of them reduces or
extinguishes the other to the same extent. The need to accommodate the security
for a typical syndicated loan into the account current mortgage form coincides
with the use of parallel debt to address the position in jurisdictions where the
concept of the trust is unknown; in such jurisdictions the holding by a security
trustee of security for the benefit of underlying beneficiaries that are owed money
might not work because of a lack of common identity between the parties owed
money and the holder of the security.24 This issue is addressed by the creation of
21 See the form of Senior Multicurrency Term and Revolving Facilities Agreement for Leveraged
Acquisition Finance Transactions (Senior/Mezzanine) published by the Loan Market Association (LMA).
This provides for alternative methods of transfer by novation or ‘assignment and assumption’.
22 The Law of Property Act 1925, s 116 states, ‘. . . a mortgage term shall, when the money secured by
the mortgage has been discharged, become a satisfied term and shall cease’. It is open to doubt, however,
whether this applies to registered ship mortgages. See judgment of Lord Lloyd in The Maule [1997] 1 WLR
528 (PC) indicating that sections 101 and 103 at least of the Law of Property Act 1925 do not apply to
mortgages of registered ships; see Chapter 11, paragraph 11.16.4. Replacement of one creditor by another
through novation ought in principle to be an issue which can be covered by drafting of the original loan and
security document – at least as regards the contractual position between mortgagor and mortgagee – if not
so as to ensure continued effective security. Other issues are, of course, engaged where a surety is involved,
including where a mortgage secures a guarantee or is by way of third party charge. See AG Guest and Ying
Khai Liew, Guest on the Law of Assignment (2nd edn, Sweet & Maxwell 2015) paragraph 1–71 (where this type
of novation is referred to as a ‘creditor novation’). See further paragraph 5.6.7 below on suretyship issues.
23 Where syndicated loans involve related swap transactions it is sometimes the case that the drafting
of the documents does not contemplate the security being held on trust for replacement swap providers
in the future in the same way as future lenders are contemplated and accommodated in the structure of
the security. This requires care, since it can create a risk to the security for the swap liabilities on a novation of the swaps.
24 See paragraph 5.4.2 above, n 20.
126
SECURED OBLIGATIONS AND PROPERTY COVERED
a parallel debt in favour of the security trustee itself in its own capacity, rather
than in a representative capacity.25
5.4.5 Whilst the loan, and especially the syndicated loan, is overwhelmingly the
most common method of financing ships’ debt capital markets (DCM), transactions involving bonds of various types secured by a mortgage on a ship are seen
in a number of different contexts and markets. Examples include ‘project bonds’
(where there is a long-term charterparty or other contract to service the debt) and
bonds placed in the Norwegian market. Recently the Enhanced Equipment Trust
Certificate (EETC) used in aircraft finance has migrated to the shipping context
in the form of the Enhanced Maritime Trust Certificate (EMTC). The mortgage
will be granted in favour of a trustee for the bondholders from time to time in a
similar way to security granted to a trustee in a syndicated loan.
5.4.6 The greater flexibility provided by Form MSF 4736 in allowing for ‘other
obligations’ as an alternative to the ‘account current’, as compared with the old
Form No. 12a, means that it is not necessary to try to describe every transaction
as giving rise to an account current in order to satisfy the tyranny of the form.
The desirability of creating a parallel debt in any event where security is held by
a security trustee, and the continuation of old habits, will mean that the account
current alternative will continue to be most commonly used. However, a transaction
involving a contingent liability such as a guarantee or counter-indemnity, which
does not naturally have the features of an account current, might more appropriately be accommodated under the ‘other obligation’ alternative. The current form
of account current/other obligation statutory mortgage has been improved slightly
from the old form required by the Merchant Shipping Act 1894 but is still nonetheless unnecessarily prescriptive and inflexible.
5.5 Change of parties
5.5.1 The position in relation to a syndicated (or bond) transaction where change
of lending or swap parties is contemplated within the scope of the transaction is
addressed in section 5.4 (Multiple obligations).26
5.5.2 The position in relation to transfer of mortgages addressed in Chapter 9
covers the issues on transfer of a bilateral facility and, as regards the transfer of the
mortgage itself, applies equally where the mortgage is held by a security trustee.27
If a security trustee is to be replaced it will be necessary for the statutory mortgage
to be transferred to, and registered in the name of, the new security trustee. It
is also necessary to ensure that the trust over the security continues in existence
notwithstanding the change in the identity of the security trustee.28
25 To the extent there might be residual doubt that a novation on substitution of creditor parties operates
to release security even when held by a security trustee the use of parallel debt provides additional comfort.
26 The position is harder in relation to bilateral facilities where the absence of a trust of the security and clear drafting contemplating a change of lender might, as a matter of construction, mean that
advances made by a new, transferee lender are not secured. See Chapter 9, paragraph 9.3.6.
27 On the transfer procedure for a registered mortgage see Chapter 9, paragraph 9.3.1.
28 See the Trustee Act 1925, s 40 which provides for continuity where the appointment of a new
trustee is made by deed.
127
SECURED OBLIGATIONS AND PROPERTY COVERED
5.6 Change of obligations
5.6.1 An issue encountered frequently in practice is whether security continues in
full force and effect where the underlying facility is amended. This depends on the
nature and extent of the amendment. Minor amendments should not cause a
problem. Protective wording in the original transaction documents that refers to
the security continuing in place notwithstanding any amendment and, in particular,
documents being defined or referred to as they may be amended, varied or supplemented from time to time are also of comfort. In this context it is prudent practice,
when referring in the form of statutory mortgage to the facility agreement and the
deed of covenant, to refer to them as may be amended, varied or supplemented
from time to time. However, if an amendment is so substantial that in effect it
involves a new obligation being incurred that is in addition to, and was not contemplated by, the original transaction documents, new security is advisable. Since
it is not possible to amend or supplement a statutory mortgage it is necessary in
these circumstances for a new mortgage to be executed and registered, with the
amending documentation stating that, as between the parties, it takes effect with
the same priority as the original mortgage.
5.6.2 The form of statutory mortgage ‘to secure an Account Current etc./other
obligation’ (MSF 4736) potentially allows more flexibility in this respect than
the old Form No. 12a prescribed by the Merchant Shipping Act 1894.29 There is
some flexibility inherent in the concept of ‘account current’ in any event but the
modern form allows the description of an ‘other obligation’, which appears to be
sufficiently wide to permit an ‘all moneys’ obligation to be described and secured.
This should mean that, at least as a matter of contractual construction, a more
relaxed view can be taken about amendments and even new obligations than is the
case where an account current is described by reference to specified documents.30
5.6.3 Where new security is taken it is always preferable to leave existing security
in place and take in addition new ‘precautionary’ security. Any new security runs
the risk of being vulnerable under applicable pre-insolvency hardening periods. This
is determined by the terms of applicable insolvency law, i.e. the law under which
formal insolvency proceedings in relation to the mortgagor are most likely. There is
also the risk of maritime claims intervening ahead of new security but this is only
a concern, at least in terms of English and similar laws, if a claim form in respect
of a statutory lien has been issued before the registration of the new precautionary security.31 This points to carrying out searches in those jurisdictions where the
issue of a claim form in respect of a statutory lien is most likely. Maritime liens
always rank ahead of a mortgage, irrespective of timing.32 This in practice is only
likely to be done in circumstances where there is a particular concern about the
solvency of the mortgagor.
29 See paragraph 5.4.6 above.
30 As pointed out in paragraph 5.4.6, however, it is likely that the ‘account current’ alternative will
continue to be used, at least in the context of syndicated loans, rather than the ‘other obligation’ alternative.
31 The Monica S [1968] P 741, which related to sale rather than mortgage.
32 See Chapter 10 on liens generally.
128
SECURED OBLIGATIONS AND PROPERTY COVERED
5.6.4 In many circumstances it will be difficult to determine whether the underlying obligations have merely been amended so as to continue to be secured or
whether the changes are so radical as to constitute a new obligation, making new
security advisable.33 Use of terminology, such as ‘refinancing’, suggesting new obligations should be avoided (although the use of words to try to disguise reality is
of no avail). The form of the account current mortgage does not assist in resolving
the dilemma. The form of statutory mortgage does not require the maturity of
the debt, the repayment instalments, the interest rate or the events of default to
be stated and it is not practicable or usual for these details to be included in the
statutory form. Even if they are, such details are not shown on the ship’s register
and so are not available to third parties.34 It can therefore be argued that, as far
as the position of other secured and unsecured creditors is concerned, there is no
harm done by even substantial changes to the terms of the secured debt because
other creditors were not on notice of, and so did not rely on, the original terms.
Whether to require new security in such circumstances is a matter of judgement on
which there is no clear judicial authority.35 The advance of new money or a major
change to the terms of repayment requires particular care. In contrast, waivers or
minor amendments of other undertakings must be less sensitive. The test must be
whether a variation or amendment is so radical that, as a matter of construction,
it is a new obligation that is outside the scope of the existing obligations and the
contemplation of the parties when the original security was granted. As between
the parties, in principle, the issue is one of contractual construction and no more,
and one would expect a greater degree of tolerance than applies in relation to the
‘purview’ doctrine in respect of suretyship.36 Given, however, that the issue relates
to proprietary interests and security – and the position of unsecured creditors of
the mortgagor – practitioners naturally tend to be cautious.
5.6.5 If there is already a subsequent mortgage the position of the subsequent
mortgagee and the terms of any existing priorities or intercreditor agreement should
be considered to ensure that the priority of the superior mortgagee is preserved in
33 In this context it is worth noting in passing Urban Ventures Ltd v Simon Robert Thomas and Nicholas
O’Reilly as Administrators of Black Ant Company plc [2016] EWCA Civ 30. The case relates to tacking of
further advances (see Chapter 7, section 7.9 (Tacking of further advances)) specifically in the context
of the Land Registration Act 2002, ss 48 and 49. It is illustrative of the approach the courts will take on
whether amending documents create new rights and obligations and so has tangential relevance to the
issues under discussion here.
34 All that appears from a search of the ship’s register is that a mortgage is registered against the ship
showing the date and the name of the mortgagee, with no further details being available. In Brown v Tanner
(1867–68) LR 3 Ch App 597, 602 (Wood L J), it was indicated, without being decided, that the registration
of a statutory mortgage is not notice of underlying financial terms in a deed of covenant because third parties had no access to the deed of covenant. The current regime for registration of company charges which
provides for copies of charge documents to be available from Companies House and from the company’s
office (see Chapter 6, section 6.3 (Companies Act 2006) especially paragraphs 6.3.1 and 6.3.11) is unlikely
to affect the issue to the extent that notice to other creditors of financial terms is concerned because financial terms of the type relevant here would not normally be set out in a modern deed of covenant.
35 After some different views expressed by leading counsel in the late 1970s and early 1980s a consensus emerged at that time that some reliance could be placed on references in the statutory mortgage
to the facility agreement and the deed of covenant as may be varied, supplemented or amended from time
to time (or similar language). However, the construction of the particular documents and the underlying
circumstances need to be considered in each case.
36 See paragraph 5.6.7 below.
129
SECURED OBLIGATIONS AND PROPERTY COVERED
all respects.37 If precautionary new security is taken by the superior mortgagee it will
usually be necessary to supplement that agreement by having agreement on priorities
with the existing subsequent mortgagee to ensure that the precautionary new security
ranks with substantive priority notwithstanding its registered priority.38 A mortgagee
needs to be especially vigilant in relation to amendments where there is a subsequent registered mortgage. If no precautionary new registered security is expressly
taken, language confirming that the new or amended obligations are secured by the
existing security is effective as a matter of contract between the mortgagor and the
mortgagee and, whether stating so expressly or not, would probably be construed to
create new security for any new obligation that might not be secured by the existing
security. Such new security39 would rank behind an already existing and registered
mortgage and, not being registered, would be equitable rather than legal. The terms
of the priorities or intercreditor agreement need to address the position between the
mortgagees contractually – and might need to be supplemented or amended in the
circumstances. Where the existing security expressly contemplates further advances
they will be secured by the existing security, subject to any limitation in the priorities
agreement and to the position on ‘tacking’ of further advances.40
5.6.6 If the amended terms of the underlying financing involve the making of
further advances it is also necessary to bear in mind the issues that determine
whether the mortgagee can ‘tack’ the further advances onto its existing security.41
5.6.7 Different and additional issues arise where the security is in respect of a
guarantee given by the mortgagor or is a third party charge without a guarantee.42 If
the obligations of the underlying debtor are amended it is necessary to have regard
to the protectiveness of the law towards sureties. The rule in Holme v Brunskill 43
operates such that a variation in the underlying obligations without the consent of
the guarantor will release the guarantor (and security granted by the guarantor). The
separate and more modern doctrine of ‘purview’ means that the courts have regard
to whether additional obligations incurred by the underlying debtor are covered
by a guarantee (and hence any security for a guarantee) without the guarantor’s
agreement and whether any applicable protective boiler plate language works in
this context.44 The doctrine must also apply where security is given by way of
37 See Chapter 7.
38 See Chapter 7, paragraph 7.2.2. An alternative is to require the existing subsequent mortgagee to
release its security and re-register a new mortgage with registered priority after both the original and new
mortgages of the prior mortgagee. This will not be popular with a subsequent mortgagee because of the
risks referred to in paragraph 5.6.3. It is rarely done in practice.
39 Such new security would need to be registered as such pursuant to the Companies Act 2006 if
the mortgagor is incorporated in England and Wales; see Chapter 6, section 6.3 (Companies Act 2006).
40 See Chapter 7, section 7.9 (Tacking of further advances).
41 ibid.
42 See paragraph 5.3.7 above. Issues of corporate capacity and authorisation in relation to guarantees
and third party security are not addressed in this book.
43 (1877–78) LR 3 QBD 495 (CA).
44 See in particular Trade Indemnity Co Ltd v Workington Harbour and Dock Brand [1937] AC 1; Triodos
Bank NV v Dobbs [2005] 2 Lloyd’s Rep 588; CIMC Raffles Offshore (Singapore) Ltd v Schahin Holdings SA
[2013] 2 Lloyd’s Rep 575. See also the decision of the High Court of Australia in Public Trustee of Queensland v
Fortress Credit Corp (Aus) II Pty Ltd [2010] 241 CLR 286, commented on in Richard Hooley, ‘Security,
security trusts and the amendment of syndicated credit agreements: lessons from Australia’ [2012]
LMCLQ 145. That case largely turned on the provisions of the Queensland security registration regime.
130
SECURED OBLIGATIONS AND PROPERTY COVERED
third party charge rather than as security for a guarantee.45 It is also necessary to
beware in certain circumstances of the doctrine of ‘unusual features’, which can
operate to relieve a guarantor from liability.46
5.7
Usual terms of the mortgage (the collateral deed of covenant)
5.7.1 As noted above, the forms of mortgage are prescribed. The form of deed of
covenant (or ‘collateral deed’) used to supplement the bare provisions of the prescribed forms of mortgage is not specifically authorised by statute.
5.7.2 The prescribed forms of statutory mortgage contain little more than an
acknowledgment of the debt to which the mortgage relates, and a promise to pay
that debt with interest. This statement is equally true whether the principal sum
or account current forms are used. For instance, the form of statutory mortgage
‘to secure an Account Current etc./other obligation’ provides:47
Now I/we the mortgagor(s) in consideration of the advance made or to be made to
me/us by the mortgagee(s), bind myself/ourselves to pay to the mortgagee(s) the sums
for the time being due on this security whether by way of principal, interest or otherwise at the time(s) and in the manner mentioned above.48
Now I/we the mortgagor(s) in consideration [ ] bind myself/ourselves to [ ].49
For the purpose of better securing to the mortgagee(s) the sums/obligations mentioned above, I/we hereby mortgage to the mortgagee(s) [ ] (figures and words) shares
of which I/we are the owners in the ship described above and in its appurtenances.
There is no place on the statutory form on which to include additional clauses,
such as the usual undertakings that would normally be included in a mortgage or
charge document relating to other types of property.50 For this reason, the statutory
form of mortgage will usually be accompanied by a deed of covenant executed by
the same parties as a document collateral to the mortgage.51 This document will
include detailed obligations agreed by the parties.52 A form of deed of covenant is
set out in Appendix 3. A mortgage is not invalid by reason only of the detailed
stipulations of the mortgage being contained in a separate instrument, rather than
appearing in the instrument itself.53
5.7.3 The form of collateral deed of covenant is not prescribed under the legislation, nor is it necessary (or possible) to register the deed with the Registrar once
it is executed. The validity and enforceability of the collateral deed is accepted.54
45 See paragraph 5.3.7 above.
46 See Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773; North Shore Ventures Ltd v Anstead
Holdings [2011] EWCA Civ 230; Deutsche Bank AG v Unitech Ltd [2016] EWCA Civ 119.
47 Form MSF 4736; see Appendix 2.
48 This is the ‘account current’ alternative.
49 This is the ‘other obligation’ alternative.
50 The Registrar has indicated that additional riders will be permitted to include details required by
the printed form for which there is insufficient room on the printed form itself but this does not extend to
including details which are not contemplated by the printed form. See however The Benwell Tower and n 12.
51 See, generally, The Cathcart (1867) LR 1 A & E 314 (Adm) 308.
52 See Chapter 8.
53 The Benwell Tower (1895) 72 LT 664 (PD & Adm).
54 Rusden v Pope (1868) LR 3 Ex 269, 37 LJ Ex 137, 18 LT 651, 16 WR 1122 (Ex); The Benwell Tower
(1895) 72 LT 664 (PD & Adm).
131
SECURED OBLIGATIONS AND PROPERTY COVERED
5.7.4 A standard form of deed of covenant is an unobjectionable ‘collateral advantage’ and does not fall foul of the rule against clogging the equity of redemption.55
5.8 Special fees and ‘upside’ sharing arrangements
5.8.1 Ship lenders frequently wish to charge their customers substantial fees or
other payments. The sort of fees or payments with which we are concerned here
are not standard banking fees such as arrangement fees or commitment commission but fees that in one way or another, and whether directly or indirectly, give
the lender something that might look closer to the interest of an owner than a
lender. These types of arrangements arise frequently in work-outs or restructurings.
In return for concessions, especially if debt is being written off, a lender might
require at least the possibility on a future market upturn of receiving a substantial
payment. If, in a restructuring, the ship is transferred to a ‘white knight’56 owner
the lender might expect to receive a payment calculated by reference to surplus
of asset value or proceeds above the secured debt. Sometimes lenders wish to
receive amounts calculated by reference to surplus earnings after debt service and
operating expenses have been met. These types of arrangement have to be considered and documented carefully. There are potential risks of a lender liability nature.
These are addressed in Chapter 13.57 This chapter is only concerned with the
narrower issue of the enforceability of such payments and certain other payments
under English law. There are five potential issues:
(a)
(b)
(c)
(d)
(e)
the rule against penalties;
collateral advantages that are struck down as unconscionable;
clogs on the equity of redemption;
extortionate credit transactions under the Insolvency Act 1986, s 244; and
the law on post-default interest and break-funding indemnities.
5.8.2 The rule against penalties only arises where there is a breach of contract.58
If the sum is payable in a variety of circumstances, some of which would involve a
breach of contractual duty and others of which would not, the rule against penalties is only engaged in the former circumstances and not the latter.59
5.8.3 The enforceability of an obligation to pay a very substantial fee arose in
the context of the financing of a large Spanish commercial property development
55 See paragraphs 5.8.6–5.8.11 below.
56 A ‘white knight’ is an expression sometimes used to refer to an owner who assists a lender in a
work-out by taking ownership.
57 In summary, the risks addressed there are: the risk of the lender being in partnership with the
owner by operation of the Partnership Act 1890, s 2(3); the risk of debt being subordinated by operation
of the Partnership Act 1890, s 3; wider ‘equitable subordination’ risk, especially in the United States; and
the risk of the lender being held liable as an owner, with particular reference to pollution liability risks in
excess of levels of insurance cover.
58 Export Credits Guarantee Department v Universal Oil Products Co [1983] I WLR 399, 403 (Lord
Roskill).
59 Cooden Engineering v Stanford [1953] 1 QB 86; Bridge v Campbell Discount Co Ltd [1962] AC 600.
See also Edwin Peel, Treitel on the Law of Contract (12th edn, Sweet & Maxwell 2007) 20–131, referred to
in Edgeworth Capital (n 60) [60].
132
SECURED OBLIGATIONS AND PROPERTY COVERED
in Edgeworth Capital (Luxembourg) SARL v Ramblas Investments BV.60 The fee was
expressed to be payable in a number of different circumstances, namely (to paraphrase) a mandatory or voluntary prepayment of specified loans, including repayments
following acceleration or on any earlier date on which such prepayment or repayment
fell to be made. It was held that the particular event giving rise to the fee becoming
payable was not a breach of contractual duty by the party liable. It was an event of
default arising from a default under another facility, i.e. a cross-default. Since the
rule against penalties only applies to breaches of contract it did not apply in the
circumstances.61 That was enough to dispose of the issue but the judge, Hamblen J,
went on to consider the position if he was wrong on that point. He held that the fee
was not a genuine pre-estimate of loss but even so was enforceable because ‘the clause
is commercially justifiable and that its predominant function is not deterrence’.62
5.8.4 Since Edgeworth Capital was decided the law on penalties has been deconstructed and rebuilt by the Supreme Court in Cavendish Square Holding BV v Talal
El Makdessi, ParkingEye Limited v Beavis.63 Although the rule against penalties has
not been abolished it has been recast so as to focus not on the traditional dichotomy
between whether a clause is a genuine pre-estimate of loss (and so unobjectionable)
or intended to deter default (and so unenforceable as a penalty) but, rather, on
whether it can be justified as giving effect to the legitimate interests of the innocent
party to have a primary obligation performed and is not exorbitant in amount.64
5.8.5 Edgeworth Capital and now Cavendish Square give comfort to lenders who
want to receive a large fee in a broad range of circumstances, including default and
enforcement, sale, total loss and refinancing. The rule against penalties will only
be engaged at all if the particular circumstances involve a breach of contract by
the party liable. Even then, it is less likely to fall foul of the rule against penalties
after Cavendish Square than it would have done before.
5.8.6 The rule against penalties is not related specifically to security. On the
other hand the rules against unconscionable collateral advantages and ‘clogs on the
equity of redemption’ are specifically related to security and the unenforceability of
undertakings which are inconsistent with the mortgagor’s right to redeem. The old
law relating to ‘clogs on the equity of redemption’ is difficult and confusing.65 It
has its origins when usury was prohibited by statute. In Kreglinger v New Patagonia
60 [2015] EWHC 150 (Com Ct) affirmed on appeal [2016] EWCA Civ 412.
61 [2015] EWHC 150 (Com Ct) [68], [69].
62 ibid [71]–[74].
63 [2015] UKSC 67. In Edgeworth Capital [2015] EWHC 150 (Com Ct) at [56] Hamblen J referred
to Christopher Clarke LJ’s judgment in the Court of Appeal hearing of Cavendish Square (Makdessi v
Cavendish Square Holdings BV [2013] EWCA Civ 1539, [2013] 2 CLC 968).
64 It is hardly necessary to say that this very brief summary does not do justice to a judgment of 316
numbered paragraphs, including a joint leading judgment by Lord Neuberger and Lord Sumption of
115 paragraphs and a judgment by Lord Mance of 98 paragraphs. Among many of the significant issues
addressed is the relationship between the rule against penalties and the doctrine of relief from forfeiture.
The law on penalties has, since Cavendish Square, been further reviewed by obiter remarks of Snowden J
in Hayfin Opal Luxco 3 SARL v Windermere VII CMBS Plc [2016] EWHC 782 (Ch) [131]–[142].
65 See generally Halsbury’s Laws of England (5th edition, 2010) volume 77 paragraphs 317–323.The most
significant cases immediately leading up to Kreglinger were: Santley vWilde [1899] 2 Ch 474 (CA); Noakes &
Co Ltd v Rice [1902] AC 24 (HL); Bradley v Carritt [1901] 2 KB 550 (CA), reversed [1903] AC 253 (HL);
Samuel v Jarrah Timber & Wood Paving Corp Ltd [1902] 2 Ch 1 (CA), affirmed [1904] AC 323 (HL).
133
SECURED OBLIGATIONS AND PROPERTY COVERED
Meat and Cold Storage Co Ltd 66 the law was somewhat clarified and the doctrine cut
back. It was held that a ‘collateral advantage’ in a mortgage transaction is perfectly
valid, subject to certain exceptions. Lord Parker gave three circumstances in which
a collateral advantage would be held invalid:
In every case in which a stipulation by a mortgagee for a collateral advantage has, since the
repeal of the usury laws, been held invalid, the stipulation has been open to objection, (1)
because it was unconscionable, or (2) because it was in the nature of a penal clause clogging
the equity arising on failure to exercise a contractual right to redeem, or (3) because it was
in the nature of a condition repugnant as well to the contractual as to the equitable right.67
5.8.7 What is a ‘collateral advantage’? It could be a share of surplus earnings.68
On the basis of later cases it is certainly a payment in the nature of a bonus or
premium in a loan transaction. Applying Lord Parker’s principles in Kreglinger a
premium of over 50% has been struck down.69 On the other hand, a provision
in a loan requiring additional payments by reference to the sterling/Swiss franc
exchange rate was upheld as not being ‘unfair or unconscionable’.70
5.8.8 Until Jones v Morgan71 it was thought that Kreglinger had limited or reduced
the doctrine of clogs on the equity of redemption in the manner described in paragraph 5.8.6 above.72 Jones v Morgan, however, appeared to revive the principle in
more general terms in a way that goes beyond the circumstances in which a collateral
advantage can be struck down – or it at least gives prominence to the third limb
of Lord Parker’s dictum. The owner of land agreed with the mortgagee that part
of the land would be sold, with the proceeds being applied towards repayment of
the debt and that the mortgagee would receive a half share in the remaining land.
A majority of the Court of Appeal held that this was not unconscionable so as
to fall foul of the first limb of Lord Parker’s test in Kreglinger but, per Chadwick
LJ, was repugnant so as to fall foul of the third limb (in the nature of a condition
repugnant as well to the contractual as to the equitable right)73 and, per Lord
Phillips MR (in a short judgment), was simply a clog on the equity of redemption.
5.8.9 Jones v Morgan indicates that an agreement whereby a mortgagee receives a portion
of vessel sale or total loss proceeds in excess of the amount of its loan is potentially vulnerable to being struck down as unenforceable irrespective of any issue of unconscionability.
5.8.10 Significantly in the context of restructurings where vessel ownership
does not change, Chadwick LJ and Lord Phillips MR did not regard the fact that
the relevant agreement took place three years after the mortgage was granted as
relevant to save the agreement from being unenforceable.74
66 [1914] AC 25 (HL).
67 ibid 56 (Lord Parker)
68 In Santley v Wilde [1899] 2 Ch 474 (CA) a share of profits, and security for it, were upheld. This
was disapproved in Noakes & Co Ltd v Rice [1902] AC 24 (HL) but was then approved in Kreglinger.
69 Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166.
70 Multiservice Bookbinding Ltd v Marden [1979] Ch 84.
71 [2001] EWCA Civ 995.
72 See also Knightsbridge Estates Trust Ltd v Byrne [1939] Ch 441, [1938] 4 All ER 618 where the Court
of Appeal declined to intervene in a case between commercial parties.
73 In the context of his third limb, Lord Parker in Kreglinger at page 60 referred to Samuel v Jarrah
Timber and Wood Paving Corporation [1904] AC 323 (HL) where an option to purchase was struck down.
74 The rule against clogs on the equity of redemption does not apply, however, where the mortgage
and the other transaction are clearly separate and independent of each other: Reeve v Lisle [1902] AC 461.
134
SECURED OBLIGATIONS AND PROPERTY COVERED
5.8.11 The lesson from Jones v Morgan is that a direct interest in vessel proceeds is not advisable. Any amount claimed by the mortgagee, if the mortgagee
expects to receive it in circumstances following a breach of contract (whether
or not it is also payable in other circumstances), should be of such an amount
that it does not offend against the modern rule against penalties,75 it should not
be so large as to be ‘unconscionable’76 and it should be expressed as a fee of an
amount payable in circumstances that reduce the risk of it being held to be a
direct interest in the vessel or its proceeds. If these issues can be navigated around
it is still necessary to address the lender liability issues referred to in Chapter 13.
5.8.12 Extortionate credit transactions under the Insolvency Act 1986, s 244
are addressed in Chapter 15, paragraph 15.10.18.
5.8.13 Issues relating to post-default interest and break-funding indemnities are
addressed in Chapter 11, section 11.9 (Post-default interest and break-funding).
5.9 Property covered by the mortgage
5.9.1 The mortgage creates security over the ship and its ‘appurtenances’77 and this will
include all equipment owned by owner.78 The mortgage itself does not create security
over earnings or insurances; these need to be assigned either by the deed of covenant or
a separate deed of assignment.79 In Coltman v Chamberlain80 it was held that the mortgage
extended to all articles on board the vessel at the date of the mortgage that are necessary
to the navigation of the ship or the prosecution of the adventure without which no prudent
person would sail, and any further articles brought on board in substitution for them
subsequent to the mortgage. However the term ‘appurtenances’ will not include fuel oil.81
This point was conclusively decided by Sheen J in The Pan Oak, where it was necessary
to decide whether bunkers were included in the term ‘appurtenances’. It was held:82
The property mortgaged to the plaintiff was- ‘. . . the ship, her boats, guns, ammunition, small arms and appurtenances.’ Giving those words their ordinary and natural
meaning they do not include the bunker oil.
5.9.2 To address this point the deed of covenant will usually include a wide definition
to extend to all items of property then owned by the owner or subsequently acquired
75 Edgeworth Capital (Luxembourg) SARL v Ramblas Investments BV (n 60); Cavendish Square Holding
BV v Talal El Makdessi, ParkingEye Limited v Beavis (n 63). See paragraphs 5.8.3–5.8.5 above.
76 Kreglinger v New Patagonia Meat and Cold Storage Co Ltd (n 66). The requirements for lack of
unconscionability based on Kreglinger as regards collateral advantages have echoes in the different context
of the post-Cavendish rule against penalties.
77 See Forms MSF 4736 and MSF 4737 in Appendix 2.
78 The Dundee (1823) 1 Hagg 109, 166 ER 39 (Adm) 122 (Lord Stowell); Re Salmon and Woods ex
parte Gould (1885) 2 Morr 137 (DC).
79 See Chapter 7, section 7.3 (Security over collateral assets) and Chapters 16 and 17.
80 [1890] 25 QBD 328. On the meaning of ‘appurtenances’ see further The Humorous,The Mabel Vera
[1933] P 109 (PD & Adm) 115; The Dundee (1823) 1 Hagg 109; Gale v Laurie (1826) 5 B&C 156. These
cases are all referred to in Nigel Meeson and John A Kimbell, Admiralty Jurisdiction and Practice (4th edn,
Informa 2011) Chapter 10, paragraphs 10.69 and 10.70.
81 The Honshu Gloria (No. 2) [1986] 2 Lloyd’s Rep 67 (Adm), in which Sheen J held that fuel on board
the ship was not subject to the mortgage; The Silia [1981] 2 Lloyd’s Rep 534 (Adm) and The Eurosun and
Eurostar [1993] 1 Lloyd’s Rep 106 (Adm).
82 [1992] 2 Lloyd’s Rep 36 (Adm) 38.
135
SECURED OBLIGATIONS AND PROPERTY COVERED
by it that become part of the ship. The effect of this wide definition and the mortgaging
clause in the deed of covenant is to create at least an equitable mortgage on the additional
property.83 Additional property required for the use and operation of the ship, supplies
and fuel (if owned by the owner)84 will be part of the ship and covered by the mortgage.
If equipment on board the ship is owned by a third party (e.g. a leasing company) or
the fuel is owned by the time charterer, or indeed the bunker supplier, then this property
cannot be subject to the mortgage or charge created by the deed of covenant.85
5.9.3 Equipment, such as electronic navigation equipment, that is owned by the
mortgagor can be easily moved from ship to ship, and, where this is so, the equipment
should be specifically described in order to ensure that the mortgage extends to it.86
Intellectual property rights, including in relation to computer software, should go with
the ship where they relate to standard equipment. Where, however, there is unusually
sophisticated equipment on a specialist ship which is owned by the mortgagor, the
mortgagee should exercise due diligence if it wishes to ensure that it obtains security over
such rights. Where the equipment is owned by a third party (paragraph 5.9.2 above and
paragraph 5.9.8 below) the intellectual property position needs to be considered in that
context. Mere furnishings (particularly those of an ornamental nature) will not normally
be seen as falling within the scope of appurtenances.87 If it is intended to obtain security
against such property, the deed of covenant should specifically mortgage these items.
5.9.4 In The Riva Rima88 containers on lease to a company that owned ships
have been held not to be ‘goods . . . supplied to a ship for her operation’ within
the meaning of the Senior Courts Act 1981, s 20(m), with effect that there was
83 A mortgage drafted widely enough to catch after-acquired property takes effect in equity upon
the property being acquired (Tailby v Official Receiver (1888) 13 App Cas 523 (HL) 529 and Holroyd v
Marshall (1862) 10 HL Cos 191, [1861–73] All ER 414,418). If the owner were an individual or general
partnership and not a limited company or limited liability partnership, a mortgage or charge on personal
property would usually be regulated by the Bills of Sale Acts 1878 and 1882. However if the property
charged is part of a ship required for its use or operation then these Acts will not apply because of the
exclusion in section 4 of the Bills of Sale Act 1878 of all ‘transfers or assignments of any ship or vessel or
any share thereof ’. See also Gapp v Bond (1887) 19 QBD 200 (CA) 203.
84 The Saint Anna [1980] 1 Lloyd’s Rep 180 (Adm); The Silia [1981] 2 Lloyd’s Rep 534 (Adm); The
Pan Oak [1992] 2 Lloyd’s Rep 36 (Adm), 533.
85 The Span Terza [1984] I WLR 27 (HL), [1984] 1 Lloyd’s Rep 119; The Saetta [1994] I All ER 851
(Adm), [1993] 2 Lloyd’s Rep 268. See also The Hull Rope Works Co Ltd v Adams (1895) 73 LT 446 (DC)
in relation to the effect of a mortgage on equipment subject to a hire purchase agreement. Bunker supply
contracts frequently contain a retention of title clause, as seen to dramatic effect in litigation following the
insolvency of OW Bunker. See PST Energy 7 Shipping LLC v OW Bunker Malta Ltd (The Res Cogitans)
[2016] UKSC 23. That insolvency has led not only to litigation in England going as far as the Supreme
Court but also to litigation in a variety of jurisdictions, including unsuccessful attempts in the United
States by the physical suppliers of bunkers, without a contract with the shipowner, to assert a maritime lien.
86 Re Salmon andWoods, ex parte Gould (1885) 2 Morr 137 (DC); The Humorous, The Mabel Vera [1933]
P 109 (PD & Adm) 115. The cases related to fishing nets. In the first case it was found that no particular
nets were appropriated to the ship, so that nets which happened to be on board at the time of enforcement
were not ‘appurtenances’ covered by the mortgage. In the second case a similar result was reached in
relation to nets on board the ship but as regards the other ship it was found that it had nets on board and
appropriated to her when the mortgage was granted, so that such of those nets as remained on board were
subject to the mortgage. These were also dicta to the effect that nets substituted for originally appropriated
nets would be subject to the mortgage. Nets in general store and not appropriated to any ship were not
subject to the mortgage of either ship.
87 St John v Bullivant (1881) 45 UCQB 614, 617.
88 [1987] 3 All ER 1 (CA), [1987] 2 Lloyd’s Rep 106, affirmed [1988] 1 WLR 758 (HL), [1988] 2
Lloyd’s Rep 193.
136
SECURED OBLIGATIONS AND PROPERTY COVERED
no jurisdiction for the leasing company to arrest a ship owned by the container
lessee when it defaulted on the container leasing agreement. Any mortgage of a
ship would clearly not extend to containers owned by a third party. The case also
indicates, although related to the right to arrest, that even if containers are owned
by the mortgagor89 they are not sufficiently closely connected to the ship to constitute ‘appurtenances’ and so be covered by a ship mortgage unless specifically
mortgaged by the deed of covenant (which would be unusual in practice).
5.9.5 A ship mortgage will not in the ordinary case attach to cargo,90 although it
may so attach to the interest of the mortgagor in the cargo, if the mortgage clearly
provides to this effect.91 It would be unusual today for the mortgagor to own the
cargo that it carries in its ship.92
5.9.6 In the case of passenger ships and large yachts there may be a greater problem in deciding the extent to which items such as furniture, gymnasium equipment,
televisions and other moveable equipment owned by the owner and not merely leased
to it are included in the mortgage.93 In practice, the position with respect to such
items is normally made clear by the deed of covenant, which will also extend the
charge to all other property brought on to the ship by the owner, whether in substitution or in addition to property on board at the time the mortgage was granted.
5.9.7 On a sale by the Admiralty Marshal, if property of the owner were to be
found not to be subject to the mortgage, either because it does not fall within the
scope of ‘appurtenances’94 or because the deed of covenant is not drafted so as to
include it95 the Admiralty Marshal would be obliged to give the owner the property
itself, or its value, by one means or another.96 The form of Admiralty Marshal’s
bill of sale excludes equipment on hire and states:
If any equipment of any kind on board the vessel is on hire, it shall not be included
in the sale but the Buyer shall make his own arrangements in respect of such equipment with its Owners, and if he fails to do so shall indemnify the Admiralty Marshal
in respect of any claims arising from such failure.
5.9.8 The issue of a mortgagee’s potential liability to third party owners of
tangible property on a ship is addressed in Chapter 13.97 The presence on a ship
or other maritime structure of large, specialised equipment owned or financed
by third parties, such as production ‘topsides’ on floating production storage and
offloading units (FPSOs), regasification plant on shuttle and regasification vessels
(SRVs) or floating storage and regasification units (FSRUs), or drilling equipment
on drillships or rigs, gives rise to issues requiring contractual agreement among the
relevant parties. Equivalent issues arise in relation to any property of the mortgagor
itself that is not intended to be covered by the mortgage.
89
90
91
92
93
94
95
96
97
This would be unusual as containers are almost always leased.
Brancker v Molyneux (1841) 3 Man & G 84, 133 ER 1067 (CP).
Langton v Horton (1842) 1 Hare 549, 66 ER 1149 (VC); Curtis v Auber (1820) 1 Jac &W 526, 37 ER 468 (Ch).
See Chapter 14, paragraphs 14.3.30–14.3.36 on dealing with cargo on a ship under arrest.
See St John v Bullivant (1881) 45 UCQB 614.
Paragraph 5.9.1 above.
Paragraph 5.9.2 above.
See further Chapter 14, paragraphs 14.4.27 and 14.4.28.
Chapter 13, section 13.6 (Interference with third party property).
137
CHAPTER 6
Registration of mortgages
6.1 Introduction
6.1.1 In many Commonwealth countries a comprehensive system of registration
of security interests in personal property has been created by statute but, as yet,
in the United Kingdom there is no central registry for the registration of security
interests,1 apart from the registration regime of the Companies Act 2006 for
charges created by companies incorporated in any part of the United Kingdom
and limited liability partnerships. In the United Kingdom there are separate registries for recording security interests in land,2 ships,3 aircraft,4 personal property
(chattels) owned by an individual or a partnership,5 agricultural equipment,6
trademarks,7 patents8 and registered designs.9
6.1.2 The position in relation to ship mortgages is that a mortgage on a ship
registered in Part I of the Register or Part II (fishing vessels registered with full
registration) must be registered with the Registrar of Shipping and Seamen (the
‘Shipping Registrar’); failure to register does not affect the validity of the mortgage
but only its priority. However, a mortgage granted by a limited company (that is
a company registered under the Companies Act 2006 or one of the preceding
Companies Acts) on a ship, whether registered under the Merchant Shipping Act
1995 or not, has to be registered with the Registrar of Companies within 21 days
of the mortgage being granted otherwise it will be void as against any liquidator,
administrator or creditor of the mortgagor.10 A mortgage on a ship granted by a
limited liability partnership also has to be registered under the Companies Act 2006
(as applied to limited liability partnerships)11 but a mortgage on a ship granted
by an individual or a partnership does not require registration under the Bills of
1 See section 6.5 (Reform of the registration system?).
2 Land Charges Act 1972 and Land Registration Act 2002.
3 Merchant Shipping Act 1995.
4 Mortgaging of Aircraft Order 1972 (SI 1972/1268).
5 Bills of Sale Act 1878 and Amendment Act 1882.
6 Agricultural Credits Act 1928.
7 Trade Marks Act 1994.
8 Patents Act 1977.
9 Registered Designs Act 1949.
10 Companies Act 2006, ss 859A and 859H.
11 The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 (SI
2009/1804) Part 9.
138
REGISTRATION OF MORTGAGES
Sale Act 1878 because section 4 of that Act specifically excludes ships from the
requirements of the Act.
6.2 Merchant Shipping Act 1995
6.2.1 The statutory provisions relating to the registration of ship mortgages are
set out in Schedule 1 of the Merchant Shipping Act 1995 and the Registration
Regulations.12
Schedule 1, paragraph 7 provides:
(1) A registered ship, or a share in a registered ship, may be made security for the
repayment of a loan or the discharge of any other obligation;
(2) The instrument creating any such security (referred to in the following provisions of this Schedule as a ‘mortgage’) shall be in the form prescribed by or
approved under the registration regulations;
(3) Where a mortgage executed in accordance with subparagraph (2) is produced
to the registrar, he shall register the mortgage in the prescribed manner.
(4) Mortgages shall be registered in the order in which they are produced to the
Registrar for the purposes of registration.
Regulation 58 of the Registration Regulations provides:
Where a mortgage executed in accordance with regulation 57 (Form of mortgage) is
produced to the Registrar for registration, he shall:(a) register the mortgage, and
(b) endorse on it the date and time it was registered.
It is the practice of the Shipping Registrar to accept electronic versions by pdf of
mortgages and other documents for registration. The Act and the Registration
Regulations are silent on this so it appears to be a valid practice. It does, however,
marginally increase the risk of fraud.13
6.2.2 As mentioned in Chapter 5 the mortgage has to be in one of the forms
approved by the Secretary of State.14 When the mortgage has been duly executed
and delivered as a deed the mortgagee should then deliver the mortgage to the
Shipping Registrar and on payment of the prescribed fee15 the Shipping Registrar
will enter details of the mortgage in the Register and endorse details of the registration on the mortgage form and return this to the mortgagee.
6.2.3 The mortgagee will also usually request the Shipping Registrar to issue
a transcript of the Register which will set out details of the ship, the registered
owner and all registered mortgages.
6.2.4 The Shipping Registrar may only register mortgages in the prescribed
form on ships registered in Part I or Part II (fishing vessels registered with full
12 The Merchant Shipping (Registration of Ship) Regulations 1993 (SI 1993/3138), as amended by
SI 1994/541, SI 1998/1915, SI 1998/2976, SI 1999/3206, SI 2011/1043, SI 2012/1809 and the British
Overseas Territories Act 2002, s 2(3) (the ‘Registration Regulations’).
13 See paragraph 6.2.6 below.
14 Regulation 57: Forms MSF 4736 and MSF 4737.
15 Merchant Shipping (Fees) Regulations 2006 (SI 2006/2055).
139
REGISTRATION OF MORTGAGES
registration). Mortgages cannot be registered on fishing vessels registered in Part II
of the Register with simple registration, on small ships registered in Part III of the
Register or ships that are not registered at all.
6.2.5 It is not possible to register any other document granting a security interest
in the ship such as a collateral deed of covenant setting out the usual mortgage
covenants or a deed of priority varying the order of priority. In The Benwell Tower
Bruce J said:16
A registered mortgage must, according to the provisions of the Merchant Shipping
Acts, be in a particular form prescribed by the Board of Trade, or as near thereto as
circumstances permit, and if any mortgage of any ship is made in any form, or contains
any particulars other than the form and particulars prescribed, no registrar shall be
required to record the same without the express directions of the Commissioners of
Customs. . . . The forms presented by the Board of Trade do not admit of such modifications as are necessary to meet the varied exigencies of business. It has consequently
been the practice for a long series of years, in cases where ships have been mortgaged,
for the detailed stipulations of the mortgage to be contained in a separate instrument.
Indeed The Commissioners of Customs, in their instructions to the Registrars of Shipping (Maude & Pollock, p.43) state: The registrars will advise parties interested that
so far as relates to the dealings with and the title to the ship, no advantage whatever
can be gained by the use of longer or more cumbrous instruments. If there are collateral arrangements between the parties, they should be carried into effect by separate
instruments.
Bruce J then referred to certain cases where such collateral agreements had been
entered into: Brown v Tanner,17 The Innisfallen18 and The Cathcart.19 In more recent
cases it has been accepted by the courts that a mortgage on a ship is constituted
by the prescribed mortgage form and the collateral deed of covenant or similar
security document.20
6.2.6 Registration of the mortgage is evidenced by the endorsement of details of
the registration on the mortgage form and by a transcript of register. In Baumvoll
Manufactur Von Karl Scheibler v Furness Lord Herschell said:21
Although the Legislature has now taken greater security to see that the person registered as owner is properly registered than it had done before, all it has done is to make
the register prima facie evidence of ownership. In fact it assumes that anybody may
displace altogether the statutory effect which has been given to it by proving what the
facts really are.
Proof of registration, although not conclusive since the mortgage could be
‘expunged’ in cases of fraud etc.,22 is in practice accepted as evidence of the formal
validity of the mortgage.
16 (1895) 72 LT 664 (PD & Adm) 669.
17 (1867–68) 18 LT Rep 624, LR 3 Ch App 597.
18 (1865–67) LR 1 A&E 72 (Adm).
19 (1867) LR 1 A&E 314 (Adm).
20 The Maule [1997] 1 WLR 528 (PC), [1997] 1 Lloyd’s Rep 419 and The Tropical Reefer [2003]
EWCA Civ 1559, [2004] 1 Lloyd’s Rep 1.
21 [1893] AC 8 (HL) 20.
22 See Chapter 2, paragraph 2.8.1 and Chapter 9, paragraph 9.2.4.
140
REGISTRATION OF MORTGAGES
6.2.7 On a transfer or discharge of the mortgage the duly completed sections
of the mortgage have to be registered with the Shipping Registrar.23
6.2.8 Before a mortgage is granted on a registered ship or a ship that is to
be registered as a British ship, an intending mortgagee may register a notice of
mortgage intent24 with the Shipping Registrar. This is valid for 30 days and may
be renewed (or further renewed) on the expiry of the 30-day period.25 When the
mortgage in respect of which the notice of mortgage intent has been registered
is granted and registered then the mortgage will rank in priority from the date of
the registration of the notice.26
6.2.9 If the mortgagee exercises its statutory power of sale under paragraph 9 of
Schedule 1 of the Merchant Shipping Act 1995, the mortgagee will execute a bill
of sale as mortgagee and on registration of this bill of sale the Shipping Registrar
will record the discharge of the mortgage and the transfer of ownership.27 Alternatively, where the deed of covenant includes a sufficiently wide power of attorney
the mortgagee can execute a bill of sale as attorney-in-fact of the mortgagor.28
6.2.10 If a mortgagee does not register its mortgage on a registered ship with
the Shipping Registrar, the mortgage is valid and enforceable (subject to registration under Part 25 of the Companies Act 2006 – if applicable) but it will rank
after any subsequent mortgages on the ship that are duly registered, irrespective
of notice on the part of the registered mortgagee. All unregistered mortgages on
a registered ship will rank as equitable mortgages. In Black v Williams29 the Victoria Steamboat Association Limited granted a debenture charging the assets of
the company that included the ships that they owned. The company subsequently
granted statutory mortgages on certain of these ships and the question of priority
between the debenture holder and the mortgagees had to be decided. Vaughan
Williams J held:30
the title of the Applicants (the mortgagees) who have got a mortgage in the statutory
form which has been registered is to be preferred to the title of the debenture holders,
who having a prior equitable title and being entitled to get that converted into a legal
title in the statutory form and registered chose not to do so.31
6.3 Companies Act 2006
6.3.1 The following paragraphs summarise the registration procedure but reference
should be made to the textbooks on company law for a more detailed consideration
23 See Chapter 9, paragraphs 9.4.5.
24 Form MSF 4739. Registration Regulation 59.
25 Registration Regulation 59(6), (7).
26 Registration Regulation 59(5). See Chapter 7, paragraph 7.1.2.
27 See The Rose (1873) LR 4 A&E 6 in relation to a contested mortgagee’s bill of sale which was
ultimately registered in the directions of the court; see Chapter 9, paragraph 9.2.2.
28 See the form of deed of covenant in Appendix 3.
29 [1895] 1 Ch 408.
30 ibid 421.
31 See also Cunard SS Co Ltd v Hopwood [1908] 2 Ch 564. See further Chapter 3, section 3.2 (Statutory mortgages – the primacy of registration) especially paragraph 3.2.3.
141
REGISTRATION OF MORTGAGES
of the subject.32 Under Part 25 of the Companies Act 2006, specifically section 859A,
as inserted by the Companies Act 2006 (Amendment of Part 25) Regulations 2013,33
if a company incorporated in England and Wales creates a charge (which includes a
mortgage) then particulars of that charge require registration with the Registrar of
Companies (in this section 6.3, the ‘Companies Registrar’) within 21 days of its
creation. All charges (except those specifically excluded) require registration.34 These
registration requirements therefore apply not only to the mortgage form but also to
the collateral deed of covenant and to any other document containing any charge or
assignment by way of charge – for example the assignment of the insurances and the
earnings to the mortgagee, charges on retention and operating bank accounts, etc.
6.3.2 The only exception in practice35 would be if any collateral security document constituted a ‘financial collateral arrangement’, in which case the provisions
of Part 25 of the Companies Act 2006 are disapplied by the Financial Collateral
Arrangements (No. 2) Regulations36 (the ‘FCARs’), which give effect to Directive
2002/47/EC on Financial Collateral Arrangements.37 However, as these Regulations
only apply to security in respect of financial collateral (essentially cash and shares)
their application to the standard security documents collateral to a statutory ship
mortgage is limited.38 Even where they might apply most practitioners take a cautious view and register in any event.39
6.3.3 A certified copy of the statutory mortgage form,40 the collateral deed of
covenant and all other security together with a statement of particulars41 for each
32 W J Gough, Company Charges (2nd edn, Butterworths 1996); Gerard McCormack, Registration of
Company Charges (3rd edn, Jordans 2009) (hereafter in this chapter, ‘McCormack’); Paul L Davies and
Sarah Worthington (eds), Gower & Davies. Principles of Modern Company Law (19th edn, Sweet & Maxwell
2012) Chapter 32; Gore-Browne on Companies Chapter 31. When consulting these works it should be borne
in mind that some of them pre-date the 2013 reforms to the regime for registration of company charges.
33 SI 2013/600.
34 Before SI 2013/600, the Companies Act 2006 and its predecessors set out a list of charges on property which had to be registered. This included a charge over a ship or any share in a ship (see Companies
Act 1985, s 396(1)(h)). Perhaps the widest category was ‘a charge on book debts of the company’, which
gave rise to much litigation as to what this definition included: did it include insurance policies? Paul &
Frank Ltd v Discount Bank (Overseas) Ltd (1967) Ch 348; did it include a charge on bank deposits? BCCI
(No. 8) (1998) AC 214 (HL). By providing that all charges are to be registered (except those specifically
excluded) the doubts created by the previous wording no longer exist.
35 By the Banking Act 2009 charges in favour of the Bank of England, a foreign central bank or the
European Central Bank do not require registration.
36 SI 2003/3226.
37 Council Directive 2002/47/EC of 6 June 2002 on financial collateral arrangement [2002] OJ
L168/43.
38 In December 2012 the Financial Markets Law Committee (FMLC) published a paper highlighting issues of uncertainty over the meaning of the expressions ‘possession’, ‘control’ and ‘excess financial
collateral’ in the FCARs. This was followed up in April 2015 by a letter from the FMLC to HM Treasury
requesting clarification on these and other issues.
39 Some doubt has been cast on the FCARs as going beyond Council Directive 2002/47/EC by the decision of the Supreme Court in United States of America v Nolan [2015] UKSC 63 [65]–[69] (Lord Mance).
The EU law issue was raised in the Cukurova litigation (The Queen on the Application of Cukurova Finance
International Limited, Cukurova Holding AS v HM Treasury v Alfa Telecom Turkey Limited [2008] EWHC 2567
(Admin)) only to be dismissed – but the issue has now been given traction by the Supreme Court in Nolan.
40 If the original statutory mortgage form is submitted it will not be returned by the Registrar, so it is
always sensible to submit a certified copy (indeed as required by the legislation) rather than the original.
(Companies House has expressly stated that original documents will not be returned.)
41 Form MR01.
142
REGISTRATION OF MORTGAGES
document have to be delivered to the Companies Registrar42 within 21 days beginning
with day after the creation of the charge.43 The Act states that these documents will
be delivered by ‘the company or any person interested in the charge’. In practice it
will invariably be the mortgagee or its lawyers that will present these documents for
registration in order to perfect the security.44 Registration can be effected electronically.45
6.3.4 In contrast with the requirement to register the mortgage under the Merchant
Shipping Act 1995 where the consequence of failure to register is a loss of priority,
under the Companies Act a failure to comply with the registration requirements will
result in the charge being void as against any liquidator, administrator or creditor of the
company. However, for what it is worth, an unregistered charge will still be valid and
enforceable against the company46 and when a charge is void (as against any liquidator, administrator or creditor) the money it secures becomes immediately repayable.47
6.3.5 On registration of the charge the Companies Registrar will issue a certificate of registration of the charge to the person who delivered the statement of
particulars. This certificate is conclusive evidence that the documents were delivered
to the Registrar within the 21-day time limit.48 The previous statutory provisions
said that the certificate was conclusive evidence that the statutory requirements had
been satisfied49 and the courts gave a wide interpretation to the conclusive nature
of the certificate and held that it was not open to challenge.50 The present wording
is restricted and therefore the interpretation given by the courts on the previous
regime will not necessarily be followed.51 The availability of the complete charge
document under the current registration regime52 means that a person searching
can compare the registered particulars with the document itself.53
6.3.6 If there has been an omission or mis-statement in any document delivered
to the Companies Registrar for registration then an application may be made to the
court for an order that the omission or mis-statement be rectified, provided that
certain requirements are complied with.54
42 Companies Act 2006, s 859D as amended by SI 2013/600, reg 2 Sch 1.
43 The prescribed form (Form MR01), following the wording in the Companies Act 2006, s 859D,
requires a short description of, among other assets, any ship ‘registered or required to be registered in
the UK subject to a charge (which is not a floating charge) or fixed security included in the instrument.’
Although the section and the form refer only to the ships ‘registered in the UK’ Companies House has
indicated in correspondence that there should be a short description of any ship, and indeed have rejected
documents delivered for registration if the Form MR01 does not include a short description of non-UK
registered ships owned by the company granting the mortgage or charge. Whilst this does not appear to
be correct, the line of least resistance is to include a short description of any ship, whether or not UKregistered, to avoid possible delays and difficulties with registration.
44 Companies House has confirmed that lawyers either to the company or the chargee can sign Form MRO1.
45 The Companies Act 2006, s 1068 granted the Companies Register the power to accept electronic filing.
46 s 859H. Re Monolithic Building Co Ltd [1915] 1 Ch 643 (CA).
47 s 859H(4).
48 s 895 I(6).
49 s 869(6)(b) repealed by SI 2013/600 reg 3.
50 see Re CL Nye Ltd [1971] 1 Ch 442 (CA) 469–470.
51 See generally McCormack (n 32) paragraphs 6.38–6.56, which was written before the 2013 changes
to the Companies Act registration regime.
52 See paragraph 6.3.11 below.
53 See Louise Gullifer (ed), Goode on Legal Problems of Credit and Security (5th edn, Sweet & Maxwell
2013) paragraph 2–24.
54 s 859M.
143
REGISTRATION OF MORTGAGES
6.3.7 If, after registration of the charge, it is amended by adding or amending a
term prohibiting or restricting the creation of any charge having priority or ranking pari
passu with the charge or varying the order of priority of the charge in relation to any
other charge then a certified copy of the instrument containing the amendment and a
statement of particulars may be delivered to the Companies Registrar for registration.55
This is in contrast with the position under the Merchant Shipping Act 1995 where it
is not possible to amend the mortgage deed once it has been registered. However, the
limited scope of the amendments that fall within section 859O mean that it will not
have great practical significance. If amendments are made to a loan facility that make it
prudent to take precautionary new security, that security will also need to be registered.56
6.3.8 If the charge is not registered within 21 days of the date of its creation57
then it is possible to complete registration outside this time limit with leave of the
court. The court has to be satisfied that:
(a) the failure to deliver those documents:
(i) was accidental or due to inadvertence or to some other sufficient cause, or
(ii) is not of a nature to prejudice the position of creditors or shareholders of the company . . .; or
(b) on other grounds it is just and equitable to grant relief.58
6.3.9 When the charge is satisfied a statement to the effect that the debt has been
paid or the property has been released from the charge should be delivered to the
Companies Registrar for registration.59 There is no statutory requirement for this to
be done but it is obviously in the chargor company’s interest not to have ‘dead’ charges
on its Companies House charges register. The mortgage and deed of covenant (or
other applicable charge document) can only be released by a deed of release; notification to the Companies Registrar does not of itself operate to release the security.
Thus, in the case of a statutory mortgage, release should be made by completion of
the appropriate section of the statutory mortgage form and delivery to the Registrar of
Shipping and Seamen.60 The particulars to be delivered to the Registrar are set out in
section 859L(4). At the same time, it is necessary to make a statement to the Registrar
as required by section 859L(2) either to the effect that the debt secured by the charge
has been paid or satisfied in whole or in part61 or that all or a specified part of the
property or undertaking charged has been released from the charge or has ceased to
form part of the company’s property and undertaking.62 The chargor company itself
55 s 859O.
56 See Chapter 5, section 5.6 (Change of obligations).
57 The date of creation of the charge therefore has great significance and is defined in s 859E in respect
of different circumstances. In granting leave to extend the time for registration the court will generally not
alter priority where there is another (registered) charge over which the initially unregistered charge would
have priority but for its becoming void against any liquidator, administrator or creditor. See: Ram Narain v
Radha Kishen Moti Lai Chamaria Firm (1929) LR 57 Ind App 76; Re Ehrmann Brothers Ltd [1906] Ch 697;
Watson v Duff, Morgan & Vermont (Holdings) Ltd [1974] 1 WLR 450 (Ch).
58 s 859F.
59 s 859L and Forms MR04 and MR05.
60 See Chapter 9, section 9.4 (Discharge).
61 Form MR04.
62 Form MR05.
144
REGISTRATION OF MORTGAGES
can effect the statements and deliver the particulars necessary to have a charge
deleted by the Registrar. If the chargor company does this fraudulently it does not
operate to release the security, since this can only be done by an appropriate deed
of release executed by the chargee/mortgagee. A chargor fraudulently submitting
documents to the Registrar in order to have a charge deleted would be guilty of
making a false statement under the Companies Act 2006, s 1112.
6.3.10 There is no provision in the Companies Act 2006 for a change of chargee
to be registered. Thus, if a mortgage is assigned nothing need or indeed can be
done to show the assignee of the security as the chargee in the Companies House
records.63 This is in contrast to the position in relation to the register maintained
pursuant to the Merchant Shipping Act 1995.64
6.3.11 One of the noteworthy features of the current registration regime is that a
copy of the security document will be placed on the register at Companies House
and will be open to inspection by search against the company. The company must
also keep available for inspection (by any creditor or member of the company
without charge, or by any other person on payment of a fee) every instrument
creating a charge capable of registration, every instrument that amends or varies
any charge capable of registration and, if the required particulars are not contained
in the instrument creating the charge but are in other documents referred to in the
charging instrument, those other documents.65 This means that companies creating
registrable charges need to be aware that confidential or sensitive terms might be
publicly disclosed or available. There is a limited ability to redact certain information but this does not extend to commercially sensitive terms or information.66
The statutory mortgage form itself will not contain any confidential or sensitive
information. A typical deed of covenant is unlikely to do so, or at least need not.67
The issue of inadvertent or forced disclosure of confidential or sensitive information
is therefore unlikely to be an issue in typical ship finance transactions.68
63 Nor is there any requirement for an assignment or transfer of itself to be kept available for inspection by the company in addition to the instrument creating the charge (unless it involves a variation or
amendment): Companies Act 2006, s 859P. The position is similar in relation to the copies of charge
documents required to be kept by registered overseas companies: Overseas Companies (Execution of
Documents and Registration of Charges) Regulations 2009 (SI 2009/1917) as amended by the Overseas
Companies (Execution of Documents and Registration of Charges) (Amendment) Regulations 2011 (SI
2011/2194). Where, however, there is an obligation to maintain a register of charges – for UK companies
in respect of charges created before 6 April 2013 and for overseas companies – the register must show the
name of the person entitled to the charge.
64 See Chapter 9, section 9.3 (Transfer).
65 s 859P.
66 s 859G. The information which may be redacted is: personal information concerning an individual
(other than their name); the number or other identifier of a bank or security account of a company or
individual; and a signature.
67 Care should be taken to ensure that all s 859D particulars (registered name and number of the
company, the date of creation of the charge and beneficiaries of the charge – and most significantly the
assets charged) are included in the deed of covenant rather than by cross-reference to another document
(usually the facility agreement) which might contain confidential or commercially-sensitive terms, to avoid
having to make it available for inspection.
68 However, a dilemma is created in other flag jurisdictions where it might be a requirement that a
copy of the facility agreement be attached to the mortgage instrument, or that extensive provisions from
the facility agreement be set out in the mortgage.
145
REGISTRATION OF MORTGAGES
6.3.12 Another feature of the current registration regime is that the prescribed particulars must state whether or not ‘any of the terms of the charge prohibit or restrict
the company from creating further security that will rank equally with, or ahead of,
the charge’.69 The statutory mortgage does not contain such a negative pledge but the
deed of covenant invariably will – and the negative pledge will typically also prohibit
the granting of post-ranking security.70 The box in the Form MR01 for disclosing a
negative pledge will therefore invariably be ticked when registering the deed of covenant. The Companies Act registration requirements have a potential impact where
there is a pre-existing fixed or floating charge containing a negative pledge in respect
of a company’s ship (and/or the ship’s earnings and insurances) or where there is
a ship mortgage which has not been registered pursuant to the Merchant Shipping
Act 1995 and where there is a negative pledge in the deed of covenant. Issues of
notice and its potential effect on priority are dealt with in Chapter 7.71
6.3.13 The Companies Act registration regime relating to disclosure of negative
pledges does not require or permit disclosure in the registered particulars of a restriction, almost always contained in the deed of covenant or facility agreement, on the
granting of any subsequent mortgage; the language of Form MR01, section 7 only
requires disclosure of ‘security that will rank equally with or ahead of the charge’.
6.3.14 If a company acquires property subject to a charge there is an ability to
register.72 However, for charges created on or after 6 April 2013 (i.e. under the current registration regime) non-registration of the acquisition of the charged property
has no consequences. For charges created under the previous regime, section 86273
provided that failure to register within 21 days of acquisition of the charged property constituted an offence and any person in default would be liable for a fine.
6.3.15 A mortgagee who obtains an order for the appointment of a receiver or manager
of a company’s property or undertaking, or who appoints such a receiver or manager under powers contained in an instrument, must give notice to the Companies
Registrar within seven days.74 This requirement applies to the appointment of an administrative receiver75 or a Law of Property Act receiver appointed pursuant to the Law of
Property Act 1925, s 101 and/or the applicable provisions of the deed of covenant.76
6.3.16 Part 25 of the Companies Act 2006 applies to charges granted by limited
liability partnerships.77
6.3.17 There is no longer any requirement that overseas companies have to
register charges on property owned by them even if that property is in the United
69 Form MRO1, section 7.
70 See the form of deed of covenant in Appendix 3, clause 7.1.
71 See Chapter 7, section 7.4 (Failure to register a mortgage) and section 7.7 (Floating charges and priority).
72 s 859C.
73 Repealed by SI 2013/600 reg 3.
74 s 859K.
75 The circumstances in which a secured creditor can appoint an administrative receiver are limited.
See Chapter 15, paragraph 15.8.3.
76 See further Chapter 11, section 11.20 (Receivership). See, however, The Maule [1997] 1 WLR 528
(PC)) and Chapter 11, paragraph 11.16.4 on the (likely) position that the Law of Property Act 1925,
s 101 does not apply to ship mortgages.
77 The Limited Liability Partnerships (Application of Companies Act 2006) (Amendment) Regulations 2013 (SI 2013/618).
146
REGISTRATION OF MORTGAGES
Kingdom and even if they have a place of business in the United Kingdom.78
However, a registered overseas company has to keep a register of certain charges,
including any charges on a ship, and make copies of charging instruments available
for inspection at a location in the United Kingdom at which the company carries
on business notified to the registrar.79
6.4 The Bills of Sale Acts
6.4.1 The Bills of Sale Act 187880 introduced a system for the registration of bills
of sale given by individuals or a partnership on personal chattels including ‘trade
machinery’. In effect this was a system of registration of chattel mortgages with
the sanction that if the bill of sale was not registered in accordance with the
requirements of the Act,81 the bill of sale would be void against creditors. Until
1854 a legal mortgage on a ship was created by the owner delivering a bill of sale
by way of security to the mortgagee but the Merchant Shipping Act 1854 had
introduced a separate system for the registration of mortgages. However this system
only applied to registered ships – a mortgage on an unregistered ship would still
generally be created by a bill of sale by way of security. The Bills of Sale Act 1878,
s 4 specifically excluded ‘transfers or assignments of any ship or vessel or any share
of . . .’. The Act did not define ‘ship or vessel’ and in Gapp v Bond 82 the Court of
Appeal, following the decision in Union Bank of London v Lenanton,83 held that the
terms ‘ship or vessel’ were not restricted to ships registered under the Merchant
Shipping Act but extended to ‘anything that in popular language is called a vessel’.
This would probably include not only ships under construction but also marine
craft not registrable under the Merchant Shipping Act 1995.84 An owner may
grant a mortgage on a ship not registered under Part I (or Part II with full registration) of the Merchant Shipping Act 1995, i.e. a fishing vessel registered in Part II
with simple registration, a ship (small boat) registered in Part III of the Register
or a ship that is not registered at all. Such a mortgage is not registrable with the
Registrar of Shipping and Seamen and (if there are no prior mortgages and it is
drafted as a title transfer mortgage) will be a legal mortgage enforceable against
any bona fide purchaser of the ship without notice of the mortgage.85 Any subsequent mortgage will be an equitable mortgage enforceable against any purchaser
of the ship except a bona fide purchaser without notice of the mortgage.
6.4.2 The gap created by the exclusion of all ships, whether or not registered
under the Merchant Shipping Act, from the scope of the Bills of Sale Acts is referred
78 The Overseas Companies (Execution of Documents and Registration of Charges) (Amendment)
Regulations 2011 (SI 2011/2194).
79 ibid, regs 23, 24 and 25.
80 41 & 42 Vict c 31. It was amended by the Bill of Sale Amendment Act 1882 (45 & 46 Vict c 43).
81 With a Master or other official of the Queen’s Bench Division: see Bills of Sale Act 1878, s 13.
82 (1887) 19 QBD 200 (CA).
83 (1878) 3 CPD 243 (CA).
84 R v Goodwin [2005] EWCA Crim 3184, [2006] 1 Lloyd’s Rep 432; G Bowtle, ‘A Vessel used in
Navigation?’ [2007] LMCLQ 19; G Rainey, ‘What Is a “Ship” under the 1952 Arrest Convention?’ [2013]
LMCLQ 50; Re Softley ex parte Hodgkin (1875) LR 20 Eq 746 (Ch). See Chapter 2, section 2.10 (The ship).
85 The Shizelle [1992] 2 Lloyd’s Rep 444 (Adm). See Chapter 3, paragraph 3.4.2.
147
REGISTRATION OF MORTGAGES
to in Chapter 3.86 In 2015 the Law Commission published a Consultation Paper
on Bills of Sale.87 This noted the exclusion of ships from the scope of the Bills of
Sale Act but did not propose any reform in this respect.88
6.4.3 The interesting position under the Irish regime for registration of company
charges and the Irish bills of sale legislation as shown In the Matter of South Coast
Boatyard (In Voluntary Liquidation), James Barber v Barry Burke, Patrick Hickey and
MallinsonWood Products Ltd 89 has been noted in Chapter 2, paragraph 2.10.2 (n 161).
6.5 Reform of the registration system?
6.5.1 It has been proposed that a unitary system of registration is introduced in
the United Kingdom so that the registration of a charge in one register is the only
mandatory requirement. The Law Commission, considered the issue in Company
Security Interests,90 and the Secured Transactions Law Reform Project,91 are two
of the several bodies that have considered the matter (the Secured Transactions
Law Reform Project is ongoing). Certain of the groups have proposed that a ‘notice
filing’ system such as is contained in the Canadian, Australian and New Zealand
Personal Property Security Acts but as yet there are no current proposals for statutory reform in this area.92
86 See Chapter 3, paragraphs 3.4.1 and 3.4.2.
87 Law Commission, Bills of Sale: A Consultation Paper (Law Com CP No. 225), 2015.
88 ibid paragraph 8.29.
89 [1980] ILRM 186.
90 Law Commission, Company Security Interests (Law Com No 296, 2005).
91 http://securedtransactionlawreformproject.org.
92 See Louise Gullifer (ed), Goode on Legal Problems of Credit & Security (5th edn, Sweet & Maxwell
2013) paragraph 2–33.
148
CHAPTER 7
Priority
7.1 Statutory registered priority
7.1.1 Registered statutory mortgages rank in priority in order of registration.
Paragraph 8(1) of Schedule 1 of the Merchant Shipping Act 1995 states:
Where two or more mortgages are registered in respect of the same ship or share, the
priority of the mortgagees between themselves shall subject to subparagraph (2) below
be determined by the order in which the mortgages were registered (and not by reference to any other matter).1
7.1.2 Paragraph 8(2) refers to ‘priority notices’ and the rules relating to these are
set out in regulation 59 of the Registration Regulations.2 Regulation 59(1) states:
Where any person who is an intending mortgagee under a proposed mortgage of:
(a) a registered ship, or
(b) a share in a registered ship
notifies the Registrar of the interest which it is intended that he should have under
the proposed mortgage, the Registrar shall record that interest.
An intending mortgagee of a ship that is already registered in Part I of the Register
(or Part II with full registration) or a ship that it is intended will be so registered may
complete a form of notice of mortgage intent3 and send this to the Registrar who will
record the details submitted. The notice is valid for 30 days but before the end of the
30-day period the intending mortgagee may renew or further renew the notice. The effect
of a notice is that the mortgage to which it relates is deemed to have been registered
as from the time the notice is entered in the Register for the purpose of determining
its priority in relation to any other registered mortgage under paragraph 8 of Schedule 1.4 In other words, the effect of a notice is to ‘pre-book’ priority for a mortgage
for a period of 30 days in relation either to a ship already registered in Part I or Part II
(full registration)5 or in relation to a ship which is yet to be so registered.6
1 In contrast, the Merchant Shipping Act 1894, s 33 referred to the date of registration.
2 Merchant Shipping (Registration of Ships) Regulations 1993 (SI 1993/3138) as amended (hereafter
in this chapter the ‘Registration Regulations’).
3 MSF 4739.
4 Registration Regulations, reg 59(5).
5 Registration Regulations, reg 59(1).
6 Registration Regulations, reg 59(3).
149
PRIORITY
7.2 Agreed priority
7.2.1 Mortgagees may agree between themselves as to the order of priority of their
mortgages without the consent of the owner. This was clearly set out in the judgment of the Privy Council in Cheah v Equiticorp Finance Ltd:7
The question therefore is whether two mortgagees can, without the consent of the
mortgagor, agree to vary the priority of their mortgages. In the ordinary case the
mortgagor is not affected by the order in which his debts are satisfied. The mortgagor
is bound to satisfy all his secured debts before he can recover the secured property.
In the ordinary case priority of mortgages affects only the rights of the mortgagees
inter se, in particular where the security is inadequate to pay all the secured debts in
full. Moreover the mortgagor has no right to insist on the mortgagee pursuing one of
his remedies rather than another. It is for the mortgagee to decide whether to rely on
the personal covenant for payment, or to sell the security or to take possession of the
mortgaged property.
7.2.2 Reversal by agreement of registered priority often occurs in restructurings when mortgages are taken to secure increased or amended obligations.8 So,
in a simple example there are two mortgages on a ship, mortgage A with first
registered priority in favour of lender 1 and mortgage B with second registered
priority in favour of lender 2. The obligations of the mortgagor to lender 1 are
restructured, with a further mortgage (mortgage C) being granted in favour of
lender 1 and registered with third registered priority. Lender 1 and lender 2 will
agree that recoveries under mortgage C will rank ahead of mortgage B as if they
were recoveries under mortgage A.
7.2.3 The Registrar of Shipping and Seamen will not refuse to register a mortgage
where a mortgage is already registered or require the existing mortgagee’s consent
to the registration of a subsequent mortgage. There is nothing in the Merchant
Shipping Act which requires or indeed allows the Registrar to do this.9 Usually
the deed of covenant supplemental to a first mortgage on a ship will contain a
covenant against granting a further mortgage on the ship without the first mortgagee’s consent. If a second mortgagee does take its mortgage with knowledge
of the prohibition it might, depending on the circumstances, be liable to the first
mortgagee in the tort of inducing breach of contract.10 In order for a first mortgagee
to be able to have any chance of success in an action against a second mortgagee
for inducing breach of contract it would, among other things, need to establish
that the second mortgagee had actual knowledge of the prohibition. The second
mortgagee would be on actual notice, for example, if the mortgagor is an English
company or limited liability partnership and the second mortgagee had reviewed
the terms of the deed of covenant supplemental to the first mortgage on obtaining a copy from Companies House or, if the mortgagor is an English company,
limited liability partnership or registered overseas company, from the offices of the
7 [1992] AC 472 (PC) 476 (Lord Browne-Wilkinson).
8 See Chapter 5, section 5.6 (Change of obligations) and Chapter 9, section 9.1 (Amendment).
9 See further paragraph 7.9.5 below in the context of tacking of further advances.
10 OBG v Allan; Douglas v Hello! and Mainstream Properties vYoung [2007] UKHL 21, [2008] 1 AC 1.
150
PRIORITY
mortgagor.11 Constructive notice would not be sufficient12 to make the second
mortgagee liable in tort even though a prohibition on the granting of subsequent
mortgages is so universal that actual or constructive notice of the existence of a
first mortgage is arguably constructive notice of the prohibition.
7.2.4 Leaving aside the issue of liability in tort, however, the granting of a
second mortgage in breach of a prohibition in the first mortgage documents will
constitute a default under those documents giving the first mortgagee the right to
enforce its security. The possible effect of a prohibition on the granting of subsequent mortgages is also discussed in paragraph 7.9.5 below in relation to tacking
of further advances.
7.2.5 A first mortgagee’s consent to a second mortgage is usually only given if the
second mortgagee enters into a priorities agreement with the first mortgagee. This
agreement, like a deed of covenant, is not capable of registration with the Registrar
of Shipping and Seamen.13 Such an agreement will limit the right of the second
mortgagee to enforce the security constituted by the second mortgage documents
or otherwise to exercise its powers under the second mortgage documents without
the first mortgagee’s prior consent. In particular the second mortgagee usually will
be required to undertake: not to take any steps (whether by judicial proceedings or
otherwise) to enforce its security – unless in rem proceedings against the ship have
already been commenced by a third party or in other agreed circumstances and
then only to the extent necessary to preserve or protect the second mortgagee’s
security;14 not to challenge the validity of the first mortgage; and not to make
any claim against the earnings or the insurances on the ship. As will be seen in
Chapter 1115 and in Chapter 12 in relation to the duties of the mortgagee16 it is
of great importance to a mortgagee that a ship not be arrested in an unfavourable
enforcement jurisdiction. For this reason, from the perspective of a first mortgagee,
11 See Chapter 6, paragraphs 6.3.11 and 6.3.17. The second mortgagee would need to have actually
seen the negative pledge wording in the document or, if the first mortgagee had gratuitously included
reference to the negative pledge in the Form MR01 statement of required particulars, it would need to
have sight of those registered particulars. (The inclusion of a negative pledge in the particulars is only
required in respect of a prohibition on an equal ranking or prior charge, not a subsequent charge: Companies Act 2006, s 859D.)
12 Swiss Bank Corp v Lloyds Bank Ltd [1979] Ch 548, 575 (Browne-Wilkinson J); see also Mac-Jordon
Construction Ltd v Brookmount Erostin Ltd [1992] BLCC 350, [1994] CLC 581 (CA) 586–587 (Scott LJ)
where Browne-Wilkinson J’s position on the need for actual rather than constructive notice was approved.
(Swiss Bank v Lloyds Bank was appealed to the Court of Appeal and ultimately to the House of Lords but
on other issues.) See also OBG v Allan (n 10) [39] (Lord Hoffmann): ‘To be liable for inducing breach of
contract, you must know that you are inducing a breach of contract. It is not enough that you know that
you are procuring an act which, as a matter of law or construction of the contract, is a breach of duty.
You must actually realise that it will have this effect. Nor does it matter that you ought reasonably to have
done so.’ See Louise Gullifer (ed), Goode on Legal Problems of Credit and Security (5th edn, Sweet & Maxwell
2013) paragraph 1–83 (hereafter in this chapter, ‘Goode LPCS’).
13 See Chapter 6, paragraph 6.2.5.
14 Merchant Shipping Act 1995, Schedule 1, paragraph 9(2) prevents a second mortgagee from actually selling the ship ‘without the concurrence of every prior mortgagee’ (or pursuant to a court order).
From a first mortgagee’s perspective, however, this statutory protection is not sufficient on its own to
prevent enforcement action, such as arrest, by a second mortgagee which would adversely affect the position of a first mortgagee.
15 Chapter 11, paragraph 11.14.7.
16 Chapter 12, section 12.6 (Are ship mortgages different?), especially paragraph 12.6.5.
151
PRIORITY
restrictions on a second mortgagee’s enforcement rights are vital; ship mortgages
are different from real property mortgages in this respect. Other provisions that are
typically found in such priorities agreements are: a provision that binds the second
mortgagee to any consent given pursuant to the first mortgage documents, taking
away the second mortgagee’s independent right to give or withhold consent on the
same matter; an undertaking by the second mortgagee to release its mortgage on
any sale by the first mortgagee pursuant to its power of private sale or any sale by
the owner that is consented to by the first mortgagee; an agreed order of application
of sale proceeds and insurance proceeds; a restriction on the second mortgagee’s
ability to transfer its mortgage, to ensure that any transferee agrees with the first
mortgagee on the terms of the priorities agreement; and a power of attorney from
the second mortgagee in favour of the first mortgagee so that the first mortgagee
can release the second mortgage on any sale of the ship effected or consented to
by the first mortgagee if the second mortgagee fails, when required, to do so.17
7.2.6 Some of the provisions referred to above indicate why it is important
for a first mortgagee to require the second mortgagee to enter into a priorities
agreement as a condition of the first mortgagee agreeing to the granting of the
second mortgage. A first mortgagee is not adequately protected by the statutory
priority given to the mortgages by the Merchant Shipping Act 1995, Schedule 1,
paragraph 8. In particular, the self-help enforcement rights, especially the power
of private sale, can be compromised by the existence of a second mortgage unless
addressed by agreement. Even in the absence of enforcement of the first mortgage,
a first mortgagee requires, especially but not just in a work-out or restructuring, to
have its right to consent to a sale of the ship free of interference from the second
mortgagee. In this context, the subordination of the second mortgagee’s consent
right to a sale by the owner, the second mortgagee’s undertaking to release its
mortgage and the power of attorney empowering release of the second mortgage
are especially important. Last but by no means least, where a first mortgagee is
liable to, or may, make further advances it needs to be able to ensure that it is
secured for those further advances in priority to the second mortgagee.18
7.2.7 A first mortgagee should also be mindful of the duties that it owes to a
second mortgagee in the exercise of its powers of enforcement.19 Where a number
of ships are owned by the same owner or are otherwise subject to first mortgages
in respect of the same financing and second mortgages are given over some but not
all of the ships in the security package the second mortgagee’s right of marshalling
should also be borne in mind by the first mortgagee.20 From the first mortgagee’s
17 Such a power of attorney means that the priorities agreement should be in the form of a deed. See
the Powers of Attorney Act 1971, s 1(1) as amended by the Law of Property (Miscellaneous Provisions)
Act 1989, s 1(8) and Schedule 1, paragraph 6(a). In the case of foreign-registered ships difficulty might
be encountered with the exercise of such a power of attorney being recognised by the applicable ships’
register; local advice should be obtained.
18 See section 7.9 (Tacking of further advances). A priorities agreement could also assist in addressing
the unusual situation which arose in The Basildon [1967] 2 Lloyd’s Rep 134, where a second mortgage
contained a right to pay insurance premiums and add them to the secured debt but a first mortgage did
not contain an equivalent right. The case expressly did not address the issue of priority.
19 See Chapter 12, section 12.7 (Derivative liability to relevant parties).
20 See section 7.11 (Marshalling).
152
PRIORITY
perspective its potential exposure in respect of both these issues should be addressed
so far as possible by exclusionary language in the priorities agreement.21
7.2.8 A second mortgagee will often want to negotiate many of the provisions
referred to above. Among the common second mortgagee’s points are: a limit on
the amount that can be secured by the first mortgage;22 and a right to buy out
the first mortgagee’s position to prevent the first mortgagee enforcing its security
when the second mortgagee does not want this to happen.23 Second mortgagees
that are banks or financial institutions often object to giving a power of attorney
to the first mortgagee to release the second mortgage on any sale. The way in
which a priorities agreement is negotiated will depend on the identity of the first
and second mortgagees and the circumstances in which the second mortgage is
being granted.24
7.3 Security over collateral assets
7.3.1 A mortgage does not of itself grant to the mortgagee any right to the insurances on the ship25 or, unless and until it takes possession, the earnings of the
ship.26 Accordingly it is necessary for the mortgagee to obtain an interest in the
insurances and the earnings by an express assignment in the deed of covenant or
a separate document. In relation to the insurances the mortgagee may become
additional assured.27 The priority of assignments is governed by the rule in Dearle v
Hall.28 The effect of this is that the claims of the different assignees will rank in
priority according to the date on which notice of the assignment is given to the
person from whom the payment is due – unless the assignee had notice of the
prior assignment.29 This will be the charterer in the case of hire or freight under
a time or voyage charter, the consignee in the case of bill of lading freight and (as
21 See generally section 7.13 (The courts’ approach to subordination of security). See also the remarks
of Lord Neuberger in National Crime Agency (formerly Serious Organised Crime Agency) v Szepietowski
[2013] UKSC 65, [2014] AC 338 [62].
22 This is a perfectly reasonable point for a second mortgagee but care is required by the first mortgagee where the first mortgage secures a multi-advance facility or a revolving credit; see section 7.9
(Tacking of further advances). It is also necessary to ensure that the first mortgage is allowed ‘headroom’
at the very least in relation to enforcement expenses and accrued interest. One approach from the first
mortgagee’s perspective is to limit the restriction to further, voluntary advances of principal but for a
second mortgagee an ability of a first mortgagee to allow unlimited interest to accrue is itself problematic.
This issue can be heavily negotiated. See further paragraph 7.14.2 below.
23 This is also unobjectionable in principle but it can be an illusory protection in practice for the
second mortgagee where the first mortgage secures an exposure, possibly cross-collateralised, which is
large compared with the exposure of the second mortgagee.
24 See also section 7.14 (Debt subordination) in relation to further issues of an intercreditor nature
which frequently need to be addressed.
25 The Panglobal Friendship [1978] 1 Lloyd’s Rep 368 (CA) and The Lancaster [1980] 2 Lloyd’s Rep
497 (Com Ct) 502: see also Chapter 16, section 16.2 (The nature of the mortgagee’s interest).
26 The Benwell Tower (1895) 8 Asp MLC 13 (PD & Adm), 72 LT 664; Wilson v Wilson (1872) 14 LR
Eq 32 (Ch); Liverpool Marine Credit v Wilson (1872) LR 7 Ch App 507 (CA). See also Chapter 17.
27 See Chapter 16, section 16.4 (Composite interest). This is unusual in practice.
28 (1828) 3 Russ 1 (Ch) 38 ER 475. This applies whether the assignment is an absolute assignment
under the Law of Property Act 1925, s 36, an assignment falling within the Marine Insurance Act 1906,
s 50 or an equitable assignment. See Chapter 16, section 16.6 (The effect of notice of assignment).
29 See paragraph 7.7.6 below in relation to the so-called ‘second limb’ of the rule in Dearle v Hall.
153
PRIORITY
applicable) the underwriters or managers of the P&I or war risks association in
the case of the insurances. In practice a mortgagee will always obtain an express
assignment of the insurances and the earnings when the mortgage is granted.30
7.3.2 The terms of any priorities agreement should extend to security over the
insurances and earnings, in particular to ensure that notices of assignment are
served in the correct order31 and that the insurance loss payable clause reflects
the agreed priority. The same applies in relation to all other collateral security
that is subject to first and second priority security, such as security over bank
accounts or shares.
7.3.3 If the underlying contracts are governed by a foreign law, the notice or
other perfection requirements of that law should be followed and regulated to
reflect the agreed priority position.32
7.4 Failure to register a mortgage
7.4.1 As between a mortgagee of a registered ship that has registered its mortgage
and a mortgagee that has not registered its mortgage the registered mortgage will
take priority irrespective of which mortgage was granted first and, if the unregistered mortgage was granted first, even if the mortgagee under the later registered
mortgage had notice of the earlier unregistered mortgage. An unregistered mortgage
ranks as an equitable mortgage after all registered mortgages.33
7.4.2 Is the position stated above affected by the unlikely situation of a mortgagee of a registered ship not registering its mortgage pursuant to the Merchant
Shipping Act 1995 (so as to render it an equitable mortgage only) but nonetheless
registering the mortgage and deed of covenant as charges pursuant to Part 25 of
the Companies Act 2006 – and the deed of covenant containing a negative pledge
prohibiting the granting of any other mortgages? The negative pledge, in so far as
it prohibits the mortgagor from creating security ranking equally with, or ahead,
of the mortgage is required to be notified in the prescribed particulars when the
deed of covenant is registered.34 Assuming this is done, is the mortgagee under a
subsequently granted mortgage that is registered pursuant to the Merchant Shipping Act 1995 postponed in priority because it has notice of the restriction? The
answer is thought to be that it is not, even if the mortgagee under the subsequently
30 In relation to security over insurances generally, see Chapter 16. In relation to security over earnings generally, see Chapter 17.
31 A first mortgagee might require that notices of assignment in respect of the second mortgagee’s
security are not served at all until after the first mortgagee’s security has been released; this is probably
extreme, however, and the first mortgagee’s position can be protected by the terms of the subordination
agreement and by properly co-ordinated service of notices of assignment. Even if there is a mistake in the
timing of service of the different notices of assignment the position of the first mortgagee is protected by
the ‘second limb’ of Dearle v Hall (n 28) where the second mortgagee is aware of the assignment in favour
of the first mortgage; see paragraph 7.7.6 below.
32 See Chapter 16, section 16.11 (The conflict of laws) and Chapter 17, section 17.8 (The conflict
of laws).
33 See Chapter 3, section 3.2 (Statutory mortgages – the primacy of registration); also Chapter 6,
paragraph 6.2.10.
34 Form MR01, section 7. See Chapter 6, paragraph 6.3.12.
154
PRIORITY
granted mortgage has actual notice of the prohibition.35 This situation is sufficiently
unlikely to arise in practice that it may be regarded as being of no great significance.36 A similar but more significant issue in practice, however, arises in relation
to a negative pledge in a floating charge; see paragraphs 7.7.2–7.7.8 below.
7.5 Mortgages of unregistered ships
7.5.1 In the case of ships that are not registered in Part I of the Register (or Part II
with full registration) the first mortgage will be a legal mortgage (assuming the
mortgage document is so drafted) and all subsequent mortgages will be equitable
mortgages. The legal mortgage will be valid as against all third parties37 and take
priority over all equitable mortgages.
7.6 Equitable mortgages and charges38
7.6.1 An equitable mortgage arises where there is an unregistered mortgage over
a registered ship39 or where there is a mortgage over an unregistered ship that is
created in time after a legal mortgage of the ship.40 An equitable charge arises,
whether in respect of a registered or unregistered ship, where there is an intention
to create security over the ship.41
7.6.2 An equitable mortgage or charge will be valid against third parties except
a bona fide purchaser of legal title to the ship without notice of the equitable
mortgage or charge.42
7.6.3 Equitable mortgages or charges rank in priority as among themselves
according to their time of execution.
7.6.4 An equitable mortgage or charge of a registered ship will rank behind a
registered mortgage even if the registered mortgage was granted subsequently and
the registered mortgagee has notice of the equitable mortgage or charge.43
7.6.5 An equitable mortgage or charge of an unregistered ship44 will rank behind
a common law (i.e. legal) mortgage unless the legal mortgage is granted subsequently and the legal mortgagee has notice of the equitable mortgage or charge.
35 And it is even less likely that the mortgagee under the subsequently granted but registered mortgage
is postponed in priority where its notice of the prohibition is constructive rather than actual, based on an
argument around the Companies Act registration regime requirements for disclosure of prohibitions on
the granting of equal or prior-ranking security; see Chapter 6, paragraph 6.3.12.
36 The possibility of tortious liability for inducing breach of contract is addressed in paragraph 7.2.3
above.
37 The Shizelle [1992] 2 Lloyd’s Rep 444. See Chapter 3, section 3.4 (Common law mortgages),
especially paragraph 3.4.2.
38 See generally Chapter 3, section 3.6 (Equitable mortgages) and section 3.7 (Equitable charges).
39 See paragraph 7.4.1 above.
40 See paragraph 7.5.1 above.
41 The Spirit of Aquarius (Adm, 9 June 1992). See Chapter 3, paragraphs 3.7.2 and 3.7.3.
42 ibid.
43 See paragraph 7.4.1 above and Chapter 3, section 3.2 (Statutory mortgages – the primacy of
registration).
44 Or of a registered ship to which the private law provisions of the Merchant Shipping Act 1995 do
not apply. See Chapter 2, paragraphs 2.5.2 and 2.6.2.
155
PRIORITY
7.7 Floating charges and priority
7.7.1 A floating charge45 before crystallisation is a species of equitable charge.46
After crystallisation it becomes a fixed charge. In accordance with the principles
stated above a registered ship mortgage taken subsequently in time to an uncrystallised floating charge will rank ahead of the floating charge.47 Even if a registered
ship mortgage is taken and registered after a floating charge over the ship has
crystallised into a fixed charge the registered ship mortgage will also rank ahead
of the (now) fixed charge – unless that fixed charge is registered in the form of a
statutory ship mortgage before the registration of the first-mentioned registered
ship mortgage.
7.7.2 In paragraph 7.4.2 above we looked briefly at the possible priorities significance of notice of a negative pledge in an unregistered mortgage of a registered
ship. It is now necessary to consider whether the priorities position as stated in
paragraph 7.7.1 above is altered where there is negative pledge in a floating charge
that prohibits, without the consent of the holder of the floating charge, the granting of any fixed security over the ship.48 The priority issues in relation to negative
pledges in floating charges and subsequently granted fixed security are complex
and uncertain in relation to general chattels which, unlike ships, are not registrable
in a specialist register. The registration regime under the Merchant Shipping Act
1995 adds another dimension to the issue. Since not all ships are registered, or
are capable of registration, under the Merchant Shipping Act 1995, such that the
private law provisions of Schedule 1 apply,49 it is necessary briefly to examine
the position in relation to chattels generally. This is also relevant to the position
in relation to security over collateral assets (earnings and insurances) customarily
taken together with a ship mortgage. The position in relation to floating charges
and registered ships will then be considered.
7.7.3 As seen in Chapter 650 the Companies Act regime for registration of charges
changed in 2013. The position in relation to priority as between the holder of a
floating charge and the legal mortgagee of a ship will be examined first by reference
to the old regime before looking at whether the position has been changed by the
current regime. The facts are initially assumed to be as follows: in 2012 an English
company that owns ships grants a floating charge debenture; the debenture contains
45 The secondary sources on floating charges are extensive. The following is only a selection: Ewan
McKendrick (ed), Goode on Commercial Law (4th edn, Penguin Books 2010) Chapter 25 (hereafter in
this chapter, ‘Goode on Commercial Law’); Good LPCS (n 12) Chapters 4 and 5; Richard Calnan, Taking
Security (3rd edn, Jordans 2013) (hereafter in this Chapter, ‘Calnan’) Chapter 4; Edward Cousins and Ian
Clarke, Cousins: Law of Mortgages (3rd edn, Sweet & Maxwell 2010) Chapter 23; Palmer’s Company Law,
volume 3, part 13, Chapter 13.1.6. The distinction between a fixed charge and a floating charge was the
subject of a long series of cases culminating in Spectrum Plus Ltd [2005] UKHL 41, 100.
46 Holroyd v Marshall (1862) 10 HL Cas 191, 220; Evans v Rival Granite Quarries Ltd [1910] 2 KB
979, 999; Spectrum Plus Ltd [2005] UKHL 41, 100.
47 Black v Williams [1895] 1 Ch 408; see paragraph 7.4.1 above.
48 The issue is similar in relation to a negative pledge in an equitable mortgage of an unregistered ship
or of a registered ship – but the focus is on the position in relation to a floating charge, since it is more
commonly encountered.
49 See Chapter 2, paragraphs 2.5.2 and 2.6.2.
50 Especially paragraphs 6.3.1, 6.3.11 and 6.3.12.
156
PRIORITY
a negative pledge whereby the company agrees not to grant fixed security over
the ships (or their earnings or insurances) without the debentureholder’s consent;
the debenture is duly registered as a charge pursuant to the Companies Act 2006,
s 860;51 in the particulars submitted when registering the debenture as a charge52
the debentureholder includes details of the negative pledge, this being common
practice to attempt to fix third parties with notice, even though not a statutory
requirement; the company then, before crystallisation of the floating charge, grants
a legal mortgage over one of its ships, which ship is not registered pursuant to the
Merchant Shipping Act 1995 or on any foreign register of ships, i.e. the mortgage
is a ‘common law mortgage’.53 The common law mortgage is duly registered as a
charge pursuant to the Companies Act 2006, s 860.
7.7.4 Under the pre-2013 regime, registration of a charge was notice of its existence but not of its contents.54 If the mortgagee under the common law mortgage
searched the Companies House register of charges and so had actual notice of the
negative pledge through it being included on the particulars of charge it appears
that this was sufficient to defer the priority of the common law mortgage to the
debenture on any subsequent crystallisation of the floating charge into a fixed
charge.55 However, it is thought that inclusion of reference to a negative pledge
in the particulars of charge, which was not a required detail in the registration
process, did not constitute constructive notice, so did not affect someone who had
not acquired actual notice because they failed to search the register.56
7.7.5 What if the position was as set out in paragraph 7.7.3 except that the floating charge constituted by the debenture had crystallised into a fixed charge before
the granting of the common law mortgage? The view of authoritative commentators
is that the priority of the common law mortgagee would be unaffected – unless it
had actual notice of the crystallisation.57
7.7.6 What is the position in relation to a mortgagee’s assignment of earnings
and insurances? Under the rule in Dearle v Hall 58 priority of successive assignments
is determined by the order in which notice is given to the debtor.59 Under the socalled ‘second limb’ of the rule, however, this does not apply to give a subsequent
assignee priority over an earlier assignee if the subsequent assignee has notice of
the earlier assignment. It seems, however, that the mortgagee could, if it did not
have actual notice of a negative pledge in the floating charge, obtain priority by
51 Repealed by SI 2013/600, reg 3; see Chapter 6, section 6.3 (Companies Act 2006).
52 Old Form MG07 ‘Particulars for the registration of a charge to secure a series of debentures’.
53 See Chapter 3, section 3.4 (Common law mortgages).
54 English and Scottish Mercantile Investment Co Ltd v Brunton [1892] 2 QB 700; Re Standard Rotary
Machine Co Ltd (1906) 95 LT 829; Wilson v Kelland [1910] 2 Ch 306. See Gerard McCormack, Registration of Company Charges (3rd edn, Jordans 2009) (hereafter in this chapter, ‘McCormack’) where these
and other cases are referred to at paragraphs 7.43–7.46. See also Goode LPCS (n 12) paragraph 2–26.
55 English and Scottish Mercantile Investment Co Ltd v Brunton (n 54). See Goode LPCS (n 12) paragraph 5–41.
56 See Goode LPCS (n 12) paragraph 2–28.
57 McCormack (n 54) paragraph 7.5.1; Goode LPCS (n 12) paragraph 5–51.
58 (1828) 3 Russ 1 (Ch), 38 ER 475.
59 See Chapter 16, paragraphs 16.5.18 and 16.6.1 (in relation to insurances) and Chapter 17, paragraph 17.3.7 (in relation to earnings).
157
PRIORITY
being first to give notice to the debtor.60 This is the case whether notice of assignment
is given to the debtor before or after crystallisation of the floating charge.61 If, however,
the assignment is not granted until after crystallisation of the floating charge it is doubtful if, irrespective of the giving of notice to the debtor, the assignee can gain priority
because crystallisation removes the company’s implied power to deal with its property.
7.7.7 Is the position stated at paragraphs 7.7.4 and 7.7.5 in relation to the priority
of the common law mortgage changed by the post-2013 regime for registration of
charges? As has been seen62 the current regime for registration of charges has two
significant features in this context: the ability of third parties to have access to copies of registered security documents from Companies House or from the company
itself; and the requirement for disclosure in the particulars of charge of a prohibition
or restriction on the granting of further security ranking equally with, or ahead of,
the registered charge. It is arguable that these features are sufficient to fix a person
taking security in breach of a negative pledge with constructive notice so as to defer
his priority if the box indicating the presence of a negative pledge has been ticked.63
7.7.8 What if this issue relates not to a common law mortgage of an unregistered
ship64 but to a mortgage over a registered ship, which mortgage has been duly
registered pursuant to the Merchant Shipping Act 1995? Does actual notice on
the part of a registered ship mortgagee of a negative pledge displace the priority
obtained by registration of a mortgage under the Merchant Shipping Act 1995?
Further, are those features of the Companies Act charges registration regime, which
at least arguably operate to put third parties on constructive notice of the existence
of a negative pledge, capable of displacing registered priority? In Black v Williams65
Vaughan Williams J made strong remarks about the primacy of registered priority,
as did Bruce J in The Benwell Tower,66 even though the latter held that the then
statutory regime for registration of ships and mortgages did not override the rules
in relation to tacking of further advances.67 In Black v Williams there was a negative
pledge in the debenture but it is not clear if the subsequent registered mortgagee
had actual notice of it and, if it did, whether the result would have been different.68
60 The rule in Dearle v Hall has been criticised; see, for example, Goode LPCS (n 12) paragraph 5–08.
61 See Goode LPCS, paragraph 5–52.
62 Chapter 6, especially paragraphs 6.3.11 and 6.3.12.
63 See AG Guest and Ying Khai Liew, Guest on the Law of Assignment (2nd edn, Sweet & Maxwell
2015) (hereafter in this Chapter, ‘Guest’) paragraph 6–55. Good LPCS (n 12) paragraphs 2–29 and 2–30
raises doubt about this.
64 Or a registered ship of a type to which the private law provisions of the Merchant Shipping Act
1995, Schedule 1 do not apply; see Chapter 2, paragraphs 2.3.1, 2.5.2 and 2.6.2.
65 [1895] 1 Ch 408, 421.
66 (1895) 8 Asp MLC 13 (PD & Adm), 72 LT 664.
67 See paragraph 7.9.3 below. But see paragraph 7.9.6 below.
68 As discussed in Goode LPCS (n 12) at paragraphs 5-63–5-67 English law does not have a general
doctrine of giving priority, to a financier providing funds to purchase an asset (a ‘purchase money security
interest’) over an existing floating charge. As the discussion in Goode LPCS indicates, the position under
English law is unsatisfactorily uncertain. It is likely to be the case depending on the facts, however, that
a ship financier providing funds to finance the acquisition of a ship will take priority on the basis that its
security, if granted pursuant to a pre-existing agreement, attaches immediately upon the acquisition of the
ship and so takes priority over an existing floating charge. (On a different aspect of the position of a bank
financing the acquisition of an asset see the unusual facts of Menelaou v Bank of Cyprus UK Ltd [2015]
UKSC 66, where such a bank which was not otherwise secured was subrogated to an unpaid vendor’s
lien by applying principles of unjust enrichment to the position of the purchaser.)
158
PRIORITY
7.7.9 As background on this issue there is a tension, which does not appear to
have been resolved, between the statutory preservation of equities, as originally
embodied in the Merchant Shipping Act 1862, s 3 (and now contained in the
Merchant Shipping Act 1995, Schedule 1, paragraph 1(2)) and the primacy given
to registration as shown by Black v Williams.69 At its most extreme, the application of the Black v Williams doctrine, invoking the Merchant Shipping Act 1995,
Schedule 1, paragraph 8(1)70 would mean that a registered ship mortgagee with
actual notice of crystallisation of a floating charge would take priority. This tension
arises not only in relation to the issue of negative pledges in floating charges but
also in relation to tacking of further advances.71
7.7.10 If a mortgage over a British ship is enforced in a jurisdiction other than
the United Kingdom in which the floating charge is an unknown concept it is
unlikely that the issues discussed in this section 7.7 would affect the mortgagee’s
position.
7.8 Mortgages of foreign-registered ships
7.8.1 In an Admiralty action in rem when a ship is sold pursuant to an order for
sale the proceeds of sale are distributed in accordance with an order for priorities,
mortgagees ranking after the costs of the sale etc. and maritime liens.72 If the ship
is a foreign registered ship then mortgages registered under the law of the state of
registration will be recognised in accordance with and in the order, as between
themselves, provided by that law.73 In addition if a mortgage is not valid under
the law of the state of registration it may be enforceable as an equitable mortgage
in the Admiralty Court.74
69 The approach in Black v Williams is consistent with that shown in Coombes v Mansfield, 61 ER 877,
(1855) 3 Drew 193. In that case the Vice Chancellor (Sir R T Kindersley) observed:
This Court has refused repeatedly to apply to the Ship Registry Act those equitable doctrines which it
applies to many other statutes, it considers that the policy of Ship Registry Acts is such as to prevent the
application of those doctrines.
70 ‘Where two or more mortgages are registered in respect of the same ship or share, the priority of
the mortgagees between themselves shall . . . be determined by the order in which the mortgages were
registered (and not by reference to any other matter)’. The predecessor of this provision, the Merchant
Shipping Act 1854, s 69, was invoked in Black v Williams in respect of an unregistered mortgage and a
registered mortgage and so was not confined to regulating priority between registered mortgages.
71 See section 7.9 (Tacking of further advances). In that context the view is expressed by Calnan that
the primacy of the registered priority regime has been strengthened by the difference in language between
the Merchant Shipping Act 1995, Schedule 1, paragraph 8(1) and its predecessors, casting doubt on The
Benwell Tower. See paragraph 7.9.8, n 110.
72 See Chapter 14, section 14.5 (Determination of priorities and payment out).
73 The Byzantion [1922] 12 Ll L Rep 9 (PD & Adm); The Nicolaos Pappis [1921] 9 Ll L Rep 493 (PD &
Adm);The Pacific Challenger [1960] 1 Ll L Rep 99 (PD & Adm). See also The Ship Betty Ott v General Bills
Ltd [1992] 1 NZLR 655 (AC): see the judgment of Ellis J at first instance which was reversed by the Court
of Appeal but subsequently vindicated by statute in New Zealand. See Chapter 4, paragraphs 4.8.7–4.8.9.
74 Iraqi Ministry of Defence v Arcepey Shipping Co SA and Gillespie Brothers & Co Ltd (The Angel Bell)
[1979] 2 Lloyd’s Rep 491 (Com Ct).
159
PRIORITY
7.9 Tacking of further advances75
7.9.1 The importance to the first mortgagee of a priorities agreement in respect
of a second mortgage – and hence the importance of a first mortgagee having an
undertaking from the mortgagor not to grant a second mortgage without the
consent of the first mortgagee so that it can require a priorities agreement as a
condition of consent – is shown by the uncertainty surrounding the issue of ‘tacking’. This is the ability of a first mortgagee to have further advances made after a
second mortgage is registered secured with priority ahead of the second mortgage
without the second mortgagee’s agreement. The issue arises not only in relation
to overdrafts and multi-advance facilities but also in relation to revolving credit
facilities and multi-currency facilities, where repayment and re-advance take place.
The so-called rule in Clayton’s Case76 gives a particular problem in relation to
overdrafts and tacking because it deems repayment of money on overdraft or current account to be applied in satisfaction of the earliest outstanding debits. This
can be addressed by the closing of the account and opening of a new account on
notice being received of a subsequent mortgage. It is usual for the documents to
contain language to the effect that this happens automatically on the granting of
any second mortgage.77 The law is complicated and unclear in a number of respects.
It is necessary to go into some of the history and background.
7.9.2 The position at common law, i.e. before the intervention of statute, was that
a first mortgagee could only be secured for advances made by it after the granting by
the mortgagor of a second mortgage in priority to that second mortgage if the first
mortgagee had no notice of the existence of the second mortgage at the time it made the
advance78 – or if the second mortgagee agreed. If the first mortgagee did have notice
of the second mortgage at the time it made the advance, in the absence of agreement by
the second mortgagee, the security for the advance would rank behind the second mortgage.79 This applied even if the first mortgagee was obliged to make the further advance.80
7.9.3 The application of these rules in the context of registered ship mortgages
was seen in The Benwell Tower.81 A first mortgagee lost its priority in respect of
further advances to a second mortgagee; the first mortgagee was found to have
had actual notice of the second mortgage. Bruce J rejected the first mortgagee’s
argument that the rule in Hopkinson v Rolt had been displaced by the statutory
regime for the registration and priority of ship mortgages:
But it seems to me that the 69th section of the Merchant Shipping Act 1854 relates
only to priorities arising from the dates of the instruments. It provides, in effect, that
as regards the priority of instruments, and the rights of the parties arising therefrom,
the dates of the registration, and not the dates of the instruments, shall be the
75 On tacking of further advances as it relates to security over personal property see for the most current treatment: Goode on Commercial Law (n 45) 699–700; Goode LPCS (n 12) paragraphs 5–10 to 5–23;
Calnan (n 45) Chapter 7, part 6.
76 Devagnes v Noble, Clayton’s Case (1816) 8 LJ Ch 256, 1 Mer 572.
77 See Calnan (n 45) paragraphs 7.222–7.227.
78 See Liverpool Marine Credit Co v Wilson (1871–72) LR 7 Ch App 507.
79 Hopkinson v Rolt (1861) 9 HL Cas 514, 11 ER 829.
80 West v Williams (1899) 1 Ch 132 (CA).
81 (1895) 72 LT 664.
160
PRIORITY
governing dates, notwithstanding any express, or implied or constructive notice of an
unregistered instrument. Where priorities depend, not upon the dates of the instruments, but upon a state of acts wholly independent of the dates of the instruments, I
think that the section in question does not apply.82
Bruce J went on to refer to the Merchant Shipping Act 1862, s 3, which expressly
preserved equities and was introduced to reverse the effect of Liverpool Borough
Bank v Turner.83
7.9.4 The facts of The Benwell Tower were somewhat unusual in that it was found
that the first mortgagee had actual notice of the second mortgage.84 It would be
more usual for a first mortgage not to have actual notice of a second mortgage
when it makes the advance.85 Does the position in Hopkinson v Rolt,86 as modified
by West v Williams87 and followed in The Benwell Tower, apply in circumstances where
the first mortgagee’s notice of the existence of the second mortgage is constructive
rather than actual? This depends first on whether registration of a second mortgage
pursuant to the Merchant Shipping Act 1995 or registration as a charge pursuant to
the Companies Act 2006, s 859 constitutes constructive notice to a first mortgagee.
There is nothing in the applicable statutes that has this effect.88 Whether a party is
deemed to have constructive notice of what appears on a register for any particular
purpose must surely be determined by whether it is reasonable for that person to
make a search of the register in the applicable circumstances.89 It is not customary
for ship mortgagees with a first mortgage to search either the ships’ register or the
Companies Act charges register before making a further advance. It is also submitted that not doing so is reasonable (or at least not unreasonable).90 It is therefore
further submitted that a first mortgagee is only fixed with notice for the purposes
of the rule in Hopkinson v Rolt if it has actual, rather than constructive, notice.91
82 ibid 667. The Merchant Shipping Act 1854, s 69 was replaced by the Merchant Shipping Act 1894,
s 33. The current equivalent provision is the Merchant Shipping Act 1995, Schedule 1, paragraph 8.
83 (1860) 29 LJ Ch 287. See Chapter 3, paragraphs 3.6.7–3.6.9. The current equivalent of the Merchant Shipping Act 1862, s 3 is the Merchant Shipping Act 1995, Schedule 1, paragraph 1(2).
84 (1895) 8 Asp MLC 13 (PD & Adm) 72 LT 664, 667. The issue had apparently been hotly disputed. Bruce J said: ‘The registrar had found that the Merchant Banking Company had notice of Messrs.
Tweedie’s mortgage before the date of the advance of the 3000l. This was a matter on which, as I have
already said, there was considerable conflict in the evidence produced before the registrar, but, having
given the subject very careful consideration I do not feel that I should be justified in disturbing the finding
of the registrar on a question of fact of this nature.’
85 As was the case in Liverpool Marine Credit Co v Wilson (n 78).
86 n 79.
87 n 80.
88 This is in contrast to the position under the Law of Property Act 1925, s 198 which provides that
registration under the Land Charges Act 1972 or any local land charges register is deemed to constitute
actual notice.
89 See Goode LPCS (n 12) paragraph 2–31 on the difficulties surrounding registration and constructive notice.
90 This is the view, at least as regards the Companies Act charges register, expressed in Goode LPCS
(n 12), paragraph 5–22.
91 The contrary view was suggested in J Milnes Holden, Securities for Bankers’ Advances (Pitman 1954)
268, referring to the then current edition of Chorley and Giles, Shipping Law (2nd edn, Pitman 1951)
28. It is thought that the view that a first mortgagee is fixed with operative constructive notice of the
registration of a second mortgage so as to cut off the first mortgagee’s ability to tack further advances is
outdated. The last edition of Chorley and Giles expressed the view much more tentatively (NJJ Gaskell,
C Debattista and RJ Swatton, Chorley & Giles Shipping Law (8th edn, Pitman 1987) 62).
161
PRIORITY
7.9.5 A second mortgagee of a registered ship will have constructive notice of
the existence of a first registered mortgage; it is usual and prudent practice for
someone contemplating taking a second mortgage to search the register. It is debatable in the case of an unregistered ship, however, whether a prospective second
mortgagee of a ship owned by an English company or limited liability partnership
has constructive notice of a first mortgage that is registered as a charge pursuant to
Part 25 of the Companies Act 2006. In practice a second mortgagee of a registered
ship will have actual notice of the existence of a first mortgage. In the mortgage
form92 there is a declaration by the mortgagor that the shares in the ship are free
from encumbrances with optional language, ‘save as appears by the registry of the
above ship’. Someone taking a first mortgage, or believing that they are taking
a first mortgage, will delete this language. If, however, this language is deleted
where there is already a registered mortgage it is the practice of the Registrar not
to accept the further mortgage for registration unless the language is reinstated;93
even if the potential (second) mortgagee has not exercised due diligence and
searched the Register it will thus in practice receive actual notice of the existence
of the first mortgage. A prohibition on the granting of further mortgages will not
be visible from a search of the register maintained by the Registrar of Shipping
and Seamen.94 Nor is such a restriction part of the required particulars to be
completed on the Form MR01 when registering the first mortgage as a charge at
Companies House.95 If the mortgagor is an English company or limited liability
partnership, however, a copy of the deed of covenant as registered is available
from Companies House or for inspection at the office of the mortgagor; if the
mortgagor is a registered overseas company a copy is available for inspection at its
office.96 If a second mortgagee, by this or any other means, has actual notice of
a prohibition on the granting of subsequent mortgages it must surely mean that
the first mortgagee’s ability to tack further advances is preserved in circumstances
where, but for the second mortgagee’s actual notice of the prohibition, the right
to tack would not apply.97 It is, moreover, almost universal practice to include
in the deed of covenant a prohibition on the granting of subsequent mortgages.
There might therefore be a case for arguing that a second mortgagee is, for this
92 MSF 4736 (account current) or MSF 4737 (principal and interest).
93 The Registrar will not refuse to register a mortgage without the consent of an existing mortgagee;
whether the granting of a second mortgage requires the consent of an existing mortgagee is a matter of
contract (i.e. the facility agreement or deed of covenant) between the mortgagor and the existing mortgagee of which the Registrar has no notice. See paragraph 7.2.3 above.
94 Brown v Tanner (1868) LR 3 Ch App 567 indicates, without being conclusive, that notice of a
statutory mortgage does not constitute constructive notice of commercial terms set out in the deed of
covenant (or other documents) because third parties have no access to the deed of covenant. The issue in
this case was not related to tacking. See, however, the text following on the changed position now under
the Companies Act regime.
95 Companies Act 2006, s 859D only requires details of any prohibition on creating a charge ranking
equally or ahead, not behind.
96 See Chapter 6, paragraphs 6.3.11 and 6.3.17.
97 In these circumstances the second mortgagee is also potentially at risk of liability to the first mortgagee in the tort of inducing breach of contract; see paragraph 7.2.3 above.
162
PRIORITY
purpose, fixed with operative constructive notice of a negative pledge in the first
mortgage documents – but this a matter of speculation.98
7.9.6 The Law of Property Act 1925, s 94 abolished tacking at common law
and replaced it with a statutory regime. Section 94(1) provides:
After the commencement of this Act, a prior mortgagee shall have a right to make
further advances to rank in priority to subsequent mortgages (whether legal of equitable) –
(a) if an arrangement has been made to that effect with the subsequent mortgagees; or
(b) if he had no notice of such subsequent mortgages at the time when the further
advance was made by him; or
(c) whether or not he had such notice as aforesaid, where the mortgage imposes
an obligation on him to make such further advances.
This subsection applies whether or not the prior mortgage was made expressly for
securing further advances.
Section 94(4) states:
This section applies to mortgages of land made before or after the commencement of
this Act, but not to charges on registered land.99
It is uncertain whether the correct interpretation of this is that section 94 is limited
to land with an express exclusion of its application to registered land – or whether
it means that section 94 applies to personalty. The balance of commentary favours
the application of section 94 to personalty, although not overwhelmingly.100 It was
assumed without argument that section 94 applies to personalty in Re Rayford
Homes Ltd (in Administrative Receivership).101
7.9.7 If section 94 applies to mortgages of ships (because it applies to personalty generally, including ships) it means that, by virtue of paragraph (c), a first
mortgagee can tack further advances if it is obliged to make those further advances
irrespective of whether it had notice of the second mortgage. It is submitted that
‘notice’ in this statutory context means actual rather than constructive notice, as
is also thought to be the position in relation to tacking at common law (or at least
that, if ‘notice’ does include constructive notice, registration of a second mortgage does not operate as constructive notice for this purpose).102 Only if the first
98 This contrasts with the position of a first mortgagee making further advances who, it is suggested
at paragraph 7.9.4 above, is not fixed with operative constructive notice of the existence of a second
mortgage. As referred to in paragraph 7.2.3 above, for the purposes of potential tortious liability of the
second mortgagee where there is a negative pledge in the first mortgage documents only actual rather than
constructive notice is relevant.
99 The position on tacking of further advances in relation to mortgages of registered land is governed
by the Land Registration Act 2002, ss 48 and 49. It is worth noting in passing Urban Ventures Ltd v Simon
Robert Thomas and Nicholas O’Reilly as Administrators of Black Ant Company plc [2016] EWCA Civ 30,
where the requirements for tacking in s 49 were not satisfied and the issue was, as a matter of construction,
whether amending documents created any further advance at all; it was held that they did not.
100 Goode on Commercial Law (n 45) 699 takes the view that section 94 ‘apparently applies to personalty
as well as realty’. Goode LPCS (n 12) at paragraph 5–17 says this is the ‘better view’. G McCormack, ‘Priority
of Charges and Registration’ [1994] JBL 587 and McCormack (n 54) paragraph 7.26 is also in favour. On the
other hand Calnan (n 45) paragraphs 7.87–7.89 is of the view that section 94 does not apply to personalty.
101 [2011] EWHC 1948 (Ch), [2011] BCC 715 [31]. This point is made in Goode LPCS (n 12) at
paragraph 5–17, footnote 75.
102 See above, paragraph 7.9.4. McCormack (paragraph 7.26), however, states that actual or constructive notice is sufficient to destroy the right to tack unless it is saved by the other provisions of section 94.
163
PRIORITY
mortgagee has actual notice of the second mortgage, as in The Benwell Tower,103
would it be unable to tack in reliance on paragraph (b) (or at common law).104 In
these circumstances paragraph (c) of section 94 is engaged (if section 94 applies)
enabling the first mortgagee to tack when it is obliged to make a further advance.
7.9.8 It seems likely that section 94 does apply to personalty generally. There
is, however, an argument to be made that nevertheless section 94 does not apply
to registered ship mortgages. In The Basildon105 the right of a mortgagee to insure
and recover the premium from the mortgagor was considered. Brandon J thought
that there was a statutory right to insure under the Law of Property Act 1925,
s 101(1)(ii), as qualified by section 108(1) and (2), because of the wide definition
of ‘property’ in the Act. He then went on to say, however:106
But this was a general insurance of a ship under an ordinary marine policy, either a
full policy or later a port policy, and it would seem to me quite artificial to decide that
that policy was kept up even as regards the fire element of the risk under the provisions of the Law of Property Act which I have mentioned.
The case is therefore equivocal on the application of the Law of the Property Act
1925 to ship mortgages. In The Maule107 the application of the Law of Property
Act 1925, sections 101 and 103 to ship mortgages was considered by the Privy
Council. Lord Lloyd said:108
their Lordships doubt whether, despite the wide definition of ‘property’ in section 205
of the Law of Property Act 1925, it is possible to draw any useful analogy between
mortgages under that Act and mortgages under the Merchant Shipping (Registration
of Ships, Sales and Mortgages) Law 1963 of Cyprus. As already mentioned, sections 31
to 38 of the Cyprus Act correspond broadly to sections 31 to 38 of the Merchant
Shipping Act 1894.
Neither of these judicial statements on the application or otherwise of different sections of the Law of Property Act 1925 is directly related to section 94. The view
expressed by Calnan109 is that the regime for registered priority in the Merchant
Shipping Act 1995 is conclusive and therefore excludes restrictions on tacking.110
That view is consistent with the primacy given to registration, admittedly not directly
103 (1895) 8 Asp MLC 13 (PD & Adm), 72 LT 664.
104 This statement assumes that the statutory regime in relation to registration of ship mortgages
has not replaced the common law restrictions on tacking or the section 94 restrictions. It is suggested in
paragraph 7.9.8 below that such replacement might well be the case.
105 [1967] 2 Lloyd’s Rep 134.
106 ibid 136.
107 [1997] 1 Lloyd’s Rep 419, [1997] 1 WLR 528.
108 ibid 532.
109 n 45.
110 See Calnan (n 45) paragraphs 7.272–7.274. His view is that The Benwell Tower is no longer good
law on the issue of tacking in relation to registered ship mortgages because of the replacement of the words
‘notwithstanding any express, implied or constructive notice’ which were in the Merchant Shipping Act
1894, s 33 (and before that in the Merchant Shipping Act 1854, s 69) by the words, ‘(and not by reference
to any other matter)’ in the Merchant Shipping Act 1995, Schedule 1, paragraph 8(1), which is arguably
wider. Calnan also takes the view that the Law of Property Act 1925, s 94 does not apply to personalty
generally; see paragraphs 7.87–7.89 (referred to at n 100).
164
PRIORITY
in relation to tacking, by Black v Williams.111 It is also consistent with a more general
and long-established trend in relation to registered ships for statute to displace equity,
as noted by Coote in 1837 in the opening words of his chapter on ship mortgages:112
No species of mortgage security requires greater circumspection than that we are about
to consider. In almost every other instance of the transfer of property, a defect in the
assurance is remediable in equity, on proof of the equitable contract between the parties, as already noticed. But so strict are the provisions of the statute law regulating
the change of this nature of property as almost to oust the jurisdiction of equity.
7.9.9 It is uncertain whether the rule in Hopkinson v Rolt113 applies not only to
subsequent mortgages but might also apply to subsequent claims in a wider sense.
Might the holder of a statutory lien ranking behind a mortgage114 potentially be
able to challenge the right of a ship mortgagee to tack? The position is not certain
but the better view is that restrictions on the ability of a first mortgagee to tack,
which have developed for the protection of subsequent mortgagees, do not extend
to the benefit of the holder of a statutory lien, which is no more than a procedural
remedy giving rise to a right to arrest the ship.115 If, contrary to this view, restrictions on tacking do operate for the benefit of the holder of a statutory lien, the
earliest that a mortgagee’s ability to tack as against the holder of a statutory lien
would be prevented would be on the mortgagee receiving actual notice of the issue
of a claim in respect of the statutory lien in accordance with the Civil Procedure
Rules 1998. Depending on the drafting of the undertakings and events of default,
including as regards grace periods, this should give rise to a right of the mortgagee
to refuse to make the further advance.116
7.9.10 An English court addressing issues of tacking (or the equivalent) as
between mortgagees of a foreign-registered ship would, it is submitted, look to the
law of the register to determine the position. Where a British-registered ship is put
through a court sale in a foreign jurisdiction117 the priority issue relating to tacking
of further advances will, as a matter of procedure, be a matter to be determined by
the court of the arrest jurisdiction. It is thought likely that the foreign enforcement
jurisdiction would look to the law of the register specifically to determine issues
of priority between registered mortgagees of a British registered ship – including
111 n 47.
112 Coote, A Treatise on the Law of Mortgage (2nd edn, Saunders and Benning 1837) 327. See also the
observation by Sir R T Kindersley in Coombes v Mansfield (n 69). The displacement of equity was taken
too far by the interpretation in Liverpool Borough Bank v Turner (1860) 30 LJ Ch 379, 2 De GF & J 502 of
the Merchant Shipping Act 1854, s 43 excluding trusts; statute intervened in this one instance to redress
the balance by the Merchant Shipping Act 1862, s 3, the current successor of which is the Merchant
Shipping Act 1995, Schedule 1, paragraph 1(2).
113 n 79.
114 See Chapter 10, section 10.5 (Statutory liens).
115 In a different context, which might not have a direct bearing on the issue in relation to tacking but
is nonetheless interesting, the class of persons to whom a mortgagee owes a duty in relation to enforcement appears to be closed and not to include a person with a mere right to arrest; see the judgment of
Christopher Clarke LJ in Alpstream AG v PK Airfinance Sarl [2015] EWCA Civ 1318 [115] and Chapter
12, paragraphs 12.7.1–12.7.4.
116 See paragraph 7.9.11 below in respect of the equivalent issue as regards a subsequent mortgagee.
117 In this context, Scotland and Northern Ireland are technically foreign jurisdictions; see Chapter 14, paragraph 14.1.1, n 1.
165
PRIORITY
as to tacking of further advances – but the position is jurisdiction-specific and
cannot be stated definitively.118
7.9.11 The uncertainty of the position in relation to tacking of further advances
is mitigated by the long-standing practice of mortgagees requiring a prohibition on
the granting of subsequent mortgages without consent. On the basis that only actual
notice119 of a subsequent encumbrance destroys the right to tack, even if the statutory
regime for registration of ship mortgages does not take precedence over restrictions
that would otherwise exist on the right to tack, those contractual prohibitions on
subsequent mortgages protect a mortgagee in practice. A mortgagor wishing to grant
a second mortgage will need to approach the mortgagee for consent. If consent is
given it will be conditional upon the mortgagor and the second mortgagee entering
into a priorities agreement with the existing mortgagee.120 Where the first mortgagee
is under an obligation to make further advances, such an agreement will invariably
expressly preserve the first mortgagee’s right to tack, subject to any express limit on
how much debt the first mortgage can secure in priority to the second mortgage.121
If a mortgagee has actual notice of a subsequent mortgage granted in breach of the
applicable prohibition or restriction it will be able to invoke an event of default giving rise, among other things, to a right to refuse the making of a further advance.
7.10 Tabula in naufragio
7.10.1 Apart from tacking for further advances there is, or perhaps was, another
form of tacking – under the tabula in naufragio (‘plank in a shipwreck’) rule. If a
subordinate equitable mortgage acquired a transfer of the first legal mortgage and
did not have notice of any intervening mortgage it could ‘tack’ its equitable mortgage to the legal mortgage, thereby taking priority over the intervening mortgage.
Despite the attractiveness of the picturesque and dramatic maritime metaphor
this form of tacking is mentioned only for the sake of completeness and need not
detain us, for a number of reasons. First, it might have been abolished by the Law
of Property Act 1925 as regards personalty.122 Secondly, it is strongly arguable that
a person contemplating taking a subsequent mortgage is fixed with operative constructive notice of an existing registered mortgage.123 Thirdly, the system of
118 Some jurisdictions, such as Greece and South Korea, even determine whether a claim is a maritime lien in accordance with the law of the ships’ register. Latin American countries that have fully ratified
the Convention on Private International Law (The Bustamante Code), Havana, 20 February 1928 apply
the law of the flag (lex navis) to determine priority ranking (Article 277 of the Code). See also Chapter 4,
section 4.8 (The conflict of laws dimension to priority issues).
119 See paragraphs 7.9.4 and 7.9.7 above.
120 See section 7.2 (Agreed priority).
121 See paragraph 7.2.8 above. In Re Rayford Homes Limited (in Administrative Receivership) [2011]
EWHC 1948 (Ch) there was a dispute about the construction of an intercreditor agreement on the issue
of what was secured in priority to a second mortgage but the provisions of the intercreditor agreement
specifically preserving the right to tack were not questioned; see [55] and [94].
122 C Harpum, S Bridge and M Dixon (eds), Megarry and Wade: Law of Real Property (8th edn, Sweet &
Maxwell 2012) (hereafter in this chapter, ‘Megarry and Wade’) paragraphs 19–244 to 248 on the position
in relation to land. Goode LPCS (n 12) at paragraph 5–17 puts forward the view that this form of tacking
survives in relation to personalty, as does Calnan (n 45) at paragraph 7.89.
123 See paragraph 7.9.5 above.
166
PRIORITY
registration of ship mortgages that has existed since the Merchant Shipping Act
1854 has the effect that all registered mortgages are legal mortgages; hence this
form of tacking does not apply where all the mortgages are registered.
7.11 Marshalling
7.11.1 Marshalling is a long-established principle of equity.124 It is not relevant to
priority as between mortgagees in the strict sense but it can restrict the exercise
of a first mortgagee’s rights, so it is conveniently addressed in this chapter. It has
been described as a rule that provides that:125
. . . a person having two funds to which he may resort, shall not disappoint another
person who can resort to only one of such funds.
There have been a number of judicial explanations of the principle. In Aldrich v
Cooper126 Lord Eldon LC said:
But it is the ordinary case to say that a person having two funds shall not by his election disappoint the party having only one fund, and equity, to satisfy both, will throw
him, who has two funds, upon that which can be affected by him only, to the intent
that the only fund, to which the other has access may remain clear to him.
Shortly afterwards the principle was again stated again by Lord Eldon as follows:127
The equity is clear upon the authorities, that, if two funds of the debtor are liable to
one creditor, and only one fund to another, the former shall be thrown upon that fund,
to which the other cannot resort; in order that he may avail himself of his only security:
where that can be done without injustice to the debtor or the creditor: but that principle has never been pressed to the effect of injustice to the common debtor . . .
More recently Lord Hoffmann described the principle in the following way:128
This is a principle for doing equity between two or more creditors, each of whom are
owed debts by the same debtor but one of whom can enforce his claim against one
or more security or fund and the other can resort only to one. It gives the latter an
equity to require that the first creditor satisfy himself (or be treated as having satisfied
himself) so far as possible out of the security or fund to which the latter has no claim.
7.11.2 A simple example of a situation in which marshalling applies in a ship
mortgage context is as follows. An owner owning two ships (‘Ship A’ and ‘Ship B’)
grants a first mortgage over each ship to one mortgagee (the ‘double mortgagee’)
and a second mortgage to another mortgagee (the ‘single mortgagee’) over only
Ship A but not Ship B.
124 See generally Paul Ali, Marshalling of Securities; Equity and the Priority of Secured Debt (OUP 1999)
(hereafter in this chapter, ‘Ali’); Halsbury’s Laws (5th edn, 2010) Vol 77, paragraphs 632–635; Falcon
Chambers and Paul Morgan (eds), Fisher and Lightwood’s Law of Mortgage (14th edn, LexisNexis 2014)
paragraphs 45.8–45.13.
125 Coote, A Treatise on the Law of Mortgages (2nd edn, London 1837).
126 (1803) 3 Vesey Junior 382, 394.
127 Ex p Kendall (1811) 17 Ves 514, 527.
128 Re Bank of Credit and Commerce International SA (No. 8) [1998] AC 214, 230–231.
167
PRIORITY
7.11.3 If the double mortgagee enforces its security only against Ship A and is
fully repaid out of the proceeds with the single mortgagee being left with nothing
out of Ship A (or being left with a recovery shortfall) marshalling gives the single
mortgagee access to the double mortgagee’s mortgage over Ship B. The nature
of the single mortgagee’s remedy in such circumstances is that of subrogation or
something very like subrogation.129 In Szepietowski v Serious Organised Crime Agency
Patten LJ said of the position of a second chargee when marshalling is engaged:130
He is in effect (but not as a matter of law) subrogated to the first chargee’s rights
under that security to the extent of the debtor’s secured liabilities to him.
Ali131 compares and contrasts marshalling with subrogation and concludes that
marshalling is not a form of subrogation.132 Whatever the nature of the rights of
the single mortgagee in the circumstances described above it is of no detriment
or concern to the double mortgagee, who has already been fully paid out.
7.11.4 The position is more complex and controversial where the double mortgagee
has not been fully paid out. It is in the interest of the single mortgagee that the double
mortgagee enforces its security over Ship B in addition to, or even instead of, enforcing
its security over Ship A, so as to diminish the double mortgagee’s recovery from Ship
A (and so correspondingly increase the single mortgagee’s recovery from Ship A).133 It
is clear that marshalling does not operate to prevent the double mortgagee enforcing
its security over Ship A whenever and however it wants.134 The position was, however,
made somewhat confused by apparently conflicting dicta by Rose LJ in Re Bank of Credit
and Commerce International SA (No. 8) (CA) in the Court of Appeal135 and by Lord
Hoffmann when the case went to the House of Lords.136 Rose LJ said of marshalling:137
It is never allowed to delay or defeat the creditor with several securities in the collection of his debt and the enforcement of his securities. He is allowed to realise the
securities as he pleases.
Lord Hoffmann said of (in the example at paragraph 7.11.2 above) the single
mortgagee:
It gives the latter an equity to require that138 the first creditor satisfy himself (or be
treated as having satisfied himself) so far as possible out of the security or fund to
which the latter has no claim.
129 Serious Organised Crime Agency v Szepietowski [2010] EWHC 2570 (Ch), [2011] 1 Lloyd’s Rep
FC [48]. This refers to the analysis in Ali (n 124). The decision was affirmed in [2011] EWCA Civ 856,
[2011] Lloyd’s Rep FC 537 but reversed in [2013] UKSC 65, [2014] Lloyd’s Rep FC1.
130 [2011] EWCA Civ 856 (CA) [2].
131 n 124.
132 Ali (n 124) paragraphs 4.13–4.55, describes this feature of marshalling as the ‘post-realisation
theory’. See paragraph 7.11.12 below.
133 The application of marshalling in this context is labelled by Ali (n 124) ‘the coercion theory’.
134 Marshalling aside, the double mortgagee does, however, owe separate duties to the single mortgagee in relation to enforcement of its security over Ship A; see generally Chapter 12, especially section
12.7 (Derivative liability to third parties).
135 [1996] Ch 245 (CA).
136 [1998] AC 214 (HL).
137 [1996] Ch 245, 272B (CA).
138 Emphasis added. This remark is contained in the longer passage from Lord Hoffmann’s judgment
quoted in paragraph 7.11.1 above.
168
PRIORITY
If the above remark of Lord Hoffmann (which was obiter) implies that a double
mortgagee can be restrained from enforcing its security over the property subject
to two mortgages the position was clarified and put beyond doubt by the remarks
of Lord Neuberger in National Crime Agency (formerly Serious Organised Crime
Agency) v Szepietowski:139
At one time judges expressed themselves in a way which suggested that a second mortgagee with the right to marshal could compel the first mortgagee to sell the other property
to pay off the debt he was owed before having recourse to the common property. Indeed,
Lord Eldon LC referred to the second mortgagee ‘[having] a right in equity to compel’
the first mortgagee ‘to resort to the other’ in Aldrich v Cooper 8 Ves 382, 388. However,
it soon became well established that the first mortgagee had the right to have recourse
to ‘any of his securities which first come to hand’ and to ‘[realise] his securities in such
manner and order as he thinks fit’: per Wood V-C in Wallis v Woodyear (1855) 2 Jur NS
179, 180, and Parker J in Manks v Whiteley [1911] 2 Ch, 448, 466 respectively.
7.11.5 There is the separate but inevitably related issue of whether the single
mortgagee can compel the double mortgagee to enforce its security over the asset
over which only the double mortgagee but not the single mortgagee has security.140
If the single mortgagee cannot, based on the position as stated by Lord Neuberger and quoted in paragraph 7.11.4 above, hinder or delay enforcement by the
double mortgagee against the asset that is mortgaged to each mortgagee can it at
least compel or speed enforcement by the double mortgagee against the asset over
which it alone has security? The statement by Lord Neuberger might indicate not,
since the issues are essentially two sides of the same coin. This issue was, however,
addressed directly by the Court of Appeal in Highbury Pension Fund Management
Co v Zirfin Investments Ltd.141 Barclays was the double mortgagee and a company
called Highbury was the single mortgagee. At the end of his judgment Lewison
LJ stated that the single mortgagee did indeed have a right to compel the double
mortgagee’s enforcement against the non-shared asset:142
In our case Barclays chose to realise its security over 31 Brompton Square.143 Highbury
have no complaint about that. It is not disputed that if Highbury were to realise its
securities over the affiliates’ properties144 it would have to give priority to repayment
of Barclays’ loans. Any other result would undoubtedly operate to the prejudice of
Barclays. The question then is whether this limitation on the application of the principle
of marshalling means that Highbury cannot insist on the immediate realisation of Barclays’
other securities over the affiliates’ property,145 even if Barclays is paid in priority to Highbury. On the footing that Barclays will retain its priority over Highbury, if and when
the additional securities come to be realised, I cannot see that Barclays’ rights as secured
creditor will be defeated. Nor in my judgment will Barclays be delayed in realising the
securities. On the contrary, the realisation of the securities and the redemption of
139 [2013] UKSC 65, [2014] AC 338 [34].
140 Ship B in the example given in paragraph 7.11.2 above.
141 [2013] EWHC 238 (Ch), [2013] 3 All ER 327; reversed [2013] EWCA Civ 1283 (CA), [2014] Ch 359.
142 ibid [23].
143 This was the property over which security was given to each of Barclays and Highbury.
144 This is confusingly worded. The reference must be intended to be to the security which Highbury
had over 31 Brompton Square. Highbury did not have security over the assets of the affiliates of the owner
of 31 Brompton Square; only Barclays had security over the assets of those affiliates.
145 Emphasis added.
169
PRIORITY
Barclays’ loans will be accelerated rather than retarded. Barclays has not offered any
evidence to show that it would suffer any prejudice by the earlier realisation of the
securities. That being so, I can see no reason to deny Highbury the right to realise the
securities immediately.146
7.11.6 It is clear from the words of Lewison LJ that marshalling does not affect
the priority of entitlement to proceeds of a double mortgagee in respect of either
the asset over which there is double security or the asset over which there is single
security. The single mortgagee is, however, entitled to proceeds from the enforcement by the double mortgagee of its security over the asset over which there is
single security once the double mortgagee has recovered its exposure in full. What
is less clear, but arguably implied, is that the single mortgagee has the ability to
compel a dilatory double mortgagee to enforce its security over the single security
asset. Might a mandatory injunction potentially be available against the double
mortgagee?147 In any event, the conclusion from the words of Lewison LJ is that
a delaying double mortgagee is at least exposed to a claim in damages for breach
of an equitable duty to a single mortgagee.
7.11.7 The timing and, especially, the place of enforcement can be critical to
a ship mortgagee’s recovery, as will be seen in Chapter 11.148 It will be seen in
Chapter 12 that a mortgagee’s duties to the mortgagor in relation to the exercise
of its rights of enforcement – and hence its duties to a second mortgagee – are
somewhat modified in the case of ship mortgages as compared with, for example,
mortgages of real property.149 This modified or different treatment of ship mortgages ought logically to be carried through and also applied to the position on
marshalling. Accordingly, it is submitted that the words of Lewison LJ in Highbury v
Zirfin150 ought not to apply to ship mortgages and, based on the way that case was
pleaded, there is a good argument that they do not; it is significant that Barclays
did not offer ‘any evidence to show that it would suffer any prejudice by the earlier
realisation of the securities’.151
7.11.8 It is acknowledged, however, that the single mortgagee’s right to marshal
against a double mortgagee, as expressed by Lewison LJ in Highbury v Zirfin, could
be applicable to ship mortgages unless and until the issue is addressed in a case
involving ships.152
7.11.9 The example given in paragraph 7.11.2 above is not in practice one that
will be frequently encountered. Ships are more often than not owned by singlepurpose companies (SPCs). A more common situation therefore is one where a
number of SPCs are jointly and severally liable under a facility agreement secured
146 Again, this wording is potentially confusing. It would with respect have been better expressed
as follows: ‘I can see no reason to deny Highbury the right to require Barclays to realise the securities
immediately.’
147 This remedy was not sought in Highbury v Zirfin (n 141).
148 Chapter 11, paragraph 11.14.7.
149 See Chapter 12, section 12.6 (Are ship mortgages different?).
150 n 141.
151 See the passage quoted in paragraph 7.11.5 above.
152 The result in any such case might depend on whether it is heard in the Admiralty Court or the
Commercial Court on the one hand, or in the Chancery Division on the other hand.
170
PRIORITY
by first mortgages over each separately owned ship. Let us suppose that a second
mortgage is then given to another creditor over only one of the ships in the first
mortgage ‘security package’. The first mortgagee is therefore, using the terminology in paragraph 7.11.2 above, the ‘double mortgagee’ because it has first priority
security over both ships that are subject to a second mortgage and ships that are
not so subject; the second mortgagee is the ‘single mortgagee’. For marshalling to
apply it has traditionally and generally been necessary for there to be debts owed
to both the double mortgagee and the single mortgagee and for those debts to be
owed by the same debtor. This rule is known as the ‘common debtor rule’ and,
like most rules, it is subject to exceptions.153
7.11.10 Before examining the ‘common’ aspect of the common debtor rule it is
necessary to pause on the issue of whether there is need for a debt at all. This was
the issue in the litigation between the Serious Organised Crime Agency (‘SOCA’,
which was renamed the National Crime Agency) and Mr and Mrs Szepietowski
(‘Mrs S’).154 SOCA held a second charge on real property owned by Mrs S that
was given under the terms of a settlement deed entered into pursuant to the
Proceeds of Crime Act 2002, s 266. The first mortgage on the property was held
by a bank. SOCA claimed it was entitled to marshalling as against the bank in
respect of another property on which the bank but not SOCA held a mortgage.
That property was the matrimonial home and, by the terms of the settlement deed,
it was not included in the property to be charged to SOCA. At first instance and
in the Court of Appeal SOCA’s right to marshal was upheld, it being held at first
instance that there was a debt owed by Mrs S to SOCA even though it was a
debt that could only be enforced by sale of the relevant property and not through
any personal covenant to pay.155 On appeal to the Supreme Court, however, it was
held that there was no debt owed by Mrs S to SOCA and on that basis SOCA
was not entitled to marshalling.156
7.11.11 In the context of commercial transactions it is important not to be
misled by Szepietowski. There was no debt at all in the case. Where a shipowner
gives a second priority mortgage it is commonly to secure its obligations under a
guarantee of another party. In some cases, however, there is no guarantee and the
second priority mortgage is given by way of third party charge, i.e. as security for
the obligations of the relevant third party but with no guarantee or other personal
liability to pay by the party granting the mortgage.157 In cases where there is a
153 See Ali (n 124), Chapter 2, paragraphs 2.32–2.50 and Chapters 7 and 8.
154 Serious Organised Crime Agency v Szepietowski [2010] EWHC 2570 (Ch), [2011] Lloyds Rep FC
81; affirmed on appeal, [2011] EWCA Civ 856, [2011] Lloyd’s Rep FC 537; reversed on appeal, [2013]
UKSC 65, [2014] Lloyd’s Rep FC1.
155 [2010] EWHC 2570 (Ch) [46].
156 [2013] UKSC 65 [40]–[59] (Lord Neuberger). Lord Carnworth [87]–[105] allowed the appeal
on the narrower ground of the construction of the settlement deed.
157 There is no conceptual difficulty with a third party charge. ‘A proprietary interest provided by way
of security entitles the holder to resort to the property only for the purpose of satisfying some liability due
to him (whether of the person providing the security or a third party) . . .’ (emphasis added): Re Bank of Credit
and Commerce International SA (No. 8) [1998] AC 214, 226E (Lord Hoffmann), quoted in Szepietowski
by Henderson J at [2010] EWHC 2570 (Ch) [45]. See Chapter 5, paragraph 5.3.7 further in relation to
third party charges in the context of the statutory ship mortgage.
171
PRIORITY
third party charge there is still a debt, albeit one owed by a different party; the
position is not the same as in Szepietowski, where there was no debt of any party.
7.11.12 Turning now to the ‘common’ aspect of the common debtor rule the
position has been clarified and confirmed by Highbury Pension Fund Management
Co v Zirfin.158 Barclays held a first mortgage over real property owned by Z. The
mortgage secured both a loan to Z and a guarantee by Z of the obligations of four
companies affiliated with Z (the ‘affiliates’). Each affiliate borrowed from Barclays
and gave a mortgage over its real property to secure its loan.159 Subsequently, Z
borrowed from H and then from C. H received a second mortgage over Z’s property
and C received a third mortgage. Barclays enforced its security over Z’s property,
the proceeds of realisation being sufficient to repay in full Z’s loan obligation
and also sufficient to satisfy in part Z’s guarantee in respect of the obligations of
the affiliates. There was therefore nothing left to go to H or C, who applied to the
court for marshalling in respect of Barclays’ mortgages over the properties of
the affiliates. Since there was no single or common debtor H and C had to invoke
the so-called ‘surety exception’ to the common debtor rule.160 Norris J at first
instance, citing various Commonwealth and US authorities, held that the surety
exception did in principle apply because of the guarantee by Z of the obligations
of the affiliates but did not apply on the facts because of the presence of language
in Z’s guarantee prohibiting it from receiving the benefit of any security held by
Barclays until Barclays had been paid in full.161 In other words, Norris J thought
the restriction as between Z and Barclays operated to defer the ability of H and C
to require marshalling of Barclays’ other security for their benefit. The judgment
was reversed by the Court of Appeal, with Lewison LJ giving the leading judgment.
He held that Norris J had been wrong in his view of the effect of the language
in the guarantee and that it did not suspend H and C’s right to marshalling until
Barclays had been paid in full. In summary, Lewison LJ held that the language in
the guarantee restricted neither the operation of the equity of exoneration between
the affiliates and Z162 nor the right of H and C to marshal as against Barclays.163
Accordingly, as has been seen above,164 Lewison LJ held that H and C were able
to require Barclays to enforce its security over the property of the affiliates.
158 n 141.
159 The loans to the Affiliates and the guarantee by Z took place after the loan to Z. The guarantee by
Z was secured by Barclays’ first mortgage because it was an ‘all moneys’ mortgage.
160 See Ali (n 124), Chapter 2, paragraphs 2.35 and 2.36 and Chapter 8 paragraphs 8.05–8.48 on
the surety exception.
161 [2013] EWHC 238 (Ch) [18]–[52]. Language like this deferring the exercise of rights of indemnity or subrogation is of course almost standard in a guarantee.
162 The equity of exoneration is a doctrine of equity developed by the courts to protect the owner
of property (A) which secures the debt of another (B), such that A is entitled to have B’s debt paid from
the proceeds of B’s property first. It originates in the context of wives giving security over their interest
in property for the debts of their husbands: see Huntingdon v Huntingdon (1702) 2 Bro Parl Cas 1 and,
as the leading recent application of the doctrine in a domestic context, Re Pittourtou [1985] 1 All ER 285
(Ch). The principle has been extended from the context of matrimonial property to protect parties giving
a guarantee and securing the guarantee with a mortgage over their property: Gee v Lidell [1913] 2 Ch 62;
Re a Debtor (No. 24 of 1971) ex p Marley [1976] 2 All ER 1010 (Div Ct).
163 This indicates that marshalling is indeed not a form of subrogation; see paragraph 7.11.3 above.
164 Paragraphs 7.11.5 and 7.11.6 above.
172
PRIORITY
7.11.13 Supposing, instead of the security of a first (double) mortgagee securing
a guarantee, it secures a joint and several loan obligation of two or more mortgagors, as described in paragraph 7.11.9 above. A second mortgage is granted by one
only of those mortgagors to another creditor, i.e. the single mortgagee. In these
circumstances there is a right of contribution between joint and several obligors.
This operates to ensure that each joint and several obligor bears an equal share
of the liability. Even if the common debtor rule is not satisfied where there is one
debtor in common but there are also others (the other joint and several borrowers
liable to the double mortgagee), there would seem to be no reason in principle
why the surety exception to the common debtor rule should not apply where the
security of the double mortgagee is for a joint and several borrowing rather than
for the guarantee, so as to allow the single mortgagee to invoke marshalling. This
would require the right of contribution to apply as between joint and several
obligors, in a way that is equivalent for current purposes to the way the equity of
exoneration165 applies for the benefit of a surety. Since joint and several borrowing
is arguably a species of, or at least akin to, suretyship there ought to be no difficulty with this; the right of contribution is a form of, or is at least equivalent to,
the equity of exoneration. Where, as is usual, the terms of the facility agreement
will prohibit the joint and several borrowers from exercising rights of contribution
against each other until the double mortgagee has been paid in full this would not,
based on Highbury v Zirfin, operate to restrict the right of the single mortgagee to
invoke marshalling against the double mortgagee. There is, however, a difference
between the equity of exoneration as it operates for the benefit of a surety and the
way, as suggested, the right of contribution operates as between joint and several
borrowers. A surety is entitled to be fully exonerated so that its property is freed
entirely from the consequences of enforcement of the security. A joint and several
borrower is entitled to a contribution from its co-borrowers only to the extent that
enforcement of the security against its property would deprive it of proceeds in
excess of the proportionate share of liability that it is obliged to bear. This difference would seem to operate so as to limit the extent to which the single mortgagee
can require the double mortgagee to marshal its security.
7.11.14 Marshalling applies as between holders of bottomry bonds,166 although
the obsolescence of the bottomry bond makes this of no modern practical significance.167 Of greater significance is that marshalling applies for the benefit of
other types of lienholders168 and that it applies for the benefit of such lienholders
as against a mortgagee. In The Bank of Scotland v The Nel 169 the Federal Court of
Canada decided that in principle marshalling would be applied against a mortgagee
of a ship to the benefit of other in rem creditors. The Nel is consistent with English
case-law which applied marshalling against holders of bottomry bonds in favour
165 See n 162.
166 The Priscilla 167 ER 1 (Adm), (1859) Lush 1. See Ali (n 124), paragraph 2.40 n 75 and the other
cases there referred to.
167 See Chapter 1, paragraph 1.2.3 and Chapter 3, paragraph 3.7.4.
168 Broadbent v Barlow 45 ER 999 (Ch), (1861) 3 De GF & J 570; Ex Parte Alston (1868–69) LR, 4
Ch App 168.
169 (1998) 154 FTR 168 (FC).
173
PRIORITY
of other in rem creditors170 and it is likely that it would be followed by an English
court as between mortgagees and other claimants in rem.
7.11.15 The doctrine of marshalling is one of some complexity and uncertainty
as to both its scope and its conceptual basis.171 At the risk of generalisation and
oversimplification it can be said that it exists for the benefit of a single mortgagee
(or other lienholder) and not for the benefit of the mortgagor. The mortgagor is
potentially affected rather than benefited by marshalling because it can result in
more assets over which it has given security being enforced against than would
otherwise be the case. This apparent detriment to the mortgagor is, however, illusory.
If the mortgagor is solvent it will avoid the application of marshalling by paying
off all that it owes to each of the double mortgagee and the single mortgagee; if
the mortgagor is solvent it would be unusual, but not out of the question, for the
mortgages that it has granted to be enforced at all so as to give rise to any issue
of marshalling. If the mortgagor is insolvent – the most likely circumstance in
which mortgages will be enforced – it is not the mortgagor itself that is adversely
affected by marshalling but its unsecured creditors. Marshalling also does not operate to the detriment of the double mortgagee – except to the extent that the issues
referred to in paragraph 7.11.6 above apply, based on the judgment of Lewison LJ
in Highbury v Zirfin.172
7.11.16 It is advisable for a first (double) mortgagee to seek to disapply the
rights of the second (single) mortgagee by suitable language in the priorities agreement. This is especially so because of the possibility of the words of Lewison LJ
in Highbury v Zirfin being applied to ship mortgages.173 There is no reason why
a clear and explicit provision of this nature for the benefit of the first (double)
mortgagee would not be given effect.174
7.11.17 Since marshalling is a doctrine of equity it is doubtful if it would be
applied by the English courts in relation to the enforcement of mortgages that
are governed by the laws of a jurisdiction other than England (or a jurisdiction
whose laws are English-law based and incorporate concepts of equity).175 It is also
not certain that a foreign enforcement jurisdiction would apply marshalling to
British ship mortgages. It is, however, possible that foreign law doctrines similar
170 The Edward Oliver (1867) LR 1 A & E 379 (Adm); The Eugénie (1873) LR 4 A & E 123. See also
The Chioggia [1898] P 1 (PD & Adm) in which marshalling was denied on the grounds of the common
debtor rule. It is possible that these cases are affected by Webb v Smith (1885) 30 Ch D 192 (CA) which
appears to limit marshalling to proprietary security interests, although it is Ali’s thesis that such limitation
has no basis; see Ali (n 124), Chapter 9. In a different context, marshalling of mere rights of set-off was
upheld in Smit Tak International Zeesleepen Bergingbedrijf BV v Selco Salvage [1988] 2 Lloyds’ Rep 398 (Ch)
but this extension of the doctrine has been criticised; see Guest (n 63) paragraph 6-82 and the critical
commentary there referred to.
171 See, generally, Ali (n 124).
172 n 141. As stated in paragraph 7.11.7 there are good reasons for the words of Lewison LJ not to
apply to ship mortgages.
173 See paragraphs 7.11.5–7.11.8 above.
174 Ali (n 124) does not indicate that there is anything to prevent the effectiveness of anti-marshalling
covenants but he questions their necessity (Ali, Chapter 12). He is not addressing, however, the specific
shipping context referred to in paragraph 7.11.7 above.
175 See Chapter 4 on the question of the law which governs the proprietary and contractual aspects,
respectively, of a ship mortgage.
174
PRIORITY
or equivalent to marshalling could be applied to the enforcement in England of
foreign law mortgages or to the enforcement abroad of British ship mortgages. In
a multi-jurisdictional enforcement against a fleet including a mixture of British
ships and foreign flag ships the conflict of laws issues as regards marshalling could
be complex indeed.176
7.12 Invalidity
7.12.1 The order of priority will be altered if a mortgage or other security interest
is void initially or becomes void or unenforceable, for example because of a failure
to register the mortgage under the Companies Act 2006, s 859. Also if the mortgage
or other security interest is set aside in applicable insolvency proceedings.177
7.12.2 It is a standard provision in any priorities agreement between mortgagees
that a junior mortgagee will not seek to challenge the effectiveness or priority of
a senior mortgage.
7.13 The courts’ approach to priority of security
7.13.1 In Saltri III Ltd v MD Mezzanine SA SICAR Eder J said when considering
the terms of an intercreditor agreement regulating the position of senior and mezzanine secured lenders:178
where (as in the present case) sophisticated parties have chosen to govern their relationship through arm’s length commercial contracts, the scope and nature of the duties
owed between the parties are shaped by the terms of, and the language used in, those
contracts: . . . This reflects the general approach of the courts to complicated financial
transactional documents, in relation to which there is a particularly strong case for
giving effect to the contract the parties have agreed.
A significant feature of the case was that security was held by a common security
trustee for senior and mezzanine lenders, with the priority of the different creditors
and also the duties of the security trustee being regulated by the intercreditor
agreement. Eder J held that the fact that the security trustee was in a fiduciary
position in relation to some of its activities did not mean that it was subject to
fiduciary duties generally.179 After making the comments quoted above he went on
to hold as incorrect the argument of the mezzanine lenders that the security trustee
was (because it was a fiduciary) obliged to act in the interests of all the lenders,
176 With further possible complications caused by the interface in this context between Rome I
(Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the
law applicable to contractual obligations) and Rome II (Regulation (EC) No. 864/2007 of the European
Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations).
177 See Chapter 15, section 15.10 (Circumstances in which a ship mortgage can be challenged in
UK insolvency proceedings).
178 [2012] EWHC 3025 (Com Ct), [2013] 1 All ER [123(f)]. The case is not related to security over
ships but has important implications for the position of mortgagees generally; see Chapter 12, paragraphs
12.4.5, 12.5.2, 12.5.3, 12.5.13 and 12.5.14. The comment of Eder J was quoted with approval by Sales
J in Torre Asset Funding Limited v The Royal Bank of Scotland plc [2013] EWHC 2670 (Ch) [145]–[148];
see paragraph 7.13.4 below.
179 [2013] EWHC 3025 (Com Ct) [123].
175
PRIORITY
including the mezzanine lenders, citing four reasons. One of the reasons was that the
intercreditor agreement expressly stated that the only duty of the security trustee in
relation to its power of sale was that of a mortgagor to a mortgagee. Accordingly, the
security trustee owed the mezzanine lenders the duties of a mortgagee but no more.180
7.13.2 The method of holding security in Saltri III, i.e. a single security trustee
holding for the benefit of different tiers of lenders, can be challenging to document in a shipping context. The form of the account current mortgage makes it
difficult, although not impossible, for debt under different facilities to be held by a
common security trustee.181 As has been seen in Chapter 5,182 however, even in the
case of a single syndicated facility agreement, especially if there are related swaps
which are secured, different creditor parties can have different priority positions in
relation to the common security. The judgment in Saltri III has direct application
to such transactions. In transactions where, in contrast, there is separate security,
with priority being determined by both the order of registration and contractual
provisions, there will be no possibility of fiduciary duties between creditors with
different priorities; the contractual provisions will be given effect – just as they were
in Saltri III, where the phantom fiduciary duties were brushed aside.183
7.13.3 The respective positions of senior and mezzanine secured lenders was also
at issue in an earlier case, Re Bluebrook Ltd.184 The context and issues were different but, as in Saltri III, the aggrieved mezzanine lenders lost. The case related to
whether or not the court should sanction schemes of arrangement pursuant to the
Companies Act 2006, s 899 in circumstances where the schemes would transfer the
business and assets of the relevant companies to new companies, with the mezzanine
lenders being left with claims against empty companies. The mezzanine lenders
did not, however, base their attack on the terms of the intercreditor agreement or
any argument about fiduciary duties.185 Mann J briefly summarised the provisions
of the intercreditor agreement, from which it appears that the mezzanine lenders
were deeply subordinated to the senior lenders, before noting:186
Thus the prospect of recovery of the mezzanine lenders is very firmly subordinated to
the prior rights of recovery of the senior lenders. No-one has questioned the efficacy
of those arrangements in the hearing before me.
The mezzanine lenders, rather, argued that the schemes of arrangement should
not be sanctioned because they were unfair to them. A large part of the case was
taken up with the method by which companies were valued. It was held that there
was no evidence that the value was in excess of the amount of the senior debt and
180 ibid [123]. See Chapter 12, paragraph 12.4.5.
181 With mortgages under the laws of some other flags there is a requirement for the facility agreement
to be attached to the mortgage; this can also make the use of a common security trustee inconvenient but
not impossible in terms of documentation.
182 Section 5.4 (Multiple obligations).
183 A senior mortgagee does, however, owe certain duties to a junior mortgagee; see Chapter 12, section 12.7 (Derivative liability to relevant parties).
184 [2009] EWHC 2114 (Ch), [2010] BCC 209.
185 It is not apparent from the report of the case whether security was held by a common security
trustee, as in Saltri III. In any event Bluebrook is not about mortgagee’s duties but about the sanctioning
of schemes of arrangement put forward by companies, albeit with the agreement of the senior lenders.
186 [2009] EWHC 2114 (Ch) [5].
176
PRIORITY
so on that basis there was no unfairness to the mezzanine lenders, who had no
economic interest.187 In putting forward the schemes of arrangement with the
agreement of the senior lenders the directors of the companies were held not to
have breached their duties.188 Other arguments by the mezzanine lenders based on
unfairness were rejected.189
7.13.4 The issues that can arise where a single institution is acting in a representative capacity on behalf of different tiers of lenders are also demonstrated by
Torre Asset Funding Limited v The Royal Bank of Scotland plc.190 Unlike Saltri III 191
the case did not relate to security and mortgagee’s duties. The issues related to the
role and duties of an agent bank, which was agent under different real property
finance facilities, with the position being regulated by an intercreditor deed; the
same bank was also a lender under some of the facilities. In a judgment of 85 pages
Sales J found in favour of the defendant bank in respect of allegations made by
junior mezzanine lenders for breach of duty to disclose information and, separately,
negligent mis-statement. The salient points arising from the case are: the general
unwillingness of the courts to imply obligations in detailed and complex financing
documents and, instead, the tendency to give effect to the express language, always
having regard to modern principles of contractual interpretation;192 and, specifically
in relation to the position of an agent (or security trustee), where there is express
and detailed language aimed at limiting the role and responsibilities, the tendency
to give effect to that language to a great extent, if not completely – again, with
reluctance to imply obligations not contained in the express language.193
7.13.5 A robust approach to the interpretation of an intercreditor agreement was
also shown in Re Rayford Homes Ltd (in Administrative Receivership),194 where there
was separate security in favour of a first mortgagee and a second mortgagee. The
case was a priorities dispute about the effect of a defined term in the intercreditor agreement that appeared to limit what could be secured by the first mortgage
in priority to the second mortgage.195 In finding in favour of the first mortgagee
David Richards J attached significance to the overall terms of the intercreditor
agreement, which were designed to protect the first mortgagee.196
7.13.6 Saltri III, Torre and Rayford Homes in particular, and also Bluebrook,
illustrate that the courts will generally give effect to contractually agreed terms as
between secured creditors.
187 ibid [39]–[52].
188 ibid [53]–[63].
189 ibid [64]–[71].
190 [2013] EWHC 2670 (Ch).
191 n 178.
192 At the time of writing the most recent and significant case in a long line of cases on the continuing development of the law on contractual interpretation is the decision of the Supreme Court in Arnold v
Britton [2015] UKSC 36.
193 ibid [142]–[172]; see the reference in Sales J’s judgment at [145] to Saltri III.
194 [2011] EWHC 1948 (Ch).
195 A monetary amount was inserted in manuscript in the defined term but the defined term was not
used in the operative provisions of the document.
196 [2011] EWHC 1948 (Ch) [90]–[94]. See also Alpstream AG v PK Airfinance Sarl [2015] EWCA
Civ 1318 [129] (Christopher Clarke LJ) where the terms of a priorities agreement were an additional
reason to exclude any equitable duty to the particular plaintiff in relation to enforcement.
177
PRIORITY
7.14 Debt subordination
7.14.1 What has been addressed so far in this chapter is priority of security. In
view of the subject-matter of this book this is the natural and main focus. In many
ship finance transactions involving special purpose companies (SPCs) as owners,
priorities issues will be addressed primarily to the mortgages and related security.
In such transactions a first mortgagee will focus on, and jealously guard the priority of, its asset security including the earnings of the mortgaged ship – and may
take a corporate guarantee from a holding company but will not focus more generally on priority of payments from the borrowing group’s cashflow. Nonetheless,
even in the simplest transaction a first mortgagee will not want a second mortgagee
to be able to initiate insolvency proceedings against the mortgagor – or to precipitate insolvency proceedings by taking debt recovery action that forces the directors
of the mortgagor to make the mortgagor subject to such proceedings. Nor, if
insolvency proceedings occur, will the first mortgagee want the second mortgagee
to be able to recover ahead of it in respect of any claim for a shortfall from what
is recovered from the proceeds of the security. Even the simplest forms of subordination agreement will therefore usually address at least debt subordination in
insolvency.197
7.14.2 This simple position, however, is not the one that applies in an increasing
number of ship finance transactions that have a more structured element. These
types of transaction, often encountered in the context of acquisition finance, involve
tiers of debt having different priority and with the rights of the different types of
creditor being controlled and regulated – not only as to priority of security but also
as to the right to be paid by the borrowing group’s cashflow. Here, the agreement
among mortgagees will take the form and substance of, and usually be called, an
intercreditor agreement. It will be much broader in scope than the type of simple
security priorities agreement discussed above.198 The circumstances in which the
second mortgagee can receive payments of principal and interest will vary, depending on the type of transaction. A common feature of intercreditor agreements is
an ability of the first mortgagee to block payments following mortgagor default –
but the second mortgagee will typically insist that such blocking cannot continue
indefinitely without the first mortgagee taking steps to enforce its security.199
7.14.3 Subordination of debt will also be required in relation to intra-group
indebtedness, to ensure that there is no competition from creditors of the mortgagor that are related or affiliated. The terms of such subordination will generally
be deep and uncompromising, reflecting that intra-group debt is essentially equity,
197 For cases where debt subordination in insolvency has been upheld see: Re British & Commonwealth
Holdings plc (No. 3) [1992] 1 WLR 677, [1992] BCC 58 and Re Maxwell Communications Corp plc (No. 2)
[1993] 1 WLR 1402, [1994] 1 ALL ER 737, [1993] BCC 369.
198 More complex intercreditor agreements were at issue in Saltri III, Torre and Bluebrook. In Rayford Homes the intercreditor agreement appears to have been primarily a security priorities agreement
combined with subordination of debt in insolvency. See section 7.13 (The courts’ approach to priority
of security).
199 See the form of intercreditor agreement published by the Loan Market Association (LMA). This
is a complicated document but with some simplification and, in particular, addition of provisions which
are relevant to ship mortgages, it can be adapted for shipping finance transactions.
178
PRIORITY
in contrast to the terms of the subordination of debt of other third party financial
creditors, which are negotiated, often heavily.200
7.14.4 It is outside the scope of this book to address subordination of debt in
any great detail since it is a topic in itself.201 There is, however, one case that should
be mentioned in this context because it clarifies or establishes a number of issues.
Manning v AIG Europe UK Ltd also known as SSSL Realisations (2002) Ltd (formerly Save Service Stations Ltd) (in liquidation)202 concerned the interpretation of
a deed of indemnity entered into by various companies within a group in favour
of a financial creditor (AIG), which provided a bond at the request of the companies. The companies, by the deed of indemnity, indemnified AIG in respect of its
bond liability. The deed of indemnity also contained debt-subordination provisions
given by the companies in favour of AIG subordinating all claims the companies
had between themselves to the claims of AIG. One company (‘Stations’) owed
a significant debt to another company (‘Group’). They were each a party to the
deed of indemnity and they each went into liquidation. The case turned in many
respects on the interpretation of the wording of the deed of indemnity. As with
Saltri III,203 albeit in a different context, the general point which comes out of the
case is the importance, from the point of view of the senior creditor, of getting the
language right; if this is done it will generally be upheld and applied by the courts.
Briefly, the main points arising from the case are as follows: on the construction of
the deed of indemnity the terms of the subordination language were wide enough
to cover not only claims arising between indemnitor companies from a payment
made by one of them to AIG but any debt owed by one intercreditor company to
another;204 the subordination was effective notwithstanding the liquidation of the
subordinated creditor (Group) and did not offend against the rule requiring pari
passu distribution in insolvency;205 a ‘turnover’ subordination clause that required
the subordinated creditor (Group) to hold on trust and pay over to the senior creditor
(AIG) amounts received from the debtor (Stations) did not constitute a registrable
charge (i.e. registrable against the subordinated creditor) because, on its construction, it only related to sums received up to the amount owed to the senior
creditor and not to all receipts;206 the subordination provisions did not constitute
onerous property in the form of an unprofitable contract that the liquidator of
200 Debt owed to third party financial creditors will generally be secured. This is never (or never
should be) a feature of intra-group debt. See Lehman Brothers Luxembourg Investments SARL v Lehman
Brothers UK Holdings Limited (In Administration) [2016] EWHC 617 (Ch) for a case on the construction
of documents relating to the subordination of intra-group debt.
201 See, for example: Philip R Wood, The Law of Subordinated Debt (1990 Sweet & Maxwell) and Tom
Speechly, Acquisition Finance (2nd edn, Bloomsbury Professional 2015) especially Chapter 11.
202 [2004] EWHC 1760 (Ch), [2005] 1 BCLC 1; affirmed on appeal [2006] EWCA Civ 7, (Comm),
[2006] Ch 610.
203 See paragraphs 7.13.1 and 7.13.2.
204 [2004] EWHC 1760 (Ch) [30]–[33].
205 ibid [40]–[41].
206 ibid [37]–[39], [40]–[47], [49], [50], [55]. Timothy Lloyd J also held ([52]–[54], [55]) that even
if there had been a charge it would not have been a charge on ‘book debts’ so as to be registrable under
the then-applicable Companies Act 1985, s 396(1)(e). The old issue of whether a debt is a ‘book debt’ is
no longer relevant under the current regime for registration of charges. See Chapter 6, paragraph 6.3.1.
179
PRIORITY
the subordinated creditor (Group) could disclaim under the Insolvency Act 1986,
s 178;207 if the subordinated creditor (Group) were able to ignore the trust and
turnover provision (which it could not) and were to prove in the liquidation of the
debtor (Stations) in breach of the other terms of the intercreditor deed the senior
creditor (AIG) would be able to obtain an injunction to prevent it doing so.208
7.14.5 Manning was appealed by the liquidators to the Court of Appeal.209 The
issues decided at first instance on the absence of a registrable charge created by
the subordinated creditor and on the inability of the subordinated creditor’s liquidator to disclaim the subordination provisions as an unprofitable contract were
each affirmed.210 It was further held on appeal that, as a matter of construction,
the senior creditor (AIG) could not unilaterally, i.e. without the agreement of the
liquidator of the debtor (Stations), waive the contractual restriction on the junior
creditor (Group) proving in the liquidation of Stations (which AIG would want to
do if it could produce a net benefit for it).211 Finally, it was held on appeal that if
the subordinated creditor (Group) were to prove in the liquidation of the debtor
(Stations) it would not, on the facts, receive any dividend because of the application of the rule in Cherry v Boultbee,212 which requires a person claiming to take
money out of a fund to first put in what he owes the fund.213
7.14.6 The brief summaries above of the first instance and Court of Appeal decisions in Manning do not do justice to the complexity of the issues or the length of
the judgments (the first instance judgment runs to 83 paragraphs and the Court of
Appeal judgment to 123 paragraphs). It is clear, however, that the judgments are
generally positive for the position of a senior creditor in respect of appropriately
drafted subordination language, even in circumstances where the junior creditor
is in liquidation – which was the case in Manning and is a particularly likely risk
in relation to any subordinations of intra-group indebtedness. The point on construction against the senior creditor in the Court of Appeal – the inability of the
senior creditor unilaterally to waive the restriction on the junior creditor proving in
liquidation where it is in the senior creditor’s interest to do so – can be addressed
by drafting of the intercreditor agreement.
7.14.7 Just as the courts will generally give effect to agreements regulating the
priority of security214 so Manning indicates a similar approach in relation to debt
subordination. In construing ambiguous provisions in intercreditor documentation there are indications that the courts will to some extent be influenced by the
underlying principle and purpose.215
207 ibid [56]–[71].
208 ibid [72]–[80].
209 [2006] EWCA Civ 7, [2006] Ch 610.
210 ibid [1180]–[122] on the first point; [33]–[54] on the second point.
211 ibid [55]–[67].
212 (1838) 4 My & Cr 442 (Ch), 2 Keen 319, 48 ER 651.
213 [2006] EWCA Civ 7 [68]–[117]. The judgment of Chadwick LJ in Manning v AIG on the Cherry v
Boultbee point was disapproved by the Supreme Court in Re Kaupthing v Singer & Friedlander Ltd (In
Administration) (No. 2), Mills v HSBC Trustees (Cl) Ltd [2011] UKSC 48, [2012] 1 AC 804.
214 See section 7.13 (The courts’ approach to priority of security), in particular paragraph 7.13.5.
215 CBRE Loan Servicing Ltd v Gemini (Eclipse 2006–3) plc and others [2015] EW HC 2769 (Ch)
[52]–[63]. For a recent case on the interpretation of intercreditor documentation (specifically in relation
180
PRIORITY
7.15 Parties to a subordination or priorities agreement
7.15.1 There is no strict need for the mortgagor to be a party to an agreement in
respect of priority of security; see paragraph 7.2.1. Nonetheless, first mortgagees
and their advisers tend to require the mortgagor to be party to a security priorities
agreement, if for no other reason than that it might be useful (or more) in enforcement proceedings in certain jurisdictions. There might also be specific provisions
in any such agreement that impose obligations on the mortgagor or of which the
mortgagor should have notice.
7.15.2 Similarly, debt-subordination agreements need not have the debtor as
a party where the subordination takes effect through an agreed position between
creditors on priority, rather than subordination to the rights of other creditors as
agreed between the debtor and the subordinated creditor.216 The effectiveness of
subordination in the insolvency of the debtor does not depend on the debtor being
a party.217 As with subordination of security, however, there might be specific reasons
arising from the terms of the relevant document that necessitate the debtor being
a party. In practice, the mortgagor and debtor is almost invariably made a party
to any priorities agreement or subordination agreement.
to a commercial mortgage-backed securitisation (CMBS) transaction) in the light of the developing law
on the interpretation of contracts generally and the implication of terms into contracts, see Hayfin Opal
Luxco 3 SARL v Windermere VII CMBS plc [2016] EWHC 782 (Ch).
216 As to the latter type of arrangement, see Manning v AIG Europe UK Ltd (n 202) [22]–[260] and
also Lehman Brothers Luxembourg Investments SARL v Lehman Brothers UK Holdings Limited (In Administration) (n 200).
217 n 202 [45]. This remark is probably obiter because the debtor in that case was a party to the deed
of indemnity containing the applicable subordination provisions.
181
CHAPTER 8
Mortgagor’s obligations and undertakings
8.1 Introduction
8.1.1 The obligations of a mortgagor under a ship mortgage arise under a combination of common law and statute, and by the terms of the form of mortgage and
other contractual arrangements between the mortgagor and the mortgagee. However,
it is this last category that is the most important, since the deed of covenant will
stipulate in detail the obligations imposed on the mortgagor, which will be more
extensive than those imposed by common law and by statute. The principal rights
of the mortgagor are to redeem the mortgage1 and to retain possession of and to
operate the ship. In a statutory mortgage the legal title in the ship remains vested in
the mortgagor,2 although this is not the position at common law where legal title is
transferred to the mortgagee.3 However in both cases the owner retains possession
of the ship until such time as a default by the owner occurs and the mortgagee exercises its right to take possession of the ship or arrests the ship in legal proceedings.
8.1.2 Paragraph 10 of Schedule 1 of the 1995 Act provides that where a ship
is subject to a registered mortgage,
(a) . . . except so far as may be necessary for making the ship or share available as a
security for the mortgage debt, the mortgagee shall not by reason of the mortgage be
treated as owner of the ship or share; and . . . (b) the mortgagor shall be treated as
not having ceased to be owner of the ship or share.4
1 The owner’s equity of redemption is considered in Chapter 12.
2 See Chapter 1, section 1.4 (The nature of a statutory mortgage). It is the authors’ view that a statutory mortgage does not transfer legal title to the mortgagee.
3 See Chapter 3, section 3.4 (Common law mortgages).
4 This section originally derives from the Registering of Vessels Act 1823, s 43 but there it appears
to have had a different meaning: at that time the only method of granting a mortgage on a ship was to
transfer the legal title to the mortgagee by bill of sale. Section 43 provided: ‘. . . and the Person or Persons to whom such Transfer shall be made, or any Person or Persons claiming under him or them as a
Mortgagee or Mortgagees . . . shall not by reason thereof be deemed to be the Owner or Owners of such
Ship or Vessel, Share or Shares thereof, nor shall the Person or Persons making such Transfer be deemed,
by reason thereof, to have ceased to be an Owner or Owners of such Ship or Vessel, any more than if no
such Transfer had been made, except so far as may be necessary for the Purpose of rendering the Ship
or Vessel, Share or Shares so transferred, available by Sale or otherwise, for the Payment of the Debt or
Debts for securing the Payment of which such Transfer shall have been made.’ The section was re-enacted
in subsequent statutes, in particular as section 70 of the Merchant Shipping Act 1854 (which introduced
the statutory mortgage) and subsequently as section 34 of the Merchant Shipping Act 1894. See Chapter
1, section 1.3 (Legislative reform). See also Chapter 13, paragraphs 13.2.1 and 13.2.3 on the significance
of this wording in relation to a mortgagee’s potential liability to a charterer.
182
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
8.1.3 The owner therefore has the right to retain possession of the ship and to
exercise all the powers of the owner not inconsistent with the mortgage and not
prohibited by the deed of covenant. The owner remains responsible for all contractual, statutory, tortious and criminal liabilities. The mortgagee is not invested
with such rights or subject to such liabilities unless and until it takes possession
of the ship. Indeed a mortgagee is specifically excluded from the definition of a
beneficial owner5 who is liable for any penalties imposed under the Merchant Shipping Acts on the registered owner.6 The principal rights or incidents of ownership,
in addition to the right of disposition of the legal title, are:
(a)
(b)
(c)
(d)
(e)
to
to
to
to
to
operate the ship or to charter the ship to a charterer who will operate it;
appoint the master and the crew;
insure the ship;
maintain and repair the ship; and
purchase fuel and other supplies for the ship.
8.1.4 The owner is under no common law or statutory duty to operate the ship
and, if it so decides, it may lay up the ship, although it will at all times have to
comply with the relevant safety and environmental requirements. The position was
summarised by Lord Cairns in Keith v Burrows7 as follows:
nor does the mortgagor of a ship undertake to employ the ship in any particular way,
or indeed to employ the ship so as to earn freight at all. The mortgagor of a ship may
allow the ship to lie tranquil in dock, or he may employ it in any part of the world,
not in earning freight, but for the purpose of bringing home goods of his own or for
his own benefit.
8.1.5 There is a duty on the owner not to do anything that would imperil or
prejudice the security created by the mortgage. Operating a ship without insurance
falls within this.8 Thus, the rights of an owner of a ship subject to a mortgage
were described by Lord Westbury LC in Collins v Lamport as follows:9
So long, therefore, as the dealings of the mortgagor with the ship are consistent with,
and do not materially prejudice and detract from or impair the sufficiency of the
mortgagee’s security, the mortgagor has Parliamentary authority to act in all respects
as owner of the vessel, and therefore to enter into all contracts touching the disposition
of her necessary to assure to him the full value and benefit of his property. But whenever a mortgagee can show that the act of the mortgagor prejudices or injures his
security, he ceases to be bound by the Parliamentary declaration as to the ownership
of the mortgagor, and can claim the full benefit of and exercise the rights given to
him by his mortgage.
5 Under the definition of beneficial ownership in reg 1(2) of the Registration Regulations 1993, as
amended. See Chapter 2, section 2.2 (Beneficial ownership).
6 Section 16(3) of the Merchant Shipping Act 1995.
7 Keith v Burrows (1877) 2 App Case 636 (HL) 645 (Lord Cairns).
8 Laming & Co v Seater (1889) 16 Sess Cass (4th Ser) 828; Law Guarantee and Trust Soc v Russian
Bank for Foreign Trade [1905] 1 KB 815 (CA); The Manor [1907] P 339 (CA). See Chapter 11, paragraphs
11.12.9–11.12.11.
9 (1864) 4 De GJ & S 505 (Ch), 46 ER 1012, 1014.
183
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
This statement of principle has been relied upon in numerous subsequent cases
that have considered the circumstances in which a mortgagee had the right to take
possession of the ship or otherwise enforce its security.10
8.2 Deed of covenant
8.2.1 As has been seen11 the form of statutory mortgage is a somewhat rudimentary document that does the job of mortgaging the ship and little more. In The
Benwell Tower, after noting the provisions of the Merchant Shipping Act 1854, and
the fact the statutory forms ‘do not admit of such modifications as are necessary
to meet the varied exigencies of business’, Bruce J said:12
It has consequently been the practice for a long series of years, in cases where ships
have been mortgaged, for the detailed stipulations of the mortgage to be contained in
a separate instrument. Indeed, the Commissioners of Customs, in their instructions
to the Registrars of Shipping . . . state: ‘The registrars will advise parties interested
that so far as relates to the dealings with and the title to the ship, no advantage whatever can be gained by the use of longer or more cumbrous instruments. If there are
collateral arrangements between the parties, they should be carried into effect by separate instruments.’ In several of the reported cases respecting mortgages on ships there
have been collateral agreements and in The CATHCART there was a collateral agreement not unlike the collateral agreement in the present case, to which the court gave
effect. I cannot regard the circumstance that the terms regulating the advances were
contained in a collateral agreement as unusual in a transaction of this kind, or as
invalidating the stipulations contained in the collateral agreement.
8.2.2 Ship finance is a type of finance where, in common with other types of asset
finance, the lenders are looking to the value of the asset – but where the asset is
subject to unusual physical and legal risks which can lead to the impairment of
its value as security. The risks with which a ship mortgagee is concerned can be
grouped together into four main types:
(a)
(b)
(c)
(d)
incidents causing physical loss or damage;
third parties acquiring competing rights in or against the ship;
deterioration in physical condition; and
non-compliance with legal or regulatory requirements.
These types of risk are not unconnected. For example and most obviously, there
is a link between the physical condition of the ship, physical loss or damage and
legal and regulatory requirements.
8.2.3 The mortgagee will require undertakings from the owner to address or
mitigate these risks. These undertakings will be contained either in a separate deed
of covenant or in the facility agreement, or will sometimes be spread between the
10 See Chapters 12 and 13. See also: The Blanche (1887) 6 Asp MLC 272 (Adm); The Cathcart (1867)
LR 1 A & E 314 (Adm); The Celtic King [1894] P 175 (Adm); The Fanchon (1880) 5 PD 173 (Adm); The
Heather Bell [1901] P 272 (CA); Law Guarantee & Trust Soc v Russian Bank for Foreign Trade [1905] 1 KB
815 (CA); The Manor [1907] P 339 (CA).
11 See Chapters 1 and 3.
12 (1895) 72 LT 664 (Adm) 669.
184
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
two documents.13 The four main types of risk referred to above break down into
specific issues, as follows:
(a) Incidents causing physical loss or damage (and required insurance)14
(i) detailed undertakings relating to the terms of required insurance,
maintenance and renewal, approval of insurers, perfection and protection of the mortgagee’s interest and payment and application of
insurance proceeds; and
(ii) undertakings prohibiting trading the ship in breach of or outside the
limits of insurance cover.
(b) Third parties acquiring competing rights against or in the ship
(i) restriction on further mortgages;15
(ii) restriction on the incurrence of liens, both maritime liens having
priority over the mortgage and statutory liens;16
(iii) specific environmental undertakings;
(iv) restriction on repairers’ or other possessory liens;17
(v) restriction on demise or bareboat chartering for any period;18
(vi) restriction on time chartering or consecutive voyage chartering in
excess of a certain period;19 and
(vii) restriction on installation of equipment belonging to third parties.20
(c) Deterioration in physical condition
(i) undertakings in relation to maintenance of ship in class free of recommendations; and
(ii) undertakings in relation to the ship’s condition, over and above class
requirements;
(d) Non-compliance with legal or regulatory requirements
(i) undertakings in relation to the ship’s continued registration;
(ii) restriction on dual flagging/bareboat registration;
(iii) undertakings to comply with applicable laws and regulations relating
to the operation and maintenance of ship; and
(iv) undertakings specifically relating to sanctions.
8.2.4 In addition to undertakings, some of the issues referred to above will be
covered by representations (sometimes repeating at intervals) and warranties in
the facility agreement or the deed of covenant. The implied covenants for title and
13 It is sometimes now the practice to keep the deed of covenant short and put most undertakings in
the facility agreement. The form of deed of covenant in Appendix 3 is a ‘full form’ that contains all the
ship-related and insurance undertakings. (We are not here directly concerned with ‘corporate’ undertakings which are not ship-related, nor with financial undertakings and ratios, which will be in the facility
agreement.)
14 See Chapter 16 in relation to insurance.
15 See Chapter 7.
16 See Chapter 10.
17 ibid.
18 See Chapter 13, section 13.3 (Liability to demise (bareboat) charterers).
19 See Chapter 13, section 13.2 (Liability to non-demise charterers and cargo interests).
20 See Chapter 13, section 13.6 (Interference with third party property).
185
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
freedom from encumbrances in the Law of Property (Miscellaneous Provisions)
Act 199421 apply to ship mortgages.
8.2.5 In addition, the facility agreement or the deed of covenant will contain
further provisions for the protection of the mortgagee relating to provision of
relevant information, rights of physical inspection (and inspection of records),
notification of the occurrence of events of concern, such as damage or arrest and
a right to step in and address problems if the owner fails to do so. Last but not
least the mortgagee will be given a right of approval of both technical and commercial management. The competence of the manager is pivotal to all the risks
outlined above.22
8.2.6 The form of specimen deed of covenant in Appendix 3 addresses the issues
outlined in paragraphs 8.2.2 to 8.2.5 above. In many respects the language of the
specimen form speaks for itself and it is not necessary to give a clause-by-clause
commentary. Some issues of significance or interest are addressed below. It should
also be noted that the extent and detail of the undertakings can be a matter of
negotiation. Ship-financing transactions can vary from, at one extreme, a loan to a
small company with limited financial and commercial resources where the lender
is substantially exposed to the ship to, at the other extreme, a loan to a large and
creditworthy company with a first-class operational record. Although the basic
ship-related undertakings in either case will have common features, the latter type
of borrower will often seek to water down what it might regard as overly intrusive
or unnecessary undertakings. This is a matter for negotiation and judgement.
8.3 Certain issues on owners’ undertakings
8.3.1 The terms of the insurances at inception will almost invariably be reviewed
for the mortgagee’s benefit by a specialist insurance adviser which will address a
report to the mortgagee. The mortgagee will closely monitor renewal of insurances
annually to ensure that they are renewed on no less favourable terms and in a
timely manner without any lapse of cover. Owners want to be able to negotiate
the renewal terms up to the last minute to obtain the best terms and so often
object to a requirement that renewal terms have to be agreed a specified number
of days before expiry, as mortgagees frequently require or prefer. Another insurance
issue on which owners often seek to negotiate is the prohibition on the ship entering a declared war zone without the mortgagee’s consent. The owner will in any
event be required to pay any additional premium required as a condition to entering a war zone but might take the position that so long as it does this to ensure
continued cover the consent of the mortgagee should not be required in addition.
It is a frequent feature of the documentation that breach of any of the insurance
21 Sections 1–5.
22 It is not unusual for the mortgagee to require a letter of undertaking from the manager, especially if
it is affiliated with the owner rather than independent, mainly to address the risk of the manager obstructing any enforcement process. As a matter of English law a manager’s right to arrest is probably limited to
his claim for out of pocket disbursements by virtue of the Senior Courts Act 1981, s 20(2)(p) – but not
fees (see The Martin P [2003] EWHC 3470 (Comm Ct), [2004] 1 Lloyd’s Rep 389 [159]). The position
in other jurisdictions might be more favourable to the manager.
186
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
undertakings is an immediate event of default, without any requirement for notice
from the mortgagee or any grace or cure period. This is a reflection of the importance of the insurance undertakings and the wish of mortgagees to incentivise strict
compliance.
8.3.2 Issues relating to further mortgages on the ship are addressed in Chapter 7.
8.3.3 It is impossible for any ship to trade without incurring liens. Maritime liens
are inchoate and come into existence when the relevant obligation is incurred;23
so, for example, every crew member has a lien for his wages that are accrued but
unpaid. The undertakings in the deed of covenant should recognise this and only
prohibit inchoate maritime liens that are in excess of a specified limit or are overdue for more than a specified period. However, if any arrest occurs in respect of
any lien, of whatever type and for whatever amount, it should be required to be
immediately lifted by paying or securing the lien.
8.3.4 It is customary to mitigate the risk of possessory liens by requiring any
repairer or other relevant party to waive its lien – often not achievable in practice – or
by putting a monetary limit on any such lien. Where the issue relates to a repairable damage claim that is covered by insurance, the risk can usually be managed
to the mortgagee’s satisfaction.
8.3.5 A demise or bareboat charterer has physical possession of the ship. For
this reason, a mortgagee will require a prohibition on bareboat chartering of any
duration.24 If a mortgagee does permit a bareboat charter it will be on terms that
the respective rights of the mortgagee and the charterer are regulated to allow
the mortgagee unrestricted rights of enforcement and the position in relation to
operation, maintenance and insurance is adequately addressed – reflecting that
the bareboat charterer is the disponent owner of the ship and so it rather than the
registered owner is responsible for these matters. This is frequently achieved by
the deed of covenant being a tripartite document, among the owner, the mortgagee
and the bareboat charterer.
8.3.6 There is a risk that a time charterer will have a claim against the mortgagee for interference with its rights on an enforcement of the mortgage.25 For this
reason it is customary for time charters in excess of a certain period – usually 6,
12 or 13 months – to be prohibited, at least without the mortgagee’s consent. The
longer the charter the greater the charterer’s potential damages claim. Provisions
that allow payment of hire in advance or in arrears might also be restricted. The
former increase the mortgagee’s potential exposure to liability to the charterer on
enforcement; the latter increase the owner’s (and hence the mortgagee’s) credit
exposure to the charterer.
8.3.7 Most liens arising from operational incidents are or should be covered
by insurance.26 However, the Oil Pollution Act of 1990 (OPA 90) of the United
23 The Bold Buccleugh 13 ER 884 (PC), 7 Moo PC 267 and, generally, Chapter 10.
24 See Chapter 13, section 13.3 (Liability to demise (bareboat) charterers). See also paragraph 8.5.2
below and Zeeland Navigation Co Ltd v Banque Worms (The Foresight Driller II) [1995] 1 Lloyd’s Rep 251
where such a prohibition was successfully invoked as giving rise to an event of default even before the
bareboat charter was entered into.
25 See Chapter 13, section 13.2 (Liability to non-demise charterers and cargo interests).
26 For example, salvage and wreck removal.
187
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
States introduced the spectre of unlimited liability to the owner, i.e. in excess of
insurance limits – and even more alarmingly for mortgagees created a new type of
lien that would rank ahead of (or ‘prime’) any mortgage. This led mortgagees to
introduce detailed provisions in their documents – especially but not exclusively
for the financing of crude oil tankers27 – addressing both operational28 and insurance issues arising from OPA 90.29
8.3.8 It is inevitable that some ancillary equipment on board the ship will not
belong to the owner and will often be leased.30 However, a mortgagee does not
want to find on enforcement that substantial equipment that does not belong to
the owner is fixed to the fabric of the ship. The removal of such equipment by its
owner, apart from taking time, could result in costly damage to the ship.31
8.3.9 In the deed of covenant, the owner will undertake to maintain the registration of the ship as a United Kingdom ship or a British ship at a port of registry in
a relevant British possession. This is fundamental to the security of the mortgagee,
since if the registration of the ship is cancelled then the security of the mortgage
may be prejudiced. Under the Registration Regulations, the registration of a ship is
valid for five years and the owner then has to make an application for the renewal
of the registration.32 If the owner fails to apply for the reregistration of the ship,
then the mortgagee may do so in the name of the owner under the powers given
to the mortgagee in the deed of covenant. The Registrar also has power to delete
a ship from the Register at any time (inter alia) if the ship ceases to be eligible to
be registered or if the Registrar considers that the ship should be removed from
the Register for safety, health or environmental reasons.33
8.3.10 Section 16(4) of the Merchant Shipping Act 1995 provides:
Where the registration of any ship terminates by virtue of any provision of registration
regulations, the termination of that registration shall not affect any entry made in the
register so far as relating to any undischarged registered mortgage of that ship or of
any share in it.
The effect of this section is that, although the registration of the ship terminates,
the mortgage remains registered.34 Accordingly, if the owner attempted to register the
ship in another country, the transcript of register from the UK registry, which he
would usually have to produce, would show that there was an undischarged
27 Bunker spills from any large ship can cause very substantial pollution damage.
28 Ships entering US waters are required to have a Certificate of Financial Responsibility (COFR)
issued by the Secretary of Homeland Security via the US Coastguard ensuring that sufficient financial
resources are available to the owner.
29 There is a bespoke insurance policy (Mortgagees’ Interest Additional Perils (Pollution)) designed
to cover the risk to a mortgagee of its mortgage being ‘primed’ as a result of a pollution incident. See
Chapter 16, section 16.15 (Mortgagees’ additional perils (pollution) insurance); see also Chapter 13 paragraphs 13.8.5–13.8.8 further on OPA 90.
30 Most usually radio or other electronic equipment.
31 See Chapter 5, section 5.9 (Property covered by the mortgage) and Chapter 13, section 13.6
(Interference with third party property).
32 Regs 39, 41 and 42 of the Registration Regulations.
33 Reg 56 of the Registration Regulations.
34 Section 16(4) uses the word ‘terminates’. This is thought to be broad enough to cover expiry of
registration without renewal (regs 39–42) so as to preserve a mortgage on expiry of registration.
188
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
mortgage registered against the ship, and it would not normally be possible for
him to complete the registration of the ship in that other country.
8.3.11 Ships registered in Part I of the Register may be transferred to the register
of a relevant British possession and vice versa.35 In the absence of any agreement
to the contrary, it would appear that such transfer of registry does not require the
mortgagee’s consent, although any transfer would be subject to the mortgage.36
However, the deed of covenant will usually prohibit any such transfer of registry
without the mortgagee’s prior agreement.37
8.3.12 Any dual flagging by way of so-called bareboat registration will need the
mortgagee’s consent, not least because it will involve a bareboat charter.38 The
mortgagee will want to be sure that the bareboat registration will be terminated
in any enforcement.39 The mortgagee will want to investigate whether or not the
bareboat register provides or allows for the mortgage to be registered or noted.40
8.3.13 The owner’s obligations to maintain the ship are imposed both by contract
and by statute. In the deed of covenant, the owner will invariably undertake to
maintain the ship to comply with all requirements of the insurers and to maintain
the class of the ship. Classification societies are organisations that supervise the
technical standards of ships; they set out these technical standards in their rules
and implement them by regular surveys. In Marc Rich & Co A.G. and Others v
Bishop Rock Marine Co Ltd and Another (The Nicholos H)41 Lord Steyn explained
the role of classification societies as follows:
for more than 150 years classification societies have classified merchant ships in the
interests of safeguarding life and ships at sea. For this purpose classification societies
attend to the building of ships in order to determine whether the ships merit classification in accordance with their standards. Classification societies also conduct periodic
surveys of ships to ascertain whether the ships are entitled to retain classification.
Moreover, if ships sustain damage, classification societies are called in to survey the
damage and to determine what repairs must be done, and when, for the ship to retain
her classification. Such surveys are called occasional surveys. Typically, the repairs may
35 See Chapter 2, paragraph 2.4.3, n 92 for a list of the current British possessions. The ability to
transfer a ship’s registration is subject to it not being precluded by ‘any provision of the law in force in the
possession in question’ (reg 71 (2)(b) of the Registration Regulations).
36 Regs 71 and 72 of the Registration Regulations: reg 72(1) requires that the application to transfer
be made ‘to the registrar of the existing port of registration . . .’ by ‘all the persons appearing on his register to be interested in the ship as owners’, but this does not include the mortgagee, whose interest in
the ship is not that of owner.
37 See the form of deed of covenant in Appendix 3, clause 6.2.
38 Paragraph 8.3.5 above.
39 A deregistration power of attorney from the bareboat charterer is frequently taken to try to ensure
that it is within the mortgagee’s power to effect deregistration in the face of inertia or even opposition.
The position on termination of the bareboat charter and the bareboat registration will certainly apply
where, as is often the case, the owner and the bareboat charterer are affiliated. If the arrangement is at
arm’s length with an unaffiliated bareboat charterer it might be that enforcement of the mortgage will
take effect subject to the bareboat charter (assuming no default by the bareboat charterer giving rise to
the right of the owner to terminate); the position should be expressly agreed in documentation with the
bareboat charterer. It should be confirmed with any foreign bareboat register that it will recognise the use
of a deregistration power of attorney.
40 The essence of a bareboat registration from the mortgagee’s perspective is that the mortgage, registered against the ship on the primary or underlying register, remains unaffected.
41 [1996] AC 211 (HL) 230, [1995] 2 Lloyd’s Rep 299.
189
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
fall into one of two groups: (a) those repairs which would prejudice the maintenance
of classification if not dealt with within a specified time; (b) those repairs which, since
they do not affect seaworthiness, may be left to the owner’s convenience.
While classification societies are available to render technical assistance to other parties, and sometimes do so, instructions for the survey of a vessel are given by owners.
Owners are under irresistible commercial pressure to obtain and maintain a classification
of their vessel. The insurance of an unclassed vessel and her cargo would not be feasible
at economically justifiable rates of premium. No sensible charterer would charter such
a ship. Owners are therefore in practice compelled to ensure that their vessels remain
in class. For that purpose owners must enter into a contractual engagement with a
classification society. The classification society will grant and maintain classification of
the ship if the requirements of its own rules and regulations are met. And the classification society has in practice control over the question whether a damaged vessel, without
permanent repairs, will be allowed to complete her intended voyage.
8.3.14 The courts have decided that a classification society owes no general duty of
care to a buyer of a ship42 nor to the owner of the cargo carried on the ship.43 These
decisions were on the facts of these cases and in particular in the case of a buyer of
a ship, there may be circumstances where the classification society will owe a duty of
care to a buyer who relies on the classification society’s survey reports. It is possible
that where a classification society knows that the information that it provides is to be
relied on by a mortgagee when making a loan on the security of a ship mortgage, then
the classification society could be under a duty of care to the mortgagee to ensure that
the information that it provided was accurate.44 Generally, a mortgagee will have no
direct contractual relationship with the classification society, although certain mortgagees now require the classification society to issue a letter of undertaking to them in
which it agrees to provide up-to-date information on the class records and the physical
condition of the ship. If it fails to provide the information or otherwise breaches its
undertaking then the classification society will, unless it excludes liability, be liable in
damages to the mortgagee for breach of contract.45 In this respect the position of the
classification society is analogous to that of an insurance broker or a mutual insurance
association that has given a letter of undertaking to the mortgagee.46
8.3.15 The deed of covenant will require compliance by the owner with all
applicable laws and regulations – whether imposed by the law of the flag, the
laws of the ports to which the ship trades or by international convention. There
is an increasing tendency to make specific reference to the International Safety
42 Mariola Marine Corp v Lloyd’s Register of Shipping (The Morning Watch) [1990] 1 Lloyd’s Rep 547
(Com Ct), [1991] ECC 103.
43 The Nicholas H (n 41).
44 The cases referred to above, however, indicate that this is unlikely. Classification societies have been
treated favourably by the courts. See also the decision of the United States Court of Appeals in Sundance
Cruises Corporation, SCI Cruises Inc v The American Bureau of Shipping (The ‘Sundancer’) [1994] 1 Lloyd’s
Rep 183 (CA). On liability in the tort of negligence generally reference should be made to standard works
such as W E Peel & J GoudkampWinfield & Jolowicz on Tort (19th edn, Sweet & Maxwell 2014) Chapter 5,
Simon Deakin, Angus Johnston and Basil Markesinis, Markesinis and Deakins’s Tort Law (7th edn, OUP
2012) 143–160; Christian Witting, Street on Torts (14th edn, OUP 2014) Part II.
45 Lack of access by the mortgagee to the ship’s class records can be problematic on enforcement. This
has led to increasing requirements for a letter of undertaking from the classification society. Consideration
is of course required for any such letter of undertaking to give rise to enforceable obligations.
46 The Good Luck [1992] 1 AC 233 (HL), [1991] 2 WLR 1279.
190
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
Management Code for the Safe Operation of Ships and Pollution Prevention (the
ISM Code) and the International Ship and Port Facility Security Code (the ISPS
Code) each as adopted by the International Maritime Organization.
8.4 Sanctions
8.4.1 Sanctions are not new but their proliferation within the last few years has
resulted in greatly increased focus in ship finance documentation.47 One reason
for this is that sanctions have often targeted shipping specifically – and also marine
insurance. This has been seen most clearly in sanctions directed at Iran.48 The
effect of sanctions on marine insurance has already been the subject of English
court cases.49 Forms of sanctions cancellation clause50 or exclusion clause51 are
now universally included in insurances.
8.4.2 Apart from the effect on insurance cover the potential legal jeopardies
presented by sanctions are unenforceability for initial illegality and frustration for
supervening illegality. If an English law contract is illegal under English law when
it is entered into it is unenforceable.52 Thus, if a lender makes a loan to a company
that is subject to sanctions under English law such that the making of the loan
is prohibited, the loan and all security for it are unenforceable in England. If an
English law contract, initially lawful under English law when entered into, becomes
unlawful as a matter of English law after inception it is liable to be subject to the
doctrine of frustration.53 So, if a borrower becomes subject to sanctions during the
life of the loan so that the continuing making of the loan available is unlawful for
the lender the doctrine of frustration is potentially engaged. Article 9 of the Rome I
Regulation54 might also be relevant: Article 9(2) allows ‘the application of the
overriding mandatory provisions of the law of the forum’. A borrower becoming
subject to sanctions is normally an event of default under the facility agreement.
8.4.3 Apart from the identity of the borrower, it is also of concern to a lender
to ensure that the ship it is financing is not engaged in a sanctioned trade, nor is
47 See David Osborne, ‘Shipping Finance and Sanctions’ in Baris Soyer and Andrew Tettenborn (eds),
Ship Building, Sale and Finance (Informa Law 2016) (hereafter in this chapter, ‘Osborne’).
48 See, for example, Council Regulation (EU) 267/2012 concerning restrictive measures against Iran
[2012] OJ L88/1 and the United States Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010 (CISADA). Following an initiative which began in November 2013 by the P 5 + 1 countries
(China, France, Germany, Russia, the United States and the United Kingdom) sanctions against Iran
have now been relaxed by the EU and (partially) relaxed by the US.
49 See Chapter 16, section 16.12 (Illegality risk). The cases are: Islamic Republic of Iran Shipping Lines v
Steamship Mutual Underwriting Association (Bermuda) Limited [2010] EWHC 2661 (Com Ct), [2011] 1
Lloyd’s Rep 195; Sea Glory Maritime Co v Al Sagr National Insurance Co (The Nancy) [2013] EWHC 2116
(Com Ct), [2014] 1 Lloyd’s Rep 14; Arash Shipping Enterprises Company Limited v Groupama Transport
[2011] EWCA 620, [2011] ICLC 984.
50 See Arash Shipping, previous footnote.
51 For example, the 3100 Sanctions Limitation and Exclusion Clause published by the Lloyds Market
Association. See Chapter 16, paragraph 16.12.3.
52 David Taylor & Son Ltd v Barrett Trading Co [1953] 1 WLR 562 (CA); Gray v Thames Travis Ltd
[2008] EWCA Civ 713, [2009] 1 AC 1339 (HL) [77] (Lord Rodger of Earlsferry).
53 Denny, Mott & Dickinson Ltd v James B Fraser & Co Ltd [1944] AC 265 (HL); Islamic Republic of
Iran Shipping Lines v Steamship Mutual (n 49).
54 Regulation (EC) No. 593/2008 on the law applicable to contractual obligations.
191
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
chartered to a sanctioned company. This would affect the ship’s insurances55 and
could lead to the ship being arrested or detained. It might also, in extreme cases,
engage the principles of unenforceability through initial illegality or, as the case
may be, frustration through supervening illegality.56
8.4.4 Recent sanctions are of great complexity and variety. Older types of
sanctions might have been directed generally at any activity involving a particular
country.57 Some recent sanctions are directed at specified activities within, or trades
to, a particular country.58 Other recent sanctions might be directed at particular
companies and individuals within a country.59 Often recent sanctions are a mixture
of the previous two types, targeting specified activities by particular companies
or individuals.60 The growth of such complex sanctions has caused ship lenders
to look at their documents.61 They have often concluded that general and short
undertakings by owners to comply with ‘all applicable laws and regulations’ or
similar are not adequate.62
8.4.5 One of the difficult areas in relation to the documentation of sanctions
compliance is specifying what sanctions are required to be complied with. Extensive
sanctions have been imposed recently by both the United States and the European
Union. Is it appropriate for a lender to require a borrower to comply with sanctions by which that borrower is not bound? The reaction of international banks is
frequently to require their customers to comply with both US and EU sanctions
even if that customer is not itself bound. There are a number of factors that make
this a difficult issue. First, is the concept of ‘facilitation’ under US law, which
means that a US person is guilty of sanctions breach if it facilitates a transaction
by a non-US person that would be a breach of sanctions if carried out by a US
person.63 This means that US lenders almost invariably require their shipping
55 See the cases referred to at n 49.
56 See Al-Kishtaini v Shanshal [2001] EWCA Civ 264; [2001] Lloyd’s Rep Bank 174 for a case on
unenforceability through initial illegality. The recent cases on the effect of sanctions on loan transactions
have demonstrated the unwillingness of the courts to allow parties to invoke sanctions opportunistically
to try to evade obligations: DVB Bank SE v Shere Shipping Co Ltd [2013] EWHC 2321 (Ch); Melli Bank v
Holbud Limited [2013] EWHC 1506 (Com Ct). However, we are likely to see further cases in which the
rights and obligations of the parties are directly affected by sanctions.
57 E.g., the US Cuban Asset Contract Regulations, 31 CFR Part 515.
58 E.g., the US Iranian Financial Sanctions Regulations, 31 CFR Part 561.
59 E.g., Council Regulation (EU) 269/2014 concerning restrictive measures in view of Russia’s actions
destabilising the situation in Ukraine, as amended.
60 E.g., the ‘phase three’ sanctions imposed by the EU directed at the sale, supply, transfer or export of
specified technologies to Russian parties or for use in Russia (Corrigendum to Council Regulation (EU)
833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine
[2014] OJ L246/59, as supplemented and amended by Council Regulation (EU) 960/2014, [2014] OJ
L271/3). Also US ‘sectoral sanctions’ directed at new debt or equity raising by certain Russian banks and
energy companies (Executive Order 13662, Sectoral Sanctions Identification List, 29 July 2014).
61 US lenders have for decades included sanctions language in their documentation because of the
long-established US sanctions culture but the issue is a relatively recent one for non-US lenders. The old
style ‘OFAC Clause’ long used by US lenders has now been substantially supplemented in response to
the recent proliferation of sanctions.
62 One factor that has undoubtedly influenced the approach of lenders to sanctions compliance has
been the very large fines which have been imposed on a number of banks in the United States for sanctions breaches and fear of liability for facilitation; see paragraph 8.4.5.
63 See Osborne (n 47) 243.
192
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
customers to comply with US sanctions – as do many non-US international banks.
What constitutes ‘facilitation’ under US law appears to be a grey area.64 Secondly,
it appears that non-US persons can in principle be liable for facilitation under US
law.65 Thirdly, it is necessary to be mindful of the circumstances in which an English law contract can be made unenforceable by breach of foreign law.66 Fourthly,
there is an increasing tendency for some US sanctions to have express extraterritorial effect in addition to being binding on ‘US persons’.67 Last but not least, the
approach of international banks to sanctions issues has been heavily influenced by
the very large fines imposed in the United States on foreign banks for sanctions
breaches (outside the context of ship finance), together with the accompanying
adverse publicity. This issue can be difficult to agree in documentation and has
to be addressed on a case-by-case basis depending on the identity of the parties.
8.4.6 Another difficult issue is presented by the lack of control that an owner has
over its ship on charter. A ship on bareboat charter is under the physical control
of the charterer. A ship on time charter is required to trade in accordance with
the charterer’s directions. In each case, there will be applicable limits by reference, at least, to insurance cover. Owners and charterers might well be bound by
different sanctions requirements, so it is easy for an owner to find that its ship is
operating in breach of sanctions which bind it but which do not bind the charterer.68 Charter sanctions clauses have been developed that are designed to give the
owner protection.69
8.4.7 Sanctions language in facility agreements and deeds of covenant varies
but the essential issues to be addressed are briefly:
(a) the mortgagee being satisfied that it is not lending at inception to a sanctioned entity;
64 The Nancy [2013] EWHC 2116 (Com Ct) [269]–[275].
65 ibid.
66 Euro-Diam v Bathurst [1990] 1QB 1 (CA) (‘taint’ by foreign illegality); Ralli Brothers v Compania
Naviera Sota y Aznar [1920] 2 KB 287 (CA) (illegality in the place of performance). In relation to illegality
in the place of performance Article 9(3) of the Rome I Regulation (Regulation (EC) No. 593/2008 on the
law applicable to contractual obligations), which allows effect to be given ‘to the overriding provisions of
the law of the country where the obligations arising out of the contract have to be or have been performed,
in so far as those overriding mandatory provisions render performance of the contract unlawful’. The
nature of the ‘rule’ in Ralli Brothers, i.e. whether it is one of English domestic contract law or of the conflict of laws and so, if the latter, superseded by Article 9(3) of Rome I, remains a matter of doubt but the
prevailing view is that it is a rule of English contract law and so has not been superseded (but consequently
it only applies to English law contracts); see the recent and brief discussion in Eurobank Ergasias SA v
Kallironi Navigation Company Limited [2015] EWHC 2377 (Comm) [32]–[36]. See also Foster v Driscoll
[1929] 1 KB 470 (CA) and Regazzoni v KC Sethia (1944) Ltd [1958] AC 301 (HL) (knowingly engaging
in an activity which is contrary to foreign law). The law on when there is a defence to the enforcement of
a contract by reason of taint by illegality (the principle of ex turpi causa non oritur actio) has been clarified
by the Supreme Court in Les Laboratoires Servier v Apotex Inc [2014] UKSC 55, [2015] AC 430. The
‘public conscience’ approach which had been adopted by Euro-Diam v Bathurst was disapproved. In Les
Laboratoires Servier it was held that infringement of a foreign patent, being a civil wrong, did not engage
the ex turpi causa principle. The case did not address issues such as breach of foreign sanctions, which
would undoubtedly be a matter which would engage the ex turpi causa principle.
67 See Osborne (n 47) 243.
68 ibid, 255.
69 See e.g., BIMCO Sanctions Clause for Time Charter Parties.
193
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
(b) default or mandatory prepayment provisions if the borrower becomes
sanctioned during the life of the transaction;
(c) the mortgagee being satisfied that the ship will not be traded in breach of
sanctions;
(d) the mortgagee being satisfied that the borrower complies generally with
sanctions;70 and
(e) default or mandatory prepayment provisions if either of the above two
requirements are breached.
Most of these issues are addressed, albeit obliquely, by long-established general
language in facility agreements relating to compliance with laws or to supervening
illegality. However, as mentioned above, the inexorable trend is now for detailed
and bespoke sanctions clauses to be used.
8.4.8 Sanctions is an area that is rapidly developing and undoubtedly what is
written here will already be overtaken. The impact of sanctions on ship finance is
now a fact of life that is not going to go away in the foreseeable future.
8.5 Consents and discretions
8.5.1 The deed of covenant and the facility agreement will contain provisions that
give the mortgagee the power to give or withhold consent or otherwise confer a
discretion on the mortgagee. In a series of cases the courts have given effect to
the principle that a discretion must be exercised honestly and rationally, and not
arbitrarily or capriciously.71 The courts will not generally imply an obligation to
act reasonably in a sense that imposes a more onerous obligation than stated in
the previous sentence.72 There is also authority for the proposition that a discretion
must be exercised without taking into account irrelevant or extraneous matters,73
which is perhaps no more than an elaboration of the principle just stated.
70 This last issue, and the one above, begs the question of what sanctions are required to be complied
with; see paragraphs 8.4.5.
71 This formulation, or close variants of it, can be seen in the following cases: Abu Dhabi National
Tanker Company v Product Star Shipping Limited (The Product Star) (No. 2) [1993] 1 Lloyd’s Rep 397;
Paragon Finance plc v Nash [2001] EWCA Civ 1466; Lymington Marina Ltd v MacNamara [2007] EWHC
Civ 151; Mallone v BPB Industries plc [2002] EWCA Civ 126; Socimer International Bank Ltd v Standard
Bank London Ltd [2008] EWCA Civ 116; Simon Arthur McKay v Centurion Credit Resources LLC [2011]
EWHC 3198.
72 Pacific Basin IHX Limited v Bulkhandling Handymax AS [2011] EWHC 2862. However, see Zeeland
Navigation Co Ltd v Banque Worms (The Foresight Driller II), paragraph 8.5.2 below, where the court made
reference to an opinion being formed not unreasonably.
73 Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd [2001] CLC 1103; Lymington Marina Ltd v MacNamara and others [2007] EWHC Civ 151. This concept is derived from administrative law and judicial
review of administrative action, which imposes an obligation on public officials on whom discretion is
conferred not to take irrelevant matters into account. The leading case is Associated Provincial Picture
Houses Ltd v Wednesbury Corporation [1948] 1KB 223. The cases in the private, as opposed to public, area
contain differing statements on the extent to which the ‘Wednesbury’ test applies but there is some authority that it, or something close to it, does apply in private law. See Socimer (n 71) [66] (Rix LJ). See most
recently the decision of the Supreme Court in Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1
WLR 1661 (SC); commented upon in Wayne Courtney, ‘Reasonableness in contractual decision-making’
(2015) 131 LQR 552. It might be significant that the contract in Braganza was an employment contract.
194
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
8.5.2 The application of the principle referred to above arose in the context
of the enforcement of a ship mortgage in Zeeland Navigation Co Ltd v Banque
Worms (The Foresight Driller II)74 where the relevant event of default required the
mortgagee to form the opinion that the effect of an event ‘is or may be to imperil,
delay or prevent the due fulfilment . . .’ by any of the applicable debtor parties
of their obligations or undertakings in the loan and security documents. It was
held, referring to The Product Star (No. 2),75 that the opinion had not been formed
arbitrarily, capriciously or unreasonably.76
8.5.3 A mortgagor will often try to obtain a degree of control over the exercise
of a consent right by mortgagee by seeking to agree that its consent will not be
unreasonably withheld (and sometimes that it will not be unreasonably withheld or
delayed). To the extent that an obligation to act reasonably will not be implied in
the absence of express language77 such an express requirement to act reasonably
will impose some restrictions on the mortgagee’s discretion.
8.5.4 The universal inclusion in the deed of covenant or facility agreement of
an undertaking by the mortgagor that the ship will not be let on time charter for
longer than a specified period or on bareboat charter without the mortgagee’s
consent has already been noted.78 An equivalent restriction in relation to a mortgagee’s consent to leasing of land came before the court in Commercial First
Business Limited v Atkins.79 In considering the case it is necessary to have in mind
that the way the courts approach issues arising in the context of mortgages and
charterparties of ships may well differ from the approach in relation to mortgages
and leases of land; the case related specifically to commercial investment property.
Subject to that, however, some points of interest come out of the case. It is not
possible to imply into a mortgage (at least of residential property or of commercial
investment property)80 a positive obligation of the mortgagee that it will not withhold its consent to letting unreasonably. The absence of such an express or implied
positive obligation means that the mortgagor does not have a claim in damages for
any breach. There is to be implied in such transactions, however, a limitation (as
opposed to a positive obligation) that consent should not be unreasonably withheld.81 That implied limitation of reasonableness, again in the context of commercial
investment property, imposes a duty of honesty, good faith and genuineness – and
a need for absence of arbitrariness, capriciousness, perversity or irrationality, with
74 [1995] 1 Lloyd’s Rep 251.
75 n 71. The event in question was the entering into by the mortgagor of a memorandum of understanding (which might or might not have been legally binding) in respect of the bareboat chartering of
the ship which would be in breach of restrictions in the deed of covenant.
76 See further Chapter 11, paragraphs 11.4.2–11.4.6.
77 See paragraphs 8.5.1 and 8.5.2 above and also paragraph 8.5.4 below.
78 See paragraphs 8.3.5 and 8.3.6 above.
79 [2012] EWHC 4388 (Ch).
80 ibid [92], [93].
81 ibid [100]. This means that, even if the same limitation (and no more) is implied in the context
of a ship mortgage, a mortgagor who requires an ability to hold the mortgagees liable in damages would
need to negotiate an appropriately worded express undertaking about the reasonable exercise of the
mortgagee’s consent right.
195
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
the application of any broader equitable duty being rejected; in other words, as
expressly referred to in Atkins,82 the application of the test in Socimer.83
8.5.5 The test in Socimer was also invoked in Torre Asset Funding Limited v The
Royal Bank of Scotland plc84 in relation to the implied duty that applies to the
exercise by an agent bank of an express discretion to act as it considers best in
the interest of the lenders.
8.5.6 Despite good faith being referred to in passing in some of the cases considered above85 there is no general duty to act in good faith under English law.86 There
have been cases, including a number recently, where parties have argued, generally
unsuccessfully, that an obligation to act in good faith should be implied or that
an express obligation to act in good faith should be given a particular meaning.87
These issues tend to arise more frequently in the context of commercial contracts
rather than secured financing.
8.5.7 In this context it is significant that a decision whether or not to terminate
a contract for repudiatory breach or to exercise an express right of loan acceleration
or enforcement of security following the occurrence of an event of default is not a
contractual discretion of a type which is constrained by the courts in the manner
described above. The authority for this is the decision of the Court of Appeal in
Lomas v JFB Firth Rixson Inc.88
8.6 Protection of security
8.6.1 Ship finance documents will invariably provide that a default by the owner
in compliance with its undertakings under the deed of covenant constitutes, subject
to any applicable grace or cure periods, an event of default that entitles the mortgagee to accelerate the debt secured by the mortgage. In other words, upon default
the mortgagee may demand the payment of the mortgage debt and enforce its
security either by taking possession of the ship or arresting the ship in legal proceedings and applying for an order for sale of the ship.89 However, there may often
be commercial or financial reasons why a mortgagee does not want to enforce its
82 ibid [111]–[112].
83 n 71.
84 [2013] EWHC 2670 (Ch).
85 E.g., Socimer (n 71).
86 One notable exception is the duty of ‘utmost good faith’ under the Marine Insurance Act 1906, s 17.
This will cease to apply when the Insurance Act 2015 comes into force. See Chapter 16, paragraph 16.1.1.
87 Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ
200; Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd [2015] EWHC 2002 (Ch); Portsmouth City
Council v Ensign Highways Ltd [2015] EWHC 1969 (TCC). In Braganza good faith was equated with the
Wednesbury test; see n 73.
88 [2012] EWCA Civ 419, 2 Lloyd’s Rep 548 [46] (Longmore LJ). See also Mid Essex Hospital Services
(n 87) [83] (Jackson LJ). See further Hockin v The Royal Bank of Scotland plc [2016] EWHC 925 (Ch)
where counsel (at [37]) contrasted a ‘binary choice’ with a contractual discretion and Mid Essex Hospital
Services was referred to (at [39]). Hockin was an application to strike out parts of a claim; it was held by
Asplin J (at [48]) that the issue of whether there was or was not a contractual discretion depended on the
factual matrix and so could not be decided on a mere strike-out application.
89 See Chapter 11 and Chapter 14.
196
MORTGAGOR’S OBLIGATIONS AND UNDERTAKINGS
security immediately.90 In such a case, the mortgagee will usually wish to cause the
owner to remedy the default, while permitting the ship to continue trading. The
mortgagee will also wish to add any costs incurred by it in so doing to the mortgage debt. In some cases, the mortgagee may not be satisfied with demanding that
the owner cure the default; it may wish to have the right to intervene itself and
remedy the problem, while at the same time allowing the owner otherwise to remain
in control of the ship. For instance, if the owner has failed to maintain insurance
upon the ship, the mortgagee will most likely wish to intervene to renew the insurance; or if a third party creditor of the owner arrests the ship, the mortgagee might
wish to provide security for the claim (which may be disputed by the owner) in
order to obtain the release of the ship from arrest.
8.6.2 Accordingly, the deed of covenant will give the mortgagee extensive rights
to intervene if and when the owner fails to comply with its undertakings in the deed
of covenant.91 If the mortgagee is not expressly given these rights of intervention
in the deed of covenant then it would not be able to exercise such rights unless
it took possession of the ship, which it would not usually want to do92 – nor will
the mortgagee be able to recover the cost and add it to the secured debt.93 It is
important, however, that the power to intervene is not over-used or used in such a
way that the mortgagee is either at risk of inadvertently taking constructive possession of the ship or otherwise incurs liability to the mortgagor or to third parties.94
90 See Chapter 11, section 11.7 (Waiver of events of default).
91 See the form of deed of covenant in Appendix 3, clause 13 and the security power of attorney in
clause 14.
92 The Ringdove (1858) Sw 310 (Adm) R 1151 related to the right of a mortgagee in possession to
give bail to procure the release of the ship for arrest.
93 See The Basildon [1967] 2 Lloyd’s Rep 134 (PD & Adm) for the importance of express powers.
94 In this connection see Chapter 11, section 11.13 (Method of taking possession) and Chapter 12,
section 12.10 (The perils of intermeddling); also Chapter 13, section 13.5 (Liabilities of a mortgagee in
possession to third parties) and section 13.8 (Wider lender liability risks).
197
CHAPTER 9
Amendment, transfer and discharge
9.1 Amendment
9.1.1 Once a statutory form of mortgage has been registered with the Registrar
General of Shipping and Seamen (the ‘Registrar’)1 it is not possible to amend it
by either addition or deletion to the original form or by registration of an addendum to the mortgage. If it is necessary to secure new or revised obligations then, subject
to paragraph 9.1.2 below, the owner should execute a new mortgage that should
be registered with the Registrar. In this case the existing mortgage should remain
registered and not discharged.2 If the owner has already granted a further mortgage
or mortgages to a third party then that third party should be required to enter
into a (supplemental) subordination agreement giving priority to the additional
mortgage granted to the first mortgagee: see Chapter 7. If a new mortgage is
registered then it will be necessary either to amend the existing security documents
such as the deed of covenant or to execute new collateral security documents setting out the amended obligations.
9.1.2 If the mortgage is in account current form3 securing all amounts due
or to become due in the future from the owner to the mortgagee then variations
in the obligations of the owner may be secured in any event notwithstanding the
variation. In such a case the new or varied terms may be set out in a supplement
to the deed of covenant collateral to the mortgage or an addendum to the agreement setting out the terms of the original loan or liability.4 The circumstances in
which it is advisable to require a new mortgage – or when it is possible to rely on
the flexibility of the account current mortgage so as to avoid this – are discussed
in Chapter 5.5 Also in certain circumstances the mortgagee may be able to ‘tack’
any additional advance made to the owner to the first mortgage so that both the
original loan and the additional advance are secured by the first mortgage. This
right to ‘tack’ further advances has been considered in Chapter 7.6
1 Merchant Shipping Act 1995, s 8.
2 See Chapter 5, paragraph 5.6.3 for the reasons for not releasing the existing mortgage.
3 MSF 4736. Potentially even more flexibility in this regard is given by using the ‘other obligation’
alternative version of the statutory mortgage so as to create ‘all moneys’ security. See Chapter 5, paragraphs 5.4.6 and 5.6.2.
4 Generally a reference in the account current mortgage to a collateral document such as a deed of
covenant will refer to the document ‘as from time to time hereafter amended’ or similar words.
5 Section 5.6 (Change of obligations).
6 Section 7.9 (Tacking of further advances).
198
AMENDMENT, TRANSFER AND DISCHARGE
9.2 Rectification
9.2.1 If the mortgage has been incorrectly registered then the Registrar has power
to correct the entry. Regulation 2(6) of the Registration Regulations7 provides:
The Registrar shall be entitled to amend the Register where:–
(a) a clerical error has occurred, or
(b) sufficient evidence is produced to satisfy him that the entry is incorrect, and
on making the amendment he shall issue a new certificate of registry if
necessary.
9.2.2 Before the current Registration Regulations came into force all entries
relating to a registered ship were made by manuscript in the Register Book of
the port of registry. In the Instructions to Registrars of British Ships they were
required to keep their records ‘with perfect accuracy’. The first seven columns of
the Register were statutory entries and no amendment could be made to an existing entry except by order of the Court. In Chasteauneuf v Capeyron8 Sir Barnes
Peacock giving the opinion of the Privy Council said:
There is no provision in the Acts which authorises the Registrar to erase entries of
mortgages upon their being discharged . . . it would be in violation of the principle of
the Registration Acts to erase any entries which appear in the face of the register.
Amendments to the non-statutory entries could be made on the authority of the
Commissioners of Customs & Excise. In Bell v The Bank of London9 it was decided
that the miss-spelt name of the ship in the mortgage (the City of Bruxelles) did not
invalidate the mortgage where it was clear to which ship the mortgage applied (the
City of Brussels). In The Rose10 a mortgagee under its statutory power of sale sold
the ship to a third party purchaser. The mortgagee delivered a bill of sale to the
purchaser but also executed the memorandum of discharge on the original mortgage. By mistake the discharged mortgage was presented to the Registrar who
recorded the discharge of the mortgage. When the purchaser presented the bill of
sale to record the transfer of ownership the Registrar declined to register it on the
grounds that the mortgage had been discharged and therefore the mortgagee had
no power to transfer legal title to the purchaser. The purchaser successfully applied
to the court for a declaration that it was the owner of the ship and that it was
entitled to be registered as such.
9.2.3 In The Bineta11 the owner of a motor yacht, Miss Simmonds, agreed to sell
the yacht to Mr Garthwaite in June 1961; she delivered a bill of sale to Mr Garthwaite and sent this to City Marine Finance Ltd who had agreed to make a loan to
Mr Garthwaite on the security of a mortgage on the yacht. City Marine Finance
Ltd then registered the bill of sale and the mortgage on the yacht. Mr Garthwaite
failed to pay the balance of the purchase price and Miss Simmonds who had
7 Merchant Shipping (Registration of Ships) Regulations 1993 (SI 1993/3138).
8 (1882) 7 App Cas 127 (PC).
9 (1858) 3 H & N 730 (Ex), 157 ER 661.
10 (1873) LR 4 A & E 6.
11 [1967] 1 WLR 121 (PD & Adm), [1966] 2 Lloyd’s Rep 419.
199
AMENDMENT, TRANSFER AND DISCHARGE
retained possession of the yacht exercised her lien as an unpaid seller. In March
1965 Miss Simmonds then sold the yacht to Mr Dalby and delivered a bill of
sale to him although she was not the registered owner. Part of the purchase price
was paid to City Marine Finance Ltd to discharge their mortgage and Mr Dalby
applied to the Admiralty Court for an order that he was entitled to be registered
as owner as Miss Simmonds had had power to sell the yacht to him under the
Sale of Goods Act 1893, s 48(2). The Court (Brandon J) following the decision
in The Rose12 declared Mr Dalby to be the owner of the yacht and that he was
entitled to be registered as such.13
9.2.4 Although the Registrar now has statutory power to correct the Register,
the Admiralty Court still retains a residual power to order the rectification of the
Register. Indeed there will be circumstances, in particular if there is a dispute as to
the facts, where the Registrar would probably be unwilling to rectify the Register
and then it would be necessary to apply to the court for the appropriate relief. In
The Ocean Enterprise14 the court held:
To date no express power to expunge the register appears to be given to the Admiralty
Court, but the above inherent power appears to have existed unchallenged for 90 years
(notwithstanding the enactment of detailed statutory provisions and regulations during
that period).
9.3 Transfer
9.3.1 The mortgagee may transfer its mortgage to a third party pursuant to paragraph 11 of Schedule 1 of the Merchant Shipping Act 1995 and regulations 60
and 61 of the Registration Regulations, by completing section 3 in the mortgage
form. The mortgage form should then be delivered to the Registrar for registration
and when it is registered the transferee is substituted for the mortgagee under the
mortgage and has all the powers, rights and obligations of the mortgagee. At the
same time as transferring the statutory mortgage it is necessary also to transfer
the deed of covenant and, of course, the underlying facility documents that the
mortgage and deed of covenant secure. It will also be necessary (inter alia) to give
notice, by one means or another, to the insurers of the ship and also to any charterer or other operator of the ship that has received notice of the previous mortgagee’s rights as assignee of the ship’s earnings.
9.3.2 If a transfer of the statutory mortgage is not registered with the Registrar
in the manner referred to in paragraph 9.3.1 above the transferor, to the exclusion
of the transferee, will retain the power to exercise the statutory power of sale under
the Merchant Shipping Act 1995, Schedule 1, paragraph 9 because that power of
sale is a power of the registered mortgagee. In a case relating to registered land,
12 n 10.
13 See also Brond v Broomhall [1906] 1 KB 571 (where the court ‘expunged’ the entry of a mortgage
in the register); Burgis v Constantine [1908] 2 KB 484; James Duthie & Others v The Lord Advocate (1893)
20 R 241. Also Bell v Blythe (1868–69) LR 4 Ch App 136 where the court held that a discharged mortgage
could not be ‘reinstated’.
14 [1997] 1 Lloyd’s Rep 449 (Adm).
200
AMENDMENT, TRANSFER AND DISCHARGE
Skelwith Leisure Limited v Alan Armstrong,15 which was an application for summary
judgment, it was held that a transferee of a legal charge whose transfer was not
registered was entitled to exercise the statutory power of sale under the Law of
Property Act 1925, s 101 by virtue of being a person entitled to receive and give a
good discharge for the mortgage money under section 106 of the same Act.16 This
case would not assist an unregistered transferee of a statutory ship mortgage for
two reasons. First, it appears that the Law of Property Act, s 101 (and by implication also section 106) does not apply to registered ship mortgages.17 Secondly,
by virtue of the Merchant Shipping Act 1995, Schedule 1, paragraph 9(1) the
registered mortgagee and not an unregistered transferee mortgagee has the power
to ‘give effectual receipts for the purchase money’.18 It also appears, based on or
by analogy with another case on land,19 that the registered transferor mortgagee
retains the right to take possession and, by implication, an unregistered transferee
mortgagee does not obtain such right.20
9.3.3 However the mechanics of the transfer of the loan and security are achieved,
the commercial terms of the transfer – when it is a sale at arms’ length – will
normally be addressed in a separate document between the transferor and the
transferee, frequently on the terms of the forms published by the Loan Market
Association (LMA).21
9.3.4 Issues relating to transfer of a lender’s participation in a syndicated loan
where the security is held by a security trustee are addressed in Chapter 5.22
9.3.5 Transfer of the position of a lender under a bilateral facility will need to
take place in accordance with the provisions of the documents. The mechanics
for transfer of bilateral facilities tend not to be as developed as those for transfer
of a lender’s participation under a modern syndicated loan agreement. Subject
to the express requirements of the documents, transfer can be achieved by either
a bilateral assignment between the transferor and the transferee (with notices to
the borrower and other applicable debtor parties) or a master document which
is executed by all or at least most applicable debtor parties. This is a matter of
form; each method has the same objective and substance, i.e. an assignment of the
15 [2015] EWHC 2830 (Ch).
16 The Law of Property Act 1925, s 106(1) reads: ‘The power of sale conferred by this Act may be
exercised by any person for the time being entitled to receive and give a discharge for the mortgage money.’
17 The Maule [1997] 1 WLR 528 (PC). See Chapter 7, paragraph 7.9.8 and Chapter 11, paragraph 11.16.4.
18 It is possible that, depending on the construction of the deed of covenant and the transfer document, the transferee could be entitled to exercise the express power of sale contained in the deed of covenant and/or the power to sell under the power of attorney contained in the deed of covenant. In Skelwith
Leisure, however, an argument that the unregistered transferee was entitled to sell as the mortgagor’s
attorney-in-fact failed on the facts and as a matter of construction. The transferee prevailed by reliance
on the Law of Property Act, ss 101 and 106 which, as stated above, would not be of assistance in relation
to a registered ship mortgage.
19 Paragon Finance plc v Pender [2005] EWCA Civ 760, [2005] 1 WLR 3412. See also Chapter 12,
paragraph 12.3.1.
20 On whether an equitable mortgagee of land has a right to take possession, see HWR Wade, ‘The
Equitable Mortgagee’s Right to Possession’ (1955) 71 LQR, where the author argues that it does have
such a right.
21 The LMA Secondary Debt Trading Documentation.
22 Paragraph 5.4.3.
201
AMENDMENT, TRANSFER AND DISCHARGE
underlying debt and the security. The second method is frequently used because it
more easily addresses the need to make consequential amendments to the facility
agreement, such as changes of bank account details as regards both payments by
the borrower to the lender and (if applicable) as regards payments by charterers.
It is also frequent practice for the borrower to confirm in favour of the transferee
lender that it will perform all obligations under the facility agreement and the
security documents in favour of the transferee. It is usual for the transfer document
to be executed by the transferor as a deed so as to gain the benefit of the Law of
Property Act 1925, s 114, which sets out the effect of a transfer of mortgage.23
9.3.6 Where a bilateral facility provides for further advances it is necessary to
consider carefully whether, as a matter of construction, the original documentation
is sufficiently widely drafted such that further advances by a new, transferee lender
are secured. It is not universal for bilateral facilities to be drafted in such a way as
to avoid any doubt in the mind of a cautious lawyer, especially but not only if there
is an express novation of the obligation to lend. In such cases it is advisable for
precautionary new security to be taken lest arrangements that involve the transferee
expressly or impliedly agreeing to make advances and the transferor being expressly
or impliedly released give rise to new obligations that were not contemplated by the
original documents and so are or might not be secured by the original security.24
9.3.7 The transfer of the mortgage does not affect the status or priority of the mortgage.
This is not expressly stated anywhere in the Merchant Shipping Act 1995 or in the Registration Regulations but it is implicit from the Merchant Shipping Act 1995, Schedule 1
paragraph 11 and regulation 61 of the Registration Regulations. It is also the effect of the
Law of Property Act 1925, s 114 for a transfer of mortgage to which that section applies.
9.3.8 Since the 2008 financial crisis there have been transactions relating to the
shipping portfolios of banks – internal restructurings, demergers and third party
portfolio sales – that have involved the transfer of a large number of ship mortgages.
9.3.9 Where the interest of the mortgagee is transmitted by operation of law – for example
on the death of a mortgagee or pursuant to a court order – then the relevant document (in
the examples mentioned the grant of probate or administration or the court order) has to be
produced to the Registrar who will enter the transferee’s name in the Register as mortgagee.25
9.4 Discharge
9.4.1 When the mortgage debt has been repaid or the obligation secured has been
performed or satisfied then the mortgagee should complete section 4 of the
23 The position is different in a syndicated facility where the security is held by a security trustee; see
Chapter 5, section 5.4 (Multiple obligations) and section 5.5 (Change of parties).
24 A mortgagor will want the transferee lender to assume liability to make the further advances contemplated by the documentation as originally executed and the transferor lender will want to be released
from such liability; new security in favour of the transferee lender may be made a condition to the assumption of liability by the transferee lender. Such an arrangement, however described or implemented, will in
substance be a novation of the obligation to make further advances. Similar issues also arise in relation to
bilateral facilities if there is a guarantee or letter of credit facility where the bank issuing the guarantee or
letter of credit is to be replaced, or if there is a swap transaction involving future trades.
25 Merchant Shipping Act 1995, Schedule 1, paragraph 12 and Registration Regulations 1993 (SI
1993/3138) as amended, regs 60 and 61.
202
AMENDMENT, TRANSFER AND DISCHARGE
mortgage deed and deliver this to the owner who should deliver it to the Registrar
who will register the discharge.26
9.4.2 In order to repay the mortgage debt the owner must pay all amounts due
under the mortgage (principal, interest or otherwise) as payment of part of the
debt does not discharge the debt unless there is consideration – for example a
prepayment of the debt at a ‘discount’.27 In the absence of consideration, execution
of a release by deed is necessary for good discharge to be made by payment of less
than the full amount of the debt.28 Execution as a deed of the form of discharge in
section 4 of the form of statutory mortgage29 in circumstances where less than the
full debt is being repaid for the consideration could result in inadvertent discharge
of the full debt unless there is clear agreement otherwise.
9.4.3 The payment must be made in accordance with the terms of the mortgage documents: the payment must be made in the currency in which the loan
is denominated and in the manner and place stipulated. Where there are joint
mortgagees payment is to be made to the joint mortgagees and not simply to one
mortgagee30 unless the mortgage documents provide otherwise. In the case of a
syndicated loan where there are several lenders there will be an agent bank that
will act for the lenders and payment should then be made to that agent bank in
accordance with the express terms of the facility agreement.31
9.4.4 The mortgagee must accept tender of the amount due under the mortgage.
In Fletcher & Campbell v City Marine Finance Limited Roskill J said:32
Accordingly in my judgment there is as a matter of English law a right in the mortgagor
of a ship to recover damages against his mortgagee, if his right to redeem is prevented
by the wrongful act of the mortgagee . . . Basically, as I have already said, the ordinary
principles of law relating to mortgages and their redemption apply, and as I read the
cases, have always been applied to mortgages of ships during the 19th century . . . It
would be strange if a mortgagor’s only remedy in these circumstances were to bring
a redemption action if he could do so timeously, particularly having regard to the
system of registration of title now prescribed by statute. It would obviously be difficult
to deprive a bona fide purchaser for value of his title to a ship which he had already
registered, even though he had acquired that title through a default on the part of the
mortgagee, in the manner in which the latter had exercised his power of sale.
Thus, if a mortgagee refuses to accept the tender of the amounts due under the
mortgage by the owner in order to redeem the mortgage and sells the ship under
26 Merchant Shipping Act 1995, Schedule 1, paragraph 13 and Registration Regulations, reg 62.
27 Foakes v Beer (1884) 9 App Cas 605; Re Selectmove [1995] 2 All ER 531 (CA). See also Re Defries
[1909] 2 Ch 423; see further Chapter 47 of Falcon Chambers and Sir Paul Morgan (co-ordinating eds), Fisher
& Lightwood’s Law of Mortgage (14th edn, Butterworths 2014) (hereafter in this chapter, ‘Fisher & Lightwood’).
28 Sealing is not necessary for execution of a deed for this or other purposes; the Law of Property
(Miscellaneous Provisions) Act 1989, s 1 (individuals); the Companies Act 1985, s 36A (English companies); the Companies Act 2006, s 46 (as amended by the Overseas Companies (Execution of Documents
and Registration of Charges) Regulations 2009 (SI 2009/1917)) (overseas companies).
29 Form MSF 4736 or Form MSF 4737; see Appendix 2.
30 Powell v Broadhurst [1901] 2 Ch 160.
31 The agent bank will often be the same entity, acting in a different capacity, as the security trustee
but this is not always the case; sometimes they are different entities, even when part of the same banking
group; some, mainly US, banks have separate trust companies.
32 [1968] 2 Lloyd’s Rep 520 (QB) 538.
203
AMENDMENT, TRANSFER AND DISCHARGE
its power of sale, although the owner cannot seek to reverse or invalidate the sale
it will have a claim for damages against the mortgagee.33
9.4.5 In The Yolanda Barbara34 the owners of the ship applied to the Admiralty
Court for a declaration that they were entitled to have a mortgage that they had
granted on the ship delivered up to them duly discharged on the grounds that
all amounts due under the mortgage had been repaid. On finding that the mortgage had indeed been redeemed the court ordered that the mortgage should be
‘expunged’ from the register. It may be argued that this was not the right order
to make and the court should have ordered that the discharge of the mortgage be
registered rather than that the mortgage be ‘expunged’.
9.4.6 A mortgagor’s right to redeem will be constrained if it attempts to redeem
before any agreed date for redemption35 or, based on old cases and practice, even
after any date for redemption or if there is no date for redemption unless some
notice is given or interest is paid in lieu of notice.36 In modern ship finance documentation securing a loan there will be no agreed date for redemption in addition
to the terms of repayment of the loan. Further, the mortgagor’s right to prepay will
be expressly agreed. Any issues about when and on what terms the mortgagor is
entitled to prepay the loan and have the mortgage released will be addressed.37 It
might be agreed that payment of a fee is a condition to the right to prepay. Such
a fee does not engage the rule against penalties since it is not payable as a result
of a breach of contract.38 It might, however, depending on the amount, engage
the rules against clogs on the equity of redemption and unconscionable collateral
advantages.39
9.4.7 On delivery of the discharged mortgage to the Registrar, the discharge
will be recorded in the Register. If the mortgage deed has been lost then other
satisfactory evidence may be produced to the Registrar that the mortgage has
been discharged (for example a letter from the lender signed by a duly authorised
signatory) and the Registrar will record the discharge of the mortgage.40
33 See Alcock, Prestcott v Phipps (1883) Ch 372 and Edmondson v Copland [1911] 2 Ch 301 (both cases
cited in Constant) and Farley (1852) 2 De G M&G 936 (Ch), 42 ER 1138 relating to the tender of the
amounts due. See also Brouard v Dumaresque (1841) Moo PC, 13 ER 186 and M’Larty v Middleton (1861)
4 LT 852, (on appeal (1862) 10 WR 218) relating to the sale of a ship by the mortgagee.
34 [1961] 2 Lloyd’s Rep 337 (PD & Adm).
35 Hyde Management Services Pty Ltd v FAI Insurances Ltd [1979] Qd R98, affirmed (1979) 144 CLR 541.
36 See Fisher & Lightwood (n 27), paragraph 47.5. See also Benjamin Constant, The Law Relating to
the Mortgage of Ships (Syren & Shipping Ltd 1920) paragraph 56.
37 In multi-ship facilities with mortgages securing a joint and several borrowing it is desirable from
the mortgagor’s perspective to address the conditions on which any ship can be released from the security
package without a requirement for prepayment of the whole facility. This arises in particular in relation to
flexibility to sell a ship (and also in relation to total loss).
38 See Chapter 5, paragraphs 5.8.2–5.8.5 on the rule against penalties.
39 See Chapter 5, paragraphs 5.8.6–5.8.11. See also Chapter 11, section 11.9 (Post-default interest
and break-funding). Careful drafting is required if a fee is payable on a voluntary but not a mandatory
prepayment in order clearly to distinguish in this context between the different circumstances in which
a prepayment may arise; see BMA Special Opportunity Hub Fund Ltd v African Minerals Finance Ltd
[2013] EWCA Civ 416 and Canary Wharf Finance plc v Deutsche Trustee Company Ltd [2016] EWHC
100 (Comm). In a ship finance context, the position on prepayment on sale in particular requires close
attention to avoid uncertainty.
40 Registration Regulations, reg 62(2).
204
AMENDMENT, TRANSFER AND DISCHARGE
9.4.8 Generally, the payment of all amounts due to the mortgagee by the owner
in order to discharge the mortgage will not constitute a preference under the
Insolvency Act 1986, s 239 as ‘the effect of the payment is to reduce or extinguish
the security interest and thus pro tanto to increase the company’s equity in the
previously charged assets and make them available to other creditors’.41 However
if in exceptional circumstances a court were to decide that the redemption of the
mortgage constituted a preference under section 239 it has extensive powers under
section 241 to reverse the position including power to require the mortgagee to
repay the redemption payment.
9.4.9 On the discharge of the mortgage, the mortgagee should reassign to the
owner or its nominee its interest in the insurances placed on the ship and also the
earnings of the ship if these have been assigned to the mortgagee, with notice of
re-assignment to be served on the applicable parties.
9.4.10 On the discharge of a mortgage the mortgagee has no further claim
against the ship (unless otherwise agreed). Security documents sometimes state
that the security will be reinstated if, after discharge, there is a clawback in insolvency proceedings of the amount paid to the mortgagee on discharge.42 It is not
clear how such a provision would work, if at all, in relation to a registered ship
mortgage, especially if the ship has been sold by the insolvent company.
9.4.11 Instead of requiring the mortgage to be discharged on redemption, the
mortgagor may require the mortgage to be transferred to a third party.43 The most
likely situation in which this will occur is where the amount secured by the mortgage is paid by a subordinate mortgagee or by a guarantor. In such circumstances
the mortgagor will usually agree to a transfer of the mortgage44 but even in the
absence of the mortgagor’s agreement a subordinate mortgagee, having an interest
in the equity of redemption45 or a guarantor, having rights of subrogation, paying
off the mortgage debt would have rights to require a transfer.
9.5 Consolidation
9.5.1 In cases where an owner has granted mortgages on more than one ship to
the same mortgagee then the mortgagee may decline to redeem the mortgage on
one ship unless the mortgages on the other ships are also redeemed. This rule is
modified by section 93(1) of the Law of Property Act 1925 which provides:
A mortgagor seeking to redeem any one mortgage is entitled to do so without paying
any money due under a separate mortgage made by him, or by any person through
whom he claims, solely on property, other than that comprised in the mortgage which
he seeks to redeem. This subsection applies only if and so far as a contrary intention
is not expressed in the mortgage deeds or one of them.
41 Roy Goode, Principles of Corporate Insolvency Law (4th edn, Sweet & Maxwell 2011) paragraph
13–93: this also sets out examples of cases where there may be a preference.
42 See Chapter 15, section 15.10 (Circumstances in which a ship mortgage can be challenged in UK
insolvency proceedings).
43 Law of Property Act 1925, s 95(1).
44 Payment by a subordinate mortgagee would normally be addressed in the priorities agreement,
with agreement for transfer of the security.
45 See Halsbury’s Laws (5th edn, 2010) Vol 77, paragraph 643.
205
AMENDMENT, TRANSFER AND DISCHARGE
In practice the deed of covenant will usually exclude the operation of section 93(1)
so that an owner has to redeem all mortgages granted by it to the mortgagee on
ships owned by it, unless the mortgagee agrees otherwise.46
9.5.2 It is not possible to consolidate mortgages where different owners have
granted the mortgages. For example, a mortgagee cannot consolidate a mortgage on
a ship granted by an owner with a mortgage granted to it on another ship granted
by the owner and another person as joint owners. This means that consolidation
has no application to the common situation where ships are owned individually
by special purpose companies. The mortgages must also have been granted to the
same mortgagee or to a third party that has transferred its mortgage to the mortgagee. The principle is that ‘There must have been a time when both the mortgages
were vested in one person and simultaneously both equities of redemption were
vested in another.’47
9.5.3 Although, therefore, consolidation as such is in practice generally not an
issue in ship finance transactions for the reasons given above the structure of a
typical transaction involving joint and several borrowing by single-purpose shipowning companies gives rise to an issue akin to consolidation. In the absence of
agreement to the contrary, the mortgagee in such a transaction will be able to
prevent the sale of any ships and retain all total loss insurance proceeds in the
event of a total loss. The borrowers will wish to agree provisions allowing, subject
to certain conditions, freedom to sell, together with an agreed regime and formula
for division of sale proceeds and total loss insurance proceeds between prepayment
and release to the applicable borrower.
46 See the form of deed of covenant in Appendix 3, clause 9.5.
47 See C Harpum, S Bridge and M Dixon (eds), Megarry and Wade: Law of Real Property (8th edn,
Sweet & Maxwell 2012) paragraphs 19-092 to 19-111 and the diagrammatic examples set out there. See
also Pledge v White [1896] AC 187.
206
CHAPTER 10
Liens
10.1 Introduction
10.1.1 ‘There are four main categories of lien: the common law (or possessory
lien), the equitable lien, the maritime lien and the statutory lien.’1 This chapter is
concerned mainly with the last two but the first two are also briefly examined for
the sake of completeness.
10.1.2 A mortgagee’s most obvious concern is with those liens that rank in
priority to it in enforcement proceedings and so reduce its recovery from the
proceeds of the ship. Another concern is liens that continue to attach to a ship
after a sale pursuant to a mortgagee’s power of private sale. Maritime liens have
both these features, although statutory liens can also have the second feature in
certain circumstances.2
10.1.3 Apart from issues of priority and survival of liens a mortgagee will be
concerned about the possibility of any claim that gives rise to a right to arrest
the ship. An arrest that is not released will inevitably lead to enforcement of the
mortgage in a location that might not be favourable to the mortgagee.3
10.1.4 Two separate issues relating to liens that arise in relation to enforcement
of the mortgage are: the circumstances in which a mortgagee can succeed to the
proprietary rights of a lienholder;4 and whether a lienholder ranking in priority
behind a mortgage might be able to invoke the doctrine of marshalling in certain
circumstances.5
10.1.5 This chapter does not attempt to do more than address liens in outline,
with an emphasis on the features and issues that are of most concern to a mortgagee. Reference to other works is required for a fuller analysis.6
1 Ewan McKendrick, Goode on Commercial Law (4th edn, LexisNexis UK and Penguin 2010) 660.
This classification is also set out in Jackson (n 6) paragraph 17.11.
2 See paragraph 10.5.3 below.
3 See Chapter 11, paragraph 11.14.7 and Chapter 12, paragraph 12.6.5.
4 See paragraph 10.4.9 below.
5 See Chapter 7, section 7.11 (Marshalling), especially paragraph 7.11.14.
6 See in particular: DC Jackson, Enforcement of Maritime Claims (4th edn, LLP 2005) (hereafter in this
chapter, ‘Jackson’), especially Part IV; DR Thomas, Maritime Liens (Stevens & Sons Ltd 1980) (hereafter
in this chapter, ‘Thomas’); Sarah Derrington and James M Turner, The Law and Practice of Admiralty Matters (OUP 2007) (hereafter in this chapter, ‘Derrington and Turner ’); Nigel Meeson and John A Kimbell,
Admiralty Jurisdiction and Practice (4th edn, Informa Law 2011). See also Chapter 14, section 14.2 (The
Admiralty jurisdiction of the High Court).
207
LIENS
10.2 Common law liens
10.2.1 A common law (or possessory) lien is a right given to a creditor who is in
actual or constructive possession of property owned by another person who is
indebted to him to retain possession of the property until the debt is paid. The
lien is a right of detention and confers no right to use the property the subject of
the lien;7 the lienor has no right to sell the property except by order of the court8
or under a statutory power.9 A lien may exist at common law as a result of trade
usage or custom that has become accepted as existing at law, because of an implied
term in the contract or by express agreement between the parties.
10.2.2 In most cases the lien is a particular lien that only attaches to the property on which the work has been done or in relation to which the services have
been supplied but in certain cases the creditor may have a general lien which will
attach to all the lienee’s property that is in the creditor’s possession. A general lien
is only exercisable by solicitors, bankers, stockbrokers and factors.
10.2.3 A shipbuilder’s lien for the unpaid price of a ship or a shiprepairer’s lien
for the cost of repairs to a ship are examples of a common law lien. In the case
of a construction of a new ship the shipbuilder will be in possession of the ship at
all stages of construction whether or not legal title in the ship has passed to the
purchaser; the shipbuilder will retain possession of the ship when it is completed
until the delivery instalment and any other amounts due under the shipbuilding
contract have been paid.10 In the case of conversion or repair work the owner will
deliver possession of the ship to the shipyard and on completion of the work the
shipyard may retain possession of the ship until the cost of the conversion work
or repairs has been paid.11 If the shipyard permits the owner to retake possession
of the ship then it will lose its possessory lien. A shipyard that has lost possession
has, as a matter of English law, a right to arrest the ship and a statutory lien.12
However, if the shipyard is ordered to surrender possession to the Admiralty
Marshal in an in rem action against the ship, the shipyard’s possession will not be
prejudiced and it will maintain its priority.13
10.2.4 The possessory lien of a shipyard doing work on a ship is of concern to
a mortgagee.14 As a matter of English law the shipyard’s possessory lien will rank
ahead of a mortgage even where the mortgage pre-dates the exercise of the lien.
The mortgagee is considered to have allowed the incurrence of the lien.15 This
7 Rust v McNaught (1918) 144 LT Jo 440 (CA).
8 Larner v Fawcett [1950] 2 All ER 727 (CA).
9 E.g., sections 12 and 13 of the Torts (Interference with Goods) Act 1977.
10 See Simon Curtis, The Law of Shipbuilding Contracts (4th edn, LLP 2012) 143.
11 The Tergeste [1903] P 26 (PD & Adm); see also The Katingaki [1976] 2 Lloyd’s Rep 372 (Adm); The
Narada [1977] 1 Lloyd’s Rep 256 (Adm); The Gregos [1985] 2 Lloyd’s Rep 347 (Adm).
12 Senior Courts Act 1981, s 20(2)(n).
13 The Harmonie 166 ER 539 (Adm), (1841) Wm Rob 178; The Nordstjernen 166 ER 1126 (Adm),
(1857) Swab 260; The Tergeste [1903] P 26 (PD & Adm); Babcock Fitzroy Ltd v The Ship MV Southern
Pacific [2012] 2 Lloyd’s Rep 423 (NZHC).
14 See the cases referred to in Michael Thomas and David Steel, Temperley’s Merchant Shipping Acts
(Volume 11, British Shipping Laws) (7th edn, Stevens & Sons 1976) 75.
15 Williams v Allsup (1861) 10 CB NS 417. The rationale can be compared with that in relation to the
rights of a time charterer against a mortgagee under a time charter which post-dates a mortgage, albeit not
in the context of liens; see Chapter 13, section 13.2 (Liability to non-demise charterers and cargo interests).
208
LIENS
principle operates despite a contractual restriction, which will invariably be contained in the deed of covenant, on the mortgagor putting the ship in for repair for
a cost in excess of a specified threshold.16 The contractual restriction is designed
to avoid or regulate the circumstances that potentially give rise to a problem for
the mortgagee;17 it does not of itself affect the rights of the shipyard with a possessory lien.18 If, as will frequently be the case, the shipyard is outside the United
Kingdom it is necessary to take into account the laws of the relevant jurisdiction
in assessing the rights of the shipyard and any agreement with it in respect of the
relative rights and obligations of it, the mortgagor and the mortgagee.
10.2.5 There is a type of possessory lien that is a creature of statute rather
than of the common law. Statutory possessory liens are addressed in section 10.6
(Statutory possessory liens).
10.3 Equitable liens
10.3.1 An equitable lien differs from a legal lien since it is not a right to retain
property but in effect an equitable charge on the property of another person to
secure the payment of a debt or the performance of an obligation. An equitable
lien creates an equitable proprietary interest in the property and is enforceable
against a subsequent purchaser of the property except a purchaser for value without
notice of the lien. Equitable liens may be created by contract or may arise by way
of operation of the rules of equity.19 Examples of an equitable lien created by
contract are the lien in a charterparty in favour of a charterer to secure repayment
of hire not earned20 and the owners’ lien in a time charter on sub-hire or freight
to secure the payment of hire by the time charterer.21 Although both of these are
called ‘liens’ they are more properly examples of equitable charges.
10.4 Maritime liens
10.4.1 The in rem arrest jurisdiction of the High Court may be invoked in respect
of ‘a maritime lien or other charge on any ship . . .’ against that ship.22
16 See Chapter 8, paragraph 8.2.3 and the form of deed of covenant set out in Appendix 3, clause 6.16(f ).
17 If a ship needs to be put into a shipyard for repair it will often not be practicable for a mortgagee
simply to withhold its consent. One solution is for the mortgagee to make its consent conditional upon
an agreement with the shipyard that the possessory lien is waived – but shipyards will often not agree to
this for understandable reasons. Otherwise, the mortgagee will need to take comfort from the financial
resources of the mortgagor to pay for the repair and (if the circumstances giving rise to the need for repair
arose from an insured casualty) the availability of insurance proceeds to pay the repair bill.
18 If the shipyard has notice that the mortgagor has put the ship in for repair in breach of an undertaking to the mortgagee its rights might be affected by extension of the principle in Bowmaker Ltd v Wycombe
Motors Ltd [1946] KB 506, which held that the hirer of a car under a hire-purchase agreement that had
terminated had no authority to confer a lien on a repairer. However, this would only be resolved by litigation with an uncertain outcome, with the shipyard retaining possession in the meantime. Derrington and
Turner (n 6) paragraph 8.50 make the general statement that a possessory lien has priority over a mortgage
even if the mortgage was executed before possession.
19 John McGhee (ed), Snell’s Equity (33rd edn, Sweet & Maxwell 2015) Chapter 11.
20 See Chapter 3, paragraphs 3.7.5–3.7.7.
21 See Chapter 17, section 17.10 (Liens on sub-freight).
22 Senior Courts Act, s 21(3).
209
LIENS
10.4.2 The history of maritime liens has been described as a ‘subject of great
uncertainty and although various theories have been advanced the subject remains
one of notorious obscurity’.23 In The Bold Buccleugh24 Sir John Jervis CJ explained
the position as follows:
A maritime lien does not include or require possession. The word is used in Maritime
Law not in the strict legal sense in which we understand it in Courts of Common Law,
in which case there could be no lien where there was no possession, actual or constructive; but to express, as if by analogy, the nature of claims which neither presuppose
nor originate in possession. This was well understood in the Civil Law, by which there
might be a pledge with possession and a hypothecation without possession, and by
which in either case the right travelled with the thing into whosesoever possession it
came. Having its origin in this rule of the Civil Law, a maritime lien is well defined
by Lord Tenterden, to mean a claim or privilege upon a thing to be carried into effect
by legal process; and Mr Justice Story (1 Sumner, 78) explains that process to be a
proceeding in rem, and adds that wherever a lien or claim is given upon a thing, then
the Admiralty forces it by a proceeding in rem, and indeed is the only Court competent
to enforce it. A maritime lien is the foundation of the proceeding in rem, a process to
make perfect a right inchoate from the moment the lien attaches; and whilst it must
be admitted that where such a lien exists, a proceeding in rem may be had, it will be
found to be equally true, that in all cases where a proceeding in rem is the proper
course, there a maritime lien exists, which gives a privilege or claim upon the thing, to
be carried into effect by legal process. This claim or privilege travels with the thing
into whosesoever possession it may come. It is inchoate from the moment the claim
or privilege attaches and when carried into effect by legal process by a proceeding in
rem relates back to the period when it first attached.
10.4.3 In the early nineteenth century there was uncertainty as to which maritime
claims, e.g. necessaries, constituted a maritime lien and which did not. However by
the end of that century the courts had limited the claims that ranked as maritime
liens to:25
(a) a claim for salvage remuneration payable to the person who has rendered
assistance to a ship that is in danger or otherwise at risk;26
(b) a claim for collision damage caused by a ship – that is physical damage
or personal injury caused by a ship colliding with another ship or a fixed
or shore installation;27
(c) a claim for seamen’s wages that includes any claim by the officers and the
crew for remuneration from their employment on the ship including pension contributions but not severance pay;28
23 Thomas (n 6) 6, 7.
24 (1851) 7 Moore 267 (PC), 13 ER 884.
25 The Henrich Born (1886) 11 App Cas 270 (HL); The Ripon City [1897] P 226, 242–243, affirmed
[1898] P 78 (HL); Bankers Trust International Ltd v Todd Shipyards Corp (The Halcyon Isle) [1981] AC 221
(PC), [1980] 2 Lloyd’s Rep 325.
26 The Neptune 166 ER 81 (Adm), (1824) 1 Hag Adm 227.
27 The Tolten [1946] P 135 (CA).
28 The Neptune (n 26); The Halcyon Skies (No. 1) [1977] QB 14, [1976] 1 Lloyd’s Rep 461; The
Tacoma City [1991] 1 Lloyd’s Rep 330 (CA); The Turiddu [1988] CLC 1043 (Adm), [1998] 2 Lloyd’s Rep
278 (CA), affirmed [1999] CLC 1737 (CA). See Jackson (n 6), paragraphs 2.78–2.87 in relation to the
meaning of ‘wages’ and ‘seamen’.
210
LIENS
(d) bottomry and respondentia;29
(e) a claim for master’s wages30 and claims for disbursements incurred by the
master in the course of a voyage.31
10.4.4 The history and the nature of a maritime lien were set out in the opinions of the Privy Council in The Halcyon Isle.32 In the majority opinion delivered
by Lord Diplock he said:
. . . any charge that a maritime lien creates on a ship is initially inchoate only; unlike
a mortgage it creates no immediate right of property; it is, and will continue to be
devoid of any legal consequences unless and until it is carried into effect by legal
process, by a proceeding in rem. Any proprietary right to which it may give rise is thus
dependent upon the lienee being recognised as entitled to proceed in rem against the
ship in the Court in which he is seeking to enforce his maritime lien. Under the
domestic law of a number of civil law countries even the inchoate charge to which
some classes of maritime liens give rise is evanescent. Unless enforced by legal process
within a limited time, for instance within one year or before the commencement of
the next voyage, it never comes to life. In English law, while there is no specific time
limit to a maritime lien the right to enforce it may be lost by laches. If and when a
maritime lien is carried into effect by legal process, however, the charge dates back to
the time that the claim on which it is founded arose. It is only this retrospective consequence of his having been able to enforce the legal process in a Court of law that
enables a claimant, whose entitlement to a maritime lien is still inchoate and has not
yet come into effect, to pursue his claim to the lien, as it were proleptically, in a proceeding in rem against the ship at a time when it no longer belongs to the shipowner
who was personally liable to satisfy the claim in respect of which the lien arose. This
characteristic of a maritime lien is one that is unique in English law.
10.4.5 In The Halcyon Isle the minority opinion (Lord Scarman and Lord Salmon)
agreed with the description of a maritime lien given by Lord Diplock but disagreed
as to whether a claim gave rise to a maritime lien was to be determined by the lex
fori or the law of the country in which the claim arose. The majority opinion in
The Halcyon Isle, in favour of the lex fori, and that goes to the conceptual nature
of a maritime lien, is controversial.33
10.4.6 Maritime liens rank in priority to mortgages and statutory liens unless
there is a special reason why a maritime lien should be subordinated.34 A maritime
29 These are obsolete but are of historical interest. See Chapter 3, paragraph 3.7.4.
30 The Ever Success [1998] All ER (D) 73, [1999] 1 Lloyd’s Rep 824 (Adm). The lien for master’s
wages is statutory in the sense that the master is given the same lien as a seaman. The current statutory
provision is the Merchant Shipping Act 1995, s 41.
31 The Mary Ann (1865) LR 1 A&E 8; The Feronia (1868) LR 2 A&E 65. The maritime lien for master’s disbursements is also statutory in origin and, along with the lien for masters’ wages, is conferred by
the Merchant Shipping Act 1995, s 41. The need for a master to incur disbursements is less nowadays
than in days gone by; the owner or manager can easily contact a supplier directly by modern means of
communication. See Jackson (n 6), paragraphs 2.93–2.95 on the meaning of ‘disbursements and liabilities’
in section 41.
32 Bankers Trust International Ltd v Todd Shipyards Corp (The Halcyon Isle) [1980] 2 Lloyd’s Rep 325,
329.
33 See Chapter 4, section 4.8 (The conflict of laws dimension to priority issues).
34 On priority generally see further Chapter 14, section 14.5 (Determination of priorities and payment out).
211
LIENS
lien ranks ahead of a possessory lien that arises after the maritime lien attaches35
but a possessory lien arising before the attachment of a maritime lien ranks ahead
of the maritime lien.36
10.4.7 The rules relating to the priority of maritime liens amongst themselves
are complicated but generally they rank in the order set out in paragraph 10.4.3
above.37 The order depends partly on when the lien attached (the ‘inverse order
rule’) and partly on equitable and other principles. Normally the order is that damage and salvage liens rank first in inverse order of attachment, then crew’s wages and
then the master’s lien for disbursements. In The Lyrma (No. 2)38 Brandon J held:
The principle of inverse order of attachment is operative in certain circumstances,
where it can properly be said that a later transaction giving rise to a lien has the result
of preserving the interest of the holder of another existing lien arising out of an earlier
transaction. Examples of such cases are where successive salvage services have been
rendered to, or in earlier times, successive bottomry bonds given on the same ship.
In The Ruta 39 David Steel J said, ‘. . . questions of priority are not capable of being
compartmentalised in form of strict rules of ranking’. This was also the approach
taken in The Cerro Colorado,40 where Sheen J noted at the end of his judgment:
Counsel on behalf of the plaintiff bank told the Court that . . . his clients reserve the
right to . . . argue that the claim for wages, if proved, should not be given its normal
priority over the mortgagees. Counsel did not advance any legal argument in support
of that proposition and the Court will not express any view upon it until it has heard
full argument. My reason for mentioning this aspect of the case is to draw the attention of the legal advisers of the union to the question of priorities. They might have
assumed, with justification, that if a judgment is obtained for wages due to their clients,
that judgment would be satisfied in priority to other claims except the claim of the
Admiralty Marshal. They are now on notice that the plaintiffs will contend that the
usual order of priority of claims would be inappropriate on the facts of this case.
10.4.8 A maritime lien is extinguished by:
(a) payment of the claim or the provision of security for the amount of the claim;
(b) the sale of the ship in in rem proceedings by a court of competent
jurisdiction;
(c) the expiry of the relevant time limitation period for the claim;41
(d) laches, that is an unreasonable delay in pursuing the claim;42 or
(e) the total loss or destruction of the ship.
35 The Gustaf (1862) Lush 506; The Russland [1924] P 55.
36 The Immacolata Concezione (1883) 9 PD 37; The Tergeste [1903] P 26. See Derrington and Turner
(n 6) paragraph 8.50. A maritime lien attaches when the relevant liability is incurred.
37 See Jackson (n 6), paragraphs 23.133–23.145.
38 [1978] 2 Lloyd’s Rep 30 (Adm).
39 [2000] 1 WLR 2068 (Adm) 2075, [2000] 1 Lloyd’s Rep 359 [21].
40 [1993] 1 Lloyd’s Rep 58 (Adm).
41 Two years for collision damage: Merchant Shipping Act 1995, s 190. Two years for salvage claims:
Merchant Shipping Act 1995, Schedule 11 (giving effect to Article 23 of the 1989 International Convention on Salvage). Six years for crew’s wages under the Limitation Act 1980. The Foreign Limitation
Periods Act 1984 governs the position if the proper law of the lien is not English law.
42 The Kong Magnus [1891] P 223.
212
LIENS
If the legal ownership in the ship is transferred to a person who is immune from
legal process then the maritime lien cannot be enforced against the ship: however
this is only suspensive and does not extinguish the lien.43
10.4.9 The types of maritime lien most commonly encountered by a mortgagee
in mortgage enforcement proceedings are those for master’s wages and crew’s
wages. A mortgagee of a ship under arrest or of which the mortgagee has taken
possession will want either to remove the crew completely or reduce the number
of crew so as to mitigate the extent of the liens that will rank ahead of it. The
mortgagee may, in doing so, want to ensure that whatever it pays to the master
and crew in respect of outstanding wages gives the mortgagee the benefit of the
lien for wages.44 It is well established that in English enforcement proceedings an
assignment of the wages lien45 is only effective with the approval of the court.46
10.4.10 The routine way in which the maritime lien for wages is encountered
and addressed by mortgagees does not, however, apply in the context of other
types of lien, most notably the collision damage lien. It would be very rare for a
mortgagee to seek to obtain the benefit of a collision damage lien, for a number
of legal and practical reasons: court-approved subrogation would be necessary;
there would only be any potential purpose if the mortgage debt did not exceed
the ship’s value; the owner’s liability for collision damage should be covered by
insurance;47 and collisions are rare in practice.
10.4.11 The possibility of a maritime lien for potentially unlimited liability for
oil pollution damage in the United States has given rise to the development of a
specialist insurance policy (mortgagees’ additional perils (pollution) insurance) for
the benefit of mortgagees.48
10.5 Statutory liens
10.5.1 These are liens conferred by statute and do not arise only in a maritime
context.49 There are two categories of statutory lien relating to ships: liens given
to claimants by section 20 of the Senior Courts Act 1981;50 and liens given to
statutory authorities by public or private statutes.51
43 The Tervaete [1922] P 259.
44 See further Chapter 14, paragraph 14.3.38, including as to why subrogation often serves little purpose.
45 The principle (probably) also applies to assignment of other maritime liens but it most commonly
arises in relation to the wages lien.
46 The Petone [1917] P 198; The Leoborg (No. 2) [1964] 1 Lloyd’s Rep 380 (PD & Adm); The Berostar
[1970] 2 Lloyd’s Rep 403 (PD & Adm); The Vasilia [1972] 1 Lloyd’s Rep 51 (Adm); The Sparti [2000] 2
Lloyd’s Rep 618 (Hong Kong HC).
47 In Raffeisen Zentralbank Österreich AG v Five Star Trading LLC (The Mount I) [2001] EWCA Civ
68 (CA) a lien for collision damage exceeded the value of the ship, leading to the mortgagee having to
rely on its security as assignee over the proceeds of collision damage insurance; see Chapter 16, paragraphs 16.5.8–16.5.20, section 16.11 (The conflict of laws) and paragraph 16.15.1.
48 See Chapter 16, section 16.15 (Mortgagee’s additional perils (pollution) insurance).
49 For example, the right of an unpaid seller to retain goods until the price has been paid under the
Sale of Goods Act 1979, s 41.
50 This type of statutory lien is categorised by Jackson (n 6) as a ‘statutory lien in Admiralty’ to distinguish it from other types of statutory lien; see Jackson paragraph 17.36.
51 See section 10.6 (Statutory possessory liens).
213
LIENS
10.5.2 Section 20(2) of the Senior Courts Act 1981 sets out the claims in respect
of which a statutory lien on a ship may be enforced.52
10.5.3 If a claim arises in connection with a ship of the type set out in section 20(2)(e)–(r) that ship can be arrested by an action in rem provided that the
owner would be liable in an action in personam and the owner remains the beneficial
owner of all the shares in the ship when the action is brought.53 If there has been a
transfer of ownership then the claimant loses its right to arrest unless it commenced
in rem proceedings before the transfer of ownership.54 For this purpose the critical
step is the issue of a claim form – not its service.55 For a mortgagee exercising its
power of private sale (or selling pursuant to the power of attorney contained in the
deed of covenant) and for the purchaser it is prudent therefore to carry out a ‘writ
search’ in the English High Court and the other main common law jurisdictions
where there is a risk of proceedings having been commenced56 to ensure that no
action has been brought – since if it has, the claimant’s right to arrest will survive
the change of ownership.57 A claimant has the right to arrest a ship even if the total
of all other claims against the ship which rank in priority to its claim, i.e. maritime
liens and mortgages, would result in it recovering nothing from the proceeds of sale.58
10.5.4 If the owner fails to pay the claim when the ship is arrested or to provide security if the claim is disputed then the claimant can apply to the Admiralty
Court for an order for sale and for payment of the claim from the proceeds of sale.
10.5.5 A statutory lien creates no quasi or inchoate proprietary right unless and
until an in rem claim is issued; it is principally a procedural remedy.59 This contrasts
with the nature of a maritime lien, subject to the controversy surrounding the nature
of a maritime lien arising from the advice of the Privy Council in The Halcyon Isle.60
10.5.6 Statutory liens rank in priority after maritime liens, possessory liens and
mortgages.61 It appears that the ranking of a mortgage in relation to statutory liens
does not depend on the mortgage being registered.62 Registration of a mortgage is
also not a condition of the mortgagee being able to invoke the arrest jurisdiction
of the Senior Courts Act 1981 and exercise its rights as a statutory lienholder.
52 See Appendix 1.
53 Senior Courts Act, s 21(4). The example of the application of the statutory language is a simple
one. There is also the ability to arrest a ship where the person who would be liable in personam is a demise
charterer of the ship. Further, other ships that are beneficially owned at the time the action is brought
by relevant persons who would be liable in personam when the cause of action arose can be arrested. See
Jackson (n 6), paragraphs 10.24–10.56 in relation to the statutory language and the relevant cases.
54 The Monica S [1968] P 741 [1967] 2 Lloyd’s Rep 113.
55 ibid 773.
56 ‘Writ searches’ are possible in at least Australia, Canada, Hong Kong, New Zealand, Singapore
and South Africa. This issue is, in theory, a risk for any purchaser but in practice the risk is greater in the
context of a sale by a mortgagee exercising its power of sale because the mortgagor will be in financial
distress and the risk of claims is high.
57 See Chapter 11, paragraph 11.17.2.
58 The APJ Shalin [1991] 2 Lloyd’s Rep 62.
59 The Monica S (n 54).
60 See paragraphs 10.4.4 and 10.4.5 above.
61 The Two Ellens (1869–72) LR 3 A&E 345 (Adm). A mortgage is of course one type of statutory
lien: Senior Courts Act, s 20(2)(c).On the order of priority in court sale proceedings see Chapter 14,
section 14.5 (Determination of priorities and payment out).
62 See Jackson (n 6), paragraphs 23.125–23.129.
214
LIENS
10.5.7 Certain statutory liens also constitute maritime liens. In such cases the
claimant would be well advised to enforce its claims as a maritime lien with the
priority that attaches to a maritime lien.63
10.5.8 It appears that statutory liens of the same type rank equally,64 as do
statutory liens of different types.65
10.5.9 Statutory liens are extinguished in the same manner as maritime liens.66
10.6 Statutory possessory liens
10.6.1 Certain statutes give port and other statutory authorities a statutory possessory lien,67 which gives the right to detain a ship to secure payment of amounts
due from the owner (e.g. port dues) and in default of payment the right to sell
the ship without legal proceedings. Section 44 of the Harbour, Docks and Piers
Clauses Act 1847 provides:
If the master of any vessel in respect of which any rate is payable to the undertakers
refuse or neglect to pay the same, or any part thereof, the collector of rates may . . .
arrest, of his own authority, such vessel. . . . and in case any of the said rates shall
remain unpaid for the space of seven days . . . the said collector may cause the matters
so distrained or arrested to be appraised . . . and afterwards . . . to be sold . . .
Port authorities constituted by private Act of Parliament such as the Manchester
Canal Act 1896 have similar powers of sale and also the Merchant Shipping Act
1995 gives a power of sale in certain cases.68 The effect of the statutory power of
sale is that the authority may sell the ship free of all mortgages, liens or other
encumbrances and retain from the proceeds of sale all amounts due to the authority
including the costs of sale and pay the balance to the owner or whoever is entitled
to the balance, which will usually be the maritime lienors and mortgagees. Such a
sale by a statutory authority will be free from all mortgages and statutory liens but
probably not free from maritime liens. In The Blitz69 Sheen J said, ‘. . . I do not
have to decide whether a claim which gives rise to a maritime lien survives the sale
by a harbour authority. That is a question which raises difficult points . . .’
10.6.2 The rights of sale of a holder of a statutory possessory lien take priority
over the powers of detention and sale of the Admiralty Marshal, so that when a
ship has been detained under a statutory power the Admiralty Court will not be
able to make an order for its sale.70 See further Chapter 14, paragraph 14.4.24.
63 See further Chapter 14, paragraph 14.2.13.
64 The Africano [1894] P 141; The Rene [1922) 12 Ll L Rep 202 (PD & Adm); The Stream Fisher [1927] P 73.
65 The Leoborg (No. 2) [1964] 1 Lloyd’s Rep 380 (PD & Adm); The Charger [1966] 3 All ER 117 (PD & Adm).
66 See paragraph 10.4.8 above.
67 The Countess [1923] AC 345 (HL) 354 (Lord Birkenhead).
68 Merchant Shipping Act 1995, s 208 (default in payment of light dues), ss 240 and 252 (sale of
wreck); s 285 (sale in default of payment of ‘any seaman’s wages, fines or other sums of money’).
69 [1992] 2 Lloyd’s Rep 441 (Adm).
70 The cases on the effect of the statutory power of sale of a port authority are not wholly consistent.
The Emilie Million [1905] 2 KB 817 (CA); The Spermina (1923) 17 Ll L Rep 17 (PD & Adm); The Sierra
Nevada (1932) 42 Ll L Rep 309 (Court of Session); The Ousel [1957] 1 Lloyd’s Rep 151; The Queen of the
South [1968] P 449. In The Freightline One [1986] 1 Lloyd’s Rep 266 (Adm) 272 the type of lien created
by the Port of London Act 1968, s 39 was considered.
215
CHAPTER 11
Default, and self-help enforcement powers
11.1 Introduction
11.1.1 This chapter and the next four chapters address issues relating to enforcement of a mortgagee’s security. Chapter 12 addresses certain ways in which English
law protects a mortgagor. Chapter 13 addresses liabilities of a mortgagee to third
parties. Chapter 14 addresses the Admiralty Court sale procedure in England.
Insolvency of the mortgagor is addressed in Chapter 15.
11.1.2 The types of obligation that are typically secured by a ship mortgage are
described in Chapter 5. The most common type of ship mortgagee is a provider
of medium or long-term debt finance. The finance documentation will contain
extensive undertakings and events of default.
11.1.3 A mortgagee will often allow a mortgagor1 time to remedy defaults that
can be remedied. Cargo freight markets are notoriously volatile, buffeted by factors
that include: ever-changing demands for oil and commodities; the oversupply of new,
more fuel-efficient tonnage, fed by the dramatic expansion in Chinese shipbuilding;
and the reluctance of mortgagors to sell older ships for scrap, especially at times
of depressed scrap steel prices. Non-cargo shipping sectors, such as cruise, ferries
and offshore oil and gas, are no less susceptible to outside economic forces. Ship
mortgagees generally recognise that the earnings obtainable by commercial ships,
as well as their capital values, will fluctuate considerably over the term of a loan,
delivering high returns in good times, and severe operating losses in bad. They also
appreciate that they run the risk of having to accept large write-offs or ‘haircuts’2
if they enforce their security during a trough in the business cycle.
11.1.4 Where a mortgagor is in financial distress, whether or not events of default
have occurred under the finance documentation, it and its mortgagees will generally attempt to address the problem by a consensual restructuring as described in
Chapter 15.3 Only if that is not a feasible option, or if it is attempted and fails,
will enforcement of the mortgagee’s security become a reality.
1 In this chapter the expressions ‘mortgagee’ and ‘mortgagor’ are generally used rather than ‘lender’
and ‘borrower’. In a number of places this assumes that the mortgagor is also the borrower rather than
a third party granting security for a borrower’s obligations. Sometimes, therefore, ‘mortgagor’ should be
taken to mean ‘borrower’ and ‘mortgagee’ is sometimes used to mean that party in its capacity as lender.
2 A finance market term adopted and cited by Eder J in Saltri III Limited v MD Mezzanine SA Sicar
[2012] EWHC 3025 (Comm).
3 See section 15.2 (Consensual restructurings).
216
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
11.1.5 In such a scenario, the mortgagee must first establish that the mortgagor
is in breach of its obligations. Most commercial loan or other debt facility agreements are widely drafted in the lender’s favour to stipulate that:
(a) any breach of the mortgagor’s debt service obligations, or of the mortgagor’s
corporate, financial or ship covenants, will give rise to an ‘event of default’,
in most cases immediately, but sometimes immediately upon notice to the
borrower, and, usually in the case of breaches of remediable covenants,
upon the expiry of a remedy or cure period; and
(b) an ‘event of default’ entitles the mortgagee to terminate its commitments
under the facility agreement (for example to advance as yet undrawn sums),
to accelerate the loan and to exercise its rights under the mortgage.
11.1.6 Accordingly, it is almost unknown for a mortgagee to need to resort to its
common law rights to take possession,4 to sell the ship or otherwise to enforce its mortgage. In almost all cases, by the time a ship mortgagee decides to enforce its security,
one or more express ‘events of default’ will have arisen upon which the mortgagee
may rely. Furthermore, the contractual events of default will be more precisely defined
and factually certain than the mortgagee’s common law rights.5 As the courts have
observed, ‘In the case of ships’ mortgages, the rights and duties of the parties are
overwhelmingly dominated by contract.’6 This chapter will deal first with the occurrence of an express default and the remedies that the mortgagee has to protect and
enforce its security once such default occurs.7
11.1.7 A statutory mortgage of a British registered ship (and ships registered
in most other Commonwealth and common law jurisdictions),8 supported by a
collateral deed of covenant, confers remedies that do not require the assistance or
intervention of a court. These remedies, known as ‘self-help’ remedies, distinguish
mortgages of British registered ships from mortgages of ships registered in most
other ‘onshore’ jurisdictions, particularly those of most Continental European
countries and their former colonies and other countries with codified civil legal
systems, which have no equivalent doctrine of self-help and require enforcement
to be conducted exclusively through the courts.9
4 See section 11.12 (The right to take possession at common law).
5 See section 11.3 (Payment defaults), section 11.4 (Status defaults) and section 11.5 (Covenant
defaults).
6 The Maule [1997] 1 WLR 528 (PC) (Lord Lloyd) 533, quoting from the first edition of Alison
Clarke, ‘Ship Mortgages’ in Norman Palmer and Ewan McKendrick (eds), Interests in Goods (LLP
1993) 75. (The second edition was published in 1998 and is referred to hereafter in this chapter as
‘Clarke’.)
7 On the common law rights of a mortgagee see section 11.12 (The right to take possession at common law).
8 For example, the Bahamas, Cyprus, Malta, Hong Kong and Singapore (as well as countries with
US-influenced legal systems, including Liberia and the Marshall Islands).
9 This group includes France, Spain, Germany, Italy and Turkey. In The Colorado, the Court of Appeal
noted the different nature of a French ship mortgage or hypothèque: ‘It is proved to be, not a right of property in the ship, but a right to arrest the ship in the hands of subsequent owners to satisfy a claim against
a previous owner.’ [1923] P 102, 109 (Scrutton LJ). See further Chapter 4, section 4.8 (The conflict of
laws dimension to priority issues).
217
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
11.2 Default
11.2.1 Default is not a legal term. As one judge commented in the late eighteenth
century: ‘I do not know a larger or looser word than “default”.’10 In the ship
mortgage context, default is a general term that embraces any contractual failure
on the part of the shipowner. Nowadays, the term default usually refers to the
occurrence of defined ‘events of default’ under commercial loan agreements.11 The
various kinds of ‘events of default’ that may arise under a loan or facility agreement secured by ship mortgage raise different issues that are considered below.12
11.2.2 In modern commercial ship finance transactions, the underlying loan
or facility agreement, rather than the mortgage or deed of covenant,13 will usually be the document that lists the events of default on which the mortgagee may
rely and that stipulates that, upon the occurrence of any such events of default,
the mortgagee may exercise all its rights under the mortgage, the deed of covenant
and remaining security documents, such as account pledges, security assignments
(of, for example, earnings and insurances).14
11.2.3 Events of default can conveniently be categorised into payment defaults
and other defaults that are engaged, either because the mortgagor’s financial
position has worsened (‘status defaults’) or because the mortgagor has breached
covenants relating to the conduct of its business or the operation of the ship
(‘covenant defaults’). The distinction between payment and other defaults (status
defaults and covenant defaults) broadly follows the two common law exceptions
to the mortgagor’s ‘full power to deal with his ship’15 without interference from
the mortgagee: that the mortgagor repays the debt and that it does not impair
or imperil the mortgagee’s security. The comparison cannot be taken too literally, however, because – quite deliberately – express status defaults and covenant
defaults invariably extend far beyond the scope of the position at common law.16
11.2.4 The discussion of events of default below assumes that they arise from a
facility agreement, deed of covenant or other document that is governed by English law.
11.3 Payment defaults
11.3.1 A payment default will occur when the mortgagor fails to make a payment
due on a contractual payment date. Occasionally, the finance documents will give
10 Doe ex dem. Gertrude Baroness Dacre v Mary Jane Roper Dowager Lady Dacre 126 ER 887 (CCP),
(1798) 1 Bos & P 250, 258.
11 Such agreements sometimes define ‘default’ as an event that, but for the giving of a notice or expiry
of a grace period, would be an ‘Event of Default’, for example that in Torre Asset Funding Limited & Anr v
The Royal Bank of Scotland plc [2013] EWHC 2670 (Ch). Sometimes such an event is referred to as a
‘Potential Event of Default’. It is not usual for a mortgagee to be able to exercise its rights of enforcement
until an Event of Default has occurred, rather than merely a Potential Event of Default. The occurrence
of a Potential Event of Default may, however, have other consequences, such as giving rise to a ‘drawstop’
under a revolving or multi-advance facility.
12 See section 11.3 (Payment defaults), section 11.4 (Status defaults) and section 11.5 (Covenant defaults).
13 Under the laws of some jurisdictions, in contrast, it is a requirement for the events of default to be
set out in the registered mortgage document.
14 On security over insurances, see Chapter 16; on security over earnings, see Chapter 17.
15 The Fanchon (1880) 5 PD 173, 177.
16 See section 11.12 (The right to take possession at common law).
218
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
the mortgagor a ‘grace’ period, so that if it fails to make a payment on the due
date, a further limited period of time is given for payment before the mortgagee
may invoke the remedies provided for under the mortgage. Less frequently, the
documentation will require the mortgagee to send the borrower a formal notice to
set the grace period running.17 By the time that a mortgagee decides to rely on a
payment default, it may have arisen several weeks or even months previously.
Consideration may well therefore need to be given, before the event of default is
relied on, to whether the default has been waived or time for payment is no longer
‘of the essence’. This is discussed below.18
11.4 Status defaults
11.4.1 A ‘status’ default will occur if an event happens that affects the legal or
financial standing of the mortgagor, for example a default arises under a different financial contract (a cross-default), or an administration or winding-up order
is made against the mortgagor. A contractual provision in a document, such as
a facility agreement, that entitles the mortgagee to terminate on the counterparty’s insolvency, sometimes known as an ipso facto clause, is valid under English
law19 but may offend against foreign law, where such reliance might be challenged, for example in the jurisdiction where the mortgaged ship was arrested,
in the context of a foreign administration of the mortgagor.20
MAC or MAE
11.4.2 One of the types of status events of default that is least popular with mortgagors and most controversial is that referring to material adverse change (‘MAC’)
in financial condition or a material adverse effect (‘MAE’) on the mortgagor’s
ability to perform its obligations. Before invoking such an event of default a mortgagee will need to be confident that the applicable event or circumstance has
occurred, with close attention to the precise wording of the agreement. For this
reason the wording of these clauses is often heavily negotiated. Each element of
the wording must be applied. In Bankgesellschaft Berlin v First International Shipping
17 Provisions of this kind are commonly found in the printed terms and conditions of Continental
European banks. They are, it is submitted, inappropriate for a non-consumer lending relationship, especially that of shipping, where advance notice of an enforcement may assist an owner to take evasive steps
to prejudice the mortgagee’s position.
18 Section 11.7 (Waiver of events of default).
19 Because such a contract provides for the future performance of reciprocal obligations; see Belmont
Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd [2011] UKSC 38, [2012] 1 AC 383 [177]
(Mance LJ).
20 Any such decision of a foreign court would not, however, be enforceable in England. So, in Fibria
Cellulose S/A v Pan Ocean Co Ltd [2014] EWHC 2124 (Ch), [2014] Bus LR 1041, Morgan J refused to give
relief to a shipowner’s Korean administrator under Article 21 to the Schedule to the Cross-Border Insolvency Regulations 2006 to restrain a charterer from terminating a charter in reliance on an ‘ipso facto’
clause, conferring the right to terminate on the owner’s insolvency, which was invalid under the law of
Korea, where the insolvency was proceeding, but lawful under English law, the law governing the contract.
219
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
Corporation Limited21 the relevant clause was a straightforward MAC clause and
read as follows:
there occurs any material adverse change in the financial position of any Relevant
Party.
It was held that the clause was correctly invoked in circumstances where an oil
major exercised an option to terminate charters. Andrew Smith J first addressed
whether what had happened was ‘adverse’ and found that it was; the termination
of the charters would require the mortgagor to remarket the ships for sale or
charter in order to be able to service or repay the loan and on the evidence ‘it is
unlikely in the extreme that any such remarketing exercise will enable [the mortgagor] to repay the greater part or indeed any part of the monies due under the
loan agreement’. He then addressed whether the events were ‘material’ and held
that in the context ‘material’ meant material to the mortgagor’s ability to meet
obligations under the loan agreement.22 Finally, Andrew Smith J considered whether
what had taken place constituted a ‘change’ within the meaning of the clause. He
refused to decide on the correctness of the argument, advanced by counsel for the
mortgagee, that the issue was to be determined without regard to the expectations
of the parties at the time the loan agreement was entered into. He held that in
any event on the evidence the parties (i.e. the mortgagor and the mortgagee)
considered at the time of the loan agreement that cancellation of the charters
pursuant to the charterer’s optional right of cancellation was unlikely:
In these circumstances it seems to me that the ordinary connotation of the word
‘change’ is that termination of the charters itself is a material adverse change. If I am
wrong about that I would find that the consequences of the terminations fall within
the provision.
11.4.3 MAC or MAE clauses can be written in objective terms or can refer to
the opinion of the mortgagee. The latter, subjective test is clearly more favourable
to the mortgagee and easier for it to invoke. There have been a number of cases
where subjectively written MAE clauses have been considered and have been
upheld in favour of the creditor. Zeeland Navigation Co Ltd v Banque Worms (The
Foresight Driller II)23 was a case involving enforcement of a ship mortgage where
the relevant event of default was as follows:
(r) any other event or events (whether related or not) occurs including, without limitation, a material (in the opinion of the Lender) adverse change, from the position applicable
as at the date of this Agreement in the actual or prospective business, affairs or condition
(financial or otherwise) of the Borrowers (or any of them) or the Corporate Guarantor,
the Charterer, the Personal Guarantor or Shareholder, the effect of which, in the
opinion of the Lender, is or may be to imperil, delay or prevent the due fulfilment by
21 Com Ct, 11 December 2000. The judgment is quite brief by modern standards. The defendant
was not represented.
22 This interpretation means that even in a ‘material adverse change’ clause, subject to the drafting,
the issue of the effect on the borrower’s ability to repay can be relevant by implication, as it is expressly
in a ‘material adverse effect’ clause.
23 [1995] 1 Lloyd’s Rep 251 (Com Ct).
220
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
the Borrowers (or any of them) or the Corporate Guarantor, the Personal Guarantor or
the Shareholder of any of their respective obligations or undertakings contained in this
Agreement or any of the Security Documents.
It was held that the entry into force of a memorandum of understanding that, if
implemented, would have matured into a charterparty that would have breached
restrictions in the deed of covenant was caught by that clause. There was no evidence that the bank officer who considered the matter was acting arbitrarily,
capriciously or unreasonably in forming his opinion.24 (In this case the MAE aspect
of the clause was not engaged but rather that part of the clause that referred to
preventing due fulfilment of obligations). A subjective MAE clause was successfully
invoked by the creditor in Oleg Chvetsov v Alex Matuzny.25 In Cukurova Finance
Ltd v Alfa Telecom Ltd 26 the MAE clause read:
Any event or circumstance which in the opinion of [creditor] has had or is reasonably
likely to have a material adverse effect on the financial condition, assets or business of
[debtor].
It was common ground between the parties that all that was required was for the
creditor to believe that such an event or circumstance had occurred, provided that
such belief was honest and rational.27 Although not a very difficult matter to establish, it was necessary for evidence to be produced of the creditor’s belief and that
it was honest and rational.28
11.4.4 In BNP Paribas v Yukos Oil,29 the borrower (Yukos) argued that the facility agent’s written notice of default, that had referred to a MAE event of default
among others, had itself caused a payment default and that the facility agent
could not benefit from the result of its own wrongful act. The court rejected the
argument on the facts and held that the facility agent had reasonably declared an
MAE.30 Even if the action by the facility agent had been wrongful, however, the
facility agent would not have been in breach of contract by serving an unjustified
notice; that would have required implying a term into the facility agreement that
was not necessary for business efficacy.
11.4.5 In Grupo Hotelero Uvasco SA v Carey Value Added SL,31 a MAC clause in a
loan agreement was examined in detail. The court held that a company’s ‘financial
condition’ was to be established primarily from interim financial information and/or
management accounts. It did not encompass other matters such as the company’s
24 ibid 269. Reference was made in the judgment to The Product Star (No. 2) [1993] 1 Lloyd’s Rep
397 (CA) on exercise of discretions. See Chapter 8, section 8.5 (Consents and discretions).
25 [2011] EWHC 248 (QB). The issue was dealt with swiftly at [127]: ‘The Events of Default are
defined, and there can be no real dispute that Mr Chvetsov holds the belief that he claims and that he
does so reasonably.’
26 [2013] UKPC 2 [12].
27 ibid [45].
28 ibid [52]–[62]. See Chapter 8, section 8.5 (Consents and discretions).
29 [2005] EWHC 132 (Ch).
30 The wording of the event of default as summarised in the judgment was: ‘If any event or circumstance occurred which (in the reasonable opinion of an Instructing Group) had or might reasonably be
expected to have a Material Adverse Effect [as defined].’
31 [2013] EWHC 1039 (Comm.)
221
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
prospects or external economic or market changes. Nor was a change material if
it was merely temporary:
The interpretation of a ‘material adverse change’ clause depends on the terms of the
clause construed according to well established principles. In the present case, the clause
is in simple form, the borrower representing that there has been no material adverse
change in its financial condition since the date of the loan agreement. Under such
terms, the assessment of the financial condition of the borrower should normally begin
with its financial information at the relevant times, and a lender seeking to demonstrate
a MAC should show an adverse change over the period in question by reference to
that information. However the enquiry is not necessarily limited to the financial information if there is other compelling evidence. The adverse change will be material if it
significantly affects the borrower’s ability to repay the loan in question. However, a
lender cannot trigger such a clause on the basis of circumstances of which it was aware
at the time of the agreement. Finally, it is up to the lender to prove the breach.32
11.4.6 There have been other recent cases where one or other of such types of
clause have been analysed in different contexts.33
Negotiations with creditors
11.4.7 Another controversial status event of default is that triggered by the mortgagor commencing negotiations with creditors with a view to rescheduling of its
debt. It is trite to observe that the precise language of the relevant clause will be
crucial in determining whether it has been triggered in any particular circumstances –
as will the factual matrix at the time the clause is negotiated. Such types of event
of default were considered in Grupo Hotelero Urvasco SA v Carey Value Added SL34
and, subsequently, in Torre Asset Funding Limited v The Royal Bank of Scotland plc.35
Loan to value
11.4.8 A third common event of default in a ship mortgage context (but also of
a type common in other types of asset finance transaction) that is sometimes
controversial, is one that is triggered by the value of the mortgaged ship or ships
falling below a specified percentage (in excess of 100%) of the principal amount
of the loan unless the security deficiency is cured by partial prepayment or the
provision of additional security. This is particularly disliked by mortgagors because
it puts them at the mercy of the market. Such an event of default can be seen as
a type of status default that is specific to secured asset finance, even though a
breach of undertaking is also required before it is triggered – so it also has the
elements of a covenant default.36 It is necessary that the procedure involving
32 ibid [364]
33 These cases include: Dresdner Kleinwort Ltd and Commerzbank AG v Richard Attrill and Others [2013]
EWCA (Civ 394 (CA) (MAC clause in a bonus agreement); Ipsos SA v Dentsu Aegis Network Ltd [2015] EWHC
1726 (Comm) (extempore judgment on a MAE clause in an acquisition agreement); Decura IM Investments LLP v UBS AG (London branch) [2015] EWHC 171 (Comm) (MAE clause in a services agreement).
34 n 31.
35 [2013] EWHC 2670 (Ch).
36 See section 11.5 (Covenant defaults).
222
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
valuation and all other aspects of the clause (such as any option of the mortgagor
to provide top-up security or prepay) are clearly and unambiguously drafted, with
clear time limits. It is also necessary that the procedure set out is followed to the
letter. Any lack of clarity in drafting or failure to follow the specified procedure
puts the mortgagee at risk of the mortgagor being able successfully to argue that
the clause has not been correctly invoked.37
11.5 Covenant defaults
11.5.1 A ‘covenant’ default will occur when the mortgagor or other applicable
debtor party commits a breach of one of the many undertakings in the relevant
documents. Usually, the documents will provide that, if such a default is capable
of remedy, a default will only occur if the owner fails to remedy the default within
a specified period of time.
11.6 Discretions in relation to default
11.6.1 Loan and security documents frequently give a mortgagee express discretions in relation to issues which determine whether or not an event of default has
occurred. These arise frequently, but not only, in relation to MAC and MAE
clauses.38 The law relating to the exercise of contractual discretions is addressed
briefly in Chapter 8, section 8.5 (Consents and discretions).
11.6.2 Significantly, a decision whether or not to take action as a result of the
occurrence of an event of default is not a discretion which is regulated by case law.39
11.7 Waiver of events of default
11.7.1 The starting point is that a mortgagee may rely on an event of default at any
time after it occurs. Facility agreements rarely expressly require mortgagees to act
within a fixed or reasonable time. If a mortgagee does nothing, the mortgagor cannot
ordinarily rely on the mortgagee’s inactivity to contest the latter’s reliance on the
default at a later date.40 Where a mortgagee sees no prospect of the default being
remedied quickly or at all, and is reluctant to enforce its security, such a mortgagee
37 At times of extreme market uncertainty, brokers may be reluctant to give valuations, or may caveat
them in a way that brings into question the mortgagee’s ability to rely on them. On liability of valuers to
financing parties see Titan Europe 2006-3 plc v Colliers International UK plc [2015] EWCA Civ 1083, which
related to valuation of real property in the context of a securitisation. The terms on which the valuer is
engaged by or on behalf of the financing parties will be crucial as to whether or not there is contractual
liability. See also Mortgage Express (an unlimited company) v Countrywide Surveyors Limited [2015] EWCA
Civ 1110. A valuer or other agent assisting a mortgagee (or receiver) in realising mortgaged property
would appear unlikely in most usual circumstances to be liable to the mortgagor in tort: Raja v Austin
Gray [2002] EWCA (Civ) 1965.
38 See paragraphs 11.4.2–11.4.6 above in relation to MAC and MAE clauses and, in particular, The
Foresight Driller II (n 23) where there was a subjective discretion.
39 See Chapter 8, paragraph 8.5.7.
40 See Hugh Beale (ed), Chitty on Contracts (32nd edn, Sweet & Maxwell 2015) (hereafter in this
Chapter ‘Chitty’), paragraph 24-002 and the cases referred to in the footnotes to that paragraph. See,
however, the potential for estoppel as referred to in paragraph 11.7.2 below.
223
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
may take no action. As long as the market value of the ship comfortably secures the
loan debt, the mortgagee may not be too troubled by a default, especially if remediable. Alternatively, if the loan debt exceeds the ship’s value, the mortgagee may be
reluctant to enforce its security, and thereby to realise a loss, especially if the ship is
trading profitably and a market recovery is expected. Sometimes the default may just
be one of several that occur over the course of restructuring negotiations that are
expected to settle all such defaults.41 A mortgagee does, however, need to take care
to preserve and not to lose its right to take enforcement action, as explained below.
11.7.2 A mortgagee’s inactivity must be viewed together with the mortgagee’s
other conduct. Whether or not a mortgagee formally notifies a default, it is likely, and
almost certain in the case of a payment default, that there will be dialogue that may,
in turn, lead the mortgagor to suppose that the mortgagee will not rely on, or will
at least suspend, its strict rights arising under the facility agreement. A mortgagee,
by meeting to discuss the mortgagor’s default, might unintentionally represent to the
mortgagor that the mortgagee is ‘forbearing’ from taking action for so long as such
discussions continue. Indeed, where a course of negotiations between mortgagee and
mortgagor carries the implication that the mortgagee will not enforce its rights whilst
the negotiation continues, the mortgagee may, in such circumstances, be ‘estopped’
from relying on its rights, unless the mortgagee has first made clear that it expects the
default to be remedied, and gives the mortgagor a reasonable opportunity to do so.42
11.7.3 The same implication may also arise where the mortgagee has failed to act on
a default for a very considerable period of time, especially if the mortgagee has, in the
meantime, acted inconsistently with an intention to rely on the default, for example by
permitting the mortgagor to use the ship’s earnings for purposes other than to remedy
a payment default. In such event, for the mortgagee to rely on a continuing default, the
mortgagee is well advised to act to remove any such implication, or, put another way,
by making time ‘of the essence’ again, by giving the mortgagor a reasonable further
opportunity to remedy the default. The notice making time of the essence should state
clearly what the party is to do and the consequence of his failing to do so.43
11.7.4 Events of default sometimes contain express remedy or cure language that
restricts the mortgagee’s right to take action if the relevant event is remedied or cured
within a specified period. As a general proposition, and in the absence of language to
the contrary, there is no requirement that an event of default, once it has occurred,
be subsisting as a condition of the mortgagee’s right to act on it.44 If the mortgagee
were to accept a late payment it would seem, at least based on the position in relation to late payment under a time charter, that the mortgagee would not be able
to enforce unless it has refused the payment.45 In practice it would be unusual for
a mortgagee to wish to enforce its security once payment has been made late and
41 See Chapter 15, section 15.2 (Consensual restructurings).
42 Under the principle in Hughes v Metropolitan Railway (1877) 2 App Cas 439 (HL).
43 See Dalkia v Celltech [2006] EWHC 63 (Comm), [2006] 1 Lloyd’s Rep 599.
44 The Foresight Driller II (n 23) 270 (Rix J). The remarks were obiter because it was not shown that
the event of default had been remedied.
45 Mardorf Peach & Co Ltd v Attika Sea Carriers Corp of Liberia (The Laconia) [1997] AC 850 (HL),
[1977] 1 Lloyd’s Rep 315. Whether payment has been made or refused is a matter of fact. It was held in
that case that late payment had been refused so the owner was entitled to withdraw the ship. It should be
noted, however, that the position in relation to payments under a time charter (and the owner’s right to
224
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
accepted or, on the other hand, for a mortgagee to refuse to accept late payment in
order to preserve its right to enforce its security.46 In relation to non-payment defaults
(status defaults and covenants defaults), notwithstanding The Foresight Driller II,47 it
would in principle seem unlikely that a mortgagee could indefinitely reserve the right
to take enforcement action once an event of default no longer subsists. It is thought
that the mortgagee would be put to an election either to waive the event of default
or to enforce, within a reasonable period. Above all, in this context it is necessary to
have regard to the courts’ protection of the mortgagor’s right to redeem.48
11.7.5 Once a mortgagee embarks on any kind of discussion with a mortgagor
following, and during the continuance of, an event of default, the mortgagee may be
restrained from exercising its rights, unless the mortgagee has made clear that it has
not given up or suspended its right to rely on them, and that discussions intended
to resolve the default are ‘without prejudice’ to such rights. For this reason, ship
mortgagees usually take pains to give written notification of defaults and to reserve
their rights to rely on them. Such notices are helpful tools to warn the mortgagor
against misinterpreting any delay or inactivity on the mortgagee’s part as a waiver or
abandonment of its rights to rely on the default in the future, and to provide evidence
of such. However, such notices will not negate conduct by the parties that is inconsistent with the mortgagee’s rights having been reserved, rather than waived. Further,
as indicated in paragraph 11.7.4 above, once a status default or a covenant default
is no longer subsisting, a mortgagee cannot indefinitely reserve its right to act on it.
11.7.6 Mortgage documentation may include a clause along the lines of: ‘All or
any such waivers by the mortgagee shall be made expressly and at the discretion
of the mortgagee in writing’ to limit the mortgagee’s liability for informal waivers.
However, such clauses are of limited effect because if, as a matter of fact, a mortgagee does waive a right, then it must, in the process, have also waived reliance
on the waiver clause. As the court has observed:
When one looks at a clause of this kind, however, the position is this. This clause,
along with any other clause, can be the subject of waiver, and the requirement for a
waiver to be in any particular form is one which can itself be waived. These clauses,
inevitably, give rise to little more than an evidential requirement to establish that there
truly has been a waiver in the case in question.49
To conclude, ‘anti-waiver’ clauses, just like clauses that require all contractual
variations to be recorded in writing, will not provide a complete defence to an
allegation of an oral waiver.
withdraw the ship) and payments under a loan agreement (and a mortgagee’s right to enforce its security)
might not be comparable.
46 In contrast, the owner under a time charter has every commercial incentive in a rising market to
withdraw the ship for late payment.
47 n 23.
48 See Chapter 12, section 12.2 (Protection of the mortgagor’s right to redeem).
49 Credit Agricole Indosuez v BB Energy BV [2004] EWHC 750 (Comm) [33] (Cooke J), later approved
in Grupo Hotelero Uvasco SA v Carey Value Added SL [2013] EWHC 1039 (Comm) at [608]. The ineffectiveness of anti-oral variation clauses was recently referred to (obiter) by all three members of the
Court of Appeal in Globe Motors Inc v TRW LucasVarity Electric Steering Ltd [2016] EWCA Civ 396 [100],
[111]–[113] (Beatson LJ), [116], [117] (Underhill LJ) and [118]–[121] (Moore-Bick LJ). See further
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553.
225
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
11.8 Effect of default
11.8.1 As already discussed,50 commercial ship mortgage documentation is invariably drafted to provide expressly that, upon the occurrence of an event of default,
the mortgagee’s rights become exercisable.
11.8.2 For this purpose, it matters not if the event of default is not a payment
default. In The Maule,51 an event of default occurred other than the non-payment of
money. The event of default in question was the failure of another company in the
shipowner’s group to sell a different ship within an agreed period after its charter
employment had ended (as specifically stipulated for under the loan agreement).
Although no instalment was outstanding and the mortgagee had not exercised its
power to accelerate repayment of the loan, the mortgagee issued a writ in rem and
caused the owner’s ship to be arrested (in Hong Kong). The Privy Council held
that the question whether the mortgagee was entitled to exercise its power of sale
‘depended solely on the true construction of the contractual documents’;52 that the
parties had expressly agreed that the plaintiffs should have power to sell the ship
in the event of a non-financial default even though no sum of money had become
due under the loan agreement;53 and that the plaintiffs were therefore not obliged to
give notice accelerating repayment of the loan before exercising their power of sale.54
11.8.3 Nor, as a matter of construction, is there any good reason to construe
a facility agreement to require that the breach must also be repudiatory or ‘really
serious’55 to be relied on as an event of default. Accordingly, the classification of
facility agreement terms into ‘conditions’, ‘warranties’ and ‘innominate terms’
for such purpose will usually have little or no relevance to the exercise of a ship
mortgagee’s enforcement rights. Facility agreements are, of course, no different to
other contracts in so far as their terms may properly be classified in this way, but
it is difficult, if not impossible, to conceive of a situation in which a mortgagor
could ever be said to have repudiated a facility agreement without, in the process,
an express event of default having also occurred on which the mortgagee could
rely to exercise its rights. Nor, on the other hand, should a mortgagor be able to
challenge a mortgagee’s reliance on an express ‘event of default’ on grounds that
the breach which gave rise to the default was a mere breach of warranty and not a
repudiatory breach. Possibly, very general wording entitling a lender to terminate a
loan agreement for ‘any breach’ might be construed restrictively56 but commercial
loan agreements rarely contain open-ended events of default of this kind.
50 See paragraph 11.1.6 above.
51 [1997] 1 WLR 528 (PC). The case is considered in more detail in paragraphs 11.16.3 and 11.16.4
below.
52 at 532B.
53 at 533B–C.
54 at 533H.
55 See Bank of NewYork Mellon v GV Films Ltd [2009] EWHC 3315 (Comm) concerning a failure to
pay a bond trustee’s legal costs.
56 See Antaios Compania Naviera SA v Salen Rederierna AB [1985] 1 AC 191 (HL), and in particular
to a passage in the speech of Lord Diplock at pages 200E–201E, with which the other members of the
House agreed, concerning a charterparty a clause of which entitled the owners to withdraw the relevant
vessel on ‘any breach’ (applied in Peregrine Systems Limited v Steria Limited [2004] EWHC 275 (TCC)).
226
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
11.8.4 Although the courts do not exercise any discretion in weighing up the
‘seriousness’ or otherwise of an event of default as regards the ability of the mortgagee to invoke it by accelerating and enforcing it appears, however, that some
kind of qualitative analysis is relevant in the context of relief against forfeiture (or
protection of the mortgagor’s equitable right to redeem).57 In Cukurova Finance
Ltd v Alfa Telecom Ltd, against the background of a desire by the secured creditor
to gain control of the company whose shares stood as security more than to have
its loan repaid, it was held to be relevant among other things to the discretion to
grant relief that the material adverse effect event of default ‘involved a decision on
a strongly contested issue’ and ‘the other events of default . . . even if they had all
been established, demonstrate no bad faith . . . and caused no significant damage’.58
11.8.5 In almost all cases, the usual statutory bars to the parties’ freedom of
contract will not have any application.59 The Unfair Contract Terms Act 1977
might protect a shipowner against unreasonable contractual exclusions of a mortgagee’s liability for negligence (section 2) or, where the mortgage documentation
is on the mortgagee’s ‘written standard terms of business’, against exclusions of a
mortgage’s liability for breach of contract (section 3).60 However, it is difficult to
see how the mortgagee’s negligence or contractual breach, let alone any attempt
by the mortgagee to limit liability therefor, could excuse an owner’s default. The
Consumer Rights Act 2015 (which came into force on 1 October 2015) should also
have no application, as a commercial shipowner will not be a ‘consumer’ (i.e. ‘an
individual acting for purposes that are wholly or mainly outside that individual’s
trade, business, craft or profession’).61 Consumer law is outside the scope of this
book but it is nonetheless pointed out that in the consumer context, which might
apply in the case of yachts and pleasure boats, a contractual provision might be
struck down if it ‘causes a significant imbalance in the parties’ rights and obligations
under the contract to the detriment of the consumer’.62 But that seems unlikely
in the case of events of default that do not amplify the mortgagee’s enforcement
rights at common law. Nor does the list of consumer contract terms that may be
regarded as unfair, set out in Part 1 of Schedule 2 to the Consumer Rights Act 2015
(which is indicative and non-exhaustive),63 include terms that entitle the ‘trader’
(for this purpose the mortgagee) to terminate its contractual relationship and/or to
enforce its security in the event of a failure, breach or default on the part of the
consumer. Finally, although there are some restrictions on the terms of mortgages
57 See further Chapter 12, section 12.2 (Protection of the mortgagor’s right to redeem).
58 [2013] UKPC 2 [125].
59 Banque Worms v The Owners of the Ship ‘Maule’ (The Maule) [1997] 1 WLR 528 (PC).
60 Schedule 1, paragraph 1(e) of that Act also excludes a contract to create or transfer ‘securities or . . .
any right or interest in securities’. This refers to documentary transferable securities such as bonds and
stock and does not extend to security documents such as mortgages – discussed further in Clarke (n 6).
See Africa Export–Import Bank v Shebah Exploration and Production Company Limited [2016] EWHC 311
(Comm) where there was an unsuccessful attempt to argue that a Loan Market Association (LMA) form
of loan agreement fell within the scope of ‘written standard terms of business’.
61 Consumer Rights Act 2015, s 2(3).
62 ibid, s 62(4).
63 ibid, s 63(1).
227
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
which arise under common law or general principles of equity,64 these are unlikely
to restrict a mortgagee’s reliance on an event of default to enforce its security.
11.8.6 The rule against penalties does not apply because the consequences of the
event of default are not the payment of damages but the repayment of a debt.65 This
was confirmed in The Angelic Star66 where it was also held that a provision for all
future interest to become payable on an acceleration of the principal sum would be
unenforceable as a penalty.67 Although the effect of an accelerated repayment clause
is in some ways analogous to a forfeiture clause, the courts will only give relief against
forfeiture in relation to contracts involving a transfer of proprietary or possessory
rights. That does not include, for example, rights under time charters.68 Nor would
it include rights under loan agreements, in contrast to, for example, rights under a
demise charter69 or a lease.70 Accordingly, the court could not unwind the acceleration of the loan.
11.8.7 The court can intervene, however, to preserve the mortgagor’s equity of
redemption in the mortgaged ship, by extending time for the borrower to pay the accelerated debt before the sale of the ship or following an unconscionable sale of the ship.71
11.9 Post-default interest and break-funding
11.9.1 The practice of charging a higher (default) rate of interest on amounts that
are past due was upheld in Lordsvale Finance plc v Bank of Zambia,72 where the
addition to the normal rate was 1% per annum. If the rate were to increase retrospectively rather than only from the due date for payment default the rule against
penalties would operate and the retrospective element of the increase would be
unenforceable.73 Colman J did not uphold the (prospective) increase in the rate as
64 See Chapter 12.
65 See Chitty (n 40), paragraphs 27-102–27-125; see also Lombard North Central plc v Butterworth
[1987] QB 527 (CA); and The Protector Endowment Loan and Annuity Co v Grice (1880) 5 QBD 592 (CA),
in particular Brett LJ, 596. See further Wallingford v Mutual Society (1880) 5 App C (as 685 (HL) and
Latter v Colwill [1937] 1 All ER 442 (CA). On the rule against penalties in a different but related context
see section 11.9 (Post-default interest and break-funding).
66 Oresundsvarvet AB v Lemos (The Angelic Star) [1988] 1 Lloyd’s Rep 122 (CA) 125.
67 ibid 125. On the construction of the agreement at issue in The Angelic Star (a shipbuilding contract
setting out the terms of a post-delivery credit) it was held that only past due interest and not future interest
was expressed to be payable, so the agreement was free of any taint of penalty. In the different context of
leasing transactions the sum payable on default termination is frequently calculated by reference to the
future rental instalments, applying a discount rate to reflect early receipt.
68 Scandinavian Trading Tanker Co A/B v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694
(HL) – a case on the withdrawal of a ship under a time charter; see also The Afovos [1980] 2 Lloyd’s Rep
469 (Com Ct).
69 The Jotunheim [2004] EWHC 671 (Comm), [2005] 1 Lloyd’s Rep 181.
70 As to leasing, see On Demand Information plc v Michael Gerson (Finance) plc [2003] 1 AC 368 (CA) –
relief available from forfeiture of finance leases. See further Chapter 13, paragraphs 13.3.1–13.3.4 on the
nature of the demise charters and leases.
71 See paragraph 11.8.4 above and Chapter 12, section 12.2 (Protection of the mortgagor’s right to
redeem). Once a sale has taken place the mortgagor’s rights are transferred to the proceeds of sale unless
there is fraud or impropriety (see paragraph 11.16.1 below) or a sale to self (see Chapter 12, paragraphs
12.2.4 and 12.2.5).
72 [1996] QB 752.
73 ibid 763 B–D.
228
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
not being a penalty on the traditional ground of it being a genuine pre-estimate
of loss but, rather, on the grounds that it was commercially justifiable – provided
that its dominant purpose was not a deterrent to default.74 There is a risk that a
default rate of interest could fall foul of the rule against penalties if it were sufficiently high.75 The law on penalties has been substantially modified by the decision of the Supreme Court in Cavendish Square Holding BV v Talal El Makdessi;
ParkingEye Limited v Beavis.76 Colman J’s judgment in Lordsvale Finance, with its
focus on a test by reference to commercial reasonableness, was approved by the
Supreme Court in Cavendish.77 The test is now whether, in the current context,
the default rate of interest ‘is exorbitant or unconscionable when regard is to be
had to the innocent party’s interest in the performance of the contract’.78 It has
been market practice for some time that default interest is rarely in excess of an
extra 2% per annum. Even before Cavendish, it was unlikely that such a rate would
have been held to be a penalty; after Cavendish it is inconceivable.
11.9.2 A term for the payment of enhanced interest may even be implied where,
unusually, there is no express provision to this effect, and the ordinary rate does
not compensate the lender adequately for its loss.79
11.9.3 Compounding of default interest is enforceable. Even if compounding is
not expressly provided for in the facility agreement (which it almost always is) it
is implied as a matter of law, even after demand or acceleration until the earlier
of payment in full and judgment.80
11.9.4 Although a higher, default rate of interest on amounts that are past due
(including the whole loan on acceleration following an event of default) is in principle enforceable,81 specific consideration is required of a provision of a different
nature that requires a higher rate of interest to apply to the whole loan following the
occurrence of an event of default but before acceleration. Such provisions are not
unusual in loan documents governed by New York or other United States laws but
have traditionally not been common in English law documents, no doubt because
of concern about engaging the rule against penalties. It is beyond the scope of this
book to address in detail whether and to what extent such provisions do engage
that rule. Suffice to say for present purposes that the decision of the Supreme
74 ibid 763 H, 764 A.
75 Jeancharm Ltd v Barnet FC [2003] EWCA Civ 58.
76 [2015] UKSC 67 (SC). See also Chapter 5, paragraphs 5.8.4 and 5.8.5.
77 ibid [26], [28] (Lord Neuberger and Lord Sumption), [141], [146], [147], [149] (Lord Mance)
and [222], [223] (Lord Hodge).
78 ibid [255] (Lord Hodge). One method of avoiding the rule against penalties in relation to default
interest is to provide that the stipulated rate is reduced provided payment is made on the due date. This is
not usually seen in ship finance transactions and is a device made even less worthwhile following Cavendish.
79 See, generally, Gordillo v Weguelin (1877) 5 Ch D 287 (CA) 303; Mellersh v Brown (1890) 45 Ch D
225.
80 National Bank of Greece SA v Pinios Shipping Co No. 1 (The Maira) (No. 3) [1990] 1 AC 637 (HL),
[1990] 1 Lloyd’s Rep 225. It is possible, however, that compounding at exorbitantly frequent intervals
could fall foul of the rule against penalties. See now Cavendish (n 76) and paragraph 11.9.1 above. On
compound interest generally, see Halsbury’s Laws (5th edn, 2010) Vol 77, paragraph 217.
81 Subject to the risk of an exorbitantly high rate being found to be a penalty; see paragraph 11.9.1
above.
229
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
Court in Cavendish82 indicates that a relatively modest increase in the interest
margin could be enforceable – and certainly there is less risk of such a provision
engaging the rule against penalties than there was before that decision. It should
also be noted that, as confirmed by Cavendish, the rule against penalties is only
engaged in relation to ‘secondary obligations’ rather than ‘primary obligations’.83
This means that a provision for the interest margin to increase or for a fee to be
payable as part of a primary obligation, rather than being triggered as a secondary
obligation in circumstances where there is a breach of a primary obligation, falls
outside the scope of the rule against penalties. So, for example, an increase in the
margin triggered by a loan to value ratio shortfall84 and pending required prepayment or additional security being provided should be unobjectionable as falling
outside the scope of the rule.
11.9.5 Customary break-funding indemnities to cover a lender for losses incurred
on redeploying deposits on payment other than on the last day of an interest
period are not liable to fall foul of the rule against penalties. Such indemnities
are essentially compensatory and apply on voluntary prepayment as well as on
acceleration following default.85
11.9.6 The nature and extent of the break-funding costs covered by the borrower’s indemnity is a matter of contractual interpretation. In Barnett Waddington
Trustees (1980) Limited v The Royal Bank of Scotland plc86 it was held on a point of
construction that a lender could not recover the costs of breaking internal interest
rate hedging arrangements in respect of a fixed-rate loan.87
11.9.7 Enhanced or ‘upside’ fee arrangements that provide for large fees to be
paid in a variety of circumstances are addressed in Chapter 5, section 5.8 (Special
fees and ‘upside’ sharing arrangements).
11.10 The mortgagee’s options following a default
11.10.1 Where a default occurs, good banking practice is for the mortgagee to give
prompt notice of the default to the mortgagor, making clear that the mortgagee
neither condones the breach by the mortgagor nor waives its rights of enforcement.
If the breach is potentially curable, the mortgagee then has the following options:
82 n 76.
83 On the significance of the distinction see ibid, for example at [14],[42] and [73] (Lord Sumption
and Lord Neuberger).
84 It is important that the language relating to the shortfall is neutral and not worded in terms of
breach; otherwise any increase in interest margin runs the risk of being a secondary obligation so as to
engage the rule against penalties. The increase in interest margin should also not be worded so as inadvertently to give the borrower an option to pay a higher margin as the price of not being required to prepay
or provide additional security. On loan to value provisions see paragraph 11.4.8 above.
85 A lender will sometimes seek to recover the margin which would have been payable over the remainder of the unexpired interest period. This is a matter for negotiation but, as regards accelerated repayment
following default, ought not to be affected by the rule against penalties, certainly after Cavendish.
86 [2015] EWHC 2435 (Ch).
87 The question of whether external hedging arrangements were covered was not addressed because
of the way the case was pleaded.
230
DEFAULT, AND SELF-HELP ENFORCEMENT POWERS
(a) First, the mortgagee may require the owner to remedy the default. In
certain cases, the mortgage documentation may give the mortgagor a
limited time to remedy the default. Otherwise, the mortgagee may impose
a time limit within which the mortgagor must remedy the default. In either
such case, the mortgagee has no right to take any further step, provided
the default is remedied by the mortgagor within the specified time.
(b) Secondly, the mortgagee may waive the default conditionally or
unconditionally.
(c) Thirdly, the mortgagee may take steps to remedy the default itself and
demand the cost of so doing from the owner, provided that the mortgage
documentation confers an express power to take such steps.88 Such provisions are the norm in commercial loan agreements, and usually expressly
entitle mortgagees to incur, and to recover as part of the secured debt,
costs to preserve or to maintain their security. A term as to reasonableness
of such costs would ordinarily be implied into such a provision, which
would be difficult, if not impossible, for any mortgagee to contract out
of.89 Where there is no such express power, the mortgagee may incur such
costs and recover them from the owner only if:
•
on a true and proper construction of the contract between the parties
a power to do so can be implied;
•
the owner consents;
•
such costs can be characterised as reasonably incurred by the mortgagee in mitigating its loss arising from the owner’s breach, in which
case the cost of remedy may be recovered as part of the mortgagee’s
damages, ordinarily for the diminution in the value of its security
flowing from the owner’s breach of contract; or
•
such costs as are provided for by statute.90
11.10.2 If the mortgagee decides, whether or not the mortgagor’s default is
potentially curable, that it wishes to rely on the default to enforce its security,
the mortgagee may, provided that the mortgage documentation so provides, take
such enforcement steps as it wishes following the default. As already discussed, the
mortgage documentation will usually entitle the mortgagee to take steps to enforce
its security simply upon the occurrence of an event of default. If the mortgagee
wishes to claim for all sums advanced and owing