Comité Maritime International Mechelsesteenweg 196 ' 2018 Antwerpen ' Belgium Tel: +32 3 227.35.26 Maritime International Fax: +32 3 227.35.28 Email: admini(cmi-imc.org Web site : www.comitemaritime.org ESSAYS ON MARITIME LIENS AND MORTGAGES AND ON ARREST OF SHIPS Prepared from Lectures given toan International Workshop at Dalian, People's Republic of China: October and November, 1984, under the auspices of the Economic and Social Commission for Asia and the Pacific (ESCAP). International Maritime Committee (*tbLi,otlereeie. (OMITE MARMMEINTERNATIONAL ADMINISTRATION Morftravestraat 9 04000 ANTWERPEN BELGIUM PREFACE At the request of the Economic and Social Commission for Asia and the Pacific (ESCAP), a groupof expertsprepared Guidelines onshipping legislation which were subsequently approved bythe Intergovernmental Meeting on Maritime Legislation which was held in Bangkok in January 1983. Following this Meeting, ESCAP was requested by the Ministry of Communications of the People's Republic of China to organise a number of seminars on various subjects of Maritime Law, to assist the Government of China in the preparation of the Maritime Laws of China. The subjects chosen by the Chinese Authorities for the first seminar were Maritime Liens and Mortgages and Arrest of Ships. With the agreement of the Ministry of Communications and the China Council for the Promotion of International Trade, ESCAP asked me,in my capacity as President of the C.M.I., to organise the Seminar. Accordingly,I prepared a plan for the Seminar which wassubmittedto ESCAP and the Chinese Authorities for approval. The lectures were prepared by Professor Allan Philip, Mr. Emery Harper, Professor Jan Slot and myself. The Seminar was held in Dalian from 29th October to 2nd November and the essays which follow are based upon the Seminar Lectures. Francesco Berlingieri CONTENTS PART I - Maritime Liens and Mortgages A. Introduction Page 1. Foreword 1 (by Francesco Berlingieri) 2. On Civil Law and Common Law 4 (by Allan Philip) Various types of securities on ships 6 (by Francesco Berlingieri) The need for securities on ships and for the order of priority: Civil law approach 10 (by Allan Philip) The American approach 13 (by Emery Harper) c) The 1926 and 1967 Brussels Conventions 15 (by Francesco Berlingieri) B. Maritime Liens Characteristic features of maritime liens 24 (by Allan Philip) The maritime liens in the civil law systems 27 (by Francesco Berlingieri) The maritime liens in American and English law 31 (by Emery Harper) Unification of substantive law on maritime liens: the 1926 and 1967 Brussels Conventions 51 (by Francesco Berlingieri) 5. Conflict of laws 61 (by Allan Philip) C. Other Liens and Rights of Retention Page Possessory liens 67 (by Emery Harper) Rights of retention 69 (by Allan Philip) D. Mortgages and Hypothecs 1. Mortgages and hypothecs distinguished 71 (by Francesco Berlingieri) 2. A comparative analysis of the law on mortgages and hypothecs. Hypothecs in civil law countries 75 (by Francesco Berlingieri) MortgagesinDanish and other Scandinavian laws 82 (by Allan Philip) Mortgages in common law countries 86 (by Emery Harper) 3. Registration of vessels in relation to registration of rights on vessels 92 (by Piet Slot) 4. Conflict of law rules and the1926and1967 Conventions 98 (by Allan Philip) PART II - Enforcement of Securities A. Arrest of Ships 1. Arrest of ships in the various legal systems. The civil law approach 100 (by Francesco Berlingieri) The Scandinavian approach 102 (by Allan Philip) c) The common law approach 104 (by Emery Harper) Page 2. The 1952 Brussels Convention on Arrest of Ships 114 (by Francesco Berlingieri) B. Forced Sale Character and effects of the forced sale 138 (by Emery Harper) The need for uniform rules on the effects of the forced sale on existing securities 1145 (by Allan Philip) The rules of the 1967 Convention on forced sale 147 (by Francesco Berlingieri) C. Immunity from Enforcement Sovereign immunity in the United States and England 152 (by Emery Harper) Immunity of state-owned ships under the 1926 Brussels Convention 155 (by Allan Philip) PART III - Legislation An Outline of Law on Maritime Liens and Mortgages, Arrest and Forced Sale 156 (by Francesco Berlingieri) APPENDICES United States Uniform Commercial Code Article9 167 Model Waiver of Immunity Clause 175 PART I Maritime liens and mortgages A INTRODUCTION - 1 - FOREWORD If all debtors would always settle their obligations,oratleastif creditors' claims could always be satisfied out of the proceeds of sale of the debtor's assets the problem of securities and priorities would not arise. But this is not so, and various methods have been thought out to protect creditors. One method isto grant priority to certain claims so that if the assets of the debtor are insufficient to meet all his obligations, such claims are satisfied before others. Priority may be granted generally on all assets of the debtor or specifically on some assets to which the claim is related e.g: on the cargo in respect of the freight. The right of priority is against other creditors and does not affect the debtor. Generally it arises only by operation of law. It is called lien and, in French, privilège. Anothermethod is to prevent the assets of the debtor being transferred to third parties. Such a transfer may be made ineffective against the creditors in general or one creditor in particular. The technique differs according to whether the asset is a chattel or real property. For chattels it is based on the control or possession of the chattel in question by the claimant or a third party. When the chattel is already in the possession of the creditor the law may authorise him to retain it until he is paid. This statutory right of retention is normally accompanied by a right of priority on the chattel in question, which is conditional on the claimant's continued possession. This right is called possessory lien and again privilège in French. Another method of preventing the diminution of the debtor's assets and of simultaneously acquiring a right of priority, is by transferring the possession of the chattel to the creditor or to a third party until the debt is paid. This type of security is called pledge, pignus, gage, pfand. For real property the sameresultis achieved, withoutthe debtor having to give up possession, by creating a charge on the property and registeringitin the land register. Any transfer of the title to that property is not effective against 1 the creditor in questionalthoughit might be effective against others. Alsoin thiscase, in order to grant the creditor complete protection, his priority is recognised. Originally this type of security was substantially different in England and in Continental Europe. In England the security, called a mortgage, is effected by a transfer of title in the property to the creditor, called the mortgagee,by the debtor who ownsthe property,called the mortgagor, accompanied by an agreement that the mortgagor may recover his title on payment of the debt. This right is called the right of redemption. In order to acquire full title to the mortgaged property the mortgagee has to prevent the mortgagor from exercising the right of redemption. The action he can use for this purpose is called "foreclosure". This "mortgage" is patterned on a Roman contract, called fiduciary sale. Oddly enough, the countries in continental Europe which inherited the Roman legal system (civil law countries) adopted a different type of security which does not imply a transfer of title,but simply the creation of a charge. The property in question remains in the ownership of the debtor who can also sell it, but the right of the creditorto have his claim satisfied by the sale of the property is not affected by the sale and can be enforced against the.purchaser. This security is called hypothec. A more basic protection which is still accepted in a great many countries is a creditor's right to retain the movable property of the debtor entrusted to him for performance of works or services such as repairs or carriage until payment of what isowed.Theright of retention does not mean that the creditor has a right to sell the property and to satisfy himself out of the proceeds of sale. Nor does it create a priority. However, it may be more effective than a priority if the creditor is entitled to refuse redelivery, both in the case of the debtor's bankruptcy or liquidation and of the forced sale of the property in question. In continental Europe the movable nature of ships preventedthe creation of securitysuch as the hypothec,whichtraditionally applied only to immovable property. This brought about the creation of a different type of security. It arises by operation of law in circumstances where theownerofthe ship needscredit, thereby encouraging suppliers to provide services and materials on credit terms. This type of security is called privilège but is differs from the ordinary civil law privilège and comes closer to the hypothec. In reality,the security probably arises irrespective of the vessel being owned by the debtor and it travels with the ship; it follows the ship on her sale until a voyage has been completed under the management of the purchaser. In common law countries a similar security was created, albeit for 2 different reasons and in respect of different claims, the maritime lien. The maritime lien also arises by operation of law in respect of certain claims andisa privileged claim which travels withthe property without any specified time limit. It is a secret charge as is its continental equivalent, which, however, secures a much greater number of claims since there is no other type of voluntary security. When the hypothec on ships was created, most of the continental liens should have been abolished, but instead they continued to exist, thus rendering the hypothec less attractive as security, for liens come ahead of the hypothec.