Maritime Law Handbook

Transcription

1 Editors: Christian Breitzke Jonathan Lux Philomène Verlaan Maritime Law Handbook This handbook has been prepared under the auspices of Committee A (Maritime and Transport Law) of the Section on Business Law of the International Bar Association 2012 iii

2 Published by: Kluwer Law International P.O. Box AH Alpen aan den Rijn The Netherlands Website: Sold and distributed in North, Central and South America by: Aspen Publishers, Inc McKinney Circle Frederick, MD United States of America Sold and distributed in all other countries by: Turpin Distribution Services Ltd. Stratton Business Park Pegasus Drive Biggleswade Bedfordshire SG18 8TQ United Kingdom DISCLAIMER: The material in this volume is in the nature of general comment only. It is not offered as adivce on any particular matter and should not be taken as such. The editor and the contributing authors expressly disclaim all liability to any person with regard to anything done or omitted to be done, and with respect to the consequences of anything done or omitted to be done wholly or partly in reliance upon the whole or any part of the contents of this volume. No reader should act or refrain from acting on the basis of any matter contained in this volume without first obtaining professional advice regarding the particular facts and circumstances at issue. Any and all opinions expressed herein are those of the particular author and are not necessarily those of the editor or publisher of this volume. Library of Congress Cataloging-in-Publication Data is available Maritime law handbook/editorial board, Hans-Christian Albrecht... [et al.]; edited by Has- Christian Albrecht and Roger Heward, p. cm. Prepared under auspices of Committee A of the Section on Business Law of the International Bar Association. Rev. ed. of: Maritime law/edited by Lennart Hagberg ISBN (loose-leaf) 1. Maritime law. I. Albrecht, Hans-Christian. II. Heward, Roger. III. International Bar Association, Section on Business Law, Committee A. IV. Maritime law. K M dc 19 CIP [ ] ISBN This title is available on # 2012, Kluwer Law International was first published in All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. Permission to use this content must be obtained from the copyright owner. Please apply to: Permissions Department, Wolters Kluwer Law & Business, 76 Ninth Avenue, Sevent Floor, New York, NY 10011, United States of America. [email protected] iv

3 Republic of Vanuatu Nancy L. Hengen John Ridgway Part II. Flag and Registration of Vessels Mortgages of Vessels Updated to 1 March 2012 Republic of Vanuatu Part II i

4 HENGEN/RIDGWAY Republic of Vanuatu Part II ii

5 REPUBLIC OF VANUATU Nancy L. Hengen Nancy L. Hengen is a member of the Bar of the State of New York and a partner in the firm of Holland & Knight LLP, New York, New York. She is a graduate of Swarthmore College and the Harvard Law School. John Ridgway John Ridgway holds a Masters of Law degree from the University of Sydney and a Graduate Diploma in Applied Finance from the Securities Institute of Australia (Corporate Finance major). John is a licensed Investment Adviser for the Capital Markets Development Authority in Fiji. John is admitted to practice law in NSW and was first admitted to practice in Vanuatu in Republic of Vanuatu Part II iii

6 HENGEN/RIDGWAY Republic of Vanuatu Part II iv

7 REPUBLIC OF VANUATU LIST OF ABBREVIATIONS Table of Contents Part II. Flag and Registration of Vessels and Mortgages 1 A. Flag and Registration of Vessels and Vessels under Construction 1 ix CHAPTER 1. Sources of law and the principal rules arising therefrom Sources of Vanuatu law concerning registration of vessels, and the administration thereof Entities entitled to document a vessel in Vanuatu Registration of securities (charges) Flying the Vanuatu flag Transfers into and out of the Vanuatu registry 4 CHAPTER 2. Registration of a vessel Type of register Types of vessels eligible for registration Type of ownership Particulars recorded Costs Register errors 7 CHAPTER 3. Documentation required for registration Generally New buildings After a forced sale 9 CHAPTER 4. Deregistration After a sale After a total loss Mortgagees consent Permission of governmental agencies 11 CHAPTER 5. Legal effect of registration 11 CHAPTER 6. International conventions for the unification of certain rules relating to maritime liens and mortgages 1926 and/or Republic of Vanuatu Part II v

8 HENGEN/RIDGWAY CHAPTER 7. CHAPTER 8. CHAPTER 9. Bareboat-charter registration under the Vanuatu flag of vessels which remain registered in another country 12 Bareboat-charter registration under a foreign flag of vessels which remain registered in Vanuatu 14 Registration of rights in respect of vessels under construction 15 B. Registration of Mortgages on Vessels and Legal Nature of Mortgages 16 CHAPTER 10. SOURCES OF LAW 16 CHAPTER 11. THE REGISTER 16 CHAPTER 12. Vessels that may be mortgaged 18 CHAPTER 13. Who can be a mortgagee? 18 CHAPTER 14. Kinds of rights and/or claims for which a mortgage can be registered 19 CHAPTER 15. Interest and costs 20 CHAPTER 16. CHAPTER 17. Particulars recorded and other evidence of a mortgage 20 Further preconditions for the creation of a valid charge by way of mortgage 21 CHAPTER 18. Priorities of registered mortgages inter sese 21 CHAPTER 19. CHAPTER 20. Priorities between mortgages and other encumbrances 21 Relation of registered mortgages to unregistered preferential rights 22 CHAPTER 21. To what does a registered mortgage attach? 22 CHAPTER 22. Effect of payment of debts secured by the mortgage 23 CHAPTER 23. Assignability of mortgages 23 Republic of Vanuatu Part II vi

9 REPUBLIC OF VANUATU CHAPTER 24. Protection of mortgagees against seizure, etc. 23 CHAPTER 25. Effect of change of ownership of a vessel 23 CHAPTER 26. Mortgage protection in the case of deregistration of a vessel 23 CHAPTER 27. Liability of mortgagees 24 CHAPTER 28. Submission to enforced execution under a mortgage 24 Republic of Vanuatu Part II vii

10 HENGEN/RIDGWAY Republic of Vanuatu Part II viii

11 REPUBLIC OF VANUATU List of Abbreviations $ or US$ Dollars, lawful money of the United States of America Ship A term interchangeable with the term vessel which is the term mostly used in Vanuatu statutes SOLAS Safety of Life at Sea Convention Vanuatu Republic of Vanuatu NRT Net registered tons Vatu Currency of the Republic of Vanuatu Republic of Vanuatu Part II ix

12 HENGEN/RIDGWAY Republic of Vanuatu Part II x

13 PART II. Registration of Vessels and Mortgages of Vessels A. Flag and Registration of Vessels and Vessels under Construction 1. SOURCES OF LAW AND THE PRINCIPAL RULES ARISING THEREFROM 1.1. Sources of Vanuatu law concerning registration of vessels, and the administration thereof The principal source of law on documentation of Vanuatu vessels, registration of mortgages, and maritime liens is the Maritime Act Cap 131 (the Maritime Act ), as amended, first passed in 1981, and the Maritime Regulations Order No. 25 of 1990 (the Regulations ), which was originally adopted in 1981 to implement the Maritime Act. While Vanuatu has an eclectic legal system that draws upon such diverse sources as British law and the Napoleonic Code, the Maritime Act and Regulations are largely based upon the law of the United States. The principal sources of Vanuatu law for corporate questions relevant to vessel ownership are the Vanuatu Companies Act Cap , and the International Companies Act No. 32 of 1992, which came into effect on 18 May The first is substantially based on British company law whilst the latter is modelled on the legislation of the British Virgin Islands. Of course, other statutes may have to be considered in certain situations. Matters relating to vessel registration and mortgaging are administered by Vanuatu Maritime Services Limited, under contract with the Government of the Republic of Vanuatu to act as Maritime Administrator, located in New York City. Legally responsible authority is taken in the name of the Commissioner of Maritime Affairs or any duly appointed Deputy Commissioner. The Commissioner and each Deputy Commissioner are required to maintain an office containing properly indexed public registers. In practice and by design, the central registry is effectively in New York City. Applications for documentation of vessels under the flag of Vanuatu pursuant to the Maritime Act must be made to: The Office of the Deputy Commissioner of Maritime Affairs Republic of Vanuatu 39 Broadway, Suite th Floor New York, New York 10006, USA Republic of Vanuatu Part II 1

14 HENGEN/RIDGWAY Telephone: Website: The Commissioner of Maritime Affairs is also the Commissioner for Financial Services in Vanuatu. The Deputy Commissioner in the New York office is the prime administrative officer for shipping matters and controls actions of all special Agents and other Deputy Commissioners. Requests for information, official application forms and registration cost quotations may be directed to the above office. Although the Maritime Act provides for enforcement of preferred mortgages in Vanuatu by a proceeding in rem, admiralty proceedings are not frequent in Vanuatu. In fact, no published decisions exist of judicial proceedings involving documentation or mortgaging of vessels. Thus, apart from the text of the Maritime Act itself, only a limited body of law exists from which to draw answers to questions relating to documentation, mortgages and liens. However, the structure of the Maritime Act draws heavily upon United States law. Moreover, Section 11 of the Maritime Act expressly incorporates the nonstatutory general maritime law of the United States to the extent that it does not conflict with the Maritime Act or other Vanuatu Statutes. In situations in which Vanuatu s general law is not derived specifically from post-independence statute(s), the Vanuatu Constitution provides that the laws of England and France that were the laws of Vanuatu (New Hebrides) at independence continue to be the law of Vanuatu unless amended or repealed. In terms of statutes this means that a significant number of UK Acts are still laws of Vanuatu because they were acts of general application in the British colonies. One such is the Bankruptcy Act (because the Vanuatu legislature has yet to enact its own statute on the subject) Entities entitled to document a vessel in Vanuatu The Maritime Act permits documentation (which is defined to mean registration, enrolment or licensing) of a vessel only by citizens or nationals of Vanuatu, including corporations, partnerships and associations of individuals created or incorporated under Vanuatu law. Although a limited liability company is not specifically named in the statute, the Deputy Commissioner s Office has accepted vessel registrations in the name of a limited liability company as owner as well. An International Company incorporated under the International Companies Act No. 32 of 1992 fulfils the citizenship requirement for documentation of a Vanuatu flag vessel even though such an International Company must not actually carry on business in Vanuatu. Two categories of Vanuatu corporations may become owners of vessels to be registered. Local Companies are incorporated pursuant to the Companies Act, and these are companies which are engaged in doing business in Vanuatu. Republic of Vanuatu Part II 2

15 REPUBLIC OF VANUATU International Companies comprise the second category, and they are precluded by the relevant statutes from conducting business in Vanuatu. International Companies are preferred because the procedures for their incorporation are simpler, and the secrecy provisions in that Act more stringent. As an example of the simplification under the International Companies Act, the members or shareholders, officers, and directors may be of any nationality. Under the Companies Act a company had to have at least one Vanuatu director. The procedures for incorporating an International Company are not cumbersome. An International Company is prohibited from acquiring or owning any interest in immovable property situated in Vanuatu (other than some leases) or carrying on banking business, trust business, insurance business (as defined by relevant legislation), or company management business. However, an International Company will not be treated as carrying on business in Vanuatu if it (i) carries on business with another International Company or in furtherance of the business of the International Company carried on outside Vanuatu, or (ii) leases premises in Vanuatu from which to carry on its business as permitted by the International Companies Act, or (iii) makes or maintains deposits with a person licensed to carry on banking business in Vanuatu. An International Company also may obtain professional services from its registered agent, attorneys, accountants, trust companies, insurance brokers or other similar persons carrying on business within Vanuatu; it may prepare or maintain its books and records within Vanuatu and hold meetings within Vanuatu of its directors or members and hold shares, debt obligations or other securities in a company incorporated under either Companies Act, or issue shares, debt obligations or other securities to anyone resident in Vanuatu or any company incorporated under the Companies Act. The Maritime Act does not specify when a partnership should be considered a citizen of Vanuatu. Consequently, the prudent course is to discuss any partnership proposed to be a vessel owner with the Deputy Commissioner prior to going too far with a partnership structure. Moreover, the Deputy Commissioner may waive the statutory limitations of Vanuatu citizenship upon showing of an absolute and genuine need. Waivers are readily granted. If a waiver is granted, a certificate of good standing must be submitted for the non-vanuatu entity that will be the owner of the Vanuaturegistered vessel Registration of securities (charges) Both the International Companies Act and the Companies Act provide for registration of securities (charges) granted by the relevant Vanuatu company encumbering its assets in some way. The types of charge and the method of registration are slightly different under each statute, but under both statutes such charges include assignments of insurances or vessel earnings and may include charges over or pledges of shares of the company. Republic of Vanuatu Part II 3

16 HENGEN/RIDGWAY Failure to register any relevant charge at the office of the Financial Services Commissioner has the effect of voiding the charge against any potential liquidator of the company. Any charge under the Companies Act must be registered with the Commissioner for Financial Services within twenty-one days of its creation or within twenty-one days of the instrument creating the charge arriving in Vanuatu (if it has been executed outside Vanuatu). In the case of the International Companies Act, the registration must take place within forty-two days of the creation of the charge in any case, wheresoever it was created. Section 407 of the Companies Act exempts any private exempted shipowning company from having to register charges under the Companies Act if the charge is registered in the office of the Commissioner or Deputy Commissioner of Maritime Affairs in accordance with the Maritime Act. It is this provision which exempts mortgages over vessels from having to be registered under the Companies Act. The exemption tends to apply only to mortgages because other types of charges are not usually registered in the office of the Commissioner or Deputy Commissioner of Maritime Affairs. The International Companies Act, section 78A, grants a similar exemption to ship-owning companies from registering charges that are otherwise registered under the Maritime Act and again the effect is to exempt vessel mortgages only Flying the Vanuatu flag Unless duly documented, vessels are not entitled to fly the Vanuatu flag. Once so documented, however, that flag must be flown unless that right is withdrawn upon the granting of a permission for bareboat-charter registration in another country or permission for transfer to a foreign registry Transfers into and out of the Vanuatu registry A vessel from a foreign state that becomes owned by an entity entitled to register vessels may (but is not required to) be registered in Vanuatu upon meeting the requirements for initial registration. If a Vanuatu vessel is sold to an entity not entitled to register vessels in Vanuatu, the vessel must be deleted from the Vanuatu register or a waiver of the ownership requirement must be obtained from the Deputy Commissioner. If a vessel is to be transferred to a foreign registry, permission for transfer must be obtained, but it is readily granted so long as the seller is not in default in payment of taxes and other charges due to Vanuatu and all mortgagees consent. If the vessel is to be deleted from the Vanuatu flag, all mortgages must first be discharged or the consent of all mortgagees obtained. A Vanuatu bareboat charterer of a foreign flag vessel may obtain permission for Vanuatu bareboat-charter registration. Conversely, the owner of a Vanuatu vessel that is bareboat-chartered may obtain permission for bareboat-charter registration in the name of the bareboat charterer in a Republic of Vanuatu Part II 4

17 REPUBLIC OF VANUATU foreign state provided the foreign state so allows, and in order to do so the owner must also secure the permission of mortgagees. 2. REGISTRATION OF A VESSEL 2.1. Type of register The Deputy Commissioner maintains a central register for vessels in New York; and, as a practical matter, that is the central registry for the filing of documents under the Maritime Act and Regulations. Additional Deputy Commissioners have been appointed in other locations worldwide to accept documents and fees and to issue a provisional certificate of registry, all upon the instructions of and under the control of the Deputy Commissioner in New York. Special Agents of the Deputy Commissioner located outside of New York have also been appointed. They are empowered to act only upon instructions of the Deputy Commissioner in New York. The home port of all Vanuatu vessels is Port Vila, the capital of Vanuatu, pursuant to section 16 of the Maritime Act. The Deputy Commissioner s office in New York is open on business days from 9 am to 5 pm, and otherwise by special arrangement. Records open to public inspection are maintained with respect to recorded mortgages and certain other instruments in the New York office. Duplicate copies are also maintained in the home registry in Vanuatu Types of vessels eligible for registration Any sea-going vessel owned by or on a bareboat charter to a citizen or national of Vanuatu and engaged in foreign trade may be registered, regardless of where it was built. Foreign trade is defined as trade between Vanuatu and a foreign country or between one foreign country and another, and includes the transportation of goods between the ports of Vanuatu and ports of foreign countries and between the ports of one foreign country and another. Registration is not restricted to self-propelled vessels. Barges, drilling rigs and other sea-going craft meeting the necessary requirements may be registered; however, any yacht or other vessel used exclusively for pleasure may be registered only if it is 50 net tons or over and it must pay the appropriate fee accordingly. The Maritime Act prohibits registration of vessels over twenty years of age determined from completion of first construction to 1 January of the year in which registration is sought, but this limitation may be waived in exceptional circumstances by the Deputy Commissioner if the vessel meets all other registration requirements, and if it receives the top classification of one of the classification societies recognized by the Deputy Commissioner. The Deputy Commissioner currently confines waivers to situations in which he/she is satisfied that, in addition to Republic of Vanuatu Part II 5

18 HENGEN/RIDGWAY meeting all other requirements for registration, the vessel is needed to implement the operations of a Vanuatu shipowner or registration is otherwise desirable to carry out the objectives of the Vanuatu maritime programme Type of ownership Vanuatu flag vessels may be owned by individuals, corporations, limited liability companies, partnerships trusts, associations of individuals and in joint ownership subject to the requirements for citizenship and nationality (or waiver thereof) mentioned in section 1.2. supra. Note that the Maritime Act allows for waiver of the citizenship ownership requirement for registration but not for bareboat-charter registration. Accordingly, an entity which is not a Vanuatu citizen or national will not be granted a waiver to permit it to bareboat-charter register a vessel under Vanuatu flag Particulars recorded Each vessel must have a name approved by the Deputy Commissioner and an official number and call letters assigned by that office. The register will also show the vessel s measurements, gross and net tonnage, principal dimensions and other particulars descriptive of the identity of the vessel. In general, the Deputy Commissioner requires more particulars than appear in the Certificate of Registry Costs Following are the principal costs associated with initial registration of Vanuatu vessels, but it is advisable to consult the Deputy Commissioner s Office in each individual case: Registration Fee (negotiable): Initial 500 NRT to 5000 NRT $1.05 per NRT 5001 NRT to NRT $0.435 per NRT >25001 NRT $0.35 per NRT Annual Annual Tonnage Tax, per Net Ton Up to 14,999 $0.25/NRT 15,000 to 24,999 $0.20/NRT 25,000 to 34,999 $0.15/NRT Republic of Vanuatu Part II 6

19 REPUBLIC OF VANUATU 35,000 or over $0.10/NRT Annual Fee: Marine Investigations, Nautical $ Training and International Participation (plus $.04 per NRT) Annual Marine Inspection (Each Inspection) $ Annual Marine Inspection for Fishing Vessels $ (Each Inspection) Provisional Certificate of Registry $ Permanent Certificate of Registry $ Temporary Radio Authority $50.00 Permanent Ship Station License $ Publication and Forms $50.00 Registration Fees and Annual Tonnage Tax for vessels of dual tonnages are payable on the higher of the two net tonnage figures. Tonnage taxes may be reviewed annually under the Maritime Act, and the Deputy Commissioner has the authority, which he/she has used, to offer discounts on fleet registrations. All payments are in United States Dollars, drawn upon a US bank or the US branch of an international bank. Unless otherwise instructed, payments should be made to the Deputy Commissioner of Maritime Affairs Republic of Vanuatu. Unpaid taxes and other fees owed under the Maritime Act constitute a lien upon the related vessel with priority over all other liens except crew s wages and salvage Register errors Errors in a vessel s Certificate of Registry or in the recording index page of a mortgage can be corrected administratively by informal procedure. However, errors in recorded documents (such as a bill of sale or mortgage) require a recorded correcting document. 3. DOCUMENTATION REQUIRED FOR REGISTRATION 3.1. Generally To obtain provisional registration of a vessel not previously registered under Vanuatu law, the owner must present: (1) a written application together with evidence of authority of the individual who executes the application, accompanied, if necessary, by requests for waiver of citizenship of owner or vessel age requirements; (2) satisfactory proof of ownership, usually a bill of sale or builder s certificate, or proof of ownership under a prior foreign flag; (3) if a transfer from a foreign flag, consent by the former country of registration to the surrender of its marine document, or an actual certificate showing the vessel s Republic of Vanuatu Part II 7

20 HENGEN/RIDGWAY deletion from the foreign ship registry; (4) proof that the vessel is free and clear of recorded liens and encumbrances at the time of transfer; (5) proof that the required marking of name, official number, tonnages, home port, and draft have been made or that orders have been issued to the Master to make such markings; (6) proof that the vessel is in a seaworthy condition (usually by submission of a confirmation of class dated not more than ten days prior to the date of registration issued by one of the classification societies recognized by Vanuatu); and (7) requisite fees. The classification societies approved by Vanuatu at present are: (a) American Bureau of Shipping; (b) Bureau Veritas; (c) China Classification Society (ZC); (d) Det Norske Veritas; (e) Germanischer Lloyd; (f) Korean Register of Shipping; (g) Lloyd s Register of Shipping; (h) Nippon Kaiji Kyokai; (i) Polish Register of Shipping; (j) Registro Italiano Navale; (k) Russian Maritime Register of Shipping; or (l) any other international ship classification society as may be authorized by the Commissioner or a Deputy Commissioner. The application must contain a declaration that states the particulars of the vessel, the owner or owners and their respective shares, the mortgagees, the vessel s decision-maker, statements respecting the officers and crew, and certain other forms and affidavits. An initial provisional certificate of registry is valid for a period of thirty days. However, the Deputy Commissioner may renew a provisional Certificate of Registry up to a period of one year upon a showing of good cause. Moreover, under section 33 of the Maritime Act, if an owner cannot comply with certain requirements for obtaining a provisional or permanent Certificate of Registry due to abnormal conditions existing in the country of foreign registration, the Deputy Commissioner may waive such requirements. This provision is intended to grant flexibility in situations where such items as permission for transfer, deletion certificate or evidence that the vessel is free and clear of recorded encumbrances cannot be obtained by the owner due to political circumstances beyond the owner s control in the country of foreign registry. After initial registration, a permanent Certificate of Registry should be obtained as soon as possible. In part, this document will depend upon the vessel s classification society issuing a Vanuatu ITC 69 measurement certificate and SOLAS certificates. Other matters, however, are more directly the owner s responsibility. For example, proof must be presented that the vessel s new name, home port, official number and net tonnage have been marked as required by Republic of Vanuatu Part II 8

21 REPUBLIC OF VANUATU law, and if a deletion certificate from the former foreign registry was not presented at initial registration, it should be presented within thirty days thereafter. When a Vanuatu vessel is transferred to another owner for re-registration in Vanuatu, a bill of sale duly acknowledged must be presented and recorded. Once recorded, the bill of sale is binding on third parties without notice. A bill of sale submitted in connection with re-registration must recite the entire existing Certificate of Registry; this is customarily handled by attaching a copy of the existing Certificate of Registry as an exhibit to the bill of sale. This is not a requirement of initial registration. While bills of sale or other proof of ownership presented on initial registration need not be recorded, they may be recorded if duly acknowledged New buildings The procedure for registration of a new building is identical to the procedure for registration of a vessel previously registered in another country. Instead of a bill of sale, however, proof of ownership is likely to be a builder s certificate, which requires information as to the time and place of building, the person for whom it was built, the type of vessel, and the number of decks and masts, tonnage, etc After a forced sale (a) When a vessel is sold in a forced sale following a court order or legal procedure in Vanuatu or another country, a Vanuatu flag vessel may be reregistered if the sale procedure was a proceeding in rem and if it was purchased by an entity qualified to own a Vanuatu flag vessel or which obtains a waiver of the ownership requirement. Section 40(3) of the Maritime Act absolves the purchaser from complying with the normal requirement of surrendering the existing Certificate of Registry issued to the prior owner, but all other requirements for re-registration of a Vanuatu vessel must be fulfilled. The documents in respect of the sale (usually a court order directing the sale and a duly acknowledged bill of sale issued by a court officer), together with an attorney s opinion as to the legal effect thereof, will be recorded both as a discharge of prior mortgages and as a conveyance. (b) When a non-vanuatu vessel has been sold in another country following a court order in an in rem proceeding, the vessel may be documented in Vanuatu if otherwise qualified on similar presentation of court documents, duly acknowledged, and of an opinion of counsel as to proof of ownership. In addition, however, the Deputy Commissioner may require evidence that the mortgages recorded in the former registry have been deleted and that the former registration has been cancelled. Republic of Vanuatu Part II 9

22 HENGEN/RIDGWAY In any such case, the Deputy Commissioner s office should be consulted concerning the documentary forms to be relied on in order to ensure that they will be accepted by that office. 4. DEREGISTRATION 4.1. After a sale To sell or transfer a Vanuatu vessel, application for permission must be made to the Deputy Commissioner naming the proposed transferee, its nationality, and proposed new country of registry. Deregistration or cancellation of registration takes place only if the sale is not for re-registration of the vessel under the Vanuatu flag. In order to obtain a certificate of cancellation from registration, the existing Certificate of Registry, inter alia, must be surrendered to the Deputy Commissioner s office, but the surrender will not be accepted unless all mortgagees have consented thereto or all mortgages have been released or discharged. Assuming that all mortgages of record are discharged, a certificate cancelling the registration is available on delivery to the Deputy Commissioner of the original of all Vanuatu documents, certificates and papers issued to the vessel (e.g., Certificate of Registry, radio station license, admeasurement certificate, SOLAS certificates, and the like), together with three copies of the bill of sale showing compliance with the permission. If any document is missing, an affidavit of loss by a person having personal knowledge of that document, such as the former master, may be necessary. Moreover, before cancellation, all charges, including arrears in tonnage taxes, owed by the vessel or owner to Vanuatu must be paid. If the sale is close to the year s end, deletion should occur before the new year begins; otherwise, the entire next year s tonnage tax must be paid before the certificate of cancellation will be granted. Before permission will be granted for the sale of a vessel that is temporarily in foreign bareboat-charter registry, the bareboat charter and foreign bareboatcharter registry must be terminated and a new Vanuatu Certificate of Registry obtained After a total loss Upon the loss of a vessel, the certificate of registry, if it survives, should be surrendered to the Deputy Commissioner. There is no explicit statutory authorization empowering the Deputy Commissioner to delete a vessel which has been lost from the registry. Section 52 of the Maritime Act does state that a vessel may not be deleted from the registry so long as a mortgage remains undischarged or the indebtedness secured thereby is unsatisfied. This provision does leave open the possibility of the owner presenting evidence of satisfaction of the mortgage debt, from the proceeds of insurance or otherwise, or simply Republic of Vanuatu Part II 10

23 REPUBLIC OF VANUATU obtaining mortgage releases preserving the mortgagees rights to collect indebtedness owed out of any of the owner s assets. However, it is likely that upon receipt of evidence of the loss satisfactory to the Deputy Commissioner, the Deputy Commissioner will strike the vessel from the registry. The statute does not address the effect on the interest of mortgagees or the status of any mortgage under these circumstances Mortgagees consent After a total loss of the vessel or similar occurrence, the Certificate of Registry, if preserved, should be surrendered to the Deputy Commissioner for cancellation. Technically, as discussed above, mortgagees consents or recording of mortgage discharges are required before a certificate cancelling the registry will be issued Permission of governmental agencies The Deputy Commissioner s permission is required for any sale (even for re-registration under the Vanuatu flag), but this permission is readily granted. The application for permission must state the reasons for the proposed surrender of the Certificate of Registry, the buyer s name and nationality, the new country of registration, if any, or that the sale is for re-registration in Vanuatu or for scrapping, as the case may be. Permission should be applied for well before the sale. Permission will be granted only if any arrears of tonnage tax have been paid, as well as all other charges due to Vanuatu in respect of the vessel. Any corporate fees outstanding to the Vanuatu Companies office by the ship-owning company, where relevant, must also be paid. 5. LEGAL EFFECT OF REGISTRATION Registration entitles the vessel to sail under the flag of Vanuatu. A Certificate of Registry of a vessel does not, however, establish title to the vessel; indeed, for that purpose, the Certificate may not even be admissible in a judicial proceeding. The best evidence of title is the chain-of-title documents that trace the title of the vessel from its original building to its current owner. It is prudent practice to record bills of sale, because an unrecorded bill of sale is not valid against any person other than the grantor, his heirs, devisees and persons having actual notice thereof. In registering a vessel, the Deputy Commissioner makes only a prima facie determination that the owner s evidence of title is sufficient for registration. Any other questions affecting the vessel s title must be decided by the courts. Republic of Vanuatu Part II 11

24 HENGEN/RIDGWAY 6. INTERNATIONAL CONVENTIONS FOR THE UNIFICATION OF CERTAIN RULES RELATING TO MARITIME LIENS AND MORTGAGES 1926 AND/OR 1967 Vanuatu has ratified the following conventions: the International Convention for the Safety of Life at Sea, 1974, including the Protocol of 1978 (SOLAS), the International Loadlines Convention, 1966, the International Convention on Marine Pollution, 1973 (MARPOL 73/78), the International Convention on Civil Liability for Oil Pollution Damage, 1969, including the Protocol of BAREBOAT-CHARTER REGISTRATION UNDER THE VANUATU FLAG OF VESSELS WHICH REMAIN REGISTERED IN ANOTHER COUNTRY A citizen or national of Vanuatu who is the bareboat charterer of a vessel registered under another jurisdiction may obtain provisional bareboat-charter registration in Vanuatu by meeting a series of requirements contained in the Maritime Act and the Regulations to the satisfaction of the Deputy Commissioner. Written consent is required of the shipowner, any mortgagees, and the foreign registry (or satisfactory evidence that the consent of the foreign registry is not required). Bareboat-charter registration is allowed for a period not exceeding five years. If the foreign registry so permits, the bareboat-charter registration may be extended for an additional period of five years upon the filing of various documents, provided that the vessel and the bareboat charterer continue to meet the relevant requirements. The charterer must submit two copies of the Application for Official Number Call Sign and Registration showing the bareboat charterer as owner with all questions (except for a few items) answered. In addition, a certified copy of the bareboat charter, together with all annexes or addenda and any bareboat subcharters, must be submitted. English translations are required for all documents in another language. Additional documents required for filing are: (a) official certificates from the foreign state of original registration showing ownership of the vessel and recorded encumbrances; (b) written consents of the shipowner and of the mortgagees to the bareboatcharter registration; (c) written consent of the foreign state of registration or satisfactory evidence that such consent is not required; and (d) a certified copy of the vessel s existing foreign certificate of registry. The Maritime Act provides for recording foreign mortgages covering the vessel in the same order in which they are recorded in the foreign registry, but section 31(3A) of the Maritime Act and section 21 of the Regulations permit Republic of Vanuatu Part II 12

25 REPUBLIC OF VANUATU the Deputy Commissioner to waive the requirement of recording foreign mortgages provided the written consents of all mortgagees, the owner, and the bareboat charterer are supplied. In addition, if such a waiver is obtained, the bareboat-charter certificate of registry is endorsed to state that re-recordation of the foreign mortgage in the Vanuatu registry has been waived and to state the country of the primary registry. Rights under the foreign mortgages are not prejudiced by the bareboat-charter registration, whether or not such foreign mortgages are re-recorded in Vanuatu. The Maritime Act provides that they have preferred mortgage status. On completion of the formalities, the bareboat charterer will be issued a provisional certificate of bareboat-charter registry containing the same provisions as in the case of any other provisionally Vanuatu-registered vessel, except that (a) the bareboat charterer will be shown in place of the owner, and (b) the certificate will also bear the name and official number of the vessel as they appear on the foreign state s registry. The provisional certificate will include such particulars as tonnage, dimensions and place of building. During the period of Vanuatu bareboat-charter registration, the vessel must carry its Vanuatu provisional certificate of bareboat-charter registry on board, fly the Vanuatu flag, and show Port Vila as its home port. The Vanuatu bareboat-charter registration may be extended for an additional five years. The charterer must file a new application, including a copy of the bareboat charter, a certificate of ownership from the original state of registry, and the consent of all mortgagees. The bareboat-charter registration is also subject to cancellation upon submission to the Deputy Commissioner of the written consent of all mortgagees, the owner and the bareboat charterer, and the surrender for cancellation of the bareboat-charter certificate of registry. A transfer of a vessel during the period of the Vanuatu bareboat-charter registration renders the bareboat-charter certificate of registry null and void, and the Maritime Act requires it to be surrendered to the Deputy Commissioner within thirty days of the transfer. Because it is not anticipated that the owner will operate the vessel, the owner will have no official evidence of registration. The provisional certificate of bareboat-charter registry is evidence of permission for the charter. Costs of a bareboat-charter registration vary somewhat from costs of initial registration in Vanuatu. The one-time bareboat-charter registration fee is $.35 per NRT, and annual fees (e.g., Annual Tonnage Tons, Investigation IMO and Inspection fees) are paid two years in advance at the time of bareboat-charter registration. It is recommended that the required documents and forms be cleared in advance with the Deputy Commissioner and, as for any other change of flag, that the bareboat-charter registration take place when the vessel is in a port so that it may immediately remove its foreign certificate of documentation and take on board its Vanuatu provisional certificate of bareboat-charter documentation. Republic of Vanuatu Part II 13

26 HENGEN/RIDGWAY Vessels permitted to fly the Vanuatu flag temporarily while under a bareboat charter are required to comply with all requirements applicable to Vanuatu flag vessels generally. 8. BAREBOAT-CHARTER REGISTRATION UNDER A FOREIGN FLAG OF VESSELS WHICH REMAIN REGISTERED IN VANUATU Bareboat-charter registration under a foreign flag is allowed only with permission of the Deputy Commissioner and then only in case of a bareboat charter party under which the charterer wishes to fly the foreign flag and foreign flag permits bareboat-charter registration. Permission remains valid until the bareboat charter s termination. The Vanuatu flag may not be flown during the period of foreign bareboat-charter registration. The current practice of the Deputy Commissioner is that satisfaction of certain conditions is necessary to receive permission. First, submission of the following documents: (a) an application for permission which must identify the vessel, state the name and other details in respect of the charterer, and state the date contemplated for the commencement of and the earliest lawful termination of the bareboat charter; (b) letters of consent by the owner and all mortgagees of record; (c) a certified true copy of the bareboat charter with English translations, if necessary, and within thirty days of the issuing of the Vanuatu permission, a certified copy of the foreign certificate of registry; (d) proof that the foreign bareboat-charter registry will resolve questions of validity and enforcement of mortgages and vessel title pursuant to the law of Vanuatu; (e) proof that the laws and procedure of the foreign bareboat-charter registry provide for reasonable notice of the existence or possible existence of mortgages in Vanuatu; and (f) proof that the law of the foreign bareboat-charter registry provides that its certificate of registry shall automatically terminate upon the termination of the bareboat charter. Upon application for permission, the owner must forthwith surrender its Vanuatu Certificate of Registry; and, in its place, the Deputy Commissioner will issue a Certificate of Permission of Foreign Bareboat-Charter Registration and a restricted Certificate of Registry which states the vessel may not fly the Vanuatu flag. The latter instrument is physically held by the Deputy Commissioner s office. The Certificate of Permission of Foreign Bareboat-Charter Registration is placed on board the vessel, and the surrendered Certificate of Registry is physically held by the Deputy Commissioner s central office in Republic of Vanuatu Part II 14

27 REPUBLIC OF VANUATU New York City until such time as the bareboat charter is terminated or expired and the vessel is returned to the Vanuatu flag. A fee of USD 200 must accompany the application for the Certificate of Permission for Foreign Bareboat-Charter Registration. It is important to note that the annual tonnage tax and other fees remain applicable. Upon delivery of the vessel to the charterer under the bareboat charter, and having obtained the right to fly the flag of a foreign jurisdiction, the vessel s status as a Vanuatu vessel is then suspended. Mortgages, however, remain of record and fully enforceable under Vanuatu law. Upon termination of the foreign bareboat-charter registration, the owner must submit to the Deputy Commissioner the following material, whereupon the vessel may receive a new Vanuatu Certificate of Registry: (a) evidence of termination of the foreign bareboat-charter registration; (b) the Certificate of Permission of Foreign Bareboat-Charter Registration; and (c) any fees prescribed by the Deputy Commissioner. Once the Deputy Commissioner has permitted a vessel to be a bareboatcharter registered in a foreign state, the right to fly the flag of Vanuatu is suspended. Vanuatu recognizes that the named foreign state is the competent authority to exercise exclusive jurisdiction and control over the vessel in accordance with applicable international conventions and agreements. Vanuatu, accordingly, would no longer regulate the number of officers and crew or their nationality, or the certificates of masters and officers, or the rules with respect to minimum wages, hire, vacation, social security, insurance and the like. However, the Maritime Act requires that, at all times, the vessel shall be equipped, maintained and navigated according to standards that are prescribed by the relevant international conventions or agreements to which Vanuatu is a party. 9. REGISTRATION OF RIGHTS IN RESPECT OF VESSELS UNDER CONSTRUCTION Vanuatu has no statutory provisions relating to the registration of legal rights with respect to vessels under construction. A vessel under construction remains a chattel owned by the builder or whoever else has ownership under the construction contract, until it reaches the status of completion entitling it to registration as a vessel. Ocean-going vessels are not normally built in Vanuatu and no local judicial precedents exist in respect of chattel mortgages of vessels or portions thereof while under construction. Vanuatu has not ratified the Convention relating to Registration of Rights in Respect of Vessels under Construction of 1967, although it is anticipated that it will do so. Vanuatu ratified the 1993 Geneva Convention on Maritime Liens and Mortgages on 1 February 1999, and the Republic of Vanuatu Part II 15

28 HENGEN/RIDGWAY Convention came into force in Vanuatu in That Convention contains retention provisions concerning vessels so long as they are in possession of the shipbuilder. B. Registration of Mortgages on Vessels and Legal Nature of Mortgages 10. SOURCES OF LAW Vessel mortgages under Vanuatu law are governed by Chapter 5 of the Maritime Act (sections 50-67A) and Chapter 5 of the Regulations (sections 30 and 32). The Maritime Act provides for preferred mortgages on vessels if they meet the statutory requirements: the mortgage must include the whole of the vessel; the mortgage must be recorded; the mortgage must state the amount secured and the mortgage s date of maturity; and the mortgage must not stipulate that the mortgagee waives the preferred status thereof. A mortgage which secures property other than a vessel must state a separate discharge amount for such other property. A preferred mortgage may cover either a single vessel or more than one vessel if all are owned by the same owner. A preferred mortgage constitutes a maritime lien on the mortgaged vessel for the outstanding mortgage indebtedness secured by the vessel. As stated above, in 1999, Vanuatu ratified the 1993 Geneva Convention on Maritime Liens and Mortgages. 11. THE REGISTER Mortgages on vessels documented under Vanuatu law must be recorded under the Maritime Act to be valid against third persons not having actual notice of them. The Maritime Act provides for recordation in the office of the Commissioner or the Deputy Commissioner. As a practical matter, this currently means New York City, where the Deputy Commissioner maintains a central office where there shall be recorded or filed, in properly indexed public registers, documents such as bills of sale and mortgages. The Deputy Commissioner is required to record mortgages in books indexed to show the name of the vessel and the names of the parties to the transaction, the time and date of recordation, the interest in the vessel transferred or affected, and the amount of the mortgage and its maturity date. To record a mortgage, a mortgage instrument must be presented to the New York office of the Deputy Commissioner, signed by the owner of the mortgaged vessel (persons in New York are frequently appointed attorneys-infact for this purpose) and duly acknowledged in the form required by the Regulations. The mortgage must be in the English language or include an acceptable Republic of Vanuatu Part II 16

29 REPUBLIC OF VANUATU English translation. Assignments, supplements, amendments and assumptions of mortgages and subordination agreements reordering the priority of recorded mortgages may also be recorded. The original instrument must be presented in five fully executed and acknowledged counterparts. Evidence of authority of the person who executes a mortgage must also be presented. A recording fee of USD 425 must be paid for a mortgage; smaller fees are charged for other instruments filed relating to a mortgage. The New York Deputy Commissioner also permits mortgages to be presented to other Deputy Commissioners and his special Agents for recordation. Under this procedure, a copy of the form of the proposed mortgage must be submitted for approval to the New York Deputy Commissioner not less than three days prior to the intended recordation date. On the recording date, the duly executed and acknowledged five original counterparts may be presented to a Deputy Commissioner or a special Agent. Upon confirmation from the Deputy Commissioner or the special Agent that the five counterparts delivered to him are identical to the copy previously approved by the New York Deputy Commissioner, the New York Deputy Commissioner will assign and transmit to the Deputy Commissioner or special Agent the relevant recording information. The Deputy Commissioner or special Agent then marks the counterparts submitted to him, returning three of them together with a completed Certificate of Ownership and Encumbrance to the person who submitted the mortgage counterparts and forwarding the others to the New York Deputy Commissioner. No mortgage form is prescribed by statute; indeed, the term mortgage is itself not statutorily defined. While a very short mortgage instrument containing the essential information may be entitled to recordation, most mortgages are considerably longer. In addition to containing the statutorily required information, mortgages typically contain clauses granting the whole of the vessel to the mortgagee as security for the secured obligation and describing other terms and conditions of the financial transaction. The mortgage instrument must effectively identify the vessel and the debt or obligation to be secured. The total amount must be stated. The Deputy Commissioner may require written proof of the amounts nominated in, and dates of, any documents showing evidence of the debts secured by the mortgage submitted for recording. A duly recorded mortgage does not lose its priority when all obligations previously secured have been repaid so long as there is commitment from the mortgagee that contemplates future advances in accordance with the terms of the mortgage in the mortgage document and such advances are in fact made. In such cases the total potential amount of the mortgage must be clearly stated as either the maximum principal amount that may be outstanding at any one time or the aggregate of all possible advances that may be made. The mortgage must state a maturity date. In the case of obligations such as guarantees payable on demand or obligations with respect to a letter of credit or indemnity, where the date the obligation may become due is not fixed and certain, the customary practice has been to state the maturity date as being on demand. Republic of Vanuatu Part II 17

30 HENGEN/RIDGWAY The mortgage amount stated is usually expressed in terms of a fixed amount in some currency unit together with interest and performance of mortgage covenants. While Vanuatu does not record a separate stated amount as security for the interest and other costs, interest on the underlying indebtedness can be structured in many different ways as the parties may agree. The mortgage must cover the whole of the vessel even if there are multiple owners. It is preferable that the mortgage instrument be complete on its face, thereby obviating any necessity for referring to unrecorded instruments for more details. Accordingly, customary practice is to annex to the mortgage copies of loan agreements, as well as any other instrument to which it is necessary to refer for the mortgage terms and conditions and events of default. It is not necessary to annex a loan agreement to the mortgage if the mortgage does not refer to any part of the loan agreement for its terms. A mortgage customarily includes a description of a range of remedies available to the mortgagee, because the Maritime Act provides only the single remedy of arrest and judicial sale. While it is not required that the mortgage state the addresses of the parties, it typically does so. The fee for recording a mortgage is USD 425 and includes the issuing of a Certificate of Ownership and Encumbrance. Fees for recording related documents, such as amendments, discharges and so forth, may be less. If asked to perform functions outside normal office hours, the Deputy Commissioner will make an extra charge. 12. VESSELS THAT MAY BE MORTGAGED Any vessel documented, whether provisionally or permanently, under Vanuatu law may be mortgaged. Vessels registered in another jurisdiction and only bareboat-charter registered in Vanuatu may be mortgaged only in accordance with the laws of their jurisdiction of registration, although Vanuatu permits (but does not require) re-recordation of such mortgages. 13. WHO CAN BE A MORTGAGEE? Any individual, corporation or other legal entity may be a mortgagee. The Maritime Act contains no restriction on nationality or type of entity. There is no prohibition against either a trustee or an agent being a mortgagee, and the Deputy Commissioner s Office advises it will accept both types of entities as a mortgagee. However, the Deputy Commissioner may require that the principals for whom the trustee or the agent acts be disclosed so it would be prudent to pre-clear any mortgage in favour of either type of entity with the Deputy Commissioner well in advance of recording. Republic of Vanuatu Part II 18

31 REPUBLIC OF VANUATU 14. KINDS OF RIGHTS AND/OR CLAIMS FOR WHICH A MORTGAGE CAN BE REGISTERED Mortgages may be registered to secure an existing right or an obligation that is capable of being expressed in a definite amount of a specific currency or currencies or units of account. Mortgages including contingent commitments may also secure future advances. The mortgage does not lose its priority because the originally secured obligations are paid, provided that a commitment exists in the document of mortgage that an advance or other value is to be given at a later time. A mortgage is still entitled to priority pursuant to commitment if it secures future obligations, even if the lender may be relieved from the obligation of making the advance because of a default or other event not within its control. When a mortgage secures future or revolving advances, the mortgage must clearly state a total amount in terms of the maximum principal amount to be outstanding at any one time or in terms of the aggregate of all possible advances that can be made. A mortgage can secure a guarantee to pay an indebtedness arising from the default of another provided the guarantee is for an ascertainable amount and it is clear that the shipowner consents to the vessel constituting the collateral. If the guarantee is payable on first demand, the mortgage s maturity date is customarily stated as being on demand. A mortgage may also secure obligations of persons or entities other than the shipowner as a third-party mortgage. In these cases the shipowner mortgages the vessel as security for loans made to other entities (usually related ship-owning companies). Such transactions usually arise where the loaned sum is significant and a single vessel is not necessarily sufficient security to satisfy the lender. Fraudulent conveyance issues may arise respecting a mortgage which secures a shipowner s guarantee or the debts of another. Vanuatu maritime law contains no specific provisions concerning fraudulent conveyance but general company law principles would suggest that Vanuatu ship-owning companies, at least, should not run the risk of contracting into a situation of insolvency. The mortgage should be for a definite amount, although that amount may be expressed in more than one currency or even recite an amount in terms of one currency or its equivalent in any alternate currency. Obligations secured by a mortgage may be expressed in any unit or units of account to which the parties agree, including the currency of Vanuatu, currencies of any foreign state or states, and equivalents or other units of account established by intergovernmental organizations. If the mortgage secures an amount under circumstances where the unit of account may be altered from time to time, recordation should include the words or an equivalent amount in any alternate unit of account or similar language. In such a case, no mortgage amendment is required if the obligation is subsequently denominated in a different unit of account. Republic of Vanuatu Part II 19

32 HENGEN/RIDGWAY In addition a mortgage may secure an additional amount arising out of currency fluctuations, and such an amount may be separately defined and recorded as part of the total amount. 15. INTEREST AND COSTS Interest, interest upon interest, and costs may be secured by the mortgage without being included in the stated amount, a term intended to apply only to principal. A recording therefore usually specifies that the amount is, for example, USD 1,000,000 together with interest and performance of mortgage covenants. If interest is to be secured, a provision in the recorded instrument must justify it. Interest need not be expressed in terms of a simple rate. Formulae, reference to markets or prime rates, the mortgagee s costs of funding, and other methods are allowed. A mortgage may secure such interest on the obligation as the parties may agree. Accordingly, although no judicial decisions exist on the point, it is believed that the Maritime Act removes mortgages from the operation of any usury statute. The extent to which interest can be claimed is affected by the statutes of limitations. Limitation periods may apply in the case of mortgages; accordingly, it is prudent for a mortgagee not to allow interest to accumulate in arrears too long before seeking recovery, or to obtain a waiver of any reliance on a limitation ban. It is thought that costs are secured by a mortgage which explicitly states so but the Maritime Act is silent on this point. Most mortgages contain covenants to reimburse the mortgagee for a wide range of costs, such as: advances for the benefit of the shipowner; insurance; crews wages; repairs; and legal fees and other expenses of enforcement. The practical limit of the mortgagee s right to recover these sums may depend less upon the Maritime Act, which does not mention them, than upon the discretion of the court distributing the proceeds of the sale. No judicial decisions of record on mortgage enforcement in Vanuatu exist and, therefore, there are no helpful precedents. It seems fair to say that the Vanuatu courts are most likely to follow general legal principles and in the event that costs are detailed as payable in the original contract, the court will accept that payment thereof was the intention of the contracting parties. The issue of legal costs arising would also be determined on general legal principles operative in Vanuatu namely that the successful litigant is awarded costs. 16. PARTICULARS RECORDED AND OTHER EVIDENCE OF A MORTGAGE A signed copy of the actual mortgage instrument is kept as a part of the appropriate indexes in the central office of the Deputy Commissioner in New York. The principal particulars of the mortgage are listed on its index Republic of Vanuatu Part II 20

33 REPUBLIC OF VANUATU recording page. A copy of a mortgage index page may be obtained from the Deputy Commissioner s office, although the Maritime Act makes no explicit mention of it. In the case of a mortgage on a vessel bareboat charter registered in Vanuatu, a separate Bareboat Charter Mortgage book is maintained in which foreign mortgages on such vessels may (but are not required to) be recorded. The recording is done in the same order as in the foreign registry. Certified copies of mortgages are also available. On recording, the mortgagor will receive two certified copies of the mortgage, one of which must be kept on board the vessel and exhibited upon request pursuant to section 60 of the Maritime Act. The mortgagee usually receives a third counterpart marked by the Deputy Commissioner. A Certificate of Ownership and Encumbrance is also available, which will show all mortgages current in respect of a particular vessel. 17. FURTHER PRECONDITIONS FOR THE CREATION OF A VALID CHARGE BY WAY OF MORTGAGE Apreferredmortgagemustcoverthewholeofavessel.Itmustalsoshowthe interest of the mortgagor and the interest mortgaged. If it covers property other than the mortgaged vessel, the mortgage s priority status is not impaired if it provides for a separate discharge of such property by the payment of a specified portion of the mortgage indebtedness. The mortgage must be acknowledged. The mortgage acquires its status upon recording. Former technical requirements that the mortgage be endorsed on the vessel s Certificate of Registry in order to create preferred mortgage status have been abolished. Similarly, the formerly required affidavit of good faith is no longer necessary, although this does not imply that a valid mortgage exists even though it is not made in good faith. 18. PRIORITIES OF REGISTERED MORTGAGES INTER SESE Recorded preferred mortgages rank, inter sese, in the order of recording unless a recorded instrument (such as a subordination agreement) exists altering that priority. 19. PRIORITIES BETWEEN MORTGAGES AND OTHER ENCUMBRANCES No notices of maritime liens may be recorded other than mortgages and instruments relating to mortgages, such as amendments, supplements, assumptions, assignments, discharges, and subordination or coordination agreements. Republic of Vanuatu Part II 21

34 HENGEN/RIDGWAY Upon a vessel s sale in an in rem admiralty proceeding to enforce the preferred mortgage lien, under Vanuatu law, the mortgage has priority over all claims against the vessel except for certain liens: liens arising prior in time to the recording of the preferred mortgage; liens for damages arising out of tort; liens for crew s wages; liens for general average and salvage, including contract salvage; liens for unpaid tonnage taxes, fees, penalties and other charges due to Vanuatu; and expenses and fees allowed and costs taxed by the court. Because the order of liens is different in different sections of the Maritime Act, it is by no means clear that the order of priority of the claims listed above will be exactly as listed; it is, however, clear that they all come before a preferred mortgage. All claims other than those listed above are inferior to mortgages whether or not they constitute maritime liens or other claims that may be heard in a court of admiralty. It should be remembered, however, that when a Vanuatu preferred mortgage is enforced in a country other than Vanuatu, the law of the forum may assert the right to govern priorities. 20. RELATION OF REGISTERED MORTGAGES TO UNREGISTERED PREFERENTIAL RIGHTS In a proceeding for the sale of a vessel to enforce a preferred mortgage, all rights against the vessel are converted into rights against the proceeds from the sale. Prior rights of retention and any possessory lien rank below mortgages unless they constitute preferred maritime liens of the type mentioned in the preceding section. 21. TO WHAT DOES A REGISTERED MORTGAGE ATTACH? A registered mortgage attaches to the vessel that is the subject of the mortgage and to its appurtenances. Generally, the term appurtenances includes all articles necessary or intended for the navigation or operation of the vessel and its intended business. These appurtenances may be covered by the mortgage even when removed from the vessel (e.g., a spare propeller left in a shipyard for repair), until the appurtenance is permanently replaced. Although the mortgage may provide covenants with respect to insurance, the mortgage lien itself does not attach either to the insurance or to its proceeds. The mortgage may extend to the unpaid freights of a vessel when a vessel is arrested by a court or the mortgagee takes possession pursuant to the terms of the mortgage or an order of the court. On the other hand, a mortgage probably does not include property of a charterer placed on board temporarily or certain leased equipment not permanently affixed to the vessel or necessary to its navigation. The Maritime Act does not deal with these issues and no Vanuatu caselawexistsasguidance. Republic of Vanuatu Part II 22

35 REPUBLIC OF VANUATU 22. EFFECT OF PAYMENT OF DEBTS SECURED BY THE MORTGAGE Ordinarily, a mortgage is discharged pro tanto by payment of the debt secured thereby. When a mortgage is completely discharged, an instrument to that effect must be recorded. Upon discharge, the next ranking mortgage automatically advances in priority. 23. ASSIGNABILITY OF MORTGAGES A mortgage may be assigned in conjunction with the transfer of the indebtedness secured thereby. Mortgages may be partially assigned in conjunction with a partial transfer of the indebtedness. A partial assignment can be recorded, but the record should clearly show exactly what interest was assigned. Instead of assignment, a mortgagee will on occasion give various institutions participations that expressly provide that they do not assign an interest in the collateral or the debt secured thereby but only a right to participate in payments as and when received. Such participation does not make the participant a mortgagee; if properly drafted, it need not be recorded. 24. PROTECTION OF MORTGAGEES AGAINST SEIZURE, ETC. The interest of a mortgagee in a Vanuatu-registered vessel is not terminated by the vessel s forfeiture for violation of any law of Vanuatu unless the mortgagee authorized, consented, or conspired to effect the illegal act, failure, or omission that constituted the violation causing forfeiture. 25. EFFECT OF CHANGE OF OWNERSHIP OF A VESSEL Because a recorded mortgage constitutes a preferred maritime lien covering the vessel over which it is granted, change of ownership will not affect the status of the mortgage or the rights of the mortgagee under the mortgage. Contemporaneously with the transfer of ownership, it is customary that either old mortgages be discharged or, if the transferee intends to reregister the vessel under Vanuatu flag, that the transferee assume (by a recorded assumption agreement) the obligations of the transferor under each mortgage and under any underlying instrument relating to the indebtedness secured by such a mortgage. 26. MORTGAGE PROTECTION IN THE CASE OF DEREGISTRATION OF A VESSEL A vessel subject to a preferred mortgage may not be cancelled from the register so long as a preferred mortgage has not been discharged. If the vessel has already Republic of Vanuatu Part II 23

36 HENGEN/RIDGWAY been registered in another country without having first obtained a Vanuatu permission and deletion certificate, the mortgagee should not delay in exercising its rights. Vanuatu will not reregister a transferred vessel in Vanuatu if an existing mortgage has not been discharged, unless the vessel is simply being reregistered in Vanuatu with the consent of the mortgagee and the purchaser will assume or take subject to the mortgage (and the debt or obligation secured thereby). If the vessel is an actual or constructive total loss, the same principles should apply. Vanuatu will maintain a vessel on its register and continue to assess the owner for tonnage tax until proper steps for registry deletion have been taken, including discharge of any mortgages of record. This administrative action does not impair the mortgagee s lien or terminate its interest. See, however, the discussion in A, Chapter 4.2. above. 27. LIABILITY OF MORTGAGEES It is generally believed that a mortgagee not in possession has no liability for the torts of the owner or the vessel. However, a mortgagee who actually assumes possession or in some manner controls or influences the shipowner in the use and operation of the vessel may be liable for the same torts for which the shipowner would be liable. A mortgagee not in possession cannot be held liable for the owner s contracts unless the mortgagee has agreed to be so liable. Even after entering into possession, except possibly for environmental claims, a mortgagee is not likely to be held responsible for earlier contracts to which it was not a party, although contract breaches may give rise to liens against the vessel. A mortgagee in possession, however, may have some liability to continue the performance of a charterparty made by the owner and of which the mortgagee had knowledge. 28. SUBMISSION TO ENFORCED EXECUTION UNDER A MORTGAGE The lien of a preferred mortgage may be enforced in Vanuatu by a suit in rem in admiralty, or otherwise in any foreign country in which the vessel may be found pursuant to the enforcement procedure of that country. The mortgagee may also bring suit in personam against the mortgagor in any court of competent jurisdiction. An admiralty proceeding in rem under the mortgage is not precluded or impaired because the mortgagee may have additional rights under the mortgage to property other than the vessel. Republic of Vanuatu Part II 24