Introduction

Maritime trade is generally associated with a significant amount of economic risk. The necessity to secure potential financial rights of its participants has led to formation of numerous legal structures, which have been used mostly for protection of maritime trade related claims. In order to strengthen their rights and certainty of claims satisfaction, creditors have sought security among the most valuable assets of debtors, such as vessels, cargo or outstanding compensation and fees. This editorial outlines the institution of maritime mortgage, which is notable due to the special subject of its protection.

Maritime mortgage under rules of law

In the Polish legal system, the issue of maritime mortgage is governed by the Maritime Code of 18 September 2001 (Dz. U. No. 138, item 1545 with changes) - hereinafter referred to as the MC.
It is also worth mentioning that the aforementioned matter is also regulated in three international conventions, i.e.:
1) the International Convention for the unification of certain rules relating to the privileges and mortgages of the sea, signed in Brussels on 10 April 1926 (ratified in accordance with the act of 20 February 1936) (Journal of laws No. 33, item 260);
2) the Convention for the unification of certain rules relating to the privileges and mortgages of the 1967 signed in Brussels;
3) the Convention on the privileges and maritime mortgage signed in Geneva in the year 1993.

It should be pointed out that the Republic of Poland has not signed or ratified the latter two conventions thus far.
According to article 76 paragraph 1 of the MC, a vessel listed in the register of ships may be subjected to a pledge disclosed in this register (maritime mortgage). Regulations of the civil law governing mortgage apply accordingly, without prejudice to rules stipulated in the relevant MC chapter. Moreover, in accordance with paragraph 2 of the aforementioned provision, “registration is necessary to establish a maritime mortgage”.

Considering the above, it is important to indicate that the term “maritime mortgage” is also used in regard to a limited property right established upon a vessel. Such right may be exercised by a mortgager in order to satisfy claims by way of foreclosure. Importantly, a mortgager is entitled to pursue his claims prior to other personal creditors and regardless of who is a ship owner at the time. It is impossible, however, to exclude circumstances under which a maritime mortgage shall not guarantee satisfaction of claims, for example due to market value of a vessel or different regulations forming an altered order of creditors, causing claims deriving from maritime mortgage to be omitted or satisfied only after other claims.

Establishment of maritime mortgage

It should be underlined that declaration of intent regarding establishment of maritime mortgage, should generally be made by a ship-owner in writing, with signature certified by a notary.
According to article 78 § 1 of the MC, maritime mortgage can be expressed not only in Polish zloty, but also in a foreign currency or in the international reserve assets referred to in article 101 § 2 of the MC, such as the Special Drawing Rights (SDR) defined by the International Monetary Fund. Moreover, in accordance with article 78 § 2 of the MC, it is possible to establish maritime mortgage on more than one vessel in order to secure a single claim. As indicated above, making a relevant declaration of intent by a ship-owner is necessary to establish the maritime mortgage. The aforementioned declaration may be made unilaterally or by conclusion of an appropriate agreement – generally between a mortgager and a ship-owner as a personal debtor.

It should be stated that maritime mortgage may be established by more than one person. In addition, as a general rule, this type of mortgage can also be furnished by a ship-owner, who is not a personal debtor of a mortgager. As an exception, maritime mortgage may be established by a person who is not a ship-owner but, on the grounds of an agreement with a ship-owner, has used a vessel as such.

As indicated above, declaration of intent of a ship-owner considering establishment of maritime mortgage should be made in writing with signature certified by a notary (article 77 § 1 of the MC). Although the rules of the Maritime Code do not stipulate the content of such declaration, it should express the will to establish a maritime mortgage as well as define the maritime claims specifically.
It must be noted that maritime mortgage may also be established as a result of other activities, for example, through application per analogiam of article 109 of the Land Registers and Mortgage Act, according to which a maritime mortgage may be established on a vessel registered in the register of ships due to immediate execution of a judgment pursuant to article 777 § 1 of the Civil Procedure Code.

Subject of security

Most importantly, maritime mortgage burdens a vessel. It spreads, however, onto components of a vessel and any such objects within it too.
Furthermore, according to article 79 § 1 of the MC, apart from vessel and its components, maritime mortgage also burdens claims of a ship-owner which have come to existence after a maritime mortgage was established, due to:
1) compensation for damage or loss of a vessel, including insurance compensation;
2) remuneration for rescue to the extent that it reimburses damages of a vessel caused by a rescue;
3) participation of a vessel in a general average;
4) fees for renting or leasing a vessel.
It is worth mentioning that pursuant to the aforementioned provision of § 2, the legislator enabled contracting parties to broaden the scope of mortgaged claims.

Maritime mortgage on a vessel under construction

Due to article 82 § 1 of the MC, maritime mortgage may be established on a vessel under construction. In order to explain the concept of a "vessel under construction", it is necessary to cite article 2 § 2 of the MC, according to which a “vessel under construction is a vessel whose keel was laid down or an equivalent construction work was undertaken. It remains a vessel under construction until its completion”.

It should be noted that maritime mortgage on a vessel under construction generally grants creditor the same rights as an ordinary mortgage and it spreads onto components of a vessel. On the basis of article 82 § 2 of the MC, “maritime mortgage on a vessel under construction includes materials, equipment and appliances located in a shipyard constructing the mortgaged vessel, which by marking or otherwise is expressly identified as intended for construction or equipment of the vessel”. Maritime mortgage on   a vessel under construction is currently a very convenient legal instrument, commonly used in shipbuilding industry as a form of security of any claims ensuing construction or reconstruction of vessels.

Satisfaction of maritime mortgager

Provisions of the Maritime Code do not envisage means to satisfy a maritime mortgager. Guidance with this issue should be sought within other binding legal acts, such as the Civil Procedure Code (articles 1014-10222). In accordance with regulations of this code, principles of real estate foreclosure should apply accordingly to enforcement proceedings concerning registered vessels. In such an event, a bailiff of court with jurisdiction over territory where the vessel remains upon commencement of enforcement proceedings is the one eligible for undertaking relevant activities.

Execution against foreign vessels located within the territory of the Republic of Poland also occurs in accordance with rules of the Civil Procedure Code, if its provisions do not state otherwise. It is of crucial importance that a bailiff notifies also the foreign registry authorities (the flag State of the vessel) about sequestration of a foreign vessel.

Summary

In practice, maritime mortgage is a convenient way of maritime claims protection. It is obvious that increasing costs of construction and operation of vessels often require obtaining adequate funding and, consequently, providing appropriate protection for institutions or entities financing such enterprise. It is true that international marine traffic is currently exposed to many unpredictable events related to maritime terrorism and other perils, which may result in sinking or destruction of a vessel. The aforesaid does not, however, deprive maritime mortgage of its appeal as one of the most efficient forms of creditors protection.

The fact that the institution of maritime mortgage is governed by a separate chapter of the Maritime Code clearly confirms its present significance in the maritime trade. What is more, the socioeconomic transformations in the Republic of Poland over the past years contributed to an increase in interest in this legal institution. In conclusion, maritime mortgage should currently be considered a basic merit of securing the broadly-defined maritime and shipyard economic relations.

Radca Prawny Mateusz Romowicz

Aplikant Radcowski Łukasz Pawłuszyński

For more information: kancelaria-gdynia.eu , prawo-korporacyjne.pl
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