Viewpoint... A brief analysis of the legal risk of the ship's failure to register a mortgage.
Published:
2023-06-27
Case Introduction
On September 22, 2019, Company A and Bank B signed a "Liquidity Loan Contract", agreeing that Company A will borrow $10 million from Bank B to provide a mortgage guarantee for its own ship, sign a "Mortgage Contract" and register the mortgage. On September 22, 2020, Company A paid off the loan in accordance with the contract, and Bank B did not register for the release of the mortgage. In 2021, Company A and Bank B signed the Liquidity Loan Contract again, agreeing that Company A borrowed 10 million yuan, and Company A still used the above-mentioned ship to provide mortgage guarantee for the loan, and signed the Mortgage Contract, but did not register the mortgage again.
Focus issue one
Whether Bank B has a mortgage on the ship.
Article 393 of the the People's Republic of China Civil Code provides that a security interest is extinguished under any of the following circumstances:
The principal claim of the (I) is extinguished; the realization of the (II) security interest is realized; the (III) creditor waives the security interest; (IV) other circumstances in which the law provides for the extinction of the security interest. A mortgage is a security right and is a subordinate right. In this case, Company A has paid off the 2019 claims, even if Bank B has not gone through the mortgage release registration procedures, the main claim has been eliminated, then the security interest is eliminated.
Article 11 of the the People's Republic of China Maritime Law stipulates that a ship mortgage refers to the right of the mortgagee to give priority to the payment of the ship provided by the mortgagor as security for the debt, in the event of the mortgagor's failure to perform the debt, in accordance with the law. Article 413 of the the People's Republic of China Civil Code stipulates that if a mortgage is made by movable property, the mortgage shall be established from the time the mortgage contract takes effect. In this case, Company A entered into a Mortgage Contract with Bank B in 2021, and the mortgage contract was established and valid. According to the above-mentioned provisions, the movable property mortgage adopts the registration antagonism, that is, the movable property mortgage without registration does not affect the validity of the mortgage, the real right effect of the movable property mortgage has occurred, and Bank B enjoys the ship mortgage in accordance with the law.
Focus issue two
Whether Bank B can be paid first.
Although Bank B enjoys the mortgage right, because the priority compensation right of the ship mortgage is relative, Article 25 of the the People's Republic of China Maritime Law stipulates that the ship's priority is paid before the ship's lien, and the ship's mortgage is paid after the ship's lien. Therefore, the ship priority, ship lien, bona fide third party and other circumstances of the creditor outside the case may affect the order of payment of the ship mortgage of Bank B.
Article 22 of the Maritime Law of the the People's Republic of China stipulates that the following maritime claims shall have maritime liens: (1) claims for the payment of wages, other remuneration for labor, crew repatriation costs and social insurance costs arising from labor laws, administrative regulations or labor contracts by the master, crew members and other personnel working on board the ship; claims for compensation (II) personal injury or death incurred in the operation of the ship; requests for the payment of tonnage taxes, pilotage fees, port dues and other port fees for (III) ships; requests for the payment of salvage payments (IV) salvage at sea; and requests for property compensation arising from torts committed by (V) ships in operation. If a ship carrying more than 2000 tons of bulk cargo oil holds a valid certificate proving that it has carried out civil liability insurance for oil pollution damage or has corresponding financial guarantee, the claim for compensation for oil pollution damage caused by it shall not fall within the scope of the provisions of item (V) of the preceding paragraph. Ship lien is actually a special security interest based on the ship. The generation and existence of ship lien is based on the occurrence of the event that can trigger the above maritime claim, and will not be extinguished by the transfer of ship ownership, except that when the ship is transferred, the ship lien is not exercised within 60 days from the date of the announcement by the court on the application of the transferee. In the course of ship trading, if the seller fails to fully inform or disclose the obligation, the buyer cannot confirm whether there is a priority on the ship, and the confidentiality of the priority may affect the normal order of the ship trading market. Therefore, Articles 28 and 29 of the Maritime Law stipulate that the priority of a ship shall be exercised through the seizure of the ship giving rise to the priority by the court, and shall be extinguished if it is not exercised for one year from the date of the priority. The above-mentioned period is the period of exclusion and there is no suspension or interruption, I .e. if the ship's priority holder fails to exercise its priority within one year, the court shall not protect it beyond the time limit.
The right of retention of a ship refers to the right of a shipbuilder or ship repairer to retain the ship in its possession when the other party to the contract fails to perform the contract in order to ensure that the cost of shipbuilding or ship repair can be repaid. The lien on a ship shall be extinguished when the shipbuilder or repairer no longer takes possession of the ship built or repaired. The lien is a kind of legal security right, the exercise of the ship lien stipulated in Article 25 of the Maritime Law is limited to the shipbuilder and the ship repairer, and Article 161 of the Maritime Law stipulates the lien of the towing person in the case of the ship as a tow. Article 454 of the Civil Code stipulates that if the lien holder does not exercise the lien, the debtor may request the people's court to auction and sell the lien property. Then the ship as a special movable property, if the lien of the ship appears leakage, grounding and other inappropriate to continue to lien, coupled with the litigation time is too long and other issues, undoubtedly increased the difficulty of disposal. Therefore, in judicial practice, both the lien holder and the priority person need to seize the ship through the maritime court to guide its better preservation and realize the value of the ship.
Article 13, paragraph 1, of the the People's Republic of China Maritime Law stipulates: "In the establishment of a ship mortgage, the mortgagee and the mortgagor shall jointly register the mortgage with the ship registration authority." Article 225 of the Civil Code clearly stipulates that the right of movable property shall not be against a bona fide third party without registration. Although the Maritime Law does not specify whether the third party is in good faith, the author thinks that it should be understood as a bona fide third party from the principle of good faith, the basic value of civil law. The above-mentioned third parties are mostly buyers of mortgaged movable property, I .e., bona fide buyers may acquire unregistered mortgaged movable property under the bona fide acquisition system. The reason is that a bona fide third party, based on the appearance of trust in the right of the mortgagor's actual possession of the movable property, meets the provisions of bona fide acquisition when the movable property is not registered without a mortgage, if the third party is unaware of the fact that the movable property in the transaction has been mortgaged, when it pays a reasonable consideration and actually acquires the movable property. The Supreme People's Court on the application<中华人民共和国民法典>Article 54 of the Interpretation of the Guarantee System also stipulates the effectiveness of chattel mortgage without registration of chattel mortgage: (1) If the mortgagor transfers the mortgaged property and the transferee takes possession of the mortgaged property, the people's court will not support the mortgagee's request to exercise the mortgage right, except that the mortgagee can prove that the transferee knows or should know that a mortgage contract has been concluded; (II) the mortgagor to lease the mortgagor transfer the mortgagor transfer the mortgagor transfer the mortgagor transfer the mortgagor transfer the mortg, if the mortgagee exercises the mortgage right, the lease relationship shall not be affected, except that the mortgagee can prove that the lessee knows or should have known that the mortgage contract has been concluded; (III) other creditors of the mortgagee apply to the people's court for preservation or execution of the mortgaged property, and the people's court has made a property preservation ruling or taken enforcement measures, the people's court shall not support the mortgagee's claim for priority compensation of the mortgaged property; (IV) bankruptcy, if the mortgagee claims to give priority to the payment of the mortgaged property, the people's court shall not support it. From the above provisions, it can be seen that, in addition to bona fide buyers and lessees, in order to protect the rights and interests of general creditors, the court that first preserves or takes enforcement measures does not support creditors who have not created a mortgage on movable property. In addition, when the people's court accepts the mortgagee's bankruptcy application, it shall impose appropriate restrictions on the unregistered movable property mortgagee, that is, the unregistered movable property mortgagee shall not have an antagonistic effect on other creditors, and the priority claim will be converted into an ordinary claim for settlement.
Legal advice
In practice, the provision of collateral for operating ships and loans from banks or other financial institutions are the main financing channels for enterprises. As a special movable property, the mortgagee and the mortgagor shall, after signing the mortgage contract, jointly go to the ship registration authority to register the ship mortgage in a timely manner. If, after the signing of the ship mortgage contract, the mortgage is not registered, the mortgagee is unable to confront the bona fide third party who has acquired ownership of the ship, and the mortgagee may only claim liability for breach of contract against the debtor in accordance with the terms of the contract. In addition to bona fide third parties, priority holders and lien holders, in accordance with the Supreme People's Court on the application of<中华人民共和国民法典>The circumstances of Article 54 of the Interpretation of the Guarantee System may affect the priority payment of the mortgagee. As a financial institution, banks should have the duty of prudence. When handling loans for enterprises, banks should fully adjust the situation of collateral, fully understand the actual possession and use of ships, other mortgages and seizures of ships. If ships are involved in overseas operations, they should also pay special attention to whether there are cross-border optical groups. After the loan is processed, it is also necessary to understand the dynamic changes of the ship, including the condition of the ship, whether there are maritime accidents, claims, port fees, crew wages and other priority and liens. When participating in the ship loan financing business, financial institutions should pay close attention to the status of ships and adjust their business models and risk control measures in order to safeguard their legitimate rights and interests.
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