Ship Mortgage and the Foundations of Registration
The relevant provisions of the Maritime Code regulate the ship mortgage — the pledge of a ship — comprehensively. Any ship, including one under construction, or a right in it may be mortgaged by the shipowner as security for a loan or other financial accommodation. The mortgagee may be any natural or legal person of Georgia or of a foreign country to whom a ship may by law be transferred as a pledge. The register of ships is kept by the agency, which issues the corresponding certificates and approves the rules of registration, of keeping the register and of recording maritime mortgages.
A certificate of temporary registration is issued before permanent or term registration for a period of not more than 6 months, and this period may be extended up to 1 year. In exceptional cases, upon a written application of the shipowner and with the consent of the chief registrar, the validity of the certificate may be extended further after expiry, but by not more than 1 year. A certificate of temporary registration gives rise to the same rights and obligations as permanent registration, which makes it a fully functional instrument during the transition to full registration.
The Mortgage Contract and Its Registration
The law requires the mortgage contract to indicate the names and addresses of the parties, the substance of the claims secured by the pledge, the form of the mortgage, the term for performance of the obligation, the valuation of the ship and its location, the registration, transfer and amendment of the mortgage, the priority of the registered mortgage, and any other condition raised and agreed by a party. The contract must be duly notarised and must necessarily pass through the State Register of Ships of Georgia, with an entry made in the certificate of ownership of the ship; for registration the original of the contract and a notarised copy must be submitted.
The agency is obliged to provide an extract from the register to the mortgagor and, on request, to the mortgagee and other interested persons; both registration and the issue of the extract are fee-based. It is also significant that a mortgage does not mean the alienation of the ship to the mortgagee, and the mortgagor is not deemed a person who loses the right of ownership in the ship. The rights and obligations of the parties under the contract are determined by the law of the mortgagee's country, unless otherwise agreed between them.
The Rights of the Mortgagee and the Arrest of the Ship
By virtue of the mortgage the mortgagee has the right to satisfy the claims in full at the expense of the mortgaged ship — in particular, damage caused by the deferral of obligations and interest, and, in the cases provided for in the contract, also a penalty; the mortgagee's necessary expenses for securing the mortgage claims must likewise be reimbursed. The mortgaged ship is foreclosed upon in accordance with the mortgage contract, and the realisation of the foreclosed ship takes place under the legislation in force, unless the contract provides otherwise.
In practical terms the priority of registered mortgages matters greatly: the contract reflects the registration, transfer and amendment of the mortgage, which facilitates decision-making where several mortgagees exist. Any other condition raised and agreed by a party may also be written into the contract, for instance additional security or information covenants. Since the parties' rights and the formalities of the contract are governed by the law of the mortgagee's country unless otherwise agreed, that choice becomes one of the central issues of negotiation with foreign financial institutions and should be fixed in advance.
The arrest of a ship occurs only to secure a maritime claim. A maritime claim derives from the ownership of the ship and from other proprietary relations arising in the course of the construction, management, operation or commercial use of the ship, its mortgage or salvage operations. Arrest and release are carried out only by a court in accordance with the civil procedure legislation, and a ship in the state ownership of Georgia may be arrested only with the consent of the Government, an additional layer of protection for public vessels.
Frequently Asked Questions
Can a ship under construction be mortgaged?
Yes. Any ship, including one under construction, or a right in it may be mortgaged as security for a loan or other financial accommodation.
For what term is a temporary registration certificate issued?
For not more than 6 months, with a possible extension up to 1 year and, exceptionally with the consent of the chief registrar, a further extension.
Where is a maritime mortgage registered?
In the State Register of Ships of Georgia: the contract is first notarised, and the registration is reflected by an entry in the certificate of ownership.
Does ownership of the ship pass to the mortgagee?
No. A mortgage does not mean the alienation of the ship, and the mortgagor is not deemed a person who loses ownership of the ship.
How We Help on Legal.ge
The Legal.ge team supports shipowners and financiers in structuring and registering maritime mortgages: we draft the contract, determine the required details, conduct negotiations and assess the risks connected with arrest and the satisfaction of claims. Contact us: we will examine your situation and plan the legal steps for your transaction.