Marshall Islands

There is no required form of ship mortgage, but each instrument must be duly acknowledged by an officer or authorized agent of the owner stating the officer/agent's authority to execute the instrument, and stating that the instrument was executed pursuant to that authority. All instruments must be in English, except mortgages in foreign languages for vessels being bareboat chartered into the Marshall Islands, recorded pursuant to the Marshall Islands Maritime Act. In those cases, only the cover page and execution pages must be translated.

All mortgages, amendments, addendums, supplements, assignments, coordination agreements, assumptions or subordination agreements must be reviewed prior to being recording. The final draft should be presented to the office, where it will be recorded, at least two (2) days before the desired recording date and must include the following:
• The name of the vessel
• The date of maturity of the mortgage, and if there is more than one date, the amount of indebtedness to which each date relates
• In the case of revolving credit, the maximum amount that may be outstanding at anyone time, and the sum total of advances which may be made during the life of the mortgage
• A statement that the mortgage is secured by the whole of the vessel
• A list of all non-vessel property used for security and any arrangements made for separate discharge
• The identity of all parties to the mortgage
• The status of the person executing the mortgage

On March 6, 2013, the Republic of the Marshall Islands’ Nitijela passed the Maritime Amendment Act (No. 1), 2013 – a legislative initiative of key significance to the international marine finance community. The first-of-its-kind legislation permits a “financing charter” to be treated as a preferred mortgage in favor of the registered owner of a Marshall Islands vessel, which allows a charter party to make precautionary security filings to protect and perfect its interest in a chartered vessel. This solves the long-standing issue in maritime finance where a charter party could lose its interest in a chartered vessel for lack of perfection if its charter were recharacterized as a security agreement.

The legislation amends the Marshall Islands Maritime Law to enable equipment lessors who provide lease financing of vessels the same security in collateral enjoyed by finance lessors of non-maritime property. A lessor under a financing charter filed pursuant to this amendment will enjoy the same priority as a mortgagee currently enjoys under a preferred mortgage. A title holder may now perfect its security interest in a leased vessel in a manner similar to how lessors of other property may perfect security interests under the Uniform Commercial Code, as well as 49 U.S.C. Sections 11301 (as to rolling stock and appurtenances) and 44107 (as to aircraft and appurtenances). The new law is also consistent with the provisions and rationale underlying the Convention on International Interests in Mobile Equipment (Capetown, November, 2001) with respect to aircraft, railcars and space vehicles.

For purposes of the legislation, a “financing charter” is considered to be any “contract in the form of a demise or bareboat charter” covering a vessel which is “agreed by the parties to be or is determined in judicial or arbitral proceedings to create in favor of the documented owner a security interest in the vessel granted by the finance charterer.” The new legislation provides for filing requirements for a financing charter that are consistent with filing requirements for more traditional Marshall Islands preferred mortgages, including that the financing charter be signed and acknowledged by the parties and contain recitals on the amount secured, vessel particulars and full names and addresses of the parties. It is important to note that the agreement between owner and charterer, that a charter constitutes a “financing charter,” is not binding on third parties. In this way, the new provision allows parties the flexibility of precautionary filings where there is a risk of recharacterization by a court that a charter is, in fact, a security agreement.

(Information on the 2013 Maritime Amendment Act was originally published by US law firm, Vedder Price.)