All questions

Security and enforcement

i Security documentsMortgage

There is no prescribed form of preferred ship mortgage, save for certain terms that need to be included in the mortgage to be regarded as preferred. The preferred ship mortgage is maintained in the main office of the Marshall Islands Maritime Administrator in the United States. As a matter of practical and logistical efficiency, flexibility and convenience, the preferred ship mortgage may be recorded by the Commissioner of Maritime Affairs and any deputy commissioners at any of its offices worldwide. The preferred ship mortgage needs to be in English and will require notarisation or acknowledgement by a special agent for the Marshall Islands. The mortgagees do not have to be resident in the Marshall Islands to benefit from a mortgage.

Finance charter

As referenced in Section II.i, under Marshall Islands law, a 'financing charter' is defined as 'a contract in the form of a demise or bareboat charter, regardless of duration, between the documented owner and the finance charterer of the entire vessel, which contract 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'. For a financing charter to be recorded in the Marshall Islands, it must be dated, signed and acknowledged by the documented owner and the charterer, and must include the name and official number of the vessel, the names and addresses of the documented owner and the charterer, and the aggregate of the nominal amount of all charter hire payments and purchase option amounts payable (or which may become payable) under the charter, exclusive of any interest, indemnities, expenses or fees.

Share pledge

The pledge of shares (or membership interests) in Marshall Islands shipowners are normally established by the grant included in a pledge agreement and will be perfected by delivering the certificated shares (or interests) into the possession (or control) of the secured party, along with the undated and signed relevant ancillary instruments (e.g., director resignations and powers of attorney) or as otherwise required or desirable under the laws of the relevant jurisdiction.

Guarantee

A Marshall Islands corporation is permitted to guarantee the obligations of others, provided this furthers its corporate purpose, unless specifically limited by Section 16 of the Business Corporation Act or in its articles of incorporation. If that is not the case and to avoid any ambiguity, doubt or issue, it is highly recommended that the Marshall Islands company obtains shareholder consent to the directors' resolutions. Without shareholder consent, a shareholder could challenge a transaction at a later date on the basis that it was not in furtherance of the corporation's corporate purpose, and the transaction could potentially be set aside. To address this risk, shareholder resolutions should be required as standard.

ii Enforcement, arrest and judicial sale

The Marshall Islands adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) in 2007. Domestic legislation, in the form of the Uniform Foreign Money-Judgments Recognition Act also applies, and, as its name suggests, addresses the enforcement of foreign judgments. The Enforcement of Judgments Act and the Marshall Islands Rules of Civil Procedure (RPC) address the matter of enforcement generally.

Foreign arbitral awards can be recognised in the Marshall Islands. Once recognised, they can be enforced locally and this can include the right to seek to have a receiver appointed to take over the assets of the Marshall Islands company. It should be stressed at the outset that proceedings in the Marshall Islands must be seen and pursued in the context of an overall recovery strategy as it is unlikely that major assets will be located within the jurisdiction of the Marshall Islands courts.

To have an award recognised in the Marshall Islands, a number of steps must be taken, beginning with the filing of a complaint in the Marshall Islands court, which can be done electronically. Following this, a summons will be issued, stating the name of the parties and of the court, directed to the defendant and stating the name and address of the plaintiff's attorney, the time within which the defendant must appear and defend, and notifying the defendant that a failure to appear and defend will result in default judgment against the defendant, signed by the clerk and bearing the court's seal. A summons must be issued for each defendant to be served. The serving of the summons will be within 120 days of the filing of the complaint and must be served with a copy of the complaint. At this point the defendant has the option to answer or oppose the complaint and is able to raise affirmative defences, such as those listed in the RPC under Rule 12(b), which must be done within 21 days of receiving the summons. It may be at this stage that the Marshall Islands company would state that it opposes domestication of the arbitral award. A plaintiff may then file motion for summary judgment if he or she can show that the defendant has raised no genuine issue as to any material facts, and that the plaintiff is therefore entitled to judgment as a matter of law (a summary judgment). Once the arbitral award has been domesticated, it will be a judgment of the Marshall Islands courts and once a judgment is obtained, a demand for payment can be made and a successful party is not obliged to take enforcement steps. A successful party can obtain a judgment and make demands, for example, every six months or so and still maintain the right to commence enforcement at a later date.

With the exception of vessels operating strictly domestically in the Marshall Islands, it is rare to arrest and foreclose a Marshall Islands-registered vessel or any foreign-flag-registered vessel under the jurisdiction of the Marshall Islands courts.

The Maritime Act provides that a preferred mortgage on a Marshall Islands-registered vessel may be enforced in rem in admiralty or in any foreign country in which the vessel is located and follows the laws and enforcement procedures of the country arresting the vessel.

iii Ranking of liens

Under the Maritime Act, a preferred mortgage should have priority over all claims save for the following:

  1. maritime tort liens for damage caused by the vessel;
  2. maritime liens for unpaid tonnage tax, fees, penalties and other charges arising under the Maritime Act or its implementing regulations;
  3. crew wages;
  4. general average;
  5. salvage (including contract salvage); and
  6. expenses and fees allowed and costs taxed by the court.

It should be noted that any maritime lien claim for necessaries such as repairs, supplies, towage and drydocking that arose prior to the preferred mortgage registration should have priority over such preferred mortgage.