10. Legal Aspects of Ship Mortgages

In its basic form, a mortgage may be defined as a charge by way of lien over a vessel given to secure a loan. The lien is extinguished when the obligation has been discharged, and will usually “attach” to the asset, meaning that it can be seized and sold by the original lender, leaving the new owner with a separate claim against the vendor from whom it was bought. If the prior obligation is discharged, for example by full payment of the outstanding debt and any interest thereon, the lien will detach from the asset. However, if there is default in payment, then the creditor can initiate proceedings to seize and sell the asset to which the lien has attached. In such circumstance, the buyer in this later sale will obtain good title to the asset and will have no claim against the lienee who exercised the power to sell, unless the latter was acting in bad faith. The United Kingdom Merchant Shipping Act 1988, Schedule 1, Paragraph 21, provides as follows: