Research On The Legal Issues Of The Realization Of The Mortgage On Ships Under Construction

In the process of ship construction,it has been a common practice that shipping enterprises and shipbuilders get mortgage financing by ships under construction.The realization of the mortgage on ships under construction is an important legal issue,which relates to the legitimate rights and interests of the parties to the ship construction contract,the mortgagee of the ship under construction and other holders of security interests related to the ship.With the official entry into force of the Civil Code and the revision of the Maritime Code,this thesis examines the legal issues in realizing the mortgage on ships under construction from three aspects: realization conditions,realization methods,and the rule of compensation sequence.In addition to the introduction and conclusion,this thesis is divided into four chapters.The first chapter provides an overview of the important concepts involved in the realization of the mortgage on ships under construction.It makes a clear legal definition of the ships under construction and the mortgage on ships under construction and analyzes the specific provisions related to the realization provided in China’s Maritime Code and Civil Code,finding that the provision of existing law is not entirely satisfactory on the legal nature of the ship construction contract and the rule of compensation sequence and the implementation approach.The second chapter discusses the realization conditions.Firstly,the legal nature of ship construction contract should be determined by the specific contract terms,the true contractual purpose of the parties and the specific conduct of the parties during the performance.Secondly,it discusses the validity of the mortgage on a ship under construction after the completion of its construction and delivery.When the mortgagor is the shipbuilder,the delivery of the completed ship by the builder shall produce no effect without the mortgagee’s consent while the mortgage remains valid.If he obtains mortgagee’s consent,the mortgage should have no retroactive effect.When the mortgagor is the hirer,as there is only physical form has been changed,the mortgage remains valid.Thirdly,it identifies the specific circumstances of the realization of the mortgage.Specific examples include misappropriation of ship construction funds by the mortgagee,failure to meet the contracted construction schedule,declaration of bankruptcy by the mortgagee,and court seizure of the mortgaged ship under construction.The third chapter analyzes the advantages and disadvantages of three new ways of realization if they are introduced and applied to the mortgage on ships under construction in China.As for the transferring guarantee system,under the existing chattel guarantee system in China,the mortgagee can’t directly get the ownership of ships under construction and the ship registration authority has no obligation to review the mortgage contract.For the receiver of the floating charge,the mortgage of ships under construction is not a kind of floating charge and the role of the third-party receiver can be replaced by the mortgagee of ships under construction.The way agreed by the parties is actually a deformation of discount or the alteration of the contents of the loan contract between the mortgagee and the mortgagor.Based on the previous three chapters,the fourth chapter puts forward some suggestions to improve the realization system of the mortgage on ships under construction.Firstly,the validity of the mortgage after the delivery of the completed ship should be stipulated separately.If the mortgagor is the shipbuilder,it shall not be set up against the third party that has paid the total ship payment.If the mortgagor is the hirer,the party shall apply for transferring the registration of mortgage of ships under construction into the registration of mortgage of ships when the party undergoes the initial registration of ownership of ships after the completion.Secondly,the protection of the mortgagee should be strengthened.If the mortgagee continues to invest funds to complete the construction,the funds shall be given priority to the payment.And the parties should be allowed to apply to the court to transfer the ship under construction by the evaluation price.Thirdly,the rule of compensation sequence between a ship under construction mortgage and other security rights should be clearly established.There can be multiple mortgages on a ship under construction,or general mortgages on the properties of this ship under construction.The shipbuilder enjoys the possessory lien in specific situations.If accident happens on the trial voyage,the salvor may have possessory lien.The payments shall be made in the order of the registration of the mortgage and the registered mortgage shall be prior to the unregistered ones.The foregoing possessory lien shall be prior to the mortgage on ships under construction.