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10 October 2012
The 1967 convention versus Section 74 of the Maritime Code
Legal implications of non-compliance with Section 74
Some international ship registries do not require ship mortgages to specify the amount being secured by the underlying obligations. However, in Norway, a ship mortgage is required not only to identify the property to be mortgaged, but also to specify the maximum amount which is secured under the mortgage. What happens when a foreign ship mortgage is to be enforced against a foreign vessel located in Norway? Is a foreign-registered mortgage, without a specified amount for security, enforceable under Norwegian law?
Under the International Convention for the Unification of Certain Rules Relating to Maritime Liens and Mortgages 1967, state parties are obliged to recognise mortgages and liens registered against vessels registered in ship registries outside of the state party, provided that such mortgages and liens fulfils certain requirements. The 1967 convention was ratified by Norway in 1972 and the obligation to recognise foreign mortgages, emerging from Article 1 of the convention, was mirrored in Section 259 of the Maritime Code 1893 and in Section 74 of the Maritime Code 1994.
Section 74 states that a foreign mortgage (or lien) is to be recognised in Norway provided, among other things, that:
The lack of a specified amount of a foreign mortgage should not render difficulties (when enforcement is taking place in Norway) if either the register or instruments referred to above can identify the amount secured under the mortgage. The issue – which is further considered below - arises if neither the register nor the instruments (eg, the ship mortgage deed, the deed of covenants) can identify the amount secured.
It follows from the preparatory works relating to the transformation of the 1967 convention into Norwegian law that the legislature did not intend to deviate from the convention. Consequently, the requirement in Norwegian law to specify the amount of the mortgage also applies to foreign mortgages or other instruments to the extent that enforcement is sought in Norway.
This then leads to the question of whether Section 74 of the Maritime Code 1994 (read together with the relevant provision of the Code of Enforcement) provides a basis for enforcing foreign mortgages or other instruments and to what extent the lack of specification of the amount secured may affect the ability to enforce.
As mentioned, Section 74 sets out the conditions for 'recognition' of foreign mortgages when enforcement is sought in Norway. Legal theory suggests that the term 'recognition' used in Section 74 may imply that a mortgage or instrument is legally directly enforceable (ie, can be used for enforcement directly without obtaining a prior judgment).
This view appears to be based on an interpretation of Article 1 of the 1967 convention. The English version includes the term 'enforceable', which shows that the intention of the convention was to apply a wider construction than is implied by the term 'recognition' which follows from the Norwegian text. As the legislature made no effort to deviate from the 1967 convention, this has been taken by some to mean that the term 'recognition' is the same as 'enforceable'. The view expressed in legal theory is that this results in harmony with the preparatory works and the relevant provisions of the Code of Enforcement.
On the basis of this approach, Section 74 entitles the holder of a foreign mortgage or instrument to file a petition for enforcement to the competent court while the vessel is in Norway. Further, such mortgage or instrument is to be taken into account when another claimant, with lower priority than the holder of the foreign mortgage or instrument, requests that the vessel be sold. Therefore, the profit from the sale of the vessel must be sufficient to cover all claims with better priority, including the foreign mortgage or instrument.
However, if the foreign mortgage or instrument do not specify the sum secured, it may not be enforceable pursuant to Section 74. The provision states the conditions for 'recognition'; in particular, one such condition is that the amount secured must be specified. The Code of Enforcement contains a similar provision in Section 11(2) and states that a registered mortgage is enforceable provided that the mortgage is collateral for a certain (or fixed) sum of money. Hence, it is evident that both codes require the amount of the mortgage to be specified.
So what can the mortgagee do if the foreign mortgage or instrument do not qualify for recognition pursuant to Section 74 of the Maritime Code? The solution may be for the mortgagee to obtain a judgment from the relevant Norwegian court in order to identify the amount that may be secured under the mortgage or instrument. Alternatively, such a judgment may be obtained in a foreign court and then enforced in Norway.
Section 4-1(f) of the Code of Enforcement accepts judgments from foreign jurisdictions as enforceable in Norway if the judgment "according to legislation or agreement with a foreign state is binding and shall be enforceable in this Kingdom". A judgment from a state bound by the Lugano Convention 2007 (which relates to the recognition and enforcement of foreign judgments) is enforceable in Norway, as Norway is party to the convention.
Equally, a decision by a foreign court (in a state that is not a party to the Lugano Convention or other mutual agreements with Norway relating to the enforcement of judgments) may also be binding in Norway. The condition is that a judgment is binding in accordance with Section 19-16 of the Civil Procedure Act, which states that a decision by a foreign court in a civil matter which is binding in that country will be binding in Norway when the court has jurisdiction arising out of a written agreement between the parties.
Possession of a special basis for enforcement may prove to be more efficient when enforcing the mortgage against the vessel.
It is likely that the courts in Norway will accept a mortgage without specification of sum secured as directly enforceable if this can be identified in the register or other instruments deposited with the registrar in the law of the state where the vessel is registered. Inclusion of a specific amount on the foreign mortgage and thereby qualifying for recognition under Section 74 is, however, advisable if there is a probability that enforcement may occur in Norway.
For further information on this topic please contact Gaute Gjelsten, Hågen Hansen or Geir Ove Røberg at Wikborg Rein by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org).
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