"NITIJELA OF THE MARSHALL ISLANDS

11TH CONSTITUTIONAL REGULAR SESSION, 1990

BILL NO. 116
P.L. 1990-76
________

AN ACT

To make technical corrections to the Maritime Act 1987 with respect to the recording of preferred ship mortgages and maritime liens, and to provide for the formation of off-shore exempt corporations for the purpose of engaging in the business of operating, promoting and managing vessels engaged in international trade.

BE IT ENACTED BY THE NITIJELA OF THE MARSHALL ISLANDS:

Section 1. Short Title.

This Act may be cited as the Maritime (Amendment) Act 1990.

Section 2. Amendments.

(1) Section 50 of the Maritime Act 1987, and the Part designation immediately, preceding that-Section, are repealed and 7 and the following enacted in their place:

"Section 50. Exempt corporations.

(1) The intent of this section is to allow the Republic of the Marshall Islands Maritime Authority to respond expeditiously in providing ship owners the ability to form Marshall Islands exempt corporations.

(2) Corporations formed pursuant to this Section (hereinafter "exempt corporations") shall be subject to the Corporations, Partnerships and Associations Act except as otherwise noted.

(3) The purpose of an exempt corporation shall be to engage in the business of operating, promoting and managing vessels engaged in international trade. Such purpose shall be stated in the articles of incorporation of the exempt corporation.

(4) Exempt corporations shall not be subject to taxation by the Government or any Local Government of the Republic.

(5) Exempt corporations shall be founded by at least two parties, which shall be either natural persons or legal entities, including but not limited to corporations, trusts, partnerships, associations, and joint ventures. Founders need not be citizens, residents or nationals of the Republic, and need not be established in any manner within the Republic.

(6) The instrument of incorporation containing the articles of incorporation shall be drawn up in the English language, and in any other language or languages, if necessary, and shall be executed by the two founders before a Notary Public.

(7) All business activities of exempt corporations shall be carried on outside of the jurisdiction of the Republic. For purposes of this Section, an exempt corporation is deemed not to be doing business in the Republic for purposes of the Corporations, Partnerships and Associations Act, and is deemed not to carry on "business" within the Republic, as that term is defined in Section 2(a) of the Income Tax Act 1989.

(8) The number and names of the first directors of the exempt corporation shall be determined in writing by the subscribers. A director may be a corporation. The directors shall appoint a registered secretary.

(9) Applications for incorporation shall contain all of the information required pursuant to Section 4 of the Corporations, Partnerships and Associations Act, and shall be to filed with the Commissioner of the Maritime Authority, or the Commissioner's designee, who shall review the application for a determination that:

(a) the purpose of the subject corporation is to engage in the business of operating, promoting and managing vessels engaged in international trade; and

(b). the "business" of the corporation is not carried on within the Republic as defined in Section 2(a) of the Income Tax Act 1989.

The Commissioner or the Commissioner's designee, shall issue a Permit to Incorporate if the subject corporation meets the above criteria, which is deemed sufficient documentation of ownership for issuance by the Maritime Authority of a Provisional Certificate of Registry to ships owned by the subject corporation and noted as "a company in formation".

(10) Permits shall be submitted to the Cabinet for approval and issuance of a Corporate Charter. Such approval shall not be unreasonably withheld unless:

(a) information on the application for incorporation is proven fraudulent; or

(b) the corporation is engaged in business outside of the scope and purpose as stated in the Articles of Incorporation.

(11) An exempt corporation must comply with all laws and regulations of the Republic, except as otherwise noted.

(12) The Commissioner, or the Commissioner's designee, may adopt regulations for the purpose of carrying out and giving effect to the provisions of this section."

(2) Sections 51 through 67 of the Maritime Act 1987 are repealed and the following enacted in their place:

"PART V - PREFERRED SHIP MORTGAGES

AND MARITIME LIENS

Section 51. contents of Record.

(1) A sale, conveyance, mortgage or assignment of mortgage of any vessel shall not be valid in respect to such vessel against any person other than the grantor or mortgagor, his heirs or devisees and persons having actual notice thereof, until the instrument evidencing such transaction is recorded in the office of the Commissioner or Deputy Commissioner.

(2) The Commissioner or Deputy Commissioner shall record such instruments in the order of their reception in books to be kept for that purpose and indexed to show:

(a) the name of the vessel;

(b) the name of the parties;

(c) the time and date of reception of the instrument;

(d) the interest in the vessel transferred or affected; and

(e) the amount and date of maturity of any mortgage.

Section 52. Recording of preferred mortgage.

A valid mortgage, which, at the time it is made, includes the whole of any vessel, shall have a preferred status in respect to such vessel as of the date and time of its recording if:

(a) the mortgage is recorded as provided herein; and

(b) the mortgage does not stipulate that the mortgagee waives the preferred status thereof.

Section 53. Termination of mortgagee's interest.

(1) The interest of a mortgagee in a vessel registered under this Act shall not be terminated by a forfeiture of the vessel for a violation of any of the laws of the Republic, unless the mortgagee authorized, consented, or conspired to effect the illegal act, failure or omission which constituted such violation; and 

(2) A vessel which is the subject of a Preferred Mortgage may not be cancelled from the Register so long as the indebtedness secured by the Preferred Mortgage remains unsatisfied or the Mortgage is not otherwise discharged.

Section 54. Recording

A bill of sale for a vessel not presently under the Flag of the Republic need not be recorded. A bill of sale for a vessel presently under the flag of the Republic must be recorded and must have attached to it a true copy of its latest Certificate of Registry. A bill of sale, conveyance or mortgage shall not be recorded unless it states the interest or the grantor or mortgagor in the vessel and the interest so sold, conveyed or mortgaged. A bill of sale, conveyance, mortgage, assignment of mortgage or certificate of discharge of mortgage shall not be recorded unless previously acknowledged before the Commissioner or Deputy Commissioner or a consul or consular agent of the Republic or before a notary public or other officer authorized by the laws of the place where the acknowledgement is made to take acknowledgements of deeds or it bears a Hague Convention apostille or such other proof of due execution as may to be provided for by regulation. Upon presentation for recording of a mortgage, proof must be furnished to the Commissioner or Deputy Commissioner of the amount or amounts secured or to be secured the maturity date and the dates of any loan or financing documents or evidence of debts in support thereof. The prescribed fee for recording a document must be paid before its recordation.

Section 55. preferred mortgage.

(1) A mortgage which complies with the conditions enumerated in this Part shall be designated as a Preferred Mortgage.

(2) A mortgage which includes property other than a vessel shall not be held a Preferred Mortgage unless the mortgage provides for the separate discharge of such property by the payment of a specified portion of the mortgage indebtedness.

Section 56. Advance and Repayments.

(1) A preferred Mortgage may secure future advances and shall not be extinguished or lose its priority because all previously outstanding obligations secured thereby have been fully paid or otherwise performed, provided that an advance or other value is to be given at a later time pursuant to commitment existing at the time the Mortgage is recorded. For the purpose of this Subsection, an advance or other value is given "pursuant to commitment" if the mortgagee or other person entitled to the benefit of the security of the mortgage has bound himself to give it, whether or not a subsequent event of default or other event not within his control has relieved or may relieve him from his obligation.

(2) When a Preferred Mortgage secures an obligation in respect of which one or more advances or repayments may be made from time to time in the future and the maximum amount outstanding under the obligation at any one time is limited to a certain amount, the amount to be recorded with respect to such obligation may be either:

(a) such maximum amount that may be outstanding at any one time, or

(b) the aggregate of all possible advances that may be made.

The recording shall clearly indicate whether the amount is the maximum amount that may be outstanding at any one time or is the aggregate of all possible advances.

Section 57. Units of Account.

(1) The obligations secured by a Preferred Mortgage may be expressed in any unit or units of account to which the parties may agree, including but not limited to currency if the Republic of the Marshall Islands, currency or currencies of any foreign state or states, or in equivalents of any other unit or units of account established by intergovernmental organizations.

(2) If a Preferred Mortgage secures an obligation in one or more specified units of account and there is an option to have a unit of account altered from time to time, the principal amount of the mortgage to be recorded shall be denominated in one or more of the said specified units of account. The recordation may include as additional words "or an equivalent amount in any alternate unit of account," or similar language, and if such additional words are recorded, no change in the recorded amount shall be required to reflect the fact that the obligation or any portion thereof is subsequently denominated in a different unit or units of account, unless the parties otherwise agree.

(3) When a Preferred Mortgage secures an obligation in respect of which there is an option to have the obligation amount denominated from time to time in alternate units of account but which continues to be payable in, or by reference to, a specified unit of account:

(a) the amount of the obligation to be recorded shall be expressed in the specified unit of account;

(b) notwithstanding any exercise of the option, no change in the recorded amount shall be required.

(4) A Preferred Mortgage as described in Subsections (2) or (3) of this Section may additionally secure any loss up to a specified amount arising out of fluctuations between a specified unit of account and any alternate unit of account in which the obligation amount may be denominated from time to time, and such specified amount shall also be recorded.

Section 58. Lien of Preferred Mortgage.

A Preferred Mortgage shall constitute a maritime lien upon the mortgaged vessel in the amount of the outstanding indebtedness secured by the mortgage. The lien of a Preferred Vessel's document following recording of the mortgage has expired, or has been restrictively endorsed, suspended, revoked or cancelled.

Section 59. Interest on Preferred Mortgage

Any other provision of law or regulation to the contrary notwithstanding, a Preferred Mortgage may secure such interest on an obligation secured by the mortgage as the parties may agree, which interest may be at fixed rates, variable rates, rates based upon formulas, or by adding margins to the mortgagee's cost from time to time of funding an obligation secured by the mortgage, or by any other method to which the parties may agree. In addition, a Preferred Mortgage may secure such commitment fee payable to the bank as the parties may agree.

Section 60. Disclosure of liens and priority.

(1) The mortgagor, before executing a Preferred Mortgage, shall disclose to the mortgagee in writing the existence of any maritime lien, prior mortgage, or the obligation or liability upon the vessel to be mortgaged, which is known to the mortgagor.

(2) After the execution of such mortgage and before the mortgagee has had a reasonable time in which to record it, the mortgagor, without the consent of the mortgagee, shall not incur any contractual obligation creating a lien upon the vessel, other than liens for wages of stevedores when employed directly by the owner, operator, master, ship's husband, or agent of the vessel, for wages of the crew of the vessel, for general average  or for salvage, including contract salvage, tonnage taxes and all other charges (not to exceed 1,000 dollars) of the Commissioner in respect to the vessel.

(3) Whoever, being a mortgagor or an officer of a corporate mortgagor, with the intent to defraud, violates this Section shall be liable to a fine not exceeding three thousand dollars ($3,000) or imprisonment for a term not exceeding two (2) years, or both, and the mortgage indebtedness shall become immediately due and payable at the election of the mortgagee.

Section 61. Exhibiting certified copies.

(1) Upon recording a preferred mortgage, two (2) certified copies shall be delivered to the mortgagor who shall place, and use due diligence to retain, one (1) copy on board the mortgaged vessel and cause such copy and the certificate of the vessel to be exhibited by the master to any person having business which may give rise to a maritime lien or to the sale, conveyance, or mortgage of the vessel.

(2) A master who wilfully fails to exhibit such documents and copy of mortgage may have his licenses suspended or revoked.

Section 62. Discharge of mortgage.

The mortgagor upon a complete discharge of the mortgage indebtedness shall forthwith file a certificate of such discharge duly executed by the mortgagee, his successors or assigns with the Commissioner or any Deputy Commissioner, who shall thereupon record the certificate and the mortgagor may similarly file a certificate of partial discharge of a mortgage covering more than one vessel which shall be similarly recorded.

Section 63. Foreclosure and default jurisdiction and procedure.

(1) The lien of a Preferred Mortgage may be enforced in the Republic by a suit in rem upon default of any term or condition. In addition to any notice by publication, actual notice of the commencement of suit shall be given by the plaintiff, in such manner as the court directs, to the master, other ranking officer, or caretaker of the vessel. Failure to give such notice shall not constitute a jurisdictional defect, but the plaintiff shall be liable to such person for damages in the amount of his interest in the vessel terminated by the action.

(2) The lien of a preferred mortgage may also be enforced by an action in rem in admiralty or otherwise in any foreign country in which the vessel shall be found, pursuant to the procedure of such country for the enforcement of ship mortgages constituting maritime liens on vessels documented under the laws of such country.

(3) Notwithstanding anything in this Act, the mortgagee may, in addition to all other remedies granted by this chapter, bring an action in personam against the mortgagor in any court of competent jurisdiction for the amount of the outstanding mortgage indebtedness or for any deficiency in the full payment thereof.

(4) This Act does not authorize the enforcement by action in rem in admiralty of the rights of the mortgagee in respect to realty or personalty other than the vessel or vessels covered by the mortgage.

Section 64. Preferred status.

As used in Sections 57, 58, 63, 65 and 67 of this Act, the term "Preferred Mortgage" shall include, in addition to a "Preferred Mortgage" made pursuant to the provisions of this chapter, any mortgage, hypothecation or similar charge created as security upon any registered foreign vessel, if such mortgage, hypothecation or similar charge has been duly and validly executed and registered in accordance with the laws of the nation where the vessel is document; and the term "Preferred Mortgage Lien" shall also include the lien of such mortgage, hypothecation or similar charge.

Section 65. Foreclosure.

Upon the sale of any vessel in an action in rem in admiralty for the enforcement of a Preferred Mortgage Lien, all pre-existing claims on the vessel, including any possessory common law lien shall terminate and shall thereafter attach, in like amount and in accordance with their respective priorities to the proceeds of sale; except that the Preferred Mortgage Lien shall have priority over all claims against the vessel, except liens arising prior in time to the recording of the preferred mortgage as provided in this Chapter, liens for damages arising out of tort, for crew's wages, for general average, and for salvage (including contract salvage) and expenses and fees allowed and costs taxed by the court.

Section 66. Necessaries.

(1) Whoever furnishes repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any foreign or domestic vessel upon the order of the owner or person authorized by the owner, shall have a maritime lien on the vessel.

(2) The managing owner, ship's husband, master or any person to whom the management of the vessel at the port of supply is entrusted including any such appointment by a charterer, owner pro hac vice or agreed purchaser in possession, shall be presumed to have authority from the owner to procure such necessaries, but a person tortiously or unlawfully in possession or charge of the vessel shall not have authority to bind it.

(3) This section shall not confer a lien when the furnisher knows, or by exercise of reasonable diligence could have ascertained, that, because of the terms of a charter party, agreement of sale of the vessel, or for any other reason, the person ordering necessaries was without authority to bind the vessel therefor.

Section 67. Waiver of lien for necessaries.

This Chapter shall not prevent the furnisher of repairs, supplies, towage, use of dry dock or marine railway, or other necessaries or the mortgagee, from waiving his right to a lien or in the case of a preferred mortgage lien to the preferred status of such lien at any time by agreement or otherwise.

Certificate

I hereby certify:

(1) that the above Nitijela Bill No. 116 has been passed by the Nitijela of the Marshall Islands on the 18th day of January, 1990; and

(2) that I am satisfied that Nitijela Bill No.116 has been passed in accordance with the constitution of the Marshall Islands and the Rules of the Nitijela.

I hereby place my signature before the Clerk of the Nitijela this 19th day of February, 1990.

/s/ Kessai Note
Kessai Note, Speaker
Nitijela of the Marshall Islands

Attest:

/s/ Rufina N. Jack
Rufina N. Jack, Clerk
Nitijela of the Marshall Islands