[vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column width=”1/6″ el_class=”noPaddingLeft” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtYWluLXN0cmlwJTIyJTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJibHVlLXN0cmlwMCUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIyYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMmJsdWUtc3RyaXAyJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDJTJGZGl2JTNF[/vc_raw_html][/vc_column][vc_column width=”5/6″ el_class=”justifyText” css=”.vc_custom_1530198195857{padding-right: 310px !important;}” offset=”vc_hidden-md vc_hidden-sm vc_hidden-xs”][vc_empty_space height=”50px”][vc_row_inner el_id=”newsletters”][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”What is a Ship?” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][vc_empty_space height=”25px”][vc_column_text]What is a ship? How elementary a question? Perhaps not if we consider that today many “things” float on our seas and inland waters that are not exactly “ships” in the image of the Titanic. From a commercial viewpoint many transactions look to answer this question to find a bearing in structuring the mode of purchase, financing, registration, and securitization – the rules applicable to a non-ship structure are very different from that of a ship. The reality is that for purposes of legal recognition and registration of assets it is a fundamental question.
How do legislations define a ship?
Nigeria’s Merchant Shipping Act (‘MSA’) defines a ship as: any vessel other than (a) a vessel propelled by oars or paddles or (b) a vessel which has generally or partially exempted by the Minister under S95 of the Act.” The same act then defines a vessel as “anything constructed or used for the carriage on, through or under water of persons or property and includes a hovercraft” (Underlining are mine)
The MSA has a rather windy definition. Extreme legalese! S 26 (1) of the Admiralty Jurisdiction Decree 1991 (“AJD”) – a more recent legislation – sort to do a better job and it defines a ship as: “a vessel of any kind used or constructed for use in navigation by water, however it is propelled or moved and includes (a) a barge, lighter or other floating vessel including a drilling rig (b) a hovercraft (c) an offshore industry mobile (d) a vessel that has sunk or is stranded and remains a vessel, but does not include a vessel under construction that has not been launched” (Underlining are mine).
What are the key issues arising from these 2 definitions?
- Mention of specific assets
The AJD definition has brought some clarity and modernity by identifying several assets from contemporary business environment and declaring them to be ships. These are: (i) barges (ii) lighters (iii) drilling rigs (iv) hovercrafts (v) offshore industry mobile. By the rules of legal interpretation the use of the words “and includes” before the mention of these items raises a presumption that these items mentioned are just a few examples of ships by definition. Kindly note that the AJD definition uses the phrase –“a vessel of any kind”- which connotes that the categories of ships are quite open.
The reality for purchasers (and their financiers) of any piece of metal or plastic that navigates the sea or inland waters is that defining what it is (a ship or not) is a matter of fact and law that determines the transaction structure and legal requirements.
- Contradiction as to how it is propelled.
It should be noted that the MSA excludes “vessels propelled by oars or paddles” whilst the AJD includes all vessels “however it is propelled or moved”. The MSA being an older legislation (1962) may have sought to exclude paddled canoes, whilst the AJD seeks to safely capture modern technology with the knowledge that the options for propelling a vessel may never be closed. It follows that however propelled or moved, the utility and commercial value of the item would weigh heavily as parties decide whether an item should be defined as a ship or not.
- A ship under construction is not a ship
The AJD clearly excludes in its definition “any vessel under construction that has not been launched”. This is in line with the state of the law in England and several jurisdictions. It means a ship under construction cannot be subject to a legal mortgage. Until construction is completed it is not a ship – properly so called. The dilemma a financier faces therefore in financing the building of a new ship is this: How can we secure our advances to the Ship builder (on behalf of our customer) since we cannot take a mortgage on the ship until after construction? Here are some suggestions:
a) Be a third party (“the Financier”) to the ship building contract to establish privity with the ship builder
b) Take specific warranties from the ship builder in the ship building contract
c) Establish monetary penalties for delays commensurate with the projected additional financing cost that may be incurred daily if builder delays in completion/delivery.
d) State in the ship building contract that the title in the ship passes to the owner (your customer) on a block-on-block basis. i.e the title passes as construction progresses rather than on completion or delivery. This allows the financier where necessary to take possession of an uncompleted structure which can be sold to mitigate loss if the need arises.
e) Note that where title passes on a block-on-block basis (4 above) the risk passes as well. Which means anything that happens to the ship in construction passes a loss to the title owner. It is therefore advisable to take out a Lender’s Interest Insurance to cover any adverse possibilities whilst the ship-in-construction is in the ship builders’ yard.
f) Get an Assignment from the borrower (ship owner to be) in favour of the lender of all current or future rights arising from the ship building contract or any other legal or equitable remedy that may ordinarily avail the borrower in the circumstance.
By way of comparative analysis the UK Merchant Shipping Act 1995 has similar definitions as our legislations and the English courts have no consistent approach to defining a ship. It is a matter of fact and law – very circumstantial. In Global Marine Drilling Co. v Triton Holdings U.K (2001) 1 Lloyds Rep. 60 a mobile drilling unit was held to be a ship for purpose of the 1952 Arrest Convention; A backhoe dredger registered in Sweden has also been held to be a ship – The Von Rocks (1998) 2 Lloyds Rep 198
Conclusion
Back to the question – What is a Ship? Can we hazard a classic definition? We need not! What is needful is insight to navigate the rubrics of each circumstance – arriving at an informed conclusion that a particular asset is (or ought to be) a ship. That would suffice! The next relevant issue (which would be treated in a follow up article) are the practicalities of due diligence in a ship finance transaction.
Ayuli Jemide, is a Partner with DETAIL.[/vc_column_text][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-xs”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIydGFiLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJ0YWItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMnRhYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”What is a Ship?” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]What is a ship? How elementary a question? Perhaps not if we consider that today many “things” float on our seas and inland waters that are not exactly “ships” in the image of the Titanic. From a commercial viewpoint many transactions look to answer this question to find a bearing in structuring the mode of purchase, financing, registration, and securitization – the rules applicable to a non-ship structure are very different from that of a ship. The reality is that for purposes of legal recognition and registration of assets it is a fundamental question.
How do legislations define a ship?
Nigeria’s Merchant Shipping Act (‘MSA’) defines a ship as: any vessel other than (a) a vessel propelled by oars or paddles or (b) a vessel which has generally or partially exempted by the Minister under S95 of the Act.” The same act then defines a vessel as “anything constructed or used for the carriage on, through or under water of persons or property and includes a hovercraft” (Underlining are mine)
The MSA has a rather windy definition. Extreme legalese! S 26 (1) of the Admiralty Jurisdiction Decree 1991 (“AJD”) – a more recent legislation – sort to do a better job and it defines a ship as: “a vessel of any kind used or constructed for use in navigation by water, however it is propelled or moved and includes (a) a barge, lighter or other floating vessel including a drilling rig (b) a hovercraft (c) an offshore industry mobile (d) a vessel that has sunk or is stranded and remains a vessel, but does not include a vessel under construction that has not been launched” (Underlining are mine).
What are the key issues arising from these 2 definitions?
- Mention of specific assets
The AJD definition has brought some clarity and modernity by identifying several assets from contemporary business environment and declaring them to be ships. These are: (i) barges (ii) lighters (iii) drilling rigs (iv) hovercrafts (v) offshore industry mobile. By the rules of legal interpretation the use of the words “and includes” before the mention of these items raises a presumption that these items mentioned are just a few examples of ships by definition. Kindly note that the AJD definition uses the phrase –“a vessel of any kind”- which connotes that the categories of ships are quite open.
The reality for purchasers (and their financiers) of any piece of metal or plastic that navigates the sea or inland waters is that defining what it is (a ship or not) is a matter of fact and law that determines the transaction structure and legal requirements.
- Contradiction as to how it is propelled.
It should be noted that the MSA excludes “vessels propelled by oars or paddles” whilst the AJD includes all vessels “however it is propelled or moved”. The MSA being an older legislation (1962) may have sought to exclude paddled canoes, whilst the AJD seeks to safely capture modern technology with the knowledge that the options for propelling a vessel may never be closed. It follows that however propelled or moved, the utility and commercial value of the item would weigh heavily as parties decide whether an item should be defined as a ship or not.
- A ship under construction is not a ship
The AJD clearly excludes in its definition “any vessel under construction that has not been launched”. This is in line with the state of the law in England and several jurisdictions. It means a ship under construction cannot be subject to a legal mortgage. Until construction is completed it is not a ship – properly so called. The dilemma a financier faces therefore in financing the building of a new ship is this: How can we secure our advances to the Ship builder (on behalf of our customer) since we cannot take a mortgage on the ship until after construction? Here are some suggestions:
a) Be a third party (“the Financier”) to the ship building contract to establish privity with the ship builder
b) Take specific warranties from the ship builder in the ship building contract
c) Establish monetary penalties for delays commensurate with the projected additional financing cost that may be incurred daily if builder delays in completion/delivery.
d) State in the ship building contract that the title in the ship passes to the owner (your customer) on a block-on-block basis. i.e the title passes as construction progresses rather than on completion or delivery. This allows the financier where necessary to take possession of an uncompleted structure which can be sold to mitigate loss if the need arises.
e) Note that where title passes on a block-on-block basis (4 above) the risk passes as well. Which means anything that happens to the ship in construction passes a loss to the title owner. It is therefore advisable to take out a Lender’s Interest Insurance to cover any adverse possibilities whilst the ship-in-construction is in the ship builders’ yard.
f) Get an Assignment from the borrower (ship owner to be) in favour of the lender of all current or future rights arising from the ship building contract or any other legal or equitable remedy that may ordinarily avail the borrower in the circumstance.
By way of comparative analysis the UK Merchant Shipping Act 1995 has similar definitions as our legislations and the English courts have no consistent approach to defining a ship. It is a matter of fact and law – very circumstantial. In Global Marine Drilling Co. v Triton Holdings U.K (2001) 1 Lloyds Rep. 60 a mobile drilling unit was held to be a ship for purpose of the 1952 Arrest Convention; A backhoe dredger registered in Sweden has also been held to be a ship – The Von Rocks (1998) 2 Lloyds Rep 198
Conclusion
Back to the question – What is a Ship? Can we hazard a classic definition? We need not! What is needful is insight to navigate the rubrics of each circumstance – arriving at an informed conclusion that a particular asset is (or ought to be) a ship. That would suffice! The next relevant issue (which would be treated in a follow up article) are the practicalities of due diligence in a ship finance transaction.
Ayuli Jemide, is a Partner with DETAIL.[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row][vc_row type=”vc_default” full_width=”stretch_row_content_no_spaces” css=”.vc_custom_1500547593342{padding-right: 100px !important;}” el_class=”noPaddinRow”][vc_column el_class=”noPaddingLeft” offset=”vc_hidden-lg vc_hidden-md vc_hidden-sm” css=”.vc_custom_1530198526835{padding-right: 75px !important;padding-left: 60px !important;}”][vc_raw_html]JTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItbWFpbi1zdHJpcCUyMiUzRSUwQSUzQ2RpdiUyMGNsYXNzJTNEJTIybW9iLWJsdWUtc3RyaXAwJTIyJTNFJTNDJTJGZGl2JTNFJTBBJTNDZGl2JTIwY2xhc3MlM0QlMjJtb2ItYmx1ZS1zdHJpcDElMjIlM0UlM0MlMkZkaXYlM0UlMEElM0NkaXYlMjBjbGFzcyUzRCUyMm1vYi1ibHVlLXN0cmlwMiUyMiUzRSUzQyUyRmRpdiUzRSUwQSUzQyUyRmRpdiUzRQ==[/vc_raw_html][vc_empty_space height=”25px”][vc_row_inner][vc_column_inner width=”1/6″][/vc_column_inner][vc_column_inner width=”2/3″][vc_custom_heading text=”What is a Ship?” font_container=”tag:h1|font_size:22|text_align:justify|color:%236699cc|line_height:1.8″ use_theme_fonts=”yes”][vc_column_text]What is a ship? How elementary a question? Perhaps not if we consider that today many “things” float on our seas and inland waters that are not exactly “ships” in the image of the Titanic. From a commercial viewpoint many transactions look to answer this question to find a bearing in structuring the mode of purchase, financing, registration, and securitization – the rules applicable to a non-ship structure are very different from that of a ship. The reality is that for purposes of legal recognition and registration of assets it is a fundamental question.
How do legislations define a ship?
Nigeria’s Merchant Shipping Act (‘MSA’) defines a ship as: any vessel other than (a) a vessel propelled by oars or paddles or (b) a vessel which has generally or partially exempted by the Minister under S95 of the Act.” The same act then defines a vessel as “anything constructed or used for the carriage on, through or under water of persons or property and includes a hovercraft” (Underlining are mine)
The MSA has a rather windy definition. Extreme legalese! S 26 (1) of the Admiralty Jurisdiction Decree 1991 (“AJD”) – a more recent legislation – sort to do a better job and it defines a ship as: “a vessel of any kind used or constructed for use in navigation by water, however it is propelled or moved and includes (a) a barge, lighter or other floating vessel including a drilling rig (b) a hovercraft (c) an offshore industry mobile (d) a vessel that has sunk or is stranded and remains a vessel, but does not include a vessel under construction that has not been launched” (Underlining are mine).
What are the key issues arising from these 2 definitions?
- Mention of specific assets
The AJD definition has brought some clarity and modernity by identifying several assets from contemporary business environment and declaring them to be ships. These are: (i) barges (ii) lighters (iii) drilling rigs (iv) hovercrafts (v) offshore industry mobile. By the rules of legal interpretation the use of the words “and includes” before the mention of these items raises a presumption that these items mentioned are just a few examples of ships by definition. Kindly note that the AJD definition uses the phrase –“a vessel of any kind”- which connotes that the categories of ships are quite open.
The reality for purchasers (and their financiers) of any piece of metal or plastic that navigates the sea or inland waters is that defining what it is (a ship or not) is a matter of fact and law that determines the transaction structure and legal requirements.
- Contradiction as to how it is propelled.
It should be noted that the MSA excludes “vessels propelled by oars or paddles” whilst the AJD includes all vessels “however it is propelled or moved”. The MSA being an older legislation (1962) may have sought to exclude paddled canoes, whilst the AJD seeks to safely capture modern technology with the knowledge that the options for propelling a vessel may never be closed. It follows that however propelled or moved, the utility and commercial value of the item would weigh heavily as parties decide whether an item should be defined as a ship or not.
- A ship under construction is not a ship
The AJD clearly excludes in its definition “any vessel under construction that has not been launched”. This is in line with the state of the law in England and several jurisdictions. It means a ship under construction cannot be subject to a legal mortgage. Until construction is completed it is not a ship – properly so called. The dilemma a financier faces therefore in financing the building of a new ship is this: How can we secure our advances to the Ship builder (on behalf of our customer) since we cannot take a mortgage on the ship until after construction? Here are some suggestions:
a) Be a third party (“the Financier”) to the ship building contract to establish privity with the ship builder
b) Take specific warranties from the ship builder in the ship building contract
c) Establish monetary penalties for delays commensurate with the projected additional financing cost that may be incurred daily if builder delays in completion/delivery.
d) State in the ship building contract that the title in the ship passes to the owner (your customer) on a block-on-block basis. i.e the title passes as construction progresses rather than on completion or delivery. This allows the financier where necessary to take possession of an uncompleted structure which can be sold to mitigate loss if the need arises.
e) Note that where title passes on a block-on-block basis (4 above) the risk passes as well. Which means anything that happens to the ship in construction passes a loss to the title owner. It is therefore advisable to take out a Lender’s Interest Insurance to cover any adverse possibilities whilst the ship-in-construction is in the ship builders’ yard.
f) Get an Assignment from the borrower (ship owner to be) in favour of the lender of all current or future rights arising from the ship building contract or any other legal or equitable remedy that may ordinarily avail the borrower in the circumstance.
By way of comparative analysis the UK Merchant Shipping Act 1995 has similar definitions as our legislations and the English courts have no consistent approach to defining a ship. It is a matter of fact and law – very circumstantial. In Global Marine Drilling Co. v Triton Holdings U.K (2001) 1 Lloyds Rep. 60 a mobile drilling unit was held to be a ship for purpose of the 1952 Arrest Convention; A backhoe dredger registered in Sweden has also been held to be a ship – The Von Rocks (1998) 2 Lloyds Rep 198
Conclusion
Back to the question – What is a Ship? Can we hazard a classic definition? We need not! What is needful is insight to navigate the rubrics of each circumstance – arriving at an informed conclusion that a particular asset is (or ought to be) a ship. That would suffice! The next relevant issue (which would be treated in a follow up article) are the practicalities of due diligence in a ship finance transaction.
Ayuli Jemide, is a Partner with DETAIL.[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/6″][/vc_column_inner][/vc_row_inner][/vc_column][/vc_row]