TNAG-2308-FCO40-3345-Future-of-Hong-Kong-shipping-register-1991 — Page 228

Appendix 3

Views from Coward Chance on Mortgages

(1) Mortgage plus Deed of Convenants

There appears to be considerable agreement among ship- owners, lending institutions and the Marine Department that the present system for registering ship mortgages is in need of reform, and paragraph 7.2 of the consultative document mentions this fact. However, the basic philosophy that a mortgage should be a relatively short document would seem well worth retaining. It has become usual practice to supplement a mortgage with a deed of convenants with which the registrar need not concern himself, and this has the dual advantage of allowing a shipowner to keep confidential any undertakings which he may have given to a mortgagee whilst relieving the registrar of the need to handle bulky mortgage documentation. We can see no reason for exchanging this basic approach for a system such as that of Panama or Literia under which the documents presented for registration may sometimes run to hundreds of pages.

(2) Prescribed Form of Mortgage

Under the present system, a mortgage must be in one of two prescribed forms the principal and interest form or the account current form.

In practice, the account current form is used far more often than the principal and interest form, for a number of reasons. Among these are, for example, the fact that a lender will usually wish to secure not only principal and interest tut also fees, commission etc. and the fact that the principal and interest form is not suitable for securing indemnity or other contingent obligations, nor for securing a multi-currency credit where the principal amount may be redesignated in different currencies from time to time.

Consideration could perhaps be given to the abolition of the principal and interest form in order to simplify the system. However, the principal and interest form may still suit the requirements of a mortgagee lending at a fixed rate of interest where there is no formal underlying loan agreement. Although such lending is unusual under present circumstances, it may be felt desirable to retain the principal and interest form in order to preserve this alternative.