Ship mortgage is a form of security wherein the
ship-owner (“Mortgagor”) gives a lender (“Mortgagee”) an interest in a ship as
security for a loan via a Deed and same is discharged upon repayment of the
loan. Mortgages may either be equitable or statutory. The essential feature of
a mortgage is that it is only a security transaction, where the property is
redeemable by the mortgagor upon satisfaction of the debt.  By Section
326(1) of the Merchant Shipping Act 2007 (“MSA”),
 the mortgagee shall
not by reason of the mortgage be deemed the owner of the vessel or share of it
nor shall the mortgagor be deemed to have ceased from being the owner thereof.

Statutory Mortgage
Pursuant to Section 54(1) of the MSA, a ship registered in
Nigeria, or a share in the ship may be made a security for a loan or other
valuable consideration, and there shall be a proper written instrument creating
the security. The document used for creating this security is a Deed of
Mortgage. It is best that such mortgage be registered with the Corporate
Affairs Commission (CAC) and Nigerian Maritime Administration and Safety Agency
of ship creates the status of propriety claim pursuant to the Admiralty
Jurisdiction Act 1991 which is usually superior to general maritime claim. This
entitles the Mortgagee to institute an action in rem against the ship to
realise its security. An action in rem is an action, which is brought directly
against a property.
 Usually, statutory mortgage creates a superior security and ranks
in priority over all unregistered mortgages or subsequently registered
mortgages. Section 57(1) of the MSA states that a registered
ship shall be entitled in priority over the other, based on the date on which
each mortgage is recorded in the register and not according to the date of each
mortgage itself.
 In principle, the property is realizable by the mortgagee if it is
not redeemed by the stipulated date.  The law as regards the realization
of mortgage on a ship is that if the mortgagor defaults or does anything that
tends to jeopardize the security, the mortgagee of a controlling number of
shares may take possession of the ship.  This was the position of the
1967 1 NSC 110. 
Upon taking possession, the mortgagee may use the ship within limits or
sell her.  The mortgagee may use the ship for the purpose of earning
freight.  The mortgagee is however not at liberty to do whatever he likes
with the ship.  He must consider the interest of the mortgagor and
succeeding mortgagees and the law requires him to use the ship only as a
prudent man will use her.  He will be liable to the mortgagor for any loss
sustained through the imprudent use of the ship. See ADALMA TANKER
v. MERCANTILE BANK & ORS.  (1986) FHCLR 414.
Equitable Mortgage
mortgage is a mortgage in which the lender is secured by taking possession of
all the original title documents of the property that serves as security for
the mortgage. Sometimes it could be created by words. The most important
element in this type of mortgage is that there is intent by parties to create
mortgage. It is safe to state that this type of mortgage is only used where
legal formalities are not complied with. Equitable mortgage is not a reliable
and dependable security interest.
In practical
terms, the lender who has an equitable mortgage acquires some preferential or
recognizable interest in the vessel concerned, subject always to the
over-riding interest of existing legal mortgages and maritime lien holders.
Where there is a breach of the mortgage deed by the Mortgagor or a default in
payment, the Mortgagor can take a number of actions as listed below:
Action in personam against the ship-owner;
Entitled to arrest the ship by an action in rem at
the Federal High Court pursuant to Section 251 of the Constitution of Federal
Republic of Nigeria and Section 5(2) of Admiralty Jurisdiction Act;
Right to repayment;
Right to take possession for the sale of a ship;
Take benefit of insurance (if applicable).

This Article was produced by ‘Damilola Osinuga. LL.B, LL.M, ACIArb. A
Legal Practitioner and expert in the areas of Maritime, Insurance,
International Trade and Ship Brokerage.
Ed’s Note: This article and photo were published by the author on 26th April, 2016 via