Maritime Law and Practice in China

Liang Zhao and Lianjun Li

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CHAPTER 2 Ships

2.1 The CMC 1992 covers legal issues of ownership of ships, mortgage of ships and maritime liens on ships. Ship registration is regulated by the Regulations on the Registration of Ships 2014.1 This chapter mainly discusses the ownership of ships, ship registration and ship mortgage. Maritime liens in article 22 of the CMC 1992 are given for five classes of ship debts: (1) seamen’s wages, (2) loss of life or personal injury, (3) disbursements, (4) salvage, and (5) damage by ship. The enforcement of maritime liens are introduced in Part II.

The ship

2.2 “Ship” as referred to in the CMC 1992 means sea-going ships and other mobile units, but does not include ships or crafts to be used for military or public service purposes, nor small ships of less than 20 tons gross tonnage. The term “ship” also includes ship’s apparel.2 The ship’s apparel does not include personal belongings of crew. In Zhi Huaxiang v China United Insurance Holding Corporation Zhoushan Branch,3 the Ningbo Maritime Court held that ship’s apparel usually means appurtenances that are attached to a ship and self-existent, but that does not form the structure of a ship. They are equipped on board for the normal and usual navigation and operation of a ship. Therefore, the living goods of the crew do not belong to the ship’s apparel. 2.3 For ships not within the concept as defined in the CMC 1992, e.g. inland water ships or small fishing boats, other relevant laws may apply, e.g. the Contract Law, the Property Law and the Guaranty Law. In a claim in respect of personal injury that occurred in the operation of a ship, the Xiamen Maritime Court found that the ship in dispute was a fishing boat of less than 20 tons gross tonnage and, therefore, such a claim was not entitled to the maritime lien in the CMC 1992.4 Therefore, Chinese tort law applied to this personal injury claim. Similarly, the exercise of a possessory lien in the CMC 1992 also depends on whether the ship detained for the possessory lien is a ship as defined under the CMC 1992. In Guangzhou Panyu Dashi Shangjiao Shipyard v Guangzhou Huiyue Shipping Company,5 the

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Guangzhou Maritime Court held that the ship in dispute on which the ship repairer exercised a possessory lien was not a ship under the CMC 1992, but an inland water vessel, therefore the repairer could only exercise the possessory lien on that ship according to the Property Law,6 in which the retained ship was considered as a general movable. 2.4 Conversely, the CMC 1992 applies to a sea-going ship even if the ship involves in disputes in coastal operation. In Yantai Rescue and Salvage Bureau v Shandong Rongcheng Longxu Island Fishing Corporation,7 one of the questions was whether Yantai Rescue and Salvage Bureau, as the shipowner, which caused oil pollution, was entitled to apply for the constitution of a maritime fund for maritime claims. To answer this question, another question must be answered first, that is, whether the CMC 1992 applied to this dispute, because only the CMC 1992 provides for the regime of a maritime fund for maritime claims. In other words, if the applicable law is not the CMC 1992, but is another law, e.g. general civil law, the shipowner would not be entitled to the benefit of a maritime fund. The ship in dispute was a domestic coastal oil carriage and fuel supply ship of 788 tons gross tonnage. The Qingdao Maritime Court did not recognise the ship as a ship under the CMC 1992, but applied the General Principles of the Civil Law and rejected the application for the constitution of maritime fund. The shipowner appealed this decision, but this appeal was dismissed. The SPC brought the case up for trial by itself. The SPC held that the ship in dispute was a ship under the CMC 1992 and the shipowner was entitled to the limitation of liability in the CMC 1992. The SPC clarified from this case that a sea-going ship is a ship in the CMC 1992 irrespective of whether the ship is navigating or operating along the coast or on the high seas when the accident occurs. 2.5 The scope of ‘ship’ and the ship defined for ship mortgage registration in the Regulations on the Registration of Ships 2014 is different from that of the CMC 1992.8 In other words, not all kinds of ships registered under the Regulations on the Registration of Ships 2014 are ships governed by the CMC 1992, and the ships in the CMC 1992 may not be registered according to the Regulations on the Registration of Ships 2014. For ship mortgages, ship also includes ships under construction.9

Ownership of a ship

2.6 The ownership of a ship in the CMC 1992 means the shipowner’s rights to lawfully possess, utilise, profit from and dispose of a ship in his ownership.10 The ownership of small ships of less than 20 tons gross tonnage are not regulated by the CMC 1992, but by the general civil law of China, e.g. the Contract Law, the Property Law of and the General Principles of Civil Law. Ownership of ships under construction is not regulated by the CMC 1992 because they are not real ships under the CMC 1992.11 Therefore, general civil law

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will apply to such ownership. For state-owned ships operated by an enterprise owned by the whole person having a legal person status granted by the State,12 the provisions of the CMC 1992 regarding the shipowner apply to that legal person.13 2.7 The ownership of a ship may be obtained through sale and purchase of a secondhand ship or building a new ship. The CMC 1992 has no provision for the sale and purchase contract of a ship and a new building ship contract. The Contract Law and the General Principles of the Civil Law apply to these two kinds of contract. The judicial practice requires further that the ownership of a ship should be obtained in good faith. It means that the purchaser should not have knowledge that the seller has no right to sell the ship and the purchaser should have paid the price of the ship.14 There are two kinds of disposal of ships, that is, physical disposal and disposal in law. The former disposal includes ship renovation, ship conversion, ship recycling and ship sinking on the high seas. The latter disposal means a change of the status of ships, e.g. transfer of the ownership of ship, registration of ship mortgage, etc. 2.8 The shipowner usually realises possession and utilisation of ships by the appointment of master and crew on board to actually control a ship. The shipowner’s possession right may be restricted by time charter or bareboat charter under which the charterers actually possess, maintain and operate ship.15 Even if a ship has been sold, the ownership of the ship may just be restricted, but not infringed. In The Minjie No. 8,16 a dispute of joint ownership, one of the joint shipowners of a ship in dispute claimed that his rights of ownership had been infringed because the ship had been sold to a third company in Hong Kong. The Ningbo Maritime Court found that the purpose of the sale of the ship was not to deprive the owners of the ownership, but to satisfy the legal requirements for operation of the ship. In fact, the claimant still received a bonus after the sale of the ship. Therefore, it was held that the claimant’s rights of ownership had not been infringed. The claimant appealed. The Zhejiang High People’s Court found that although the ownership of the ship had been transferred according to the formalities, the claimant and other shareholders still controlled the ship and gained benefits through internal arrangements. Therefore, the appeal was dismissed. During the trial of the appeal at the second and final instance, the other joint owners of the ship undertook that they would bear all legal liabilities if the transfer of the ownership resulted in the claimant’s loss of the ownership and control of the ship or any damage to the benefit of joint owners of the ship. It is believed that this undertaking was an important security of the joint ownership of the claimant and an important factor that was considered by the appeal court. 2.9 The acquisition, transfer or extinction of the ownership of a ship shall be registered by the ship registration authorities.17 Although the lack of registration will not affect the validity of contract for the acquisition, transfer or extinction of the ownership, there is no legal effect of the acquisition, transfer or extinction of the ownership against a third party

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without such registrations.18 Furthermore, the joint ownership of a ship shall be registered at the ship registration authorities where a ship is jointly owned by two or more legal persons or individuals. However, the unregistered joint ownership does not affect the actual ownership of the joint owner.19 The joint ownership of the ship shall not have legal effect against a third party unless registered.20 2.10 The legal effect of registration of ship against a third party has been reaffirmed in the Property Law, which provides that, before registration, the creation, alteration, transfer or extinction of the property right of the vessels shall not have legal effect against a bona fide third party.21 In other words, the third party may be protected by the ship registration. In Lin Zhuanxiao and Lin Fangtong v Yu Han and Yu Sai’er,22 the ship owned by the claimants was registered with the name of the defendants who mortgaged the ship for a loan from a bank. The claimants received notice of the mortgage when the bank exercised the right of mortgagee due to the failure of repayment of the loan by the defendants. The claimants challenged the mortgage but were rejected by the courts. It was pointed out that ownership without registration has no legal effect on a third party in good faith. It was found that the ship mortgage was agreed based on the registration of the ship by the defendants and the bank had not been at fault in the ship mortgage agreement. Therefore, the registration agreement between the claimants and the defendants could not affect the legal effect of the ship mortgage. 2.11 According to the contract law of China, the parties may, when making a contract, use written form, verbal form or any other form. The written form shall be adopted only if laws or administrative regulations so require, or if the parties so agree.23 The CMC 1992 does not require the written form of a contract for the acquisition and extinction of the ownership of ships, but requires that the transfer of the ownership of a ship shall be made by a contract in writing.24 Although the reason for such a requirement is unknown, the acquisition, transfer and extinction of the ownership of ships in China are usually made by contracts in writing because of the high value of the ships. However, it is unclear what the legal consequence is if there is no contract in writing for the transfer of ownership of ships. 2.12 The written contract may provide for when the ownership of a ship will be transferred. If there is no agreement about the time of transfer, the ownership of a ship is transferred upon the delivery of the ship.25 The written contract is also one of the documents required for ship registration.26 However, in judicial practice the agreement for delivery of a ship and the ship registration are only prima facie evidence to prove the transfer of the ownership. In Li Mengwen v Lianyungang Yandong Transport Co Ltd,27 although the agreement of sale of the ship and the agreement of handover had been concluded, and the seller and the buyer and the ship had been registered accordingly, the ship had not been

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actually delivered to the buyer and the seller still controlled and operated the ship under a charterparty concluded with the buyer. The SPC found that the retrial applicant buyer failed to prove the actual delivery of the ship, and therefore denied the transfer of the ownership to the retrial applicant. It seems that the transfer of ownership is confirmed when the seller finally delivers the ship to the buyer, when the parties completed the performance of the charterparty, although it was not a legal issue in this case.

Ship registration

2.13 Ship registration gives a ship the nationality of the country where she registers. The nationality allows the ship to travel internationally under the national flag.28 Ship registration in China is regulated by the Regulations on the Registration of Ships 2014. Ships are allowed to sail under the national flag of the PRC after being duly registered and granted the nationality of the PRC.29 2.14 The ships that shall be registered in accordance with the provisions of the Regulations on the Registration of Ships 2014 include:

(1) ships owned by citizens of the PRC whose residences or principal places of business are located within the territory thereof;
(2) ships owned by enterprises with legal person status established under the laws of the PRC and whose principal places of business are located within the territory thereof, provided that, where foreign investment is involved, the proportion of registered capital contributed by Chinese investors shall not be less than 50 per cent;30
(3) service ships of the government of the PRC and ships owned by institutions with legal person status; and
(4) other ships whose registration is considered necessary by the competent authority of the PRC.31

2.15 A “ship” in the Regulations on the Registration of Ships 2014 means any self-propelled or non-self-propelled vessel and any other mobile unit on water with the exception of lifeboats and life rafts equipped on board ships and boats or rafts of less than five metres in length.32 Not all ships that need to be registered in China are ships under the CMC 1992,33 but ships falling under the CMC 1992 shall be registered in China when they belong to any one of the four aforementioned categories. The registration of military ships, fishery ships and sports craft is not governed by the Regulations on the Registration of Ships 2014.34 Ships are allowed to sail under the national flag of the PRC only after being registered and granted the nationality of the PRC.35 In other words, no ship can sail under

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the national flag of the PRC without being registered according to the Regulations on the Registration of Ships 2014. As citizens of the PRC, ships registered in China may not have dual nationality. Therefore, a ship registered abroad must suspend or cancel the foreign registration so as to be granted Chinese nationality.36

Registration of ownership of ships

2.16 A shipowner applying for registration of the ownership of a ship should produce to the ship registration authority37 at the port of registry the documents adequately evidencing his legitimate identification, and submit the originals and copies of the documents evidencing the procurement of his ownership of the ship and the technical information thereof. The port where a ship is registered should be the port of registry of the ship.38 For the registration of ownership of a ship purchased, the following documents should be submitted: (1) seller’s invoice or sales contract and delivery document; (2) the document issued by the ship registration authority at the original port of registry certifying the deletion of the original ownership registration; and (3) the document evidencing that the ship is not under mortgage or that the mortgagees agree to the transfer of the mortgaged ship. For the registration of ownership of a newly-built ship, the contract of ship construction and the delivery document should be submitted. Meanwhile, for the registration of ownership of a ship under construction, the contract of ship construction should be submitted. For the registration of ownership of a ship built by oneself for one’s own use, a document evidencing the procurement of ownership should be submitted. For the registration of ownership of a ship procured through inheritance, donation, auction under legal process, or court judgment, a document with appropriate legal effect evidencing the ship’s ownership shall be submitted.39 2.17 The ship registration authority, having examined and verified the application for registration of ownership, and if the application meets the requirements of the Regulations on the Registration of Ships 2014, shall issue a certificate of registration of ship’s ownership and grant an official registration number within seven days of the date of receipt of the application to the shipowner.40 In the register of ships the following particulars are recorded:

(1) Ship’s name and its call sign;
(2) Port of registry, official registration number and identification mark of the ship;
(3) Name and address of the shipowner and name of its legal representative;
(4) Way in which the ship’s ownership was procured and the date of procurement;
(5) Date on which the ship’s ownership was registered;
(6) Name of ship builder, and time and place of building;
(7)

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Value of the ship, material of ship’s hull and ship’s main technical information;
(8) Original name and port of registry of the ship and the date of deletion or suspension of its original registration;
(9) Information about joint ownership if the ship is owned by two or more owners;
(10) Name and address of bareboat charterer or ship operator, and name of its legal representative, in case the shipowner is not the one who operates or actually controls the ship; and
(11) Information about the establishment of any mortgage.41

Amendment and cancellation of registration

2.18 In case of any amendment to the particulars of the ship registration,42 the shipowner must submit the relevant documents of ship registration and documents evidencing such amendment to the ship registration authority at the port of registry.43 In case of any change of joint ownership, the shipowners must also submit the certificate of registration of ship’s ownership and the documents evidencing such change to the ship registration authority at the port of registry.44 2.19 In case of transfer of ship’s ownership, the former shipowner must submit the certificate of ship’s ownership, certificate of ship’s nationality45 and other relevant documents to the ship registration authority at the port of registry. After the application is examined and verified, the ship registration authority at the port of registry will cancel the registration regarding ship’s ownership and other relevant registrations in the register of ships, withdraw the certificates of registration concerned, and issue a certificate of cancellation of ship’s registration to the shipowner. If the ship is sold overseas, the ship registration authority will issue a certificate to the effect that the ship’s nationality has been cancelled, or that the ship’s nationality will be cancelled when the ship is registered overseas.46 2.20 In case a ship is lost (including where the ship is recycled or has sunk) or is missing, the shipowner must, within three months after the date as the ship is lost or missing, submit the certificate of registration of ship’s ownership, certificate of ship’s nationality and the document evidencing that the ship has been lost or missing to the ship registration authority at the port of registry. After the application is examined and verified, the ship registration authority will cancel the ship’s registration in the registry of the ship, withdraw the certificates of registrations concerned, and issue a certificate of cancellation to the shipowner.47

Nationality of ships

2.21 Ships are allowed to sail under the national flag of the PRC after being registered, as required by law, and are granted the nationality of the PRC.48 The national flag

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is important not only for navigation of ships on the high seas, but also for Chinese coastal carriage. With regards to cabotage, except as otherwise provided for by laws or administrative rules and regulations, maritime transport and towage services between ports of China may only be undertaken by ships flying the national flag of the PRC.49 Furthermore, no foreign ships may engage in maritime transport or towage services between the Chinese ports unless permitted by the competent authorities of transport and communications under the State Council of the PRC.50 2.22 Subject to its approval, the ship registration authority will issue the certificate of ship’s nationality to a ship registered under the Regulations on the Registration of Ships 2014. The validity period of the certificate of ship’s nationality is five years.51 The ship-owner of a ship must, within one year prior to the expiration of the certificate of ship’s nationality, apply for the renewal of the certificate by submitting the certificate of ship’s nationality and the valid technical certificates from the ship registration authority at the port of registry.52 2.23 The ship registration authority may also issue a provisional certificate of ship’s nationality on application by a shipowner or bareboat charterer. The provisional certificate of ship’s nationality has the same legal effect as the certificate of ship’s nationality.53 The validity period of a provisional certificate of ship’s nationality does not generally exceed one year. For a ship bareboat chartered overseas, the validity period of the provisional certificate of ship’s nationality is determined according to the charter period, provided that it does not exceed a maximum of two years. Where the charter period exceeds two years, the charterer must renew the provision certificate of ship’s nationality within the period of validity by applying to the ship registration authority at the ship’s port of registry.54 2.24 The circumstances for where an application for a provisional certificate of ship’s nationality is appropriate include:

(1) for a newly built ship which is to be sold overseas, the shipowner should apply to the ship registration authority at the place of construction for a provisional certificate of ship’s nationality by submitting the document evidencing the procurement of ownership of the ship, and the valid technical certificate thereof;
(2) for a newly built ship purchased from overseas, the shipowner should apply to the local embassy or consulate of the PRC for a provisional certificate of ship’s nationality by submitting the document evidencing the procurement of ownership of the ship and its valid technical certificates;
(3) for a ship built in a place within the PRC other than its intended port of registry, if the shipowner needs a provisional certificate of ship’s nationality, they should apply for the certificate to the ship registration authority at the place of ship building by submitting the contract of ship construction, the delivery document and its valid technical certificates;
(4)

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for a ship built overseas, the shipowner should apply to the local embassy or consulate of the PRC for a provisional certificate of ship’s nationality by submitting the contract of ship construction, the delivery document and the valid technical certificates of the ship; and
(5) for a ship bareboat chartered overseas, the bareboat charterer should apply to the ship registration authority for a provisional certificate of ship’s nationality by submitting the bareboat charterparty and the certificate issued by the ship registration authority at the former port of registry to the effect that the former nationality of the ship has been suspended or cancelled, or that the former nationality of the ship will be suspended or cancelled when the new registration takes effect.55

Ship mortgage

2.25 There is no definition of ship mortgage under Chinese law. The CMC 1992 provides the definition for the right of ship mortgage, which is the right of preferred compensation enjoyed by the mortgagee of that ship from the proceeds of an auction sale made in accordance with law when and where the mortgagor fails to pay his debt to the mortgagee secured by the mortgage of that ship.56 Although the condition to exercise the right of ship mortgage in the CMC 1992 is where the mortgagor fails to pay his debt, in practice, parties may agree in a ship mortgage contract that the mortgagee may exercise his right of ship mortgage based on conditions agreed in ship mortgage contract rather than the legal conditions in the CMC 1992, e.g. the mortgagor involved in a serious arbitration or litigation or the mortgagor faced financial difficulties that substantially affect his ability to pay debt. In judicial practice, when such contractual conditions are satisfied, the mortgagee is allowed to exercise his right of ship mortgage.57 2.26 From the concept of the right of ship mortgage in the CMC 1992, it can be seen that the mortgagor of ship mortgage is the debtor and the ship mortgage is designed as a security of the mortgagor’s debt only. This concept does not cater for other financial arrangements e.g. the establishment of ship mortgage for the security of debt of a third party rather than the mortgagor. Furthermore, in practice the auction sale of mortgaged ship is usually in reference to the judicial sale by auction organised by the Chinese maritime courts in accordance with the SMPL 1999. It is unclear whether a ship mortgage can be enforced under the commercial sale by auction.58 The mortgage on a ship may be realised by the auction sale of a ship. However, after the auction sale, any right of ship mortgage cannot be enforced. In other words, the ship mortgagee is not entitled to exercise the mortgage on a ship when the ownership has been transferred to a third party by auction sale.59

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Establishment of ship mortgage

2.27 A ship mortgage must be established by a contract in writing60 and registered with the ship registration authority jointly by the mortgagee and the mortgagor. No mortgage may act against a third party unless it is registered.61 A ship mortgage can be established on a ship with joint ownership. Unless otherwise agreed upon among the joint owners, the establishment of a mortgage of a ship is subject to the agreement of those joint owners who have more than two-thirds of the shares thereof. The mortgage established by the joint owners of a ship is not affected by virtue of the division of ownership.62 Once a mortgage is established on a ship, the ownership of the mortgaged ship may not be transferred without the consent of the mortgagee.63 Where the mortgagee has transferred all or part of his right to the debt secured by the mortgaged ship to another person, the mortgage will be transferred accordingly.64 2.28 For security purposes, the mortgaged ship is to be insured by the mortgagor unless the contract of mortgage provides otherwise. Where a ship is not insured, the mortgagee has the right to place the ship under insurance coverage and the mortgagor must then pay for the premium.65 Any mortgages on the ship are extinguished when the mortgaged ship is lost. With respect to the compensation paid from the insurance coverage on account of the loss of the ship, the mortgagee is entitled to enjoy priority in compensation over other creditors.66 The mortgagee must exercise his mortgage interest within the limitation provided for action of the principal claim; if he fails to do so, the court will not provide protection in this respect.67 2.29 Two or more mortgages may be established on the same ship. The ranking of the mortgages is determined according to the order of the respective registrations. Thus, where two or more mortgages are established, the mortgagees will be compensated out of the proceeds of the auction sale of the ship in the order of registration of their respective mortgages. The mortgages registered on the same date rank equally for compensation.68 For purposes of compensation and enforcement of maritime claims, a maritime lien has priority over a possessory lien, and a possessory lien has priority over ship mortgage.69 2.30 Although ships under construction are not “real” ships, at least not as conceptually defined in the CMC 1992 or the Regulations on the Registration of Ships 2014, a ship mortgage can be established on ships under construction. The purpose of a ship mortgage over a ship under construction is to encourage the development of ship finance, which also acts as a broad stimulus on the shipping industry in China. The concept of the right of ship

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mortgage under the CMC 199270 provides that the mortgagor is the owner of the mortgaged ship. However, the mortgagor of a ship under construction may be the shipowner or the builder, depending on the agreement between them. If the ownership of the ship under construction belongs to the shipowner when the mortgage is established, then the shipowner should be the mortgagor. Conversely, the builder may in other circumstances set up a ship mortgage on a ship under construction.

Registration of ship mortgage

2.31 Where a mortgage is established with respect to a ship71 of 20 tons gross tonnage or more,72 the mortgagee and the mortgagor should apply to the ship registration authority at the ship’s port of registry for the registration of ship mortgage by submitting the following documents: (1) written application signed by the mortgagee and the mortgagor; (2) certificate of ship’s ownership or contract of ship building; and (3) contract of ship mortgage.73 Where there are other mortgages established on the ship, the relevant certificates must also be submitted. Where a mortgage is established on a jointly-owned ship, the joint owners should, in addition, submit a document evidencing the agreement by the joint owners holding more than two-thirds or contracted proportion of shares thereof.74 2.32 After examination and verification of the application for compliance with the Regulations on the Registration of Ships 2014, the ship registration authority will, within seven days after the date of receipt of the application, record matters regarding the mortgagee, the mortgagor and the ship mortgage as well as the date of mortgage registration in the register of ships and the certificate of ship’s ownership. The ship registration authority will then issue a certificate of registration of ship mortgage to the mortgagee.75 2.33 Where two or more mortgages are established on the same ship, the ship registration authority registers the mortgages in sequence based on the dates on which the applications were registered, and indicates the dates of registration in the register of ships. The date on which the application is registered is the date of registration. Where two or more applications are made on the same day, the dates of registration are the same.76 2.34 Mortgages of ships under construction are registered with the ship registration authority. For registration of mortgages of ships under construction, the building contract of the ship should be submitted to the ship registration authority.77 The Maritime Safety Administration of the PRC has also issued the Procedures for Ship Registration 2015.78 According to these procedures, the application for mortgage of a ship under construction should be submitted to the ship registration authority at the place where the ship is built by both the mortgagor and mortgagee.79 For a ship mortgage of a ship under construction,

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before the application, the ship should be under construction and at least one of the sections should have been completed if the ship is built in sections, or the ship should be under construction and the keel of the ship have been laid down if the ship is built by monolithic construction.80 2.35 Information about the registration of mortgage of ships is accessible to the public for enquiry. The main items for the registration of ship mortgage include: (1) name or designation and address of the mortgagee and the name or designation and address of the mortgagor of the ship; (2) name and nationality of the mortgaged ship and the authorities that issued the certificate of ownership and the certificate number; and (3) the amount of debt secured, the interest rate and the period for the repayment of debt.81 2.36 In the case of a mortgage transfer, the mortgagee and the transferee should apply to the ship registration authority at the ship’s port of registry for registration by submitting the contract of ship mortgage transfer. The mortgagee should notify the mortgagor of the mortgage transfer prior to its registration. Where the application has been examined and verified to be in compliance with the requirements of these Regulations, the ship registration authority will record the transferee as the mortgagee in the register of ships and the certificate of registration of ship’s ownership, issue a certificate of registration of ship’s mortgage to the transferee, and seal up the former certificate of registration of ship’s mortgage.82 2.37 Where the contract of ship’s mortgage is changed, the mortgagee and the mortgagor should submit the certificate of registration of ship ownership, the certificate of registration of ship mortgage and the documents evidencing such change to the ship registration authority. After the application has been examined and verified to be in compliance with the requirements of the Regulations on the Registration of Ships 2014, the ship registration authority at the port of registry will indicate the change of the mortgage contract in the certificate of registration of ship’s ownership, the certificate of registration of ship mortgage and the registry of ships.83 2.38 Where a contract of mortgage is terminated, the mortgagee and the mortgagor should submit the certificate of registration of ship’s ownership, certificate of registration of ship mortgage and the document signed by the mortgagee evidencing the termination of the mortgage contract to the ship registration authority at the port of registry. After the application has been examined and verified to be in compliance with the requirements of the Regulations on the Registration of Ships 2014, the ship registration authority at the port of registry will cancel the registration of the ship mortgage in the certificate of ship’s ownership and the register of ships.84 2.39 Ships under construction can be used for ship mortgages. Under the Procedures for the Ship Registration 2015,85 the mortgage of ships of more than 20 tons gross tonnage shall be registered. Where a mortgage over a ship of more than 20 tons gross tonnage under construction is created,86 the mortgagor and the mortgagee should go through registration

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of mortgage at the ship registration authority at the place where the domicile of the shipbuilding enterprise is located.87 If a ship under construction that is taken as property under mortgage is built through the hull-block construction method, at least one block must have been completed and the construction must be ongoing; if the ship is built through the integral shipbuilding method, the keel must have been laid and the construction must be ongoing.88

Registration of bareboat charter

2.40 Not all bareboat charters need to be registered in China.89 According to the Regulations on the Registration of Ships 2014, the shipowner and the charterer should apply for the registration of bareboat charter in the following circumstances; where:

(1) a ship of Chinese nationality is bareboat chartered to a Chinese enterprise;
(2) a ship of foreign nationality is bareboat chartered to a Chinese enterprise; or
(3) a ship of Chinese nationality is bareboat chartered overseas.90

Therefore, all ships of Chinese nationality bareboat chartered must be registered in China irrespective of the identity of the charterers. For ships of foreign nationality, only those bareboat chartered to Chinese enterprises need to be registered. In other words, foreign enterprises do not need to register their bareboat charters if the ships bareboat chartered are of foreign nationality. It seems that a Chinese citizen does not need to register his/her bareboat charters regardless of the nationality of the chartered ships. However, individuals may still voluntarily register their bareboat charterers as a matter of caution, because no bareboat charterer may act against a third party unless registered.91

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