Australia: Changes to Australian law regarding the registration of ship mortgages

Last Updated: 18 September 2013

By Danella Wilmshurst and Karen Fairbairn

The Personal Property Securities Act 2009 (Cth) (PPSA), which effectively commenced on 30 January 2012, has changed the rules for the registration of mortgages and other security interests over Australian-flagged vessels and, may in some circumstances, impact foreign vessels demise chartered in to Australian operators with the demise charter registered on the Australian Shipping Register (ASR).

Migration of mortgage registrations from ASR to PPSR

The Act has been updated to implement the Maritime Labour Convention compliance including certification of seafarers and minimum requirements for manning agreements on Australian Vessels where for example the Fair Work Act will apply. Provisions with regard to health, accommodation and welfare are applied with regard to all vessels calling at Australian ports and for the purposes of the Act a vessel will only be "seaworthy" if "the living and working conditions on board the vessel do not pose a threat to the health, safety or welfare of the vessels seafarers". In this regard AMSA have published Marine Order 11 (living and working conditions on vessels) 2013 which should be reviewed before calling at an Australian Port.

Vessel Safety

A ship mortgage that was registered on the ASR prior to the commencement of the PPSA should have been automatically migrated to the Personal Property Securities Register (PPSR).

To the extent ship mortgagees have not already done so, we recommend they:

  • check that their ASR registrations did migrate to the PPSR, by undertaking PPSR grantor searches;
  • check that their PPSR registrations contain all the information required for the registration to be effective, and all the information which it is prudent to include. Migrated registrations are temporarily protected, by a combination of a determination by the PPS Registrar and transitional provisions in the PPSA, until 31 January 2017. Action must be taken by mortgagees by that date to amend registrations which would otherwise be ineffective. Absent such action, a mortgagee may lose its priority over other competing security interests and lose its security interest on the insolvency of the mortgagor ship owner; and
  • "find and claim" their PPSR registrations. Such registrations cannot be amended or discharged without first being "found and claimed". It is necessary for a mortgagee to "find and claim" all their PPSR registrations at the same time.

New rules for Australian ship mortgages

For Australian-flagged vessels the subject of a mortgage or other security interest (such as where a charter of a vessel constitutes a "PPS lease"), and for vessels for which the laws of Australia are expressed to govern the security document, the PPSA will apply to determine a priority dispute between competing security interests in the vessel.

A perfected security interest will prevail over an unperfected security interest. Generally, a prior-registered perfected security interest will prevail over a later-registered perfected security interest. As a practical matter, perfection of the security interest arising under a ship mortgage will generally be achieved by making an effective registration on the PPSR.

Australian registered demise charters of foreign-flagged vessels

Offshore and shore based marine energy project work continues to be a significant feature of Western Australian and Queensland commerce. A significant number of vessels working in these projects are temporarily registered with the ASR and flying the Australian flag as vessels subject to demise chartering arrangements for the duration of Australian coastal operations.

Australian law permits the grant of registration and rights to fly the Australian flag to a vessel demise chartered in without any requirement to close the registration in the original state of registry.

Generally there is no need to register a foreign ship's mortgage in Australia. The law of the flag will be recognised as determining any issues of competing priority between security interests and the mortgagee's rights in rem and priority of claim will generally be recognised by the Australian Admiralty jurisdiction without registration of a security interest in the vessel on the Australian PPSR.

Where there is a demise charter of a foreign-flagged vessel in Australia which is registered on the ASR (a situation of dual registration), consideration needs to be given to whether or not the security interest arising under a foreign mortgage of the vessel needs to registered on the PPSR for the duration of the charter in order to appropriately protect the mortgagee's interest.

HWL Ebsworth can help

With specialist shipping and PPSA experts, HWL Ebsworth is well placed to provide assistance if any of your clients need help with any of the matters mentioned above.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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