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Merchant Shipping Code of Ukraine (Edition of July 04, 2013)

SECTION X. Limitation of Shipowners' Liability.

Chapter 3. Marine Mortgage Agreement.

Clause 364. Definition of Mortgage Agreement.

Any vessel entered in the State Registry or the State Book of Vessels of Ukraine may be mortgaged by her Shipowner (Mortgager), in accordance with the acting legislation, as a security for his obligations to the Creditor (Mortgagee). Any legal or physical person of Ukraine or a foreign state in whose favor the vessel may be alienated in conformity with the Law of Ukraine has the right to be a mortgager.

Clause 365. Mortgage Agreement.

The mortgage agreement shall have to be concluded in writing.

The mortgage agreement shall state the names, addresses of the parties, kind of mortgage, subject matter of the demand secured by mortgage, its amount and the term of fulfilling obligation, estimated value and location of the vessel as well as any other conditions on which the agreement is to be reached by the request of one of the parties thereto.

The rights and obligations of the parties to the vessel mortgage agreement as well as the procedure of its official registration shall be determined by the Law of the Mortgagee's state unless provided for otherwise by agreement of the parties. Mortgage shall not mean an alienation of the vessel in favor of the Mortgagee, and the Mortgager shall not be considered as a person who has lost the right of ownership for the mortgaged vessel.

Clause 366. Mortgage Registration.

The mortgage agreement shall be certified by a notary at the place of entering the vessel in the State Registry or the State Book of Vessels of Ukraine.

The Mortgagee of sea vessels shall undertake to keep a Mortgage Book which form and recording procedure are to be approved by the acting legislature.

The Mortgagee shall be liable for making timely and correct entries regarding mortgages in the Mortgage Book. The Mortgagee shall undertake to reimburse the damage in full to the victims, the Mortgager or the third person in case said damage was inflicted by untimely, incomplete or incorrect entries in the Mortgage Book, or by waiving an obligation to provide the Mortgage Book for a review.

Clause 367. Preferences of Mortgages.

If a subject matter of a mortgage is a mortgaged vessel that has already been mortgaged under the other obligation, the lien of the preceding mortgage shall remain in force.

The claims of the subsequent Mortgagee shall be satisfied out of the vessel's value after satisfying the claims of the preceding Mortgagee.

Preferred rights of the Mortgagees for reimbursing their claims shall be realized depending on the day and hour of registering a given mortgage in the Mortgage Book.

The Mortgager shall undertake to inform each subsequent Mortgagee on all existing mortgages of the vessel as well as on the nature and extent of the obligations secured by said mortgages. The Mortgager shall undertake to reimburse any losses incurred by any of his Mortgagees resulting from non-fulfillment of said obligation.

Clause 368. Right of Recovery from Mortgaged Vessel.

The Mortgagee shall acquire the right of taking recourse on the mortgaged vessel if, by the moment of mortgaged obligation occurrence, it is not fulfilled, excluding the cases when in accordance with the Law or mortgage agreement, said right originates later or may be realized earlier.

Clause 369. Limits of Recovery.

The Mortgagee shall have the right, at the expense of the mortgaged vessel, to satisfy his claims in full including an interest and losses incurred by a delay of performance of said claim as well as in the cases provided for by the Law or the mortgage agreement, a forfeit. The required expenses of the Mortgagee relative to a performance of the mortgaged claim shall also have to be reimbursed.

Clause 370. Grounds for Taking Recourse.

Taking recourse on the mortgaged vessel shall be effected following a decision of the Court or Arbitration unless stipulated otherwise by the Law.

A sale of the mortgaged vessel on which the recourse is taken shall be performed in accordance with the Law of Ukraine unless stipulated otherwise by the mortgage agreement.

Clause 371. Publication of Court Decision on Sale of Arrested Vessel.

The decision of the Court, Arbitration or Marine Arbitration Commission on the sale of the arrested vessel or the one under construction shall be published in one of the central newspapers for three successive days, said publication shall have to contain:

  1. name of the Court that have taken said decision and the date thereof;
  2. reasons and grounds for sale;
  3. procedure, place and date of sale;
  4. basic information on the vessel in question;
  5. request to the Creditors asking them to declare their claims relating to said vessel within 60 days since the date of publication;
  6. other substantial circumstances.

Clause 372. Information of Compulsory Sale.

In addition to publication provided for by Clause 371 of this Code, the Court Arbitration or Marine Arbitration Commission shall undertake, not later than 30 days before the vessel's sale, to send by registered letter a message stating the place and time of vessel's sale, with due notification of said letter's delivery to:

a) the body that registered the vessel or the right of property for the vessel under construction;

b) all registered holders of mortgagees and marine claims (demands) listed in Clause 371 of this Code. The Party who has demanded a compulsory sale of said vessel shall undertake to submit to the Court the experts from the corresponding Register duly amended with the names and addresses of the registered holders of mortgages and marine claims listed in clause 358 of this Code.

Clause 373. Consequences of Compulsory Sale.

In case of compulsory sale of the arrested vessel or the vessel under construction all mortgages except those the liabilities for which have been taken, with due consent of Mortgagees, by said vessel's buyer, as well as all marine securities and other liabilities shall be considered invalid provided:

a) at the moment of sale said vessel was located at the territory of Ukraine;

b) said vessel's sale was performed in comliance with legislative acts of Ukraine, Clauses 371 and 372 of this Code. Provided that the requirements of items a) and b) of this. Clause have been observed, the Court, Arbitration or Marine Arbitration Commission, on request of the Buyer, shall issue him a certificate confirming that said vessel is sold, is not limited by any Mortgages, excluding those the liability for which, with due consent of the mortgagees, have been taken by the vessel's buyer.

On submittance of the certificate indicated in the second part of this Clause, the body responsible for registration of vessels or the right of property for vessels under construction shall exclude, respectively, from the State Registry or State Book of Vessels of Ukraine as well as from the Mortgage Book all mortgages and marine claims registered in respect of said vessel, excluding those the liability for which has been taken by the buyer of the vessel.

In case the buyer of said vessel is a legal or physical entity in compliance with the Law of Ukraine in force, the vessel or the right of property for the vessel under construction shall have to be registered to the name of said buyer.

In case the buyer of said vessel is a foreign legal or physical entity, the body responsible for registering vessels or the right of property for the vessel under Construction shall have to issue to said buyer a certificate of exclusion of said vessel from the State Registry or State Book of vessels of Ukraine or of the right of property for the vessel under construction for her subsequent entry in a foreign Registry of Vessels.

Clause 374. Distribution of Revenue from Compulsory Sale.

The losses caused by the arrest or detention of the vessel being in service or under construction and her subsequent sale, with due consideration of losses for vessel's maintenance from the moment of her arrest or detention, repatriation of her crew, as well as distribution of sale revenue shall be paid out of said revenue in the first place.

The remainder of said revenue shall be distributed in the amount necessary for reimbursement of corresponding claims in a queue order stipulated by Clause 358 of this Code.

Clause 375. Proofs of Obligation Performance.

The Mortgagee shall undertake, on request of the Mortgager, to issue to him duly certified documents comfirming a complete or partial fulfillment of a given obligation.

Clause 376. Bankruptcy of Mortgager.

In case the Mortgagee went ban- erupt after registering his mortgage in the Mortgage Book, the obligation on the registered mortgage shall be considered not fulfilled.

Clause 377. Concession of Claims.

In case the Mortgagee concedes the claim provided with said mortgage to the third person or the Mortgager transfers the debt that has arisen out of said obligation provided with said mortgage to the other person, following the procedure established by the Law, said mortgage shall preserve its force.

On receipt of the duly certified document on cessation of said claim by the Mortgagee or on transfer of the debt by the Mortgager, an appropriate entry shall have to be made in the Mortgage Book with an indication of the name of the person in whose favor all rights of the Mortgagee or all obligations of the Mortgager are passed.

Clause 378. Transfer of Mortgage Rights.

In case the rights of the Mortgagee have been passed over to the other person following the determined procedure, said transfer of rights shall have to be confirmed by a duly certified declaration of the person in whose favor these rights have been conceded, containing a description and required proofs of the legality of said transfer of property rights and, possibly, description of the persons in whose favor said rights were transferred.

Taking as a basis said document, a name of the person who has acquired the rights of the Mortgagee of all vessel or her part shall be entered in the Mortgage Book.