The future is here: The Marshall Islands embraces electronic recordation of maritime instruments

The Republic of the Marshall Islands has recently amended its maritime law and regulations to modernise its legal regime and embrace the new digital era. These amendments, which came into effect in April 2023, offer a range of benefits and opportunities for all maritime stakeholders, such as shipowners, lenders, operators and regulators. In this article, we will explore some of the key features and advantages of these amendments and regulations and how they will impact the practical aspects of maritime transactions and operations.

Electronic recordation

One of the most significant changes introduced by the amendments is the electronic recordation of maritime instruments and documents with the Maritime Administrator of the Republic of the Marshall Islands (Administrator). This means that any document that relates to the ownership, operation or financing of a vessel registered under the Marshall Islands flag can be electronically signed and submitted to the Administrator for recordation. This includes:

• Bills of sale
• Mortgages
• Charters
• Liens
• Notices

The electronic recordation process is simple and fast, as it only requires the use of an electronic signature and an electronic or digital copy of the document. The definitions of these terms are as follows:

• Digital signature: a signature that is attached to a document by a person with the intent to sign the document, where the signature is generated by software using a digital certificate issued by a trust service provider approved by the Administrator or similar authority.
• Electronic signature: means a legible scan or facsimile of a handwritten signature, or an image thereof, attached to a document by a person with the intent to sign the document and does not include digital a signatures.
• Electronic or digital copy: a scan or facsimile of a document that bears a handwritten or electronic signature, or a document that has been converted into a computer file, such as a PDF file, that bears a handwritten or electronic signature, or a document bearing a digital signature.

The electronic recordation process offers several advantages for both parties involved in a maritime transaction. For example, it eliminates the need for physical signing and acknowledgement of documents, which can be time-consuming and costly. It also reduces the risk of errors, fraud, or loss of documents during transmission or delivery. Moreover, it allows for instant access and verification of documents by the Administrator and other authorised parties.

The electronic recordation process is especially beneficial for financing transactions, where mortgages are registered on vessels and time is of the essence. By using an electronic or digital signatures and copies, lenders can secure their interests faster and more efficiently, while borrowers can obtain their funds sooner and with less hassle.

Underlying debt

Another important change introduced by the amendments is the simplification of the proof or evidence of the underlying debt secured by a mortgage. Under the previous regime, lenders had to attach to the mortgage all the documents that evidenced the debt, such as loan agreements or financing charters. This could be cumbersome and inconvenient for both lenders and borrowers, as it required them to disclose sensitive or confidential information to third parties.

Under the new regime, lenders can satisfy this requirement merely by describing the terms of the debt in the mortgage, including the total amount. This way, they can avoid attaching any additional documents to the mortgage, while still providing sufficient information for recordation purposes. This also gives them more flexibility and privacy in structuring their financing arrangements with borrowers.

Notice on board the vessel

The amendments have also removed the requirement to maintain a copy of a mortgage on board the vessel. Instead, owners are obliged to keep a notice of mortgage onboard, thus removing the burden of additional documentation to be kept on board the vessel for the owners, while also streamlining the requirements for a mortgage to be perfected in favour of the lender.

This change makes it easier for owners to comply with their obligations under maritime law, as they only need to keep a simple notice on board instead of a full copy of the mortgage. It also reduces the risk of losing or damaging the copy of the mortgage during operation or inspection. Furthermore, it protects the interests of lenders by ensuring that any potential buyers or creditors are aware of the existence and priority of their mortgage.

Vessel registration

A vessel’s latest certificate of registry is no longer required to be attached to a bill of sale when a documented vessel is sold or transferred nor does any bill of sale of a vessel already documented need to be included in its latest certificate of registry.

The above amendments simplify sale and purchase transactions with respect to bills of sale, as parties involved are no longer required to request the latest certificate of registry for a vessel from the Administrator and to attach the same on the bill of sale for sale and purchase/registration purposes.

Time of recordation

The amendments clarify that mortgages which state that they shall only become effective upon filing shall be deemed valid and effective at the time of recordation with the Administrator, as long as such mortgages meet all recording requirements. In essence, the amendments have no retrospective effect and there is no requirement for mortgages recorded prior to the effective date of the amendments to be amended (so that said mortgages reflect the amendments), provided that all recording requirements were met at the time of the recordation.

Sanctions

The amendments enable the Administrators to immediately strike a vessel following receipt of evidence that the vessel has engaged in illegal activity or actions against the interests of the Administrator or the Republic of the Marshall Islands, such as when owners are engaged in sanctioned trading.

Revised limits of liability for maritime claims in line with changes made to the Convention on Limitation of Liability for Maritime Claims (LLMC)

The amendments streamline the limit of liability on claims for loss of life or personal injury

or property with the LLMC. In particular:

• On claims for loss of life or personal injury on vessels not exceeding 2,000 gross tonnage the limit is raised from two million special drawing rights (SDR) to 3.02 million SDR, with additional amounts applicable for each category of larger vessels; and
• On claims for loss of property for vessels not exceeding 2,000 gross tons the limit is raised from one million SDR to 1.51 million SDR, with additional amounts applicable for each category of larger vessels.

Conclusion

The Republic of the Marshall Islands has shown its commitment and innovation in adapting its maritime law to the new digital era, offering a modern and efficient legal regime for all maritime stakeholders.

Theo Xenakoudis, chief commercial officer at International Registries, Inc., which provides administrative and technical support to the Republic of the Marshall Islands Maritime Registry, stated: “The Republic of the Marshall Islands has always been at the forefront of maritime law and ship finance, providing a flexible and user-friendly platform for all of our stakeholders. These amendments are testament to the Administrator’s vision and leadership in this field, as we embrace electronic recordation and seek to simplify specific aspects of maritime transactions.”

Jasel Chauhan, Piraeus office head at Hill Dickinson, commented: “Across all industries, but especially within the shipping sector, embracing a changing world – whether through technological advancement or environmental focus, or both – will be more than a simple competitive advantage and rather a matter of survival. Legislating for electronic recordation and simplification of legal and administrative processes accepts is not only attractive to shipowners, managers and their lenders, but it welcomes digitalisation and new efficiencies, and it moves with the demands of a modern shipping market.”

A copy of the amendments can be found here and a copy of the Regulations here.