Ship Mortgages in Nigeria Legal Problems


I know Gbolahan Elias I know his friend Fred Onuobia. They are two geniuses working together.

It is a great humour for me to be asked to comment on the paper prepared by Fred Onuobia. What can I stay but to concur with all that he has written?

I shall add what Gbolahan would call my own agenda as a body filler!.

My comments shall dwell on how the Nigerian Courts have dealt with issues / problems relating to ship mortgages and allied matters.



In understanding how the Nigerian Courts have dealt with the issues relating to ship mortgages, perhaps a good starting point would be to investigate some of the earliest cases and questions on ship mortgages which have come before the Nigerian Courts, beginning from the early days of the nations history.

a. Quere: (i) Whether mortgage sum must be ascertainable?

(ii) Whether the sum secured must be due at the

time of suit?

The question has arisen whether the sum secured by a mortgage must be ascertainable before the mortgagee can bring an action in rem.

Another question is whether the sum secured by the mortgage must actually be due at the time the in rem action is filed.

The Nigerian Courts have decided that the simple answers to these questions are as follows:-

a. A Mortgagee who wishes to bring an action in rem against a defaulting borrower (Mortgagor) must ensure that the sums that were secured by the mortgage must be capable of being ascertained.

b. Secondly that the ascertained sum of money must actually be due at the time the mortgagee makes his claim or files his action against the defaulting mortgagor / borrower

How did the Courts come to these conclusions? – it was through a case which went from the Federal Supreme Court in Lagos up to the Privy Council in London. This was in the heydays of British colonial power – shortly after our independence when appeals laid from our Supreme Court to the Privy Council in England.

The name of the case is Banque Genvoise de commerce et de Credit. v. Compania Maritime de Isola Spetsa Limitida (1907) 1 NSC 68. It’s a case of the Swiss versus the Italians. The Arena was Lagos. The Swiss are very shrewd and skilled bankers. Their expertise in this trade is reknown. Naturally an agreement by a swiss bank to secure any loan is water light. Consequently, a swiss bank would move faster than the speed of light to enforce its security. This time, it moved too fast, and too soon, !.

This is what happened:- In 1958, the Geneva Bank of Commerce and Credit (Banque Genevoise de Commerce et de Credit) loaned S292.790 (Two Hundred and Ninety-two Thousand Seven Hundred and Ninety pounds Sterling) to Italian ship owners (Compania Maritime de Isola Spetsai Limitida. The vessel “SPETSAI PATRIOT” was mortgaged to the bank as security for the loan. The deed of mortgage was registered in Liberia. The monies secured by the Mortgage were to be repaid by installments in 1958 1959. The shipowners did not pay any instalments, whatsoever on the due date or at any other time.

In 1962 the vessel sailed to Lagos. On the 30th June 1962 while she was in Port in Apapa the bank arrested her. The bank sued for S 380.627 (Three Hundred and Eighty Thousand Six Hundred and Twenty-seven pounds sterling) which was the whole money secured by the mortgage plus interest and bank charges.

Were the Italian Shipowners owing this money?. They contended that they were not !. They in fact said that the terms of the 1958 mortgage had been changed by an agreement dated the 26th October 1961, between the bank and its subsidiary on one hand, and the Italian Shipowners, their Managing Director, and the American Trading Company of Panama, on the other hand. They also contended that the 1961 agreement was a novation of the 1958 agreement and that 1961 agreement had infact rescinded or revoked the 1958 deed of mortgage!

The Federal Supreme Court studied the 1961 agreement. The court asked many questions. Both parties admitted that the 1961 agreement was indeed valid. Based on its understanding of the 1961 agreement the Federal Supreme Court held in favour of the Shipowners.

The court dismissed the bank’s action in rem. The bankers were dissatisfied. They appealed to the Privy Council in London. They contended as follows: -

a. That under the 1961 agreement, the term of the 1958 deed of mortgage was still in operation with the substitution of a new mortgage sum and new date of repayment.

b. That the 1958 mortgage deed required that the Shipowners comply with S.4 of the Liberia Maritime Code i.e not to do or permit to be done anything which might injuriously affect the registration of the vessel and to maintain the vessel in good running order and repair.

c. That the shipowners were indeed in breach of the S.4 Liberia Maritime Code.

The shipowners on the other hand relied on Article 2(d) of the 1961 agreement which provided that two new mortgages should be given as security by the shipowners in favour of the American Trading Company of Panama. The mortgage sum was S50,000 (Fifty Thousand pounds sterling) each for the vessels “SS Spetsai Patriot” and “SS Spetsai Navigator”.

From the evidence before the Federal Supreme Court, it was clear that under

the 1961 agreement, the parties rounded up all the sums owed by the

shipowners to the bank as S300,000 (Three Hundred Thousand Pounds

Sterling. These sums were to be paid from assets of the Shipowners

enumerated in Article 2 (a) (b) of the agreement – the estimated value of all

these assets were put at S275,000 (Two Hundred and Seventy-five Thousand

pounds sterling).

Article 6 of the agreement stipulated that the two mortgages mentioned above

were only to be used to secure payment of any sums left after those assets

have been realized. Therefore if the assets sold, realized all of the S300,000

nothing would be due or recoverable under the mortgages.

But if the assets realized less than the estimated value, then the Panamanian company could use the mortgages to make up the balance of S300,000– but using a maximum of S50,000 on each mortgage.

Article 6 of the agreement provided that the assets could not be realized before one year i.e not before 26th October 1962. For this reason the agreement allowed the first installment of the sums secured by the mortgages to become payable on the 1st November 1962.

However, by 30th June 1962, the Bankers had arrested the vessel at Lagos and filed an action in rem. The year had not elapsed. The assets had not been realized. The banks move was four months premature!.

This is what Lord Reid said, in dismissing the appeal:-

“Normally a mortgage is granted to secure payment of a specified sum. The date of payment is merely postponed and if by reason of a breach, of a condition in the mortgage, the mortgagee becomes entitled to immediate payment, he can sue for payment of that sum. But in this case, there was no ascertainable sum secured by the mortgage and no sum due until the year had elapsed and it was seen by how much the sums realized form the other assets fell short of S300,000. So when the vessel was arrested on June 30th 1962, and the present action was raised a few days later, no sum had become ascertainable or due.

Nothing would have been recoverable if the new mortgage had been granted under article 2(d) and nothing was recoverable by virtue of the old mortgage.

As the present action is to recover a sum of money and no sum had become due, or ascertainable when it was raised, it must fail”.



The case of National Bank of Nigeria Ltd .v. Okafor Lines Ltd No 2 (1979) 2 NSC 90 is authority for the proposition that where mortgage interest accrues during in rem proceedings, against the ship, the mortgagee can sue the mortgagor in personam to recover the interest


In the 1960’s, National Bank of Nigeria Ltd, was one bank in Nigeria that was the ship owners friend. I don’t know if that friendship is still maintained today. Unlike many others today, it did not shy away from financing maritime ventures. In the process of championing maritime finances, it met a customer called Okafor Lines Ltd. Its dealings with the customer led to a Saga, which richly developed the law on ship mortgages in Nigeria

a.What is the effect of a lien on the rights of the mortgagee

The Saga began on the 3rd June 1966. There was trouble in Eastern Nigeria. The Biafran War was just brewing. At this time, Lagos was the capital of Nigeria. Lagos was still calm. It was the season of the rains too. People were going around minding their own business in this city of boundless energy. The colour of money did not recognize the drums of war.

Okafor lines was doing very good business, inspite of the political uncertainty in the atmosphere. It wanted to purchase a vessel the “SS Chief Awosika” It approached National Bank for a facility. The bank was happy to oblige. The parties entered into a mortgage agreement dated the 3rd June 1966. Okafor lines Mortgaged the vessel as security for the loan.

Under the mortgage deed, the bank had the right to call in the principal loan and the interest upon the happening of certain events of defaults by Okafor Lines.

Okafor lines did not pay its port charges and harbour dues. The Nigerian Ports Authority promptly impounded the “SS Chief Awosika” and sold it by order of court!

The bank brought an action to recover the principal loan and the interest under the ship mortgage in the case called National Bank of Nigeria Limited .v. Okafor Lines Limited No 3 (1979) INSC 110

The questions before the court inter alia were:-

(a) Whether the mortgagee had a right to recover its debt after the security had been sold by a third party

(b) The effect of a lien by a third party on the rights and interest of the mortgagee.

The court answered the first question in the affirmative. As regards the second,

it held that the rights of the mortgagee should be satisfied in priority to the lien

Taylor C.J at page 112, answered the questions as follows:-

“the learned author of Roscoe’s admiralty practice 5 Roscoe’s admiralty practice 5th ed, at pg 93 (1931) states as follows on the rights of the mortgagee of a ship”:-

“The mortgage gives him (the mortgagee) a right to the actual possession of the ship at any time after the debt is due, and even before the debt is due, if the property is being dealt with in such a way as to impair the security and he is entitled to sell it as free from incumberances, even though there may be an agreement between the martgagor and third parties in regard to the working of the ship of which he had no notice”.

In the case before me, not only has the security been impaired, by the lien created in favour of the Nigerian Ports Authority, the security has been auctioned and sold and consequently lost to the Plaintiff’s as a security for the sums advanced to the Defendants”.

In the circumstance, the plaintiff mortgagee was held to have a right of action to recover both its principal and interest advanced to the mortgagor – defendant.

b.Maritime Lien Priority of Mortgages

The lien in question in this case can now be classified as a general maritime lien within the meaning of S 2(3) (n) Admiralty Jurisdiction Act 1991 .i.e. a claim in respect of a liability for port, harbour, canal or light tolls charges or dues, or tolls, charges or dues of any kind in relation to a ship”.

In this case the ship mortgage was held to have priority over the third party lien such that although in a separate action NPA .v. Okafor Lines Ltd mentioned at (1979) INSC pg 112 the NPA’s application for its dues to be paid out of the sale of the mortgaged vessel was allowed, the actual payment was suspended until consideration and final determination of the mortgagee’s claim in National Bank of Nigeria .v. Okafor Lines Ltd No 3. The mortgagees claim was the first preferred mortgage, and its terms and satisfaction were held to be in priority to that of the NPA.



The law is that the mortgagees right of action accrues only after the whole mortgage debt has been advanced.

In National Bank of Nigeria Limited .v. Okafor Lines Limited N0 2 (1979) NSC 90

The bank brought an action hinged on three demands:

i declaration that its right under the mortgage agreement of 33" Month="6" w:st="on"> 3rd June 1966 were vested and exercisable.

ii. a declaration that Okafor lines was in breach of the covenants in the mortgage deed and so the bank was entitled to possession of the “SS Chief Awosika”.

iii. The sum of S501,162,12s. 3d (Five Hundred and One Thousand, One Hundred and Sixty-two Pounds, Twelve Pounds Shilling and three pence) as money due to the bank from the shipowers on banking facility granted to the shipowers in pursuance of the mortgage agreement.

At this time the Nigerian currency was the English pounds shillings and pence. It was the days when twelve pence made one shilling and twenty shillings made one pound!.illings made one pound!.

The Nigerian currency was in good standing with the Bank of England. In todays terms the bank’s claim would be astronomical.

The mortgage deed provided for events of default and remedies in case of default.

Okafor lines also signed and deposited a promissory note with the bank. One of the conditions of the mortgage deed was that if the shipowners made a default in payment of charges fines and penalties then the bank could resort to the remedies listed in the deed.

There was evidence that Okafor Lines owed the Nigerian Ports Authority certain sums, in respect of harbour dues and mooring dues. These were regarded as defaults. Therefore the bank contended that since such default had occurred it was entitled to bring an action in law, equity or admiralty to recover judgement and declare all the principal sum outstanding and interest there on to be due and payable immediately without regard to the maturity date stipulated the mortgage deed.

The shipowners contended that since the entire loan which was being advanced by installment had not been totally advanced by the bank interest on the advanced loan could not be due and that they were therefore not in breach of any of the covenants in the mortgage deed.

Taylor C.J. considered both contentious carefully. It is interesting to note the exact wordings of the relevant portions of both the mortgage deed and the promissory note and see how the court solved the problem.

S.2 of the mortgage deed stated that:-

“That ship master is firstly indebted to the mortgagee in the sum of S470,000 (Four Hundred and Seventy Thousand Pounds Sterling) lawful money of the Federation of Nigeria, evidenced by the promissory note”

The promissory note itself provided as follows:-

“For value received the undersigned Okafor Lines Ltd, a Nigerian Corporation (“The Company) promises to pay on June 2nd 1972, to the order of the Nigerian National Bank Ltd (“the Bank) at its principal office in Lagos, Nigeria or such other address as the holder thereof may designate in lawful money of the Federation of Nigeria, the principal sum of S470,000 together with interest at the rate of 10% per annum on the said principal sum remaining from time to time unpaid. The principal sum, having been advanced to the company in installments interest shall be payable on each advance of the principal sum from the date such advance was made”. The action was dismissed as premature.

There was evidence that at the time the writ was issued the bank had advanced the sum of S458,078.19s.7d but not yet the principal sum of S470,000 as stipulated in the mortgage deed. Consequently the court held that since the whole mortgage debt had not been advanced to the shipowners and there was no evidence of the shipowners debt to Nigerian Ports Authority in respect of the particular vessel in question, there was no default of the mortgage and the mortgages right of action had not accrued. b. Right to possession of the ship

National Bank of Nigeria Limited .v. Okafor Lines Ltd No 2 (1997) 2 NSC also decided that the main right of the mortgagee of a ship or holder of a majority of share in a ship is the right to take possession of the ship which he may do even before any part of the

debt is due if his security is being or will be seriously impaired in some material way by remaining in the mortgagor’s possession.


From the foregoing, it is clear that in resolving problems of ship mortgages, the courts have not necessary used the provisions of the Merchant Shipping Act, but have used the evidence before it.

In NPA .v. Okafor Lines for Lines NPA did not seek the Ministers consent before selling the vessel “SS Chief Awosika”, that was owing harbour due and mooring fees.

It is interesting that as a mortgagee with a power of sale National bank never made any application to sell the vessel SS Awosika, even though it could have done so before the NPA impounded the vessel.>

In National Bank .v. Okafor Line Ltd No 2:- the court had observed that although S. 19(e) of the deed of mortgage dated 3rd June 1972, gave the mortgagee bank the right of sale of the vessel, this right was not claimed in the banks writ of summons could it be that the bank was mindful of the provisions of the merchant shipping Act where the mortgagee is said to require the ministers consent before effecting a sale of the mortgaged vessel S. 326(2) MSA?. Such a provision works contrary to commercial efficiency.

The practicality of commercial transactions and court proceedings seem at variance with the requirement that the Ministers consent is necessary before a sale of vessel can be effective.

In the case of Benzenne Nigeria Ltd .v. Nigerbrass Shipping Line Ltd (1993) 4 NSC 237 one of the questions for determination was whether or not the consent of the Federal Government was necessary for sale of a Nigerian Flagged Ship.

Aina .J. was quite emphatic in the rejection of any prosposition to the effect that the Federal Governments Consent was necessary before a Nigerian Flagged vessel could be sold.

This is how he expressed his displeasure at such a proposition of page 242

“I also find it untenable, the proposition that a Nigerian vessel cannot be sold without the consent or approval of the Federal Government of Nigeria. Possibly what learned counsel has in mind is the sale of Federal Government owed vessels or Nigerian Navy Vessel”.

In the same vein, I am in total agreement with Mr. Onuobia that it is an impediment on the freedom of contract to require the ministers consent either to create a ship’s mortgage or to realize that security.

Perhaps just as the learned Justice Aina said above, it appears that at the time the Merchant Shipping Act was enacted the legislature had only the Government owed vessels in mind. In todays commercial environment S. 323, and S.326 of the MSA are some what unrealistic

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