CYPRUS Law and Practice Contributed by: Kyriacos Scordis and Sofi Mylona, SCORDIS PAPAPETROU & Co LLC
Such security packages are standard in international ship finance and are widely utilised in transactions connected with Cyprus. 2.2 Ship Leasing Ship leasing transactions have increased in Cyprus- related shipping structures in recent years, largely reflecting broader global ship finance trends rather than developments specific to Cyprus. Leasing and sale-and-leaseback transactions are typically under - taken with foreign lessors in conjunction with Cyprus ship-owning or management entities. Traditional bank lending remains significant, and there has not been a complete shift away from bank finance. The increased use of leasing structures is largely attributable to changes in the global ship finance land - scape. Regulatory capital requirements and internal risk constraints have led many banks to reduce direct exposure to shipping, resulting in greater reliance on alternative financing sources. Sale-and-leaseback arrangements are often used by ship-owners as a liquidity management tool, allowing capital to be released from existing assets while maintaining oper - ational control, rather than as a replacement for all forms of bank debt. Asian leasing houses, including Chinese and Japanese lessors, have become more active participants in this market, offering financing structures that differ from traditional loan products. The principal differences between a lessor/lessee relationship and a lender/borrower relationship relate to ownership, payment obligations and enforcement mechanisms. In a leasing structure, legal title to the vessel remains with the lessor, whereas under a loan structure the borrower retains ownership and the lend - er relies on security interests. Lease hire is a contrac - tual payment obligation distinct from loan principal and interest, and enforcement is based primarily on contractual rights and ownership rather than on the enforcement of security. In the case of a Cyprus ship mortgage over a Cyprus- flagged vessel, the mortgage is governed by Cyprus law and registered with the Registrar of Cyprus Ships under the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law. Upon default, the mortga - gee may exercise its statutory power of sale or seek
a judicial sale through the courts. Judicial scrutiny typically focuses on the priority of registered mort - gages, compliance with procedural requirements and the equitable treatment of competing creditors. While disputes under loan documentation may be resolved by arbitration, enforcement against the vessel itself is governed by mortgage and flag-state law. Under a finance lease or sale-and-leaseback struc - ture, the lessor is usually the legal owner of the vessel. Upon a lessee default, remedies commonly include termination of the lease, repossession of the vessel – often more expeditious than mortgage enforcement, depending on the jurisdiction – and claims for unpaid hire and, in some cases, early termination or loss-of- bargain damages. Accordingly, courts do not treat lease defaults more favourably or more strictly than mortgage defaults as a matter of principle; the difference lies in the legal nature of the rights being enforced – security rights under a mortgage as opposed to ownership and con - tractual rights under a lease. Sale-and-leaseback transactions are now a well- established feature of international ship finance and are used in Cyprus-related structures where com - mercially appropriate, particularly as part of broader asset-management or refinancing strategies. 3. Marine Casualties and Owners’ Liability 3.1 International Conventions: Pollution and Wreck Removal In the event of pollution, the Republic of Cyprus will apply international conventions, EU law and national law, including the following. • International conventions: (a) the Merchant Shipping (Ship Source Pollution) Law of 2008 (Law 45 (I)/2008), as amended; (b) the International Convention on Civil Liability for Oil Pollution Damage of 1969 (CLC), and its Protocols of 1976 and 1992 and Amendments of 2000; (c) the International Convention for the Protection
190 CHAMBERS.COM
Powered by FlippingBook