General Assembly of the UN adopts the Convention on the International Effects of Judicial Sales on 7th December
8 December 2022
General Assembly adopts the United Nations Convention on the International Effects of Judicial Sales of Ships
VIENNA, 8 December (UN Information Service) – The United Nations General Assembly adopted the United Nations Convention on the International Effects of Judicial Sales of Ships on 7 December 2022. The General Assembly authorized a signing ceremony for the Convention to be held as soon as practicable in 2023 in Beijing and recommended the Convention be known as the “Beijing Convention on the Judicial Sale of Ships”.
In most States, courts have the authority to order the sale of a ship to satisfy a claim that is brought against the ship or shipowner. Such a claim is typically brought to foreclose a ship mortgage (in the event of default in repayment) or to enforce a maritime lien against the ship. The judicial sale procedure is typically preceded by the arrest of the ship. While the international community has achieved significant progress in harmonizing rules on the arrest of ships, much less progress has been achieved in harmonizing rules on the judicial sale of ships, which remain subject to widely varying domestic laws. The Beijing Convention will enhance legal certainty by creating a uniform regime for the international effects of judicial sales of ships.
The Convention is expected to provide legal protection for purchasers of ships sold by judicial sale, while safeguarding the interests of shipowners and creditors. It does this by providing uniform rules that the clean title acquired by the purchaser in the ship will be recognized internationally, while requiring a certificate of judicial sale only to be issued if certain safeguards are met, including notification of the shipowner, creditors, and other interested parties. It is expected that these safeguards will positively impact the price realized at judicial sales of ships, to the benefit of both shipowners and creditors, including lienholders and ship financiers. The International Maritime Organization will act as the repository of notices and certificates of judicial sales under the Convention.
The General Assembly calls on Governments and regional economic integration organizations to consider joining the convention to strengthen the international legal framework for shipping and navigation.
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The United Nations Commission on International Trade Law (UNCITRAL) is the core legal body of the United Nations system in the field of international trade law. Its mandate is to remove legal obstacles to international trade by progressively modernizing and harmonizing trade law. It prepares legal texts in a number of key areas such as international commercial dispute settlement, electronic commerce, insolvency, international payments, sale of goods, transport law, procurement and infrastructure development. UNCITRAL also provides technical assistance to law reform activities, including assisting Member States to review and assess their law reform needs and to draft the legislation required to implement UNCITRAL texts. The UNCITRAL Secretariat is located in Vienna, Austria, and maintains a website at uncitral.un.org.
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For information, please contact:
José Angelo Estrella Faria
Principal Legal Officer and Head, Legislative Branch
Thursday 20th October 2022 Antwerp
Ann Fenech Co-Chair IWG on Convention on the International Effects of Judicial Sales of Ships
Introductory remarks – Judicial Sale of Ships
Ladies and Gentlemen
Thank you very much indeed for attending our session this morning on Judicial Sales of Ships.
At the very beginning of this session I would like to thank 3 people who unfortunately could not be with us today, Henry Li my co-chair and chair of the first working group on Judicial Sales, Stuart Hetherington Past President of CMI who identified UNCITRAL as being the ideal home for the Beijing Draft and Alex von Zeigler Past Secretary General of CMI and the representative delegate of Switzerland at UNCITRAL – instrumental in convincing delegates at UNCITRAL of the CMI cause in 2007.
Dear Friends, Today we are on the cusp of a Convention on the international effects of Judicial Sales of Ships to be referred to as the Beijing Convention on Judicial Sales when the General Assembly in its current 77th session adopts the Convention.
We got to this point first and foremost thanks to my co-chair Henry Li who brought this challenging problem to the attention of CMI.
There have been and there are instances of ships being sold in judicial sales free and unencumbered to buona fide purchasers paying good money only to have their voyages interrupted and ships arrested later by the vessel’s previous creditors; instances where registries are reluctant to delete vessels sold in judicial sales and/ or mortgages of vessels sold in judicial sales; instances where creditors are reluctant to delete their existing privileges and hypothecs following judicial sales; all of this leading to huge uncertainty and rather chaotic situations for the new owners and for the new financiers lending money for the purchase of these vessels having extended financing on the understanding that they would be financing vessels which would be free and unencumbered only to find themselves having to deal with previous mortgagees – all resulting in serious interruption to the smooth operation of international Trade.
The working group chaired by Henry Li worked tirelessly to produce the Draft International Convention on Foreign Judicial sales of Ships and Their recognition, known as the Beijing Draft. The Beijing Draft was finalised in Hamburg in 2014 and from then started the task of finding the Beijing Draft a home.
After approaches to IMO, the CMI approached UNICTRAL and in 2017 presented a proposal highlighting these challenges which exist in a number of jurisdictions, and at its 50th session, the Commission suggested that the CMI should hold a Colloquium with the industry with a view to discussing the issue and reporting back to the Commission.
A very successful Colloquium was held in Malta in February 2018 attended by 180 persons from over 60 countries representing different governments, the judiciary, international banks, shipowners, maritime service providers, ship brokers, ship repairers, shipping registries, harbour authorities.
All expressed their support for the need of such a convention which would bring certainty leading to more confidence in Judicial sales, comfort to the financiers, leading in turn to higher prices resulting in more funds to pay the creditors and ultimately the defaulting owner.
The results of the Colloquium were presented by Alex von Zeigler on behalf of the Government of Switzerland at the fifty first session of UNCITRAL in June of 2018. It was a very exciting moment for Alex von Zeigler and for Stuart Hetherington then President of CMI and I who together presented the case at the Commission’s 51st session leading it to decide that this was a topic which would be added to the work programme of the Commission. The Commission decided that: “In support of the proposal it was noted, by the Commission, that that issue had the potential to affect many areas of international trade and commerce not only the shipping industry with several examples of that impact being provided.” It was subsequently decided by UNCITRAL that working group V1 would take on this project.
Working group V1 first met to deliberate our Beijing Draft in May 2019 at the UN in New York at its 35th session under the chairmanship of Prof. Beate Czerwenka and the eagle eyes of the Principal Legal Officer in the Secretariat Jose Angelo Estrella Faria.
The majority of the delegates representing the various states at this first meeting did not have a maritime background and they were rather bemused by the extent of the complications that arise in our world of enforcement of maritime claims against vessels leading to judicial sales of ships. As a result it was necessary at that first session for us to explain the whys and wherefores of every article. There were enough of us in the room to lead and add to the discussion including myself for and on behalf of CMI, Alex von Zeigler representing Switzerland, Henry Li and Bei Ping Chu representing China, Frank Nolan representing the United States of America, Tomotaka Fujita representing Japan, Eduardo Albors and Manuel Alba representing Spain, Peter Laurijssen representing the International Chamber of Shipping and BIMCO, Margot Harris representing Law Asia, Karina Albors represented the Arbitrators group, Brian Murphy representing IUMI, and Judge Neil McKerracher the Australian admiralty judge representing the International Association of Judges.
That 35th meeting resulted in the 1st revision of the Beijing draft.
However the experience at the 35th session clearly taught us that we had to encourage our national maritime law associations to work towards encouraging their governments to request the attendance of maritime law experts as part of state delegations to assist the state delegates in the deliberation of this highly specialised convention. At that early stage we could already see that one of the main challenges was going to be to convince the delegates that what international trade required was a convention and not a model law.
This effort led to a marked increase in maritime lawyers accompanying state and NGO delegations in the sessions that followed all the way to the 55th Commission session in June of this very year. Peter Kragic represented Croatia, Diego Chami represented Chile, John O’Connor represented Canada, Jan Erik Poetschke represented Germany, David Testa represented Malta, Harmen Hoek, Muge Amber Kontakis and Richard Singleton represented the IBA.
Another thing we learnt from the 1st session of May 2019 was that going forward it would be useful for the CMI to provide in advance of the sessions a set of Meeting Notes in which we could highlight important issues, explain them and offer possible solutions.
Thus following each revised draft and before its discussion our CMI working group prepared what became known as the CMI Meeting Notes.
In the midst of the 6 sessions of working group V1 held between May 2018 and February 2022 we had 2 years of pandemic. During this period sessions were held either virtually or semi virtually. This produced major challenges for the Secretariat at UNCITRAL as well as the delegates. For a number of delegates joining from diametrically opposed time zones, these sessions meant remaining awake during the night and delegations had to improvise by communicating with each other via whats ap rather than having important yet informal discussions over a coffee!
The 6 sessions were packed with agreements, disagreements and invigorating debate but above all the desire to produce a “ratifiable” convention which could deal with the challenges envisaged and that is precisely what I believe we have before us. Is it perfect? Probably not but it is a very good effort! It is to be noted that our Beijing Draft, continued to be referred to as the Beijing Draft throughout the sessions and a decision was taken that the instrument was to be in the form of a Convention.
The CMI used the time in between the sessions to work with the Secretariat, to understand concerns raised by delegations, to bridge distances and work on solutions and to strengthen existing relationships with numerous organisations such as the IMO and the EU. The extent of the support of the IMO was evidenced by the fact that it agreed to act as the Repository for the Notice of Judicial Sale and the Certificate of Judicial sales. Special thanks go to Fred Kenney as well as to the EU Commission with whom through Angel sears de bono, we enjoyed a first class working relationship.
We have before us dear friends a convention which we believe is crisp, clear and to the point. It has 16, substantive articles which will be the subject of discussion by our distinguished panellists very shortly. To help us better understand various aspects of the Convention the Secretariat will provide Explanatory notes to assist us to iron out the creases, clarify and to assist with the proper interpretation of the articles.
I would now like to end this introduction by thanking a number of persons.
Kate Lannan and Renaud Sorieul who were the two persons who guided the President of CMI then, Mr. Stuart Hetherington, in the initial stages and approaches to UNCITRAL with the CMI Beijing Draft. Ryan Harrington from the UNCTRAL secretariat who came to Malta and supported the Colloquium and participated in the debate.
We cannot thank enough Madame Chair of working group V1 here with us today, Prof Beate Czerwenka, who handled the proceedings brilliantly notwithstanding the diversity of opinions and styles and kept us all on track enabling the successful conclusion to our deliberations.
Thanks go to the Secretary General of UNCITRAL Madame Joubin Bret and the Secretariat of UNCITRAL and to all the staff both in Vienna and in New York.
We are particularly grateful to Alex Kunzelmann, the producer of so many reports including we were informed, the explanatory notes on which so much emphasis has been placed by so many delegations throughout the six sessions.
Last but not least Jose Angelo Estrella Faria- Principal Legal Officer and Head, Legislative Branch International trade Law Division, who has also very kindly accepted our invitation to address us today. This gentleman had the remarkable ability to provide an acceptable solution to several delegations holding divergent views. I said this in my closing remarks at the Commission in June and I will say it again here, that on so many occasions his skilful and insightful drafting did not just save THE day, but saved MANY days and we are indebted to him.
Of course a big thank you goes to the NMLAs who from the very beginning of this project in 2007 were instrumental in providing, through the various questionnaires all the relevant material and in acting as intermediaries between their governments and the CMI. This would not have been possible without you.
Last but not least the members of the CMI IWGs on Judicial Sales. I speak about 2 IWGs – in the plural. The first IWG under the Chairmanship of Henry Li worked as I said tirelessly to produce the Beijing Draft. The members of this group were: Henry Li, Jonathan Lux, Andrew Robinson, Frank Smeele, William Sharpe, Lawrence Teh, Frank Nolan, Louis N. Mbanefo, Benoit Goemans, Dr. Klaus Ramming, Aurelio Fernandez-Concheso.
The 2nd International working group which took the convention to UNCITRAL and through UNCITRAL were myself and Henry Li as co-chairs, Alex von Ziegler, Stuart Hetherington, Frank Nolan, Peter Laurijssen, Jan Erik Pötschke, Tomotaka Fujita, Paula Bäckden, Eduardo Albors, Beiping Chu, and Luc Grellet.
I hope that has set the scene to our session this morning.