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The Convention on the International Effects of Judicial Sales of Ships Open for Signature

In the morning of the 5th of September in Hall A of the National Convention Centre in Beijing hundreds of people witnessed the signing ceremony organised by the Chinese Government and UNCITRAL of the Convention on the International Effects of Judicial Sales of Ships.

Fifteen States signed the Convention China, Burkina Faso, Comoros, El Salvador, Kirabati, Grenada, Honduras, Liberia, Sao Tomi and Principe, Saudi Arabia, Senegal, Siera Leone, Singapore, Switzerland and Syria.

It was a very special moment indeed for CMI and for those who have worked hard to see this day.

CMI was very well represented by Dr Ann Fenech in her capacity as President, Henri Li co-chair of the IWG on Judicial Sales, Administrator Lawrence Teh, rapporteur of the IWG on Judicial Sales Peter Laurijssen, Beiping Chu Exco member, Soren Larsen deputy secretary general BIMCO, consultative member of CMI, Jan de Boer, Legal Officer at the IMO consultative member of the CMI, George Theocharides representing WMU consultative member of the CMI and Dihuang Song Titulary member of the CMI. The convention seeks to bring stability and certainty to international trade.

The photos below feature José Angelo Estrella Faria, the Principal Legal Officer and Head, Legislative Branch UNCITRAL to whom the CMI is particularly grateful for.

 

 

 

 

Lawrence Teh, CMI’s Administrator – Speech in Beijing
“Professor Chu, distinguished guests, ladies and gentlemen.
May I offer my congratulations to China and all other signatory states on the signing of the Convention.
Since 2013, I have been the Administrator of the CMI who is dedicated to the unification of maritime law.  One of my responsibilities is to stay in contact with all Asian maritime law association members of the CMI, including the China Maritime Law Association, one of our strongest members.  Several of my colleagues are present today, including our President, Ann Fenech, who led the CMI in referring the CMI’s draft Convention to UNCITRAL and led the CMI delegation at all the UNCITRAL meetings through to the finalisation of the Convention text.  Ann’s dedication has contributed substantially to the fact that we have a signed Convention today.
In my time with the CMI, I have had the unique opportunity to observe many things.  One of them is the way in which the topic of judicial sales grew from a simple idea to an international convention.  I’d like to give you an idea of this path from idea to convention, because it is very much part of the work of the CMI.
The first idea that the CMI should study the laws around the world concerning judicial sales of ships was in 2007.  The CMI Executive Committee approved a proposal from Mr Henry Li Hai, a member of the Executive Committee of the CMI.
By 2010, the CMI’s international working group on the judicial sale of ships, led by Henry, circulated a questionnaire to all national maritime law associations to give answers under their law relating to judicial sale of ships.
By 2012, the work of the international working group had advanced and the draft convention presented for consideration at the CMI Conference in Beijing became known as the Beijing Instrument.
I was honoured to be asked to join the international working group and to work alongside Henry in making revisions to the Beijing Instrument based on the views and contributions of national maritime law associations.  At the CMI conference in Hamburg in 2014, the revised Beijing Instrument was adopted by the General Assembly of the CMI as an official draft convention that the CMI would propose to the diplomatic world.
 By 2018,  UNCITRAL accepted the draft Convention into its working programme and the rest is history.
The judicial sale of ships is as much an international act as much as it is a local act.  Such a judicial act affects not only the old and new owners of the ship.  It also affects the ship’s status in its port of registry and to the banking, classification and marine insurance industry.  As you have heard from many speakers today, the ultimate goal of the Convention is to give certainty to the purchaser of the ship from the court of a Contracting State; whether that purchaser is an owner for the purpose of asset finance, an owner for the purpose of chartering out the ship or an owner for the purpose of operating the ship.  Without this certainty shipping, and in turn trade and commerce, become less efficient and productivity slows down.  There are of course developments that the courts of contracting states will make.  No Convention can provide for every single situation and this Convention does not seek to do so as Mr Angelo Faria has said.  One area of development may be in the issue whether transnational public policy is an available concept in refusal of recognition of judicial sale orders.  This is an issue that is occupying the leading minds in international arbitration today and is relevant to what Judge Hu has raised.  It effect, though,  can only add rather than reduce the consistency and certainty offered by the Convention.
Today, it is widely reported that China now has the world’s largest merchant fleet in gross tonnage, ahead of Greece and Japan.  Its fleet is nearly 250 million gross tonnes and about USD180 billion in value.  As China continues to increase its tonnage, the Convention provides certainty to the Chinese buyer of a ship from a foreign court.  Indeed, as world trade continues to grow, buyers of ships from foreign courts all benefit from the certainty that the Convention provides.
A convention often starts from a single idea.  With the effort and support of others, it grows into a draft, then an instrument and finally a convention. The idea, an extremely foresighted one 16 years ago, was that of my old friend, Henry Li.”
Peter Laurijssen, Rapporteur of the IWG on Judicial Sales – Speech in Beijing

Why ICS Supports the Convention on the International Effects of Judicial Sales of Ships.

As soon as the draft convention was taken up by UNCITRAL, ICS engagement in the discussions was actively supported by our members – the national shipowners associations.  This is because ICS is the advocate for international shipowners and operators at meetings of the UN bodies that impact on shipping.  BIMCO also supported ICS engagement and asked us to to lead.  Our position has been co-ordinated with BIMCO throughout the discussionsThe ICS mantra is “global rules for a global industry” and so we were always supportive in principle of the wish to promote greater legal certainty in this area.  The ultimate goal being to facilitate continued trading of a ship sold by way of a judicial sale, without disruption.

We were concerned however to ensure that a fair balance was struck between all of the interests involved in a judicial sale.

Shipowners are central to judicial sales of ships in their capacities as the owner of the ship being sold, the purchaser, and often as creditors with claims against the proceeds of sale.

From the outset, the ICS position was aimed at trying to ensure that due process safeguards would be in place for the defaulting shipowner while at the same time the all important legal certainty would be achieved for the purchaser. ICS concludes that the final text of the convention as signed today here in Beijing, does indeed achieve an appropriate balance.  The convention will promote greater legal certainty by ensuring that a properly held judicial sale of a ship in a State Party, which conferred clean title to the purchaser resulting in a certificate of judicial sale being issued by the State of the judicial sale, would be given full effect in other States Parties. This would be to the benefit of all interests.
ICS is pleased that the that the convention has been signed today and is open for accession by all States that aren’t signatories yet.  The ICS Maritime Law Committee has reviewed the final text and concluded that the convention should be supported by ICS and promoted.

How ICS will encourage States to ratify the convention

ICS made a statement in support of the new convention at the IMO Legal Committee meeting in March 2023 and encouraged member States to give their careful consideration to ratification at the earliest possible opportunity.

In addition ICS and CMI are partners in a long-standing “ratification campaign” that was initiated by ICS many years ago and which we think could provide a good framework for promotion of the new convention. The ICS Maritime Law Committee has agreed that the new convention should be included in the brochure that accompanies the campaign, when it is next updated.

Henceforth, ICS will be asking its members (the national shipowners associations) to urge their governments to ratify it.

 

Jose Angelo Estrella Faria,  the Principal Legal Officer of UNCITRAL- Speech in Beijing

I should begin by thanking the Supreme People’s Court for the kind invitation to deliver a keynote speech at the International Symposium on the Beijing Convention on the Judicial Sale of Ships being convened on the same day of the ceremony hosted by the People’s Republic of China and organized by the Ministry of Commerce of China in cooperation with the United Nations office of Legal Affairs, at which [seven] countries have signed the United Nations Convention on the International Effects of Judicial Sales of Ships, which we now may officially the “Beijing Convention on the Judicial Sale of Ships”.

The new convention is not the first incursion of the United Nations Commission on International Trade Law (UNCITRAL) into maritime law.  Neither was it the first occasion of cooperation with the Comité Maritime Internationale, also represented at this symposium today by its President Ann Fenech, who played a crucial role in the negotiation of the Beijing Convention. The cooperation between UNCITRAL and the CMI in this project was a particularly fruitful one, allowing the project to be completed within an unusually short period for an international convention.

We will hear about the Convention from the learned speakers this afternoon but allow me to briefly illustrate its purpose and architecture.

In most States, courts have the authority to order the sale of a ship to satisfy a legal claim. Such a claim is typically brought against the ship or shipowner 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. As such, it remains for each State to prescribe the rules governing the procedure and legal effect of judicial sales ordered by its courts.

Although in many States the judicial sale has the legal effect of conferring “clean title” on the purchaser (that is, it extinguishes all rights and interests that were previously attached to the ship, including mortgages and maritime liens), this is not the rule everywhere. It also remains for each State to prescribe the rules governing the legal effect within its jurisdiction of foreign judicial sales.

The original proposal presented by the CMI to UNCITRAL in 2017 drew attention to problems arising around the world from the failure to give recognition to foreign judgments ordering the sale of ships. It was stated that a short, self-contained instrument along the lines of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) could provide a solution to those problems.

UNCITRAL showed interest for that proposal and requested the CMI to develop it further.  UNCITRAL and the CMI held a colloquium in Malta, in February 2018, involving government officials, academia and representatives of the shipping industry.  The conclusions of the colloquium were  summarized in an additional proposal submitted to the fifty-first session of UNCITRAL, in 2018, by the governments of Malta and Switzerland. UNCITRAL agreed on the importance and timeliness of the project and assigned it to a working group.

The Working Group considered the topic for the first time at its thirty-fifth session, in May 2019, and agreed to use the draft convention on the recognition of foreign judicial sales of ships approved by the CMI Assembly in Beijing in 2012 (known as the “Beijing Draft”) as a basis for its discussions.  Work proceeded thereafter in five more sessions of the Working Group for each of which the UNCITRAL secretariat prepared a revised draft (five altogether).

Those negotiations were open to all Member States of the United Nations and counted with the active participation of delegations with expertise in maritime matters and the input of maritime industry stakeholders. After the last session of the Working Group, in February 2022, the UNCITRAL secretariat circulated the revised draft to all Governments and relevant international organizations for comment. The Commission considered the revised draft and the comments received at its fifty-fifth session, in 2022, when it finalized the text and submitted it to the General Assembly for adoption.

The United Nations General Assembly adopted the Convention at the 47th plenary meeting of its 77th session, on 7 December 2022. The General Assembly authorized the convening of a ceremony for the opening for signature of the Convention in Beijing, following the generous invitation by the Chinese Government, and recommended that the Convention be known as the “Beijing Convention on the Judicial Sale of Ships”.

The Convention establishes a harmonized regime for giving international effect to judicial sales, while preserving domestic law governing the procedure of judicial sales and the circumstances in which judicial sales confer clean title. The Convention takes a pragmatic approach to address a problem of practical importance by dealing with the key issues for which uniformity is desirable, namely:

  • the mandatory notification of judicial sales to interested parties, including ship registry,
  • the introduction of a standard certificate to provide a basis for international recognition,
  • the deregistration or transfer by the ship registry at the request of the purchaser,
  • the prohibition of actions to arrest the ship for claims arising from a pre-existing right or interest,
  • the exclusive jurisdiction of the courts of the State of judicial sale to hear challenges to the judicial sale.

Accordingly, the Convention leaves it for the applicable law to determine

  • the procedure or legal effect of a judicial sale within the State of judicial sale,
  • the recognition and relative priority of maritime liens,
  • the time of completion of sale and transfer of property, and
  • the distribution of proceeds and grounds for avoidance of judicial sales.

The working group considered extensively how to deal with judicial sales that do not confer clean title, as is the case in some countries where certain types of pre-exiting charges survive. It was agreed that the only sales that confer clean title could have international effects under the Convention.  As in some countries this may not be known until the time the sale is completed, that element is not part of the definition of judicial sales, but clean title will be a condition precedent for the issuance of a certificate under article 5, which in turn is a requirement for the sale to have international effects.

The working group also discussed at length the notice requirements under the Convention. There was wide agreement that notice was importance to give interested parties the opportunity to file their claims with the competent court. To widen the reach of such notice, the Convention provides for its publication by an international repository, which will be maintained by the International Maritime Organization.

An important group of negotiating States was reluctant to assume an obligation to give effect to foreign sales if they were not satisfied that the country from which the certificate emanated had duly notified the interested parties and afforded them an opportunity to participate in the proceedings leading to the judicial sale and protect their interests.  The opposing view was that such safeguards already existed under domestic law and any qualification of the obligation to give effect to a foreign sale would only serve to invite litigation and erode the value of a certificate. The compromise found in article 4, paragraph 1, takes account of the need for finality and legal certainty, while recognizing that appeal and review procedures are an integral part of the understanding of due process underlying the convention.

Upon completion of the judicial sale – which is determined in accordance with the law of the State of judicial sale – the court that conducted the judicial sale or other competent authority issues a certificate of judicial sale to the purchaser if:

  • the judicial sale conferred clean title to the ship under the law of the State of judicial sale and
  • the sale was conducted in accordance with the requirements of that law and the requirements of this Convention.

Both requirements give comfort to the purchaser, but especially to the registry or any other person asked to act upon the certificate, that the sales was done in proper order and can have the international effects provided in the Convention.

To increase transparency and uniformity, the Convention introduces a model certificate listing the required minimum information. The certificate of judicial sale must be transmitted promptly to the repository

Article 6 sates the basic rule of the Convention, namely that a judicial sale conducted in one State Party which has the effect of conferring clean title on the purchaser has the same effect in every other State Party (article 6). The basic rule is subject only to a public policy exception (article 10).

The Convention regime prescribes additional rules which establish how a judicial sale is given effect after completion. The first is a requirement that the ship registry deregister the ship or transfer registration at the request of the purchaser (article 7).

The second rule is a prohibition on arresting the ship for a claim arising from a pre-existing right or interest (article 8). The third rule is the conferral of exclusive jurisdiction on the courts of the State of judicial sale to hear a challenge to the judicial sale (article 9).

To support the operation of the regime, enhance transparency and facilitate the access to information concerning judicial sales of ships, the Convention requires that notices of judicial sale, certificates of judicial sale and court decisions annulling or suspending a judicial sale be transmitted to the online repository which is freely accessible to any interested person or entity (article 11).

Ladies and gentlemen,

For several years now, international lawyers have noticed a decline in multilateral treaty-making, in terms of a lower rate of both adoption and ratification of multilateral treaties.  There are several explanations for this “treaty fatigue”, including recent structural changes in the world political and economic order that emerged after the Second World War and a preference for flexibility in the form of non-binding instruments such as guidelines, declarations or memoranda of understanding.

Of course, treaty-making is a complex and time-consuming process, and States carefully ponder their interest before embarking in international negotiations the outcome of which may at times be unpredictable.  Yet, treaty-making remains a central tool of international relations and important treaties are still being negotiated at the United Nations. This is particularly true for treaties in more specialized and less politically controversial fields.

The Beijing Convention was completed in record time for an international treaty, and despite the interruptions and delays caused by the pandemic.  To a large extent, this was the result of the excellent cooperation and division of labour between UNCITRAL and the CMI.  To a large extent it was also a reflection of the narrow and sharply defined scope of the Convention.

Also, the early efforts to engage IMO in the process and to foresee a role for IMO in the application of the Convention helped increase support and create an operational platform for the Convention in the form of the repository.

Informal consultations held between sessions and during formal meetings proved to be extremely useful to bridge gaps and reach consensus on difficult issues, and lastly, the Secretariat’s neutral position allowed it to help building consensus by preparing revisions to the text and proposing language balancing diverging positions.

We are persuaded that that the Convention will increase legal certainty and predictability for purchasers of ships and contribute to reducing forum shopping and abusive litigation.

The enhanced legal certainty for purchases is likely to result in better prices being paid at judicial sales, leading to higher sales proceeds to satisfy ship and shipowner’s creditors.

The introduction of a standard certificate of judicial sale, provides a clear, simple and predictable uniform process to guide ship registries in handling requests for ship deregistration and related actions following ship purchase in a judicial sale.

Ship registries and their equivalent are not required to investigate the circumstances of the sale.  At the same time, the certificate of judicial sales gives comfort that interested parties were notified and had a fair chance to participate in the sales process.  The ship registry is shielded against risk of litigation, as any claims related to the sale and the issuance of the certificate must be handled by the courts of the State of judicial sale.

As you can see, many factors contributed to the success of the Convention, but I should like to conclude by acknowledging the invaluable contribution of the China Maritime Law Association and the Chinese experts who participated in this process – sometimes joining us remotely in the middle of the night during the pandemic. I pay my respects to them in the person of the learned and tireless Vice-President of the China Maritime Law Association, Professor Henry Li.  From the original Beijing Draft to the final Beijing Convention, their contribution to this process was invaluable.

I would like to place on record our gratitude to them and to the highly professional and generous support provided by the Ministry of Commerce of China, which made it possible for us to meet here today and celebrate this important achievement.

Thank you for your attention.

 

Søren Larsen, Deputy Secretary General at BIMCO- Speech in Beijing

Let me first of all extend a warm” thank you” to the China Maritime Law Association for having invited me to the Signing Ceremony and Symposium of the United Nations Convention on International Effects of Judicial Sales of Ships that was held today.

It is great to be back here in Beijing; I was last here several years ago well before COVID visiting one of the biggest shipyard groups in the world, CSSC, to discuss standard terms for the new building of ships. I am now here again in connection with a somewhat different but no less important matter.

In 2014 CMI concluded several years of hard work when it signed off the draft Convention on Judicial Sales of Ships in 2014 also referred to as the Beijing draft. BIMCO always follows closely what is going on within CMI because much of the work that CMI do is related to or somehow relevant for what BIMCO is doing and we have in the past worked closely together on various projects such as the drafting of the Rotterdam Rules. But unlike the Rotterdam Rules we were (to begin with) never really involved in the work on the draft Judicial Sales Convention partly because it was not a matter that we thought would be of immediate and real interest to our membership.

But then came the MALTA Colloquium in 2018. I was invited by CMI to join what should prove to be a bit of a turning point for BIMCO as regards our engagement in the Judicial Sales Draft Convention. First, it was an extremely well attended Colloquium, and it was a bit of an eye opener for me, personally, to see how many relevant stakeholders there are when a ship is sold as a judicial sale. It was also interesting to learn during the Colloquium what sort of problems parties involved in a judicial sale can get into when judicial sales had not been recognised cross borders. But what really made a difference was that many of those entities getting into problems were the very same entities that BIMCO represent – i.e., the shipowners, whether acting as buyers, sellers, or creditors.

So, I left Malta somewhat wiser than when I first arrived and now my job was to persuade BIMCO’s rather large and influential Documentary Committee which is the overarching body as regards all contractual and related matters within BIMCO, that this was something that the organisation should engage in and lend its full support to. I knew that would be a challenge also because the draft Convention seemed to be in a little vacuum not knowing if a body, like UNCITRAL would take it onboard turning it into a convention.

However, together with Peter Laurijssen, who is also here today and who is representing Belgium on BIMCO’s Documentary Committee and CMI’s President at the time, Stuart Hetherington, we managed to persuade the Documentary Committee at a meeting in May 2018 that BIMCO should throw its weight behind the draft Convention trying to persuade UNCITRAL to take it onboard.

And let me just mention some of the reasons why BIMCO decided to lend all its support to the Draft Convention.

Firstly, it did help that BIMCO shares lang standing and close relations with CMI. Both CMI and BIMCO work for the same noble purpose and that is to achieve legal certainty through harmonization. The only difference is that whereas CMI is trying to harmonize at the regulatory level, BIMCO as the world leading organisation when it comes to contracts and clauses, is trying to do harmonisation at the contractual level.

And harmonizing at the regulatory and contractual level often go hand in hand since regulations in whatever shape they may take often have a knock-on effect in commercial contracts where BIMCO will then need to consider; how do we balance the responsibilities and liabilities flowing from the regulations into the commercial contracts in a fair and equitable manner. The most recent example is IMO’s MARPOL regulations on Carbon Intensity Indicators better known as CII and where BIMCO was seriously challenged in trying to provide a fair allocation of responsibilities and liabilities between the owners and time charterers as regards CII.

So, in effect, an international legal framework dealing with the judicial sale of ships goes to the very roots of BIMCO and what we stand for as an organisation and our long-held view that a truly global industry, such as shipping, depends on global rules.

Secondly, and most importantly the Documentary Committee realised, as I did when I joined the Malta Colloquium, that there are many more angles to a judicial sale than that of a defaulting shipowner whose ship is being sold. A scenario that often has a negative connotation to it because one imagines a defaulting shipowner and the securing of claims against the shipowner whereas the reality is that there is often a shipowner at the other end as well, i.e., the one who is purchasing the ship. Quite often shipowners are creditors with claims against the auction revenue of the ship sold in a judicial sale and legal certainty leads to higher auction revenue and leaves the creditor with a higher chance of a successful debt recovery.

So, while the Documentary Committee was somewhat reluctant if BIMCO should engage in the work in the draft Judicial Sales Convention to begin with, it turned around and gave its green light for BIMCO to engage.

We were extremely lucky that we had an expert on judicial sales of ships in the Documentary Committee namely, Peter Laurijssen, who was willing to represent the International Chamber of Shipping in the UNCITRAL Working Group on Judicial Sale of Ships and speak on its behalf but in close coordination with BIMCO. So, both ICS and BIMCO had a clear and consistent voice during the UNCITRAL Working Group proceedings.

When CMI celebrated its 125 years anniversary in Antwerp in October last year I said” We are now reaching the finishing line on what is a well drafted, broadly acceptable, and legally sound international instrument. For the same reason we hope that the UNCITRAL General Assembly will approve the draft Convention and that it will quickly gain wide acceptance – and you can count on BIMCO’s support in promoting it”.

Now after the UNCITRAL General Assembly approved the draft Convention last year and with the signing ceremony having taken place this morning here in Beijing you may now expect me to say” that we have now passed the finishing line on what is a well drafted and broadly acceptable and legally sound international instrument” but I am not. We are not there yet and there is still work to be done. We must all do our part to promote the Judicial Sales Convention to get it accepted across the board because only then will the job be done. But as I said in Antwerp last year; you can count on BIMCO’s support.

Let me finish by, again, thanking the China Maritime Law Association for having invited BIMCO to join the signing ceremony and legal symposium but most certainly also those with whom we have worked closely with in the process. CMI who is represented here today by their President, Ann Fenech, and who were instrumental in bringing BIMCO onboard in the process, ICS with whom we have shared close relations for many years and not least, Peter Laurijssen, who did a sterling job for and on behalf of BIMCO.

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