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

Ann Fenech, President of the Comite Maritime International – Key Note Speech in Beijing

Honourable Judges, excellencies,  honourable ministers, distinguished ladies and gentlemen.

Introduction – Unification of International Maritime Law, the CMI and UN Agencies

It is indeed my honour and privilege to be participating in this symposium only a few hours after the signing ceremony of the International Convention on the International effects of judicial sales of ships.  Thank you for your kind invitation to attend and address this audience this afternoon.

Unification of International Maritime law, was, is and will remain, the  very raison d’etre of the Comite Maritime International the CMI.

Louis Frank one of the co-founders of the CMI in 1897  is quoted as having stated:

“We have taken into consideration that the shipowner, the merchant, the underwriter, the average adjuster, the banker, the person who is directly interested, all take a preponderant part in our work; that the task of the jurist is to discern that which, among these divergent interests, is common to all; to discern what, among the diverse solutions, is the best to contribute one’s learning and one’s experience; but that in the final analysis, the jurist must hold the pen and that it is the man with the experience who must dictate the solution.”

This quote holds good today over 130 years later.  The modus operandi of the Comite Maritime International in identifying problems and challenges, in forming international working groups made up of maritime lawyers from various jurisdictions and persons directly from the industry ensures workable solutions  leading the CMI to be responsible for the initial drafting of the vast majority of international maritime Conventions.

Originally the Comite was the only international organization involved with the unification of international maritime law.  It would draft conventions and present them to the Belgian Government who  would organise diplomatic conferences related to subjects concerning maritime law.

In 1948 The Intergovernmental Maritime Consultative Organisation (IMCO) as the IMO was then called was established and  the legal committee of IMCO was formed in  1968  following the major oil spill from the   Torrey Canyon incident of 1967.  The legal committee produced    The CLC Convention of 1969 in which the CMI played a key role in its  drafting.

In the meantime in 1964 the United Nations Conference on Trade and Development  – UNCTAD,   and in 1966, the United Nations Commission on International Trade Law – UNCITRAL, were created.

The CMI has since these dates enjoyed an excellent working relationship with all three organisations and others during which period to date it has continued to produce drafts of conventions which have then been taken up either by the IMO, UNCTAD or UNCITRAL.

What we are celebrating today ladies and gentlemen is a perfect example of the exceptional synergies and energies which exist between the Comite Maritime International and UNCITRAL.  It  is a  historic day for the protagonists of the maritime and trading sector including ship owners, prospective purchasers of ships, ship financiers, crew, and creditors of vessels who demand and deserve to  operate within a certain and robust regime.

The Convention

This new Convention aims to reduce the uncertainty when the free and unencumbered title provided to a purchaser of a ship in a judicial sale is not given its proper effect leading to instability, significant financial cost  and  lack of trust and confidence in judicial sales.

The Problem

In 2008 the  President of the China MLA Professor Henry Li  drew the attention of the CMI to the fact that there was regrettably, an increasing obstacle to the smooth conduct of international trade, an obstacle  which was seriously interfering with the free and unfettered enjoyment of a ship by innocent purchasers who would have spent significant amounts of money to purchase vessels in judicial sales free and unencumbered, only to find their ships subjected to re-arrest by the vessel’s previous creditors acting in bad faith;  obstacles in obtaining the vessel’s deletion from its old register and in obtaining the deletion of previously registered mortgages or hypothecs.

On their part the purchaser’s  financiers who would have extended finance in the justified belief  that they would be the only mortgagees suddenly find  themselves facing  old mortgagees with their security guaranteeing millions of Euro disappearing before their very eyes; the   charterers of such arrested vessels would have their voyages interrupted  and cargo owners would  suffer delays in the delivery of their cargoes leading to further claims.  The financial cost of all of this to the detriment of international trade could and can only be measured in hundreds of millions. Something had to be done about it.

After much work  the CMI international working group chaired by Henry Li produced the Draft Convention on the International Recognition of Judicial Sales of Ships, known as the Beijing Draft  which was finalised and approved by the CMI General Assembly in Hamburg in 2014 and from then on the CMI went about finding the Draft a home.  It was in 2017 at the Commissions’ 50^th session  that  the matter was brought to the attention of UNICTRAL,  and  it was suggested that an international colloquium  be held for the purposes of gathering a cross section of the  shipping industry, with a view to establishing whether or not the international shipping community felt there was a need.

A colloquium was held in my country – Malta –  in February 2018. Attendees varied from members of the judiciary to representatives of ship owners, crew, service providers, ship brokers, ship financiers and industry experts.   All agreed that the situations I have just described needed to be addressed  –  financiers of ships needed certainty, purchasers deserved peace of mind,  registrars of ships needed objective criteria enabling them to give proper effect to such judicial sales.

The conclusions of the Malta Colloquium were contained in the Swiss Proposal to the  Commission at its  51^st  session in 2018  by Alexander von Ziegler, past secretary general of the CMI,  in his capacity as representative for Switzerland  and the Commission was persuaded to take on the work which it allocated to working group V1 under the Chairmanship of Prof. Beate Czerwenka.   There followed 5 extremely intensive meetings with the Draft Convention on the International Effects of Judicial Sales of Ships approved by the Commission in June 2022 and adopted by the General Assembly in December 2023 .

The various articles in the Convention before us have been drafted with a view to ensuring a fair and transparent arrangement which does not propose to interfere with  the domestic law of the state   where the judicial sale is held, but which provide reassuring criteria  giving  peace of mind to several interested parties ranging from the unfortunate owners of the distressed ships, to the purchasers of such ships and their financiers as well as the various creditors of such ships including the crew members.

The Convention in its first article sets the scene: “ This Convention governs the international effects of a judicial sale of a ship that confers clean title on the purchaser.”

Giving proper effect to the free and unencumbered title of a purchaser in a judicial sale goes a long way in ensuring that the best prices are paid for such ships by persons prepared to invest in them.

For instance, most regrettably in these situations  crew  are frequently left languishing for many months on board distressed vessels.  What each and every seafarer wishes to see is the expeditious  judicial sale of the vessel taking place in such a manner which would attract the best purchasers offering the best price.  The seafarer appreciates that it is only if a free and unencumbered title is  secured  that a purchaser  will be prepared to pay good money for the vessel  which will in turn give the  crew member the best chance of getting out of the miserable situation he finds himself in, of getting paid and of being repatriated  and reunited with  his family.

The Convention before us is an uncomplicated and relatively straight forward document which provides in article 6 that a judicial sale  for which a certificate of judicial sale referred to in article 5 has been issued shall have the effect in every other State party of conferring clean title to the ship on the purchaser.

In my humble opinion,  Article 4 which provides for a Notice of the Judicial Sale to be given to numerous interested parties as well as the Repository which is the International Maritime Organisation,  effectively  guarantees that any person can at the touch of a button  by means of the IMO Gisis platform, find out if a vessel is going to be sold in a judicial sale, and the certificate of judicial sale  issued  at the request of the purchaser by the court or authority under whose auspices the judicial sale was held, must attest to the fact that the vessel was sold free and unencumbered.

The effect of the Convention

The Convention we have before us dictates that on the production of such a certificate of judicial sale,  registrars of ships of state parties MUST delete  existing mortgages or registered hypothecs as well as the ship from their register if requested by the new purchaser and / or must register the ships in the hands of the new owners.  On production of such a certificate of judicial sale,  judges in jurisdictions where the vessel finds itself arrested by old creditors of the vessel MUST release the ship of dismiss an application for arrest.

Ratification of this Convention by States would provide such  states with a significant advantage in that it will enrich the value of the judicial sales processes in such jurisdictions.

Purchasers of  second hand tonnage in judicial sales will start to pursue  judicial sales in state  parties because they will obtain peace of mind in trading in and navigating to other state parties which have ratified the Convention.

Financiers  have expressed the view that they could reach the point of agreeing to finance  vessels only if they are sold in judicial sales held in countries which are state parties.  They also envisage a scenario where  financiers would only agree to financing ships purchased in judicial sales if they were registered  with flag states that were in fact state parties to the convention.

We would suggest that states have everything to gain and absolutely nothing to lose by ratifying this convention.

Bright Star

Ladies and gentlemen  the problems associated with the failure to give proper effect are real and still with us.  In  June 2018 a few weeks before  the 51st Commission session in New York,  The Bright Star purchased by Greek owners for 10.3 million dollars in a judicial sale in Jamaica  six months earlier was re-arrested by an old creditor of the vessel whilst in Maltese territorial waters. She was under charter carrying a full cargo of wheat from Kavkaz to Venezuela.  Notwithstanding the fact that the Maltese Merchant Shipping Act prohibited this from happening,   our efforts on behalf of the  new owners  to have the arrest lifted expeditiously by using  summary proceedings failed.   The charter was suspended and put off hire, the cargo delayed, the owners had to put up security to obtain  the release of the vessel and had to commence an action on the merits claiming damages for  an illegal arrest.  The purchaser found himself involved in no less than 74 sets of judicial acts with their club investing huge amounts of money and human resources to overcome this very disruptive situation. Their  financiers seriously concerned about the fact that an old creditor was seeking to enforce an old claim against an asset which was securing the money they had advanced to the purchaser to enable him to purchase the vessel in the judicial sale.   The cost of this ordeal ran into hundreds of thousands of Euros whilst taking 4 years to be resolved.  The first court eventually in May 2021 held in favour of the new purchasers declaring the arrest illegal and ordered the arresting party to pay damages.  The defendants appealed and the court of appeal confirmed the judgement of the first court in January of this year, one month after the UN General Assembly adopted this convention.

Had this Convention been  in existence at the time, and if Jamaica and Malta had ratified this convention,  the vessel would have been released from the arrest  within hours of the presentation of the certificate of judicial sale and would have avoided 4 years of human resources dedicated to pursuing this matter, serious disruption, uncertainty and the substantial expenses incurred.

I will conclude by  thanking most sincerely,   the Secretariat at UNCITRAL  represented here today by Madame Joubin Bret  and Mr. Jose Angelo Estrella Faria and their  team for their dedication and meticulous attention to detail, their perseverance and their significant contribution towards  ensuring that consensus was  reached amongst the delegations  on the Draft wording.  It was my absolute privilege and my pleasure to co-ordinate the CMI efforts at working Group V1 during these sessions and it was an even greater  privilege to work along side Mr. Jose  Angelo Estrella Faria,  the Chair of working Group V1,  Beate Czerwenka  and their teams. The CMI is equally thankful to    all the delegations which took part in the deliberations and contributed significantly to the debate and conclusions  reached on the Draft;  The CMI is also indebted to  the International Maritime Organisation for coming forward and agreeing to  be the Repository of the notices and certificates of Judicial Sales, and last but not least on behalf of the Comite Maritime International  I would like to thank the  Ministry of Commerce of China for the  organisation and hosting of the signing Ceremony and the China Maritime Law Association, UNCITRAL, the Supreme Peoples Court of the Peoples Republic of China and Dalian Maritime University,  for co-organising this Symposium  – the culmination of a process which proves how with good will, determination and truly effective team spirit,  countries with different legal systems, diverse cultures and  divergent views     can ultimately come together  and produce  a treaty,  this treaty on the international effects of judicial sales of ships  for the benefit of the international shipping and trading community.

Thank you

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 47^th plenary meeting of its 77^th 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.