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.
Report of Malta Colloquium on Judicial Sales and UNCITRAL meeting – by Ann Fenech
It was during the CMI Executive Council meeting in Genoa in September 2017 when the conclusions of the fiftieth session of UNCITRAL held in July 2017 were discussed. At that session UNCITRAL had noted the importance of a proposal by the CMI drawing attention to problems arising around the world from the failure to give recognition to judgements in other jurisdictions when ordering the sale of ships. Councillor Alex von Ziegler informed us that UNCITRAL appeared to be open to a dialogue on the subject of the international recognition of Judicial Sales. He advised how UNCITRAL suggested the holding of a Colloquium at which UNCITRAL through its secretariat would he happy to participate. The challenge in that suggestion being discussed at our September meeting, lay in the fact that if a Colloquium was going to be organised, this had to be done very early during 2018, by the very latest end of February, because the deliberations and conclusions of the Colloquium would have to be passed on to UNCITRAL to make it in time for a proposal to be tabled and discussed at the 51st meeting of UNCITRAL in June.
A discussion followed on the need to find a state which would be happy co-hosting such a Colloquium. I had explained that the subject of the recognition of judicial sales was something in which Malta would have a very serious interest. Our position bang in the middle of the Mediterranean on the rum line between Suez and Gibraltar means that we straddle one of the world’s busiest shipping routes and as a result ships pass by Malta not only to load and discharge at our transhipment container port but also to pick up bunkers, supplies, effect crew changes and repairs. In addition Maltese law has a very robust law in favour of mortgagees. A mortgage under Maltese law is an executive title which has its roots in civil law and therefore a mortgagee can proceed directly to enforcement against a vessel in the event that the owner is in default. A mortgagee need not commence an action on the merits meaning that our courts are frequently called upon to order the judicial sale of ships by means of either a judicial sale by auction or a court approved private sale. Our law provides that in a judicial sale, a clean title is given to the buyer and the purchaser buys free and unencumbered. With the volume of judicial sales held in Malta initiated by international financiers who have unsatisfied mortgages, Malta had an interest in such an international convention on the international recognition of judicial sales.
The idea of holding the Colloquium in Malta at very short notice gained ground and after establishing that the Maltese Ministry for infrastructure and transport would lend its support to such an event we put in maximum effort to draft a one day programme for the purposes of attracting around 30 maritime service providers who would be able to express their views on this project.
It was only in December that it was confirmed that the Colloquium would indeed be held in Malta organised by the Malta Maritime Law Association in conjunction with the CMI supported by the Ministry.
The Colloquium was held at the Maltese Chamber of Commerce on the 29th February and all the delegates were presented with an introductory paper by Stuart Hetherington, a list of cases which highlighted the legal uncertainty and interruption at great cost to the international trading chain when judicial sales are not recognised, together with the Beijing Draft Convention on the Foreign Judicial Sale of Ships and their recognition.
It was my pleasure as President of the Malta Maritime Law Association to welcome an impressive 174 delegates ( not the 30 people we had originally envisaged ) from 60 countries. The event was expertly moderated by Dr. Suzanne Shaw, Vice President of the MMLA and addressed by Stuart Hetherington the President of CMI, Minister Ian Borg, and Ryan Harrington, Senior Legal Adviser to UNCITRAL. Mr. Harrington made it clear that UNCITRAL was there to listen to the industry and to assess and consider its recommendations.
We adopted a two panel model moderated respectively by myself and Alexander von Ziegler, made up of expert practitioners and industry leaders. I remain eternally grateful for the co-operation of our expert panellists from all over the world who all agreed to come to Malta at a moment’s notice to share their views on this important issue that effects international trade.
The panels were made up of Camila Mendes Vianna Cardoso, from Kincaid, Mendes Vianna Advogados Rio De Janiero, Jan-Erik Potschke from Ahlers and Vogel Hamburg, Lawrence Teh from Dentons Rodyk & Davidson Singapore, Charles Buss from Watson Farley and Williams London, Brooke Shapiro from Winston & Strawn New York, Tilman Stein from Deutsche Bank Hamburg, Peter Laurijssen from CMB Belgium, Cornelia Zammit German from Falzon Group Malta, Ivan Sammut the Maltese registrar of ships and Norman Martinez from the International Maritime Law Institute and Simon Ward from the Institute of Shipbrokers in London. The panellists were carefully chosen to ensure as wide a geographical ans industry spread as possible.
They explained issues arising in their parts of the world and discussed difficulties ranging from how all creditors including mortgagees need to ensure that a vessel gets the best possible price in the quickest possible time and how this is in turn dependant on the importance and certainty of a clean title being passed on to a new owner; the suffering of crew who are literally at the coal face as a ship languishes in no man’s land waiting to be sold in a judicial sale and the difficulties faced by harbour authorities when this happens; to the difficulties faced by a new owner if it is faced with the arrest of the vessel for its old debts under the previous owner and the difficulties faced by flag administrations engaged by a new owner following a judicial sale if the underlying flag administration fails to recognise the judicial sale. All agreed that this area is ripe for international co-ordination in order to establish uniform and international legal certainty which effects such an important link in the chain of international trade. They all agreed that given the very international nature of shipping it was crucial that the subject attracted a uniform solution through an international convention.
Peter Laurijssen from CMB identified four of the most important considerations in relation to judicial sales which was legal certainty, maximizaiton of the asset value, availability of ship finance and the ease of registration after the sale has taken place. He made it clear that failure to resolve these considerations distorted the ship sale market and caused asset value destruction to the detriment of the industry as a whole. Tilman Stein from Deutsche Bank Hamburg shared the view of another 11 major banks from Hamburg underlining the need for certainty and highlighting the substantial value of the assets at issue.
The 174 delegates at the Colloquium which came from 60 different countries offered very interesting perspectives with their comments and observations highlighting the need for legal certainty. Delegates represented states and governments, the judiciary, the legal community, shipowners, bankers, port and harbour authorities, charterers, tug operators, ship agents, bunker suppliers and ship brokers. The Colloquium was also attended by BIMCO, the International Transport Federation and the Institute of Chartered Shipbrokers.
It was crystal clear that the participants and delegates at the Malta Colloquium all agreed that there was a very real need to address the issue and that the smooth operation of international trade depended on certainty. Thus there needed to be a serious discussion at an international level for a convention on the international recognition of judicial sales as had been suggested by the CMI.
In the days that followed the Colloquium there was a great deal of effort by Stuart Hetherington, Alex von Ziegler and myself, in co-operation with the Secretariat at UNCITRAL into putting together a Proposal for UNCITRAL which contained a report on the Malta Colloquium. The Proposal follows this report.
The Proposal of Malta and Switzerland was put on the agenda for the fifty first session of UNCITRAL in New York between the 25th June and 13th July. The Maltese and Swiss proposal was to be discussed in the morning of the 29th June.
Much work was carried out prior to the meeting by Maritime Law Associations and members of the Executive Council with a view to ensuring the support of as many member states as possible at the UNCITRAL meeting. Unfortunately very shortly before the 51st session, the project suffered a set back. We received information to the effect, just 10 days prior to the 29th June, that Malta had been informed by the EU Commission that in its view the subject matter of the Proposal was an EU reserved matter because it dealt with aspects of jurisdiction. The Commission appears to have disregarded the fact that the Proposal was not recommending the adoption of any draft convention but was merely requesting that UNCTIRAL conducts future work on cross-border issues related to the judicial sale of ships. Furthermore it was unexpected that the EU Commission should adopt this stand as one would have thought that it was a perfect opportunity to give the existing EU Brussels 1 regulation and the Recast an international dimension in the area of judicial sale of ships.
Malta therefore was left with no option but to withdraw its proposal, leaving the Swiss Government to be the sole proponent of the Proposal before UNCITRAL.
Alex von Ziegler attended the meeting as the Swiss Delegate and Stuart Hetherington and I attended for and on behalf of the CMI. Alex von Zeigler introduced and explained the Proposal and what its motivations were in a succinct and expert manner. Stuart Hetherington then spoke about the conclusions reached by a cross section of the international trading community and the various circumstances which necessitated an international approach to an international problem. I read out the letter of support to the proposal by BIMCO and took the opportunity of explaining a real case of an illegal arrest of a ship in Malta that took place only three days before the meeting. (A vessel was arrested by a previous creditor of a vessel sold in a Judicial Sale in Jamaica in January of this year which caused havoc to the international trading chain.)
After the other proponents of other proposals presented their proposals for addition to the UNCITRAL agenda, there followed a very interesting debate. The Chair of the meeting made it very clear indeed that whilst all the proposals were interesting delegates had to speak in terms of what they considered a priority because it was impossible for the working groups at UNCITRAL to take on all the proposals being made.
A great number of delegations participated in the debate on CMI’s Judicial Sale Proposal. The delegations from Argentina, Australia, Columbia, Singapore, China and India were very strong supporters of the Proposal. A number of delegations also spoke favourably however other proposals had a higher priority for them. Unidroit commended the efforts made by CMI. The EU representative only made a fleeting reference to the Proposal stating that: “we should look a bit more carefully at the data and justification for such work and if the data is made available and are given more time for consideration we could possibly support work in the form of a soft law in this area.” It is a pity that the EU representative was clearly not informed that all the necessary data including the statistics and the volumes of case law had been made publicly available since CMI commenced to work in 2007 and more so following the Malta Colloquium in February.
The decision on which proposals were to be accepted was announced in the afternoon of the 29thJune. To our great relief and great satisfaction, the proposal for future work by UNCITRAL on cross border issues related to the judicial sale of ships was accepted. UNCITRAL therefore gave a clear mandate to study the subject. It was declared that Judicial sales is one of the two top priorities of future work for UNCITRAL which would be assigned to the working group that is finishing first with its current business. It is likely therefore that it would be working group VI.
As well as all the Maritime Law Associations who lobbied their Governments, the International Working Group of CMI Chaired by Henry Li must be delighted and they must also be congratulated. It is precisely this type of result which reminds us of the very real scope and purpose of the CMI as the body which seeks the uniformity of international maritime law.
Executive Council Member