The United Nations General Assembly adopted the UN Convention on the International Effects of Judicial Sales of Ships on 7 December 2022. The Convention looks to ensure certainty on an international scale regarding legal aspects of a ship’s judicial sale.
Introduction
The enforcement of maritime claims through an admiralty court play a fundamental role in resolving disputes that arise out of shipping and navigation by sea. From the viewpoint of an individual or entity that has been aggrieved, a ship or its owner can be held accountable by enforcing a maritime claim in an admiralty court.
The arrest and judicial sale of a ship is one of the most common and powerful features in the domestic laws of many countries for enforcing a maritime claim. However, before an admiralty court can hear and determine a maritime claim, it must be satisfied that there is a basis for the claim grounded in and recognized by the law of the country in which the admiralty court sits. In enforcing a maritime claim, a party may be able to secure the arrest of the ship in question and obtain security for the maritime claim.
An arrested ship can then be sold and the proceeds of the sale retained by an admiralty court as security for all claims against the ship. Ideally, the judicial sale of the ship by the court or other competent authority would extinguish all claims against the ship and grant the ship’s purchaser a title free of all maritime claims, liens, and other charges or encumbrances.
International Unification of Maritime Law
In 1987 the “Comité Maritime International,” a non-governmental, international, not for profit organization, was established in Antwerp, Belguim, for “contributing by all appropriate means and activities to the unification of international maritime law.” (Comitemaritime.org)
Through continuous studies and reviews, the Comite Maritime International concluded that, while the international community had made advances in harmonizing the rules on arrest of ships, it accomplished very little in developing consistent and unified practices for judicial sales. Comité Maritime International’s examinations also revealed that the root cause of inconsistent judicial sale practices within the international community was caused by the varied domestic laws of member states regarding judicial ship sale orders.
A classic example of this divergence is that, in some cases, a judicial sale order issued in one country is not recognized in another country. When a ship is lawfully sold by a court or other competent authority and not recognized in another country, it causes uncertainty about the true ownership of the ship.
Another example is that, while some countries allow a purchaser to deregister a ship based on a judicial sale order from another country, in other countries, a purchaser may find it difficult to deregister a ship from its register and delete an old mortgage based on a foreign judicial sale order. This inconsistency gives rise to a situation where a ship would have two owners and a new mortgagee would be unable to register a new mortgage.
Further, uncertainties related to the survival of existing liens and encumbrances against a ship can arise in a judicial sale, depending on the jurisdiction. This situation has led to cases where a ship has been rearrested by its old creditors for a debt which was not related to the new purchaser. In other cases where a ship is arrested by the old owners on the ground that the judicial sale was wrongly granted, the purchaser will encounter unexpected expense in establishing their ownership.
These challenges are among the many that have eroded the aim of judicial sales and have significantly impacted the effectiveness and efficiency of the administration and conduct of judicial sales. Thus, the disparities create barriers to a unified international application to the detriment of innocent purchasers and creditors.
Arriving at an International Solution
The new Convention aims to harmonize an international approach for the maritime community, particularly regarding (a) the legal effects of a judicial sale and (b) the deregistration or registration of a ship.
To achieve these aims, the Convention introduces a requirement that the court or competent authority conducting a judicial sale issues a “Certificate of Judicial Sale” to a ship’s buyer. The Certificate of Judicial Sale confers a clean title on a purchaser and will have the same legal effect in every member state.
Many in the international maritime community anticipate that, through reliability and validity created by the advent of the Certificate of Judicial Sale, innocent purchasers will obtain legal protections and the interests of creditors and shipowners will be safeguarded.
Status
In summary, the Convention intends to attain cooperation among member states regarding the legal effects of judicial sales of ships conducted in another member state. When the Convention comes into force, it will strengthen the legal framework for shipping and navigation worldwide and make it more difficult to challenge the lawfulness of a judicial sale and the successful transfer of vessel ownership.
The signing ceremony for the Convention is expected to be held sometime in 2023, but an exact date has not been announced. The Convention will be open for consent and acceptance by UN Member States and will come into force when it is formally accepted by a minimum of three Member States.
Given the current challenges and uncertainties discussed above, it is highly likely that the Convention will, indeed, come into force in 2023, giving the international maritime community greater consistency and continuity.
Effect in the Virgin Islands
If the Convention is adopted and given effect to the Virgin Islands, its purpose will be similar to those of the reciprocal enforcement of judgments legislation. As an overseas territory of the United Kingdom of Great Britain and Northern Ireland (the UK), the Virgin Islands is unable to formally accept and give consent to international conventions. However, the UK does have the ability to give consent and ratify the Convention, and the Virgin Islands, as an interested party, will ask the UK to extend the Convention to the territory.
The UK appears to support the Convention and has attended working group sessions in its development. It is expected, therefore, that changes to the BVI’s domestic legislation will be forthcoming in order to give effect to the provisions of the Convention.
Conclusion
Overall, when the Convention comes into force, it will enhance legal certainty by creating a uniform regime for the international effects of judicial sales of ships. For the international maritime community, the Convention is encouraging, beneficial, and delivered at the most appropriate time.
O’Neal Webster will continue to monitor the developments of the Convention and provide relevant updates.
For questions or further information, please contact the author, A. Hermia Tench in O’Neal Webster’s admiralty and shipping practice, at htench@onealwebster.com
