Objective and contents of the »International Convention on Recognition of Foreign Judicial Sales of Ships« are explained
For the past five to six years the shipping industry is facing a difficult situation. Depressed values of ships, low[ds_preview] freight markets, rising fuel prices, overcapacities, lack of equity and banks withdrawing their engagement in ship finance do create an environment in which many shipowners are forced to sell their ships. The execution of such »fire sales« can become difficult if the transaction has to be carried out by way of a judicial sale in foreign jurisdictions.The Comité Maritime International (CMI) has identified this problem and prepared a draft »International Convention on Recognition of Foreign Judicial Sales of Ships«, which shall in future become known as the »Beijing Convention« ( Draft is available under www.comitemaritime.org). The Convention comes at a time where the judicial sale of ships is a day-to-day business to various banks and maritime lawyers and shall ensure that the procedure and acceptance of judicial sales is unified and recognised by foreign jurisdictions.
The situation in Germany
Whereas for some jurisdictions, mainly in non-EU countries, the Bejing Convention may contain new ideas and provisions, this is not the case from a German legal practitioner’s point of view. The German law is following the civil law concept and has a specific code dealing with the judicial sale of ships, the Enforcement Act (Zwangsversteigerungsgesetz / ZVG). The judicial sale in general follows the same legal procedure as a judicial sale of immovable property. There are a few specific provisions in sections 162-171 ZVG with regard to the judicial sale of ships which cover procedural issues such as competent court, requirements of an order of enforcement, surveillance and custody of the vessel, recording of a judicial sale in the German ships register, announcement of the judicial sale by the competent court, form and addressees of such announcement etc.
The judicial sale procedure itself is carried out in form of a public auction and, in case a German flagged vessel is the subject of the judicial sale, there are provisions for a lowest bit (»geringstes Gebot«), which means that the offer must cover the costs of the judicial sale plus the claim amounts of creditors which are prior in ranking to the claim of the creditor having applied for the auction of the vessel. Furthermore, there are specific provisions about the distribution of the proceeds, which in general follow the following priority: costs of the judicial sale procedure, secured claims – in particular maritime liens and mortgages – and other claims. The Beijing Convention covers many of these aspects but does not contain specific provisions on any auction or bidding process or distribution.
Objective of the Beijing Convention
The Beijing Convention shall ensure that the ownership of the vessel a person has purchased in a judicial sale procedure is recognized in other jurisdictions and can be recorded in the relevant ship registers. Its main objective is to arrange for an improvement of the legal protection of purchases of ships in judicial sale proceedings and from a German practitioner’s point of view the Beijing Convention is likely to achieve this. The international working group (IWG) ( IWG members are Henry Hai Li, China (Chairman); Jonathan Lux, England; Lawrence The, Singapore; Andrew Robinson, South Africa; William Sharpe, Canada; Francis Nolan, USA; Frank Smeele, Netherlands; Benoit Goemans, Belgium; Louis Mbanefo, Nigeria.), established at the CMI Athens Conference in 2008, investigated the position in respect of international recognition of foreign judicial sale of ships and the necessity and feasibility of producing an international instrument on the subject. A questionnaire was send to all national maritime law associations of the CMI which covered the following topics:
– The concept of a judicial sale of ships in the respective jurisdiction in order to clarify what exactly is meant by a »judicial sale of ships«.
– The key procedural elements of judicial sale of ships by focus on the procedural differences and the kind of actions available to carry out an enforced sale of a ship.
– The effects of a judicial sale and to which extent a purchaser obtains title to the vessel and the previous ownership is extinguished, together with all mortgages, liens, charges or encumbrances attached to the ship before the sale.
– Recognition of legal effects of foreign
judicial sale of ships.
– The necessity and feasibility to have
an international instrument on recognition of foreign judicial sale of ships, in particular in view of existing International Convention on Maritime Liens and Mortgages 1993.
From the answers received the IWG concluded that it is indeed necessary and feasible to have an international instrument on recognition of foreign judicial sale of ships. The worldwide acceptance of the International Convention on Maritime Liens and Mortgages 1993 is uncertain (Germany has not ratified the 1993 Convention but partly incorporated the previous Convention from 1967 in its national Maritime Law.) and it does not particularly deal with the judicial sale of ships.
The IWG prepared a draft instrument on recognition of foreign judicial sale of ships which became the subject of intensive discussions during the CMI Conference in October 2012 in Beijing. This was also the time where the name for the convention was born, the »Beijing Convention«. The discussions continued at the CMI Symposium in Dublin in October 2013 and the draft prepared following these discussions is now the subject of the CMI Conference in Hamburg in June where it is the declared aim of the CMI Executive Council that the work on the Beijing Convention shall be completed.
Contents of the draft Beijing Convention
The draft Beijing Convention consists of nine Articles, whereof Article 1, as in all international conventions, contains definitions for the purpose of the convention. The definitions reflect the intention to harmonise the procedure on recognition of »foreign judicial sale of ships« decisions and improve the legal protection of purchases of ships in judicial sale proceedings. It is obvious that a purchaser of a ship in a judicial sale proceeding must have legal certainty that the ship he has purchased belongs to him and can immediately be employed by him in international trade. Any delay due to issues of ownership or questions of registration of the vessel would be unsatisfactory in this respect. The Beijing Convention shall apply to the recognition in any state party of a judicial sale taking place in the territory of another state party (Article 2 draft Beijing Convention.).
One of the important provisions deals with the notice of judicial sale(Article 3 draft Beijing Convention.). The discussions showed that there appear to be differences between various jurisdictions about the necessity, form and addressees of such prior notice of a judicial sale. It is now proposed that in accordance with the law of the state of the judicial sale, notice is given to the registrar of the ships registry, all holders of registered mortgages or registered charges, all holders of maritime liens, provided that the competent authority which conducted the judicial sale has received notice of the respective claims, and, last but not least, the owner of the ship.
Where the vessel is under the flag of a state of bareboat charter registration, notice shall in addition also be given to the registrar of the ships register of such state. Certain formalities, such as a minimum period of 30 days prior to the intended judicial sale, shall be complied with. The notice shall contain the ship’s name, IMO number, name of the owner and bareboat charterers (if any), time and place of the judicial sale and, in case the judicial sale cannot be determined with certainty, the approximate time and anticipated place of the judicial sale, in which case this general notice shall be followed by an additional notice of the actual time and place of the judicial sale, which, in any event, shall not be given later than seven days prior to the judicial sale.
The effect of a judicial sale, which certainly is not only a procedural issue but a matter of material law, shall be that any title to and all rights and interest in the ship existing prior to its judicial sale shall be extinguished and the title to the ship shall be transferred to the purchaser in accordance with the law applicable (Article 4 draft Beijing Convention). This is a fundamental provision in the Beijing Convention and must be read in line with the national law applicable in the state where the judicial sale is accomplished.
The competent authority, where the judicial sale was carried out, shall issue a certificate to the purchaser upon its request in which it is recorded that the ship sold to the purchaser is free of all mortgages or registered charges (Article 5 draft Beijing Convention.). The contents of such a certificate is described and it is the intention of the IWG to include into the Beijing Convention a suitable form as a specimen of such a certificate. Such suitable form should be along the lines of Annexure V to the Brussels-I-Regulation of 26 December 2000 on Jurisdiction and Recognition and Enforcement of Judgements ( Articles 54 and 58 of Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction, Recognition and Enforcement of Judgements in Civil and Commercial Matters refer to specimen in its annexes).
Although the present draft presented by the international working group did not contain a print of such a specimen it is expected that this will be covered in the last revision of the draft during the CMI Conference in Hamburg. Such a certificate of judicial sale is the fundamental important document in order to provide conclusive evidence that all rights, title and interests existing in the ship prior to its judicial sale are extinguished and a purchaser has become the new owner. The certificate facilitates the identification of the legal purchaser, the mortgagees and, most importantly, for the registrars of the ships registry where the vessel was registered prior to the judicial sale.
Upon production of such a certificate, the registrar of the ships registry, where the ship was registered prior to its judicial sale, shall delete all registered mortgages, all registered charges, except those assumed by the purchaser (or subsequent purchaser), and either to register the ship in the name of the purchaser (or subsequent purchaser) or to delete the ship from the register and to issue a certificate of deregistration for the purpose of new registration, as the case may be (Article 6 draft Beijing Convention.). The certificate shall serve as evidence for the recognition of a judicial sale conducted in any other state party to the Beijing Convention (Article 7 draft Beijing Convention.).
Where a ship was sold by way of judicial sale and is sought to be arrested or is arrested by order of a court in a state party of the Beijing Convention for a claim which had arisen prior to the judicial sale, the court shall dismiss, set aside or reject the application for arrest and shall release the ship by the mere production of this certificate.
Not surprisingly, it was extensively discussed under which circumstances the recognition of a judicial sale may be refused or suspended. The general principle laid down in the Beijing Convention is that a judicial sale may be refused if the court, where recognition is sought, finds that this would be contrary to the public policy of the state where the court is located (Article 8, Section 2a Beijing Convention.). This public policy exception is a fundamental concept in various jurisdictions and required in order to achieve the consent and acknowledgement to the Beijing Convention. It, however, has been recommended to narrow down the public policy exception as much as possible in order to avoid courts in other states to use the public policy as a mode to review the whole judicial sale procedure. A refusal of deletion by a national ships register of a vessel which was sold in a foreign judicial sale procedure according to the standards of the Beijing Convention shall be an absolute exemption.
From a German law point of view it is very unlikely that a German court would raise a public policy exemption in a case where the judicial sale is carried out in compliance with the provisions of the Beijing Convention. Nevertheless, it is appreciated that the draft Beijing Convention now acknowledges that the public policy exemption shall only be available if the recognition of the judicial sale would be manifestly (Comparable wording can be found in Article 34, Paragraph 1 Convention on Jurisdiction and the Recognition and Enforcement of Judgements in Civil an Commercial Matters of 30 October 2007.) contrary to the public policy of the state in which recognition is sought. With this amended wording it is assured that the infringement upon the fundamental rights must be substantial in order to permit a refusal of recognition of a judicial sale.
Summary and conclusion
The CMI and the IWG have assigned substantial work to the preparation of the Beijing Convention. Although only nine articles, which for a modern convention these days is a proof in itself of comprehensibleness and probably also quality, the Beijing Convention would be a great step forward to serve the shipping industry not only in these turbulent times in relation to the recognition of foreign judicial sale of ships. The Beijing Convention could become the first worldwide mechanism to uniform and harmonise the standards of judicial sale procedures and to safeguard the international recognition of the judicial sale awards rendered in compliance with these standards.
Jan-Erik Poetschke
