President of the Malta Maritime Law Association Ann Fenech has been re-elected to serve as Vice President of the Comite Maritime International for a further 3 years. She was elected unanimously by the member national maritime law associations of CMI during the CMI Assembly held virtually on 30 September 2021. Dr Fenech currently co-chairs the International Working Group on Judicial Sales and is the CMI co-ordinator for this project at UNICTRAL currently deliberating the 4th Annotated Revision of the Beijing Draft Convention on the Effects of Judicial Sale of Ship.
Notwithstanding the continuous threat from COVID-19 the MMLA has continued with its activities throughout these challenging 18 months. The latest meeting of the Executive Committee took place on Tuesday 28th September in a hybrid form with some members present and others joining virtually to discuss topical issues including the 4th Revision of the Draft Convention of Judicial Sales currently being deliberated by Working Group V1 of UNCITRAL and a host of other issues, whilst planning future meetings and international events.
The continued success of the Maltese Maritime Flag can be greatly attributed to the protection given to financiers and creditors of vessels registered under the Maltese Flag.
A ‘judicial sale’, as defined by Lief Bleyen, is the “sale of a ship by a competent authority by way of public auction or private treaty…by which Clean Title to the Ship is acquired by the Purchaser and the proceeds of sale are made available to the creditors.” Act XIV of 2006 amended Article 358 of the Code of Organisation and Civil Procedure (‘COCP’), introducing a novel procedure of Court-approved private sales for aircraft and vessels in addition to the traditional judicial sale by auction. Therefore, under Maltese law, there are two types of judicial sales:
1. Traditional judicial sale by auction; and
2. Court-approved private sales.
In a judicial sale by auction, the vessel is sold to the highest bidder in Court, with no reserved price mechanism in the case of vessels exceeding 10 metres in length. This creates a certain ambiguity surrounding the creditors, as they would not be aware whether the sum agreed to by a buyer as the highest bidder in Court would cover, or even come close to what such creditor or creditors, are owed. This type of judicial sale of a vessel is a rather risky one, as it may eventually lead to a situation where a creditor/s remains unpaid once the vessel is sold.
Prior to the introduction of Court-approved private sales in 2006, creditors had the option of negotiating private sales. However, such sales were largely disregarded by buyers since the imperative “executive title” would not be guaranteed. This inevitably led to a situation where the buyer would not purchase an aircraft or vessel free and unencumbered from any liabilities connected to the vessel. This highlights the importance of the amendment to the COCP which brought about an overhaul of the already-existing private sale.
In Court-approved private sales, commonly referred to as ‘hybrid sales’, the mortgagee agrees on a price with the buyer, obtains valuations of the vessel through physical inspections, and if the sale price exceeds the highest valuation, the mortgagee will apply to the Court for the sale to be approved. In this type of sale, the creditors will then seek settlement from the sale price. Court-approved private sales amalgamate the advantageous characteristics of a private sale, i.e. the possibility of negotiating the price, as well as providing the prospective purchaser with an executive title; a modification which seeks to bridge the gap between both types of sales. This introduction is a powerful tool for creditors and financiers where, in the event of default, the vessel can be arrested and sold in a judicial sale without the need of commencing an action on the merits.
Despite being introduced around 15 years ago, the first time that this amendment was used was in the ‘Thor Spirit’ case in 2011. The entire procedure was concluded in around two weeks, proving to be expeditious and highly cost-efficient.
Since the ‘Thor Spirit’ case, the Maltese Courts have continued to approve private sales of vessels in numerous judgments. Examples of such cases include the 2013 Blankenese case and the 2014 MV Ladybug case. Further cases such as the HHL Rio de Janeiro case decided in 2019, also dealt with Court-approved private sales. In the latter case, the sale was finalised within 20 days, once again highlighting the transparent and efficient nature of Court-approved private sales.
The role of the Court in this type of sale is not one which is solely limited to rubber-stamping but pursues a somewhat proactive role, ensuring that the application of this procedure is carried out in a consistent manner, in line with the appropriate administration of justice, as well as the bona fide principle being respected by all affected parties.
THE CMI BEIJING DRAFT
Despite there not being international consensus regarding the judicial sale of vessels, it appears that the Comité Maritime International (‘CMI’) is definitely paving the way for results. The CMI is recognised as the oldest organisation worldwide which is exclusively concerned with the unification of Maritime law and related commercial practices. Back in 2008, the Executive Council of the CMI launched an International Working Group on the Judicial Sale of Ships, with the aim of studying the challenges associated with the failure of the recognition of such judicial sales. Eventually, in 2012 the CMI issued the Beijing draft, which was subsequently approved in 2014.
The Beijing Draft deals solely with the recognition of judicial sales, providing that notices must be given to persons indicated in the clause (including owners, mortgagees, holders of registered titles and lien holders) within 30 days prior to the judicial sale. The Draft reaffirmed that ships must be sold free and unencumbered, where the purchaser shall acquire clean title over the vessel. It also provides for the issuance of a Certificate by the authority ordering the sale, certifying that the vessel is free and unencumbered, and that all rights previously existing against the ship are extinguished.
In 2017, the CMI submitted its proposal to the United Nations Commission on International Trade Law (‘UNCITRAL’). Following this, a joint Colloquium was held in February 2018 in Malta between the CMI, the Malta Maritime Law Association and the Maltese Government. Various attendees, including ship owners, ship repairers, banks, and financiers encouraged the creation of an international instrument which would finally regulate this area to improve the organisation, stability and certainty of international trade.
The UNCITRAL Working Group V1 met in December 2020 to discuss the Beijing Draft. The final result remains an international Convention where the free and unencumbered title in a vessel purchased in a judicial sale is recognised by State parties, guaranteeing that such vessel fetches the maximum price in a judicial sale for the benefit of the creditors, guaranteeing at the same time, the peaceful possession and use of the newly purchased vessel by the bona fide purchaser.
By Katrina Abela, Aleandro Mifsud and Nina Fauser, GVZH Advocates
UNICITRAL Working Group V1 met virtually in Vienna between the 14th and the 18th of December to deliberate the 2nd Draft of the International instrument on the effect of Judicial Sale of Ships – the Beijing Draft. Ann Fenech, president of the MMLA and vice president of the Comite Maritime International is the CMI co-ordinator for this project being considered by Working Group V1.
Great progress was achieved thanks to the combined effort and hard work of the Chair Prof. Beata Czerwenka, the Secretariat led by Dr. Jose Angelo Estrella Faria and a great number of State and NGO delegations. The deliverable remains an international Convention by virtue of which the free and unencumbered title in a vessel purchased in a judicial sale is recognised by State parties to guarantee that a vessel fetches the maximum price in a judicial sale for the benefit of the creditors guaranteeing at the same time the peaceful possession and use of the newly purchased vessel by the bona fide purchaser.
by Dr Ann Fenech, Fenech & Fenech Advocates
Between the 13th and 17th of May 2019, President of the MMLA, Dr Ann Fenech was at the first meeting of UNCITRAL Working Group VI which has been tasked with considering the draft convention presented by CMI on the International Recognition of Judicial Sale of Ships.
Dr. Fenech participated in this meeting at UNCITRAL in her capacity of Vice President of CMI and as CMI co-ordinator for the project at UNICTRAL.
This was the first meeting of the Working Group VI attended by States members of UNICTRAL during which Dr. Beata Czerwenka was appointed Chairman of Working Group VI.
During this first meeting lasting an entire week, the Swiss Delegate Prof. Alex von Zeigler, a member of the Executive Council of CMI, presented the project since it was on the proposal of Switzerland last July 2018 that the 51 Assembly of UNICTRAL accepted to take on this work as part of its programme.
As CMI co-ordinator for the project Dr. Fenech was tasked with giving a preliminary explanation of each proposed article to the convention. There was agreement on the usefulness of the CMI draft to be used as the basis for any future work. The entire week was taken up with the explanations and answering of questions raised by all the delegations present. It was concluded at this first meeting that the UNCITRAL secretariat will now work on another draft taking into account the various ideas expressed and that the next draft will be the subject matter of the next Working Group VI meeting in Vienna in November of this year.