On June 30 in New York, the 55th Session of the United Nations Commission for International Trade Law (UNCITRAL) approved the text of the convention on the international effects of judicial sales of ships and this after the Commission had at its 35th Session in New York in May 2018 agreed to take on the project. It was a cause for great celebration for the Comité Maritime International (CMI) and for international maritime trade.

The convention owes its beginnings to a draft prepared by the CMI. In 2008 Henry Li from China suggested that the CMI should undertake a study on the subject matter.

It was evident that while in the majority of states, vessels sold in judicial sales are sold free and clear of any pre-existing claims, with their laws also providing for old creditors of such vessels to present their claims against the proceeds of the sale, there are states which refuse to recognise and give effect to the free and unencumbered title which accompany such judicial sales acquired by the purchasers of such vessels.

These instances lead to hugely challenging situations presenting serious interruptions to the orderly conduct of international trade, bearing in mind that 90 per cent of world trade is carried by sea.

This failure not only leads to mala fede claimants exerting illegitimate pressure on buona fide purchasers who would have spent good money in purchasing vessels in judicial sales, the failure also gives rise to great uncertainty for the new financiers of such vessels who assume they are financing vessels leading to a clean title, only to find old creditors making a claim against the ship purchased clean.

There have also been cases where old mortgagees refuse to let go of their pre-existing mortgages, causing problems to registrars of ships leading to great delays in the deletion of mortgages, or even ships from the old registries which in turn lead to further challenges with the registration of new mortgages.

These problems also lead to the question, which purchaser is going to risk paying top dollar for a ship in a judicial sale which is supposed to give him a clean title if after the sale, an old creditor can come along and arrest that vessel? This, in turn, leads to loss of confidence in judicial sales, leading to lower prices for ships in judicial sales, which in turn leaves less money for the vessel’s old creditors.

So between 2008 and 2014 the CMI worked on a draft convention aimed at ensuring that when a vessel is purchased in a properly held judicial sale free and clear of all previous debts, such a title will be given full effect by other state parties. The draft convention was called the ‘Beijing Draft’. Following its finalisation, the CMI needed to find an international legislative body for its draft, which would work on the project and turn it into an international treaty.

In July 2017 the CMI approached UNCITRAL, and the Commission at UNCITRAL recommended that the CMI should first hold an international colloquium with the maritime industry in order that the industry may express its view on whether there was a real need for such a convention. 

This international colloquium was organised in Malta by the CMI in conjunction with the Malta Maritime Law Association and the support of Transport Malta in February 2018, and it was attended by over 150 international maritime protagonists ranging from BIMCO to IACS, to ITF, ship owners, flag registries, financial institutions, ship owners, service providers and maritime judges. There was an overwhelming agreement on the need for certainty in international trade and on the need for such a convention.

Switzerland thus presented the conclusions of the Malta Colloquium and the ‘Beijing Draft’ to the 51st session of the Commission in June 2018 and, notwithstanding some very stiff competition, the proposal garnered support from a number of very important state delegations leading the Commission to decide that this was a topic that would be added to the work programme of the Commission. Subsequently, the project was given to Working Group V1 and from May 2019 it held five working sessions until the Working Group presented the finalised text to the Commission in June of this year. 

The 55th session of the Commission deliberated the draft for four days and approved the text of the Convention on June 30. It agreed to submit the text to the General Assembly of the United Nations recommending to the same General Assembly the adoption of the convention at its 77th session, the authorisation of a signing ceremony to be held as soon as practicable in 2023 in Beijing, upon which the Convention would be open for signature, and recommending that the Convention be known as the Beijing Convention on the judicial sales of ships.

It is anticipated that the General Assembly of the United Nations will adopt the convention at its 77th session in September.

This is the first article in a two–part series.

Source: The Times of Malta