The Draft Convention on the Recognition of Judicial Sale of Ships

There have been many years of problems related to recognition of court judgments of a state where a ship was arrested and sold by another state (among other things, but not limited to, by the state where the ship, with all rights, encumbrances thereupon, was registered before her forced sale). Yet the issues remained unregulated.

Several years ago, the International Maritime Committee submitted a proposal for work on an international instrument covering and settling the problematic issues. The respective instrument – draft convention on the recognition of judicial sale of ships – has gotten the name of the Beijing Draft.

While the Beijing Draft deserves detailed comments, due to the limited format of this article, here we focus on one issue which is important and relevant to various jurisdictions – that of notification about the judicial sale.

The order of notification is provided by Article 3 of the Beijing Draft. The recent wording of Article 3 is not quoted herein but can be found in open sources. In the context of Article 3, the question arises of what the "judicial sale" is. The definition appears in Article 1(h) of the Beijing Draft: "Judicial Sale means any sale of a ship by a competent authority by way of public auction or private treaty or any other appropriate ways provided for by the law of the state of judicial sale by which clean title to the ship is acquired by the purchaser and the proceeds of sale are made available to the creditors."

Considering that the judicial sale for the purposes of the Beijing Draft is a sale as such (but not a proceeding leading to the sale), the conclusion should be that Article 3 relates to the period when the court act on the judicial sale has been rendered and become effective. It is therefore presumed that the ship-owner knew, or should have known, about initiation of the proceeding leading to the judicial sale of its vessel. However, practically, this may not be the case.

In practice, the respective notices addressed to the ship-owner are served to the master of an arrested vessel, being generally the ship-owner's representative.

At the same time, the master may neglect to notify the ship-owner properly due to, but not limited to, the following reasons:

• Existence of personal claims based on non-payment of wages, secured by maritime lien and so having priority over other claims (in other words, existence of a direct interest in the judicial sale of the vessel);

• Notification of the bareboat-charterer being the employer of the master and the person liable under the claim; while the registered owner as a prima facie person interested in avoidance of the sale may remain unaware.

The Beijing Draft does not cover the issue of notification about the underlying court proceeding resulting in the sale at all. We do not exclude that national law of a state where the judicial sale takes place provides rules for necessity of notification about the court proceeding leading to the judicial sale of a ship.

However, in our view, the judicial sale and enforcement of results thereof cannot be separated from the underlying proceeding on the merits. Thus, for the purposes of acknowledgement of the judicial sale, the competent authorities should have, among other things, sufficient evidence that the ship-owner (including the registered owner) had all possibilities to defend its rights within the basic proceeding.

The notification addresses of all parties referred to in Article 3 may become an issue since the ship documents onboard may not contain full information on the registrar, bareboat-charterer and/or time-charterer and/or mortgagees, etc. The holders of maritime liens are not referred to in the ship documents absolutely.

In addition to the above, we see the following practical problems arising from the recent wording of Article 3 of the Beijing Draft:

• Considering that the notification is always sent abroad, a 30-day period proposed by the Beijing Draft for notification may be insufficient for preparation of the relevant party to properly defend its rights (to appoint local representatives, to prepare and file submissions, etc.).

• The Beijing Draft allows using email addresses to notify the interested parties, while electronic means do not guarantee a timely notification of a proper addressee and may not secure evidences of a due delivery.

• As an alternative notification method, the Beijing Draft proposes official publication of information in the printed editions of the State of Judicial Sale, while this means does not guarantee that the intended party reads or ever can read the relevant publication.

• The Beijing Draft does not address consequences of non-notification/obligation to rectify possible deficiencies at all, while non-notification entails risk of challenging results of the judicial sale.

With all this in mind, we consider it important that the convention provides the following:

• Means of obtaining of actual addresses of all persons referred to in Article 3;

• Provision of evidences of notification about the proceeding which have resulted in the judicial sale;

• An extended period of notification so that the addressee is notified not later than 45 days before the relevant underlying court hearings and/or judicial sale;

• Consequences of non-notification: e.g.; to provide obligation to make efforts to re-notify the interested parties; and

• Definition of means of notification: e.g.; any means allowing to reliably see that the notification is received by an intended recipient, in due term and properly.

The above proposals, with comments to other provisions of the Beijing Draft, were presented for the readings passed in May 2019, and we expect that the final wording will reflect the practical side in order to make the convention as effective as possible.