International convention will give legal clarity when vessels are sold by judicial auctions.
The UN Convention on the International Effects of Judicial Sales of Ships, adopted on 7 December 2022, also known as the Beijing Convention on the Judicial Sale of Ships, is expected to provide legal protection for purchasers of ships sold by judicial sale, while safeguarding the interests of shipowners and creditors.
EU intention is now to sign the Convention on the International Effects of Judicial Sales of Ships.
In most States, courts have the authority to order the sale of a ship to satisfy a claim that is brought against the ship or shipowner.
Such a claim is typically brought to foreclose a ship mortgage (in the event of default in repayment) or to enforce a maritime lien against the ship.
The judicial sale procedure is typically preceded by the arrest of the ship. While the international community has achieved significant progress in harmonizing rules on the arrest of ships, much less progress has been achieved in harmonizing rules on the judicial sale of ships, which remain subject to widely varying domestic laws.
The Beijing Convention will enhance legal certainty by creating a uniform regime for the international effects of judicial sales of ships, in accordance with the United Nations General Assembly.
The Beijing Convention will provide legal protection for purchasers of ships sold by judicial sale, while safeguarding the interests of shipowners and creditors.
“It does this by providing uniform rules that the clean title acquired by the purchaser in the ship will be recognized internationally, while requiring a certificate of judicial sale only to be issued if certain safeguards are met, including notification of the shipowner, creditors, and other interested parties,” says the United Nations.
It is expected that these safeguards will positively impact the price realized at judicial sales of ships, to the benefit of both shipowners and creditors, including lienholders and ship financiers.
On 30 June 2023, the European Commission presented a proposal for a Council decision on the signing, on behalf of the European Union, of the United Nations Convention on the International Effects of Judicial Sales of Ships.
The European Commission confirmed in its proposal that the Beijing Convention will be open for signature, ratification or accession by the last quarter of 2023.
“Should the EU sign this Convention as proposed by the Commission and later ratify it, the Convention would give international effects to judicial sales of ships, sold free and clear of any mortgage or hypothèque and of any charge, including for ship registration purposes, among the EU Member States that sign and ratify it and with other Contracting States of the Convention,” the Commission said in its proposal.
