Procedure for judicial sales under Beijing Draft
Effects and recognition of judicial sales
Refusal of recognition
The draft International Convention on Foreign Judicial Sales of Ships and their Recognition (the so-called 'Beijing Draft') is being developed and Comite Maritime International intends to submit it to the International Maritime Organisation for consideration as an international maritime convention. The purpose of the draft convention is to solve several problems faced by purchasers following a foreign judicial sale, particularly regarding:
- the ship's re-registration;
- title challenges brought by previous owners; and
- claims brought by parties that had rights over the ship before the sale.
The draft convention also serves to address the areas overlooked by the 1993 Geneva Convention on Maritime Liens and Mortgages.
Foreign judicial ship sales in Nigeria are governed by:
- the Merchant Shipping Act 2007;
- the Admiralty Jurisdiction Act 1991;
- the Admiralty Jurisdiction Procedure Rules 2011;
- the Coastal and Inland Shipping (Cabotage) Act 2003;
- the Coastal and Inland Shipping Cabotage (Bareboat Registration) Regulations 2006; and
- the Foreign Judgment (Reciprocal Enforcement) Act.
Judicial ship sales are ordered by way of an interlocutory order or executory judgment. The Beijing Draft defines a 'judicial sale' as a sale by a competent authority.(1) The Merchant Shipping Act does not define the term 'judicial sale', but uses the term 'forced sale', which means a court-ordered sale.(2)
The key purpose of the Beijing Draft is to:
- ensure that purchasers acquire a 'clean title', free from any encumbrance; and
- urge foreign jurisdictions to recognise such titles.(3)
Provisions exist in Nigeria to protect the purchaser of a ship sold pursuant to a court order.(4) The Federal High Court, which exercises admiralty jurisdiction in Nigeria, can also permit the unhindered enjoyment of a purchaser's title.(5)
Procedure for judicial sales under Beijing Draft
A ship may be sold if:
- a legal mortgagee exercises its power of sale;(6) or
- an arrest is made, which leads to forced-sale proceedings.(7)
For a judicial ship sale to be valid under the Beijing Draft, the ship must be physically located in the jurisdiction of the state in which the judicial sale was ordered.(8) This is the most fundamental requirement and failure to meet it could undermine the title acquired by the purchaser.
Under the Beijing Draft, notice of at least 30 days must be given to the relevant parties.(9) While the draft stipulates several ways in which notice can be given, it mandates that it must be "given in such a way not to frustrate or significantly delay the proceedings concerning Judicial Sale".(10) In respect of the identity and address of the parties to whom notice must be served, the draft refers to the information set out in the register of the ship's state of registration.(11)
Holders of maritime liens are entitled to receive notice of a judicial sale. In common law, 'maritime liens' are proprietary rights resulting from acts or omissions caused by the ship. They are enforceable in rem directly against the vessel, regardless of whether there has been a change in ownership.(12) Section 5(3) of the Admiralty Jurisdiction Act and Section 67 of the Merchant Shipping Act set out an exhaustive list of statutory maritime liens, which also have priority over existing mortgages and preferential rights.(13) Where there has been a forced sale, all liens in existence before the sale will be extinguished.(14) Maritime liens also cease to exist one year from the date on which the claims secured by the lien were filed.(15)
Mortgagees of registered ships are also entitled to receive notice. This is because mortgages created pursuant to the Merchant Shipping Act are non-transferrable, as the mortgagor remains the ship's legal owner. Further, they are a sui generis statutory security perfectible only by registration. The Beijing Draft recognises only registered mortgages and hypotheques that are recorded in a ship's registry and open to public inspection,(16) because in a judicial sale the ship's registry is the primary means of identifying the parties that must receive notice.(17) Thus, if a mortgage is not registered, the mortgagee will be unentitled to receive notice.
The Coastal and Inland Shipping Cabotage (Bareboat Registration) Regulations set out the criteria for the registration of bareboat vessels in the Special Register for Vessels and Ship Owning Companies Engaged in Cabotage.(18) Ships that are intended for use in the Nigerian cabotage trade must be registered in both the Nigerian Ship Register(19) and the Special Register.(20) Following registration, a bareboat vessel can fly the Nigerian flag. This suspends the vessel's right to fly its own flag during the charter period, but does not constitute de-registration of the shipowner's title. Since the bareboat registry must be notified of a judicial sale, the primary registry must also be notified.(21)
Sale and issuance of judicial sale certificates
If a court makes a sale order in accordance with extant laws, the purchaser is duty bound to request the issuance of a certificate.(22) Among other things, the certificate will declare that:
- the ship has been sold in accordance with the law and the convention; and
- all prior titles, rights and interests pertaining to the ship have been extinguished.
A model form is included as an annex to the convention.(23)
De-registration of ships
Under the Beijing Draft, the registrar in the ship's country of registration will remove all existing encumbrance on presentation of the certificate – except those assumed by the purchaser.(24) Thereafter, the registrar can either:
- register the ship in the name of the purchaser or subsequent purchaser (as applicable); or
- remove the ship from the register and issue a certificate of de-registration for the purpose of a new registration.(25)
If the ship had permission to fly the flag of a bareboat charter registration state at the time of the judicial sale, the registrar will – on production of the certificate – remove the ship from the bareboat register and issue a new certificate.(26) The certificate will serve as proof that the ship's permission to register in and temporarily fly the flag of the bareboat charter registration state has been withdrawn. In Nigeria, the purchaser must deliver a signed declaration of transfer approved by the minister of transport and a bill of sale together with other supporting documents to the registrar in the ship's state of registration.(27) The details will then be entered in the register with the purchaser listed as the owner; the previous registration and encumbrances will be removed.
Effects and recognition of judicial sales
Under Article 4 of the Beijing Draft, a judicial ship sale extinguishes any titles, rights or interests that existed before the sale. Similarly, Section 75 of the Merchant Shipping Act provides that all mortgages and preferential rights – except those assumed by the purchaser with the consent of the mortgage holders – and all ties and other encumbrances pertaining to the ship will cease. Under Article 7 of the Beijing Draft, courts must recognise the judicial sale of a ship on submission of an application by the purchaser. The draft states that the courts must recognise that:
- the certificate confers on the purchaser a clean title that is free from all rights, titles and interests that existed before the judicial sale; and
- the ship has been sold free of any encumbrance.(28)
Under the Beijing Draft, courts must dismiss an application for arrest or release a ship if the purchaser can produce a certificate issued in accordance with the draft.(29) Foreign judgments are recognised and registered in Nigeria by virtue of the Foreign Judgment (Reciprocal Enforcement) Act. However, such a judgment must be final and conclusive.(30) To be recognised, the judgment must be:
- from a superior court of the country of the original court; and
- a monetary judgment.(31)
Under the Beijing Draft, the courts will refuse the recognition of a foreign judicial ship sale if:
- the ship was not physically located within the jurisdiction at the time of the sale;(32) or
- an interested party can provide proof of the fact that a competent court in the state where the sale took place has nullified the sale.(33)
Recognition will also be refused if an interested party can prove before the court that:
- legal proceedings challenging the judicial sale have commenced;
- the purchaser has been notified of the legal proceedings; and
- the court in the state where the sale took place has suspended the effect of the sale.(34)
Recognition will also be refused if the court finds that it would be contrary to Nigerian public policy.(35)
A convention on the subject of judicial sales of ships may not be far-fetched; the Admiralty Jurisdiction Procedure Rules have laid the groundwork to some extent. Order 7, Rule 4 of the rules prevents the Federal High Court from arresting a ship that was the subject of a judicial sale. However, the use of the word 'may' places no obligation on the court. Rather, it allows the court to exercise discretion when arresting a vessel. It remains to be seen what the parameters for exercising this discretion are and how courts can determine whether recognition would be contrary to public policy. The Beijing Draft fails to address these matters adequately and may create loopholes, particularly regarding the grounds for refusing recognition of a foreign judicial ship sale.
For further information on this topic please contact Emeka Akabogu or Chinedu Chukelu at Akabogu & Associates by telephone (+234 1460 55550) or email ([email protected] or [email protected]). The Akabogu & Associates website can be accessed at www.akabogulaw.com.
(1) See Article 1, which states that "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 creditor".
(2) Section 74, Merchant Shipping Act.
(3) A 'clean title' is defined in the Beijing Draft as "a title free and clear of any mortgage/hypotheque or charge unless assumed by any purchaser" (Article 1).
(4) For example, Section 75 of the Merchant Shipping Act.
(5) Order 7, Rule 4, Admiralty Jurisdiction Procedure Rules.
(6) Section 58, Merchant Shipping Act.
(7) Section 73, Merchant Shipping Act.
(8) Article 4(1)(a), Beijing Draft.
(9) Under Article 3, the parties that must be notified are:
- the registrar in the state where the ship is registered;
- all holders of any registered mortgage, hypotheque or charge;
- all holders of any maritime lien;
- the shipowner; and
- the ship's registrar in the state of its bareboat charter registration, whose flag the ship has permission to fly.
(10) Article 3(4), Beijing Draft.
(11) Article 3(6), Beijing Draft.
(12) Sir John Jervis in the 'Bold Bucceleugh', (1852), 7 Moo PC 267, 13 ER 884.
(13) Section 68, Merchant Shipping Act.
(14) Section 75, Merchant Shipping Act.
(15) Section 73, Merchant Shipping Act.
(16) Article 3(1)(b), Beijing Draft.
(17) Article 3(6), Beijing Draft.
(18) The Coastal and Inland Shipping Cabotage (Bareboat Registration) Regulations were introduced in 2006 pursuant to the powers of the minister for transport under the Coastal and Inland Shipping (Cabotage) Act.
(19) Section 1(2), Coastal and Inland Shipping Cabotage (Bareboat Registration) Regulations.
(20) Section 2, Coastal and Inland Shipping Cabotage (Bareboat Registration) Regulations.
(21) Section 5, Coastal and Inland Shipping (Cabotage) Act.
(22) Article 5(1), Beijing Draft.
(23) Article 5(2), Beijing Draft.
(24) Article 6(1), Beijing Draft.
(25) Article 6(1), Beijing Draft.
(26) Article 6(2), Beijing Draft.
(27) Sections 78 and 79, Merchant Shipping Act. See also Louis Mbanefo, "Commentary on Answers to Third Group of Questions", Comite Maritime International International Working Group, available at www.comitemaritime.org.
(28) Article 7(1)(a), Beijing Draft.
(29) Article 7(2), Beijing Draft.
(30) Section 3, Foreign Judgment (Reciprocal Enforcement) Act.
(31) Section 3(2), Foreign Judgment (Reciprocal Enforcement) Act. See also Diamond Bank Limited v General Securities and Finance Company Ltd, (2008), LPELR-4035(CA) and Grosvenor Casinos Ltd v Ghassan Halaoui, (2009), LPELR-1340 (SC), pp 20-22, paras A-G.
(32) Article 8(1), Beijing Draft.
(33) Article 8(2)(a), Beijing Draft.
(34) Article 8(2)(b), Beijing Draft.