For a number of years, the Comite Maritime International (CMI) – responsible for drafting the majority of international maritime conventions since its inception in 1897 – has been aware that there are challenges relating to the international recognition of judicial sales of ships.
Judicial sales occur when ship owners fail to pay their creditors. Creditors of a vessel are diverse, ranging from:
- shipbuilders and financiers (both of whom are often the mortgagees of a vessel to various service providers);
- ship repairers;
- suppliers of provisions and bunkers; and
- crew who frequently face the greatest challenges when they are left abandoned on vessels without an end in sight, which in turn leads to many sleepless nights for numerous port authorities.
These are all different angles of a vessel in distress which force a creditor to act against the vessel and sell it in a judicial sale – an important factor being that the vessel must be sold to the new buyer free and unencumbered. This is paramount because no potential new owner would be remotely interested in purchasing a vessel which has numerous financial issues, unless the vessel is sold free and unencumbered and a clean title can passed to the buyer.
Those involved in this sector know that the creditors must focus their efforts on getting paid from the purchase price deposited in court after a judicial sale. However, it is obvious that for a vessel to fetch the best price, thus ensuring more money for distribution, the buyer needs the certainty that the judicial sale will be recognised worldwide, thereby ensuring that it is not rearrested by another former creditor. The buyer also needs reassurance that the existing flag of the vessel will recognise such a transfer of ownership and enable the smooth deletion of the vessel.
Sales emanating from European courts are recognised in other EU member states thanks to the EU Brussels I Regulation and the Recast Brussels Regulation. The problem arises outside Europe because there is currently no international convention on the international recognition of judicial sales.
The CMI has drafted an international convention on the international recognition of judicial sales after considering the law in the several jurisdictions represented at the CMI by the diverse maritime law associations. The CMI approached the United Nations Committee on Trade Law (UNCITRAL) with a view to encouraging it to embark on future work on cross-border issues relating to judicial sales. The committee, on its part, encouraged the CMI to advance the proposal by holding a colloquium to provide additional information to the commission.
As a result, the Malta Maritime Law Association (MMLA), a member of the CMI, was entrusted with the organisation of the colloquium in Malta at rather short notice. Thanks to the cooperation of the Maltese Ministry of Transport, Infrastructure and Capital Projects, the CMI, together with the Ministry and the Malta Maritime Law Association, co-hosted this Malta colloquium.(1)
The MMLA welcomed 180 delegates from over 52 countries to the colloquium.
The panellists from Brazil, Germany, Singapore, Belgium, Honduras, Australia, Switzerland, Malta, the United Kingdom and the United States explained issues arising in their parts of the world and referred to the efficient procedures available in Malta for the judicial sale of ships. They discussed many difficulties, including:
- how a mortgagee bank needs to ensure that a vessel gets the best possible price in the quickest possible time;
- the difficulties faced by unpaid bunker suppliers and the importance of a clean title being passed on to a new owner; and
- a flag administration's need for certainty and how the only way forward is to work towards a uniform recognition standard through the adoption of an international instrument on the recognition of judicial sale of ships.
A report will now be prepared for presentation to UNCITRAL highlighting the deliberations which took place at the Malta colloquium, underlining that it is in the interest of global trade to have certainty and that certainty can only come through an international instrument ratified by as many states as possible.
For further information on this topic please contact Ann Fenech at Fenech & Fenech Advocates by telephone (+356 2124 1232) or email (firstname.lastname@example.org). The Fenech & Fenech website can be accessed at www.fenechlaw.com.
(1) For more information, please see www.mmla.org.mt/cmi-colloquium.
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