A tale of the draft instrument on the judicial sale of ships - Maritime and Transport Law Committee newsletter, July 2020
hoek ten katen, Rotterdam
Abstract:Different jurisdictions choose different paths to recognise the effects of a foreign judicial sale of a vessel. UNCITRAL is working on a draft instrument to bring uniformity, either to become a model law or an international convention. This article provides some notes on the Dutch system applied to the recognition of judicial sales and a brief overview of the contents of the draft instrument.
In the old tale of Sleeping Beauty, a young princess is cursed at her christening by an elderly fairy who was not invited to the occasion. A harsh reaction to an honest mistake, as the parents of the princess were under the assumption that the elderly fairy had died. Very much alive and filled with spite the elderly fairy cursed the child to die from pricking her finger at a spindle. A fairy godmother mitigated the curse: death was watered down to 100 years’ sleep. The king consequently outlawed all spindles by royal decree and we all know what followed.
For one, the tale cautions us against the unwanted effects of a sloppy invitation policy. We can apply this lesson to the judicial sale of a registered vessel, where interested creditors must be invited to lodge their claims. The inviting entity must act meticulously, otherwise the uninvited could seriously disrupt the party. Instead of being happy parents ever after, the new owners could find themselves unhappily caught up in a multi-jurisdictional forest of thistles – that is, until a member of our distinguished committee makes their appearance with the legal equivalents of a sharp sword and firm lips.
We probably all know of arrests by creditors, challenging the effects of a judicial sale after their claim arose. In my jurisdiction, the Netherlands, a court would deal with such a situation by applying national and international law, to be found by applying national private international law. Questions of recognition of a foreign judicial sale will only have to be answered if the registration itself is not conclusive or current for whatever reason. The jurisdiction where the sale took place will then have an important role to play in the final outcome. I will break this down in smaller steps.
Under Dutch law, the transfer of title to a Dutch vessel sold judicially requires a decision from a court, or a deed from a (civil law) public notary, by which the vessel is awarded to the buyer. The transfer of title, the formal delivery of the right of ownership to the buyer, takes place at the moment of registration in the name of the buyer.
In a European context, the question of recognition is a piece of cake as the Brussels Regulation and the Lugano Convention cover recognition of decisions or deeds originating in a member state, as well as their effects in other member states.
For other foreign judicial sales, (including those from the UK after the Brexit-transition period has ended), recognition would simply depend on whether or not there is a reciprocal bilateral or multilateral convention in place that the court will have to apply ex officio. If not, the court will have to fall back on more general principles, including the principle of comity. Comity as a principle presupposes reciprocity. This happened for instance in a case where the judicial sale had taken place in Canada and registration had to take place in the Netherlands. The Canadian sale resulted in a Sheriff’s Bill of Sale. As a result of the application of comity, the court recognised the Canadian effects of the judicial sale. The court noted in their decision that there is no international convention in place on the subject of the recognition of foreign judicial sales.
It leads to a better understanding of the complexities of these cases if we imagine the judicial sale had not taken place in Canada, but if the equivalent Sheriff’s Bill of Sale had originated from (in the words of my professor on international private law) the Revolutionary Counsel of Bananistan – the junta in charge of this notorious pariah of the international community. What would, as a minimum, be required, before a court could recognize the effects of the Bananistanian decision?
Proper notification of the judicial sale to creditors comes to mind, especially to mortgagees and claimants of even higher ranking including crew and salvors. Also creditors must at least theoretically have had the opportunity to benefit from the division of proceeds of the sale of the ship.
The CMI draft instrument
A little over ten years ago within the Comite Maritime International (‘CMI’), a need was expressed for a specific instrument to ease the path to international recognition in this regard: an instrument not dealing with the recognition of the judgement or deed as such, but solely with matters of recognition of certain effects of the judicial sale. Specifically mentioned were clean title, finality, binding effect, as well as the role of a national registrar in having to act on this sale.
In the Netherlands, this proposed draft instrument has not brought too many pens in motion. I think this has to do with the fact that local judicial sales before a court meet all the underlying principles formulated by CMI anyway, so these sales are not likely to encounter problems of recognition in other jurisdictions – with the likely exception of the Autarkic Republic of Bananistan, but that goes without saying.
Vice versa, Dutch law is sufficiently developed to accommodate questions on the recognition of foreign judicial sales, so why bother with a separate international instrument as foreign deeds or decisions are already governed by multilateral instruments in place, or at least by general principals of private international law.
Those represented at the CMI thought otherwise. We have all heard of, or even personally been involved in, cases where parties got bogged down in courts in jurisdictions where a court should never have granted leave to arrest the ship (or recognise a sale) to begin with.
Personally, I wonder what difference a separate instrument would make anyway, if a court is not able to apply universal principles of private international law in a logical and (hence) pragmatic way. It could even be that, in those jurisdictions, more rules would just add to the confusion.
UNCITRAL Working Group VI
This is water under the bridge: CMI blew life into the draft instrument and the infant instrument is currently in the capable hands of Working Group VI of UNCITRAL, the United Nations commission for harmonising trade law, known for the widely adopted CISG, the less so Hamburg Rules and more recently, the Rotterdam Rules.
With BIMCO, CMI, IMO and ITF, the IBA has a place at the table at the Working Group’s assemblies. The last one was held in Vienna in November 2019 and had it not been for the pandemic, there would have been an assembly in New York in April of this year.
The IBA has aligned its position on the draft instrument with CMI: this means support and commitment to make the instrument a widely accepted international convention. It is all about further harmonisation of international commercial law, which is a worthy goal indeed.
I had the privilege to represent the IBA at the meeting in Vienna and found myself in the interesting position that, from my national point of view, I am not convinced that there is a need for an instrument, but from the inter- and supranational point of view, it is a good thing to strive for further harmonisation. The world has many jurisdictions and the benefits for the entire shipping community in the broadest sense would be immense if there is a convention in place that makes legal and regular judicial sales globally etched in stone and unassailable, just as decisions and deeds within the EU and Lugano-territory are.
During the meetings in the semi-circular conference room, with interpreters and the little national flags, I was sometimes overcome by the same feeling as when at the Rotterdam Philharmonic: you look and listen to all the musicians who are, granted, doing their paid work, yet they produce something larger than themselves, both individually and collectively. Career diplomats and their assistants, from the four corners of the world, diving into the drafts word by word. Each underlying legal concept is patiently dissected and then reassembled to meet suggestions and objections made – and all this in a legal minefield of hardly compatible notions of common and civil law – and in a structured and concentrated way, coated in the diplomatic language of pragmatic politeness. I felt a little out of place as a trial lawyer and had to bite my tongue sometimes. Good training in patience and a lesson in the relativity of cultural directness.
Underneath the surface there are of course national agenda’s, prestige and international aspirations at play – notions which may have led to the conception of this draft instrument in the first place – but this is all good in itself as it makes the impact of CMI and the IBA on the deliberations stand out. Both CMI and the IBA are considered nationally neutral and knowledgeable. We are definitely being listened to. Not one of the diplomats present was specialised in the practical side of matters, so during breaks I had to address questions from delegates on private international law, the system of ranking of claims, division of proceeds, the fate of charter parties after the judicial sale and even the differences between an ocean going vessel and a river going barge.
Geneva Convention on the registration of inland navigation vessels of 25 January 1965
The Working Group appeared unaware of the existence of a Geneva Convention with two protocols, dealing specifically with the registration of barges. I consider bringing this convention to the attention of UNCITRAL a valuable contribution by the IBA, as the draft instrument was steaming to a heads on collision with the second protocol of this Convention, which deals precisely with the recognition of judicial sales. The Convention is now specifically mentioned in article 14 sub 2 of the draft that was to be discussed in New York last April.
It is telling of the sea-going focus of CMI and the maritime orientated expertise within UNCITRAL, that apparently no thought was given to registered barges. I would not have given this any thought as well, if it wasn’t for the fact the Dutch statutory system of ranking of claims and preferential rights for vessels is based on this Convention.
Contents of the draft instrument
What does the draft instrument boil down to? It is worth reading the work in progress on the UNCITRAL website for Working Group VI, https://uncitral.un.org/en/working_groups/6/sale_ships. The system is as follows:
1. Article 4 lists the parties to be notified, for example mortgagees, holders of liens and bareboat charterers. It sets out how notice is to be given, for example by press announcements.
2. Article 5 deals with the certificate to be issued with the judicial sale. It serves as evidence of clean title and that the sale was regular and legal. Appendix 1 to the instrument gives you the format and is well worth the read.
3. Article 8 orders a member state not to allow for an arrest for a claim against the old owners if the new owners are able to produce the certificate.
4. If it comes to challenging the judicial sale or the effects thereof, Article 9 bestows exclusive jurisdiction on the courts of the member state where the sale took place to begin with.
The future will decide if the shipping community will enjoy more protection from the instrument than our princess from the decree against spindles. To give the instrument a fighting chance, the IBA will have to remain a good fairy godmother and continue to assist the king in making his best decree possible.