A Cherishable Opportunity for Harmonization of Maritime Law

on International Effects of Judicial Sales of Ships

(To be presented at the Symposium on the Beijing Convention on Judicial Sale of Ships in Beijing on 5^th September 2023)

By Henry Hai Li*

1.      Introduction

The signing ceremony of the UnitedNations Convention on the International Effects of Judicial Sales of Ships (the “Convention”) washeld this morninghere in Beijing. We have witnessed several states sign the Convention. As a representative of the China Maritime Law Association, I am happy to see that China is one of the statesthat have signed the Convention this morning. The Convention now is open for signature and will enter into force 180 days after it is ratified, accepted, approved, or acceded by just 3 States. It is my hope that China will be one of the first 3 states thatwill trigger the 180 days to start to count.

2.      The culmination of 15 years of hard work

In the Resolution adopting the Convention, UNCITRALis commended for preparing the draft convention.UNCITRAL was first proposed by CMI to take up this topic at its 50th session (Vienna, 3‑21 July 2017).And, later at its 51st session (New York, 13-17 May 2019), it was agreed that the topic of judicial sales of ships should be added to the work program of the Commission. Subsequently, at its 35th session (New York, 13–17 May 2019) the WG VI considered the topic for the first time and decided that the “Beijing Draft” would provide a useful basis for discussion. After another 4 sessions, the WG VI at its 40th session (New York 7–11 February 2022) completed a further review and consideration of the draft convention based onthe 5th revision of the “Beijing Draft”. After that,the Commission at its 55th session (New York, 27 June–15 July 2022) considered the revised draft and finalized the text and(on 30 June 2022)approved the draft convention and submitted the same to the General Assembly for adoption.

As mentioned above, UNCITRAL’s drafting work was started on the basisof a CMI document, i.e. the “Beijing Draft”.  It is worth noting that the “Beijing Draft”was first formulated in Beijing in 2012 at the 40th CMI International Conference, (as known the conference was hosted by China Maritime Law Association). The draft waslaterrevised at the CMI Colloquium in Dublin in 2013 and was eventually finalized at the 41st CMI International Conference and approved by the CMI Assembly in Hamburg in 2014.In addition, it is also worth noting that the CMI project leading to the production of the “Beijing Draft” was initiated from a proposal made at the CMI executive council meeting in Dubrovnik in 2007 and followed by setting up CMI IWG, preparing Questionnaire, analyzing responses from national maritime law associations, drafting instrument, etc.    

In summary, it took some 15 years to complete the journey from a proposal to a UN Convention. In other words, the Convention is the culmination of 15 years of hard work.

3.      The Purpose of the Convention

Article 1 on purposereads: “[T]his Convention governs the international effects of a judicial sale of a ship that confers clean title on the purchaser.”This article makes it clear what this Convention is intended to regulate.

It goes without saying that under this Convention a judicial sale is considered as a legal fact, but not something else, such as a court decision or arbitral award. It follows that the Convention is concerned only with the effects of the legal fact that areproduced by operation of law, andthus not with the effects of the court order or judgmentordering, approving or confirming the judicial sale nor the effects of the court judgmentor arbitral award for enforcement of which the judicial sale is conducted.

Further, as conveyed by the language of article 1, this Convention is concerned only with the “effects” of a judicial sale, and not with the judicial sale itself, including the conduct or procedure of the judicial sale; Furthermore,this Convention is concerned only with the international effects in State Partiesother than the State of judicial sale, and thus not with the domestic effects of the judicial sale in the State of judicial sale.

Bearing in mind that not in all jurisdictions a judicial sale will always confer clean title, article 1 also makes it clear that the Convention is concerned only with those judicial sales that confer “clean title”. In other words, if a judicial sale does not confer clean title on the purchaser,the Convention would not regulate the effects of such a judicial sale.

It is worth mentioning that the term “clean title” together with otherkey terms contained in article 1, namely “judicial sale”, “ship”, and “purchaser” are defined in article 2 of this Convention. Still, hereI shall only emphasize the definition of“clean title”,which is provided to mean “title free and clear of any mortgage or hypothèque and of any charge”. In addition, in light of the definitions of “mortgage or hypothèque” and “charge”, the term “clean title”may be comprehended to refer to title free and clear of any right whatsoever and howsoever arising which may be asserted against a ship, whether by means of arrest, attachment or otherwise; Clearly,such kind of rights would include for example a maritime lien, lien, encumbrance, right of use or right of retention, mortgage or hypothèqueon the ship. In short, clean title to a ship means title free and clear of any right, which may be asserted against the ship.

4.      The International Effects of a Judicial Sale of a Ship

Article 6on international effects of a judicial sale reads:“[A] judicial sale for which a certificate of judicial sale referred to in article 5 has been issued shall have the effect in every other State Party of conferring clean title to the ship on the purchaser.”

It is believed that this article contains the basic rule of this Convention, i.e. a judicial sale conducted in one State Party with an article 5 certificate issued shall have the effect of conferring clean title on the purchaser in every other State Party. Thismeansthatfor a judicial sale to have international effects, it is triggered by the issuance of an article 5 certificate, and no other special procedure or document is required.In other words, once an article 5 certificate is issued, the domestic effects produced by operation of the law of the State of judicial sale, shall be allowed to be extended into other State Parties by operation of this Convention, in particular, the provisions of article 6.In addition, this also means that only the effect of conferring clean title to the ship on the purchaser mayextend from the State of judicial sale into other State Parties, even if various effects may have been produced by operation of the law of the State of judicial sale.

Itis true that article 6 is only concerned with the effect of a foreign judicial sale in conferring clean title on the purchaser. However, the operation of article 6 may be manifested in a number of ways, including in action taken on the registration of the ship under article 7, action on the prohibition of arrest of the ship under article 8, etc.

As can be seen from the above,for implementation of the basic rule of this Convention as contained in article 6, every State Party shall beara treaty obligation to accept or allow the effect of a foreignjudicial sale conducted in anotherState Party of conferring clean title to extend into its jurisdiction.In my view, this is the primary treaty obligation imposed by this Convention upon the State Parties. On the other hand, it is worth noting that the said basic rule as contained in article 6 is made subject to the public policy exception, which is provided for in article 10 of this Convention.

5.      Conclusion

As anew baby of the international maritime law family, the Convention is designed to solve the practical and real problems that are encountered in international shipping and trade, and this is the first time that the international community made a milestone achievement in harmonizing the rules of maritime law in this particular area. Bearing in mind that it took some 15 years from a proposal to a UN convention,we have no reason not to cherish the enthusiasm, wisdom, efforts, and hard work,that have been contributed by so many people, including many not attending here today.Time will tell the Convention offers a cherishable opportunity for harmonizing the rules of maritime law in relation to international effects of judicial sales of ships.

As a representative of China Maritime Law Association, I am proud of (1) the signing ceremony of this Convention being held in Beijing and(2) the Convention being recommended to be known as the “Beijing Convention on the Judicial Sale of Ships”, as it is the first time in the historyfor either of them to take place. And, in my view,it is also an acknowledgment of the contributions to the birth of this Conventionmade by the Chinese maritime law circles being represented by China Maritime Law Association. 

*Henry Hai Li,is a practicing shipping lawyer, and a part time or visiting professor of Dalian and Shanghai Maritime University. He received his PhD from Wuhan University majored in private international law. He is a vice-president of China Maritime Law Association, and a Titulary Member of CMI. He was appointed as the Chair of the CMI International Working Group on Judicial Sale of Ships, which prepared the “Beijing Draft”. And, he participated in all the working sessions of UNCITRAL WG VI on judicial sale of ships as a member of the delegation of the People’s Republic of China.

Comments are welcome and appreciated, and may be sent to the following email address: henryhaili@henrylaw.cn.