ID-DRITT XXXV – Clean titles & cross-border conflicts: Resolving the international effects of judicial sales of ships

Introduction

In today’s rapidly evolving global economy, ships are identified as key industry players by virtue of their day-to-day cross-border voyages making them one of the most essential and volatile economic units. The invaluable nature of shipping must not be underestimated, especially considering that it transports about 90% of global trade whilst simultanously being the least environmentally harmful mode of transportation, as held by the International Maritime Organization (“IMO”).¹

One crucial factor to be considered is the international character of maritime law since it is within every ship’s lifetime that it will be owned, chartered and/or used by people from different jurisdictions.² Therefore, it is important to note that the ship will be subject to the laws of the flag State, to be analysed on a case-by-case basis. The unique nature of ships can be seen in Malta’s own legislation, where they are classified as ‘a particular class of moveable property which are separate and distinct assets from any other asset within the estate of their owners…’.³

Another unique aspect of ships is that they are often used as a security interest, however this does not come without its pitfalls. Given the transnational nature of ships, often is the case that purchasers of second-hand ships through a judicial sale encounter obstacles in other jurisdictions with its recognition and enforcement. Before the introduction of the United Nations Convention on the International Effects of Judicial Sales of Ships⁴ (“Convention”), there was a vacuum on the uniform interpretation of the effects of a judicial sale in an attempt to avoid conflict. Naturally, such a risk would seriously jeopardise the strength of the security allocated to the ship whose clean title is being questioned, which is why the Convention was welcomed by the industry with open arms.

As a result of the above discussed matters, Section 1 will explore the nature and characteristics of ship arrests, judicial sales under Maltese law along with a comparative analysis of judicial sales in other jurisdcitions. Section 2 then delves into how the Convention seeks to aid the industry by enforcing judicial sales and also explores case law concerning challenges faced in the enforcement of a title of ownership, which is obtained clean and unencumbered.

This submission has been prepared based on information available as of October 31, 2024 and therefore subsequent developments may affect the accuracy and relevance of the information presented.

Section 1: The elements of a judicial sale by auction

As mentioned above, a ship can act as a security for obtaining financing through a mortgage registered over the subject ship. The lender (mortgagee), would be able to enforce his rights under the mortgage should the borrower (mortgagor), who would usually be the shipowner, be in default. In such a situation, the mortgagee would be entitled to enforce his rights under the mortgage and proceed to sell the ship. One of the ways in which the ship may be sold is through a judicial sale by auction.

1.1 Arresting of ships to permit the eventual judicial sale

Malta’s legislation surrounding ship arrest makes it more than favourable for creditors to enforce their claims over defaulting ships. Re-registration under the Maltese flag following a judicial sale by virtue of recognition of said sale from a foreign jurisdiction is paramount and is one of the factors that makes our flag the largest ship register in Europe.

The procedure of a judicial sale by auction under Maltese law may only occur upon obtaining an executive title as held within the Code of Organisation and Civil Procedure⁵ (“COCP”) via ‘judgements and decrees of the courts of justice of Malta’⁶ as held under Article 253. In the case of a ship sale, an executive title may be enforced by a ‘judicial sale by auction of movable or immovable property or of rights annexed to immovable property’⁷ or a ‘warrant of arrest of sea vessels’⁸ amongst other methods of enforcement including foreign judgements and court approved private sales. The abovementioned mortgage is also considered to be an executive title under Article 253, as held under Article 42(2) of the Merchant Shipping Act (“MSA”).⁹

With regard to the actual arresting of the ship, recourse under Maltese law comes in two forms; a precautionary and an executive warrant of arrest. Article 855 of the COCP describes that

a precautionary warrant of arrest of a sea-going vessel may be issued against all vessels having a length exceeding ten metres which may solely be issued to secure a debt or claims, whether in personam or in rem, which could be frustrated by the departure of the said ship.¹⁰

Said claim or debt must not be less than seven thousand Euros (€7,000) for the precautionary warrant to be issued.¹¹

As mentioned above, the claim to be secured can be of an in rem or an in personam nature. An action in rem is one that would be initiated against the ship directly as the primary object of the action. The action in rem prevents a creditor from initiating proceedings against the debtor himself (in personam) and would be against the res itself (the ship). The main characteristic of the action in rem is that it is linked with the content and utility of the maritime security along with the practical necessity for a mechanism of payment of debts when the debtor may be difficult to locate and also considering that the ship moves around the globe out of reach of the courts and does not escape proceedings.¹²

Where an in rem claim is involved, the creditor must present prima facie evidence that his claim falls under one of the claims listed under Article 742B of the COCP. Upon the issuance of the precuationary warrant of arrest, the creditor must file an application on the merits within twenty days from said date of issuance.¹³ Following the decision of the First Hall Civil Court (“FHCC”), the precautionary warrant is rendered as an executive title once the twenty day appeal period elapses, following which, the judgement is rendered as a res judicata. If appealed, the executive title will be enforceable after two days from the delivery of the judgement by the Court of Appeal (“CoA”).¹⁴

If a creditor is enforcing his claim by means of a registered mortgage, the MSA implies that the mortgage itself is considered to be an executive title ab initio upon default of the mortgagor. However, in practice, the mortgagee would still need to file an application for a precautionary warrant of arrest to be issued to secure the ship, whilst also informing the mortgagor by means of a judicial letter to determine the sum which is certain, liquidated and due.¹⁵ The reasoning behind the precautionary warrant of arrest is that it primarily acts as a method of safeguarding creditor interests.

Following the ship’s arrest, the next step is for the precautionary warrant of arrest to be converted into an executive one which is done through the filing of a note by the execution creditor in the acts of the precautionary warrant within fifteen days from the judgement becoming a res judicata whereby such note would request to convert it into an executive warrant.¹⁶

However, this does not automatically mean that the execution creditor may proceed with the judicial sale of the subject ship as it is still within the Court’s discretion to determine whether it shall order the sale or establish a date by when the debtor is to pay what is owed to the creditor.¹⁷ Should the Court approve the judicial sale by auction, then the procedures as laid down in the COCP are to be followed.

1.2 The judicial sale by auction under Maltese law

Upon the issuance of an executive warrant of arrest, a ship can be sold through the Maltese courts in one of two ways: 1) a judicial sale by auction or 2) a court approved private sale. Given the topic of this submission, the authors will focus on the judicial sale by auction. Despite both forms of sale being very different from one another, they both result in the ship being sold with a clean title of ownership.

Prior to engaging in the judicial auction itself, the sale is to be advertised by means of advertisements placed in two newspapers, one in English and another in Maltese, with the aim of attracting interested bidders.¹⁸ One of the risks associated with the judicial sale by auction is that there is a lack of reserved price, which is a concern to competing creditors as the ship may be sold for less than its current market value.

Whereas Article 319(5) stipulates that ‘no offer may be accepted if such offer is less than sixty (60%) of the value at which the movable or immovable property or the going concern has been appraised’, the second proviso dictates that this “safety net” does not apply to ships exceeding ten metres in length. This uncertainty in the purchase price results in the proceeds of the sale potentially not being able to satisfy all creditor claims.

Due to the lack of control over the purchase price, legislators introduced the court approved private sale in 2006, which offers creditors more assurance since the fear of uncertainty on the purchase price is eliminated as there would be mutual agreement between the parties beforehand on the price.

To facilitate agreement between the parties on the purchase price, along with the application, the creditor must also submit two valuations from independent and reputable valuators. Within said application, the execution creditor must also include evidence that the ‘private sale is in the interest of all known creditors and that the price offered by the proposed buyer is reasonable with the circumstances of the case’¹⁹ and is within acceptable range of the valued price of the ship.

1.3 Judicial sales in other jurisdictions: Singapore and Panama

Before discussing the Convention in detail, one must compare and contrast how judicial sales by auction operate in other jurisdictions; namely Singapore and Panama. As at the writing of this submission, only Singapore has signed the Convention,²⁰ whereas Panama has yet to do so.²¹

Placing the spotlight on Singapore, there are three primary bodies of legislation which speak on judicial sales of ships namely: the Admiralty and Maritime Law Act²² (“AMLA”), the Supreme Court of Judicature Act²³ (“SCJA”) and the Merchant Shipping Act²⁴ . The AMLA specifies that

in the exercise of its admiralty jurisdiction, the General Division of the High Court orders any ship, aircraft or other property sold, the General Division of the High Court shall have jurisdiction to hear and determine any question arising as to the title of the proceeds of the sale.

Similarly to Malta, in Singapore

an action in rem may (whether or not the claim gives rise to a maritime lien on that ship) be brought in the General Division of the High Court against that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of that ship under a charter by demise or any other ship of which, at the time when the action is brought, the relevant person is the beneficial owner as respects all the shares in it.²⁶

This echoes what is held under Article 742D of the COCP.

Whereas the SCJA does not directly reference judicial sales, it nonetheless mentions enforcement orders for the seizure and sale of property and which property may not be subject to such seizure and sale.²⁷ Although not directly related to judicial sales by auction, similarly to Article 358 of the COCP, which speaks on court approved private sales, Singapore’s Merchant Shipping Act lays down that

the order of the court is to contain a declaration vesting in some person named by the court the right to transfer that ship or share, and that person is thereupon entitled to transfer the ship or share in the same manner and to the same extent as if that person were the registered owner thereof.²⁸

The procedure of a judicial sale by auction is governed by the Rules of Court²⁹, a subsidiary legislative act under the SCJA, which dictate that upon a creditor obtaining a favourable judgement, they are to apply to the courts to request an auction. Similarly to the provisions under the COCP, the sale is auctioned in newspapers to attract interested bidders, with the difference that after the ship has been sold, the courts may order that within fourteen days following the sale, a notice is published which states that:

• The ship was sold by order of the court by means of an action in rem and such action is identified;
• The specified amount of proceeds of the sale have been deposited in court;
• The ranking of claims will not be determined until after the expiration of the period³⁰ specified in the order of the sale;
• Any creditor with a claim against the ship on which the person intends to proceed to judgement should do so before the expiration of that period.³¹

On the other hand, Panama is not yet a signatory to the Convention as at the writing of this submission. Despite not being a party to the Convention, Panama, as the second-largest register globally in terms of registered tonnage,³² is still a party to key international conventions such as the International Convention on the Arrest of Ships.³³ Panamanian legislation which governs the arrest of ships and the eventual judicial sales is Law No. 8 of 1982.³⁴ Said law dictates that the order of arrest is served upon the person in charge and has custody of the vessel and in the proceedings to enforce one’s claims, such service is deemed to constitute service of process upon the defendant.³⁵

Upon obtaining a favourable judgement, the execution creditor may proceed with the judicial sale of the vessel, where in the case of a Panama-registered vessel, the Court shall obtain details of all registered mortgages, encumbrances or arrests along with her cargo and freight.³⁶ The Court shall then hold a meeting between all other claimants and shall order the publication of an edict in a local newspaper for five days and for ten days at the Public Registry of Property of Vessels (“PRV”) of the Panama Maritime Authority.³⁷ Once fifteen days elapse from the expiry of the PRV’s publication, the vessel may be sold via judicial sale whereby the funds are to be deposited in the name of the Court into a non-interest-bearing account with the Banco Nacional de Panama.³⁸

Article 522 of Panama’s Maritime Code lays out the procedure to be abided by in special proceedings for the enforcement of mortgages, whereby the claim must be accompanied by prima facie evidence of its existence, specifically the registration of the vessel and the mortgage affecting it, and the amount secured by said mortgage.³⁹ A judgement is then delivered on the claim not more than thirty days from when it was presented.

A notable difference from the judicial sale procedure from Malta is that in Panama, the Court shall fix three different dates, where each date shall not be less than five but not more than ten days apart from one another.⁴⁰ On the date when the vessel is first offered for sale, she may not be sold for less than three-quarters (¾) of her estimated market value, where if no adequate bid is made, a fresh notice is published, and another auction takes place on the second scheduled date. During the second auction, the vessel may not be sold if an offer of at least half of her appraised value is made, in the absence of which, the third and final auction is held, where the vessel is sold to the highest bidder without a minimum price threshold.⁴¹

For a bid to be deemed valid for the purposes of the judicial sale by auction, bidders must deposit five percent of the market value price of the vessel. This only applies to interested bidders who are not creditors since they are entitled to place bids against their credits and ensures the legitimacy of the bids placed and that only credible bidders may participate. If a bid is successful, the deposit is deducted from the purchase price whereas if the bid is not the winning one, the deposit is returned to the bidder.⁴²

This section has outlined the basic process of ship arrest and judicial auction, both locally and internationally, while emphasizing the role of the Convention in aiding potential bidders and new shipowners. Although domestic law is crucial in conducting judicial sales, it would be fruitless if the sale’s effects are not globally recognized. The following section examines case law which shows issues encountered in the past, along with the Convention’s key provisions, highlighting its essential role in the international shipping industry.

Section 2: A Call For an International Intervention

The judicial sale of ships is a mechanism through which a creditor can seek to satisfy his claim against a ship or a shipowner. Considering the special nature of ships as a security interest and that they are constantly operating on a transnational basis, various intricacies may arise when one purchases second hand tonnage via a judicial sale and when such person seeks to obtain its recognition in another jurisdiction.

The purpose of a judicial sale is two-fold: a) the proceeds from the sale are used to satisfy claims against the ship and b) the new owner obtains a clean title to the ship, free from any encumbrances. This second limb has been the subject of controversy as evidenced in jurisprudence for the simple reason that there is no uniform interpretation with regard to the effects of a judicial sale and thus may give rise to conflicting scenarios in different jurisdictions. If there are doubts as to the effects of a judicial sale on an international scale, the value of the security represented by the ship would be heavily affected. This is why the recognition of judicial sales on a cross-border basis is crucial for the modern shipping industry.

While there are other foreign judgements which highlight the difficulties faced by practitioners in these situations, one particular case before the Maltese courts has added further fuel to an ever-growing flame. The judgements in question relate to the saga revolving the M.V. Bright Star (previously named the M.V. Trading Fabrizia).

2.1 The M.V. Bright Star Conundrum

In this contribution the authors will specifically consider the following decisions in the following chronology:

1. Marlon Borg as special mandatary for and on behalf of Jebmed S.r.l vs M.V Bright Star, delivered by the FHCC on the 12 July 2018 and of the CoA on the 8 February 2019,⁴³ (hereinafter the judgment will be referred to as the “Bright Star I”); and
2. Dr. Ann Fenech, as special mandatary for and on behalf of Bluefin Marine Limited and the ship ‘M.V Bright Star’ vs Jebmed S.r.l delivered by the First Hall Civil Court on the 14 January 2020 and 27 May 2021 and both confirmed on appeal by the CoA on the 12 January 2023⁴³ ((hereinafter the judgment will be referred to as the “Bright Star II”).

By way of initial background, the Malta-flagged ship, M.V. Bright Star was owned by Capitalease S.p.A. A ship mortgage was registered with the Maltese Ship Registry against the ship and in favour of Jebmed S.r.l (“Jebmed”). The shipowner defaulted on the mortgage and Jebmed rendered the mortgage an executive title under Article 42 of the MSA and Article 253 et seq of the COCP.⁴⁵

In June 2017, the ship was arrested in Jamaica and a judicial sale by auction was ordered on the request of, inter alia, Jebmed. In January 2018, the ship was acquired by Bluefin Marine Limited (“Bluefin”), for a price of $10,300,000. Subsequently the Jamaican court issued (i) a bill of sale stating that “the ship above particularly described has been freed from all liens and encumbrances and debts whatsoever…” and (ii) a certificate of sale certifying that the ship was sold to Bluefin “free of all mortgages, liens and encumbrances whatsoever”.

Notwithstanding the above, while the ship, now named MV Bright Star, was taking on bunkers in Maltese waters, Jebmed filed for an executive warrant of arrest over the ship on the strength of the mortgage in its favour, which warrant was duly accorded by the court on 19 June, 2018. In this regard, reference should be made to Article 37D(1) (proviso) of the MSA which provides that:

where a ship has been sold pursuant to an order or with the approval of a competent court within whose jurisdiction the vessel was at the time of the sale, the interest of the mortgagees as well as of any other creditor in the ship shall pass on to the proceeds of the sale of the ship…

Therefore, considering the above, following the judicial sale in Jamaica, Jebmed’s rights would have been against the proceeds which arose from the judicial sale in Jamaica, and not against the ship itself on the basis of the mortgage.

Immediately following the issuance of the executive warrant of arrest, Bluefin made an application for a counter-warrant which was duly accepted following the deposit of a sum in the amount of €779,346.61 with the court (the “Sum Deposited”). Thereafter, the arrest warrant was lifted, and the ship was allowed to set sail.⁴⁶

Subsequently, Bluefin filed an action arguing inter alia that the executive warrant of arrest ran contrary to Article 37D(1) of the MSA (cited above) and therefore requested its revocation under Article 281 of the COCP on the basis that the reason for the issuance of the warrant, being the executive title under the mortgage did not subsist. The FHCC rejected the application on procedural grounds noting that the ship had to file separate proceedings in order to impugn Jebmed’s executive title.⁴⁸

Bluefin, filed an appeal from this decree. The CoA had to consider whether the ship could rely on the remedy provided under Article 281 of the COCP⁴⁷ on the basis that following the judicial sale in Jamaica, Jebmed’s rights were no longer secured by the mortgage and accordingly it no longer had an executive title to rest upon. The ship reiterated that pursuant to the judicial sale, the ship was sold free and unencumbered, and in terms of the proviso of Article 37D(1), the mortgagee’s rights were against the proceeds of the sale, not the ship. The ship also referred to an order issued by the Jamaican Court which confirmed that a sum of $3,000,000 from the proceeds of the judicial sale were set aside to protect Jebmed’s claims.⁴⁹

In a decree delivered on the 8 February 2019, the CoA was of the view that while pursuant to the proviso of Article 37D(1), a ship sold via a judicial sale clears the ship from any mortgage, it must also be shown that the rights and interests of a mortgagee would pass to the proceeds from the judicial sale. The CoA was not satisfied that in this case, Jebmed’s rights passed onto the proceeds of the Jamaican judicial sale and therefore it could not recognise the judicial sale in Jamaica as conferring a clean and unencumbered title. This reasoning was based on Jamaican law, under which the mortgage was not immediately enforceable as an executive title. The mortgagee had to prove its claim in Jamaican courts, where the mortgage served only as evidence of the claim, unlike under Maltese law. Secondly, the CoA was of the view that the mortgage was not privileged over other claims under Jamaican law.⁵⁰

Unfazed by this, Bluefin filed separate ad hoc proceedings in the hope of righting the wrong caused by the judgment in the Bright Star I. In a nutshell Bluefin requested the FHCC to (i) declare the arrest null and void, (ii) order the release of the Sum Deposited in its favour and (iii) liquidate damages caused by the issuance of the warrant of arrest.

In its reply, Jebmed in primis, raised the plea of res judicata, arguing that the merits of the new case instituted by Bluefin were already definitely decided up on by decrees delivered by the FHCC and the CoA in the Bright Star I and therefore the FHCC could not entertain the same merits in this case. In its preliminary judgment on the 14 January 2020 dealing with this defence, the FHCC noted that proceedings instituted under Article 281 of the COCP are meant to consider whether the execution of an executive title is valid or not rather than considering whether the merits of the executive title are valid. Various judgments have held that the revocation of an executive warrant under Article 281 of the COCP is aimed at finding any form of irregularity in the executive warrant itself and not the executive title on the basis of which it was issued. Considering the above, the FHCC held that while proceedings for the revocation of the executive warrant of arrest have already been brought and decided upon, this latter case brought by Bluefin relates to the actual merits of the issuance of the executive warrant of arrest, a matter which has not been adjudicated. Accordingly, it rejected the plea.⁵¹

Moving ahead to the judgment on the merits of Bright Star II, the Court noted that the merits revolved around a simple (yet loaded) question: did the judicial sale of the ship in Jamaica extinguish Jebmed’s right to arrest the vessel in Malta on the basis of the same credit which is reserved for Jebmed in Jamaica? Jebmed argued that the judicial sale did not have the effect of extinguishing the mortgage because the courts in Jamaica did not recognise its executive title.⁵²

The FHCC was of the view that the proviso to Article 37D(1) of the MSA was clear enough to extinguish any doubt. While Article 37D(1) stipulates that a mortgage is not discharged until it is settled, the proviso is an exception to this rule which ensures that when a ship is sold via a judicial sale by a competent court, the rights of the mortgagee are transferred to proceeds from the judicial sale. The FHCC was satisfied that the judicial sale was properly conducted in accordance with the laws of Jamaica and while it recognised the existence of the mortgage, it reserved an amount from the proceeds of the sale in favour of Jebmed.⁵³

The FHCC went on to comment that it is crucial that there is no doubt in the title afforded to a new ship owner pursuant to a judicial sale as otherwise, this could be catastrophic to international maritime trade.⁵⁴

On the basis of the above the FHCC held that the arrest was illegal and that the Sum Deposited should be released in favour of Bluefin. In addition, the FHCC ordered the payment of €33,692 in damages. This decision was confirmed by the CoA on the 12 January 2023.

While the sage revolving the Bright Star case ended with a victory for the new shipowner, the time as well as costs and damages incurred to get to the finish line are causes for concern. This has further strengthened the call for international intervention to resolve such issues once and for all. As expressed by Mr Justice Hewson in the Acrux,⁵⁶ the courts must recognise ‘proper sales by competent Courts of Admiralty, or prize, abroad – it is part of the comity of nations as well as a contribution to the general well-being of international maritime trade’.⁵⁷

2.2 The Lead Up to the Convention

While rules on ship arrest have seen substantial harmonization, the same cannot be said for judicial sales of ships. Efforts to unify rules on recognizing and enforcing maritime liens and mortgages have attempted to include judicial sales but have not succeeded.

The debate started in 2008, when Henry Li suggested that the Comité Maritime International (“CMI”) should undertake a study on the recognition of foreign judicial sale of ships and the difficulties being faced by creditors and/or new shipowners when seeking to enforce a judicial sale in another jurisdiction. A critical turning point occurred in 2014 when the CMI adopted a first working draft of the Draft International Convention on Foreign Judicial Sales of Ships and their Recognition (“Beijing Draft”).⁵⁸

The CMI’s next step was to present the Beijing Draft to an international body in order to translate it into an international treaty. This was no small task, as the IMO Legal Committee initially rejected a proposal by the CMI, China, and South Korea to include the Beijing Draft on its agenda for developing an international convention on the foreign judicial sale of ships and their recognition.⁵⁹

The CMI sought other potential avenues for the adoption of the Beijing Draft and in July 2017, it approached the United Nations Commission on International Trade Law (“UNCITRAL”) to have this work incorporated on its working agenda. The Commission of UNCITRAL (“Commission”) requested the CMI to organise a high-level technical colloquium in order to bring together major stakeholders affected by the project and discuss the relevance of adopting an international instrument which would introduce a substantial degree of stability and uniformity in this sector of maritime trade.⁶⁰

The colloquium, which took place in Malta in February 2018, resulted in the following key findings:

• the “lack of legal certainty in relation to the clean title which a judicial sale is intended to confer on a buyer” has led to problems in the de-registration process in the country of the former flag;
• the lack of legal certainty created obstacles in respect of the clearance of all former encumbrances and liens, which in turn created a risk of costly and lengthy proceedings, thereby interrupting trade and shipping; and
• agreement across all sectors represented at the colloquium that the gap is to be filled from a legal perspective by providing an instrument on the recognition of judicial sales of ships.⁶¹

The findings of the colloquium were presented by the Government of Switzerland to the Commission where it was noted that that the lack of recognition of the judicial sale of ships had the potential to affect many areas of international trade and commerce, not simply the shipping industry. Following deliberations by the Commission it was agreed that the topic of judicial sale of ships should be added to the work programme of the Commission.⁶²

Following numerous sessions, the Commission considered the final draft of the Convention and approved the final text on the 30 June, 2022. The general assembly of the United Nations subsequently adopted the Convention on 7 December, 2022 by its resolution 77/100.

2.3 Walking through the salient provisions of the Convention

The Convention revolves around the concept that a judicial sale conducted in one State Party which has the effect of conferring clean title onto the purchaser, has the same effect in every other State Party. It further prescribes additional rules which establish how a judicial sale is given effect after completion. While the Convention is concerned with the international effects of a judicial sale, how such a judicial sale is conducted and the effects of judgements in respect of such sales remain within the remit of the national law of State Parties. This is clearly outlined in Article 1 of the Convention⁶³ and throughout.

Definitions:

Article 2 of the Convention defines certain key terms which, interestingly enough, are not presented in alphabetical order but in the order of prominence of the defined term vis-à-vis the operation of the Convention. For the purposes of this submission, the key terms will be considered.

The term “judicial sale of a ship” is used throughout the Convention as it defines the scope of the application of the Convention and the focus of the substantive provisions. The Convention separately defines the terms “judicial sale” and “ship”.

The term “judicial sale” is defined as any sale of a ship:

1. which is ordered, approved or confirmed by a court or other public authority either by way of public auction or by private treaty carried out under the supervision and with the approval of a court; and
2. for which the proceeds of sale are made available to the creditors.⁶⁴

Of note are two principal features:

1. despite differences in procedure among legal systems, a judicial sale is conducted with the involvement of a court; and
2. a judicial sale is essentially a device that supports the enforcement of private right.

A ship is then defined as ’any ship or other vessel registered in a register that is open to public inspection that may be the subject of an arrest or other similar measure capable of leading to a judicial sale under the law of the State of judicial sale.’⁶⁵

While the term ”judicial sale” delimits the scope of the Convention to the rights and procedures involved in the forced disposal of an asset, the term ”ship” further delimits the scope of the Convention by reference to the type of asset involved.

The legal definition of a “ship” varies across jurisdictions and is influenced by the context in which the term is applied. International efforts to establish a clear definition have fallen short, and the Convention does not provide such a definition. Instead, the term “ship” is intended to be broad, allowing for a wide range of vessels to fall under the Convention’s jurisdiction without any restrictions.

The Convention goes on to define ”clean title” which is central to the whole purpose of the Convention. Simply put, clean title means a title which is free and clear of any mortgage or hypothèque⁶⁶and of any charge.⁶⁷ The term “title” pertains to the ownership rights in the ship that belong to the purchaser and is considered “clean” when all other property rights previously held by another person before the judicial sale—such as encumbrances or rights “in re aliena“— are eliminated. Additionally, all existing mortgages, liens, or charges would no longer apply to the ship.

Operative Articles:

Having considered the definitions of some of the key terms used in the Convention, attention will now shift to the Convention’s principal operative articles.

International effects of a judicial sale

While this article comes later on in the Convention, it is useful to consider and understand the implications of this article first as the remaining operative articles gravitate around it.

Article 6 reads as follows:

‘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.’⁶⁸

This article contains the basic rule of the Convention in that a judicial sale conducted in one State Party which has the effect of conferring clean title on the purchaser has the same effect in every other State Party. Therefore by way of illustration, where under the national law of a State Party, a ship sold by way of judicial sale confers clean title, and the judicial sale is conducted in accordance with the upcoming provisions of the Convention, Article 6 of the Convention shall operate to ensure that the clean title conferred by the judicial sale has the same effect in any other State Party.

Article 6 is triggered by the issuance of the certificate for the judicial sale under Article 5. It requires no special procedure to give effect to the foreign judicial sale, such as confirmation by a competent court in the State in which the effects are sought to be produced. The judicial sale produces its effects automatically, i.e. by operation of law.⁶⁹

Scope of application of the Convention

As mentioned earlier on in this contribution, the Convention is concerned with the effects of a judicial sale. Article 3 goes on to delimit the scope of the Convention, which states that

This Convention applies only to a judicial sale of a ship if:

1. The Judicial Sale is conducted in a State Party; and
2. The ship is physically within the territory of the State of judicial sale at the time of that sale.⁷⁰

The scope of the Convention is closed in two senses; it is closed geographically since the Convention applies only among States which have signed the Convention. Unfortunately, this general principle under international law can limit the protection afforded by the Convention in cases where for example, a ship is sold by way of judicial sale in a State Party however the ship is registered in a jurisdiction that is not a party to the Convention. The latter would not be bound to recognise the effects of such a judicial sale and refuse to act upon the presentation of a valid certificate of judicial sale issued under the Convention.

Secondly, the Convention requires the ship’s physical presence to be within the State of the judicial sale. Whilst in practice, a ship is typically arrested before sale proceedings are initiated, the Convention requires that the ship is within the territory of the State of judicial sale, ‘at the time of the sale’⁷¹ and not during the process itself. This requirement underpins the importance of having a connection between the court under whose jurisdiction the ship is sold and the ship. The Convention does not define the time of judicial sale since this can vary from one State Party to another. What the Convention seeks to protect is the ship’s presence at the final stage of the judicial sale process when the ship is successfully bought and legal title vests with the buyer.

Notice of judicial sale

As hinted to above, the Convention is not interested in harmonising how a judicial sale is conducted, and this is clearly laid out in Article 4(1) which provides that the judicial sale shall be conducted in accordance with the law of the State of judicial sale, which shall also provide procedures for challenging the judicial sale prior to its completion and determine the time of the sale for the purposes of this Convention.

Therefore, as an example, a Maltese court dealing with a judicial sale, either via auction or via private sale, would still follow the procedure provided under the COCP.⁷²

Notwithstanding the above, the Convention requires that notice of judicial sale is given prior to it taking place. Failure to give notice would vitiate any certificate of judicial sale issued under the Convention.⁷³ In this very limited instance, the Convention is imposing a procedural requirement on State Parties which strikes a balance between due process towards creditors and the expediency required in a judicial sale in order to secure its international effect.

Article 4(3) of the Convention goes on to prescribe certain classes of ”persons” to be notified of the judicial sale including:

• The ship registry where the ship to be sold is registered (even if the flag State is not a Party);
• Holders of any registered mortgage or hypothèque;
• Holders of any maritime lien provided they have notified the court conducting the judicial sale;
• The current shipowner;

In case of a bareboat charter:

• The bareboat charterer; and
• The ship registry where the bareboat charter is registered.

The above list is not exhaustive, and the law of the State Party may very well prescribe additional classes of ”persons” to be notified. While the Convention imposes the basic need for notification, the manner and form of notification is a matter of national law to determine.⁷⁴ Therefore, the law of the State of the judicial sale would determine any applicable notice periods, the method of notification and the form of the notice.

A copy of the notification is to be published on a local newspaper and transmitted to a repository being either the IMO Secretary General or to any other institution named by UNCITRAL.⁷⁵ Upon receipt of the notice, the repository must make it available to the general public.⁷⁶

The certificate of judicial sale

As inferred from Article 6 of the Convention, the certificate of judicial sale plays a central role in the overall operation of the Convention’s regime. Article 5 of the Convention provides that

Upon completion of a judicial sale that conferred clean title to the ship under the law of the State of judicial sale and was conducted in accordance with the requirements of that law and the requirements of this Convention⁷⁷, the court or other public authority that conducted the judicial sale or other competent authority of the State of judicial sale shall, in accordance with its regulations and procedures, issue a certificate of judicial sale to the purchaser.⁷⁸

As clearly indicated, a certificate of judicial sale is to be issued by the court conducting the judicial sale where: (1) the judicial sale conferred clean title under the national law of the State Party, and (2) the judicial sale was conducted in accordance with the provisions of the Convention.

While the certificate of judicial sale does not serve as evidence of clean title, it serves to trigger the operation of Article 6, and further triggers additional safeguards catered for under Article 7, which deals with registration and Article 8, which deals with the prohibition of arrest.

The Convention provides for a template certificate to be issued by the court or public authority conducting the judicial sale containing certain minimum information.⁷⁹ This is not uncommon as other international conventions encourage the use of standard certificates to promote standardization and greater acceptance when presented to other ship registries.

As a crucial component of the Convention, the certificate of judicial sale and any translation thereof are exempt from legalization or other similar formality⁸⁰ such as an apostille under the Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents.⁸¹ Effectively, this ensures that registries or other competent authorities in another State Party do not require a foreign certificate of judicial sale to be legalized or apostilled as a condition for taking action under the Convention.

Actions to be taken by the Registry

The Convention seeks to identify actions to be taken by the competent authorities in the flag State to realise the effects of a judicial sale.

Upon presentation of the certificate of judicial sale, the ship registry of a State Party is to:

1. Delete from the register any mortgage or hypothèque and any registered charge attached to the ship that had been registered before completion of the judicial sale;
2. Delete the ship from the register and issue a certificate of deletion for the purpose of new registration;
3. Register the ship in the name of the new purchaser (on the understanding that the ship and the person in whose name the ship is to be registered meet the requirements of the law of the flag State); and
4. Update the register with any other relevant particulars in the certificate of judicial sale.⁸²

The Convention recognises that at the time of the judicial sale, the ship may be registered as a bareboat charter. While the judicial sale does not prohibit the bareboat charterer from exercising his right against the previous owner for a breach of contract, the purchaser from the judicial sale is not bound to honour the bareboat charter agreement.⁸³ Article 7(2) provides that at the request of the purchaser and upon presentation of the certificate of judicial sale, the registry of a State Party in which the ship was registered as a bareboat charter is to delete the ship from the bareboat charter register and issue a certificate of deletion.⁸⁴

Article 7 is subject to the public policy exception under Article 10 of the Convention which provides that the judicial sale of a ship does not have the effect provided in Article 6 in another State Party other than the State where the judicial sale took place if a court in such other State Party determines that the effect would be manifestly contrary to the public policy of such other State Party.⁸⁵ While matters of public policy can differ between State Parties, Article 10 requires that the effect of the judicial sale in the State concerned is to be ”manifestly contrary” to public policy.⁸⁶ This sets a high threshold, which is designed to avoid an abusive or overly expansive application of the public policy exception and requires a compelling reason as to why giving effect to the foreign judicial sale is contrary to an identified matter of public policy.⁸⁷

No arrest of the ship following a judicial sale

It is a well-founded principle under the international conventions harmonising the rules on arrest of ships that a ship may be arrested in respect of a maritime claim only if the person who owns the ship at the time of arrest is the person who owned the ship at the time the claim arose, unless the maritime claim is secured by a maritime lien or is based on a mortgage, hypothèque or charge of similar nature. Ergo, where a judicial sale affords the purchaser a clean title, it follows that the ship should not be subject to arrest for any maritime claim or maritime lien arising prior to the judicial sale.⁸⁸

As such Article 8(1) of the Convention provides that if an application is made before a court in a State Party to arrest a ship for a claim arising prior to a judicial sale of the ship, the court is to dismiss the application upon presentation of the certificate of judicial sale. In addition, if a ship is arrested or any similar injunction is taken against the ship, the court is to order the release of the ship upon presentation of the certificate of judicial sale. Similar to Article 7, the safeguard under Article 8 is also subject to the public policy exception under Article 10.⁸⁹

Entry into Force

Critically, the Convention will only enter into force 180 days following the deposit of the third instrument of ratification, acceptance, approval or accession. As at time of writing, the Convention has only been ratified by El Salvador, and therefore not yet in force.

Conclusion

Malta, striving to enhance its standing as a top maritime jurisdiction, signed the Convention on 19 June, 2024. This positions Malta among the States aligning with the Convention’s goal of providing uniform rules and international recognition of judicial sales. Though the Convention only applies between State Parties, the concept of a “closed” regime could weaken its impact if not widely adopted, it aims to ensure judicial sales of ships are recognized and enforced across jurisdictions. One must not allow this thought to detract from its ultimate goal; to establish uniform rules and to give international effects to judicial sales of ships sold free and unencumbered as this benefits shipowners, financiers, creditors and purchasers by reducing legal uncertainty.

The judicial sale of ships plays a critical role in international maritime law by facilitating dispute resolution, debt settlement and efficient redistribution of maritime assets. Malta’s legal framework already offers strong protections for creditors and buyers during such sales, however, the international nature of shipping requires broader recognition, which the Convention seeks to address by harmonizing laws across countries, offering greater legal certainty.

For Malta, the eventual ratification of the Convention would reinforce its legal framework, ensuring that judicial sales of ships conducted in Malta are recognized internationally, boosting its appeal as a global maritime hub. Additionally, Malta’s adoption would support its commitment to harmonizing international maritime laws and protecting its national interests in the global maritime community. Ultimately, while Malta’s current laws are robust, the Convention enhances its international reach and strengthens legal certainty for cross-border transactions.
Ultimately, the success of the Convention will rely on its widespread adoption by other maritime nations.

Disclaimer: Ganado Advocates is responsible for contributing to this article but was not in any way involved as legal advisor for the parties discussed herein. This article was first published in ‘ID-Dritt’ in 2025.

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¹ International Maritime Organization, ‘Marine Environment’ (International Maritime Organization)      <https://www.imo.org/en/OurWork/Environment/Pages/Default.aspx> accessed 11 October 2024.
² David Josph Attard and others, The IMLI Manual On International Maritime Law Volume II Shipping Law (1^st edn, Oxford University Press 2016) 152
³ Merchant Shipping Act, Chapter 234 of the Laws of Malta, Article 37A.
⁴ United Nations Convention on the International Effects of Judicial Sales of Ships (Beijing, 7 December 2022) UNTS.
⁵ Code of Organisation and Civil Procedure, Chapter 12 of the Laws of Malta.
⁶ ibid, Article 253(1).
⁷ ibid, Article 273(d).
⁸ ibid, Article 273(h).
⁹ Merchant Shipping Act, Chapter 234 of the Laws of Malta.
¹⁰ COCP, n(5), Article 855(1).
¹¹ ibid, Article 859.
¹² S Derrington and J Turner, The Law and Practice of Admiralty Matters (Oxford University Press, 2007) 126.
¹³ COCP, n(5), Article 843(1).
¹⁴ ibid, Article 256(1).
¹⁵ MSA, n(9), Article 42(4).
¹⁶ COCP, n(5), Article 838B(2)(a).
¹⁷ ibid, Article 388D(1).
¹⁸ ibid, Article 313(1).
¹⁹ ibid, Article 359.
²⁰ Singapore signed the Convention on 5 September 2023.
²¹ As at the writing of this submission, the Convention has been signed by 28 States and the European Union.
²² High Court (Admiralty Jurisdiction) Act 1961, (Singapore).
²³ Supreme Court of Judicature Act 1969, (Singapore).
²⁴ Merchant Shipping Act 1995, (Singapore).
²⁵ AMLA, n(22), (Cap 4, 2020 Rev Ed), s 7.
²⁶ibid, s 4(c) and (d).
²⁷SJCA, n(23), (Cap 3, 2020 Rev Ed) s 13.
²⁸Merchant Shipping Act, n(24) (Cap 2, 2020 Rev Ed) s 23.
²⁹Rules of Court (Cap 322) 2021.
³⁰ This 90-day period starts to run from the day on which the proceeds of the sale are deposited into court, following the expiration of which, the court shall proceed determine the priority of creditor claims. This is not the default position under Singaporean law but is followed at the express request of the court.
³¹ Rules of Court, n(28), O 33 r 23(3).
³² Liberian Registry, ‘The Liberian Registry Today’ (Liberian Registry) <https://www.liscr.com/about-us/largest-flag-worldwide#:~:text=As%20the%20largest%20ship%20registry,and%20innovative%20service%20to%20owner s.> accessed 19 October 2024.  
³³ International Convention on Arrest of Ships (adopted 12 March 1999, entered into force 14 September 2011) 2797 UNTS 3.
³⁴ Law 8 of 30 March 1982, as amended by Law 11 of 23 May 1986, Law 23 of 1 June 2001 and Law 12 of 23 January 2009 (Panama) Maritime Code.
³⁵ ibid.
³⁶ ibid, Article 199.
³⁷ ibid, Article 200.
³⁸ ibid.
³⁹ ibid, Article 522.
⁴⁰ ibid, Article 203.
⁴¹ ibid.
⁴² ibid, Article 204.
⁴³ Rikors numru 653/2018 JRM fl-atti tal-mandat esekuttiv ta’ arrest ta’ bċejjeċ tal-baħar numru 998/2018 fl-ismijiet: ‘Marlon Borg bħala mandatarju f’isem is-soċjetà estera Jebmed S.r.l. v. M.V. Bright Star, ġà M.V. Trading Fabrizia bin-numru tal-I.M.O. 9481960’,
⁴⁴ Rikors guramentat numru 846/18/2 MCH fl-ismijiet: Dr. Ann Fenech kif debitament awtorizzata bħala mandatarja għannom u in rappreżentanza tas-soċjetà estera Bluefin Marine Limited, reġistrata l-Liberia, u tal-bastiment ‘MV Bright Star’ ġja ‘Trading Fabrizia’ bin-numru tal-IMO 9481960 v Is-soċejtà estera Jebmed SRL reġistrata ġewwa l-Italja,
⁴⁵ Bright Star I (n43).
⁴⁶ Ibid.
⁴⁷ Article 281(1) COCP
“Without prejudice to any other right under this or any other law, the person against whom an executive act has been issued or any other person who has an interest may make an application, containing all desired submissions together with all documents sustaining such application, to the court issuing the executive act praying that the executive act be revoked, either totally or partially, for any reason valid at law.”
⁴⁸ Bright Star I (n43).
⁴⁹ Ibid.
⁵⁰ Ibid.
⁵¹ Bright Star II (n44).
⁵² Ibid.
⁵³ Ibid.
⁵⁴ Ibid.
⁵⁵ Ibid.
⁵⁶ The “Acrux” (1961) 1 Lloyd’s Rep, 408.
⁵⁷ ibid.
⁵⁸ United Nations Convention on the International Effects of Judicial Sales, Explanatory Note by the UNCITRAL Secretariat.
⁵⁹ ibid.
⁶⁰ ibid.
⁶¹ ibid.
⁶² ibid.
⁶³ The UN Convention, n(4), Article 1. ‘This Convention governs the international effects of a judicial sale of a ship that confers clean title on the purchaser.’
⁶⁴ ibid, Article 2(a).
⁶⁵ ibid, Article 2(b).
⁶⁶ The UN Convention (n4), Article 2(d), ‘ ”Mortgage or hypothèque” means any mortgage or hypothèque that is effected on a ship and registered in the State in whose register of ships or equivalent register the ship is registered’.
⁶⁷ ibid, Article 2(e), ‘ “Charge” means any right whatsoever and howsoever arising which may be asserted against a ship, whether by means of arrest, attachment or otherwise, and includes a maritime lien, lien, encumbrance, right of use or right of retention but does not include a mortgage or hypothèque ’.
⁶⁸ ibid, Article 6.
⁶⁹ UNCITRAL Explanatory Note (n58).
⁷⁰ The UN Convention, (n4), Article 3 (emphasis added).
⁷¹ ibid.
⁷² Refer to Section 1.2.
⁷³ The UN Convention (n4), Article 4(2).
⁷⁴ ibid, Article 4(4).
⁷⁵ ibid, Article 4(5).
⁷⁶ ibid, Article 11.
⁷⁷ ibid, Article 5(1) (emphasis added).
⁷⁸ ibid.
⁷⁹ Ibid, Article 5(2):
The certificate of judicial sale shall be substantially in the form of the model contained in annex II and contain:

a. A statement that the ship was sold in accordance with the requirements of the law of the State of judicial sale and the requirements of this Convention;
b. A statement that the judicial sale has conferred clean title to the ship on the purchaser;
c. The name of the State of judicial sale;
d. The name, address and the contact details of the authority issuing the certificate;
e. The name of the court or other public authority that conducted the judicial sale and the date of the sale;
f. The name of the ship and registry of ships or equivalent registry with which the ship is registered;
g. The IMO number of the ship or, if not available, other information capable of identifying the ship;
h. The name and address of residence or principal place of business of the owner of the ship immediately prior to the judicial sale;
I. The name and address of residence or principal place of business of the purchaser;
j. The place and date of issuance of the certificate; and
k. The signature or stamp of the authority issuing the certificate or other confirmation of authenticity of the certificate.

⁸⁰ ibid, Article 5(4)
⁸¹ Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents (adopted 5 October 1961, entered into force 24 January 1965) 527 UNTS 189.
⁸² The UN Convention (n4), Article 5(1).
⁸³ UNCITRAL Explanatory Note (n58)
⁸⁴ The UN Convention (n4) Article 7(2)
⁸⁵ ibid (n4), Article 10.
⁸⁶ UNCITRAL Explanatory Note (n58).
⁸⁷ ibid.
⁸⁸ ibid.
⁸⁹ The UN Convention (n4), Article 8(4)