On 5 September 2023, 15 states signed what will be known as the Beijing Convention on the International Effects of Judicial Sales of Ships. The convention seeks to resolve a longstanding problem where some jurisdictions refuse to recognize the clean title conferred upon the purchaser of a vessel through judicial sale.
Domestic law in most jurisdictions provides that when a vessel is sold through judicial sale, the purchaser receives clean title to the ship and the previous owner’s creditors may no longer lay claim to the ship to obtain payment. However, some jurisdictions have refused to give such effect to judicial sales conducted in other jurisdictions. In consequence, the purchasers of a ship and their financiers may find themselves dealing with actions in rem against the vessel. In addition to the financial and operational disturbance caused to the new owner, this uncertainty may also reduce the price obtainable at a judicial sale, to the detriment of the previous owner’s creditors.
The entry into force of the convention does not completely solve the problem as these problematic jurisdictions are unlikely to adopt it. It is however a step in the right direction. The key element of the convention is found in Article 6, which states:
“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.”
In essence, this means that as long as the judicial sale has been carried out in accordance with the rules of the convention, which is a precondition for the issuance of the certificate of judicial sale, no actions may be brought against the ship in any jurisdiction that is a party to the convention and the purchaser may require the registry in such jurisdiction to delete the ship from the registry or register it in the name of the new owner. The convention also includes provisions to avoid forum shopping as it confers exclusive jurisdiction on the state that conducted the judicial sale for any matters pertaining to the effects or validity of that sale.
Even though purchasers of a ship through a judicial sale may still face recognition risks in jurisdictions not party to the convention, the introduction of a unified set of rules will arguably make it easier to evaluate and recognize such risks. While the list of signatories is presently quite short, the convention is supported by both the IMO and the EU amongst others, and we expect the instrument to receive widespread recognition. Prospective buyers of a ship through judicial sale may thus soon be able to consult a list of jurisdictions where their clean title will be respected.
Øyvind Grøneng
Partner – Attorney at Law
+47 90 88 63 33 / +47 55 55 92 00