December 7, 2021 Russian Maritime Law Association (RUMLA) held a seminar where lawyers discussed the most problematic issues from the Draft of the Convention on the Judicial Sale of Ships. Anna Arkhipova, Maria Erokhova, Sofia Zarubenko, Konstantin Krasnokutsky, Alexander Povalyaev, Peter Falileev, Alexander Zimmerman and Igor Yastrzhembsky took part in the discussion. The seminar focused on the legal significance of a certificate issued in the country of sale of a ship and the possibility of saling the ship before the title of a new owner will be registrated. There was also a discussion of the validity period of the certificate; the fate of the bareboat charter after a public sale of a ship; and the role of the notice the registrar about judicial sale of a ship in another state.

The discussion was moderated by Konstantin Krasnokutskiy, President of the Russian Maritime Law Association “RUMLA”; a recording of the seminar is available on the Association’s YouTube channel¹.

The United Nations Commission on International Trade Law (UNCITRAL) is working on a Draft of the Convention on the Judicial Sale of Ships (the “Draft”). The document should eliminate the problem of excluding a ship from one state’s register if the decision to sell has been made by court in another state. The convention is scheduled to be adopted in 2022.

The Centre for International and Comparative Legal Studies represented by Igor Yastrzhembsky participates in the work of the Commission as an observer from Russia.

RUMLA invited Igor Yastrzhembsky to take part in a seminar where members of the Association and other invited experts discussed the most challenging issues of the Draft.

The seminar started with a presentation by Igor Yastrzhembsky on the key issues the Draft. Then participants moved to the discussion of the main problem of the Project.

1. Possibility of the subsequent sale of the ship after the judicial sale and before the registration of the title

Assume that a court in one state decided to public sale of a ship, registered in another state. The judgment is enforced and the ship is sold. According to the Draft, the “competent authority” of the State of judicial sale has to issue the certificate. This certificate is the document under which the registration of title should be made in the state of ship registration. The question arises: may the buyer sell the ship before the registration of his title? In other words, is the subsequent sale possible and what should be sold – the ship or the certificate?

During the discussion, different points of view were expressed.

Alexander Zimmerman, Ph.D. in Law, Associate professor at the Department of International Law at St. Petersburg State University, suggested that the search for an answer to the question should begin with determining the legal nature of the certificate. If one takes the position that a certificate is a security warrant, then it is not the ship, but the right arising from the certificate can be sold.

Petr Falileev, PhD, an honorary member of the Study Association of the Centre for International Legal Studies in Salzburg, suggested that recognising a certificate as a warrant security is complicating an already complicated situation.

Konstantin Krasnokutskiy spoke in favour of the free sale of s ship before the registration of title to the buyer. Such request comes from the shipowners. But the question is, why the certificate should be issued by a public authority? The point is that, according to the Draft, the certificate must be made in English or French, so Konstantin questioned whether Russian courts, for example, would be able to cope with this, if Russian law entrusted them with issuing the certificate. In that case, it would be necessary to introduce a mechanism to translate the certificate into one of the foreign languages, apparently at the expense of the person concerned – the buyer. Wouldn’t it be easier to entrust the issuing of certificates to the captains of the ports in the regions where the courts that made the decisions of public sale of a ship are located?

The doubts about the correctness of the issuance of the certificate by the authority were supported by Peter Falileev. He suggested that the issuing of the certificate should be entrusted to the organizer of a public sale, in Russia its a private organization engaged by the bailiff service to conduct the public sale.

Maria Erokhova, PhD in Law, Associate Professor at the Moscow School of Social and Economic Sciences, Consultant “Navicus.Law”, suggested that there can be any solution of a problem, but in order to attract states to ratify the Convention, a clear and understandable solution to the problem should be proposed. There can be several solutions of the problem and they depend on who issues the certificate. If the certificate is issued by a court or bailiff, then if the ship is sold to a new buyer, he should be contacted with public authorities to record the succession, because in this model the certificate is similar to an enforcement document. If the certificate is issued, for example, by the captains of the ports the system may be simpler, excluding the recording of the succession. The buyer of the ship will have to submit to the registrar a certificate issued in the name of seller and a contract him, which proves the transfer of title.

Anna Arkhipova, PhD in Law, Associate professor at the Russian School of Private Law, questioned the validity of the idea that a ship can be sold before the title is registered to the purchaser from the judicial sale. There is no obstacle for a purchaser to obtain a certificate and to change the information in the foreign register about the title. This position was supported by Alexander Povalyaev, PhD in Law, Associate professor at the International and Maritime Law Department of the State Marine University named after Admiral Makarov.

Igor Yastrzhembsky said that most participants of the Working Group supported the possibility to sale of the ship before the title was registered for purchaser from the judicial sale and they are against a mechanism for recording the fact of succession. Under the Draft, the registrar had no right to check the validity of the contract which gave rise to the transfer of title. This system is worrying for potential abuses, but is probably in keeping with the spirit of the time, for which speed and informality are the main values.

2. The fate of the bareboat charter after a public sale of a ship

The question is whether the bareboat charter, as a type of registered lease (quasi right in rem), should survive the judical sale of a ship?

Anna Arkhipova and Konstantin Krasnokutskiy spoke in favour of the principle that judicial sale should guarantee the clean title. In their view, after the judicial sale the bareboat charter should ceased and the buyer should be guaranteed the clean title.

Igor Yastrzhembsky was against this point of view and defended the position that the idea of registering a bareboat charter is to protect the charterer: his right should follow (droit de suite) the ship. Whether the owner changes as a result of a voluntary or judicial sale is irrelevant to the charterer (lessee). In all cases of change of ownership, his right should be remain.

Maria Erokhova briefly reminded about the evolution of the role of the register, through which one can look at the problem. Since the mid-nineteenth century, influenced by German doctrine, in most European countries the prevailing approach has been that if a right is registered, it is a type of property right and it should remain when the owner changes. From this point of view, a bareboat charter is a type of property right and should be remain. Since the mid-twentieth century, under the influence of the Dutch doctrine, the idea of distinguishing a judicial sale from a voluntary sale has been gaining popularity. At a judicial sale, the buyer has no claim about the quality of the goods; this deficiency must be compensated by the guarantee of clean title, i.e. the buyer must receive the property free of any encumbrances. In other words, a construction is acceptable whereby, on the one hand, the buyer from a judicial sale has no right to claim defects from the seller and take the property as it is, but, on the other hand, the judicial purchase guarantees the clean title.

At the same time, there may be cases where the buyer of the ship from the judicial sale is interested in retaining the bareboat charter as a source of income (the lessee pays the usage fee). From this point of view Maria proposed a third solution of this this problem: the fate of the bareboat charter should depend on the will of the buyer. If he wants to keep the bareboat charter, the contract should not be terminated.

Igor Yastrzhembsky explained that the Working Group was leaning towards a third option, i.e. to determine the fate of the bareboat charter depending on the wishes of the buyer. Petr Falileev recalled that at present, in practice, the fate of a bareboat charter by judicial sale also depends on the will of the buyer. In other words, the Draft does not propose a novelty in this matter.

3. The role of the notice the registrar about judicial sale of a ship in another state

The problem is what a registrar should do if he is notified of a judicial sale in another state, but is served with the registration of the transfer of title to the ship as a result of an ordinary sale?

Igor Yastrzhembsky drew attention to the fact that the Draft proposes to notify the registrar of the commencement of the judicial sale, but does not say what he should do when he receives the documents for the registration of the transfer of title in parallel. Igor believes that it is pointless to notify the registrar if he has no right to suspend registration actions or to make a note of the judicial sale of the ship in another state.

Anna Arkhipova commented that notifying the registrar of a judicial sale of a ship in another state is of value in itself for two reasons: (1) the registrar, which is usually the captain of the port, will notify the owner of the sale (in case he is unaware of it); (2) international comity requires notifying the registrar of the sale of a ship in another jurisdiction.

Sofia Zarubenko, Senior lawyer at SKF Arctic LLC, supported the idea that notifying the registrar is not meaningful in itself, but it is desirable to give him the right to make a note in the register of the judicial sale of a ship in another state. The purpose of such a notation would be to notify creditors awaiting satisfaction of a maritime lien that was not registered and was created by operation of law. A notation in the registry will allow interested persons to join in the foreclosure proceedings and make their claims.

Maria Erokhova suggested to think about the possibility of copying a solution from Russian law to the Draft: if the registrar is notified of a judicial sale, he should make a note in the register about it and suspend another registration actions for a period to be agreed upon. Igor Yastrzhembsky countered that it was unlikely that the proposal to suspend registration actions would be supported by anyone, as it would slow down transactions.

4. Certificate validity period

There is currently no validity period for the certificate in the Project.

Maria Erokhova and Igor Yastrzhembski argued for a parallel with the limitation of actions and the need to introduce, for example, a three-year term.

Anna Arkhipova questioned whether such a long period is necessary. If a period of validity is introduced, it should be a few months.

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In early 2022, the Russian Maritime Law Association “RUMLA” plans to continue discussing the Project, in particular the right of the court of the ship’s state of incorporation to hear claims to contest the judicial sale of a ship in another country (the state of sale). In addition, the fate of attachments imposed on the ship for the interest of other creditors deserves discussion. ■

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