The arrest and judicial sale of ships to settle ship mortgage debts, maritime claims, and liens is a key part of maritime law on a global scale. In June 2022, the United Nations Commission on International Trade Law (UNCITRAL) endorsed the final draft of the Convention on the Judicial Sale of Ships produced by UNCITRAL’s Working Group VI. It also recommended the adoption by the United Nations General Assembly during its upcoming 77th session, set to begin on September 13, 2022, in New York, and the signing ceremony to take place in September 2023 in Beijing. Subsequently, the Convention be referred to as the “Beijing Convention on the Judicial Sale of Ships” (referred to as the “Beijing Convention”).

The Beijing Convention consisted of 24 Articles and two corresponding annexes (Annex I and Annex II), setting up a unified system for internationally recognizing judicial sales. Its main goal is to guarantee legal clarity regarding the ownership obtained by the buyer of a ship. The convention seeks to enhance global trade by assuring auctioneers and maximizing the market value of the ship, thereby increasing the funds available for distribution among creditors. Indeed, The Convention is applicable to the judicial sale of a ship under two conditions:

(a) The sale must be conducted in a State Party

(b) The ship must be physically within the territory of the State where the judicial sale takes place at the time of the sale.

A key challenge impacting the efficiency of judicial sales involves the necessity for the buyer to secure the cancellation of registered mortgages, loans, and charges, along with the deregistration of the ship if opting for registration in a different ship registry.

The Beijing Convention tackles this issue by introducing the notion of a judicial sale certificate issued by a state party to the convention. This certificate automatically affords protection in any other member state.

Although the Beijing Convention is still pending its ratification by Italy, this article is going to analyze the regime set out by the Italian Code of Navigation in this regard. Article 157 introduces a streamlined deregistration process, where the presence of registered mortgages or other claims does not hinder the administrative flag cancellation process. In contrast to the previous version, which involved a more intricate authorization procedure, the current provision simplifies the process and has been already compatible with the objectives considered by the UNCITRAL in the Beijing Convention.

According to Article 157 of the Code of Navigation, a non-EU buyer is required to notify the successful completion of a court-ordered sale, whether directed by an Italian or foreign public authority, within sixty days from the ship’s award date. Once this report is received, the ship registry will notify holders of recorded in rem or guarantee rights (such as registered mortgages or loans) and the National Social Security Institute. Following this step, the registry will undertake the deregistration of the ship upon receiving the ship’s documents and the termination of its flag. It’s important to note that Article 157 does not specify whether the process is applicable to Italian or EU buyers in a judicial sale. In such instances, an Italian or EU purchaser can choose to maintain the Italian flag and register the property under the ship registry or apply for the vessel’s deregistration. If the former is chosen, the vessel retains the Italian flag without undergoing a deregistration process. In the latter case, although the legislation is silent, it appears that the automatic procedure outlined in Article 157 should also apply to the benefit of an Italian or EU buyer.

It is worth mentioning that, in cases where an interested party, such as the previous owner or another creditor, seeks to obstruct the administrative deregistration by challenging the recognition of the foreign judicial order granting the ship to the successful buyer, the rules of international private law come into play. These rules vary depending on whether the order originates from, within, or outside the European Union; but it’s crucial to note that the grounds for preventing the recognition of a foreign judicial order are very limited.

In conclusion, the impending entry into force of the Beijing Convention, coupled with its pending ratification by Italy, marks the culmination of efforts to guarantee the comprehensive efficacy of judicial sales. This development provides certainty to potential buyers, assuring them that an Italian ship, acquired through a foreign judicial sale, can undergo seamless deregistration from the ship registry and be fully registered in a registry of the buyer’s choice.

Dott.ssa Niloofar Foroozanfar

Avv. Lorenzo Macchi

Niloofar Foroozanfar