Transfer of ownership during the judicial sale of seagoing vessels

Publication

11 September 2017

Under the increasing pressure of a declining economy and plummeting oil prices, more and more shipowners, specifically those in the oil- and drilling industry, find it harder and harder to keep afloat. With mortgage obligations towards financing companies (usually one or more banks), heavy maintenance and operational costs, and a declining number of available contracts, many shipowners sink deeper into debt. As a result, banks are more often required to enforce their right of mortgage through summary execution.

Both Curaçao and Aruba are considered favorable locations for a judicial sale of seagoing vessels. As the Law in these jurisdictions is based on and similar to Dutch Law, it is relatively easy to place a vessel under arrest (both attachment before judgment and executory attachment are easily realized in these jurisdictions). Furthermore, a sale can often be effected within a month from the moment the vessel was placed under arrest.

For many years, VanEps Kunneman VanDoorne has been assisting banks and other mortgagees with the judicial sale of ships in these jurisdictions.

In Curaçao and Aruba the judicial sale of a vessel is generally effected before the court. The vessel is auctioned publicly by the court, resulting in the adjudication of the vessel by the court to the highest bidder, under the condition of payment of the purchase price. In this respect, the courts of these jurisdictions will usually allow a prospective buyer to provide a bank guarantee as substitution for payment of the purchase price. According to the shared Civil Proceedings Code of Curaçao and Aruba (and also Sint Maarten, Bonaire, Saba and Sint Eustatius), a vessel is adjudicated to the buyer free and clear of all mortgages, attachments, and other encumbrances. There are, however, several things to consider when effecting a judicial sale.

The courts do not issue a ‘bill of sale’, however the judgment and adjudication record issued by a court serve as evidence of the judicial sale and are generally (sometimes accompanied by a legal opinion from the attorneys of the executing party) accepted worldwide, therefore allowing the buyer to (re-)register the vessel. This brings into question the ‘moment’ when ownership of the vessel is transferred.

According to Dutch Law and the Law of Curaçao, Aruba, Sint Maarten, Bonaire, Sint Eustatius and Saba a legal transfer of ownership can only be achieved on the basis of (1) a valid title and (2) ‘delivery’ pursuant to said title. The title is provided by the adjudication judgment, however the Law of these respective jurisdictions does not provide any specification on how the delivery should be effected to complete the transfer of ownership.

Large seagoing vessels are generally (in many jurisdictions worldwide) classified as property subject to registration. Consequently, transfer of ownership of these vessels usually requires entry in the appropriate public registers. However, large seagoing vessels are by nature characterized by their international aspects. These vessels are usually registered in one state (often Panama, Liberia, Bermuda or the Marshall islands due to the favorable climate for shipowners), owned by a company registered in another state, and financed by one or more (international) banks.

When a foreign vessel (i.e. not registered in Curacao, Aruba, Sint Maarten, Bonaire, Sint Eustatius or Saba as the jurisdiction it is currently in) is sold through a judicial auction before a court in one of these jurisdictions, it does not qualify as registered property (registergoed) since it is not registered in these jurisdictions. This implies that delivery of a vessel after it has been sold by court auction would have to be effected in the same way as would be the case for delivery of any other movable property.

In practice, it is generally presumed that the adjudication of the vessel by the court to the buyer also constitutes the required delivery of the vessel. This is however not the case, as has been accurately pointed out in a judgment of the Court of First Instance of Sint Maarten (such a judgment has an immediate effect in Curaçao or Aruba, since the Law on this matter is identical and therefore the same arguments apply).

According to Dutch private international law, the delivery required for the legal transfer of ownership of a registered vessel is governed by the Law of the State where that vessel is registered (section 10:127, paragraph 2 of the Dutch Civil Code). The Law of Curacao, Aruba, Sint Maarten, Bonaire, Sint Eustatius and Saba respectively, does not provide for a similar rule. In these jurisdictions, delivery of possession was simply believed to be achieved through the ‘granting of possession’ (bezitsverschaffing) of the vessel by the executing party to the buyer.

In a judgment dated 9 February 2016, the Court of Sint Maarten found that the provision of Dutch private international law, as mentioned above, is also applicable to the unwritten private international law of Sint Maarten, based on the ‘concordance principle’: civil and commercial law in the Netherlands, Curacao, Aruba, Sint Maarten, Bonaire, Sint Eustatius and Saba are to be regulated in concordance with each other (Article 39 of the 1954 Charter of the Kingdom of the Netherlands). Where the Law of Curacao, Aruba, Sint Maarten, Bonaire, Sint Eustatius and Saba lacks certain regulations, they are to be coordinated with Dutch Law as much as possible. In theory this principle only creates an obligation for the legislature, however local courts have also referred to it to interpret the (system of) the Law where it lacks clarity, as the court of Sint Maarten has done in this case.

The judgment of the court of Sint Maarten is good news for banks and other mortgagees, acting as executing parties in a judicial sale of a vessel in Curaçao, Aruba, Sint Maarten, Bonaire, Sint Eustatius and Saba. Until now, the moment ownership of a vessel is transferred was presumed to be the moment of payment, after adjudication of the vessel by the court. This posed a problem with regards to insuring the vessel, as insurance companies required the transfer of the vessel to the new owner to be registered before the vessel could be insured. With the judgment of the Sint Maarten court, the transfer of ownership is clearly marked by registration of the sale in the flag state, which closes the insurance ‘gap’ and reduces the risk for prospective buyers.

VanEps Kunneman VanDoorne has extensive experience in all legal aspects of the shipping industry, such as disputes related to chartering, cargo claims, collision, general average, as well as ship financing, employment, ship repair, ship registration, drafting general terms and conditions, international debt collection, ship arrest and auctions.

We assist many players in the industry, such as ship owners, shipyards, agents, insurance companies, brokers, mortgagees and cargo owners.

 

This article is written by Carlos Winkel. Carlos was a highly talented and a passionate lawyer. Moreover, he was a very beloved colleague, until he died unexpectedly and far too young in March 2017.