Brian Maloney
Seward & Kissel, New York

On 7 December 2022, the United Nations adopted a Convention on the International Effects of Judicial Sale of Ships (the 'Beijing Convention'). At its core, the Beijing Convention seeks to establish that a purchaser of a vessel sold by judicial sale would receive a certificate of judicial sale and clean title in every state that has adopted the new regime; that is, assuming the requirements of the issuing authority and the Beijing Convention are met, a judicial sale that confers clean title on the purchaser in one state party would confer clean title on the purchaser of the vessel in every other state party, subject to limited exceptions.^[1]

The animating purpose of the Beijing Convention, then, is to provide a harmonised regime that gives international effect to judicial sales, and to avoid or minimise cross-border disputes between purchasers and former owners in which a foreign court declines to recognise the effect of a judicial sale in another jurisdiction. The April 2017 proposal of the Comité Maritime International (CMI) to the UN Commission on International Trade Law succinctly states the problem:

'The failure of States to recognise the Judicial Sale of a ship in another jurisdiction reduces confidence in the international maritime community in the system of Judicial sales. They will only be supported, and proper values for ships fetched, if the prospective purchasers can be confident of receiving the vessel with a clean title, free of any encumbrances and capable of being deleted from its old registry and registered in a new register of the purchaser's choice. Thereafter, the purchaser must also be able to trade the ship without it being subject to arrest in respect of any claim arising prior to its Judicial sale.'

Proposal of the CMI for possible future work on cross-border issues related to the judicial sale of ships, 13 April 2017, Doc No A/CN.9/923

Cross-border disputes are, of course, subject to complications including, for example, obtaining personal jurisdiction over the registered owner, or navigating circumstances in which the domestic law of the old registry prohibits the deletion of the vessel or in which other foreign law requirements are not met by the jurisdiction conducting the judicial sale. The Beijing Convention seeks to address these issues.

As is common in many international treaties, the Beijing Convention also seeks to accommodate the concerns of the domestic law of prospective signatory state parties by including a public policy exception under Article 10. The Article 10 exception provides, in the relevant part, that if the 'effect… of conferring clean title' on the purchaser following a completed judicial sale would be 'manifestly contrary to the public policy' of another state party, the judicial sale would not have international effect.^[2]   

Given that the public policy exception to the Beijing Convention is the only grounds on which a party may decline to give effect to a judicial sale, understanding the limits of this exception and when it is appropriate for a party to invoke it will be of great importance.^[3] This article attempts to provide some preliminary guidance on that question by looking to the United States' application of the public policy exception contained in the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 'New York Convention').

Under the New York Convention, ratified by the US in 1970, signatory states are required to recognise and enforce international arbitral awards when the requirements of the New York Convention are met.^[4]

The New York Convention also contains a public policy exception, set out in Article V(2)(b). Under that exception, a court may decline to recognise or enforce an arbitral award where 'the competent authority in the country where recognition and enforcement is sought finds that… [t]he recognition or enforcement of the award would be contrary to the public policy of that country'. Historically, under US law, the public policy defence is 'exceedingly narrow and rarely successful'.^[5] This is because the New York Convention was intended to 'remove preexisting obstacles' to the enforcement of arbitral awards and therefore 'considerations of reciprocity… counsel courts to invoke the public policy defence with caution lest foreign courts frequently accept it as a defence to enforcement of arbitral awards rendered in the United States'.^[6] The defence is also construed narrowly, 'in light of the presumption favouring enforcement of international arbitral awards'.^[7] Therefore, the public policy exception is applied only where 'enforcement would violate the forum state's most basic notions of morality and justice'.^[8]

The US Supreme Court has likewise found that an arbitration award should not be found unenforceable on grounds of public policy unless the enforcement of the arbitrator's award would violate an 'explicit public policy' that is 'well-defined and dominant' and ascertained 'by reference to the laws and legal precedents and not from general considerations of supposed public interests'.^[9]

Given that, similar to the New York Convention, the purpose of the Beijing Convention is to streamline the recognition of a foreign judgment, here, the judicial sale of a ship, and to minimise cross-border disputes, it is likely that courts in the US will also interpret the Beijing Convention's public policy exception narrowly and apply it sparingly. The Beijing Convention's public policy exception should accordingly be focused not on the merits of underlying claims or liens, or how those were resolved as part of the judicial sale process. Instead, the focus should be on whether the requirements of the Beijing Convention and the judicial sale process were properly followed. This means that the public policy exception is likely to only apply when the judicial sale process itself and the resulting 'effect… of conferring clean title' is somehow repugnant – and indeed, 'manifestly contrary' – to the other state's public policy. Undoubtedly, owners with claims based on foreign law will attempt to plead the public policy exception, but, based on the authorities interpreting the New York Convention, a very steep showing is likely to be required that ties those claims to problems in the judicial sale process itself and why those matters are 'manifestly contrary' to a well-defined and dominant public policy of the foreign state – and one that is ascertained by reference to laws and legal precedents, rather than 'general considerations' of claimed public interests.