Enforceable judgement for judicial sale

BECAUSE, under normal circumstances, an Italian ship mortgage does not constitute a title empowering financial execution, the proceedings covering the judicial sale of a vessel by the courts may only be initiated by the mortgagee when the mortgagee has obtained an enforceable judgment against the borrower in breach of a loan agreement and, if such judgment has been issued in a foreign jurisdiction, when it has been enforced also in Italy.

When jurisdiction is referred to the English courts, the enforcement in Italy of an English judgment against a defaulting borrower under the loan agreement would be based on the short procedure contained in EC Council Regulation 44/2001 covering jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. The same procedure would apply whenever jurisdiction is referred to the courts of another EC country which has adopted the same council regulation.

Pending the enforcement of the foreign judgment in Italy, the mortgagee may secure its action by arresting the vessel at an Italian port.

Once the enforceable judgment has been obtained - and, if foreign, enforced in Italy - the proceedings of judicial sale may be started in front of the competent local court, in the manner foreseen by the Italian Navigation Code. This is executed by an attachment based on the enforceable judgment, whenever the loan agreement contains a jurisdiction clause in favour of English and/or other foreign courts, based on an English and/or other foreign judgment declared enforceable in Italy by the competent Italian Court.

Application for sale of a vessel by auction, to be served on the shipowner and on any other interests who may have joined the procedure, may then be deposited not before thirty - and not after ninety - days from service of attachment.

At this stage the judge will appoint an expert to make an estimate of the value of the ship and will fix a term of no more than thirty days for an evaluation report to be deposited. Within five days of the evaluation report being deposited, the judge will issue an order fixing the basic price of the ship and the date of the auction.

If the ship is not sold at the first auction, the judge will arrange further auctions, at which the price of the vessel will be reduced by at least twenty per cent each time.

When the price has been reduced to forty per cent of the original value, and the vessel still not sold, the judge will authorise the private sale of the ship.

It can be seen that, once an enforceable judgment becomes available, the sale of the vessel at auction, while calling for a great deal of activity on the part of those involved, can be accomplished in a comparatively short space of time. The actual length of time involved will, of course, depend largely on whether or not the vessel is sold at the first auction.

The arrest and judicial sale of the vessel will inevitably involve a variety of costs. These include costs for watchmen, based on international standard tariffs, and costs for the necessities of the vessel. The judge will usually order that such costs are periodically presented by the parties, and assessed in proportion to their claims. Under Italian law, however, these costs have a special priority in relation to the proceeds of the auction sale, in which they rank before the mortgage. Also, under Italian law, port dues have an absolute priority in terms of the proceeds of the auction sale.

Instead of appointing professional watchmen, the court may order the master and crew to act as bailees of the ship, with no payment of costs in advance. But it must be noted that, under Italian law, the wages of the master and crew have special priority in terms of the proceeds of the auction sale, again ranking before the mortgage.

It should also be noted that, pursuant to Article 6 of the Navigation Code, priorities among creditors in terms of the proceeds of the auction sale are determined according to the law of the vessel’s flag.

If the vessel flies the Italian flag, an Italian judge will apply Italian law, i.e., the Navigation Code which, in matter of priorities, is based on the Brussels Convention of 1926 relating to maritime liens and mortgages.