Judicial Sales of Ships in English Common Law Jurisdictions

By Anneke Whelan, Partner in the International Transport, Trade & Energy team

In February 2017, Hanjin Shipping Company was declared bankrupt by South Korean courts.  It is the largest bankruptcy for container shipping in 30 years according to the online publication “American Shipper”. The insolvency process is uncertain, lengthy and expensive.Sale by private treaty is also often unattractive on account of the potential high level of trade debts and maritime liens that survive a sale by private treaty.  A relatively easy, orderly and cost-effective sale can be achieved by way of a court supervised sale where the vessel is transferred free of encumbrances and liens. English Common Law systems have a reputation for favoring lenders where a mortgagee has a very good ranking in the fund created by the judicial sale of the vessel and the class of maritime claims are limited. The process is relatively quick, costs effective and certain.

Namibia with its main port situated in Walvis Bay on the west coast of Africa is one such jurisdictions. The law applicable to admiralty matters in Namibia is derived from the Colonial Courts of Admiralty Act, 1890. Although the English law does not prescribe the ranking of claims by statute, the priorities of such ranking remains within the discretion of the court. Over the years a priority of ranking has crystallised leaving mortgagors’ claims to rank ahead of statutory rights in rem including claims for the supply of necessaries.

Compounding the poor ranking of trade creditors, is the limited type of claims which are recognised as maritime claims in accordance with the applicable laws of Namibia. Such non-maritime claimants rank right at the back, behind statutory rights in rem and necessaries.

By the time the arrest takes place, the mortgagee is probably already funding the operational costs of the vessel.  How the scheme works is the ship is brought to Walvis Bay Harbour; the ship is arrested by the mortgagee and without delay application is made for the sale of the vessel pendente lite by private treaty to a named buyer funded by the mortgagee for a fixed price. This sale application is concluded on an unopposed basis as the mortgagor is co-operating with the mortgageeor to achieve a quick sale. Within a period of 6-8 weeks from arresting the ship, the ship is sold and delivered free of liens and encumbrances and the debt is rolled over.

Lenders and their lawyers may have become complacent over time about such applications. They must be reminded that court has always been concerned that the ship is sold for the best possible price. It is in the interest of the claimants and the shipowner that the ship is sold for the highest price. Unless special circumstances pertaining to the sale by private treaty exist and in ensuring the best price is achieved the court will require:
· an appraisement of the ship by the Admiralty Marshal with advice from his broker which appraised value is kept confidential;
· the sale is advertised by the Marshal who invites offers to buy the vessel.

In Bank of Scotland PLC v The Owners of the “Union Gold” [2013] EWHC 1696 (Admlty) Teare J concluded that as a general principle, an order should not be made that the Marshal sell to a buyer found by the arresting party notwithstanding that the proposed price appears to be at or about the market value of the vessel.

 

For more information on the above contact:

Anneke Whelan
International Trade, Transport and Dispute Resolution

+27 21 419 6495

awhelan@wylie.co.za