Den Norske Bank a.S.A. v. The Owners of the Ship "Margo L"

HCAJ000351/1997

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Admiralty Action in Rem against the Ship "MARGO L"

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Coram: The Hon. Mr Justice Waung in Court

Date of Hearing: 3 December 1997

Date of Delivery of Reasons for Judgment: 8 December 1997

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REASONS FOR JUDGMENT

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1. By the two Motions, the Plaintiff bank ("the Bank"), applied for Judgment in Default of Acknowledgment of Service and for Sale of the ship Margo L ("the Vessel") to the named proposed purchaser Hudson Navigation Inc ("Hudson") at the price of HK$26,520,000 or about US$3.4 million. I entered Default Judgment in favour of the Bank as there was no doubt that the Defendants were in default of the mortgage and that the total amount owing to the Bank was as shown in the documents namely some US$12 million. I made the usual Order of appraisement and sale by the mode of public tender. I refused to grant the requested order of a Private Sale of the Vessel to Hudson at the fixed price for reasons which I will set out below.

2. The unique feature of the Admiralty Court jurisdiction of Hong Kong and the United Kingdom is that all claims in Admiralty in rem are made against one ship and when that ship is sold, against the proceeds of that ship. Admiralty claims are of numerous varieties and the claimants could be from any part of the world where the ship had sailed and therefore it may take time for claims to surface but that does not matter so much so long as two essential steps are taken by the Admiralty Court:-

The best possible price realised by a public sale of the ship will ensure that no Admiralty claimant is prejudiced because the proceeds of that public sale will replace the ship against which claims would otherwise be made.

3. Another unusual feature of the Admiralty Court is the ranking of different claims by a determination of priorities so that those claimants ranking high on the priority (such as crew and salvors) will have the first right to the proceeds of sale before those ranking low in priority (such as cargo claimants or necessaries men). But the practice of the Admiralty Court is that the determination of priority takes place long time after the ship was arrested or sold and very often it is postponed until such time that all the claims from various parts of the world had come in.

4. To ensure fairness to all claimants, the Admiralty Court had developed a system of claimants entering caveats which will prevent any arrested ship being released or any proceeds of sale in Court being paid out, without prior notice being given to the caveators of such application for release or payment out.

5. It is therefore fundamental to any developed Admiralty jurisdiction such as ours in Hong Kong that litigation in the Admiralty Court and sale of ships by the Admiralty Court are not mere matters between two parties, the Plaintiff and the Defendant as in ordinary High Court Actions, Every sale of a ship by the Admiralty Court intimately affects the interests of other potential claimants in Admiralty, many of whom might not even know that the ship has been arrested or sold by the Admiralty Court in Hong Kong. The role of the Admiralty Court is to ensure that any sale of the vessel is effected in such a way as to protect all Admiralty claimants not merely the Plaintiff who arrested the ship or who requested ex parte the Admiralty Court to sell the ship or who has obtained ex parite a very large judgment (which can be set aside when contested by interested competing claimants) or who has a high priority claim. The best way (which is also the normal way) that the Admiralty Court ensures protection for all Admiralty claimants is by insisting upon the sale of the ship being done by the well tried out method of appraisement and sale by public tender.

6. To ensure that the Admiralty Court sells arrested ships properly and that a ship is not sold at an undervalue, the Admiralty Court adopts a system of appraisement of a ship before it is sold. The Admiralty Registrar and the Chief Bailiff obtain from Court appointed experts, the proper valuation of a ship and very often two or even three experts would be involved in the appraisement of a ship. But this exercise is only what might be called "the floor protection" namely that a ship is not sold below its appraised price. An appraisement cannot accurately predict what might be the best possible price for a particular ship which is unique. The sky should be the limit and that can only be achieved by the market and by an appropriate exposure of a particular ship to the market interests in that ship. This is readily achieved by the Hong Kong and worldwide shipping brokers immediately sending out the news of the Order for sale made by the Hong Kong Admiralty Court and by the international maritime community reading the Order of public sale in a shipping newspaper such as the Lloyd's List of Shipping. All these can only be achieved and be meaningful if the Admiralty Court makes the usual order of sale by public tender.

7. In this case, Den Norsk Bank which is a ship finance specialist is asking the Court (as it has done repeatedly on a number of occasions) to depart from the normal mode of sale and to allow its proposed purchaser Hudson to buy the Vessel at US$3.4 million. In support of this application, the Bank relies on three brief Valuation Certificates from three valuers who valued the Vessel at respectively US$2.5 million, US$2.75 million and US$3.2 million. Unfortunately as often happens in this sort of maritime valuation of ships, no detailed analysis was shown in these Valuation Certificates as to the factors and reasons which led to these valuations being given and in the absence of analysis and reasons, there can be no proper weighing of the strength of any of these Valuation Certificates or why one should be preferred over the other or why any one should be accepted. This most unsatisfactory nature of the valuations of the Vessel is however only one aspect of why the Court cannot allow provate sale. In my judgment, even if valuation is done in the most convincing way, it cannot persuade the Court to sanction private sale. This is because valuation and appraisement is only able to perform "the floor protection" function.

8. Experience has shown repeatedly that when there is competition in a sale, the actual sale price will often exceed valuation figures by a wide margin. That is the nature of the market and the necessity for the market. Competition brings out the best in prices as well as in people. Cocoon a person or a property or a ship and close it off to the world, an artificial ceiling is then set for that person, property or ship. This is what the Plaintiff Bank wishes to achieve and that is why it fought so hard to persuade this Court that US$3.4 million is a very good price and that I should order the Vessel to be sold to Hudson at that price. Not much is known about Hudson but reading between the lines, I suspect that it could well be an associate of the Bank or a company controlled by the Bank and that it is the Bank which wishes to buy back the Vessel for its own internal reasons. But it does not matter who is Hudson. What is important is why should both the Bank and Hudson desperately want to buy the Vessel at US$3.4 million and not wish the Vessel to be sold by public tender. It is of course possible that the Vessel if not sold to Hudson now at US$3.4 million, would be sold for less than US$3.4 million at a subsequent public tender sale. But it is also very probable that the Vessel could be sold for considerably more than US$3.4 million. Any one who genuinely wants to buy the Vessel has to put in a good price in the public tender (the best price it can afford) as otherwise there is a serious risk that someone with a better price will secure the Vessel. If Hudson genuinely wants to buy the Vessel (as opposed to just wanting to buy it cheaply) then Hudson would have to put in its best price for that Vessel and that best price could well be much in excess of US$3.4 million.

9. I do not discount the possibility that in this case as the Plaintiff Bank is likely to have a high priority with its mortgage claim, the Bank might well be satisfied with a US$3.4 million sale and that therefore it does not wish to take a risk of losing the Hudson firm Purchase of US$3.4 million. But as I Indicated earlier, the Admiralty Court is not here just to serve the Plaintiff Bank alone. If the Plaintiff Bank chooses to resort to the Hong Kong Admiralty Court and to bring the Vessel all the way from Korea (in other cases banks have been known to bring ships all the way from Russia and Europe to effect sale by the Hong Kong Admiralty Court) as opposed to selling itself with its mortgagee power or seek a sale from the many excellent Admiralty Court such as Singapore and London, then it must accept that this Admiralty Court will not easily abandon its primary function of selling ships for the best possible prices. Generally speaking that is by public tender and not by private sale at pre-determined price to a named purchaser.

10. The Affidavit evidence placed before me reveals no powerful special features as to justify this Admiralty Court departing from its normal course of sale by public tender. For reasons given, I therefore decline to make the order of private sale requested by the Plaintiff Bank.

Representation:

Mr. Kenneth Ng for the Plaintiff Bank instructed by Messrs Johnson Stokes & Master

Mr. Tsang, the Chief Bailiff