The Turtle Bay
Singapore High Court
The “Turtle Bay”  SGHC 165 : Judgment delivered by Belinda Ang Saw Ean J, 30 August 2013
Asia Practice LLP for the Plaintiff
Chong Chin Chin for the Sheriff, Supreme Court, Singapore
SALE OF VESSEL UNDER ARREST: WHEN DIRECT PRIVATE SALE OF VESSEL UNDER ARREST CONSTITUTES CONTEMPT OF COURT : PRINCIPLES AND EFFECT OF ADMIRALTY JUDICIAL SALE : WHEN COURT WILL SANCTION A DIRECT PRIVATE SALE
A direct sale of a vessel may constitute contempt of court even if it is arranged before the court has commissioned the Sheriff to appraise and sell the vessel.
The effect of an admiralty judicial sale is to give the purchaser clean title to the vessel. Both the effect of an admiralty judicial sale and the procedures for the same are intended to protect and benefit the interest of all persons with in rem claims and an interest in the res, and not the interests of the arresting party alone. The courts therefore take a cautious approach to any attempt to depart from the usual procedures for an admiralty judicial sale.
In order to obtain the Court’s sanction of a private sale, it must be shown that there are “powerful special features” or “special circumstances” justifying a departure from the normal course of commissioning the Sheriff to appraise and sell the vessel. The applicant must adduce cogent evidence of these features and circumstances. The fact that no other in rem claimants have come forward does not justify the sanction of a private sale in the absence of special features or circumstances.
This note has been contributed by Leong Lu Yuan, LLB (Hons), Partner at Ang & Partners, international contributors to the website for Singapore.
The Plaintiff mortgagee bank of the vessels “TURTLE BAY” and “TAMPA BAY” (“the Vessels”) arrested the Vessels at Singapore on 29 January 2013 and 5 February 2013 respectively. The in rem actions against the Vessels were commenced after the Defendant shipowner went into liquidation in Germany. No appearance was entered in the in rem actions on behalf of the Defendant shipowner.
The Plaintiff made two applications in the in rem actions:-
(i) The Plaintiff applied for default judgment in both in rem actions.
(ii) Separately, the Plaintiff also applied for a sale of the Vessels (“the Sanction Applications”).
In the Sanction Applications, the Plaintiff sought the Court’s approval or confirmation of the direct private sales of the Vessels on the terms of two contracts dated 5 February 2013 and 9 February 2013 – after the Vessels had been arrested (“the Direct Private Sales”). The Direct Private Sales were made expressly subject to the Court’s approval of the Sales.
The High Court dismissed the Plaintiff’s applications for the approval or confirmation of the Direct Private Sales, but granted the alternative application for the Vessels to be appraised and sold by the Sheriff.
1. The main issue in the case, as defined by the court, was under what principles, circumstances and conditions should the court sanction the Direct Private Sale of a Vessel that was entered into between the Plaintiff bank and the named buyer in order to suit the Plaintiff’s own purposes, and thereby turn it into an admiralty judicial sale with all its attendant advantages.
Whether the Direct Private Sales of the Vessels constituted Contempt of Court
2. The Plaintiff sought to justify its position that the Direct Private Sales of the Vessels should be sanctioned or approved by the Court by arguing that the Direct Private Sales were entered into before any order commissioning the Sheriff to appraise and sell the Vessels had been made, and therefore did not constitute contempt of Court. This argument was made in light of the established principle that any attempt to arrange a private sale of an arrested vessel after the court has commissioned the Sheriff to appraise and sell the vessel constituted contempt of court.
3. The Court held that a direct sale of a vessel may constitute contempt of court even if it is arranged before the court has commissioned the Sheriff to appraise and sell the vessel, but whether such a sale constitutes contempt of court would depend on the circumstances of the case. The specific example given by the Court was where there was evidence of impropriety in connection with the sale, to the possible detriment of in rem creditors of the arrested vessel. The fact that the direct sale was made expressly subject to the court’s approval was not relevant to this enquiry.
4. The Court did not, however, make a finding as to whether the Direct Private Sales in this case constituted contempt of court.
Principles and Effect of Admiralty Judicial Sale
5. An admiralty judicial sale extinguishes all in rem claims which attached to the vessel prior to the sale and gives the purchaser clean title to the vessel that is free from all liens and encumbrances. Following an admiralty judicial sale, all existing in rem claims against the vessel are transferred to the sale proceeds of the vessel.
6. A judicial sale is carried out for the protection and benefit of all persons interested in the res and not the interests of the arresting party alone.
7. To protect the interests of all persons with in rem claims against the vessel including the defendant shipowner, the court must have entire control over the sale process in order to safeguard the propriety and integrity of the sale process. This is achieved through the comprehensive procedures for a judicial sale set out in Order 70 of the Rules of Court.
7.1. The Sheriff is commissioned by the Court to appraise and sell the vessel. The duty of the Sheriff is to realize the highest price from the sale for the benefit of all interested parties.
7.2. The Sheriff, with the assistance of professional and experienced court-appointed appraisers (who must act faithfully and impartially), appraises the vessel to ascertain its value. The appraised value is kept confidential so as not to affect the bids received.
7.3. The Sheriff will place advertisements to invite bids for the purchase of the vessel. The advertisements also serve to notify the sale to all others interested in the vessel so that they may come forward and establish their maritime claims.
7.4. The Sheriff will ordinarily accept the highest bid price unless it is below the appraised value.
7.5. If the Court is asked to exercise its discretion to approve a judicial sale at the highest bid price (below the appraised value), the Sheriff will hand over the confidential appraisement report in a sealed envelope for the court’s consideration. The integrity of the judicial sale process is preserved as the appraised value is at no point disclosed to the public.
7.6. The Court has unfettered discretion to refuse to confirm a judicial sale below the appraised value of a vessel where the disparity between the highest bid price and the appraised value is so great that it would possibly result in a sale that is relatively cheap and prejudicial to the other in rem creditors and the defendant shipowner. There need not be evidence suggesting that the sale was conducted unfairly or that the vessel could be sold at a higher price.
Circumstances justifying Court’s sanction of a Direct Private Sale
8. The Court held that as a private direct sale was a departure from the comprehensive procedure in the Rules of Court, any substitute method of sale and its propriety had to be weighed against the purpose to be achieved by a judicial sale order granted in the normal way.
9. The Court further opined that, more often than not, the substitute method of sale would be advanced for the applicant’s own purpose and benefit and would be prima facie unfair.
10. The divergence in the interest of the Sheriff acting pursuant to a commission for appraisement and sale and a party acting in its own interest meant that a court had to exercise caution when dealing with a “hybrid” sale application (i.e. an application seeking the court’s sanction of a direct private sale) and had to scrutinize carefully each application.
11. The Court considered several cases where a party applied for a private direct sale to be sanctioned by the court, but did not succeed. These cases reflected the Court’s concerns with regard to a substitute method of sale – even if it could be shown that a higher price might not be obtained through a judicial sale.
11.1. In The Dora  1 FC 603, the Court was not prepared to approve the procedures followed as a satisfactory substitute for the procedures that might have been prescribed by the Court, or as procedures calculated to achieve the best price possible. The Court was not prepared to sanction the private sale of the vessel even if it were satisfied that the private sale price was as high as any price likely to be obtained in a judicial sale.
11.2. In The Margo L  HKEC 767, the Court was unable properly to weigh the strength of the three valuations of the vessel’s value as they contained no detailed analysis of the factors and reasons which led to the valuations being given. This was one of the reasons (but not the only reason) why the Court refused to sanction the private sale, even though the sale price was higher than all three valuations.
11.3. In The Union Gold  EWHC 1696, the Court held that as a matter of general principle, the court should not order a sale to a buyer found by the arresting party even if the proposed price appeared to be at or about the market value of the vessel. The Court declined to approve the sale of three of the four vessels concerned, as there were concerns that approving these sales would give the impression that the Admiralty Marshall was acting for a particular in rem claimant and the defendant shipowner, and the reputation of the Admiralty Court for impartiality in the judicial sale of vessels would be tarnished. In particular:-
11.3.1. The private direct sale would be carried out without the usual appraisement conducted by the Admiralty Marshal.
11.3.2. Seeking the court’s approval of a sale to a named buyer at a named price had the effect of asking the Court to appraise the value of the vessels, and in the course of this revealed the valuations obtained by the bank to potential buyers.
11.3.3. The direct sale to the named buyer would do away with the need to advertise the sale and invite offers to buy the vessels.
11.3.4. There was a risk that the vessels would not be sold at the best possible price as the Court was simply asked to approve a sale to a buyer found by the mortgagee bank applying for approval of the sale.
12. There were, however, two instances in which the Court agreed to approve a private direct sale.
12.1. In The Union Gold, the Court took the view that there was evidence of special circumstances that justified the Court’s approval of a private sale of one of the vessels to a buyer found by the mortgagee bank, namely:-
12.1.1. A prompt sale was crucial to preserving a long-term contract which provided business for the vessel (and thereby preserving the jobs of 21 persons including crew and shore-based personnel).
12.1.2. The vessel was an old ship that was unlikely to attract buyers.
12.1.3. The named buyer was able to retain and operate the contract.
12.1.4. The named buyer was unlikely to buy the vessel if the contract was lost.
12.2. In The Nel (1997) 140 FTR 271, the vessel was loaded with a cargo of sulphur that could cause severe corrosion damage to the vessel. Off-loading the sulphur would be expensive. The mortgagee found a buyer who would carry the cargo to its destination and was willing to pay 20% more than the valuations prepared by shipbrokers. The Court acknowledged that the mortgagee was acting out of self-interest in arranging the sale, but allowed the private sale for the following reasons:-
12.2.1. A court-ordered sale would take several weeks, and the vessel’s condition and seaworthiness might become suspect during that time, making it more difficult to sell the vessel at a good price.
12.2.2. It was likely that a buyer would refuse to deliver the cargo, and would insist that the cargo be off-loaded, with the cost of off-loading coming out of the sale price.
13. The Court agreed with the holdings of Waung J in The Margo L and Teare J in The Union Gold and held as follows:-
13.1. The Applicant must identify the existence of “powerful special features” or “special circumstances” justifying a departure from the normal course of commissioning the Sheriff to appraise and sell the vessel.
13.2. While the cases of The Nel and The Union Gold illustrated what might constitute “powerful special features” or “special circumstances”, the Court stated that much would depend on the facts of each case. The Applicant must adduce cogent evidence of these features and circumstances.
The Court’s refusal to sanction the sale of the Vessels
14. The Court refused to grant the Plaintiff’s application, on the following grounds.
14.1. The evidence showed that the direct private sale in this case had been entered into to suit the Plaintiff’s own purposes.
14.2. The Plaintiff intended to sell the Vessels to the named buyer before the in rem proceedings were commenced. This was evidenced by the German liquidators’ written consent to the direct sale of the Vessels which the Bank intended “to carry out after the arrest of the Vessels”.
14.3. The only evidence of the steps taken by the Plaintiff’s appointed shipbroker to market the Vessels and the process by which the named buyer was selected was a one-page memorandum disclosed in an affidavit sworn by one of the Plaintiff’s officers. This was despite a statement in the memorandum that the Plaintiff had been “aggressively marketing the Vessels on a global basis to ensure all potential buyers were aware that the Vessels were for sale”.
14.4. The price offered by each of the named purchasers was not significantly higher than the appraised values stated in the two valuations provided by the Plaintiff.
14.5. It was not sufficient to state that the highest amounts that other potential buyers on the market were willing to pay were below the appraised values.
14.6. The Plaintiff provided little information of the other serious bidder who was said to have considered a purchase.
14.7. The Plaintiff’s main justification for the private sale appeared to be the expenses of maintaining the Vessels. While these expenses were not insignificant, they did not constitute “powerful special features” or “special circumstances” that justified a departure from the usual course of ordering the appraisement and sale of the Vessels, having regard to the potential value of the Vessels.
15. The Court further held that the fact that no other claimants with in rem claims against the Vessels had come forward did not justify the approval of the direct private sale as an admiralty judicial sale. The priority of competing in rem claims to the proceeds of sale of an arrest vessel was a matter for consideration after the Vessel had been sold and the sale proceeds paid into Court.