(1) Bank of Scotland Plc v The Owners of the M/v "union Gold" (2) Bank of Scotland Plc The Owners of the M/v "union Silver" (3) Bank of Scotland Plc The Owners of the M/v "union Emerald" (4) Bank of Scotland Plc The Owners of the M/v "union Pluto"
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 19 June 2013 |
| Neutral Citation | [2013] EWHC 1696 (Admlty) |
| Court | Queen's Bench Division (Admiralty) |
| Docket Number | Case No: 2013 FOLIOS 727,728,729 and 730 |
| Date | 19 June 2013 |
[2013] EWHC 1696 (Admlty)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMIRALTY COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter lane, London EC4A 1NL
Mr. Justice Teare
Case No: 2013 FOLIOS 727,728,729 and 730
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Sandra Healy (instructed by Stephenson Harwood) for the Claimant
Hearing dates: 6 June 2013
On 6 June 2013 I acceded to an application by the Bank of Scotland PLC ("the Bank") that four vessels be sold pendente lite, that is, before judgment. An application was also made for an order that the Admiralty Marshal, instead of appraising and selling the vessels to the highest bidder in accordance with his usual practice, should sell the vessels at a certain price to a certain buyer. I refused to make such an order in relation to three of the vessels but granted it in relation to one vessel. The application raised an issue of principle and I therefore said that I would give my reasons for my decision at a later time. These are my reasons.
Sales by the Admiralty Marshal
A claimant in rem who has obtained judgment against a vessel may seek an order that the vessel be sold so that his claim may be satisfied from the proceeds of sale. A claimant may also seek such an order before obtaining judgment if the circumstances require it; see the Myrto [1977] 2 Lloyd's Rep.243. It is often the case that, in addition to the claimant in rem who has obtained the order for sale, there are other claimants in rem against the vessel. When the vessel is sold by the Marshal the purchaser acquires title to the vessel free of all encumbrances and liens and so existing rights in rem against the vessel are transferred to the proceeds of sale. The Marshal must therefore sell the vessel for the best possible price. If the proceeds of sale are not sufficient to enable all claims in rem to be satisfied then the proceeds will be distributed in accordance with an established order of priorities.
When an order for sale is made the Marshal must appraise the vessel, that is, have the vessel valued. He does this by seeking the advice of an experienced ship broker. Once appraised the sale of the vessel is advertised and offers to buy are invited. The Marshal will then sell to the highest bidder. However, he cannot sell the vessel for less than the appraised value without the leave of the court; see the Halcyon The Great (No.2) [1975] 1 Lloyd's Rep. 525.
It is in the interests of the claimants in rem and of the defendant shipowner that the vessel is sold for the best possible price. The Marshal's method of sale — appraisement, advertisement and invitations to bid — is designed to achieve just that. The Marshal is an officer of the court whose role is essential to the administration of justice in the Admiralty Court. He acts impartially. He does not act for any of the claimants in rem or for the defendant shipowner.
The title which a sale by the Marshal confers on the purchaser, free of liens and encumbrances, is recognised not only by the courts of this country but by the courts of all other countries. Similarly, the courts of this country will recognise sales by competent courts of admiralty in other jurisdictions; see the Acrux [1962] 1 Lloyd's rep. 405 and the Cerro Colorado [1993] 1 Lloyd's Rep. 58. It is therefore important that the reputation of the Admiralty Court for impartiality is not tarnished; see the Halcyon The Great (No.2) 1975 1 Lloyd's Rep. 525.
Any interference with the performance by the Marshal of his duty to sell the vessel, and therefore with the administration of justice, is capable of being a contempt of court; see the Ruth Kayser (1925) 23 Lloyd's List Rep. 95, the Jarvis Brake [1976] 2 Lloyd's Rep. 320 and the Cerro Colorado [1993] 1 Lloyd's Rep. 58.
Sales by a mortgagee of a vessel
A mortgagee of a vessel will usually have a power of sale. He may exercise such power in accordance with the terms of the mortgage. He is free to do so so long as there is no court order for the sale of the vessel. Such a sale, even if the vessel is under arrest, will not be a contempt of court (because there is no court order for a sale). However, any such sale would not confer a title free of liens and encumbrances and the vessel, if under arrest, will remain under arrest. Any person with a maritime lien against the vessel can enforce the lien against the vessel notwithstanding the change in ownership. Similarly, any claimant with a statutory right of action in rem who has issued his claim form in rem before the sale can enforce his statutory right in rem notwithstanding the change in ownership; see the Monica S [1968] P. 741. It was no doubt for this reason that the Bank in the present case did not sell the vessels pursuant to its own power of sale but preferred to have the vessels sold by the Marshal. The Bank was, I assume, unwilling to give a warranty that the vessels were free of liens and encumbrances and wished to secure the higher price that the Marshal could achieve by being able to confer a title free of liens and encumbrances.
However, the Bank is not content that the Marshal sell the vessels in accordance with his usual practice but wishes the Marshal to sell the vessels to buyers found by the Bank and at prices which the Bank considers are not below the market value of the vessels. One of those purchasers was the builder of two of the vessels, another was a client of the Bank and yet another was a company controlled by the managing director of the defendant shipowner. The question of principle raised by the Bank's application is whether it is, or can be, appropriate to depart from the usual order of sale made by the Admiralty Court.
The facts of the present case
Union Transport Group PLC is the owner of a fleet of four small cargo ships, each of which is registered in the Isle of Man. UNION EMERALD, UNION SILVER and UNION GOLD were built in 2008. UNION EMERALD was of 2,967 gross tonnage and UNION SILVER and UNION GOLD were of 1,767 gross tonnage. UNION PLUTO was the smallest at 1,530 gross tonnage and was much older than the other vessels, having been built in 1984. The Bank provided finance to Union Transport for the construction and purchase of the three vessels built in 2008. The loans for each vessel, of the order of €4.8m., were secured by mortgages on the vessels. The aggregate indebtedness, together with the indebtedness under a loan in respect of another vessel, UNION BRONZE, was also secured on UNION PLUTO.
From late 2011 Union Transport was in default. In March 2013 notices accelerating the loans were served and the loans were declared payable on demand. Demands for payment were made on 23 April 2013. On 24 May 2013 claim forms in rem were issued against each vessel and each vessel was arrested. On 25 April 2013 Union Transport was put into administration by the Bank pursuant to the terms of a debenture agreement between the Bank and Union Transport.
The Bank's case is that approximately €4.5m. is outstanding in relation to each of UNION EMERALD, UNION SILVER and UNION GOLD and is secured by mortgages on those vessels. The aggregate debt, almost €13.5m., is also secured by a mortgage on UNION PLUTO (the smallest and oldest of the vessels).
In addition to the Bank there are other creditors of Union Transport with claims in rem against the vessels. The largest of such claims is a claim by A&P Tees Limited for £211,405 in respect of repair work on UNION PLUTO. Other claims in rem are in respect of bunkers supplied to the vessels by various bunker companies, one of whom entered cautions against the release of the vessels on 5 June 2013. There do not appear to be any claims by the crews of the vessels.
The Bank is anxious to realise its security in respect of the loans made to Union Transport. It has received an offer to purchase UNION GOLD and UNION SILVER at a total price of €4.7m. from Damen Shipyards, the builder of those vessels. It has also received an offer to purchase UNION EMERALD for €2.7m. from an existing client of...
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