Introduction

The power of the Court to order an appraisement and sale of a ship pendente lite is derived from its inherent jurisdiction as well-established in the leading case of The “Myrto” [1977] 1 Lloyd’s Rep 243 and supplemented by Order 29, rule 4 of the Rules of the High Court (Cap. 4A), which provides that the Court may make an order for sale where the subject matter is “of a perishable nature or likely to deteriorate if kept or which for any other good reason it is desirable to sell forthwith”. The same principle applies in the case where the Court is considering whether to stay the sale order made. In the recent case of Norddeutsche Landesbank Girozentrale, Singapore Branch v The Owners of the Ship or Vessel “Brightoil Glory” (Hong Kong flag) [2019] HKCA 561, the Court of Appeal had to decide on whether the Admiralty Court had exercised its discretion not to stay the sale order of a vessel erroneously to the extent that the appeal court should interfere with such exercise of discretion.

Background

In that case, the Plaintiff is the mortgagee of the Very Large Crude Carrier “Brightoil Glory” (the “Vessel”), which is valued at approximately US$60 million whilst the Plaintiff’s claim is about US$33.8 million. The Vessel was arrested by the bailiff on 21 January 2019. The Plaintiff then issued a notice of motion dated 25 January 2019 for appraisement and sale pendente lite of the Vessel. On 4 February 2019, an order for sale pendente lite of the Vessel was made by Anthony Chan J in the absence of the owners of the Vessel (due to error that the owners’ solicitors were not notified of the hearing). The owners of the Vessel then applied for a stay of the order for sale. On 27 March 2019, Peter Ng J granted a stay of the order for sale for 4 weeks to allow the owners of the Vessel to pursue the proposed re-financing, having satisfied himself that the substantial equity in the Vessel ought to be sufficient to pay for the costs of maintaining the Vessel in the interim without impairing the Plaintiff’s security for its claim.

On 24 April 2019, the owners of the Vessel applied for a further stay of the order for sale. D’Almada Remedios J however refused to grant a further stay as sought and also refused leave to appeal. Consequently, the owners of the Vessel renewed their application for leave to appeal against the D’Almada Remedios J’s exercise of her discretion not to stay the order for sale before the Court of Appeal and a rolled-up hearing was held on 17 May 2019.

The owners’ arguments

The burden is on the owners of the Vessel to satisfy the Court of Appeal that there are reasonable prospects of establishing valid grounds for it to interfere with the exercise of discretion of the judge. In discharging their burden of proof, the owners of the Vessel raised the following factors for the Court’s consideration, namely, that there is substantial equity in the Vessel after satisfaction of the Plaintiff’s claim, that the Vessel could be moved outside Hong Kong should any adverse weather conditions arise and that the stay is for a short-period of just four weeks to enable the owners of the Vessel to proceed with re-financing proposals and complete a private sale of the Vessel. Furthermore, the owners of the Vessel also argued that the order for sale was not made on the basis of default of appearance or defence and that the Court should examine more critically than it would normally do in a default action the question of whether good reason for making an order exists or not.

The court’s decision

However, the Court of Appeal was not persuaded by the owners’ arguments. The Court held that the case not being a default situation is immaterial due to the fact that 11 of the 15 owned vessels within the group of the companies of the owners of the Vessel have been arrested and that the ship-owning business of the group has “irretrievably collapsed”, and that given the level of outgoings and expenditure of the Vessel, the interests of the parties would be served if the Vessel was sold without further delay. Besides, given the very large size of the Vessel, it is important for safety reasons that a court sale is completed before the onset of the typhoon season. There should not be further delay in the sale.

With respect of the re-financing proposals, the Court noted that there was only a draft umbrella agreement and a draft bareboat charterparty before the Court. Ultimately, the Court was faced with a choice between a certain, orderly Court-ordered sale process and a private sale riddled with uncertainties and potential mishaps. There was no certainty if the proposed sale of the Vessel can be carved out of the wider arrangement regarding the other vessels which involve other creditors. In the event the private sale falls through, the Court would be re-advertising the Court-ordered sale for a third time. Prospective buyers who have wasted time and money acting on the earlier invitations to tender may not wish to participate in a third round of tendering. There is also the consideration of the volatility in the shipping markets.

Conclusion

Based on the above, the Court of Appeal was not persuaded that the judge’s rejection of a further stay to give yet another opportunity to the owners of the Vessel to pursue a private sale is plainly in error. This case shows that if the owners of the vessel wish to stay the sale order of their vessel based on the ground that there would be re-financing proposals, such as a private sale of the vessel, the owners should adduce evidence of the imperativeness and the likelihood of success of the re-financing proposal.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.