FRATELLI COSULICH BUNKERS(HK) LTD v. THE OWNERS AND/OR DEMISE CHARTERERS OF THE SHIP OR VESSEL "FAIR WIND 28"

HCAJ88/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO. 88 OF 2007

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Admiralty Action in rem against the ship or vessel
“FAIR WIND 28”of Hong Kong Flag

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J U D G M E N T

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1. I have unfortunately an application before me.  Present today at the hearing is Mr Nicholas Mallard of Messrs DLP Piper Hong Kong for the plaintiff, Ms L. Chang of Messrs Fairbairn Catley for the Mortgagee Wing Hang Finance Co. Ltd.  There is also Mr Jerry Leung of UDL Ship Management Limited (“UDL”) and the chief bailiff.

2. What had happened is that the vessel in question was arrested.  There was order for sale and pursuant to the order, in the usual way, there was newspaper announcement that the sale would be by way of a public tender and the court has reserved the right to accept by private treaty whatever bid suitable that would come in.

3. The vessel in question is a somewhat unusual vessel.  Pursuant to the usual practice of the court, two appraisers had given appraised value of the ship.  They range (I believe if I am not mistaken and the chief bailiff will correct me if I am wrong) from $4.5 million to $5 million.  The bid that came in within time, the only bid, was from UDL and the bid was for $2.4 million.  This was very much below the appraised values. 

4. The court examined the file, noticed that there were no other claimants against the ship, that there was no mortgagee interest that the court can see, there was no caveat entered, and the value of the claim was somewhere in the area of the $2.4 million bid although a bit higher, the court therefore took the precaution of instructing the chief bailiff to write to the two appraisers asking for their explanation as to why their appraised value is so much higher than the only bid that had came in and what is their assessment of the likelihood that a second tender would give rise to a higher price. 

5. The answer that came back from the two appraisers was not too optimistic.  There was a little bit of hedging given by the two appraisers with the indication that there is no guarantee or even assurance that on the second round of a tender, a higher price than the $2.4 million would come in.

6. The court therefore was put in the difficult position of deciding whether to order the second round of tender with no certainty that even the previous $2.4 million would be reached because once a second round was ordered, of course, the first bid would have lapsed, or alternatively to do the best it can and accept the only offer that was available. 

7. The court, however, took the precaution of asking the chief bailiff to write to the only bidder UDL and ask whether UDL was prepared to increase its offer having regard to the fact that the only bid that came in was very much below the appraised value.  The bidder UDL took a very commercial and hard line and said it would not increase its offer. 

8. I was faced with a difficult decision.  Doing the best I could and with my hopefully considerable experience in this matter, knowing that sometimes unusual vessels have difficulty in finding a buyer — sometimes even for long period could not find the right buyer at the right price, I directed the chief bailiff to accept the offer. 

9. The chief bailiff, as I understand it, wrote to UDL last week accepting the bid and proceeded to cash its 10% deposit.  The chief bailiff set the date of 25 April, that is Friday this week, for the completion of the sale when the bill of sale would be executed.  So this was perfectly in the ordinary course of the Admiralty Court work performed by the chief bailiff and as directed by the Judge-in-charge of the Admiralty list. 

10. Out of the blue, there was a letter or there was some indication from the plaintiff yesterday to say that it learnt about the successful bid by UDL, it took the view that the bid of UDL was grossly below the value that could be realized and that there is a mortgage involved and that in fact there is a new bidder in the form of Hong Kong Fuels Ltd which is ready and willing to bid at $4 million, namely $1.6 million higher. 

11. Today the parties interested in this exercise, namely the plaintiff, the mortgagee, the first bidder UDL and the new bidder Hong Kong Fuels Ltd tried to discuss and resolve the impasse, namely that there is an existing acceptance of the UDL bid at $2.4 million but there is a new offer of $4 million which is put before the court.  What should the court do? 

12. I take into account that Mr Mallard made today that the true value of the vessel is higher as evidenced by his saying that there is a $4 million bid on the table, but counter-balanced against that is there is already a binding agreement between the court and UDL.  To accede to what Mr Mallard asked me to do would be to go against all the procedure that had been laid down over the years and in order to benefit partly the plaintiff and partly the mortgagee.  But the plaintiff and the mortgagee have only themselves to blame for not doing anything earlier.  The mortgagee did not register the mortgage.  There was no indication to the court that there was even a mortgage.  The mortgagee did not enter caveat.  There was no caveat entered whatsoever. 

13. The plaintiff knowing of the likely value of the vessel did not do anything to alert their friends or anyone else to make sure that whatever bid that would come in would reach at least some minimum sum.  When only one bid came, there was no application to the court to say : “We understand there is only one bid, can something be done?”  So, it seems to me, that the court was put into the position (after much steps that have been taken — asking the appraisers for further views, asking for the first bidder to increase the bid somewhat) of doing the best it could in the circumstances. 

14. Now, to accede to Mr Mallard’s submissions today, it seems to me would wholly erode the authority of the court.  There is a set procedure : there was a tender, the court accepted the only bid (after much discussions) and it seems to me that notwithstanding the apparent glaring injustice — may be “injustice” is not the right word, the lack of a full price that could be realised, it seems to me wrong in the circumstance for the court now at this stage having cashed the cheque of UDL, having accepted its bid and having set the date for the completion this Friday, now to go back on its word and give the vessel to someone else who could have come in, who should have come in if they wanted to and did not.

15. I was rudely interrupted by Mr Mallard in the course of giving my judgment.  Mr Mallard wishes to make the additional point that the chief bailiff has acted unfairly and has been unwilling to reveal the material information to the plaintiff and the mortgagee.  But that is not the case —until the bid has either been rejected or has been accepted, he is not at liberty to do more and, if any party is unhappy with what the chief bailiff has done, all it has to do is to apply to me.  I am always accessible, to make whatever application it wished to make in relation to the tender process that was still ongoing. 

16. Before the court accepts the UDL bid there was always a possibility of something being done, but once the court accepted the bid, then the court’s hand is tied.  The court has made a bargain and that seems to me is the crucial aspect of what has gone wrong.  The plaintiff, if it wished to make any application before the sale, it could ask for example to have special conditions attached to the order for sale.  The order for sale of course has a safeguard.  The safeguard is to make sure that if there is a bid that comes in below the appraised value, the court then would have to look at it and can order sale by special treaty.  Unfortunately, the situation was such that the court had no alternative but to accept the bid.  It seemed to the court to be the right thing to do given those circumstance so I do not regret what had taken place.  I make no apologies.  It is unfortunate that this has happened, but in the circumstance, it seems to me that both as a matter of public policy and as a matter of following the procedure of the court, that the court has agreed to the selling the vessel to the only bidder of UDL at $2.4 million and this sale therefore must go forward.  I hereby direct that the chief bailiff completes the sale on 25 April as scheduled.