Federal Court of Australia

Bank of New Zealand (Security Trustee) v The vessel MY "Island Escape" (No 2) [2023] FCA 101

ORDERS

THE COURT ORDERS THAT:

1.    The Admiralty Marshal accept the tender of the highest bidder, Paspaley Pearling Company Pty Ltd of 20th Floor, Charles Darwin Centre, 19 The Mall Darwin, Northern Territory, for the sale of the ship MY "Island Escape", for the sum of USD 5,500,000.00, on the terms of the Marshal's conditions of sale set out in Attachment A, notwithstanding that the amount is less than the valuation of the ship obtained by the Marshal.

2.    By 17 February 2023, the highest bidder pay 10% of the purchase price (inclusive of GST) of the ship.

3.    On or before 17 February 2023, the highest bidder:

(a)    execute and deliver to the Marshal duly executed and notarised conditions of sale; and

(b)    provide any evidence by way of power of attorney (or otherwise) that it has duly executed the conditions of sale.

4.    By 24 February 2023, the highest bidder is to pay the balance of the purchase price plus an adjustment for bunker fuel, lubricants and any other consumables (if any) in accordance with the conditions of sale.

5.    The matter is listed for a case management hearing on a date to be fixed to hear any application for continuation or dissolution of the non-publication orders made on 1 February 2023, as varied by orders made on 2, 9 and 10 February 2023 and for further directions regarding the management of these proceedings and proceedings NSD 658/2022 and WAD 182/2022.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FEUTRILL J:

Introduction

1    On 17 October 2022, the Court ordered the sale of the ship MY "Island Escape" under the Admiralty Act 1988 (Cth) and Admiralty Rules 1988 (Cth): Bank of New Zealand (Security Trustee) v The vessel MY "Island Escape" [2022] FCA 1230. On 30 November 2022, the Court ordered that the ship be sold by closed bid tender in accordance with certain terms and conditions. That closed bid tender process was carried out during December 2022 and January 2023. In accordance with the orders of 30 November 2022, the date and time for closing of tender bids was 13 January 2023 at 5.00 pm (AWST). At the close of the bid period there were five tenders, the highest tender was for USD 5.5 million.

2    The Admiralty Marshal has sought directions from the Court as to whether or not a direction should be made that she accept the highest tender. These reasons are directed to that question.

3    As is explained later in these reasons, in the circumstances of this case, the question of whether a direction should be made that the Marshal accept the highest bid is not free from doubt. The ship has some unusual features that render the pool of potential buyers limited and it is difficult to accurately estimate the value of the ship. Nonetheless, for the reasons which follow, I am not satisfied that any alternative process is likely to produce a higher sale price for the ship or a higher overall return, after taking into account continuing costs of the arrest and additional costs of an alternative sale process, than the current highest tender. In these circumstances, and although the highest tender is lower than the valuation of the ship the Marshal has obtained, I am satisfied that an order should be made directing the Marshal to accept the highest tender.

4    The Marshal's application for directions was listed for a hearing on 9 February 2023 and re-listed on 10 February 2023. At these hearings, the Marshal was represented by counsel appointed by the solicitors acting for her on the sale of the ship. The plaintiff in these proceedings, OSM Offshore SA (the plaintiff in proceedings NSD 658 of 2022 and caveator in these proceedings) and Sealanes (1985) Pty Ltd (the plaintiff in proceedings WAD 182 of 2022 and caveator in these proceedings) were also represented and made submissions on the application.

Materials

5    The Marshal read and relied on her affidavit of 1 February 2023 together with the exhibits to that affidavit. It was received as Exhibit "C" on the application. The Marshal also tendered and relied on email correspondence between Mr Vassilis Fotilas of Fraser Yachts and Mr Jesper Martens of HWL Ebsworth, the Marshal's solicitor, and a document entitled 'DESKTOP VALUATION - FEBRUARY 2023 ISLAND ESCAPE' (Fraser valuation), all of which was received as Exhibit "A". The Marshal also tendered email correspondence ending in an email from Mr Martens to Mr Maurice Lynch dated 8 February 2023, together with a chain of emails between Mr Martens and Mr Erik Ofstad of Clarksons Norway AS, the broker appointed by the Marshal in accordance with the orders of 30 November 2022, which was received as Exhibit "B". The plaintiff tendered a document entitled 'MV ISLAND ESCAPE Valuation Report' signed by Mr Max Thörn and Mr Lars Hallengren dated 8 February 2023 which was received as Exhibit "D" (Brax Shipping valuation). Each of the Fraser valuation and the Brax Shipping valuation was tendered only for the purpose of the hearings on 9 and 10 February 2023 and the issue of whether or not a direction should be made to the Marshal to accept the highest bid and for no other purpose.

6    The Marshal's affidavit set out the process of selection of Clarksons Norway, various communications with Clarksons Norway and a copy of the exclusive brokerage agreement between the Marshal and Clarksons Norway. It also set out the process of the closed bid tender, details of the interest in the ship and bids received, advice given to the Marshal by Clarksons Norway and various communications between the Marshal or her solicitors and the plaintiff and its solicitors. The Marshal's affidavit was the subject of a non-publication order the Court made on 1 February 2023. That order was made pursuant to s 37AI of the Federal Court of Australia Act 1976 (Cth) and for the purpose of protecting the integrity of the judicial sale process. As an order will be made directing the Marshal to accept the highest bid, it is no longer necessary to protect the confidentiality of the closed bid tender process and, therefore, it is appropriate that orders be made to discharge and dissolve the non-publication order. However, part of the basis for the non-publication order also concerned information Clarksons Norway provided to the Marshal that it considered to be commercial confidential information that is the subject of a confidentiality clause in the exclusive broker agreement. Therefore, I will hear the parties as to the precise terms upon which the order of 1 February 2023, as varied by orders on 2, 9 and 10 February 2023, should be varied or discharged.

7    The relevant parts of the Marshal's affidavit and exhibits thereto and Exhibits "A", "B" and "D" are referred to, as is necessary, later in these reasons.

8    On 10 February 2023, OSM Offshore applied to re-open the hearing and read the affidavit of Ms Lorna Christine Anderson affirmed 10 February 2023 and filed in proceeding NSD 658 of 2022. I granted that leave and the affidavit was read. OSM Offshore also, in effect, sought a stay of the proceedings until 13 February 2023 based on the contents of that affidavit. The application for a stay was refused and these reasons also explain my reasons for refusing that application.

9    As noted earlier, each of the plaintiff, OSM Offshore, Sealanes and the Marshal appeared and was represented at hearings on 9 and 10 February 2023. The Marshal adopted a neutral position regarding any direction that the Court may give her. That is, the Marshal neither sought a direction that the highest bid be accepted nor that the highest bid not be accepted and that some other sale process be conducted. The plaintiff did not seek an order that the Marshal be directed not to accept the highest bid. Rather, the plaintiff made submissions to the effect that the Marshal should be directed to enter into some form of negotiation with the three highest bidders who had submitted bids in the closed tender process. OSM Offshore submitted that the Marshal should be directed not to accept the highest bid, but made no submission regarding what, if any, alternative sale process should be undertaken. Sealanes made no submission one way or the other.

10    Having regard to the submissions made in the hearing, it is necessary to set out the background to and process of the sale of the ship and some matters of general principle concerning the process of judicial sale and the necessity to maintain public confidence in that process, with specific reference to the Marshal's duties and function, in a judicial sale process.

Background

11    The plaintiff, (the Bank of New Zealand as security trustee for and on behalf of the Bank of New Zealand) and Export Finance Norway as lenders, commenced these proceedings in rem against the ship by filing a writ on 18 August 2022. The ship was arrested at Roebuck Bay, Broome, on 19 August 2022. On 22 and 24 August 2022, OSM Offshore and Sealanes respectively each filed a caveat against release of the ship from arrest. On 9 September 2022, the plaintiff applied for sale of the ship without a valuation under r 69 of the Admiralty Rules.

12    The plaintiff's application for sale of the ship without valuation was heard on 11 October 2022. On that application the plaintiff relied on a valuation of the ship, as at 6 June 2022, of USD 27 million. That valuation was of limited probative weight for the reasons given in Island Escape at [21]. I expressed reservations about undertaking a sale of the ship without valuation for the reasons given in Island Escape at [28] and, therefore, made an order permitting the Marshal to undertake a valuation and appraisement of the ship if she considered it necessary or desirable to realise the highest price and fulfil her duty on the conduct of the sale of the ship. On 17 October 2022, orders were made for sale of the ship pendente lite with the method of sale to be determined later by the Court and the Marshal to engage a shipbroker, experienced in the sale of vessels of a similar nature to the ship, to advise as to the method of sale and to value the ship in writing if the Marshal considered such a valuation necessary or desirable.

13    The qualification that the Marshal engage a shipbroker experienced in the sale of vessels of a similar nature was put into the orders on the plaintiff's submission, in effect, that the Marshal should be directed to appoint one of four brokers the plaintiff had nominated. On the application for sale of the ship without valuation, the plaintiff read and relied on an affidavit of Mr Lynch sworn 9 September 2022. In that affidavit, Mr Lynch deposed that the plaintiff proposed that the Marshal consider engaging one of a number of candidates that were identified in the affidavit. These candidates included Mr Ofstad and Mr Axel Moltzau Aas of Clarksons Norway.

14    The Marshal engaged in correspondence with Clarksons Norway. That correspondence included recommendations as to the appropriate manner of selling the ship. On 21 November 2022, Clarksons Norway recommended that the ship be sold by closed bid tender.

15    On 30 November 2022, there was a further hearing on the plaintiff's application for sale of the ship. On that day, amongst other orders, orders were made directing the Marshal to sell the ship by closed bid tender, and permitting the Marshal to engage Clarksons Norway, as her broker, to advise and assist in the sale of the ship.

16    The ship was marketed under the guidance of Clarksons Norway. The Marshal deposed that she followed Clarksons Norway's recommendations in the conduct of the closed bid tender process.

17    Clarksons Norway utilised a world-wide contact network and the ship was advertised electronically and in print in 'Trade Winds' and 'Daily Cargo News'. There were 28 potential purchasers who registered interest with Clarksons Norway, of those, nine carried out physical inspections of the ship. As at the closing date of the bids (13 January 2023), the Marshal had received five tenders. The highest tender was an offer to purchase the ship for USD 5.5 million received from Paspaley Pearling Company Pty Ltd. That offer was to remain open until 13 February 2023. It conformed to the conditions of the tender.

18    After the bid period closed, there were some further enquiries from potential purchasers. None of these had included an offer to purchase the ship for an identifiable price, other than an oral offer to purchase for 'the scrap metal value' of the ship.

19    After the bid period closed, upon the provision of undertakings of the plaintiff to the Marshal to maintain the confidentiality of the information, the Marshal disclosed to the plaintiff the tenders received in the closed bid process as well as advice and recommendations she had received from Clarksons Norway relating to those bids and the tender process. Meetings were held between the Marshal, and her brokers and solicitors, and the plaintiff, the receivers and legal representatives.

20    On 27 January 2023, I directed the Marshal to provide me with copies of the bids. These were provided to me in a sealed envelope marked 'Confidential'. I read the sealed bids on 30 January 2023. In the meantime, the matter was listed on 1 February 2023 for a hearing to hear the Marshal and interested parties as to what directions should be made on the sale of the ship.

21    Late on 27 January 2023, the plaintiff requested the matter be listed urgently to hear an application for it to be released from the undertakings it had given to the Marshal. That application was heard on 30 January 2023, but no order of the kind the plaintiff requested was made. Instead, the Marshal was directed to file a minute of proposed orders for directions on the sale of the ship and the matter was adjourned to 1 February 2023. On 1 February 2023, the Marshal filed her affidavit. At the hearing on 1 February 2023, orders were made for non-publication of parts of the information contained in that affidavit, but permitting disclosure of the contents to the parties in this proceeding and proceedings NSD 658 of 2022 and WAD 182 of 2022. On 2 February 2023, the non-publication orders were varied to permit the parties to disclose the information, in effect, to expert witnesses from whom they wished to obtain advice on the sale of the ship. An order was also made directing the Marshal to have the ship valued and to request Clarksons Norway to provide written advice on how best to maximise the sale price of the ship after receipt of the valuation. The valuation and advice are Exhibits "A" and "B". The matter was adjourned to 9 February 2023 for a substantive hearing on the directions that should be made to the Marshal on the sale of the ship.

Parties' submissions

22    The plaintiff submitted that the Court should direct the Marshal, in effect, to approach the three highest bidders in the closed bid tender process to ascertain if any of them were willing to increase the offer made in the closed bid tender. The plaintiff submitted that the Marshal should do so before the offers made in accordance with the closed bid tender expire on 13 February 2023. Further, if no higher offers were forthcoming, the Marshal should be directed to accept the highest offer made in the closed bid tender.

23    OSM Offshore submitted that none of the closed bid tenders should be accepted, as these were below the valuations of the ship the Marshal and the plaintiff had obtained. OSM Offshore also submitted that the valuation based on judicial sale, described as 'distressed sale' should be ignored and the higher valuation based on market value be used as the benchmark. While OSM Offshore submitted that none of the bids should be accepted, it was not able to point to any evidence of any other sale process that was likely to produce a higher sale price for the ship. However, OSM Offshore submitted that it should be given an opportunity to obtain that evidence.

24    As to the submission that OSM Offshore should be given an opportunity to obtain evidence of a process that is likely to produce a higher sale price, I declined to give it that opportunity. Although the timetable had been tight, OSM Offshore had known of the tender bids since at least 1 February 2023. It could have obtained its own desktop valuation (as was done by the Marshal and the plaintiff) before the hearing on 9 February 2023 together with advice on the extent to which a better price could be achieved by some other process. No explanation was given for OSM Offshore's failure to take up the opportunity afforded to it.

25    Nonetheless, as mentioned earlier, OSM Offshore was granted leave to re-open and read the affidavit of Ms Anderson. The affidavit was read in support of a submission that the Court should direct the Marshal not to accept the highest bid. It was also read in support of a submission that the proceedings should be stayed until 13 February 2023.

Closed bid tender and sale by private treaty

26    As mentioned earlier, on 30 November 2022, the Court ordered the sale of the ship by 'closed bid tender'. A closed bid or sealed bid tender is a process by which none of the parties who submit tenders knows of each other party's tender. After the closing date for bids, the person who invited tenders then opens the closed or sealed tenders and considers if and which tender to accept. The integrity of the closed bid tender process depends upon an absence of collusion between tendering parties and (or) the person who invited tenders. The object is to elicit each tenderer's 'best offer' uninfluenced by knowledge of any competing offer. Tenders are typically made in a form of an offer capable of acceptance and the offer is required to remain open for a period of time after tenders close. The terms inviting tenders also usually stipulate that the person inviting tenders is under no obligation to accept any tender. If a bid is accepted, then upon communicating acceptance of the bid to the relevant tenderer a binding contract is formed. In the context of a judicial sale of a ship, a closed bid tender is intended to achieve the highest price for the vessel at the time of the close of the tenders.

27    Sale of property by 'private treaty' describes a process whereby a seller makes it known that the property is available for purchase. Potential buyers make it known to the seller that they are interested in purchasing the property and negotiations ensue before an agreement to sell and purchase the property is made. In the context of a judicial sale of a ship, for the reasons explained later, sale by private treaty is rare and only ordered in exceptional circumstances.

The role of the Marshal and judicial sale of ships

28    As the hearings before and on 9 and 10 February 2023 were, at times, somewhat adversarial it is worth reflecting on the duties and functions of the Marshal under the Admiralty Act and Admiralty Rules in the conduct of a judicial sale.

29    The Marshal is not a 'party' to proceedings commenced against a ship. The Marshal is an officer of the Court appointed under s 18N(1)(e) and s 18ZH(1)(a) of the Federal Court Act for the purposes of the Admiralty Act. In the context of the sale of a ship, r 70 of the Admiralty Rules provides that the sale of a ship ordered to be sold under r 69 must be conducted by the Marshal. However, the Marshal is subject to direction of the Court under, for example, r 80 of the Admiralty Rules.

30    The Marshal is not the provider of ship selling services to parties with interests in the sale of a ship. Mortgagees, receivers or other secured creditors who have power to sell a ship are free to do so under the relevant security instruments conferring such powers. In such a sale, they may appoint whoever they consider appropriate to conduct the sale and may employ whatever sale process they consider appropriate to realise the highest price upon sale of the ship. Where a party with an interest in the ship has chosen to arrest it and apply for judicial sale, while that party and other interested parties may provide recommendations to the Marshal and may apply to the Court for directions to be given to the Marshal, they may not hinder or interfere with the Marshal in the discharge of her duties and functions in the sale of the ship. Hindering or interfering with the Marshal's sale of a ship may amount to contempt of Court: e.g., The "Cerro Colorado" [1993] 1 Lloyd's Rep 58 at 61; Armco Pacific Ltd v Lim Juliano [1989] 2 HKC 237 at 243 - 244.

31    It is the duty of the Marshal to conduct the sale of the ship and, in so doing, realise the highest price. Accordingly, it is 'preferable to allow the Marshal to undertake that function in the manner best calculated to achieve it': Norddeutshche Landesbank Girozentrale v The Ship "Beluga Notification" (No 2) [2011] FCA 665 at [30]; The "Silia" [1981] 2 Lloyd's Rep 534 at 535.

32    Nonetheless, in the context of the Marshal's duties, sale by private treaty is generally considered inappropriate. First, the Marshal is duty-bound to act impartially and obtain the best possible price for the ship for the benefit of all persons who have an interest in the ship: The "Halcyon the Great" (No 2) [1975] 1 Lloyd's Rep 525; The "Union Gold" [2014] 1 Lloyd's Rep 53 at 54; The Silia at 535. Engaging in one-on-one negotiations with a particular potential buyer tends to undermine public confidence in the impartiality of the Marshal: Union Gold at 54. Second, in the absence of wide marketing of the ship to all potential buyers, there is a risk that sale by private treaty to a 'selected' buyer would not result in a competitive process whereby the highest price that buyer is willing to pay for the ship is obtained. It also may not result in identification of another buyer who is willing to pay a higher price for the ship: Union Gold at 56. Third, and linked to the first, sale by private treaty is open to abuse and may lack transparency and accountability as to the mechanism by which the Marshal agreed to the sale price. Likewise, attempts to sell a ship by private sale after an order for sale of a ship has been made, is open to abuse: APJ Shalin [1991] 2 Lloyd's Rep 62 at 67.

33    In Union Gold Teare J permitted the sale of the Union Pluto, one of three ships the subject of arrest and sale in that case, because there was evidence that unless a prompt sale was made a long-term contract which provided business for the vessel was at risk of being lost. The vessel was also old and had a limited market. The buyer identified a use for the vessel (the long-term contract) and was therefore an identified willing purchaser. Teare J considered that the vessel, due to its particular characteristics, was unlikely to attract another buyer willing to pay the same price. Further, as the other two vessels were to be sold following appraisal, advertisement and invitations to bid there was 'no real risk that the court's reputation for impartiality would have been tarnished by permitting the Marshal to sell the Union Pluto to a named buyer at a named price.

34    The Marshal's duty to act impartially and fairly extends not only to parties with an interest in the sale of the ship, but also to parties invited to tender for the purchase of the ship. Tenderers are entitled to expect that the Marshal will conduct the tender process in accordance with the process, as advertised, and will evaluate the bids submitted honestly, fairly and impartially and seek directions from the Court to accept or not to accept bids submitted accordingly. Although made in the context of the submission of tenders to a Commonwealth government agency, the observations of Finn J in Hughes Aircraft Systems International v Airservices Australia (No 3) (1997) 76 FCR 151 (at 195 - 197) are apposite and, in my view, apply equally to the judicial sale of ship by the Court and the Marshal:

… The CAA, as I have noted is a public body - a body whose owners are, ultimately, the Australian community whom the authority serves under and in accordance with its statutory mandate.

As with any agency of government - and I do not mean by this that it is thereby within "the shield of the Crown" - it has no private or self-interest of its own separate from the public interest it is constitutionally bound to serve: cf Attorney-General (UK) v Heinemann Publishers Australia Pty Ltd (1987) 10 NSWLR 86 at 191; see also Mercury Energy Ltd v Electricity Corporation of New Zealand at 388; Webster v Auckland Harbour Board [1983] NZLR 646 at 649-650; Jones v Swansea City Council [1990] 1 WLR 54; [1989] 3 All ER 162 at 71, 85; 174-175, 186. That public interest in the case of a body such as the CAA is to be determined from what is express or implied in the CAA Act itself. That Act of Parliament indicated the end of the CAA's service.

There is, I consider much to be said for the view that, having no legitimate private interest in the performance of its functions, a public body (including a state owned company) should be required as of course to act fairly towards those with whom it deals at least insofar as this is consistent with its obligation to serve the public interest (or interests) for which it has been created. I have no need here, though, to rely upon such a broad notion.

That the law entertains expectations of fair dealing of government and of public bodies is manifest in some number of spheres. First and most obviously, there is the general application of the requirements of procedural fairness to "governmental executive decision-making": Haoucher v Minister for Immigration and Ethnic Affairs (1990) 169 CLR 648 at 653; see also Annetts v McCann (1990) 170 CLR 596 - though it needs to be acknowledged that these requirements can in limited circumstances extend to the decision making (characteristically to decisions to expel or to discipline members) of non-governmental bodies and associations: see M Aronson and B Dyer, Judicial Review of Administrative Action (1996), pp 493-495.

Secondly, there is what Griffith CJ referred to in Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342 as:

"the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary ...''

This proposition has received significant, recent judicial endorsement in this country most notably in the Full Court of this Court in SCI Operations Pty Ltd v Commonwealth (1996) 69 FCR 346 at 368, per Beaumont and Einfeld JJ; see also Greiner v Independent Commission Against Corruption (1992) 28 NSWLR 25. I note in this particularly the observations of Mahoney J in his dissenting judgment (on grounds not presently relevant) in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 558-559 in applying the proposition to a local authority - to ''a corporation constituted by statute, and discharging public functions":

''It is well settled that there is expected of the Crown the highest standards in dealing with its subjects: see Melbourne Steamship Co Ltd v Moorehead ... per Griffith CJ. What might be accepted from others would not be seen as in full accord with the principles of equity and good conscience to be expected in the case of the Crown: see P & C Cantarella Pty Ltd v Egg Marketing Board (NSW) [[1973] 2 NSWLR 366 at 383-384]. In my opinion, a standard of conduct not significantly different should be expected of a statutory corporation of the present kind ... ''

This fair play principle has its most common manifestation in the "model litigant" standards exacted from the Crown in legal proceedings: see for example, Director of Public Prosecutions v Saxon (1992) 28 NSWLR 263.

Thirdly, and again litigation related, the rule in Ex parte James; Re Condon (1874) LR 9 Ch App 609 has been applied to public bodies (for example, local authorities: R v Tower Hamlets London Borough Council; Ex parte Chetnik Developments Ltd [1988] AC 858) so as to ensure "high principled" action when mistaken payments have been received by them; see also SCI Operations Pty Ltd v Commonwealth.

In differing ways these instances reflect policies in the law, albeit in specific contexts, (a) of protecting the reasonable expectations of those dealing with public bodies; (b) of ensuring that the powers possessed by a public body, "whether conferred by statute or by contract", are exercised "for the public good": cf Jones v Swansea City Council at 71; 174-175 and (c) of requiring such bodies to act as "moral exemplars": government and its agencies should lead by example: Olmstead v United States (1928) 277 US 438 at 485; Joint Committee of Public Accounts, Social Responsibilities of Commonwealth Statutory Authorities and Government Business Enterprises, Report 315, esp par 2.2lff, (AGPS, Canberra, 1992). These policies I consider to be important in the present matter. …

35    It follows from the above that the Marshal's duty to obtain the best possible price for the ship does not authorise her to depart from the equally important duty to conduct a fair sale process. That is so, even if such a departure would or may realise a higher price on the sale of the ship.

Consideration

36    As matters stand, the Court has ordered the sale of the ship by closed bid tender. There is no order for sale of the ship by private treaty to any particular person at any particular price. Nor is there an application to vary the terms of the orders made on 30 November 2022 to allow for the Marshal to contract outside the closed bid tender process.

37    The Fraser valuation, Exhibit "A", appears to have been performed by Mr Fotilas. His qualifications are not identified, but no objection was taken to the Court receiving the valuation except that it was only to be received for the purposes of the hearings on 9 and 10 February 2023. The valuation is in Euros. At the current exchange rate, the ship is valued between about USD 12 million and USD 16 million in a judicial sale. The valuer expresses the opinion that potential buyers would view the current circumstances of the sale (i.e., a judicial sale) as a 'distressed' sale. Based on assumed construction costs of USD 21.5 million, the ship was valued at USD 13 million. That is, towards the lower-end of the range for a judicial sale.

38    The Brax Shipping valuation, Exhibit "D", is a joint valuation of Mr Thörn and Mr Hallengren. Again, no objection was taken to the Court receiving a valuation in that form except that its use was confined to the hearing for directions on the sale of the ship. The valuers express the opinion that the ship has a market value of USD 17 million and a judicial sale value of USD 10 million. That valuation is lower than the Fraser valuation, but, nonetheless, comfortably more than the highest bid.

39    All the valuers and the brokers appointed by the Marshal have identified features of the ship that render appraisal of the value of the ship difficult and the market of potential purchasers limited. Although recently constructed by a reputable shipbuilder, the ship is designed and constructed for the 'budget' segment of a niche cruising yacht market. The ship is relatively small (17 cabins) and has room for 14 crew. The small number of crew limits the ship's use to the budget end of the applicable niche cruising market. Conversion of the ship to a higher end or different use would require significant costs to be incurred by the purchaser. Therefore, the pool of potential buyers for a ship of this type is limited (small). Due to the features of the ship there are few, if any, sales of comparable vessels to provide a guide to its market price.

40    After receiving the Fraser valuation, the Marshal requested Clarksons Norway to provide her with advice as to the best manner in which to maximise the sale price of the ship. That advice was conveyed in emails of 7 February 2023 between Mr Ofstad, of Clarksons Norway, and Mr Martens, of HWL Ebsworth, the Marshal's solicitors, and is contained in Exhibit "B". The substance of that advice is that various factors detracting from the value of the ship referred to in the Fraser valuation are reflected in the 'disappointing' tender bids for the ship. Otherwise, the correspondence does not contain any recommendation of a means of obtaining a sale price for the ship higher than the highest bid. In one email, Mr Ofstad concludes: 'Our only suggestion would therefore be to consider approaching the three top bidders to check whether they would be prepared to increase their offers.' That appears to echo what was said in the email from Clarksons Norway to the Marshal's solicitors of 21 November 2022 recommending a closed bid in which the author of that email said:

We are also taking a more protective stance in this instance – as once the bids come in, we can have more time to wrap up to deal with the best bid – whilst the 2nd, 3rd bid offer is still valid/waiting.

41    The advertisements for the closed bid tender made no reference to a process involving negotiation with tenderers after receiving bids. The advertisements were to the effect that interested parties were invited to bid for the purchase of the ship by 'closed bid tender' and '[c]losed bids must be submitted in United States Dollars no later than 5.00pm on 13 January 2023 (AWST) by email to Marshal.IslandEscape@fedcourt.gov.au. All bids are to remain valid for a period of 20 business banking days from the date the bidding closes.' The advertisement also directed interested parties to Clarksons Norway to obtain further information and the terms and conditions of the sale.

42    The orders of 30 November 2022 provided that the sale of the ship was to be by closed bid tender, in accordance with the terms and conditions attached to those orders. The terms and conditions attached to the orders included a closed bid tender form. The form stipulated that the offer was to remain open for 20 banking business days and that the Marshal was not bound to accept any offer. These terms do not suggest that there would be any post-bid process of negotiation with the highest or any other bidders.

43    Ms Anderson's affidavit contains hearsay evidence of a conversation between Mr Casey Munyard, the Managing Director of OSM Offshore, and Mr Gary Mitchell. Ms Anderson deposed that Mr Mitchell is 'of Blue Juice Charters'. The affidavit annexed a copy of an Australian Securities and Investments Commission (ASIC) business name search for Blue Juice Charters. It is evidently a business name registered in Western Australia to Blue Juice Tours Pty Ltd. The affidavit does not include an extract of the ASIC Register for that company. Further, no details of the directors, shareholders or financial position of that company is provided in the affidavit.

44    Ms Anderson deposed that Mr Mitchell said to Mr Munyard that he was interested in submitting a bid to purchase the ship and that Mr Munyard suggested a price point to Mr Mitchell at $12 to $15 million. I take that suggestion to be in Australian dollars which appears to be close to the Fraser valuation in Euros and the Brax Shipping valuation in US dollars that are, and were at the time of Mr Munyard's conversations with Mr Mitchell, the subject of the non-publication orders. Mr Mitchell said that he 'had capital available to meet that price point' and an undisclosed investor who was participating in the purchase of the ship with Blue Juice Charters.

45    Ms Anderson deposed that Mr Mitchell had inspected the ship on 10 February 2023 for one and half hours. Counsel for the Marshal indicated that the Marshal had instructed him that the inspection was not authorised by the Marshal. OSM Offshore apparently has access to the ship, as it continues to manage it under an arrangement with the Marshal. Although not evidence and a submission from the bar table, if OSM Offshore has conducted an unauthorised inspection of the ship that is a matter of significant concern. It has the potential to undermine public confidence in the closed bid tender process, as it could create the impression that the inspection was authorised and the Marshal was conducting an alternative sale process with a specific purchaser while tenders remained open for acceptance in accordance with the terms of the invitation to tender and the closed bid tender ordered by the Court.

46    It is also of concern that OSM Offshore, through its officer, has expressed a view to a prospective purchaser about a purchase price for the ship in circumstances where OSM Offshore has been provided with valuations confidentially and that are covered by a non-publication order of the Court. Moreover, it is the Marshal who has the authority of the Court to conduct the sale of the ship. That sale is to be conducted as a closed bid tender, in accordance with the orders of 30 November 2022. OSM Offshore has no authority to negotiate a sale of the ship by private treaty or otherwise. While its conduct may well be motivated by a desire to bring about a higher sale price for the ship, it has a tendency to interfere with the Marshal's performance of her duties and functions as an officer of the Court and, as already noted, to undermine public confidence in the judicial sale process.

47    None of the material before the Court provides any reasonable grounds for considering that if the Court were to direct the Marshal not to accept the highest tender, the ship would be sold by an alternative process for a higher sale price and for a higher overall return after allowing for the continuing costs of the arrest and costs of a future sale process. OSM Offshore has not proffered any undertaking to the Court to indemnify the Marshal for any loss resulting from non-acceptance of the current highest tender: e.g., Halcyon the Great at 526. The affidavit of Ms Anderson does not identify a potential purchaser willing and with the financial capacity to pay a higher price than the highest bidder in the future or at all. Nor does the affidavit provide evidence from which the Court could be confident that such an offer is likely to be forthcoming if the highest bid were not accepted. The affidavit reveals nothing more than an expression of interest and that some form of negotiation, unauthorised by the Marshal or the Court and outside the closed bid tender process, was intended to be carried out late on 10 February 2023.

48    Nor am I satisfied that the Court should direct the Marshal, in effect, to depart from the closed bid tender process ordered on 30 November 2022 and engage in private treaty negotiations with three selected potential purchasers. There are a number of reasons for this.

49    A person submitting a tender in response to an invitation of the Marshal to offer to purchase a ship in a closed bid sale would have an expectation that if that person is the highest bidder, absent a proper reason and direction of the Court, that person's bid will be accepted on or before the time by which the offer expires. Where the highest bid is below a valuation the Marshal has obtained for the ship, it may be expected and fair for the Marshal to seek a direction that the highest bid not be accepted if an alternative sale process is considered likely to yield a higher price. However, a party submitting a tender below the Marshal's valuation would not expect the Marshal, acting fairly, to depart from the closed bid tender process and embark on a different sale process (by private treaty or otherwise) before the closed bid tender process was completed in accordance with its advertised terms. That is, it would not be fair to parties, who have accepted the Marshal's invitation to tender in a closed bid tender process, for the Marshal to commence negotiations with selected tenderers or other parties who had not submitted tenders with a view to making an agreement for the sale of the ship by private treaty before the date for acceptance of tender offers has expired.

50    Maintaining public confidence in the Marshal and the Court and the impartiality and transparency of a judicial sale is paramount. Potential purchasers engaged in a closed bid tender process should be able to make their best offer with confidence that if it is the highest offer in the process it will either be accepted or not, but it will not be open to 'guzumping' after the bid period has closed and before the period of the open offer has expired. The Marshal's and the Court's reputation would be tarnished by a departure from the closed bid tender process. It would also erode confidence in the process and may lead potential purchasers in future judicial sales either to not participate because the process may no longer be considered 'fair' or to under-bid in the hope or expectation of becoming involved in a subsequent negotiation and sale by private treaty.

51    The Court has ordered the sale of the ship by a closed bid tender. It has not ordered the sale of the ship by private treaty. No party has sought a suspension or variation to the orders made on 30 November 2022. Moreover, the order for sale by closed bid tender were made after a hearing at which each of the interested parties and the Marshal appeared. No party submitted that the sale process should not proceed in that manner for any reason.

52    In any event, it is unclear to me what would be involved in directing the Marshal to 'approach the three top bidders'. It is inherently improbable that any of the three bidders would increase the offer made during the bid period without an incentive to do so. The highest bidder has none. The other two bidders may be persuaded to increase their offers, if the highest bidder's offer were disclosed to them. Such disclosure would require a further variation to non-publication orders made on 1 February 2023, as varied on 2, 9 and 10 February 2023, and none have been requested. Therefore, quite apart from the unfairness of doing so, any approach to the three top bidders appears unlikely to yield any increased offer to purchase the ship from any of the bidders without a variation to the Court’s existing orders which has not been requested.

53    The Marshal′s conduct in a judicial sale must not only be beyond reproach, but it must be seen to be so. The plaintiff's proposal places the reputation of the Marshal and Court and the judicial sale process at risk for no good reason.

OSM Offshore's stay application

54    As mentioned earlier in these reasons, OSM Offshore applied, in effect, for a stay of the proceedings until 13 February 2023. The purpose of the stay was to provide OSM Offshore with an opportunity to gather additional evidence and make a further application re-open the hearing and tender that evidence after the outcome of the negotiation referred to in Ms Anderson's affidavit was known.

55    I refused that application for a stay. I accept that the Court has a discretion to order a temporary stay of proceedings where it is in the interests of justice to do so. However, I do not consider that it is in the interests of justice to grant the requested stay.

56    As noted earlier, OSM Offshore appears to have been engaged in, or has been at least entertaining, an attempt to broker an unauthorised sale of the ship by private treaty outside the closed bid tender process of the Court. As I have already indicated, notwithstanding the duty to obtain the best price on the sale of the ship, the sale process must remain fair to those who participate in it. A stay of proceedings to permit a party unauthorised to sell the ship to solicit an offer to purchase the ship that could only be made to and accepted by the Marshal would involve the Court giving tacit approval to a process that is unfair to the tenderers who submitted bids during the closed bid tender period.

57    Further, I have concerns that, without appropriate safeguards in place, the foreshadowed negotiations could lead to inadvertent disclosure or misuse of confidential information that remains confidential and the subject of the non-publication orders. There was no evidence to the effect that the individual to be involved in the negotiations were not aware of confidential information and (or) that appropriate information barriers had been put in place to prevent those conducting negotiations from becoming aware of that information.

58    Last, any further deferral of the orders until 13 February 2023 would effectively deprive any party aggrieved by my orders of a right to appeal. While the timing of the hearing already rendered that right difficult to preserve, it remained, at least in theory, available if orders were made on 10 February 2023.

Conclusion

59    Orders will be made directing the Marshal to accept the highest bid to purchase the ship for USD 5.5 million.

Associate:

Dated:    16 February 2023