Chapter 6: Valuation and sale of ship
Any party may apply to the court for an order that a ship or other property that is under arrest in the proceeding be valued, valued and sold, or sold without valuation (subrule 69(1)). In most cases the Marshal will, through dealings with the parties, be aware of a party's intention to file an application for an order for valuation and sale.
If the applicant for sale has not commenced in rem proceedings against the ship then the Court will require that they do so before an order for valuation and sale will be made.
Preparation before order for valuation and sale
The Marshal should ascertain whether there is any equipment or other property on board the ship that is not owned by the owner, operator or charterer of the ship and could be the subject of a claim by a third party (eg leased equipment).
The order for valuation and sale will usually include an order that the Marshal engage a ships broker. The Marshal should make contact with brokers to ascertain if they will act for the Marshal in the sale of the ship and if they deal in that type of ship. Brokers should be asked to provide career details of each broker employed by the company and a list of sales and purchases undertaken over (say) the last twenty years. The Marshal may also ask the broker to provide proposed terms of engagement that sets out the obligations of the broker in conducting the sale of the arrested ship on behalf of the Marshal. These obligations should include:
- providing for a valuation to be sent directly to the Marshal in accordance with Court orders
- arranging and undertaking an advertising and marketing program in accordance with Court orders (with actual costs of advertising to be reimbursed by the Marshal on presentation of copies of the relevant invoices)
- providing prospective buyers with general information, copies of the ship's plans and copies of the Marshal's Conditions of Sale
- arranging on-board inspections
- if the sale is by closed bid tender – receiving sealed bids and presenting them to the Marshal on the tender closing date
- acting solely on behalf of the Court as brokers only.
The engagement proposal will include the broker's remuneration (usually 0.75 to 1% of the final accepted gross price of the ship). The remuneration should expressly exclude the value of bunkers and lubricants.
The order for valuation and sale may include an order that the Marshal retain a solicitor to act on the sale of the ship. If so, the Marshal should arrange for the solicitor (or otherwise a Registrar) to review the Marshal's Conditions of Sale (see Annexure 15) to ensure that they are up to date and all the terms are appropriate for the sale of the ship.
The Marshal should prepare an 'Estimate of Costs of Marshal's Expenses in relation to the Valuation and Sale of MV (Insert name)'. The broker may be the best (only) valuer. This estimate should be based on a period of eight weeks from the date the order for sale was made to the date of delivery of the ship. Although the sale period may take ten weeks to complete any remaining costs not funded by the plaintiff can be met from the sale fund. Costs to be estimated may include:
- Marshal's solicitor's and counsel's fees
- brokerage fee
- inventory survey
- bunkers and lubes survey
- repatriation of any remaining crew
- berthage/mooring charges
- effluent waste removal
- garbage waste removal
- marine gas oil and bunker fuel
- provisions for the crew
- laundry expenses
- medical expenses
- ship's mobile phone hire and call charges
- chemical, stores and equipment for the ship
- Marshal's car and taxi hire
- Marshal's water taxi and launch hire
- Helicopter hire.
Subrule 69(4) of the Rules provides that an application for an order for valuation or sale constitutes an undertaking by the party who made it to pay, on demand, to the Marshal an amount equal to the amount of the costs and expenses of the Marshal in complying with the order.
If the Marshal is provided with an advance copy of the application for sale then it may be prudent to forward, as a draft, a copy of the estimated expenses addressed to the parties care of their solicitors and identifying the amount on account of expenses that will be sought.
If the application for sale has been filed then a formal demand pursuant to subrule 78(b) based on the costs estimate should be made to ensure the Marshal has sufficient funds to pay accounts as they fall due (see Waitemata Stevedoring Services Pty Ltd v The Ship "Rangitata" & Anor  FCA 441 where Lindgren J held that Rule 78(b) clearly empowers the Marshal to make one or more demands for interim payments on account of fees or expenses yet to be incurred, and is not confined to enabling the making of demands for interim payments on account of fees or expenses already incurred).
If the party making the application is out of the jurisdiction there may be difficulties enforcing any undertaking. In this case, expenditure should not be incurred unless funds have already been received from the applicant or some other form of acceptable security has been given.
If the Marshal is any doubt then the Deputy Registrar (Admiralty and maritime) may be consulted.
Order for valuation and sale
Precedent orders for valuation and sale are set out at Annexure 16.
Other precedent orders can be found in Casetrack, on the Intranet (Casetrack Precedent Order Text) and on the Internet at the Law & Practice section and select 'Admiralty and maritime NPA', followed by the "More Practice Notes" option and then select "Precedents for Admiralty Orders". The address is: www.fedcourt.gov.au/law-and-practice/national-practice-areas/admiralty/more#Practice.
Sealed copies of the orders should be provided to the broker as soon as possible. The terms of engagement should be executed if this has not already been done.
The Marshal should ensure that a valuation is received from the broker. The envelope containing the valuation should be properly sealed and held in the District Registrar's safe until further directions are made by the docket Judge or until after the time for bids has closed.
The valuation is confidential and should not be disclosed to anybody unless ordered by the Court to do so.
The broker may, in addition to making recommendations about the method of sale, make recommendations about the advertising strategy, including the length of any advertising campaign, to be adopted.
The Court orders will set out the publications in which the advertisements are to be placed.
The broker should be required to seek the Marshal's approval of any advertisement before going to press and should supply the Marshal with a copy of all advertisements. An alternative is for the Order to also include the wording and form of advertisement so this cannot be changed. This may be a more acceptable to the Auditors although means the Marshal would need to seek orders quickly.
The Marshal needs to obtain an order to open any foreign currency and investment accounts. Principal Finance looks after the opening and managing of all investment accounts
Should the type of ship to be advertised locally be a small ship such as a trawler, cruiser or yacht, and it is solely advertised in the South Pacific region, an investment 'at call' account should be opened in Australian dollars. Principal Registry will arrange with the bank to open the account even though there are no funds to be deposited. The name of the account is "Admiralty Marshal – Sale of the MV (name of the ship)".
The Court has opened a US currency account and a pounds sterling account with the Westpac Bank. The accounts are available for practitioners to deposit US or pounds sterling funds in relation to an admiralty or maritime dispute. This can be done at short notice and without the need for a previous order of the Court. The accounts have been opened as Litigant's Fund under Division 2.5 of the Federal Court Rules 2011. An order of the Court would be required to withdraw or transfer the funds.
The US account details are:
|Account Name|| |
Federal Court of Australia
The pounds sterling account details are:
|Account Name||Federal Court of Australia|
|Account designator||Marshals Account|
For audit reasons the Marshal is not made a signatory to these accounts only senior officers at Principal Finance are the signatories. For this reason Principal Registry require an order or direction signed by the Court for any money to be withdrawn.
The Marshal is to establish a separate set of accounting records in which to record receipts and payments from that account. It is good administrative practice to maintain separate folders for this account to file correspondence with the bank, bank statements and reconciliations statements and accounting records to assist Principal Finance for accurate reconciliation records.
When the Admiralty Marshal's Conditions of Sale (see Annexure 15) are complete and have been approved they can be provided to the broker to give to prospective purchasers.
A certified marine surveyor should be engaged to carry out the following inventories and provide reports:
- inventory of stores and equipment (with photographs);
- bunkers and lubes survey to establish quantities and types of fuel and lube oils on board.
The bunker survey is not carried out until 3 days after the sale (in accordance with the Conditions of Sale).
It is preferable to be in receipt of the inventory report before any inspections take place by prospective purchasers.
The Marshal should provide the brokers with an authority to attend the ship at their discretion to obtain plans and to accompany prospective purchasers to conduct an inspection of the ship. The authority should be effective from a specified date and cease on the closing date for bids.
All visitors are required to sign a waiver and indemnity form in accordance with Annexure 17. A copy of the form should be provided to the broker and the Master of the ship.
The Marshal should formally notify all suppliers and service companies including any employment agency that orders have been made to sell the ship and request that all outstanding accounts be submitted for payment. It is important that the Marshal regularly follows up these accounts.
After bids close
Consult the docket Judge as to the practice to be followed on closure of the bids. The usual practice is that the Marshal, the Marshal's solicitor (if any), District Registrar (or some other senior officer nominated by the District Registrar) and the broker(s) meet in the Registry, in private, to open and formally record details of each bid. It is preferable to keep the envelopes with each bid. Some bids will have been sent by facsimile to the broker who will place them in an envelope.
You may find that a bid is received after the closing time. One or more of the bids may be defective because the bidder has imposed conditions, it is not signed or for some other reason. You should be guided by legal advice in these circumstances.
After all the bids have been opened the Marshal should open the valuation from the broker.
Where the highest bid or a number of bids are above the valuation and are acceptable bids the usual practice is that the Marshal accepts the highest bid. The docket Judge should be advised of the outcome.
On the Court return date for the acceptance of the tender the Marshal should inform the Court that there are a number of bids above the valuation and that the Marshal proposes to accept the highest bid. If all the bids are below the valuation the Marshal should prepare short minutes of order seeking an order to accept the highest bid (see Annexure 18).
There are issues as to how much should be said in open Court on the return date given that on that date it is unknown whether or not the highest bidder will proceed to buy the ship.
The brokers strongly recommend that, as the offers are open for 5 business days, the name of the bidders, their offers and the valuation should remain confidential until the sale is completed and the ship is transferred to the purchaser.
In any case, it is the practice of the Marshal never to release details of the bids (offeror or amount) and the valuation, as they are confidential and subject to Court orders.
The following steps are required to complete the sale:
- Request that the broker communicate the acceptance to the highest bidder as specified in the offer and reaffirm the payment requirements contained in the Conditions of Sale.
- Liaise with the bank to check that the 10% deposit has been received and recorded on the bank ledger. The bank should be requested to formally confirm the payment has been received and that they are cleared funds and provide a copy of the ledger by facsimile.
- Arrange for a bunker survey to be conducted in accordance with the Conditions of Sale.
- Ascertain the current net spot market price for fuel oil, diesel oil and lubricating oils as detailed in the bunker survey report. Contact the various suppliers of the type of fuel or lubricant and ask for written advice on the price. The price of some lubricants may have to be for an equivalent product that is available here, as the actual type may have been purchased overseas and not available in Australia. All prices should be obtained in Australian dollars so that GST at the rate of 10% can be added to the price per litre. If necessary, the Marshal should convert the amounts to US dollars.
- The Marshal or his/her solicitor should formally communicate with the authorised representative of the buyer and set out the quantity, type of fuel and lubricant, the price per litre, GST, price per litre inclusive of GST and the total amount for each type that is payable. The letter should include the total sum payable for bunker fuel and unused lubricants in accordance with the Conditions of Sale and also acknowledge receipt of any other payments made. If necessary, the Marshal should convert the total sum payable to US dollars.
- The Marshal or his/her solicitor should ask the authorised representative of the buyer for a copy of the authority for the agent to act on behalf of the buyer. As most buyers are based overseas the authority will take the form of a 'Notarial Acknowledgement' of that authority.
- The Marshal or his/her solicitor should prepare a draft Bill of Sale in conformity with the standard form (see Annexure 19 and sample Bill of Sale).
- The Marshal or his/her solicitor should seek formal confirmation of the buyer's intention in relation to:
- any existing crew
- when the buyer's crew will be available
- attendance for execution, notarisation and delivery of the bill of sale
- the buyer's agreement not to commence any works on the ship until the buyer has taken delivery
- payment of the sum for bunkers and unused lubricants
- the date on which the Marshal's responsibility for the crew and berthing etc ceases – this date would usually be the date of execution, notarisation and delivery.
- Notify the insurer of the execution, notarisation and delivery arrangements and the date on which the insurance is to terminate, and request a final invoice.
- Terminate all other service and supply arrangements and request final accounts including berthing and mooring.
- Terminate any contracts for equipment hire and make arrangements with the Master of the ship to allow collection by the hirer and to obtain a receipt.
- Notify the following organisations in writing of the sale:
- Manager of Marine Operations/Harbour Master
- the relevant Port Authority
- the water police (if previously notified)
- the Collector of Customs
- the Australian Maritime Safety Authority
- Transport Security Coordination Centre (Office of Transport Security).
- Liaise with the bank to verify that funds have been deposited for the balance of the purchase price and the bunkers and lubricants. The bank should be requested to formally confirm the payment and provide a copy of the ledger by facsimile. Delivery of the ship cannot take place until this amount is received and funds are cleared.
If payment of the 10% deposit has not been received at close of business on the third day after acceptance then the Marshal should give effect to the terms of the Conditions of Sale and move to accept the second highest bid provided it is higher than the valuation. The docket Judge in any event should be kept informed of the position. If the bid is below the valuation then the matter should be referred to the docket Judge so that the matter can be listed in Court. The Marshal is not permitted to sell the ship below the appraised value without an order from the Court. See Annexure 21 for GST implications.
The Marshal should attend for the execution of the Bill of Sale with his/her solicitor or a Registrar with the final form of the Bill of Sale as approved for execution.
After obtaining the signatures, witnessed by the Notary Public, the Marshal should make sufficient copies of the Bill of Sale and the Notary Public's Certification for the Marshal's records.
Rule 71 provides that the Marshal shall, as soon as practicable after the sale of the ship or property:
- file a return of sale
- pay into court the proceeds of sale
- file an account of sale and documents in support of the account for taxation.
Return of Sale
A standard form of Return of Sale is at Annexure 20. A copy of the Bill of Sale, Notary Public's certificate and Conditions of Sale must be annexed to the Return of Sale.
The Return of Sale should be prepared before the next directions hearing or within 7 days whichever is the earlier.
It is suggested that the Marshal file and serve the Return of Sale on the parties.
Proceeds of Sale
As the monies are being held in the foreign currency account (opened in accordance with the Court's order) it will be necessary to obtain an order from the Court in the following form dispensing with compliance with Rule 71(b):
The Marshal need not pay the proceeds of sale into Court, but except for payments ordered to be paid out of the proceeds of sale, the Marshal keep the proceeds of sale in United States Dollars in an interest bearing account at the Commonwealth Bank of Australia.
The Order must be provided to Principal Finance to arrange disbursement of the funds in the Account.
Account of Sale
The account of sale should comprise copies of all invoices for payments made in respect of the sale of the ship together with a statement of the Marshal's costs and expenses, if any.
It is suggested that the Marshal file and serve the Account of Sale on the parties.
No poundage is payable in respect to a sale under the Admiralty Act.
A paper on 'GST as it Relates to Marshal's Costs and Expenses and the Sale of Ships' is set out at Annexure 21. Where a Marshal is selling a ship, the practice set out in that paper should be adopted.
Of particular assistance are the comments on 3(a) Conditions of Sale and 3(b) Export Exemption. However, where a Marshal is selling a ship, the paper should be read in its entirety.