Judicial sale of ships in Australia

The judicial sale of ships has been a hot topic in Australian maritime law recently, after the livestock carrier “Yangtze Fortune” was sold and released from arrest in March 2023. The vessel’s judicial sale comes after it was abandoned off the south-west coast of Victoria, along with 30 crew members, late last year amid mounting debt. The vessel was arrested in December 2023.

Notably, the arrest and subsequent sale comes only months after the adoption by the UN General Assembly on 7 November 2022 of the United Nations Convention on the International Effects of Judicial Sales of Ships (Beijing Convention). The Beijing Convention aims to create a uniform regime for the international effects of judicial sales of ships and to protect the interests of purchasers, shipowners, and creditors by recognising clean title internationally upon acquisition.

In this article, we provide an overview of the process for the judicial sale of ships in Australia using the “Yangtze Fortune” as an example

Outline of the judicial sale of ships in Australia

In Australia, the judicial sale of ships is governed by the Admiralty Rules 1998 (Cth) (the Rules). According to rule 69(1) of the Rules, a ship can be sold upon application by a party either before or after judgment. A ‘party’ being a party to the proceedings in which the vessel is under arrest. Rule 69(5) provides that where the ship is deteriorating in value, the court can order its sale at any stage of the proceeding, with or without an application by any party. An order by the court to sell a ship can only be made if the ship is under arrest when the order is made.

Under rule 70 of the Rules, judicial sales of ships are conducted by the Admiralty Marshal, who can sell a vessel through an auction, public tender, or any other method determined by the court. In the case of the “Yangtze Fortune”, the Federal Court ordered the sale without application and a closed bid tender was used to bring about its sale. 

When will the court make an order for the sale of a ship?

In ordering the sale of the “Yangtze Fortune”, the Federal Court outlined the following non-exhaustive principles that may be considered when determining whether to grant an order for judicial sale:

• the overall value of the claim
• the number of cautions against release, other claims against the ship and their likely value
• the ship’s value and the likely diminution in value during arrest
• the costs of maintaining the vessel’s arrest and the consequent diminution in the claimant’s security
• any (prospect of) deterioration in the condition of the vessel
• any necessary work that needs to be done on the ship to keep it afloat or enable it to be moved
• the unwillingness of the shipowner to contribute to the costs of arrest
• the financial position of the shipowner and their unwillingness or inability to provide security for the ship’s release
• the likely intervention of claimants with higher priority
• humanitarian considerations in relation to the crew
• whether, if the claimant obtains judgment in its favour, the judgment can be satisfied by the defendant without the need to sell the ship in any event.

The Federal Court concluded that the sale of the “Yangzte Fortune” could not be avoided in circumstances where:

• the only defendant to put on an appearance, the bareboat charterer, did not oppose the sale
• no party, be it the shipowner or any bareboat charterer or mortgagee, had intervened to maintain the vessel during its arrest or even to pay the crew – it had clearly been abandoned
• the vessel continued to deteriorate (and there was evidence that it needed permanent repair) and the expenses to maintain it continued to mount
• the ‘vultures [were] circling’ with a notable number of proceedings against the vessel and caveats against its release.

What property is comprised in the sale?

The arrest and sale of a ship extends to the ship and her ‘appurtenances’ – a mechanical accessory or some apparatus or gear which appertains or belongs to the ship. It therefore includes all the ship’s tackle, apparel and furniture where carried. Whether the ship’s bunkers are included as part of a ‘ship’ for the purposes of a sale is less clear and will depend on the circumstances. The primary question for determination in such circumstances is who has title of the bunkers on board the ship at the time of sale.

Priorities of the sale

When a vessel is sold, it is sold with free title. Therefore, upon selling the ship, all existing claims against that ship are transferred to the proceeds of sale. Section 24 of the Admiralty Act 1988 (Cth) provides that anyone with a claim against the ship can instead pursue their claim against the sale proceeds after the ship is sold by way of judicial sale. 

This process is normally assisted through the court advertising the receipt of funds and inviting all claimants with a maritime claim against the subject ship to bring it before the court if they wish to share in the proceeds. If the net proceeds are insufficient to meet all the maritime claims made, the court must determine the priorities of the claimants and how the sale proceeds are to be distributed, which was the process required in this case.

Conclusion

The arrest and sale of the “Yangtze Fortune” is a timely reminder for maritime law practitioners of the procedure for (and complexities involved in) the judicial sale of ships in Australia. A procedure that will hopefully gain more certainty, rendering better results for purchasers, shipowners, and creditors should Australia and the rest of the trading world choose to adopt the Beijing Convention. 

If you have any questions about this article or the sale of ships by courts, please get in touch with partner Nathan Cecil or a member of our Transport, Shipping & Logistics team below.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Nathan Cecil

Melanie Long

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