“Going once … Going twice … SOLD!”

20 December 2023

The High Court in the recent case of United Overseas Bank Ltd v The Owners and/or Demise Charterers of and/or Other Persons Interested In The Ship or Vessel ‘Limin Rosmina’ (Petronas Carigali Sdn Bhd, intervener) [2023] 8 CLJ 649 (“The Limin Rosmina”) decided that in relation to the sale of a vessel under arrest below her appraised market value: 

1. The Sheriff could accept a bid that was made in the 1^st round of tenders after a 2^nd round of tenders had been proceeded with if the conditions of sale permit it. The conduct of a 2^nd round of tenders does not automatically result in the rejection of the tenders given in the 1^st round. 


2. A private offer from a party which did not participate in the bidding process cannot be considered as an available bid that may be accepted. 

The Limin Rosmina also sets out the factors that the Court will consider when deciding whether to grant leave to sell a vessel below her appraised market value.
 
Background Facts
 
In The Limin Rosmina, the High Court had ordered that the Vessel be appraised and sold by the Sheriff by way of private treaty or public auction if an offer equal to or more than the Vessel’s appraised value is received. The appraisal value report was provided to the Sheriff on a confidential basis. Thereafter, the Court approved the terms of the “Sheriff’s Terms and Conditions for Sale” and ordered for the notice of the sale of the Vessel to be advertised.
 
In the first round of tenders, all six bids that were received by the deadline did not meet the Vessel’s appraised value. The Court then ordered the Sheriff to conduct a 2^nd round of tenders. In the 2^nd round, only one bid was received. This bid was not only lower than the Vessel’s appraised value, but it was also the third lowest bid across the two rounds of tenders.
 
The Plaintiff thereafter sought leave of the Court to approve the sale of the Vessel to ARC Offshore India Pte Ltd (“ARC Offshore India”) (the 3^rd highest bidder across the two rounds of tenders with a bid of RM 6,399,999.00) as it was the only bidder that confirmed its interest in continuing with the sale.
 
The Defendant opposed the application and requested that the Vessel instead be sold to Proactive Ship Management Pvt Ltd (“Proactive Pvt Ltd”). Whilst Proactive Pvt Ltd did not submit any bids in the two rounds of tenders, it did issue a letter stating that it was ready to offer an ‘indicative sum’ in the ‘range’ of RM 7 million for the Vessel. The Defendant submitted that since ARC Offshore India’s bid was being considered although the 1^st round of tenders had come to an end, it effectively rendered Arc Offshore India’s bid as a new ‘offer’. Therefore, the sale should be treated as a sale by private treaty and the higher ‘offer’ by Proactive Pvt Ltd ought to be considered.
 
The High Court rejected the Defendant’s submission and allowed the Plaintiff’s application to sell the Vessel to a bidder from the 1^st round of tenders. The High Court’s reasoning is set out below.
 
Whether the Sheriff could accept a bid that was made in the 1^st round of tenders after a 2^nd round of tenders had been proceeded with.
 
The High Court held that whether the Sheriff could accept a bid that was made in the 1^st round of tenders after a 2^nd round of tenders had been proceeded with would depend on the conditions of sale as it is the conditions of sale which will take precedence and determine or regulate the sale process. The Court found that:

1. At the time the 2^nd round of tenders were conducted, the offers made in respect of the bids under the 1^st round of tenders were still well within the validity period for acceptance under the “Sheriff’s Terms and Conditions for Sale”. 


2. When the Court made the order, inter alia, that the Sheriff be authorised to receive a 2^nd round of bids, there was no order authorising the Sheriff to reject the bids from the 1^st round of tenders. There was also no evidence before the Court to show that the Sheriff had issued any notices to the bidders from the 1^st round of tenders, rejecting their offers. 


3. None of the documents which regulated the bidding process provided that the bids from the 1^st round of tenders would be rejected. 

Premised on the above findings, the Court found that the offer from ARC Offshore India was valid, open and capable of being accepted by the Sheriff pursuant to the order for judicial sale by the Court.
 
Whether the offer from a party which did not participate in the bidding process can be considered as an available bid that may be accepted.
 
The Court rejected the argument that the ‘offer’ from Proactive Pvt Ltd ought to be considered for the following reasons: 

1. The purported ‘offer’ did not go through the bidding process and therefore stood outside the established bidding process authorised by the Court. 


2. The purported ‘offer’ was uncertain. 


3. It was detrimental to the fair administration of justice and would cast doubts over the transparency of the judicial sale process¹ should the ‘offer’ be entertained. It would be considered ‘gazumping’. 

The factors that the Court will consider when deciding whether to sell a vessel below the appraised market value.
 
In finding that it was in the best interest to order for the sale of the Vessel below her appraised market value to ARC Offshore India², the Court considered, among others, the following factors: 

1. whether the judicial sale process was fairly conducted; 


2. the realistic value of the Vessel; 


3. the possibility that a higher bid would be tendered or that ARC Offshore India would return to the table with the same bid should another round of tenders be ordered; and 


4. whether the creditors will benefit from subsequent round of tenders, taking into account the cost of basic maintenance and advertisement for the Vessel that will inevitably be incurred.

Conclusion
 
The Limin Rosmina has decided that merely entering into a 2^nd round of tenders does not result in an automatic rejection of the bids made in the 1^st round. It all depends on the “Sheriff’s Terms and Conditions for Sale”. Hence, it is important that the “Sheriff’s Terms and Conditions for Sale” are carefully drafted if a plaintiff in an in rem action wishes to keep offers received in the 1^st round of tenders alive in the 2^nd and subsequent rounds of tenders.
 
The Limin Rosmina is also the first reported case in Malaysia to set out the factors which the Court will consider in deciding whether to grant leave to sell a vessel below her appraised value, a common occurrence when vessels are sold pursuant to a Court order.
 
Case Note by Siva Kumar Kanagasabai (Partner), Dhanyaa Shreeya Sukumar (Senior Associate) and Pavidren Sivananda Ratnam (Paralegal) of the Maritime & Shipping Practice of Skrine. 
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.