BAHAMAS Law and Practice Contributed by: Richard Horton and Emma Van Wynen, Alexiou, Knowles & Co.
5.10 Procedure for the Judicial Sale of Arrested Ships The procedure for the judicial sale of an arrested ship is that the arresting party files an application to the court supported by an affidavit. Such application may be made either after judgment or before (ie, “pendente lite”). In the case of a sale pendente lite, the court must be satisfied that the vessel is a diminishing asset (ie, on the basis of evidence that the costs and expenses of the arrest are eroding its value) – if there is evidence that the equity in the vessel has already been extin - guished by well-founded claims, this would make for an even stronger case. Such an order may be made in the face of an attempt by a defendant to defend the claim on its merits. Usually (but not always) an appraisement is obtained by the Admiralty Marshal prior to the sale being adver - tised for sale in an international shipping publication. The bidding process is usually by sealed tender, though private sales have taken place as recently as 2015, albeit in special circumstances. The Admiralty Marshal is liable for maintaining the vessel from arrest until sale, although the office of the Admiralty Marshal has no budget for such activi - ties and the arresting party’s attorneys are therefore usually asked to pay such costs on an interim basis pursuant to their undertaking. Those expenses will be reimbursed to the service providers and/or the arrest - ing party from the proceeds of sale as a priority. In terms of priorities, a general framework (in order) is as follows: • the Admiralty Marshal’s costs and expenses of the arrest and sale; • the arresting party’s legal costs of the arrest and sale; • the maritime liens in the order in which they are set out in 5.2 Maritime Liens ; • mortgages, with Bahamian registered mortgages being afforded priority over other mortgages; and • claims for necessaries and contractual claims are usually ranked pari passu with each other.
There are many scenarios that can affect the ranking of priorities. 5.11 Insolvency Laws Applied by Maritime Courts The closest Bahamian analogue to Chapter 11 of the United States Bankruptcy Code is found in Sections 160–167 of the Companies Act, whereby a scheme of arrangement can be proposed between a company and its creditors or shareholders. With court approval and majority creditor consent (75% in value and majority in number), the scheme can restructure debts, reorganise ownership or effect other arrangements. Once sanctioned by the court, the scheme becomes binding on all creditors or the relevant class. The Supreme Court can order the arrest and judicial sale of a vessel owned by owners that are under either “Chapter 11” proceedings or a scheme of arrange - ment pursuant to Sections 160–167 of the Companies Act, as there is no automatic moratorium under the Companies Act and the automatic stay under Chap - ter 11 does not apply in The Bahamas. However, the Supreme Court, upon application, could order the stay of sale proceedings if a compelling equitable reason is put forward. There is no automatic recognition of the US Chapter 11 insolvency proceeding. 5.12 Damages in the Event of Wrongful Arrest of a Vessel The arresting party is only liable to the vessel owner for damages arising from wrongful arrest if the arrest was obtained maliciously or with gross negligence, amounting to mala fides (bad faith) or crassa negli - gentia (gross negligence). This is a very high burden. However, costs may be awarded against the arresting party if their claim against the vessel ultimately fails. 6. Passenger Claims 6.1 Laws and Conventions Applicable to the Resolution of Passenger Claims The Bahamas is a contracting state to the Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea 1974 and its 1976 Protocol,
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