Mortgagees' Duties (Again)

In the case of Den†Norske Bank ASA (the†"Bank") v Acemex†Management Company†Limited ("Acemex") the†Court of Appeal decided†that a ship mortgage is not†inherently different from a†mortgage of land. The†Court repeated some of the†basic principles set out in†the judgment of Silven†Properties Limited v†Royal Bank of Scotland†(the "Silven Judgment")†which had been handed†down eight days earlier.

The Bank had lent three companies (the†"Borrowers") US$6 million for the†purchase of three vessels. The security for†the loan consisted of mortgages on the†vessels and a guarantee from Acemex. The†Borrowers were in default under the loan†facility in a number of respects, which led†to the Bank enforcing its security by†arresting one of the vessels, the "Tropical†Reefer", in Panama. At that time it was†carrying a cargo of bananas, en route from†Ecuador to Germany where they were to be†sold. However, since the bananas were†perishable cargo and the vessel was to be†sold in Panama, they had to be discharged†overboard at sea. The expense of†discharging the cargo formed part of the†costs of the arrest of the vessel and was to†be deducted from the proceeds of sale of†the ship. The owners of the cargo began†proceedings in Panama for damages for†breach of the contract of carriage. They†claimed to have a maritime lien over the†cargo and were therefore entitled to†payment from the sale proceeds in priority†to the Bank's claim under the mortgage.†Subsequently, the Bank demanded†payment of sums due pursuant to the loan†facility from Acemex as guarantor, in the†Commercial Court in London. At first†instance, summary judgment was given in†the Bank's favour. This was upheld in the†Court of Appeal.

Acemex argued that, in accordance with his†general equitable duties, a mortgagee must†exercise his power of sale in good faith for†the purpose of obtaining repayment and†that upon sale he must take reasonable care†to obtain a proper price. The Bank had not,†however, taken reasonable care to obtain a†proper price because had it waited until the†vessel had arrived in Germany and arrested†it there, it would have avoided the costs of†discharging the cargo and the proceedings†in the Panama courts that there was a†maritime lien taking priority to the Bank's†mortgage.

Acemex's second argument, which was†specific to ship mortgages, shall not be†dealt with here but was also unsuccessful.

The Court of Appeal cited various passages†of the Silven judgment which included the†principle that...

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