Den Norske Bank ASA v Acemex Management Company Ltd.

A mortgagee’s power of sale is exercised for its own benefit and, subject to the mortgage contract, the mortgagee may choose when to sell without prioritising the mortgagor’s interests. When exercising the power, the mortgagee must take reasonable precautions to obtain the best reasonably obtainable price at the date of sale. That duty does not generally require the mortgagee to delay enforcement, move a chattel to another place, or improve the security. In a ship mortgage, authorities protecting third-party employment contracts do not automatically create duties owed by the mortgagee to the mortgagor. The parties’ written loan and mortgage contracts determine the mortgagee’s rights and duties.

The Bank lent US$6 million to three borrowing companies. Security included Cyprus-law mortgages over vessels and an English-law guarantee given by Acemex Management Company Ltd. Following prolonged payment and insurance defaults, the Bank demanded repayment and arrested TROPICAL REEFER in Panama while she carried bananas. The cargo was later discharged and the vessel sold by the Panamanian court.

Acemex resisted the Bank’s guarantee claim, alleging that the Bank should have allowed the vessel to proceed to Hamburg, where enforcement would allegedly have produced better net proceeds. The Commercial Court, on a Part 24 application, gave judgment for the Bank. The central questions were whether the Bank had breached equitable mortgagee duties or ship-mortgage duties by arresting and selling the vessel in Panama.

1. Disposition. The appeal was dismissed and the Commercial Court’s judgment for the Bank was upheld. The defendants had no real prospect of establishing that the Bank owed or breached a relevant duty by deciding when or where to arrest and sell the vessel.
2. Equitable duties. Applying the principles restated in Silven Properties Ltd v Royal Bank of Scotland [2003] EWCA Civ 1409, a mortgagee is not a trustee of the power of sale. The power is conferred for the mortgagee’s own benefit. The mortgagee may consult its own interests when deciding whether and when to enforce. It need not postpone enforcement in the hope of obtaining a better price, nor generally improve the mortgaged property before sale. The duty is equitable, not tortious.
3. Once the power of sale is exercised, the mortgagee must take reasonable precautions to obtain the fair or true market value, or proper price, reasonably obtainable at the date of sale. This duty concerns the conduct of the sale. It did not require the Bank to defer enforcement while the vessel travelled to Hamburg. Panama was not shown to be an inappropriate place to sell a ship. In any event, the withdrawal of P&I cover, the owners’ impecuniosity and the absence of credible repayment proposals made release of the vessel materially risky.
4. Ship-mortgage argument. The authorities concerning interference with shipowners’ employment or cargo contracts, including The Myrto [1977] 2 Lloyd’s Rep 243, concerned disputes involving third parties. They did not establish an automatic duty owed by a mortgagee to the mortgagor. The written loan and mortgage contracts governed the parties’ relationship. Express rights to take possession and institute proceedings could not be cut down by an inconsistent implied term.
5. Arguments that the guarantors were discharged depended on proving an underlying breach and therefore fell away. The court did not need to determine the Deputy Judge’s alternative findings concerning the alleged maritime lien or cargo-disposal costs.

• Court of Appeal (Civil Division): Appeal dismissed and the Commercial Court’s judgment upheld: [2003] EWCA Civ 1559.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Nigel Teare QC, sitting as Deputy Judge, gave judgment for the Bank on a Part 24 application.