Den Norske Bank ASA v Acemex Management Company Ltd

A ship mortgagee exercising a power of arrest must act in good faith for the purpose of obtaining repayment of the secured loan. The mortgagee owes no general duty in negligence or equity to take reasonable care for the interests of the mortgagor or surety when deciding when to arrest, or whether to continue with the arrest and judicial sale. The mortgagee may act despite foreseeable harm to those interests. A short delay needed to expose property properly to the market is distinct from releasing a vessel and beginning a new arrest and sale process elsewhere. Where the alleged duty cannot succeed as a matter of law, summary judgment is appropriate.

The claimant bank sought summary judgment under Part 24 of the CPR for US$815,277.09 owed under a guarantee and indemnity. The underlying secured lending involved mortgages over vessels, including TROPICAL REEFER. After defaults, the bank arrested that vessel in Panama while it carried perishable bananas. Disposal of the cargo reduced the net sale proceeds, and cargo interests claimed against those proceeds.

The defendant guarantor argued that the bank had breached duties owed to it by arresting the vessel in Panama rather than Germany, and by refusing to release the vessel for re-arrest elsewhere. The central issue was whether a ship mortgagee owed such duties when enforcing its security.

1. The application for summary judgment was granted. The defendant had no real prospect of establishing the alleged defence.

2. The duties of a mortgagee are governed by equitable principles. The general duty is to exercise the mortgagee’s powers in good faith and for the purpose of obtaining repayment. There is no general duty in negligence to take reasonable care for the interests of the mortgagor or surety.

3. Those principles apply to a ship mortgagee exercising the power of arrest. Arrest is the first step in obtaining a judicial sale, which gives title free of encumbrances and enhances the value of the security. The mortgagee may arrest and proceed to sale despite adverse consequences for the mortgagor or surety, provided the mortgagee acts in good faith to obtain repayment.

4. A mortgagee who may arrest without a general duty to consider those interests is likewise entitled to continue with the arrest and judicial sale without such a duty. Releasing the vessel for possible re-arrest in another jurisdiction is materially different from a short delay needed to advertise and expose property properly to the market.

5. The authorities concerning the timing and conduct of a sale did not establish a duty to consider releasing and re-arresting the vessel. Standard Chartered Bank v Walker only decided that such a duty was arguable in the context of summary judgment, and its negligence analysis was no longer correct.

6. Alternatively, even if a duty existed, the correspondence showed good reasons for the arrest. The cargo claim could not reduce the recoverable sum because, applying the relevant priority law, a claim for breach of a contract of carriage did not create a maritime lien unless it was damage done by a ship. Any net proceeds ultimately received after payment by the guarantor would have to be assigned to it.

7. Judgment was therefore entered for the claimant for US$815,277.09.