Deutsche Bank Trust Company Americas v Motor Vessel Sertao, Owners of

The court may order a sale pendente lite where continued custody and maintenance will diminish the vessel’s value to those interested in it. A possible future recovery in the market does not prevent the vessel being treated as a diminishing asset where that recovery is speculative. The mortgagee’s wish to test the market, or to impose a minimum sale price, is not necessarily improper, provided there is good reason for the sale and no other interested person is prejudiced. In an unusual specialist market, the Admiralty Marshal may appropriately appoint joint brokers where one has specialist market knowledge and the other has established experience of court sales.

The claimant mortgagee sought an order for sale pendente lite of the arrested drillship MV SERTAO. The vessel was a wasting asset because of the substantial costs of maintaining it under arrest, although the mortgagee wished to retain the option of rejecting a bid below the appraised value in the hope of a market recovery.

The mortgagee also sought appointment of its specialist broker, Pareto Offshore A/S, instead of the Admiralty Marshal’s customary broker, C.W. Kellock & Co. The Marshal raised concerns about independence, established court practice and the future availability of Kellock. The issues were whether a sale should be ordered, whether the mortgagee’s proposed minimum-price approach was proper, and how the vessel should be appraised and marketed.

1. The application for a sale pendente lite was granted. The governing question was whether there was good reason for the sale. A vessel is properly treated as a diminishing asset where the continuing costs of maintaining it under arrest diminish its value to those interested in it. The possibility that the market might improve within 6 to 24 months was speculative and did not alter that conclusion.

2. The mortgagee’s wish to test the market and to avoid a sale below the appraised value was not improper in the circumstances. The mortgagee was entitled to pursue what it considered to be its best interests, and no other person interested in the vessel appeared to be prejudiced. The order was therefore justified by the vessel’s diminishing value, notwithstanding the mortgagee’s conditional approach to sale.

3. The question whether the Marshal was required to appoint the mortgagee’s broker instead of C.W. Kellock & Co. did not need to be decided. The mortgagee agreed to the appointment of Pareto and Kellock as joint brokers. That was an acceptable solution because Pareto had specialist knowledge of the depressed drillship market, while Kellock had long experience of conducting sales through the court and working with the Marshal.

4. The order was subject to the mortgagee accepting that the Marshal could charge a reasonable fee for his efforts if no sale occurred, and to agreement on the division of the broker’s commission. The court indicated that an equal division of the 1 per cent commission would be sensible, reflecting the different contributions of the two brokers. If agreement failed, the court would have to resolve which broker should be appointed.