Qatar National Bank QPSC v Yacht Force India, Owner of the

Where contractual documents securing the same indebtedness contain an inconsistency, the operative provisions prevail over an inconsistent recital. A limitation expressed to apply to the principal sum does not ordinarily limit separately identified interest, costs or collection expenses. In an Admiralty action in rem, judgment is not entered merely because the defendant fails to attend: the claimant must still prove the claim, protecting the interests of other persons who may have claims against the vessel. Reasonable expenditure incurred to preserve, maintain, insure and recover value from the arrested vessel may fall within contractual costs and expenses of collection.

The claimant sought to enforce a mortgage over the yacht Force India as security for indebtedness under a facility originally made to a related borrower. The mortgage and associated deed of covenant limited the owner’s liability to a principal amount of €5 million, but the documents used different wording concerning interest and collection expenses.

The defendant alleged that the mortgage was enforceable only if the yacht were sold, but did not attend the trial. The court struck out the defence under the Civil Procedure Rules and considered whether the claimant had proved its in rem claim, the proper construction of the security documents, the recoverability of interest, and the recoverability of insurance, maintenance, inspection, mooring and electricity costs.

1. The defendant had notice of the trial but did not attend. The court therefore proceeded in its absence and struck out the defence under Civil Procedure Rules 1998, CPR 39.3(1), because the defendant had not appeared to advance its case and the supporting witnesses had not been produced for examination.

2. Nevertheless, an Admiralty claim in rem required proof. Under CPR 61.9(3)(a)(iii), judgment in default was inappropriate unless the claim was proved, since other parties might have claims against the arrested vessel. The claimant proved the facility, amendments, default, mortgage, deed of covenant and sums due.

3. The mortgage recital appeared to limit all sums owing to €5 million, whereas clauses 2.1 and 3.1 of the deed of covenant limited only the principal amount and added interest, costs and expenses of collection. The operative provisions prevailed over the inconsistent recital. Read together, the documents limited the secured principal to €5 million but did not subject interest or collection expenses to that limit. The Side Letter, which restricted the mortgage to a principal amount of €5 million, supported that construction.

4. Interest was recoverable from the date of the first default under clause 13.2 of the Facility Letter and was correctly calculated in accordance with the agreed rates and compounding provisions.

5. Costs of inspection, maintenance, mooring and electricity were costs of collection because they enabled recovery from the sale proceeds of the yacht. Insurance costs were also costs of collection because they protected the mortgagee’s interest and enabled recovery under the security.

6. Judgment was given for the sums claimed in the Amended Particulars of Claim. Ancillary orders concerning appraisal and sale of the yacht were left to be addressed when judgment was handed down.