Eurobank SA v Momentum Maritime SA & Ors

A marine mortgagee who merely arrests a vessel owes a duty to act in good faith for the purpose of enforcing its security. Arrest does not amount to possession and does not engage the wider duties arising on possession or sale.

A mortgagee has no duty to take possession, sell, accept offers, collect sale proceeds or prevent a third party from selling the vessel. If it exercises a power of sale, its equitable duty is confined to taking reasonable care to obtain the true market price at the date of sale.

Contractual recovery of legal expenses on an indemnity basis remains subject to court assessment for reasonableness.

The claimant bank sought summary judgment against three one-ship borrowers and their guarantors for unpaid loan liabilities secured by personal guarantees and vessel mortgages.

The defendants alleged that the bank owed equitable duties concerning the realisation and sale of the mortgaged vessels. The vessels had been arrested by several creditors and were later sold privately by the Djibouti Port Authority. The defendants also relied on a contractual costs indemnity.

The issues were whether the bank’s arrest of the vessels engaged duties beyond good faith, whether it had taken possession or exercised a power of sale, and how the contractual costs provision should be construed.

1. Summary judgment. The claimant was entitled to judgment. The defendants had no real prospect of establishing that the claimant was responsible for the sale by the Djibouti Port Authority. The suggestion was fanciful on the evidence and no reasonable basis existed for expecting a different result at trial.
2. Mortgagee’s duties on arrest. A mortgagee that merely arrests a vessel owes a duty to act in good faith for the purpose of enforcing the security. Arrest is not possession, whether actual or deemed. It does not engage the duty to take reasonable care of the property that arises on possession.
3. Possession and sale. A mortgagee has no duty to take possession or sell. Equitable duties concerning the conduct of a sale arise only when the mortgagee exercises a power of sale. The relevant duty is to obtain the true market price at the date of sale. The mortgagee retains an unfettered discretion whether and when to sell, and is not obliged to accept offers.
4. Third-party sale and proceeds. No duty arose to prevent the Port Authority’s sale or to collect its proceeds. The claimant neither took possession nor conducted the sale. The defendants’ reliance on Medforth v Blake was misplaced because that case concerned receivers’ negligent conduct of a business in a materially different context.
5. Costs. The contractual provision entitled the claimant to recover legal expenses assessed on the indemnity basis. It did not make whatever sum the claimant identified automatically recoverable. The court had to assess whether the work was reasonable and whether the amount claimed was reasonable.
6. Permission to appeal. Permission was refused. There was no real prospect of success in challenging the conclusion that the arrest engaged only the good-faith duty.

First-instance judgment in the High Court (Commercial Court). The judge subsequently refused permission to appeal.