Den Norske Bank ASA v Acemex Management Company Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Jacob,Lord Justice Brooke |
| Judgment Date | 07 November 2003 |
| Neutral Citation | [2003] EWCA Civ 1559 |
| Docket Number | Case No: 2003 0534 A3 |
| Court | Court of Appeal (Civil Division) |
| Date | 07 November 2003 |
[2003] EWCA Civ 1559
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(Nigel Teare Esq QC, sitting as a Deputy Judge of the Commercial Court)
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
Lord Justice Brooke
Vice-President, Court of Appeal, Civil Division
Lord Justice Longmore and
Lord Justice Jacob
Case No: 2003 0534 A3
MICHAEL DAVEY Esq (instructed by Hill Taylor Dickinson) for the Appellant
LUKE PARSONS Esq QC(instructed by Stephenson Harwood) for the Respondent
Introduction
Is a ship mortgage inherently different from a mortgage on land? On the facts of this appeal Mr Davey submits that it is; Mr Parsons QC submits that it is not. I can gratefully adopt the Deputy Judge's account of the facts.
By a US $6 million secured Loan Facility Agreement dated 1st December 1997 between the Claimants and three companies collectively described as the Borrowers the Claimants Den Norske Bank ASA ("the Bank") agreed to make available to the Borrowers a loan of US $6 million for the purchase of 3 vessels, one of which was TROPICAL REEFER the vessel with which this appeal is concerned. The loan agreement was subject to English law. The security for the loan included mortgages on the 3 vessels which were governed by the law of Cyprus, where the vessels were registered. Further security included a Guarantee provided by the Defendants. That was governed by English law.
Thereafter there were various events of default and on 25th July 2001 the Bank arrested TROPICAL REEFER in Panama pursuant to its rights under the mortgage of that vessel. At the time of the arrest TROPICAL REEFER was laden with a cargo of bananas, which had been shipped in Ecuador and were to be discharged in Germany. The bananas were a perishable cargo and in order to sell the vessel in Panama they had to be discharged overboard at sea. The expense of doing so, US $204,140, was part of the costs of arrest and formed a deduction from the proceeds of the sale of the ship. In addition the owners of the cargo began proceedings in Panama against the proceeds of sale claiming damages for breach of the contract of carriage. In respect of that claim the owners of the cargo said they had a maritime lien and on that account claimed to be entitled to payment out of the proceeds of sale in priority to the claim under the mortgage. Subsequently, on 6th February 2002 the Bank demanded payment of the outstanding indebtedness from the Defendants, as guarantors, and on 19th February the Bank issued proceedings in the Commercial Court against the Defendants under the Guarantee for the sums due under the loan facility. A Part 24 application for summary judgment was made in those proceedings and Mr Nigel Teare QC, sitting as a Deputy Judge of that Court, has given judgment for the Bank.
The claim is resisted by the Defendants on the grounds that the Bank, in breach of duty to the Defendants, arrested TROPICAL REEFER in Panama when she was laden with bananas instead of arresting the vessel after she had arrived in Germany where the proceeds of sale would not have been diminished by the costs of disposing of the bananas or encumbered by a lien on those proceeds in respect of a cargo damage claim. It was said that the proceeds of sale would have been sufficient partially or entirely to discharge the outstanding debt and that in those circumstances the Bank are unable to proceed against the Defendants under the guarantee for the sums claimed.
The loan facility and mortgage
Nothing turns upon the wording of the loan facility. But it is important to observe that under clause 12, it was an Event of Default if the borrower (a) failed to make a payment as and when such payments were due and (b) failed to maintain P&I insurance on the vessel. Both these events were also Events of Default under the Deed of Covenant collateral to the mortgage. Moreover, clause 8 of that Deed expressly provided:-
"8.1 If an Event of Default shall occur and the Mortgagees shall make demand for all or part of the Indebtedness, the security constituted by the mortgage and this Deed shall become immediately enforceable and the mortgagees shall be entitled to exercise all or any of the rights, powers, discretions and remedies vested in them by this Clause without any requirement for any court order or declaration that an Event of Default has occurred.
……..
The Mortgagees shall be entitled to exercise their rights, powers, discretions and remedies notwithstanding any rule of law or equity to the contrary and whether or not any previous default shall have been waived and in particular without the limitations imposed by law.
8.2 In the circumstances described in Clause 8.1, the Mortgagees shall be entitled (but not obliged) to:-
8.2.1 take possession of the Vessel wherever she may be;
……..
8.2.4 in their own name or the name of the Owners, demand, sue for, receive and give a good receipt for all sums due to the Owners in connection with the Vessel and, in their own name or the name of the Owners or the name of the Vessel, commence such legal proceedings as they may consider appropriate or conduct the defence of any legal proceedings commenced against the Vessel or the Owners in their capacity as owners of the Vessel."
Pursuant to clause 3 of the Guarantee and Indemnity dated 1st December 1997 the Defendants "irrevocably and unconditionally guarantee to discharge on demand the Borrowers' Obligations, including Interest from the date of demand until the date of payment, both before and after judgment". Pursuant to clause 15.6 "any certificate or statement signed by an authorised signatory of the Bank purporting to show the amount of the Indebtedness or of the Borrowers' Obligations or of the Guarantors' Liabilities (or any part of them) or any other amount referred to in any of the Security Documents shall, save for manifest error or on any question of law, be conclusive evidence as against the Guarantor of that amount." Nothing turns upon any other provision of the guarantee.
The events which led up to the arrest in Panama
On 9th December 1999 the Bank gave notice to the Borrowers of two events of default under the loan facility, first a failure to make a repayment instalment of US $450,000 on 9th September 1999 and secondly a failure to make a further repayment instalment of $450,000 on 9th December 1999. On 30th August 2000 the Bank agreed to postpone payment of the balance of the loan pending a refinancing which was to be completed by 30th September 2000. However such refinancing was not completed and so in January 2001 the Bank gave notice of a further event of default (the failure to make a repayment instalment on 30th June 2000) and reserved the right to declare the whole indebtedness of US $2,233,290 due and payable together with interest. This notice was copied to the Defendants.
On 21st May 2001 a meeting took place in Havana, Cuba between the Bank and the Borrowers. The Bank were informed that TROPICAL REEFER and, her sister vessel, BLUE REEFER were under charter but that each had debts to suppliers and repair yards of approximately $235,237 and $376,488 respectively. SKY REEFER was awaiting work on the spot market but also had debts to suppliers and repair yards of approximately $293,923. SPRING REEFER was shortly to be sold for scrap.
A further meeting took place in Havana on 26th June 2001. The Bank were then informed that one of the Borrowers' P&I Clubs, the West of England, was owed calls and had withdrawn cover on TROPICAL REEFER but would re-instate cover if US $250,000 were paid by 5/6th July 2001. Thereafter the balance due to the West of England of about $600,000 was to be paid in instalments. The Bank were also informed that TROPICAL REEFER was en route for Ecuador to load bananas for shipment to Europe and that BLUE REEFER had suffered an engine problem and was due to be towed by SKY REEFER to Las Palmas. The proceeds of scrapping SPRING REEFER, expected to be about $110,000, were to be paid to the Bank. In addition $200,000 was to be paid to the Bank on 15th July 2001.
The sums agreed to be paid by the Borrowers to the West of England and to the Bank on 5th and 15th July 2001 were not paid. The Borrowers' managers later informed the Bank on 23rd July 2001 that the payments had not been paid "due to lack of liquidity".
On 19th July 2001 the Bank gave notice to the Borrowers of events of default, in particular the failure to make payments when due and the failure to observe covenants made in the Loan Agreement. The latter was a reference to the failure to maintain P&I Cover. The indebtedness was said to be over $2 million. This notice was also copied to the Defendants.
On or about 23rd July 2001 a company called Tramp Oil arrested TROPICAL REEFER in Panama on account of payments due in respect of bunkers supplied to a sister vessel.
The Borrowers' managers informed the Bank on 23rd July 2001 that they proposed to sell BLUE REEFER for scrap and transfer the net proceeds to the Bank. They also intended to recover from underwriters about $1 million in respect of her engine damage which sum would be paid to the Bank. They proposed a renegotiation of the loan facility in respect of TROPICAL REEFER and SKY REEFER with instalments commencing in January 2002 "considering that the 2nd part of this year 2001 the reefer market is down season."
On 24th July 2001 the Bank, by a letter to the Borrowers copied to the Defendants,...
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