Today, the Admiralty Court handed down judgment in in a claim under a marine mortgage over an offshore support vessel.
The analysis of Jervis Kay QC, the Admiralty Registrar was important in light of two sadly very common characteristics in recent ship mortgage claims. Firstly, how can a bank comply with its duty to exercise reasonable care to obtain a proper price for the distressed asset when there is a singular lack of willing buyers; and, secondly, how can the bank (and if it comes to it the court) work out the true market value where a slow market means there are no real comparators?
Reassuringly, the answer is that the court approached this with a healthy dose of commercial common sense: banks will not be expected to work miracles by conjuring up a weak market and it can be seen that this theme runs throughout the judgment.
The court does not even have to ask itself whether the bank has done enough unless, and until, it is shown that the vessel was sold at an undervalue at all. In a depressed market, this is not straightforward and banks need to be well-armed with evidence from a specialist broker.
- The registrar accepted that ship valuation is "a difficult operation covering a wide and intimate knowledge of the relevant markets which have been known to fluctuate rapidly and significantly," and that opinions between respectable brokers can vary;
- Usually the best guidance on value is obtained by compiling the sale prices of comparable vessels but the experts could not do this: the market was so quiet that there were no sales of directly comparable vessels at all;
- Instead, the bank's expert valuer analysed his database of asking prices, valuations and sale prices and applied "correction factors" (e.g. this vessel sold for X but she was larger; this one sold for Y but her power rating or payload was lower; this was valued at Z but six years ago);
- The court commended this way of assessing value and accepted his evidence without hesitation.
On the basis of the expert's figures, the vessel was sold for a price that was within the bracket of acceptable values. The registrar did not therefore need to consider whether the bank had satisfied its duty to take reasonable care.
Nevertheless, and for the avoidance of any doubt, the bank's brokers were found to have acted entirely reasonably on the bank's behalf in sending the vessel's particulars to a large and carefully selected client list, and they did find a buyer despite tough market conditions.
Finally, this case is a regular reminder to ensure that the full suite of lending documents are tightly drafted and executed. In this instance, the corporate borrower went into liquidation in the course of court proceedings, but judgment was nevertheless obtained against its main shareholder and director under a personal guarantee.