Cookies Policy

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we’ll assume that you are happy to accept these cookies.To get more information about these cookies and the processing of your personal data, check our Cookies Policy.


Ince Gordon Dadds Emergency Response +442072836999

Sector Insights

‘What’s aught but as ‘tis valued?’: Mortgagee’s duties on sale of vessel

29.11.2018 Maritime

Christian Dwyer

Christian Dwyer Global Head of Admiralty

Rebecca Cawley

Rebecca Cawley Senior Associate

Close Brothers Limited v. (1) AIS (Marine) 2 Limited (in liquidation) and (2) Mr Paul Simon Chandler [2018] EWHC B14 (Admlty)

The Commercial Court has recently, in the context of the sale of a vessel, given helpful guidance on the extent of the duties owed by the mortgagee to the mortgagor when selling re-possessed property.

The background facts

Close Brothers, a bank, provided AIS with a marine loan of €2.247 million to assist them in purchasing a wind farm support vessel for €3.21 million. To secure the loan, AIS entered into a ship mortgage whereby all shares in the vessel were mortgaged to the bank. Mr Chandler, a director of AIS, also provided a personal guarantee in respect of the obligations of AIS under the mortgage.

The loan agreement provided that the loan was to be repaid by monthly instalments. It also provided that, in the event of default, the bank was entitled to take possession of the vessel and to sell her.

AIS failed to pay instalments under the mortgage as they fell due, and the vessel was repossessed and sold by the bank (through Braemar ACM Shipbroking) for a gross price of £1.7 million. The sale proceeds were insufficient to discharge the outstanding account and there was a shortfall of £215,813.07.

The bank sought to recover the shortfall from AIS and Mr Chandler. In response to the bank’s claim, the Defendants contended that, in breach of its duty, the bank had failed to sell the vessel for the best price reasonably obtainable. Amongst other things, they alleged that the value of the vessel (in comparison with other vessels on the market at the time) was no less than €2.5 million and that the bank had chosen to sell the vessel to a connected person (i.e. one of its own clients), below the true value of the vessel and without properly advertising the vessel, so that the burden of proof rested on the bank to show that they had sold at the best price obtainable.

The Commercial Court decision

The Court found in favour of the bank. In giving its judgment, the Court provided a summary of the relevant principles governing the relationship between a mortgagee and mortgagor with respect to the sale of property of which a mortgagee has taken possession:

>  The mortgagee owes the mortgagor a duty to take reasonable care to obtain the best price reasonably obtainable at the time (i.e. the “true market value”). The standard that the mortgagee must reach is that of a reasonable man realising his own property.

>  The timing and manner of the sale is a matter for the mortgagee, but the property must be fairly and properly exposed to the market absent “real urgency”.

>  A true market value can have an acceptable margin of error, and the mortgagee will not be in default unless plainly on the wrong side of the line.

>  Generally, the burden of proof will rest on the mortgagor. To establish a breach of duty on the part of the mortgagee, the mortgagor must prove that the property was sold at a price below the “true market value” because of the way in which the mortgagee had conducted the sale.

>  However, where a mortgagee sells to a “connected person”, the burden of proof is reversed and the mortgagee must prove that he took care to obtain the best price.

As a matter of fact, the Court was not convinced that the purchaser was a “connected person”. As such, the burden of proof remained with the Defendants to show that the bank had breached its duty to obtain the best price reasonably obtainable for the vessel at the time of the sale. The Defendants were unable to do so.

While the Defendants put forward expert evidence to the effect that the true market value of the vessel was €2.8 to €2.9 million, the Court considered that there was such “an aura of vagueness and uncertainty” about this evidence that they could not place any reliance on it. Conversely, the Court found the evidence of the bank’s expert – to the effect that the sale price was reasonable - to be “helpful and persuasive”, and accordingly found that the vessel had not been sold at an undervalue.


This case gives a useful summary of the key principles and previous authorities that a mortgagee will need to consider when selling property of which they have taken possession (and conversely, the principles that a mortgagor will wish to keep in mind when challenging any such sale!).

It is also a demonstration of how important it is to find the ‘right’ expert witness: that is, one with the appropriate background and experience to advise authoritatively. As the bank’s and the Defendants’ differing fortunes show, an expert can be enough to make (or break) a case. 

Article authors:

Christian Dwyer Rebecca Cawley