By way of background, Close Brothers ("CB") had granted a marine loan to AIS (Marine) 2 Limited ("AIS"), secured by a ship mortgage over the "Ocean Wind 8 of Hartlepool". In addition to the mortgage, a personal guarantee and indemnity had been granted by Mr Paul Chandler ("PC") as part of the security package. AIS defaulted under the loan agreement and CB repossessed and sold the vessel for £1.7 million. CB brought a claim against AIS and PC to recover £220,602.35 together with interest and costs, which, according to CB was the shortfall amount between the sale proceeds of the vessel and what was still owed to it pursuant to marine loan. AIS was placed in compulsory liquidation by court order at the end of 2017 so the claim against AIS was stayed in accordance with the Insolvency Act 1986. The claim against PC, which sought to enforce the guarantee, was allowed. The court itself decided there was merit in discussing the case for two reasons: (1) whether the sale of the vessel had been made to a "connected person" (note that this first point was swiftly abandoned as no evidence was provided to support it); and (2) whether the vessel had been sold at an undervalue as a claim raised by PC?
Was the vessel sold at an undervalue?
In finding in CB's favour and that the vessel was not sold at an undervalue, the court asked: Was the sale price of the vessel within the acceptable ambit for a vessel of her type at the relevant time?
Each of CB and PC obtained separate expert opinions on this point. Unsurprisingly, the expert opinions did not agree, CB's expert stating the sale price of the vessel "was at the lower side but within a sales price considered by the author as reasonable", adding "it was questionable whether a higher sales prices could have been obtained, give the poor market conditions for second-hand sales at that time and after the down cycle in CTV charter rates in 2016".
PC's expert offered a valuation of EUR 2.8 to 2.9 million but stated that his valuation "did not take into account the adverse effects of a poor or depressed market, such as exists now. In those circumstances, it becomes a buyers market and it is unknown what someone would pay for a vessel".
The court ultimately sided with CB's expert opinion, recognising the valuation of a vessel is a difficult operation, requiring a wide and intimate knowledge of the relevant markets and that opinions between brokers could differ markedly. The court noted that usually, the best guidance came from actual sales of similar vessels. The situation where an identical vessel would come onto the market at the same time is pretty rare so it must often be sufficient to assess the market in light of whatever information is available with regard to similar vessels at the time. The court in the end accepted CB's expert's evidence that the sale price, despite being on the low side, was in the "appropriate bracket for the vessel at the time when the sale took place" and made specific reference to the fact the expert had himself taken the time to state it was unlikely that a higher price could have been achieved because of the state of the market at the relevant time.
Other pertinent points to take away from this judgment
Other arguments which had been put forward by PC such as that CB had breached his duty to AIS and PC to achieve the best reasonable price, or that CB should not have appointed a broker in relation to the sale of the vessel or that the sale of the vessel had not been advertised properly were ultimately set aside.
However, the court did choose to give a few comments, stating that:
- The appointment of a broker by a bank to sell a vessel was hardly a surprising choice given the expertise required and such an appointment could not be regarded as acting in breach of an obligation to the mortgagor or guarantor;
 All ER (D) 41 (Sep) - Queen's Bench Division (Admiralty Court)
- The criticism that the broker did not advertise the sale of the vessel widely enough, when it had in fact sent the particulars to over 300 recipients, was not accepted as valid criticism, taking into account the nature of the market and the number of operators involved.