In the English case of Close Brothers Limited v AIS (Marine) 2 Limited (in Liquidation), Close Brothers raised an action for recovery of the balance of debt due to it following realisation of the secured asset, a Vessel by the name of "Ocean Wind 8 of Hartlepool".

The main issues before the Court were whether Close Brothers was entitled to recover the balance from the primary borrower and, either consequently or pursuant to the indemnity provisions contained within the separate personal guarantee document, from the guarantor under the guarantee.

In defending the action, the defendants claimed (amongst other things) that in realising the asset Close Brothers had breached its duty to sell the Vessel at "the best price reasonably obtainable".

General principles for the realisation of secured assets

The Court confirmed the following principles:

  1. The mortgagee of a ship owes the same duty of care in relation to the sale as any other mortgagee owes;
  2. The mortgagee owes a duty in equity to take reasonable care to obtain the best price reasonably obtainable at the time. This duty is not able to be delegated, e.g. to a sales agent;
  3. The mortgagee must act fairly towards, and is not entitled to act in a way which unfairly prejudices, the mortgagor, which could include selling quickly at a level just sufficient to satisfy the debt owed. The same duty is owed to any guarantor. (It was noted that sales achieved just above the debt level are subject to the Court's scrutiny);
  4. The mortgagee is liable to the mortgagor is he fails to act with reasonable care to obtain a proper price, although discussions on value and price include an acceptable margin of error;
  5. The asset must be fairly and properly exposed to the market, save in cases of real urgency, and the mortgagee must behave as a reasonable man would in the realisation of his own property;
  6. The timing and manner of sale is a matter for the mortgagee, but the mortgagee cannot sell to himself or to certain connected parties without the consent of the Court; and
  7. Where the mortgagee sells to a connected party, the burden of proof is reversed and the mortgagee must prove that it took reasonable care to obtain the best price.

An earlier argument that Close Brothers and the purchaser of the Vessel were connected not being pursued by the defendants, the defendants had the burden of proving that an improperly low price had been obtained for the asset.

Principles for assessing best price

On the question of price, the Court commented on the difficulty of obtaining ship valuations, noting that the market for these had "been known to fluctuate rapidly and significantly"; opinions of brokers tended to differ markedly; and that it was rare for identical vessels to be exposed to the market at the same time. This forced an assessment of the market based on whatever information was available on similar vessels.

In this case, the Court accepted the expert evidence led by Close Brothers, based on the expert's particular knowledge of the market, including poor market conditions for second-hand sales at the time of sale, and on a careful assessment of values of broadly similar vessels, recalibrated to equate to sales of the Vessel.

In the circumstances, the Court was not persuaded that the sale had been at an undervalue.

The timing and manner of sale

As to the timing and manner of the sale, the Court further commented that:

  1. Sufficient evidence of exposure of the Vessel to the market had been led, notwithstanding the sale of the Vessel was not publically advertised; and
  2. The nature of the asset, including ongoing mooring and maintenance costs, demonstrated that the mortgagee of a ship was usually justified in obtaining a sale at the earliest date commensurate with recovering "as much of the capital as possible".


The case is a useful summary of the more general considerations relevant to the sale of a secured asset by a creditor exercising its rights under the security in its favour -in addition to more specific duties which arise under statute in relation to particular security and/or assets. Of particular interest to both secured lenders and borrowers is the Court's discussion and endorsement of broader valuation methodology where the asset sold (or to be sold) is not one with many, or any, direct comparables within the market at the time of sale, as well as the Court's willingness to interrogate expert testimony on that point.

Security over key borrower assets remains a vital part of every lending / borrowing decision and, in the event that matters do not proceed as anticipated, an important part of recovery or repayment strategy. It is equally vital that all parties have clarity, provided by this case, over the extent of the duties and relevant considerations should repayment be achieved by the secured creditor realising the asset(s).

The full decision can be found here: Ocean Wind (full transcript)