Reed Smith recently acted for a mortgagee client who
successfully purchased a vessel at a judicial auction, following
default by a borrower under a loan facility and the vessel's
subsequent arrest.
Time charterers of the vessel had stemmed bunkers prior to the
vessel's arrest and, as is usual, the mortgagee purchaser of
the vessel paid them directly for the unburned bunkers remaining
onboard. The value of the bunkers was set by the local
auctioneer, with reference to local spot rates.
The mortgagee paid the auction price for the vessel into court,
following which various creditors formulated claims against the
sale proceeds. Time charterers put in another claim for the
bunkers burned during the arrest, framing the claim as one for
'preservation costs', which attracted a higher priority
ranking than the mortgage.
