Deutsche Bank Trust Company Americas v Motor Vessel Sertao, Owners of

Factual and Procedural Background

The case concerns an application by the Claimant mortgagee for an order for sale pendente lite of the vessel MV SERTAO, a sixth generation ultra deep water drillship registered in the Marshall Islands and owned by Company A, a Delaware company affiliated with a Brazilian engineering conglomerate. The vessel was time chartered to a Brazilian national oil company. The Claimant mortgagee, a US financial institution and subsidiary of Company B, lent approximately US$750,000,000 to the conglomerate, secured by a mortgage on the vessel dated March 2012. Following a fall in oil prices in mid-2014, payments ceased in April 2015. The vessel was sailed to England for layup and was arrested in Teesport in November 2015 after the claim in rem was issued. The outstanding debt secured by the mortgage is over US$808 million, with multiple defaults alleged.

The vessel is currently laid up in Tilbury and has been appraised at a value significantly below the outstanding debt due to the depressed market for drillships. The Claimant mortgagee has been funding maintenance costs, which are substantial, and seeks a sale pendente lite because the vessel is a wasting asset whose value diminishes with ongoing costs. The Claimant mortgagee has not sought judgment yet, intending to secure further funding with the vessel as security. Another claimant, a supplier of engine parts, holds a smaller claim and does not oppose the sale.

The Claimant mortgagee also seeks an order for the Admiralty Marshal to appoint a broker of its choosing, Pareto Offshore A/S, rather than the traditional broker, C.W. Kellock & Co., used by the Marshal for over 150 years. The Marshal expressed concerns about appointing a different broker, emphasizing the value of long-standing relationships, impartiality, and procedural experience.

Legal Issues Presented

1. Whether the court should order a sale pendente lite of the vessel MV SERTAO given it is a diminishing asset.
2. Whether the Admiralty Marshal should appoint the Claimant mortgagee’s chosen broker rather than the traditional broker.
3. The appropriate terms and conditions of sale, including the minimum sale price and broker commission arrangements.

Arguments of the Parties

Appellant's Arguments (Claimant Mortgagee)

• The vessel is a wasting asset due to ongoing maintenance costs, justifying a sale pendente lite to prevent further diminution of value.
• The sale should be conducted with a minimum price equal to the appraised value to protect the mortgagee’s interests.
• The Claimant mortgagee prefers to use Pareto Offshore A/S as broker due to their specialist knowledge and market share in offshore drilling rigs, which is expected to generate greater interest than the traditional broker.
• The Claimant mortgagee is willing to have joint brokers appointed (Pareto and C.W. Kellock & Co.) to balance specialist knowledge with procedural experience.
• The commission split proposed is 50/50 between Pareto and Kellocks, reflecting their respective contributions.
• The Claimant mortgagee’s solicitor undertakes to pay the Marshal’s fees and expenses even if the vessel is not sold.

Respondent's Arguments (Admiralty Marshal)

• Concerns about appointing a broker other than C.W. Kellock & Co., given their long relationship, market knowledge, and experience with court processes.
• The need for an independent broker to maintain confidence among all interested parties.
• Potential risk that Kellocks would no longer act as the Marshal’s broker for future sales if displaced, possibly delaying future sales.
• While Kellocks lack specialist drillship experience, they do not anticipate difficulty marketing the vessel.
• Marshal is content to accept Pareto’s appraised value if joint brokers are appointed.

Table of Precedents Cited

Court's Reasoning and Analysis

The court recognized the vessel as a diminishing asset due to ongoing maintenance costs that reduce its value, making a sale pendente lite appropriate despite the Claimant mortgagee’s hope for a market recovery. The court acknowledged the Claimant mortgagee’s strategic interest in testing the market through a sale process with a minimum price set at the appraised value, which is below the outstanding debt. The court accepted that this approach was not improper as the mortgagee must act in its best interests and no other interested parties would be prejudiced.

Regarding the appointment of brokers, the court noted the Marshal’s concerns about changing from the traditional broker with long experience to the Claimant mortgagee’s specialist broker. However, given the vessel’s unique nature and depressed market, the court found merit in appointing joint brokers to combine specialist market knowledge with procedural expertise. This arrangement was seen as an acceptable compromise to ensure an effective sale process.

The court addressed concerns about the Marshal’s fees if a sale did not occur, accepting the Claimant mortgagee’s solicitor’s undertaking to cover reasonable fees and expenses. The court also considered the broker commission structure, encouraging a 50/50 split between the two brokers as fair given their differing contributions.

Holding and Implications

The court’s final decision is to ORDER A SALE PENDENTE LITE of the vessel MV SERTAO on the terms requested by the Claimant mortgagee, subject to:

• No objection from the Claimant mortgagee to the Marshal charging a reasonable fee if no sale occurs.
• Agreement between the Claimant mortgagee, Pareto Offshore A/S, and C.W. Kellock & Co. on the split of the 1% broker's commission.

The decision enables the vessel to be sold expediently to prevent further diminution in value while allowing the mortgagee to test the market. The appointment of joint brokers balances specialist knowledge with procedural experience, promoting an efficient sale process. No new legal precedent is established beyond the application of established principles governing sale pendente lite and broker appointments in admiralty sales.