Put baldly, the facts of The Maule were as follows. A ship mortgage contained a provision that on the happening of an “Event of Default” the mortgagee would become entitled “to exercise all the powers possessed by it as mortgagee … of the ship and in particular … to sell the ship … without prior notice to the owner”.2 The mortgage defined “Events of Default” to include a number of occurrences which did not involve any actual or threatened financial default by the mortgagor. One of these occurrences did indeed occur and, even though at that time the mortgagor was not in default—no money was due to the mortgagee—the mortgagee issued a writ for the arrest of the ship to enable it to exercise its power of sale. Was it entitled to do so? By the time the case reached the Privy Council (on appeal from the Court of Appeal of Hong Kong) it had been conceded on behalf of the shipowner that a ship mortgage could validly confer on a mortgagee an express power to sell exercisable even though there is nothing yet due under the loan agreement. Ultimately, therefore, the sole question requiring decision by the Privy Council was whether, as a matter of construction, this particular mortgage did in fact confer such a power on the mortgagee. It was held that it did, and therefore that the mortgagee had been entitled to exercise the power of sale at the time when it issued the writ.

But does this really mean that there are no limits on the permissible terms of a power of sale conferred on a mortgagee by contract? Could the power be made, for example, absolutely unconditional—exercisable at any time, for any (or no) reason?

In fact, there are at least three potential problems with an unlimited, unconditional power of sale. The first is the obvious practical one—if the mortgagee sells at a time when no money is due, the proceeds of sale belong to the mortgagor, not to the mortgagee. So, unless the mortgage specifically entitles the mortgagee to hang on to the mortgagor’s money, there is no point in the mortgagee exercising the power of sale unless all the debt secured is in fact due for payment (or rather, all of it up to the value of the net proceeds of sale). A mortgagee who has to hand back all or part of the proceeds of sale to the mortgagor when there are still outstanding future liabilities owed by the mortgagor has simply thrown away its security. In practice, therefore, the event which has prompted the exercise of the power of sale must also trigger off, or be accompanied by, an acceleration of the loan.3