Glafki Shipping Company S.A. v Pinios Shipping Company No. 1 (No. 2) (Maira)

JurisdictionEngland & Wales
JudgeLord Hailsham of St. Marylebone,Lord Bridge of Harwich,Lord Brandon of Oakbrook,Lord Brightman,Lord Mackay of Clashfern
Judgment Date17 April 1986
Judgment citation (vLex)[1986] UKHL J0417-1
Date17 April 1986
CourtHouse of Lords

[1986] UKHL J0417-1

House of Lords

Lord Chancellor

Lord Bridge of Harwich

Lord Brandon of Oakbrook

Lord Brightman

Lord Mackay of Clashfern

Pinios Shipping Company No. 1
(Respondents)
and
Glafki Shipping Company S.A.
(Appellants)
Lord Hailsham of St. Marylebone

My Lords,

1

I am grateful to my noble and learned friend Lord Brandon of Oakbrook for the opinion which he has prepared and which I have been privileged to read in draft. I agree with it, and therefore consider that this appeal must be dismissed.

Lord Bridge of Harwich

My Lords,

2

For the reasons given in the speech of my noble and learned friend Lord Brandon of Oakbrook, with which I agree, I too would dismiss this appeal.

Lord Brandon of Oakbrook

My Lords,

3

The appellants in this appeal were the managers under a written agreement for the management of a ship, the Maira, owned by the respondents. In what follows I shall refer to the appellants as the managers, to the respondents as the owners and to the Maira as the ship.

4

During the currency of the management agreement the ship, which was, as will appear later, subject to two mortgages on her, was totally lost by perils of the sea. Following that loss disputes arose between the owners and the managers with regard to a number of matters arising out of the management agreement, and those disputes were later referred to arbitration in London in accordance with its terms. However, while a number of disputes were so referred, it is with one only of them that your Lordships, following the various proceedings which I shall outline, are now concerned. The main question raised by that dispute relates to the amount for which the managers were obliged, under the terms of the management agreement, to insure the ship.

5

The owners and the managers appointed Mr. Donald Davies as sole arbitrator and the hearing of the arbitration took place in July 1980. In March 1981 Parker J. sitting in the Commercial Court ordered the arbitrator to state a special case for the opinion of the court, and in October 1981 that order was affirmed by the Court of Appeal [1982] 1 Lloyds Rep. 257. The question of law which Parker J. ordered to be stated in the special case was as follows:

"Whether upon the facts found and a true construction of the management agreement dated 6 September 1977 [the managers] were under any duty to insure [the ship] for a sum in excess of 130 per cent. of the sums outstanding under the mortgage."

6

On 9 February 1982 the arbitrator made an award in the form of a special case asking for the opinion of the court on the above question. His own view was that the question should be answered in the affirmative, and that the managers, by insuring the ship for only U.S.$ 10,000,000, were in breach of their obligations under the management agreement. On that basis he made a provisional award, subject to the opinion of the court on the question of law stated, of $ 1,911,881, together with interest, in favour of the owners. He also made an alternative award, in case the court should disagree with him on the question of law in issue, in favour of the managers dismissing the owners' claim. Unusually, in circumstances into which it is not necessary to go, the arbitrator included in his award his reasons for it.

7

The special case was heard by Hobhouse J. in the Commercial Court in July 1983. He was dissatisfied with the form of the question of law stated and directed that it should be amended to read as follows:

"Whether upon the facts found and the true construction of the management agreement dated 6 September 1977 [the managers] were under an obligation to insure [the ship] for more than $ 10,000,000."

8

The judge held that the arbitrator's answer to the original question was wrong in law, and that the question as amended should be answered in the negative. He, therefore, set aside the arbitrator's provisional award in favour of the owners and upheld his alternative award in favour of the managers. The judge further rejected an alternative attack made by the managers against the award on the basis of an error of law on its face, the opportunity for which was created by the arbitrator's decision to include his reasons in his award. The error of law so alleged related to a different question of law from that stated in the special case, namely, the right of the managers to rely, as a defence to the owners' claim, on an exempting provision contained in the management agreement.

9

The owners appealed to the Court of Appeal [1985] 1 Lloyds Rep. 300 (Lawton, Kerr and Browne-Wilkinson, L.JJ.) against the decision of Hobhouse J. on the special case and the managers cross-appealed against his decision relating to the exempting provision in the management agreement. On 5 December 1984 Kerr L.J. delivered the judgment of the court, reversing the decision of Hobhouse J. on the special case and restoring the arbitrator's provisional award of $ 1,911,881 in favour of the owners, but upholding the judge's decision on the exempting provision. The Court of Appeal refused the managers leave to appeal to your Lordships' House, but leave was later given by the Appeal Committee.

10

The facts of the case appear from the express findings made by the arbitrator and from inferences reasonably to be drawn from them. The ship was built for the owners in Japan by Ishikawajima-Harima Heavy Industries, whom I shall call the builders. The title to the ship and possession of her were transferred by the builders to the owners on 9 February 1977. The price of the ship was Y. 2,700,000,000. The arrangements for the payment of the price were these. First, the owners paid 30 per cent. of the price, amounting to Y. 810,000,000. Secondly, the builders lent to the owners the balance of 70 per cent. of the price, amounting to Y. 1,890,000,000, in respect of which the owners drew in favour of the builders fourteen promissory notes each for Y. 135,000,000 and payable in London at six-monthly intervals with interest at nine per cent. Thirdly, in order to secure this indebtedness of the owners to the builders, the owners executed a first preferred mortgage on the ship, which I shall call the first mortgage. Fourthly, the National Bank of Greece, which I shall call the Greek Bank, guaranteed to the builders payment to them of the first six of the fourteen promissory notes referred to above. Fifthly, the builders assigned all their rights under the promissory notes, the first mortgage and the Greek bank's guarantee to Dai-Ichi Kangyo Bank, which I shall call the Japanese bank. Sixthly, in order to secure the liability of the Greek bank to the Japanese bank under the former's guarantee, the owners executed a second preferred mortgage on the ship, which I shall call the second mortgage, in favour of the Greek bank.

11

These various arrangements with regard to the payment of the price of the ship were all part of a single composite transaction, or, in more colloquial language, of one package deal. That this is so is shown by the fact that the following documents, namely, ( a) the bill of sale transferring the title to the ship from the builders to the owners, ( b) the first mortgage, ( c) the guarantee given to the builders by the Greek bank, ( d) the assignment by the builders to the Japanese bank of all the former's rights under the promissory notes, the first mortgage and the Greek bank's guarantee, and ( e) the second mortgage, were all executed on one and the same day, 9 February 1977.

12

The owners, having taken possession of the ship on 9 February 1977, failed to pay to the Japanese bank, as assignees of the builders, the amount of the first promissory note which fell due for payment on 9 August 1977. The Greek bank was accordingly obliged to pay the amount itself under the guarantee which it had given. In view of this default in payment by the owners, the Greek bank became entitled to enforce the second mortgage. As, however, the actual value of the ship had diminished substantially since her delivery to the owners, so that, if she were to be sold, the proceeds of her sale would have been insufficient to pay all the indebtedness secured by the two mortgages, the first of which had priority over the second, the Greek bank decided to take a different course in order to protect their interest. That course was to insist on the owners, whose financial position made it commercially impossible for them to refuse, to enter into a management agreement dated 6 September 1977, under which the managers, as appointees in effect of the Greek bank, were charged with the exclusive management of the ship on behalf of, first, the Greek bank, and, secondly, the owners.

13

The owners, the managers and the Greek bank were all parties to the management agreement, in which they were described as the owner, the agent and the bank respectively, and the ship was called the vessel. The management agreement began with a series of recitals concerning, among other things, the financial arrangements relating to the ship, the default in payment by the owners and the performance by the Greek bank of its obligation to make good that default under its guarantee. The operative parts of the agreement went on to provide, so far as material, as follows:

"1. Appointment of agent - The owner irrevocably and unconditionally, since it is in the interest of the bank, appoints the agent as its sole and exclusive agent to manage and conduct the activities of the vessel in the agent's absolute discretion and to act as quasi owner and in accordance with the directions instructions and orders which the bank may feel necessary to issue to the agent in writing from time to time upon the terms and conditions herein provided.

2. Acceptance of appointment - The agent accepts such appointment and undertakes to manage the vessel under this agreement for the account of the Owner and in accordance with such directions and orders...

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1 cases
  • National Bank of Greece SA v Pinios Shipping Company No 1
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 2 March 1988
    ...1 Lloyd's Rep. 660. But Pinios were successful in the Court of Appeal ([1985] 1 Lloyd's Rep. 300) and in the House of Lords ([1986] 2 Lloyd's Rep. 12). Unfortunately their success has proved fruitless. Glafki have failed or refused to pay. So Pinios now seeks to recover by counterclaim fr......

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