Glafki Shipping Company S.A. v Pinios Shipping Company No. 1 (Maira)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE EVELEIGH,SIR STANLEY REES |
| Judgment Date | 06 October 1981 |
| Judgment citation (vLex) | [1981] EWCA Civ J1006-4 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 October 1981 |
| Docket Number | 81/0496 |
[1981] EWCA Civ J1006-4
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(MR. JUSTICE PARKER)
Royal Courts of Justice.
The Master of the Rolls
(Lord Denning)
Lord Justice Eveleigh
and
Sir Stanley Rees
81/0496
1980 G. No. 3620
MR. MARK SAVILLE, Q.C., MR. SIMON GAULT and MR. VICTOR LYON (instructed by Messrs. Holman Fenwick & Wilian) appeared on behalf of the Respondents.
MR. BERNARD RIX, Q.C. (instructed by Messrs. Elborne Mitchell & Co.) appeared on behalf of the Appellants.
The "Maira" was a new ship built in February 1977 in a Japanese ship-building yard. She was 9,000-odd tons. Her length was 454 feet. Her breadth was 65 feet.
The Pinios Shipping Company No. 1 became the owners of the ship upon its being built. It was a "one-ship" company registered in Liberia. They did not have sufficient money to pay for it: so they had to raise it on mortgage. They raised a first mortgage in yen in favour of the Japanese builders. That mortgage was supported by promissory notes given by Pinios. But this is the important point: it was guaranteed by the National Bank of Greece. So the National Bank of Greece were guaranteeing the repayment of the first mortgage.
Then there was a second mortgage. The National Bank of Greece themselves advanced money and took a second mortgage themselves on the vessel. It is important to note that there was a clause in both mortgages which said that the vessel had to be insured by the owners—not for 100 per cent of the mortgage debt—but for 130 per cent of the mortgage debt. That was to cover the position in case of exchange fluctuations.
According to the National Bank of Greece, the Pinios Shipping Company did not manage the vessel well. So in September 1977—six months after the vessel was built and taken into operation—the bank insisted that Pinios should give up its management: and that a Panamanian company called Glafki Shipping Company S.A. should be entrusted with it. Glafki was part of the big Alafouzos group. It managed the entire fleet of a Greek gentleman called Mr. Alafouzos.
Glafki managed the vessel from September 1977. The initial insurances expired in April 1978. They had to be renewed. Glafki renewed them on the 1st April, 1978. But they did not renew them to cover 130 per cent of the mortgage debt as stipulated. Putting it in round figures, they took out insurances of between $7 million and $8 million in respect of the first mortgage: and nearly $2 million in respect of the second mortgage.
Ten days later a dramatic event occurred. The "Maira" exploded at sea somewhere off Australia, She sank. As far as one can judge from the papers, the crew were taken to Singapore and repatriated to Greece. So there it was: this new ship was lost in April 1978. There were allegations that she had been scuttled. But the insurers did not take any point upon that. They paid the full amount for which she was insured on the London market—somewhere in the region of $10 million. Those moneys would, of course, go to meet the indebtedness on the mortgages. But they were not sufficient to cover them. About $750,000 was still outstanding.
Thereupon Pinios (the owners) turned round on Glafki (the agents) and said, "You did not insure for the right amount. You should have insured for 130 per cent of the mortgage debt. You only insured for 100 per cent or less. If you had insured for 130 per cent, we would have received an extra $2 million from the insurance companies. That would have been to our advantage".
The dispute between Pinios (the Liberian company) and Glafki (the Panamanian company) went to arbitration in London, It was as to whether the management company (Glafki) had fulfilled their obligations of insurance or not. They agreed on the appointment of a sole arbitrator, Mr. Donald Davies, He is one of the most experienced arbitrators in the City of London.
There were pleadings, and so forth. In July 1980 there was a hearing before Mr, Donald Davies. It took five days. There were leading counsel on both sides. There were witnesses on both sides. The rights and wrongs of the matter were gone into. Nothing was said at the end of the arbitration about there being a special case stated on a point of law. But a few days later one of the lay people concerned on Glafki's side wanted to rely on an exemption clause. Later that point was put aside. Then Glafki said that they wanted to call further evidence. Applications were made to the arbitrator. He refused to admit further evidence. Application was made to the commercial judge here. He refused to order the arbitrator to admit further evidence. So no question of further evidence arose. That was in July 1980.
But in November 1980 there was a change. Messrs. Norton Rose Botterell & Roche—the solicitors who had been acting for Glafki—discovered that they were also acting for a Japanese bank which was behind some of these deals: and that there might be a conflict of interest. So another firm of solicitors, Messrs. Holman Fenwick & Willan, took on the case on behalf of Glafki. They employed a different leading counsel. He advised them that there was a point of law which they ought to rely upon in regard to the insurances. It was on the terms of the management agreement. He said that, under the clause about insurance, the agents were to insure "in accordance with the respective Insurance Clauses of the Mortgage"—in the singular—"in favour of the Bank"—that is, the Greek bank. Counsel advised Glafki: "There was only one mortgage in favour of the Greek bank. That was the second mortgage. You have insured in accordance with the management agreement. Therefore you have not broken the insurance provision".
Counsel for Glafki advised them to take that point. Other points arose too. For example, a telex had been sent in which the owners' solicitors had passed on a message suggesting that something in the first mortgage was a sham. At all events, newly employed counsel for Glafki applied to the arbitrator to admit further evidence. He also applied to him to state his award in the form of a special case. (This was under the old Arbitration Act 1950). On the 5th December, 1980 the arbitrator sent his answer by telex. He said:
"Please be advised that:—
1. I have rejected the respondents' application to admit further evidence.
2. I shall make my award in the form of a special case if the respondents"—Glafki—"put up security in the sum of U.S. dollars 2 million".
Those two paragraphs in the arbitrator's decision were immediately questioned by Glafki. They said that it was improper for the arbitrator—on stating a special case—to impose a condition that Glafki had to put up security of $2 million in order to enable them to argue this point of law. It was virtually the whole sum in dispute. Taking that objection, they made application by summons to the commercial judge for a special case without conditions. The application was heard on the 20th March, 1981.
A letter of the 18th March, 1981 from Mr. Donald Davies was put before the court giving his reasons for ordering Glafki to put up security of $2 million. As so much depends upon that letter, I will read the relevant parts of it:
"Unfortunately, I have not had sufficient time to go through the documentation…owing to my heavy commitments…I would like to have gone through the documents as it may be that I would have written a detailed letter to the Court explaining why I made the Special Case conditional upon the Respondents putting up U.S. $2,000,000…
"While I, myself, always saw points of law in the case, it was the changing tactics of the Respondents"—Glafki—"and the attendant number of applications which activated my mind to the thought that the Respondents were indulging in delaying tactics. Further, I think that I should mention that I was not very happy, at the application on December 4th, with the way in which Counsel for the Respondents put to me that his clients would be very annoyed (or words to that effect) if I did not vary my previous decision regarding the putting up of security; to my mind it was a thinly veiled threat (or appeared so to be) and I am not one for bowing to pressures of this kind. Personally, I feel that Counsel should not have mentioned the above although I do not think that, at the end of the day, it would have made any difference to my ultimate decision.
"On a final note, I should say that an Award, in the form of a Special Case, could have been published months ago. It may be that I have done the Claimants a disservice in ordering up security but, of course, they made the application in this respect. I felt that, in fairness to their application, and bearing in mind the events since the end of the hearing, I was justified in ordering up security".
Glafki's application came before the commercial judge Mr. Justice Parker. He held that the arbitrator made an error. He was mistaken in ordering security of $2 million as a condition of Glafki being able to argue a point of law. We have the judgment of the commercial judge before us. He thought that the point of law was not well stated. He reformulated—as we have said he can—the point of law so that it ran:
"Whether on the facts found and upon a true construction of the Agency Agreement dated 6th September 1977 the Plaintiffs were under any duty to insure 'MAIRA' for any sum in excess of 130 per cent of the sum outstanding under the Second Mortgage". That formulation...
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Glafki Shipping Company S.A. v Pinios Shipping Company No. 1 (No. 2) (Maira)
...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 tru......