Guardian Ocean Cargoes Ltd v Banco do Brasil

JurisdictionEngland & Wales
JudgeMann,Butler-Sloss,Savilie L JJ
Judgment Date02 March 1994
Judgment citation (vLex)[1994] EWCA Civ J0302-3
CourtCourt of Appeal (Civil Division)
Docket Number92/0700/C
Date02 March 1994

[1994] EWCA Civ J0302-3




(Mr. Justice Hirst)

Before: Lord Justice Butler-Sloss Lord Justice Mann Lord Justice Saville


Guardian Ocean Cargoes LTD & OTS
Banco Do Brasil

MS E GLOSTER QC (Instructed by George Leggatt Clifford Chance EC4V 6BY) appeared on behalf of the Appellant

MR M PICKERING and MS E BIRCH (Instructed by Swinnerton, Ashley, Claydon EC2V 6HH) appeared on behalf of the Respondent


Wednesday 2 March 1994


The following issues arise on this appeal and cross appeal:

(1) Were the payments made by the Plaintiffs to the Defendants in 1981 outright payments or conditional upon the parties reaching an agreement?

(2) If the payments were conditional, can the Plaintiffs recover compound interest from the Defendants in addition. to the principal amounts?

(3) If the Plaintiffs are entitled to compound interest, from what date or dates should it run?

(4) If compound interest is payable, on what basis should it be calculated?

(5) If the payments were conditional but the Plaintiffs are only entitled to simple interest, from what date or dates should simple interest run?


The history of this case starts in 1975 with a shipbuilding contract made between Estaleiro FO SA, who were a Brazilian shipyard, and a Danish ship owning group called Bewa SA. The contract was novated in early 1978 (at about the same time as the delivery of the vessel, Hull SO-083) to Timber Point Shipping Corporation, a Liberian company incorporated by Bewa for the purpose of owning the vessel. The shipbuilding contract provided that 85 percent of the price was to be paid in instalments, secured by mortgages and promissory notes and guaranteed by Bewa.


The Second Plaintiffs demise chartered the vessel (named "Golden Med") from Timber Point for a period of 11 years from delivery on terms that entailed that at the end of the period they would become the owners of the vessel and indeed of Timber Point itself. The Second Plaintiffs then time-chartered the vessel back to Timber Point for a period of two years from delivery, after which it was envisaged that the vessel would be run as a joint venture. The Second Plaintiffs, together with the other Plaintiffs, were members of the Greek shipping group Med Line.


The Shipyard assigned the mortgages and indorsed the promissory notes to the Appellant Bank, who credited the Shipyard with the principal amount of the instalments under a Brazilian Government funding scheme designed to encourage exports.


At first all went well, but the shipping industry declined and in July 1980 Timber Point defaulted on the payment of two of the promissory notes. It appeared unlikely that Bewa would be able to honour their guarantee. The Bank made it clear to the Shipyard that it was disposed to debit the account of the Shipyard with the amount of the promissory notes, on the grounds that the notes had been indorsed by the Shipyard to the Bank so that the latter could look to the former if the notes were dishonoured.


In these circumstances the Shipyard, Bewa and Med Line were concerned to find a solution and a suggestion evolved to the effect that Med Line should become the owners of the "Golden Med" from Timber Point and take over the amounts outstanding, though with these financed by the Bank over a longer repayment period; and that Med Line should likewise take over another vessel (Hull SO 085, called the "Silver Med") which the Shipyard had built for Bewa, and in respect of which there had also been a failure to pay the instalments.


Med Line were interested in carrying forward this suggestion. The group had not previously dealt with the Bank and thus relied heavily on Mr. Sergio Juchem, the Shipyard's lawyer, to advise them how best to seek the agreement of the Bank to this plan.


Mr. Juchem advised Mr. Petropoulos, the managing Director of the Med Line companies, that the chances of obtaining refinance from the Bank would be much improved if, to use a neutral phrase, Med Line showed the Bank the colour of their money, thus helping to demonstrate to the Bank that Med Line were a financially sound group with whom the Bank could safely deal. Indeed, it may well be that this suggestion originated with the Bank, with whom Mr. Juchem had frequent contact.


It appears that by about January 1981 Mr. Juchem had ascertained from the Bank that it was worth going ahead with the proposal. Accordingly, on 5 February 1981 the First Plaintiffs instructed Bank of America to teletransfer the sum of $200,000 to the Bank "for the credit of Estaleiro SO S/A being repayment on Hull SO-083". On this day this amount was credited to an external account of the Bank with the Bank of America in New York. By this time the Bank had debited the account of the Shipyard with the amount of the promissory notes (some $546,000) and it seems reindorsed (and perhaps redelivered) the promissory notes to the Shipyard, but did not credit the Shipyard's account with the amount received from the First Plaintiffs.


On 12 February 1981 the Shipyard addressed a formal proposal to the Bank in the following terms:

"With reference to the Bare Hulls SO-083 GOLDEN MED and SO-085 SILVER MED exported to Messrs. TIMBER POINT SHIPPING CORP. and FAIR HARBOR SHIPPING CORP. which have BEWA LINE A/S as guarantor and aiming at finding a solution to the problem, in view of the fact that the above mentioned companies have not fulfilled their contractual obligations concerning payment on the due dates of the instalments of the credit granted, we submit for your analysis and consideration a proposal from Messrs. MED LINE S.A. who through their associated companies TRANSORIENT SHIP CARGOES LTD. and GUARDIAN OCEAN CARGOES LIMITED are the charterers of the vessels in question, summarised below:

1) The charterers TRANSORIENT SHIP CARGOES LTD (GOLDEN MED) and GUARDIAN OCEAN CARGOES LIMITED (SILVER MED) would take over fully the contracts concerning those vessels becoming thus the buyers with the guarantees given by MED LINE S.A.

2) MED LINE S.A. through their subsidiary GUARDIAN OCEAN CARGOES LIMITED in order to show their genuine interest made a deposit of US4200,000.00 (two hundred thousand dollars) on account of the instalments due on 27/07/80 concerning the finance of Hull SO-083 (FP-3.FI-3).

3) MED LINE S.A. would make a further deposit of US$400,000.00 (four hundred thousand dollars) at the time of the granting of the approval for the transfer of the contracts by CACEX.

4) MED LINE S.A./TRANSORIENT SHIP CARGOES LTD/GUARDIAN OCEAN CARGOES LIMITED request a further two year extension of the global period of the current loan concerning hulls SO-083 and SO-085, the overall period being this changed from 8 (eight) to 10 (ten) years, interest being charged on the instalments in arrears and keeping to the original spirit of the plan including inflaction cover ('baloon'). (sic)

We enclose the following documents for further clarification.

A) Telex dated 29/01081 on behalf of BEWA LINE A/S TIMBER POINT SHIPPING CORP. —FAIR HARBOR SHIPPING CORP. submitting the current situation of those companies and MED LINES S.A.'S proposal.

B) Telex dated 28/01081 from MED LINE S.A. confirming payments to be made.

C) Telex dated 05/01/81 from MED LINE S.A. confirming payment of US4200,000 (two hundred thousand dollars).

D) Letter from MED LINE S.A. attaching the latest balance sheets, proving payments made to BEWA LINE A/S for the charters and bank references."


The reference in paragraph 2 of this letter to "(FP3/FI3)" is a reference to the dishonoured promissory notes. The proposal was addressed to CACEX, which was the department of the Bank dealing with the matter.


On 13 February 1981 Med Line telexed the Bank in the following terms:-

"With reference to the remittance done by Med. Line S.A., subsidiary Guardian Ocean Cargoes Limited on 5th February for USD 200,000 NRU Bank of America NT and SA Piraeus Branch for payment of Hull SO-083. Please consider this payment as partial payment of promissory note with CEDEX No.228078898 (FP-3) and 228078099 (FI-3)."


Three days later the Shipyard requested the Bank to credit this amount to them on the grounds that it had been remitted as "payment of part of instalments FP3 and FI3". The Bank did not accede to this request.


At the end of February 1981 Med Line, Bewa, the first two Plaintiffs and others made an agreement whereby (among other things) the parties agreed that Med Line should take over Bewa's shares in Timber Point and assume (up to a specified limit) Bewa's liability as guarantors and that the chartering and other arrangements to which I have referred should be treated as cancelled retrospectively to a date in 1979. In this agreement Bewa agreed to sell another vessel to the Med Line Group on terms that the latter would apply part of the purchase price to redeem a mortgage on that vessel and the balance to settle the indebtedness of Bewa to Med Line. It was a term of this agreement that if refinancing from Brazil was not forthcoming then the parties would reconsider this deal and if necessary go to arbitration.


On 10 March 1981 the First Plaintiffs effected another payment of $200,000 to the Bank. This sum had its origins in a commission payable by the Shipyard to Bewa, but which Bewa had agreed could be used by Med Line for this purpose. For obvious reasons Bewa SA were anxious for the Bank to provide refinance to Med Line, since this would go far to relieve them from their indebtedness.


The transfer was effected through Williams and Glyns Bank...

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