Hsbc Bank Plc v Pearl Corporation S.A.
| Jurisdiction | England & Wales |
| Judge | Sir Ross Cranston |
| Judgment Date | 08 February 2019 |
| Neutral Citation | [2019] EWHC 231 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 08 February 2019 |
| Docket Number | Case No: CL-2016-000682 |
[2019] EWHC 231 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QUEEN'S BENCH DIVISION)
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Ross Cranston
(Sitting as a High Court Judge)
Case No: CL-2016-000682
Adam Turner (instructed by Watson Farley & Williams) for the Claimants
Lawrence McDonald (instructed by S&S Legis) for the Fifth Defendant
Hearing dates: 21–24, 28–29, 31 January 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INTRODUCTION
This is a claim under personal guarantees by HSBC Bank PLC (the “Bank”) for approximately $9 million against Mr Dimitrios Kritsas. Mr Kritsas had guaranteed two ship-finance loan agreements, which the Bank had accelerated when there was default under them in April 2016. The loans were made to the first and second defendants, Pearl Corporation SA (“Pearl”) and Onyx Corporation SA (“Onyx”). These are single ship-owning companies of the Aurora Pearl and Aurora Onyx respectively.
Both of the loan agreements were governed by English law. Pearl and Onyx gave security, including cross guarantees. The loans were also guaranteed by the third defendant, Kritsas Shipping SA (“Kritsas Shipping”), the management company for Pearl and Onyx. Later another single ship-owning company, the fourth defendant, Lester Holdings (“Lester”) gave security over its vessel, the Aurora Amethyst, and a guarantee of the loans. Mr Kritsas was the 100 percent beneficial owner of Pearl, Onyx, Kritsas Shipping and Lester. He was also president of Kritsas Shipping.
Throughout the period of the loans there was a dramatic deterioration of the dry bulk shipping market to a point not seen for decades. Illustrative is that over the two year period 1 January 2014 to 31 December 2015 the Baltic Exchange Dry Index fell from over 2,000 to under 500. Both Ms Karageorgi and Mr. Marinakis gave evidence that the market hit a 48-year low in February 2016. It was the collapse in the market which affected the value of Mr Kritsas's vessels and led to the failure to repay the loans.
The Bank sued for the amounts outstanding on the loans. Andrew Baker J entered default judgment against the first to fourth defendants on liability on their failure to acknowledge service. The Bank now claims that the liability of Mr Kritsas follows on the same facts and for the same amounts as the liability of Pearl and Onyx.
Mr Kritsas's personal guarantees were governed by Greek law and he contends that they cannot be enforced in accordance with Articles 862 and 281 respectively of the Greek Civil Code due to fault and an abuse of rights by the Bank. In summary Mr Kritsas's case is that the fault and abuse of rights occurred because the Bank did not accept or respond appropriately to proposals he made for restructuring the loans or for sale of the vessels when the loans became distressed.
During the trial I heard evidence for the Bank from Ms Katerina Karageorgi, who is a senior relationship manager in shipping at the Bank's Greek branch and dealt with the borrowers until July 2015, and Ms Eleni Kallantzi, the head of the Bank's loan management unit in Greece (“LMU”). She assumed responsibility for the borrowers after that date. Ms Karageorgi's evidence covered the period 2010–2015, Ms Kallantzi's, the period 2015–2016. Both Ms Karageorgi and Ms Kallantzi are experienced bankers and gave straightforward accounts of their dealings with the defendants.
Mr Kritsas gave evidence. It did not always square with the contemporaneous documents and memoranda made by Bank officials of meetings with him. Where there is an inconsistency I have preferred the latter. Mr Evangelois Marinakis, who was president of both Pearl and Onyx, and managing director and chief operating officer of Kritsas Shipping, also gave evidence. Mr Marinakis is experienced in the shipping business as a shipping agent, broker and manager. On the whole I accept his evidence. Mr Marinakis was more closely involved in the rescheduling negotiations with the Bank than Mr Kritsas, but Mr Kritsas accepted that the details of the negotiations were considered by him.
I also heard evidence from two experts in Greek law, Professor George Georgiades instructed by the Bank, and Professor Anastasia Grammaticaki-Alexiou instructed by Mr Kritsas. Professor Georgiades is Assistant Professor in civil law at the University of Athens, teaching civil and commercial law. He is also a partner since 2004 in a Greek law firm handling commercial litigation and arbitration. Professor Grammaticaki-Alexiou is Professor Emerita in the Faculty of Law at Aristotle University of Thessaloniki and has held a number of visiting positions in the US, Australia, and Cyprus. Both were impressive witnesses.
There was broad agreement between the experts as to the interpretation of Greek law. After their individual reports were served, they prepared a Joint Memorandum in the form of the experts' agreed answers to the questions and issues on an agreed list.
The evidence of Mr Marinakis and Professor Georgiades had to be taken out of order because they were unavailable at the time they would normally have been called. In my view this did not disadvantage the parties in advancing their respective cases. An interpreter was sworn for both Mr Kritsas and Mr Marinakis but in the event was not needed by either.
BACKGROUND
The loan agreements and Mr Kritsas's personal guarantees
The Bank advanced loans to Pearl and Onyx in 2010 to assist in the purchase of two vessels, the first, a Handymax-size bulk carrier vessel, Aurora Pearl, about 10 years old, the second, a Handymax-size bulk carrier vessel, Aurora Onyx, about 8 years old. Mr Kritsas was introduced to the Bank by Mr Simon Ward, at the time working for HSBC Shipping Services Ltd. After a management buyout in 2012 the company was renamed Hartland Shipping Services Ltd (“Hartland Shipping”). Ms Karageorgi had already met Mr Kritsas some years previously when working for Barclays. Mr Kritsas explained in evidence that he borrowed from the Bank because of its size, reputation and experience in shipping finance.
In her August 2010 memorandum to the Credit Committee of the Bank, Ms Karageorgi had recommended the loans for Kritsas Shipping. She stated that the customer was from a conservative, financially strong group, with long experience in shipping. The client had only minimal exposure in the Greek market and an estimated total net worth of US$ 67 million. The group had been established in 1972, Mr Kritsas having run it since his father's death. He had experienced personnel, including Mr Marinakis.
The credit memorandum recorded that Mr Kritsas himself was regarded as a reputable, trustworthy and sophisticated client, having entered swap transactions for hedging purposes. He was the driving force behind the group. He would not take on commitments he could not fulfil. Mr Kritsas's personal and corporate liquidity was US$38 million, split between Pictet and HSBC Geneva (US$20 million), with some US$1–2 million in the financing bank, RBS. Ms Karageorgi commented that there had been the slide in dry bulk shipping rates. The assets of the company could readily be sold in case of need, the vessels being capable of sale to another of the Bank's customers.
On 10 August Ms Karageorgi sought general advice from one of the law firms in Greece, Vgenopoulos & Partners (“V&P Law”). Without naming the client or vessel – in fact it was the vessel to be renamed the Aurora Pearl — she inquired about the Bank's position in having a Liberian registered mortgage turning on different nationalities of owner, flag, and bareboat charterer.
The Bank sent its term sheet to Kritsas Shipping on 25 August 2010. Among the terms on which it offered credit facilities was that Mr Kritsas give a personal guarantee to cover the Bank's exposure under the term loan facility. Mr Marinakis signed and returned the term sheet on 14 September, with some minor amendments.
For documenting the two loans and for taking the related security for the loans, the Bank retained the Piraeus office of the law firm, Stephenson Harwood.
Mr Kritsas was represented Mr Miltos Papangelis of the law firm V&P, which had been recommended by the Bank. Mr Kritsas said in his evidence that V&P were well known in the Greek shipping market. It is evident that V&P was one among a number of legal firms the Bank used in Greece.
Stevenson Harwood sent V&P various draft documents, including a draft of Mr Kritsas' personal guarantee. On 28 September 2010 Mr Papangelis returned some of the documents marked up with suggested changes, adding that Mr Kritsas might have comments on the personal guarantee when he returned the following day. In a further email of 4 October Mr Papangelis returned further drafts marked “with some minor amendments I have made vis-à-vis your last drafts.” He stated in the email that he would call the Stephenson Harwood lawyer about a particular clause of the corporate guarantee. As well as formal changes in the personal guarantee, Mr Papangelis suggested deletion of a clause stating that it was given in order to promote Mr Kritsas's own activities.
The formal loan agreements and guarantees were dated 30 November 2010. The Pearl Loan was for US$ 15 million to part-fund Pearl's acquisition of the vessel for $24.85 million. It was advanced about 14 October 2010 and was secured by a mortgage over the vessel, guarantees from Kritsas Shipping and Mr. Kritsas,...
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