National Bank of Greece S.A. (Appellants) v Pinios Shipping Company No. 1 and Another (Respondents)
| Jurisdiction | UK Non-devolved |
| Judge | Lord Bridge of Harwich,Lord Brandon of Oakbrook,Lord Griffiths,Lord Goff of Chieveley,Lord Jauncey of Tullichettle |
| Judgment Date | 30 November 1989 |
| Judgment citation (vLex) | [1989] UKHL J1130-2 |
| Date | 30 November 1989 |
| Court | House of Lords |
[1989] UKHL J1130-2
Lord Bridge of Harwich
Lord Brandon of Oakbrook
Lord Griffiths
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
House of Lords
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Goff of Chieveley. I agree with it and for the reasons he gives I would allow this appeal.
My Lords,
For the reasons given in the speech of my noble and learned friend, Lord Goff of Chieveley, I would allow this appeal.
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend Lord Goff of Chieveley. I agree with it and for the reasons he gives I would allow this appeal.
My Lords,
This appeal is concerned with a claim by a bank to compound interest. The appellants, the National Bank of Greece ("the bank"), sought to recover the balance owing on an account maintained by it for the first respondents, Pinios Shipping Company No. 1 ("Pinios"). The amount so claimed included interest, capitalised with quarterly rests, up to the date of judgment. The issue on the appeal before your Lordships' House is whether the bank ceased to be entitled to capitalise interest from the date when it demanded repayment, with the effect that it was entitled only to simple interest from the date of the demand until the date of judgment.
The matter has arisen in the following way. Pinios agreed to purchase a ship, the m.v. Maira, under a shipbuilding contract dated 28 July 1975. The ship was delivered in February 1977, at which time 70 per cent. of the purchase price was outstanding. Pinios had agreed with the shipbuilders that the balance would be paid by 14 half-yearly instalments, secured by a first preferred mortgage on the ship. The bank provided a guarantee for the payment by Pinios of the first six of these instalments. The bank in its turn was secured by a second preferred mortgage on the ship, and by a personal guarantee by the second respondent ("Mr. Tsitsilianis"). In the event, Pinios was unable to pay any of the instalments due to the shipbuilders, and the bank was called on to pay two of the instalments under its guarantee, the first payment being made on 16 August 1972. The ship sank at sea on 10 April 1978. The insurance proceeds were insufficient to enable Pinios to repay the bank under the second preferred mortgage.
On 13 November 1978, the bank wrote to Pinios and Mr. Tsitsilianis demanding repayment of the amount outstanding, including compound interest. These demands met with no response. In 1980 the bank commenced proceedings against Mr. Tsitsilianis and, in 1981, against Pinios, claiming principal and interest. By that time, Pinios was pursuing a claim against the managers of the ship claiming damages arising from the under-insurance of the ship. The trial of the bank's action was delayed, mainly because the two respondents wished to postpone the hearing until after the arbitration proceedings against the managers had come to an end. Pinios obtained an award against the managers, but the managers failed to honour the award. The bank's action then came on for hearing before Leggatt J. in January 1988. At the trial, Pinios denied liability on the basis of an alleged breach of duty by the bank, and raised a number of accounting issues. All but one of these accounting points were abandoned during the trial. Leggatt J. [1986] 2 Lloyd's Rep. 126 held that the bank had committed no breach of duty, and that one adjustment should be made to the account.
However, after the bank had closed its case at the trial, the two respondents raised a new issue relating to the entitlement of the bank to capitalise outstanding interest after the demand made on 13 November 1978. Despite objection from the bank, Leggatt J. gave leave for the point to be argued "in so far as it was capable of being taken as a point of law and not dependent on evidence." After hearing argument, he rejected the submission of the two respondents, holding that the bank was entitled to continue to capitalise interest up to the date of judgment, either upon the express words of the second preferred mortgage, or because the relationship between the parties remained unchanged after November 1978. The two respondents then appealed to the Court of Appeal [1989] 3 W.L.R. 185, both on the point relating to breach of duty, and on the point on compound interest. On the former point, they again lost; but on the latter point, they succeeded. As before Leggatt J., the two respondents accepted liability to pay compound interest from August 1977 until the date of demand in November 1978. However, the Court of Appeal held that the bank's entitlement to capitalise interest came to an end on that date, with the effect that the bank was entitled only to simple interest from 13 November 1978 until the date of judgment, over nine years later, on 2 March 1988. It is against the decision of the Court of Appeal on the compound interest point that the bank now appeals to your Lordships' House.
In the event, your Lordships heard argument only from counsel for the bank; neither respondent was represented, it seems because they had run out of funds. It follows that success in the appeal could be of no direct financial assistance to the bank. It has however pursued the appeal as a matter of principle, considering that the point is one of importance affecting not only itself, but the whole banking community. I must confess to having felt concern at being asked to consider a question of principle without assistance from counsel for the respondent, and furthermore in the absence of any evidence of the practice of bankers. However, having regard in particular to the concession made by the respondents below that the bank was entitled to charge compound interest with quarterly rests during the currency of the bank/customer relationship, I have come to the conclusion that your Lordships' House is able to decide the particular point under appeal, though not perhaps in a position to deal as fully with the point of principle as might have been wished.
I start with the reasoning of the Court of Appeal. They first disagreed with the view of Leggatt J., that the bank was entitled to compound interest on the express terms of the mortgage. The Court of Appeal could find no such term in the mortgage; as to that, I find myself in agreement with the Court of Appeal, and I do not find it necessary to consider the point further.
The question then arose before the Court of Appeal whether there was an implied agreement to pay compound interest which continued after the date of demand. Lloyd L.J. [1989] 3 W.L.R. 185, 205C, approached the matters as follows. He considered that an agreement to pay compound interest might be implied by virtue of acquiescence, but that such an agreement is not normally implied except as to "mercantile accounts current for mutual transactions." He thought it open to question whether the agreement between the bank and Pinios was an account current for mutual transactions; but, even if it was, he held [1989] 3 W.L.R. 185, 205 that it ceased to be such an account when the bank "closed the account and demanded repayment on 13 November 1978." He rejected an argument by the bank founded upon the custom or practice of bankers, because the bank never pleaded or proved a custom entitling it to continue to charge compound interest after the account had been closed. Nicholls L.J. found it surprising that, if compound interest is impliedly agreed to be payable on a loan of money, it should cease to be payable as soon as the creditor asks for his money back; but he considered it to be established by the authorities [1989] 3 W.L.R. 185, 210 that "once a banker or customer has unequivocally demanded immediate payment of what is due to him from the other, with the intention of being paid in full and ending their relationship, compound interest normally will cease to be payable." I shall refer later to the authorities upon which Nicholls L.J. relied for that proposition. O'Connor L.J. agreed, while expressing doubt whether there was, in the present case, the necessary "mercantile account current for mutual transactions" to give rise to a right in the bank to charge compound interest — a point which he did not have to decide, in the light of the concession made by the respondents.
Before your Lordships' House, Mr. Pickering Q.C. assisted your Lordships with a full review of all the material authorities (including any authorities which might have been relied on by the respondents, if they had been represented). I have no doubt that your Lordships have had the benefit of a more complete citation of authority than was available to the Court of Appeal. Among the submissions advanced by Mr. Pickering on behalf of the bank was one that the bank's entitlement to compound interest arose by virtue of a term to be implied into the contract between the parties by reason of a custom or practice of bankers. I, for my part, can see no reason for excluding any such argument on the ground that it was not pleaded by the bank. The bank's statement of claim was specially endorsed upon the writ. It simply recited the agreement between the parties, and the sum outstanding including interest. It was obvious from an up-to-date statement sent by the bank's solicitors to the respondents' solicitors that the sum outstanding was calculated on the basis of continuing to capitalise interest with quarterly rests; indeed the respondents conceded the bank's entitlement so to capitalise interest. The respondents did not challenge the bank's entitlement to compound interest after the date of demand until after the bank closed its case at the...
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