National Bank of Greece SA v Pinios Shipping Company No 1

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
Judgment Date02 March 1988
Judgment citation (vLex)[1988] EWCA Civ J0302-8
Docket Number88/0185 1980 N. No. 1398
Date02 March 1988

[1988] EWCA Civ J0302-8






Royal Courts of Justice.


Lord Justice O'Connor

Lord Justice Lloyd


Lord Justice Nicholls


1980 N. No. 644

1980 N. No. 1398

National Bank of Greece S.A.
(Plaintiffs) Respondents
Pinios Shipping Company No. 1


George Dionysios Tsitsilianis
(Defendants) Appellants

MR. M.A. PICKERING, Q.C. and MR. D. OWEN (instructed by Messrs. Thomas Cooper & Stibbard) appeared on behalf of the (Plaintiffs) Respondents.

MR. A. HAMILTON, Q.C. and MISS G. ANDREWS (instructed by Messrs. Elborne Mitchell) appeared on behalf of the (Defendants) Appellants.


This is another chapter in the protracted litigation arising out of the total loss of the "Maira" nearly ten years ago on 10th April, 1978. At the time of her loss the vessel was insured for $10 million. The proceeds of insurance, when paid, were insufficient to enable the vessel's owner Pinios Shipping Company ("Pinios") to repay the National Bank of Greece S.A. ("the Bank") under an agreement dated 8th February, 1977. On 13th November, 1978 the Bank wrote to Pinios demanding payment of the amount then due under the agreement. By a letter before action dated 28th January, 1980 the Bank calculated the amount due at 29th January, 1980 as $894,224, including interest. A statement of account was enclosed with the letter. On 8th July, 1980 the Bank issued a writ. The writ was amended by leave on 30th June, 1983. By their points of claim endorsed on the amended writ, the Bank claimed $598,109 plus interest to 30th June, 1983 amounting to $734,979. Although the interest is not described as such, it was in fact compound interest, calculated with quarterly rests. On 29th January, 1987 Mr. Justice Leggatt gave judgment in favour of the Bank. The amount for which he gave judgment, including compound interest to the date of his judgment, amounts to $2,118,213. There is now an appeal to this court. One of the two questions in the appeal is whether the judge was right to award compound interest to the date of judgment.


The second question in the case arises as follows. The "Maira" was built in Japan, under a shipbuilding contract dated 28th July, 1975. The price was payable in yen. 30 per cent of the price was payable on or before delivery. 70 per cent of the price was deferred. It was secured by a first preferred mortgage, in favour of the builders, and by 14 promissory notes signed by Pinios payable at six-monthly intervals. The first six promissory notes were guaranteed by the Bank under a letter of guarantee. The Bank was secured by a second preferred mortgage, and by a personal guarantee given by Mr. Tsitsilianis, the second defendant in the action.


The ship was delivered on 19th February, 1977. The first promissory note fell due on 9th August, 1977. It was dishonoured. The Bank thereupon paid the amount of the promissory note under its letter of guarantee, and debited Pinios.


The Bank, on payment under the letter of guarantee, could have declared Pinios in default under Article 11 (18) B of the second preferred mortgage. But instead of exercising its rights under that clause, the Bank entered into a tri-partite agreement dated 6th September, 1977 with Pinios and a company called Glafki Shipping Co. S.A. By virtue of that agreement Glafki was appointed sole and exclusive agent to manage and conduct the activities of the vessel. Under clause 2 of the agreement Glafki was obliged to manage the vessel in the best interests of Pinios and the Bank. Under clause 3 Glafki was obliged to exercise due diligence to protect and safeguard the interests of Pinios and the Bank in various specific respects. The effect of the Management Agreement was to transfer the entire management of the vessel to Glafki, subject to the directions of the Bank under clause 13.


Under Article 1 (15) of the second preferred mortgage, it was Pinios's obligation to insure the vessel for not less than 130 per cent of the total amount secured by the mortgage. There was a similar, though not identical provision in the first preferred mortgage. Under clause 3 (g) of the Management Agreement, it became Glafki's duty to place all insurances "in accordance with the respective insurances clauses of this mortgage." When the vessel was delivered on 9th February, 1977 she was insured by Pinios for 10 million. This was then sufficient to comply with Pinios's obligations under both mortgages. But as time went on, and the dollar depreciated against the yen, the margin narrowed. The insurance was renewed on the instructions of Glafki on 9th February, 1988 and again on 1st April, 1988. The April renewal worked out at less than 130 per cent of the total amount due under both mortgages, with the consequence that Pinios was unable to repay the Bank. Accordingly Pinios brought a claim against Glafki for damages for breach of duty under the Management Agreement. The claim was referred to arbitration. On 9th February, 1982 the arbitrator issued his award in favour of Pinios. His award was reversed by Mr. Justice Hobhouse: [1984] 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 from the Bank what they have failed to recover from Glafki.


The case is put in a number of different ways. But in essence Pinios say that the Bank was under a duty of care to see to it that Glafki did not under-insure the vessel. They say that that duty arose either as an implied term of the contract, or in tort. The judge has decided, on orthodox lines, that the Bank was under no such duty. The second question in the appeal is whether he was right.


We were told that the first question is one of considerable general importance to bankers. But it is logical, and convenient, to consider the second question first, as did the judge.


At the end of his speech in Smith v. Littlewoods Organisation Ltd. [1987] A.C. 241 Lord Goff of Chieveley epitomised the judicial function as an educated reflex to facts. I have to confess that in the present case my immediate reflex was that the Bank must succeed. I could see no ground for implying a contractual duty of care in favour of Pinios. At the conclusion of the argument, my reflex, though much better educated, remains the same.


The judge dealt with the question shortly as follows:

"Since in this matter the parties have expressly provided for the insurance of the ship, it is not necessary to imply any further duty of supervision. Had the officious bystander enquired whether the Bank were under a duty to see to it in the interests of Pinios that Glafki insured the ship for the full sum required under the mortgages, it is by no means obvious that all the parties would have acknowledged that they were. No doubt it was commercially prudent for the Bank to ensure that the insurance was sufficient to cover their own interest, but it does not follow that they were bound to go further and determine whether Pinios's interest too was properly protected. It would in the circumstances be unreasonable to impose upon the Bank a duty to reinforce the obligation which Glafki assumed under the agency agreement."


From this it would appear that the argument in the court below was that the implication of a term in favour of Pinios was necessary in order to give the contract business efficacy. Both parties, it must have been argued, would readily have agreed to such a term had they been asked.


The notice of appeal and the appellant's skeleton argument reflect this approach. Thus in paragraph 8 (2) of the skeleton argument it is said:

"The existence of Glafki's obligations did not in itself make it unreasonable or unnecessary for there to be an independent duty on the Bank to take steps to prevent Glafki from under-insuring the vessel and thereby causing damage to Pinios."


The basis for the implication is set out in paragraph 8 (6):

"The learned Judge gave insufficient weight to the fact that the Bank, by insisting on a Management Agreement which deprived Pinios of all rights to safeguard its own interests and which reguired the managers, Glafki, to regard the Bank's interests as paramount, had arrogated to themselves the exclusive power to intervene with the managers in the protection of the respective interests of the Bank and Pinios in the insurance monies."


The conclusion is set out in paragraph 8 (8):

"The implication of the term that the Bank did owe such a duty to Pinios is necessary to give effect to the intentions of the parties and the duty is both fair and reasonable."


The argument was put concisely and forcefully by Mr. Hamilton at the outset of his submissions as follows:

"There was nobody to look after Pinios's interests, once the Management Agreement had been entered into. The Bank owed a duty of care to those that they had deprived of the opportunity of protecting themselves."


But in the course of developing his submissions, Mr. Hamilton shied away from the "officious bystander" test. In this he was wise. For so far from it being obvious that the Bank would have agreed to the suggested implied term, it seems to me quite obvious that they would not. Why should they?


Mr. Hamilton made much of the fact that the Management Agreement was forced on Pinios. He relied on the observation of Lord Brandon at [1986] 2 Lloyd Rep. at page 14 that the Bank had "insisted" on Pinios...

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