HSBC Bank Plc v Pearl Corporation S.A. & Ors

Under Greek law, a guarantor is released under Article 862 only where the borrower cannot satisfy the lender, the lender is at fault, and that fault caused the inability to pay. Article 281 requires an obvious and significant abuse of the creditor’s right. A secured bank is not required to accept restructuring proposals, forgive debt or continue supporting distressed lending merely because it previously agreed temporary concessions. It may insist on adequate security and assess proposed sales or restructurings by reference to ordinary banking standards, contractual rights, available information and the commercial circumstances. Delay in negotiations is not fault where the negotiations concern substantial restructuring and proceed through ordinary approval procedures. The defences failed where the bank’s conduct remained within the range of reasonable banking responses and the alleged causation was not established.

HSBC Bank Plc claimed approximately US$9 million from Dimitrios Kritsas under personal guarantees securing two English-law ship-finance loans made to Pearl Corporation SA and Onyx Corporation SA. The borrowers and other corporate defendants had defaulted, and default judgment had been entered against the first four defendants.

Mr Kritsas relied on Articles 862 and 281 of the Greek Civil Code. He alleged that the bank had acted negligently or abusively in responding to successive restructuring, sale and change-of-ownership proposals during a severe decline in the dry-bulk shipping market. He also challenged the effectiveness of the guarantee waiver clause. The central issues were whether the bank’s conduct satisfied the statutory tests and caused the borrowers’ inability to repay.

Judgment for the Bank. Mr Kritsas’s defences under Articles 862 and 281 of the Greek Civil Code failed. The Bank was entitled to judgment against all five defendants for the losses claimed.

1. Article 862. The agreed elements were: the borrower’s inability to satisfy the lender; fault by the lender; and causation, namely that the lender’s fault was a causa adequata of that inability. Fault included simple and gross negligence, assessed by the standard of the average prudent and diligent person in the same professional environment. Any release would extend only to the impossibility caused by the lender’s fault.
2. Article 281. Abuse required an indisputable or obvious breach of good faith, morality or the social and economic purpose of the right. The threshold was high and required significant, clear excess beyond those limits.
3. The Bank’s handling of the First Proposal involved ordinary negotiations concerning substantial restructuring, additional security and internal credit approval. It was not negligent or abusive to insist on maintaining adequate asset cover as the price of relaxing payment terms. The Bank was not bound by its earlier temporary concessions and was not required to sell the vessels or provide a debt haircut.
4. The response to the Second Proposal was also lawful. Greek law did not require a bank to forgive debt in this commercial maritime context. The Bank was entitled to require financial disclosure before considering any release of personal liability. The eventual vessel sales produced at least as much as the proposed immediate sales.
5. The Bank was entitled to reject the Third Proposal involving Newlead. The transfers breached ownership provisions and occurred without approval. The Bank could reasonably reject the proposed new owner, prefer an existing customer, and enforce its security. The decision did not depend on hindsight about a future recovery in the shipping market.
6. Because no breach of Articles 862 or 281 was established, the court did not need to decide causation in detail or the effect of the guarantee waiver clause. In any event, the alleged conduct was not shown to have caused the borrowers’ inability to repay.

First-instance decision. Prior default judgment had been entered against the first to fourth defendants, but no appellate history was stated.