Aegean Baltic Bank SA v Renzlor Shipping Ltd

A mortgagee or security holder exercising enforcement powers owes an equitable duty to act in good faith and for a proper purpose. Where it exercises a power to realise security, it must take reasonable care to obtain a proper price, but it may protect its own interests and is not generally required to litigate at its own financial risk. The duty does not ordinarily impose an obligation as to when enforcement should occur. Its content may be modified by contract, including by a clause limiting liability to wilful misconduct. A guarantee is released under Article 862 of the Greek Civil Code only where the creditor’s fault makes satisfaction by the debtor impossible, with the required causal link. Article 330 is not an independent defence. No breach, causation or set-off was established.

The Bank claimed repayment of outstanding sums under a loan agreement and related guarantees against the borrowing shipowner, its manager and the managing director. The Defendants alleged that the Bank had mishandled hull and machinery insurance claims, including by accepting a partial-loss settlement rather than pursuing a constructive total loss, and relied on English equitable duties and provisions of the Greek Civil Code.

The Owner and Manager did not participate at trial, while the managing director appeared in person. The principal issues were whether the Bank had breached duties in exercising its security rights, whether the guarantees were discharged under Greek law, and whether the Defendants had any defence by way of causation, circuity or set-off.

1. Judgment for the Bank. The Bank was entitled to recover the outstanding indebtedness from each Defendant, subject to removal of legal fees incurred in the action from the debt calculation.
2. The Bank’s enforcement of the insurance claims was analogous to a mortgagee’s exercise of powers over mortgaged property. It owed an equitable duty to act in good faith and for a proper purpose. Where it chose to realise security, it also owed a duty to take reasonable care to obtain a proper price. The duty was not a common-law duty of care or an implied contractual term.
3. The duty did not require the Bank to sue Generali or the Lloyd’s underwriters at its own financial risk. Nor did it impose a duty as to the timing of enforcement. The contractual exclusion in clause 9.12 of the Loan Agreement restricted liability to losses caused by wilful misconduct. No such misconduct had been alleged.
4. Under Italian law, Article 543 of the Code of Navigation required the notice of abandonment to be served within four months of the casualty, or of the insured becoming aware of it, because the casualty occurred outside Europe or the Mediterranean. The notice was therefore ineffective and supported only a partial-loss claim.
5. Article 281 of the Greek Civil Code had not been contravened. Article 862 required proof that satisfaction of the claim was impossible, that the creditor was at fault, and that the fault caused the impossibility. None of those elements was established. Article 330 informed the assessment of fault but created no free-standing defence.
6. The complaints did not establish that the Bank prevented payment or caused recoverable loss. There was no circuity of action or effective set-off. Clause 5.1(a) independently required payment without set-off or counterclaim.