Waterson Hicks acted for Aegean Baltic Bank in litigation involving the 2003-built, 10,000 dwt tanker Starlet. John Hicks (principal) and Edward Bayliss (solicitor) explain how the various defences laid by the insurer were defeated in favour of the bank
Aegean Baltic Bank had entered into a loan agreement with the owners on terms including the usual assignment of the vessel’s insurances. In July 2015, the vessel suffered water ingress to its engineroom whilst at Yemen. There being no possibility to salvage the vessel (in part, due to the ongoing conflict in Yemen), the owners served a Notice of Abandonment on hull insurance leaders Generali.
Generali rejected the Notice on the basis it was time-barred under Italian law. The bank concluded a settlement agreement with Generali on a partial loss basis (being about half the amount of Generali’s potential liability under a constructive total loss claim). The bank brought a claim for the balance of the loan under the loan agreement and security in the amount of US$9.9M.
The defendants did not challenge the quantum of the bank’s claim, but raised various defences questioning the bank’s duty to the insured when exercising its rights under assignments of insurance. The basis of the defence was the contention that the bank acted negligently or in breach of duty in its conduct of the insurance claims following damage to the vessel and that claims against the bank for such provided a defence of circuity of action or set-off in favour of the owner so that the guarantees had been discharged under Greek law.
“The defendants argued as a matter of Greek law that as guarantors they were relieved from liability”
The defendants contended the bank’s settlement with Generali was unreasonable in that the bank should have settled on the basis of a constructive total loss, or should have sued on the basis the notice was not time-barred as a matter of Italian law. The defendants also contended that the bank had failed to recover sums under the London market policy.
The defendants also argued as a matter of Greek law that as guarantors they were relieved from liability because the bank:
(a) by its own gross misconduct caused the owners’ inability to repay the debt; and
(b) dealt with the H&M insurance claims in a manner contrary to good faith, morality, and/or the purpose for which such rights had been granted.
The defendants were debarred from adducing witness evidence or expert evidence in support of their case by reason of their failure to comply with an unless order to provide disclosure of documents, and the judgment provides a helpful illustration of the considerations the court will take into account to ensure gaps in evidence by reason of the sanctions imposed on the defendants do not inure to their benefit.
Adrian Beltrami QC, sitting as a deputy High Court judge, found against the defendants and gave judgment in favour of the bank. In doing so the judge held that in exercising its rights under the assignment of the insurance policies in settling claims, the bank owed to the defendants a duty of good faith and a duty of reasonable care to obtain a proper recovery. There was no evidence the bank was in breach of these duties in the present case. There was no obligation to exercise rights under the assignment within a certain time frame, even if the non-exercise of rights resulted in a reduction in the amount recovered. Such duties could be further restricted in their scope by contractual provisions in the assignment, for example curtailing the duty not to engage in wilful misconduct.
The Greek law defences also failed.
Waterson Hicks is a specialist maritime law firm based in London and Piraeus.