- Compact Contract
A case of no interest whatsoever?
25 July 2018
In Al Jaber v Al Ibrahim, the Court of Appeal held that interest should not be implied into an oral loan agreement.
Back in 2001, the claimant lent USD 30m to the defendants to finance an Arabic 24 hour news channel. The parties never mentioned interest and the arrangement was not documented, and for a number of years the claimant overlooked the fact that the loan was in place. Nevertheless, some 15 years later, the claimant brought proceedings in England seeking not only repayment of the loan, but USD 32m in interest on top.
At an interim hearing the judge refused the claimant permission to serve one of the defendants out of the jurisdiction with the claim for interest because it did not have a reasonable prospect of success. By contrast he had given permission for service of the claim for principal.
The Court of Appeal agreed that the interest claim had no reasonable prospect of success. It was well established that interest would ordinarily be available only where there was an express term, or where it had arisen through a course of dealing. As for the implication of terms, it was always going to be tough to show that an obligation to pay interest was necessary for business efficacy, or that it went “without saying”. However here it was an even more difficult argument to make since the claimant conceded that while he expected “some benefit” from the arrangement, it didn’t have to be interest, and he would have been “equally content” with an equity return.
The court also found that claim to interest was necessarily “accessory” to the claim to principal, and therefore the judge had been wrong to split them when considering the question of service out. In substance there was one claim and once the claim to principal met the test for service out, then the claim to interest did too.
Rather than allowing an interest claim with no reasonable prospect of success to proceed, the court took the pragmatic step of issuing a summary judgment against the interest claim there and then, to save the parties the time and cost of a further application.
Presumably fearing the floodgates opening, the court emphasized that it was “highly unusual” and it was “very unlikely” that it would be similarly appropriate in other cases where jurisdiction issues arose.