Interest In Oral Loan Agreement Could Not Be Implied, England & Wales Court Of Appeal Finds

Introduction

The Court of Appeal recently handed down its judgment in Sheikh Mohamed Bin Issa Al Jaber and MBI & Partners UK Limited v Sheikh Walid Ibrahim Al Ibrahim and Sheikh Majid Bin Ibrahim Al Ibrahim1, finding that the submission that an oral loan agreement should have an implied term for interest because the lender expected "some benefit" from the loan, was unarguable and should be rejected.

Background

In December 2001, the Second Defendant spoke to the First Claimant (Mr Al Jaber) by telephone and asked for a personal loan of US$30 million. The purpose of the loan was to help progress a business plan to create an Arabic language 24-hour satellite news broadcasting service called Al-Arabiya. Mr Al Jaber orally agreed to lend the Defendants the full amount, and subsequently had the funds transferred. Nothing was said about whether the loan agreement would bear interest. On 21 September 2015, a claim form and particulars of claim were issued claiming repayment of the principal sum, together with interest "at a reasonable business rate".

First instance

Burton J considered that the Claimants were making two separate claims; the first for US$30 million in debt and the second for damages for breach of an implied term as to interest. Burton J found that there was a good arguable case that there was a loan, but not one that provided for interest. As such, while service out of the jurisdiction against the Second Defendant was allowed (the material application before the Judge was the Claimants' application for permission to serve the Second Defendant out of the jurisdiction), the Court would not permit service out of the jurisdiction in respect of the claim for interest.

Court of Appeal

The Court of Appeal first considered Burton J's decision that there were two divisible claims. In Elder v Northcott2, the circumstances were that the principal sum was time-barred and the claimant advanced a claim for interest on the principal. Clauson J held that it would be "paradoxical" for interest accruing before the time at which the principal became barred to be recoverable when the principal was not. Following that decision, the Court of Appeal found that the claim for interest was "accessory" to the claim for principal and those claims could not be separated or "bifurcated".

The Court of Appeal then considered whether it was possible to imply in a loan agreement a term for the payment of interest. Citing Lord Neuberger's judgment in Marks & Spencer...