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[Buy ICLR report:  1 WLR 885]
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||Neutral Citation Number:  EWCA Civ 1690
||Case No: A4/2016/3801
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(The Hon Mr Justice Burton)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||18 July 2018
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE SIMON
LORD JUSTICE NEWEY
|| (1) Sheikh Mohamed Bin Issa Al Jaber
(2) MBI & Partners UK Limited
||(1) Sheikh Walid Bin Ibrahim Al Ibrahim
(2) Sheikh Majid Bin Ibrahim Al Ibrahim
Michael Beloff QC, Stephen Nathan QC and Daniel Cashman (instructed by Zaiwalla & Co) for the Appellants
Neil Calver QC and Daniel Piccinin (instructed by Mcfarlanes LLP) for the Second Respondent
Hearing dates: 13 and 14 June 2018
HTML VERSION OF JUDGMENT APPROVED
Crown Copyright ©
Lord Justice Simon:
- This is the claimants' appeal against a part of the order of Burton J ('the Judge') dated 21 July 2016, in which he held that, in respect of their claim for money owing and unpaid under an oral loan agreement, permission to serve the second defendant out of the jurisdiction should be granted only in respect of the principal sum and not in respect of the interest. The issue is of financial significance since the principal sum claimed is US$30 million and the interest claimed is more than US$32 million.
- The claimants submit that the Judge was wrong to confine the permission to the principal sum and that the order should have been made in relation to both principal and interest. The second defendant submits that the Judge was right, and that in any event there is no serious question to be tried in relation to the claim for interest.
- The first claimant is an international businessman and the Chairman, CEO and beneficial owner of the second claimant, which is a company registered in England and Wales. The defendants are Saudi nationals and brothers. The first defendant lives and was served within the jurisdiction of England and Wales. The second defendant lives in Saudi Arabia.
- The claim arises from, what for present purposes must be accepted to be, an oral agreement by which the first claimant made a loan of US$30 million to the defendants. The circumstances of the loan relied on by the claimants were set out in the particulars of claim.
- In 2001 and early 2002, and subsequently, the defendants operated a business called Middle East Broadcasting Center ('MBC'), based in London, which operated a radio and satellite television service transmitting to Arabic listeners and viewers. Between 1998 and 2001, the first claimant gave substantial support to MBC's business by the purchase of shares and by arranging for the placing of advertising by one of his companies on MBC's radio and TV channels. By the end of 2001, the cost of this advertising amounted to several million dollars. In about mid-2001, discussions began in London between the first claimant and the defendants about a business plan to create an Arabic language 24-hour satellite news broadcasting service to be called Al-Arabiya, which would compete with Al Jazeera.
- In August and September 2001, the defendants asked the first claimant for initial funding of US$30 million for the planned Al-Arabiya broadcasting service, and repeated this request subsequently in 2001. In the last week of December 2001, the second defendant, on behalf of both defendants, spoke to the first claimant by telephone at the claimants' London office in Wigmore Street. He asked whether, in order to help move the Al-Arabiya project forward, the first claimant would give the defendants immediate funding for the project by a personal loan of US $30 million. The first claimant orally agreed to lend them US$30 million and to have that sum transferred to the bank account nominated by the defendants, and it was subsequently transferred.
- There is no issue on this appeal that an oral agreement to lend US$30 million to the defendants was made. Nor is there an issue that nothing was said about the duration of the term of the loan, although the natural assumption would be that it would be repayable on demand or within a reasonable period following demand.
- Importantly in the present context, nothing further was said about the loan agreement and, in particular, whether it would bear interest.
- On 21 September 2015, a claim form and particulars of claim were issued claiming repayment of the principal sum and interest, and the first claimant was served within the jurisdiction.
The issue before the Judge
- The proceedings before the Judge were interlocutory proceedings in relation to jurisdiction. Both defendants applied to set aside service of the claim form on them, alternatively a stay on the grounds of forum non conveniens. Since the claimants accepted that the second defendant had not been properly served within the jurisdiction, they applied, as against him, for permission to serve out of the jurisdiction.
- By his order and judgment, the Judge held that: (1) the first defendant had been properly served within the jurisdiction; (2) having regard to a number of factors, Saudi Arabia was not clearly or distinctly the most appropriate forum for the trial of the action, and accordingly the first defendant's application for a stay on the grounds of forum non conveniens would be dismissed; (3) the claimants had identified a good arguable case, and thus also a serious issue to be tried, that there was an oral agreement with both defendants for a loan made within the jurisdiction; (4) the claimants had a good arguable case that the second defendant was a necessary and proper party to the claim against the first defendant; (5) England and Wales was the more appropriate forum for the hearing of that claim, a determinative factor being that the trial would continue against the first defendant in the jurisdiction in any event; and (6) although service out of the jurisdiction against the second defendant would therefore be allowed, the court would not permit service out of the jurisdiction in respect of the claim for interest, see the judgment at -.
- The material application before the Judge was the claimants' application for permission to serve the second defendant out of the jurisdiction; and it is in relation to this sixth and last point that this appeal arises.
- In summary, the Judge considered that the claimants were claiming US$30 million in debt and damages for breach of an implied term as to interest, and that these were two claims, see . The claimants were required to show a good arguable case in relation to both the claim for repayment of the US$30 million loan and the claim for interest as a breach of an implied term, see . An analysis of the authorities and textbooks clearly indicated that an implied term as to the payment of interest on a loan may arise only by custom or a course of dealing, see - and Calton v. Bragg (1812) 15 East 223, see -. The claimants had argued that the leading authorities were concerned with the implication of a term for the payment of interest in law, and that they were relying instead on the modern approach to implication of terms in fact, see . However, the first claimant's evidence was not particularly helpful in establishing a 'common understanding', see . Although the claimants might be able to establish the implication of a term that interest be paid on a loan, since there was no prior authority to support the implication of such a term, it did not amount to a good arguable case for the purpose of satisfying a jurisdictional gateway, see . There were separate claims for principal and interest ('bifurcation') and, in regard to the latter, the claimants had failed to demonstrate a good arguable case.
The approach on an application for leave to serve out
- There was no dispute as to the proper approach to the Court's grant of permission to serve out of the jurisdiction.
- CPR Part 6.36 provides:
In any proceedings to which rule 6.32 or 6.33 does not apply, the claimant may serve a claim form out of the jurisdiction with the permission of the court if any of the grounds set out in paragraph 3.1 of Practice Direction 6B apply.
CPR PD6B §3.1 provides:
The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where –
(3) A claim is made against a person ('the defendant') on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and –
(a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and
(b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.
(6) A claim is made in respect of a contract where the contract -
(a) was made within the jurisdiction;
(c) is governed by English law;
(7) A claim is made in respect of a breach of contract committed within the jurisdiction.
CPR Part 6.37 provides:
(1) An application for permission under rule 6.36 must set out –
(a) which ground in paragraph 3.1 of Practice Direction 6B is relied on;
(b) that the claimant believes that the claim has a reasonable prospect of success;
(3) The court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim.
- The last provision reflects the three-limb test for service out of the jurisdiction set out in Seaconsar Far East Ltd v. Bank Markazi Jomhouri Islami Iran  1 AC 438 (HL) and VTB Capital Plc v. Nutritek International Corporation  2 AC 387, Lord Clarke of Stone-cum-Ebony at . On an application for permission to serve a foreign defendant out of the jurisdiction, a claimant must satisfy the court that:
(1) There is a serious issue to be tried on the merits: a claim which has a real, as opposed to a fanciful, prospect of success;
(2) There is a good arguable case that the claim falls within one of the relevant gateways in CPR PD6B §3.1. What this involves was explained by Lord Sumption JSC (with whom Lady Hale PSC and Lord Hughes JSC agreed) in Brownlie v. Four Seasons Holdings Inc  1 WLR 192 at :
What is meant is (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it. I do not believe that anything is gained by the word 'much' [in the test 'much the better of the argument], which suggests a superior standard of conviction that is both uncertain and unwarranted in this context.
(3) In all the circumstances, England and Wales is clearly or distinctly the appropriate forum for the trial of the dispute, and the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.
The nature of the claim
- Mr Beloff QC's first challenge to the decision was to the Judge's conclusion in  that there were two divisible claims, the first in debt and the second in damages for breach of an implied term for the payment of interest; and that the consequence of this 'bifurcation' approach was that the application for permission to serve out in relation to the claim for interest was to be treated separately to the claim for repayment of the principal sum. He submitted that there was a single cause of action consisting of the claim for principal and interest.
- There are a number of well-known cases in which the term 'cause of action' has been considered, see for example, Cooke v. Gill (1873) LR 8 CP 107, Brett J at p.116, and Letang v. Cooper  1 QB 232 (CA), Diplock LJ at p.242-243. However, the specific issue that arises on this appeal was specifically addressed by Clauson J (as he then was) in Elder v. Northcott  2 Ch 422. In that case, in circumstances where the principal sum was barred by the operation of the Limitation Act 1623, the plaintiff advanced a claim for interest on the principal. Clauson J held that the interest claim was barred on the basis that the claim for interest was 'accessory' to the claim for the principal. He relied on a passage from the judgment of Sir Nicholas Tindal CJ, sitting in the Court of Common Pleas in Hollis v. Palmer (1836) 5 LJ (CP) 266. At p.426, Clauson J said this:
In that case a question arose on the form of the pleadings, and it is not easy to detach from the report the exact point that was decided; but one suggestion made was that the fact that the principal had been barred by statute did not prevent recovery of interest upon the debt, including interest which had accrued in respect of a period before the date at which the debt was barred. Tindal CJ says …
The first objection, without any reference to the mode of pleading, appears to be reducible to this, that the statute does not operate as a bar to the recovery of the interest, though it does to the recovery of the note, and that an action may be maintainable for the interest, though it would not for the principal. This supposition appears to proceed on the ground, that the cause of action may be severed and divided. But there is but one contract, from which alone the principal and the interest arise. The contract upon which they are founded is one and the same; they constitute, and may be considered as the principal and accessory of the debt; and by the rule of law, if the principal be barred, the accessory falls with it to the ground; and, for myself, I must say, that this is the first time, within my experience, that I have heard the question entertained.
Accordingly, I think that, supported by that observation of Tindal CJ, I am justified in regarding the claim of the plaintiffs - that notwithstanding the fact that the principal be barred, interest accruing before the time at which the principal became barred is recoverable - as a claim which, to the ordinary practitioner, would appear paradoxical and requiring to be supported, if it can be, by the clearest authority.
- Mr Calver QC accepted that the claim for interest from the date of the loan to the date of demand for repayment of the loan was closely related to the claim for principal, but submitted that it was a second and distinct claim. I do not accept that submission. There was a contractual claim for principal and interest; and the claim for interest was accessory to the claim for principal. It follows in my view that the Judge was wrong to treat them separately and that, once he had decided that there was a good arguable case that the primary claim for repayment fell within at least one of the gateways in CPR PD6B, as he did, the accessory claim for interest did so too.
The implied term
- The Judge considered that whether it was possible to imply in a loan agreement a term for the payment of interest in circumstances beyond those referred to in Chitty on Contracts, 32nd edition §39-284 and Halsbury's Laws of England (volume 49 - money at §92), was a novel point.
- We were referred to a number of cases illustrating the way in which the law has developed in relation to awards of interest as damages for late payment of a debt: Arnott v. Redfern (1826) 3 Bing 353; Page v. Newman (1829) 9 B & C 378; London, Chatham and Dover Railway Co. v. South Eastern Railway Co  AC 429; President of India v. La Pintada Cia Navigacion SA  104 and Sempra Metals Ltd v. Inland Revenue Commissioners  1 AC 561. These cases show how the law has developed towards a decisive change in the Sempra Metals case. However, the question that arises on this part of the appeal is the extent to which the court will imply a term that interest will be paid on a loan, prior to demand, absent express agreement.
- It is convenient to start with the decision in Calton v. Bragg (above). The claim was for interest on money lent 'though there was no contract express or implied for that purpose.' The plaintiff's argument was that if interest were not awarded the lender would lose the benefit of the use of his capital. The first judgment in the Court of King's Bench was given by Lord Ellenborough CJ at 226:
It is not only from decided cases, where the point has been raised in argument, but also from the long continued practice of the Courts, without objection made, that we collect rules of law. Lord Mansfield sat here for upwards of 30 years, Lord Kenyon for above 13 years, and I have now sat here for more than 9 years; and during this long course of time no case has occurred where, upon a mere simple contract of lending, without an agreement for payment of the principal at a certain time, or for interest to run immediately, or under special circumstances from whence a contract for interest was to be inferred, has interest been ever given ...
At p.228, he added this:
… if it be understood as extending the claim of interest upon money lent generally, without any certain time of payment, I shall expect a body of authorities more strong and consistent than has yet been brought forward before I can venture to say that it is allowable by law. Hitherto, it has only be allowed upon written contracts express or implied for the payment of interest.
- Grose J added the following:
During all my experience I have never known interest given upon money lent, or upon money due for goods sold, or in any other case but upon a contract for interest expressed or implied. It is the lender's own fault if he do not contract for interest when he advances the money; but the law has long been settled as I have stated. Why should interest be paid at all without a contract for it?
- It is clear that as the law stood in 1812, interest on a loan could not be recovered unless there was express provision, or the obligation could be inferred from a trade usage, custom or special circumstances (for example, a course of dealing), see also Higgins v. Sargent and ors (1823) 2 B & C 348 at 349, per Sir Charles Abbott CJ (as he then was).
- In 1829, as Lord Tenderden CJ, he gave the judgment in Page v. Newman (1829) 9 B & C 378.
It is a rule sanctioned by the practice of more than half a century, that money lent does not carry interest. In Calton v. Bragg (15 East, 223), Lord Ellenborough, speaking at that time of a period of more than fifty years, said, 'During this long course of time no case has occurred where, upon a mere simple contract of lending, without an agreement for payment of the principal at a certain time, or for interest to run immediately, or under special circumstances, from whence a contract for interest was to be inferred, has interest ever been given.'
I think that we ought not to depart from the long-established rule, that interest is not due on money secured by a written instrument, unless it appears on the face of the instrument that interest was intended to be paid, or unless it be implied from the usage of trade, as in the case of mercantile instruments. Here the language of the instrument is such as to lead to the conclusion that the parties did not intend that interest should be payable. The sum secured by the instrument was 135l. only, payable at a time depending on a contingency, and no provision was made for the payment of interest up to that time. If there had been such a provision, it would have afforded a strong ground for contending that it was intended interest should also be paid from the time when the principal became due to the time of actual payment; but the omission of any such term in the instrument leads to the conclusion, that the sum of 135l was the only sum intended to be secured.
- This case decided not only that a loan did not bear interest in the absence of express provision, but that it did not bear interest from the date on which the loan fell due. The line of cases that followed this prohibition against the award of damage for the late payment of a debt was finally overruled by the House of Lords in the Sempra Metals case (above), an aspect of recovery that is not in issue on this appeal.
- It is clear that from at least 1812 the making of a loan does not imply an obligation to pay interest as a matter of law. However, it is necessary to consider the extent to which the position may have changed as a result of the development of the law in relation to the implication of contractual terms as a matter of fact. The development of this area of the law, and the different ways in which the test for the implication of terms has been described, are familiar, see 'The Moorcock' (1889) 14 P.D. at p.68; Reigate v. Union Manufacturing Co  1 KB 592 at p.608; Shirlaw v. Southern Foundries (1926) Ltd  2 KB 206 at p.227; and the Privy Council decision in BP Refinery (Westernport) Pty Ltd v. President, Councilors and Ratepayers of the Shire of Hastings  180 CLR 266 at p.282-3.
- It is sufficient for present purposes to refer to the judgment of Lord Neuberger of Abbotsbury PSC in Marks & Spencer plc v. BNP Paribas Securities Services Co (Jersey) Ltd  AC 742 at -. Since this analysis was itself a synthesis of earlier cases, including a reference to, and adoption of, the five principles for implying contractual terms set out in the speech of Lord Simon of Glaisdale in the BP Refinery case, it is unnecessary to offer a summary of those eight paragraphs. However, one matter should perhaps be highlighted: the term that is to be implied must either be necessary in order to give business effect to the contract or it must be obvious in the sense that 'it goes without saying'. In most cases it will be both, see Lord Neuberger at .
- The question that arises on this issue is whether there is a serious question to be tried that the obligation to pay interest was either necessary in order to give business efficacy to the loan agreement or such that the obligation would have been obvious to the parties, although unstated, at the time the agreement was made.
- Mr Beloff argued that it was a matter of commercial commonsense that a large loan would bear interest. However, in my judgment this question must be looked at in the light of the evidence. There is none from the second defendant; but there is evidence from the first claimant and it is equivocal.
- The claimants' case on interest emerged gradually and uncertainly.
- In the letter of claim dated 16 June 2015, Zaiwalla & Co wrote on the claimants' behalf:
We are now instructed by our client to demand the repayment of this loan and to recover from you the outstanding capital amount of the loan, together with either a proportionate share of benefits earned by use of our client's funds or alternatively interest calculated at the rate of 8% annually per annum running from 4 January 2002.
- In the particulars of claim served on 21 September 2015, a claim for interest was pleaded in paragraph 8:
There were implied terms of the Loan Agreement that:
a. in consideration of the first claimant's promise to lend the sum requested, the first and second defendants would repay the loan on demand, or alternatively on reasonable notice.
b. the loan would bear interest at a reasonable business rate.
- At paragraph 22 of the first claimant's 2nd witness statement made on 1 July 2016, he said this:
… the defendants allege that I have given inconsistent descriptions of the structure of the funding that I provided. I refute the allegation. To clarify: I advanced the funds for the specific purpose of establishing the Al-Arabiya channel and I expected these funds to be repaid, with some benefit to me for having advanced them. At the time, I would have been equally content for the Defendants to repay the investment by way of equity in lieu of principal and interest, if they so preferred. I had, after all, had my own intentions of setting up a satellite news channel and I would have been satisfied to receive a return on my investment in either form. However, in the circumstances, a more appropriate measure of the cost to me of loaning the funds, and the benefit to the defendants of having the use of them, is the interest which I have claimed.
- The frank and credible evidence of the first claimant was that he expected 'some benefit', although, perhaps surprisingly, for a number of years he entirely overlooked the fact that he had made the loan. This passage in the witness statement might give rise to a sensible inference that the claimants intended to benefit in some way from the establishment of the Al-Arabiya channel, but not how they might do so, and certainly not to the inference that the parties can be regarded as agreeing to a term that interest would be paid on the loan. The loan could have operated in a number of ways to the parties' mutual benefit without provision for interest in favour of the claimants. In short, an implied term for the payment of interest was (a) not necessary to give business effect to the agreement, nor (b) so obvious that it went without saying, nor (c) such that the loan would lack commercial or practical consequence without the term, per Lord Sumption's coda referred to by Lord Neuberger in the Marks & Spencer case at .
- It is clear that the first claimant would have been as content to have been rewarded with a share of the equity in Al-Arabiya as he would have been by the payment of interest. These two alternative bases of recovery have remained a feature of the claimants' case and they militate strongly against the implied term for the payment of interest.
- In my view the claimants have no realistic prospect of succeeding in this claim at trial.
- As indicated above, in my judgment the Judge was wrong to separate out the interest claim prior to demand from the claim to the principal. If, as the Judge found, there was a good arguable case that the primary claim fell within at least one of the gateways in CPR PD6B §3.1, the accessory claim for interest did so.
- However, that leaves the issue raised by the respondent's notice: whether in relation to the claim for interest as an implied term of the loan agreement there is a serious issue to be tried. On one view of the matter, this could and should be resolved on an application by the second claimant under CPR Part 3.4 and/or Part 24 once there has been an acknowledgment of service. However, this Court has heard full argument for over half a day on the point and it was accepted on all sides that it was unlikely that there would be any further factual material relevant to the issue. It follows that, if this Court did not rule on the point, the likelihood would be a further hearing before the Commercial Court and another appeal, both of which would involve significant use of court time, expense and delay.
- In these circumstances, I would propose taking the highly unusual course of untying the forensic Gordian knot and deciding this matter now. In doing so I direct myself by reference to the overriding objective in CPR Part 1.1 and 1.4, and I would emphasise that, although I consider that this course is appropriate in the present case, it is very unlikely to be so in other cases in which jurisdiction issues arise.
- Accordingly, I would invite the parties to agree an order that reflects the judgment that (i) the Judge was in error in his approach to the 'bifurcation issue' and, consequently, in his conclusion that there was not a good arguable case that the claim fell within CPR PD6B §3.1, but (ii) there is no serious issue to be tried as to the claimants' claim for interest on the loan, prior to demand, based on the existence of an implied term.
Lord Justice Newey:
- I agree.
Lady Justice Arden:
- I also agree.
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