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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> The Bank Of Scotland v. Dunedin Property Investment Company Ltd  ScotCS 311 (08 June 1999)
Cite as:  ScotCS 311
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OUTER HOUSE, COURT OF SESSION
OPINION OF LORD MACFADYEN
in the cause
THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
DUNEDIN PROPERTY INVESTMENT COMPANY LIMITED
Pursuers: Drummond Young, Q.C., Sellar; Dundas & Wilson, C.S.
Defenders: Campbell, Q.C., Mrs Wolffe; Simpson & Marwick, W.S.
8 June 1999
In 1989 the pursuers lent to the defenders the sum of £10,000,000 for a period of ten years. The form in which the loan was made was that the pursuers subscribed for £10,000,000 of debenture loan stock issued by the defenders. The transaction was regulated by a Loan Stock Deed dated 1 and 3 August 1989. The Loan Stock Deed contained provision for early redemption of the loan. On 17 October 1995 the defenders gave notice seeking to redeem the loan stock on 17 April 1996. A dispute arose as to whether in order to redeem the loan stock the defenders required to reimburse certain costs ("breakage costs") incurred by the pursuers as a result of the early termination of an interest rate swap transaction into which they had entered with Security Pacific National Bank in connection with making the loan to the defenders. Because of that dispute the redemption did not take place on 17 April 1996, and an action ("the initial action") was raised to resolve the disputed issue. While the initial action was pending the parties entered into an Interim Agreement in terms of which on 7 March 1997 the pursuers accepted repayment of the principal sum of the loan, and interest thereon down to 17 April 1996. That arrangement was stated to be without prejudice to the pursuers' claims for (i) the breakage costs and (ii) interest on the loan for the period from 17 April 1996 to 7 March 1997. In the initial action declarator was eventually pronounced on 18 November 1998 finding that the breakage costs fell within the costs in respect of which the defenders were obliged to reimburse the pursuers. In the meantime this action had been raised. In it the pursuers conclude for payment of (1) £1,109,589.04, being interest on the loan for the period from 17 April 1996 to 7 March 1997, with interest on that sum at the judicial rate from 7 March 1997 until payment, and (2) £923,253, being the amount of the breakage costs, with interest thereon at the judicial rate from 7 March 1997 until payment. There is no remaining dispute about the defenders' liability to pay the principal sum of the breakage costs. The outstanding issues relate to (a) whether the pursuers are entitled to interest on the loan from 17 April 1996 to 7 March 1997, i.e. to the sum first concluded for, and (b) whether the sums sued for in each conclusion ought to bear judicial interest from 7 March 1997 or only from the date of citation. Those issues came before me for debate.
The Loan Stock Deed
It is convenient at this stage to record the material provisions of the Loan Stock Deed. In the Deed the pursuers and the defenders were referred to respectively as "the Bank" and "the Company". Clause 2 provided that the amount of the stock was limited to £10,000,000. Clause 3 provided that the pursuers would subscribe at par for the full amount of the stock on 1 August 1989 on the terms and subject to the conditions set out in the Deed. Clause 4 set out the defenders' undertaking to pay principal and interest in the following terms:
"THE Company hereby undertakes to the Bank that it will on 30 June 1999 or on such earlier date as the Stock shall become repayable under any provision hereof pay to the Bank ... the principal amount of the Stock (including any premium payable thereon) and will in the meantime and until the whole of the Stock shall have been redeemed pay to the Bank ... interest on the nominal amount of the Stock for the time being outstanding at the Prescribed Interest Rate ...".
Clause 5 provided for the issue of Certificates for the Stock, and for the Certificates to have Conditions endorsed thereon, and stipulated:
"The Company shall comply with the terms of the Certificates for the Stock and the said Conditions ... and the Stock shall be held subject to and with the benefit of such Conditions all of which shall be deemed to have been incorporated in this Deed and shall be binding on the Company and the holders of the Stock..."
Clause 6 provided that the defenders would grant certain securities for payment of "the principal amount of and all interest on the Stock and all other moneys intended to be secured by" the Deed. Clause 9 set out the events in which "the Stock shall become immediately repayable with all accrued interest and the Security shall become enforceable". Those events included default in due payment of principal or interest, and the making of a winding-up order or the passing of a winding-up resolution or the occurrence of one or another of a variety of specified events inferring insolvency or financial difficulty. Clause 16 provided that the pursuers would discharge the Security upon "payment or satisfaction to the Bank of all sums due in respect of the Stock and upon payment of all costs, charges and expenses incurred by the Bank". Schedule 1 to the Deed contained the Certificate contemplated in Clause 5. Condition 3 of the conditions endorsed on the Certificate provided as follows:
"The Company shall be at liberty at any time on provision of six months prior written notice to the Bank, to purchase the Stock, subject to the Bank being fully reimbursed for all costs, charges and expenses incurred by it in connection with the Stock."
The Purchase Notice and the Defenders' Response
On 16 October 1995 the defenders wrote to the pursuers intimating that their directors had decided that they should institute procedures to repay the loan. The third paragraph of the letter was in the following terms:
"In accordance with paragraph 3 of the Conditions within the Loan Stock Deed, I wish to give formal notice to purchase the Stock and confirm that the Bank will be fully reimbursed for all costs, charges and expenses in connection with the Stock".
The letter then went on to raise the possibility of shortening the six months notice period provided for in Condition 3, and to request an indication of the administrative costs associated with the redemption.
On 20 November 1995 the pursuers wrote to the defenders confirming that the six month notice period ran until 17 April 1996, and enclosing inter alia a Schedule (Appendix One) showing the redemption figure. Appendix One set out the components of the "Cost of early repurchase of Debenture Loan Stock", and the fourth of these was "Breakage Cost", the precise amount of which was not stated, but in respect of which there was appended an explanatory note. Further discussion followed as to whether the breakage costs formed part of the total sum which the pursuers were entitled to receive on purchase of the Stock by the defenders under Condition 3. On 11 April 1996 the defenders' London solicitors sent a fax to the pursuers in which, after referring to "the outstanding question of the breakage costs", they set out the defenders' position as follows:
"... we are now rapidly approaching the 17 April, being the agreed date for repayment of the principal amount of the Loan Stock and all interest accrued to that date.
In the circumstances, I have asked the Royal Bank of Scotland to arrange for repayment of the principal and accrued interest on that date. I will be happy to agree that the Bank's acceptance of the principal and interest will be without prejudice to the Bank's claim for any costs, charges and expenses that may be due under the Loan Stock Deed".
To that fax the pursuers' solicitors responded in a fax of 16 April by stating:
"Our clients are not prepared to accept payment unless it includes their breakage costs in full".
The position as at 17 April 1996 was thus that the defenders had given notice of their intention to purchase the stock as at that date; that the pursuers had maintained that in order to effect that purchase the defenders required to reimburse the breakage costs which the pursuers would incur; that the defenders had disputed that point, and proposed that the redemption should proceed on payment of principal and interest, reserving for future determination whether reimbursement of the breakage costs was required; that the pursuers had rejected that proposal and insisted on reimbursement of the breakage costs as a condition of redemption; and that because of that dispute the redemption did not proceed on the proposed date.
The Interim Agreement
Following the crystallisation of the dispute over breakage costs the initial action was raised with a view to resolving it. The conclusion in the initial action was for declarator that if the defenders proceeded to redeem the loan stock:
"it is a condition precedent of that redemption in terms of Condition 3 of the Conditions of that Stock, that the Defenders reimburse the Pursuers for all payments to be made by the Pursuers to Security Pacific National Bank ... pursuant to an interest rate swap agreement between those parties ...".
A proof in that action was heard in December 1996, and while the case was at avizandum the parties entered into an Interim Agreement dated 7 March 1997.
The Interim Agreement was in the form of a letter from the pursuers to the defenders dated 7 March 1997, on which the defenders endorsed their acceptance. Paragraph 2 of the letter was in the following terms:
"The purpose of this letter is to set out the arrangements whereby on 7th March 1997 ... (the Interim Settlement Date) the Company shall make and the Bank shall accept the purchase by way of redemption of the ... Loan Stock and such purchase being effective as at 17th April 1996 without prejudice to the continuing claims of the Bank in the [initial] Action or otherwise for breakage costs or interest on the ... Loan Stock claimed by the Bank for the period between 17th April 1996 and the Interim Settlement Date".
Paragraph 3 provided inter alia as follows:
Accordingly, on the Interim Settlement Date:-
the Company will irrevocably pay to the Bank for value that day £8,043,578.26 in respect of and in full settlement of the principal of the ... Loan Stock and interest accrued on the outstanding principal of the ... Loan Stock up to and including the 17th April 1996;
the Company will deliver to the Bank a duly executed Bank Guarantee ...;
the Bank will waive, subject to the provisions of this letter, all the subsisting events of default under the [Loan] Stock Deed without prejudice to the continuing claims of the Bank in the [initial] Action or otherwise for breakage costs or interest on the ... Loan Stock claimed by the Bank for the period between 17th April 1996 and the Interim Settlement Date.
the Bank will release and discharge in favour of the Company all Security ... held by it; ...".
[It was not explained in the course of the debate why the sum mentioned in paragraph 3.1 was what it was.] Paragraph 5 stated that the provisions of the letter amended the terms of the Loan Stock Deed which, subject to such amendment, would remain in force until final determination of, and compliance in full with, the initial action.
The Result of the Initial Action
One week after the Interim Agreement had been entered into, the Lord Ordinary pronounced an interlocutor in the initial action by which he assoilzied the defenders. There followed a reclaiming motion at the instance of the pursuers. In the result the Lord Ordinary's interlocutor was recalled and decree of declarator was granted in the following terms:
"... that the phrase 'costs, charges or expenses incurred by [the pursuers] in connection with the Stock' in Condition 3 of the Loan Stock Deed ... comprehends any monies properly paid by the pursuers to Security Pacific National Bank as a result of the early redemption of the loan stock by the defenders and the early termination by the pursuers of an Interest Rate Swap Agreement between the pursuers and Security Pacific National Bank dated 1 and 7 August 1989".
That declarator resolved in the pursuers' favour one of the issues which had been reserved in the Interim Agreement, namely their claim to be entitled to receive reimbursement of the breakage costs. It is for that reason that there is no outstanding substantive dispute in relation to the principal sum sought in the second conclusion in the present action. The declarator did not, however, resolve the second reserved issue, namely whether the pursuers are entitled to interest on the loan in respect of the period between the date on which the redemption notice expired (17 April 1996) and the date on which redemption finally took place (7 March 1997). That is the subject matter of the first conclusion in the present action.
Issue (1) - The Pursuers' Entitlement to Interest from 17 April 1996 to 7 May 1997
In the defenders' Note of Arguments this issue was presented primarily as a matter of construction of Condition 3. On a sound construction of that condition, it was said, the payment of breakage costs by the defenders was not a condition precedent of early redemption of the loan stock. Having given the requisite six months notice, they were entitled to effect redemption by tendering on the due date the principal and interest then outstanding, and nothing more. No doubt (in light of the decision in the initial action) they came under an obligation to reimburse the breakage costs, but tender of the breakage costs on the redemption date was neither possible nor necessary. The pursuers were not entitled to refuse to accept repayment of the principal and accrued interest on 17 April 1996, and to maintain a claim for interest continuing until redemption was accepted on 7 March 1997. Tender of the principal and interest was sufficient to stop interest running.
The pursuers' approach in their Note of Arguments was somewhat different. Although they accepted that it was necessary to construe Condition 3, the primary focus of their argument was on the proposition that a creditor is not obliged to accept part payment. Given that it had been settled in the initial action that the defenders were obliged to reimburse the breakage costs, it was clear that the tender of principal and interest only which had been made on 17 April 1996 had been a tender of partial payment, which they had been entitled to reject. Accordingly, interest continued to run on the principal sum of the loan, until redemption was effected under the Interim Agreement.
Although it will be necessary to address both of these aspects of the argument in due course, it is in my view convenient to begin by considering the proper construction of Condition 3. In doing that, it is appropriate to remember the nature of the Loan Stock Deed and the transaction which it regulated. The transaction was, in substance, primarily a fixed-interest term loan. The primary obligations of the defenders were to repay the principal sum borrowed at the end of the fixed period, and in the meantime to pay interest at the fixed rate in six-monthly instalments (Clause 4). The defenders were, however, given a contractual right to purchase the stock, i.e. in reality to repay the loan early. The terms on which they were "at liberty" to do so are set out in Condition 3. First, it is expressly provided that purchase must be preceded by six months notice. Secondly, it is implicit in the notion of "purchase" of the loan that it would involve payment of the nominal value of the stock, i.e. repayment of the principal amount borrowed, together with payment of any outstanding interest. Thirdly, it is provided that the liberty to purchase the stock is "subject to" the pursuers being "fully reimbursed" for all costs, charges and expenses incurred by them in connection with the stock. In argument, attention was focused on the phrase "subject to " and the word "reimbursed".
For the defenders, Mrs Wolffe submitted that the phrase "subject to" should not be regarded as indicating that payment of the costs, charges and expenses required to be made at the redemption date set by the expiry of six months notice. While the condition laid on the defenders, if they exercised the liberty to purchase conferred by it, an obligation to reimburse such costs, charges and expenses as fell within its scope, it said nothing about when that obligation fell to be met, and in particular did not require it to be met at or before the redemption date. It had been recognised in the initial action that the obligation to meet costs, charges and expenses could include an obligation to reimburse a cost not incurred until after the redemption date. In the events which happened, the breakage charges were not incurred until March 1997, but had been held to be included in the costs, charges and expenses covered by Condition 3. The present action was therefore predicated on the assumption that exercise of the liberty to purchase could give rise to an obligation to reimburse costs which, at the date of expiry of the redemption notice, had not yet been incurred. If that was so, neither payment nor a tender of payment of such costs could be necessary on the redemption date. The concept of reimbursement reinforced that conclusion. Reimbursement was essentially backward-looking, concerned with the subsequent restoration of the position of someone who has first incurred an outlay. There was nothing surprising in a construction that meant that the pursuers had to accept repayment of the principal of and interest on the loan on the redemption date, but wait until later for fulfilment of the obligation on the defenders to reimburse costs, charges and expenses. The pursuers continued, in the interval, to have the protection of the security provided for in Clause 6, which covered "all moneys intended to be secured by these presents" and did not fall to be discharged until all costs, charges and expenses incurred by the pursuers had been paid (Clause 16). The principle of mutuality (on which the pursuers placed reliance) did not require that "each and every obligation by one party to a mutual contract was necessarily and invariably the counterpart of each and every obligation by the other" (Bank of East Asia Limited v Scottish Enterprise 1997 SLT 1213, per Lord Jauncey at 1217I, commenting on the principles enunciated by Lord Justice Clerk Moncrieff in Turnbull v McLean (1874) 1 R 730 at 738). That principle was therefore no obstacle to regarding payment of principal and interest (leaving costs, charges and expenses remaining to be reimbursed later) as sufficient to entitle the defenders to be regarded as having redeemed the loan and to bring to an end the pursuers' entitlement to charge interest.
In adopting and expanding on Mrs Wolffe's submissions, Mr Campbell submitted that the question was whether the pursuers were entitled to take up the position which they adopted in their fax of 16 April 1996, namely to decline to accept repayment of the principal and interest when tendered unless it was accompanied by payment of the breakage costs. Mr Campbell submitted that they were not. On a proper construction of the Loan Stock Deed, it was open to the defenders, having given notice of their intention to do so, to redeem the loan on 17 April 1996 by repaying the principal and the accrued interest, without making payment at that date of the breakage costs. At that stage there was a bona fide dispute as to whether the breakage costs were costs, charges or expenses incurred by the pursuers in connection with the stock. There was no question of the defenders having acted in anticipatory breach of contract by repudiating an undisputed obligation (Chitty on Contracts § 24-017). If, as had been held in the initial action, Condition 3 comprehended costs which had not in fact been incurred as at 17 April 1996, it followed that such costs did not require to be paid on that date in order to obtain redemption on that date. It was inherent in the language of Condition 3 that costs were to be reimbursed after they had been incurred. Although the phrase "subject to" might introduce a condition, it did not necessarily follow that the condition was that payment of the costs, charges and expenses required to be made at the same time as the payment of the principal and interest. All that Condition 3 did was to subject the defenders to an obligation to reimburse the costs, charges and expenses to which it related. There was no inherent deadline for the incurring of costs, charges and expenses, and therefore no deadline for reimbursement of them. An example of costs which might be incurred after, and therefore could only be reimbursed after, the redemption date was to be found in the costs of discharging the security. Likewise, if the pursuers, for their own purposes delayed terminating the swap arrangement, the swap termination costs were nevertheless within the scope of Condition 3, but could not be reimbursed at the redemption date. The fact that Condition 3 covered costs which might be incurred after the redemption date made it impossible to regard it as requiring reimbursement of costs as a condition precedent to redemption. Condition 3 made it clear that what was contemplated was redemption at the expiry of the six month period of notice, not at some undefined date thereafter. But a cost cannot be reimbursed until it has been incurred. The pursuers' right under Condition 3 was to enforce reimbursement at the redemption date or as soon thereafter as the cost was incurred. There was no prejudice to the pursuers in that construction of Condition 3, since they had the continuing benefit of the security until they could enforce reimbursement.
As I have already mentioned, the pursuers' approach was to characterise what the defenders offered on 17 April 1996 as part-payment, and to argue that a creditor was not obliged to accept part-payment. At the outset of his submissions, Mr Sellar stated that the pursuers' position was not now that reimbursement of the breakage costs was a precondition of redemption in the sense that payment of those costs required to be made on or before the date of redemption, but rather that reimbursement of the breakage costs formed part (along with repayment of principal and payment of accrued interest) of what the defenders had to do in order to exercise their liberty to purchase the loan stock. The two elements, namely (i) repayment of principal and payment of accrued interest and (ii) reimbursement of breakage costs, arose for performance simultaneously, so far as that could practically be achieved. Before the pursuers could come under an obligation to discharge the loan and cease to charge interest, there had to be a tender of performance by the defenders of all that they had to do. Since the defenders declined to tender reimbursement of the breakage costs, the pursuers were entitled to decline to accept the redemption. Nothing occurred, therefore, on 17 April 1996 which had the effect of bringing to an end the defenders' obligation to pay interest on the loan.
On the construction of Condition 3 Mr Sellar's submission was that the words "subject to" implied a conditional relationship, in the sense of reciprocity, between redemption and the reimbursement of costs, charges and expenses. The words, however, said nothing conclusive about timing. They did not imply that reimbursement had to take place prior to redemption. They implied no more than that the two events were to take place as close to simultaneously as was practicable. It was not inherently impracticable, given the six months notice, for the pursuers to secure the termination of the swap transaction at the redemption date or for the amount of the breakage costs to be ascertained on, or at least very shortly after, the redemption date. In the context, the language of Condition 3 did not compel the inference that reimbursement could only take place after redemption. The inference which it did yield, particularly since Condition 3 was concerned with the terms on which a privilege could be exercised, was that there was reciprocity or mutuality between the early discharge of the loan, on the one hand, and the whole package of obligations which constituted the price for the exercise of the privilege, on the other. Reimbursement of breakage costs formed part of that package, and it was wrong to split it up and treat only part of it, namely repayment of principal and payment of interest, as in some way the primary obligation which alone was the counterpart of early termination of the loan and the cessation of the obligation to pay interest.
Mr Drummond Young emphasised the importance of the fact that Condition 3 was a separate contractual provision conferring on the defenders what was in effect an option to terminate the loan early. The validity of any purported exercise of that power depended on the fulfilment of the conditions for exercise of the option, i.e. on payment of the price for early termination. He identified four conditions which required to be fulfilled for the valid exercise of the power, namely (i) the giving of six months notice, (ii) repayment of the principal sum of the loan, (iii) payment of the outstanding accrued interest and (iv) reimbursement of the costs, charges and expenses incurred by the pursuers in connection with the stock. Once the requisite notice had been given, valid exercise of the option to terminate the loan early depended on the defenders making, or at least indicating willingness to make, all three payments identified at (ii), (iii) and (iv) above. The defenders' suggestion that if a payment was only exigible after the redemption date, it could not form part of the price of early repayment, was not sound. There was no reason to accord any part of what was required by Condition 3 a higher priority than any other part. They were all parts of what had to be done to achieve valid early redemption. Condition 3 said nothing definitive about timing. In so far as it imposed conditions which had to be fulfilled for valid exercise of the power, it was to be understood in an abstract logical sense rather than in a temporal sense. Condition 3 addressed the incurring and reimbursement of costs unico contextu as part of the whole transaction effected by the exercise of power which it conferred. It was important to have regard to practical realities. Six months notice of the proposed redemption had to be given. That indicated that the parties contemplated that in that time arrangements could be made to enable the redemption to take place on the date on which that period expired. Condition 3 was not specific about the costs, charges and expenses to which it related, but having regard to the fact that it dealt with early termination of the loan, it was clear that they would include costs incurred because of the early termination. The purpose of the swap transaction was to protect the pursuers in the long term against interest rate fluctuations. There was nothing to prevent the swap transaction being terminated on the redemption date or a little early. In the result, all of the elements of Condition 3 should be treated in the same way. If the defenders did not, on the redemption date, either pay what was due or at least acknowledge that they were willing to do so, they had not satisfied the conditions for redemption. Since at that date the defenders were maintaining (erroneously, as was now established) that they were not liable to reimburse the breakage costs, they were not tendering performance of those conditions on which the validity of their exercise of their power to terminate the loan early depended.
On the basis that reimbursement of the breakage costs constituted an integral part of the price to be paid by the defenders for early redemption of the loan, the pursuers submitted that by tendering principal and interest while denying liability to reimburse the breakage costs the defenders were offering only partial payment, which the pursuers were not obliged to accept. In that connection Mr Drummond Young cited a passage from Gloag on Contract, page 592:
"Where a party undertakes an obligation, and at the same time imposes one, and there is no ground for a distinction between the materiality of the one and that of the other, the normal construction of his obligation is that he obliges himself subject to the implied condition that performance cannot be required from him unless it is given or tendered on the other side."
The presumption was thus in favour of treating the contract as a single unit when considering the mutuality of obligations, although there was room for exceptions, as Lord Jauncey recognised in Bank of East Asia at 1217I. Here the obligation on the part of the defenders to reimburse the breakage costs was as much the counterpart of the pursuers' obligation to allow early redemption of the loan and cessation of interest as was their obligation to repay principal and pay accrued interest.
Both parties sought to draw some support for their position from G. Dunlop & Son's Judicial Factor v Armstrong 1994 SLT 199. In that case a farming partnership of husband and wife had granted standard securities in favour of its bank over various farms. The bank called up the standard securities but, before it could exercise its right of sale, it assigned the standard securities in consideration of certain payments to the father of one of the partners, the wife. A judicial factor was subsequently appointed on the sequestrated estates of the firm. The factor served notices of redemption on the holder of the standard securities. On the redemption date the factor tendered payment of the principal of, and the interest accrued on, the secured debts, together with the expenses of the discharge. The heritable creditor demanded in addition the expenses paid by him to the bank at the time of the assignation and also the expenses of the assignation. He refused, however, to vouch these two items of expenses. The factor denied liability to meet the expenses of the assignation, but offered a formal undertaking to pay such further expenses as might be shown by vouching to be lawfully due. The heritable creditor refused to accept that offer and declined to discharge the standard securities. In subsequent proceedings the factor argued that he had made a valid tender of all that he was obliged to pay on redemption and that interest had therefore ceased to run on the redemption date. The Lord Ordinary upheld the factor's contention that he was not liable to meet the expenses of assignation. His refusal to do so was therefore no obstacle to the contention that interest had ceased to run. So far as the expenses which the heritable creditor refused to vouch and in respect of which the factor offered an undertaking, Lord Kirkwood said (at 208I-K):
"It is clear that the pursuer [the factor] was entitled to full details of the expenses which were being claimed but the heritable creditor refused to make such details available and he was not prepared to produce vouchers for the expenses which he was claiming although he had two months in which he could have obtained the necessary information. ... I am satisfied, on the evidence, that the pursuer formally tendered payment of the agreed principal sum and that he also offered to pay the expenses of the discharge and give a formal undertaking that he would make payment of all the other expenses which were lawfully due to the creditor. In my opinion the heritable creditor should have accepted that offer and granted a discharge. In the circumstances I consider that counsel for the pursuer was correct when he submitted that the heritable creditor was wrong not to grant a discharge and that his refusal to grant such a discharge constituted a breach of contract. I am further of opinion that the creditor could not, in the circumstances of this case, refuse the offer which had been made and refuse to grant a discharge and at the same time insist that interest should continue to run on the debt, payment of which he had refused to accept."
The factor subsequently withdrew his offer, and Lord Kirkwood held that interest began to run again from the date of that withdrawal (209B-C). Mrs Wolffe sought to argue that the defenders' offer in the present case to pay principal and interest, under reservation of the issue of liability for reimbursement of the breakage costs, was analogous to the factor's offer to pay principal and interest and give an undertaking to pay all the other expenses which were lawfully due; on that basis she submitted that Dunlop's JF supported the defenders' position. Mr Drummond Young, on the other hand, sought to distinguish that case, and suggested that the result would have been different if the factor's position had been that he denied liability for expenses. The present case would have been analogous with Dunlop's JF if the defenders' position had been that they accepted liability to pay the breakage costs, and simply reserved their position on quantification thereof pending the production of vouchers. Reference was also made to Graham v Seal (1919) 88 LJ 31 and Barratt v Gough-Thomas  2 All ER 48.
In my opinion it is important when addressing this issue to bear in mind the nature of the transaction between the parties which was regulated by the Loan Stock Deed. In form it was the issue of loan stock by the defenders subscribed for by the pursuers. In substance it was a loan by the pursuers to the defenders. An important feature of the transaction was that the loan was at a fixed rate of interest for a term of ten years. A substantial part of its purpose for the defenders was to give them the benefit of a fixed rate of interest for up to ten years. If the Deed had not incorporated Condition 3, it would not have been an arrangement which the defenders could have brought to an end at will. Without Condition 3 the defenders would have had no right to repay the loan before the expiry of the ten year term, and would have had no means of escaping from the obligation to pay the fixed rate of interest for the whole ten year period. Condition 3 afforded the defenders a means of escaping from that situation, and laid down the terms with which they required to comply if they were to do so. It stipulated that early repayment could only be made on six months notice. It cast early repayment in the form of purchase by the defenders of the stock held by the pursuers. It did not expressly state that in order to purchase the stock the defenders had to pay its nominal value (in substance, repay the principal amount of the loan) with the interest accrued to the redemption date (so far as not earlier paid), but that was obviously part of what was contemplated, and there is no dispute about that. Condition 3 also added the stipulation which has become the subject of dispute. It said that the defenders' liberty to purchase the stock was "subject to the [pursuers] being fully reimbursed for all costs, charges and expenses incurred by [them] in connection with the Stock". Thus while, as in most loans, the payment of interest could be seen as the price the borrower had to pay for his enjoyment of the use of the lender's money, the price of early termination of the loan was not simply repayment of the principal sum borrowed with the accrued interest, but also included reimbursement of the creditor's costs, charges and expenses. The inference seems to me to be inescapable that the intention expressed in Condition 3 was that the defenders should be entitled to purchase the stock if, and only if, they reimbursed the items identified. That seems to me to emerge as much for the nature of the liberty conferred by Condition 3 as from the language of the condition.
To conclude that reimbursement of costs, charges and expenses was part of the price which the defenders contracted to pay for the exercise of their right to terminate the loan early does not resolve definitively the issue which I have to decide. On the one hand, the pursuers say that unless at the expiry of the six months period of notice the defenders tendered reimbursement of costs, charges and expenses as well as repayment of principal and payment of accrued interest, there had not been a tender of the price of redemption, and they were not obliged to accept repayment of the principal and were entitled to continue charging interest. On the other hand, the defenders accept that when they gave notice under Condition 3 they came under an obligation to reimburse costs, charges and expenses in due course, but argue that those costs, charges and expenses were not and could not be due for payment on the redemption date. Rather, they argue, the terms of Condition 3 and the practicalities of the situation make it inevitable that they should be payable at some later date. In effect they argue that the price of early redemption is (i) repayment of principal and payment of accrued interest at the redemption date and (ii) the incurring of an obligation, to be performed at some unidentified future date, to reimburse costs, charges and expenses. In other words, they argue that payment of part of the price of redemption was deferred.
The defenders find the basis for that argument partly in the language of Condition 3 and partly in the nature of the costs, charges and expenses in question. I am not persuaded that there is compelling force in these considerations. Certainly the word "reimburse" in its ordinary meaning connotes the making good of an outlay which has already been incurred. But it seems to me that the more important aspect of the argument is the contention that the nature of the costs, charges and expenses covered by Condition 3 was such that they included items which would only be incurred after the redemption date. I am not persuaded that that is so. In the events which happened the breakage costs were not incurred until about a year after the contemplated redemption date, but that seems to me to be beside the point when the issue is the proper construction of Condition 3. In dealing with that issue what in my opinion is of significance is what inference is properly to be drawn about what the parties contemplated when they entered into the contract. There seems to me to be nothing in the Loan Stock Deed or in the circumstances of the transaction to indicate that the parties must have contemplated at the time when it was entered into that in the event of the defenders exercising their liberty under Condition 3, there would be costs, charges or expenses to be reimbursed which would not be incurred until after the expiry of the period of six months notice provided for. On the contrary, it seems to me to be clear that the parties' contemplation, in agreeing upon a period of notice of six months, was that in that period all the arrangements would be carried through to enable the redemption to be completed on the day when that period expired. I am not persuaded that it was impracticable to determine the amount of the breakage costs which the pursuers would incur in time to enable arrangements to be made for reimbursement of them on the redemption date. The fact that in the event the interest swap transaction was not brought to an end until 1997 was a consequence of the dispute between the parties as to whether the breakage costs were part of the costs, charges and expenses covered by Condition 3. That fact, in my view, is of no assistance in determining the effect which the parties originally intended that Condition 3 should have. In my view the fact that Condition 3 provides for reimbursement of costs, charges and expenses does not compel the inference that parties contemplated at the outset that such costs, charges and expenses would not require to be met on redemption but would be left as the subject of a continuing obligation on the part of the defenders thereafter.
In my view the position adopted by the defenders in argument was, in any event, an artificial one. Their contention was that since Condition 3 covered the reimbursement of costs, charges and expenses the nature of which was such that they might not be incurred until after the redemption date, there was no obligation on them to tender reimbursement at the redemption date. But that was not the actual reason for their not tendering reimbursement of the breakage costs. Before the redemption date they had adopted the position that they were not obliged to reimburse the breakage costs at all. The dispute was not about when the breakage costs required to be reimbursed, but about whether they required to be reimbursed. In my view if the position had been that the defenders accepted in principle that they were obliged to reimburse breakage costs, but were unable to tender reimbursement at the redemption date because the pursuers had neglected to secure that the amount of the breakage costs had been determined by that date, it would have been appropriate to equate the position of the defenders with that of the judicial factor in Dunlop's JF. They would have been entitled to redeem the loan and resist any claim for interest continuing beyond the redemption date by tendering payment on that date of the principal and accrued interest, together with an acknowledgement of their obligation to reimburse the breakage costs as soon as they were ascertained and vouched. It would not have been open to the pursuers to refuse redemption for want of tender of reimbursement of the breakage costs when they made such a tender impossible by their failure to have the amount ascertained and vouched. In the event, however, the situation which existed at the redemption date was very different. The defenders maintained that they were not obliged to reimburse the breakage cost (then or ever), and sought redemption of the loan in return for no more than repayment of principal, payment of accrued interest and (presumably) reimbursement of any acknowledged Condition 3 costs, charges and expenses. That, in my view, was more akin to the position adopted by the judicial factor in Dunlop's JF after he withdrew his offer of payment. They were seeking to effect redemption in return for part of the price of doing so, while denying their obligation to pay the other element of the price. That was not, in my view, something which the pursuers were bound to accept. I do not consider that it is possible to equate the offer to reserve the question of the pursuers' entitlement to reimbursement of breakage costs with the judicial factor's undertaking (in Dunlop's JF) to pay the expenses once vouched. Reservation of the question of reimbursement of breakage costs would have done no more than save the pursuers from any risk of being held to have barred themselves from pursuing the claim for reimbursement after accepting payment of principal and interest. It left the defenders firmly maintaining that they were not obliged to make reimbursement of those costs. In effect they were seeking to hold the pursuers to their side of the Condition 3 bargain, while refusing to acknowledge what has subsequently been held to be part of their corresponding obligation. Nor, in my view, can the defenders make anything of the fact that the pursuers subsequently, in the Interim Agreement, agreed to accept an arrangement very similar to that offered by the defenders on 11 April 1996. The pursuers' decision to enter into the Interim Agreement yields, in my view, no inference that they ought in law to have accepted the partial performance offered earlier.
In the result, therefore, I am of opinion that on a sound construction of Condition 3 in the context of the Loan Stock Deed as a whole, reimbursement of inter alia the breakage costs was part of the price which the defenders had to pay in order to effect early redemption of the loan; that there was nothing in the language of the condition or in the nature of the costs, charges and expenses to which it referred to produce the result that reimbursement was something which could be separated from the other things that required to be done to achieve redemption, so as to enable redemption to be effected without a tender of reimbursement; and that in any event, since the defenders' position at the redemption date was that the breakage costs did not fall to be reimbursed at all (a position subsequently shown to have been erroneous), they were at that date tendering incomplete performance of their obligations. In that situation, the pursuers were within their rights in declining to accept what was offered as constituting valid redemption. The pursuers' entitlement to interest on the loan accordingly continued until the interim settlement date (7 March 1997). The pursuers are therefore in my opinion entitled (subject to confirmation of the accuracy of its amount) to payment of the principal sum sued for in the first conclusion, being interest on the loan from 17 April 1996 to 7 March 1997.
Issue (2) - The Date from which Interest on the Principal Sums Sued For Runs
In respect of each of the two principal sums concluded for, the pursuers also conclude for interest at the rate of 8% a year from 7 March 1997 (the interim settlement date under the Interim Agreement) until payment. The defenders do not dispute that if the pursuers recover the principal sums, they are entitled to interest thereon at that rate from the date of citation until payment. The dispute is as to their entitlement to interest from a date earlier than the date of citation. As Mr Sellar acknowledged in the course of his submissions, the basis on which the pursuers seek to argue their entitlement to interest from 7 March 1997 is not particularly clearly set out in the summons or in the pursuers' note of arguments. In Article 5.1 of the condescendence of the summons, it is averred in relation to the sum first concluded for that: "It was also an implied term of the Interim Agreement that, if the defenders were unsuccessful in the Initial Action, they would pay interest on that sum from 7th March 1997". That point is not elaborated upon in the note of arguments. So far as interest on the breakage costs sought in the second conclusion is concerned, the pursuers make a bare assertion in article 5.2 of the condescendence that such interest is sought. In the note of arguments, the submission in support of that claim for interest is developed on the basis that there was an implied term in the Interim Agreement that such interest would be paid.
Mrs Wolffe's submission was that there were no relevant averments in support of the claims for interest from a date prior to the date of citation. She cited two familiar authorities on the test to be applied in determining whether a term should be implied into a contract (Liverpool City Council v Irwin  AC 239, per Lord Wilberforce at 253E-254A, and 257D, per Lord Cross of Chelsea at 257H-258E, and per Lord Salmon at 262A-C; and Crawford v Bruce 1992 SLT 524, per Lord Cameron of Lochbroom (Ordinary) at 526C-F and 528H-K, and per Lord President Hope at 531B-G). In the Interim Agreement, the defenders did not concede that they were obliged to pay interest on the loan after 17 May 1996 (the principal sum sued for in the first conclusion). It followed that there was no concession of an obligation to pay interest on that accumulated sum of interest from the date when the accumulation was complete. There was no lack of business efficacy in an agreement that made no such provision for interest on the disputed sum of interest on the loan. The pursuers were left by the Interim Agreement in the ordinary position of a creditor, whose entitlement to interest on a debt depends on his making a judicial demand for payment. So far as the claim for interest on the breakage costs was concerned, the same point fell to be made. Interest ran in the ordinary way from the date of citation but no earlier (Elliott v Combustion Engineering Limited, 1997 SC 126 at 131E-F).
Mr Sellar's approach was to say that in the circumstances it was clear that the intention of the parties to the Interim Agreement was that, in the event that the pursuers' substantive claims were held to be well-founded, the defenders would pay interest on the principal amounts of those claims from the date of the Interim Agreement until payment. There were three strands to his argument. One was that since the underlying obligation was a loan by a bank, it was appropriate to apply by analogy the recognised rule that a banker was entitled to charge compound interest (Gloag on Contract, page 684; Graham's Executors v Fletcher's Executors (1870) 9 M 298 per Lord Kinloch at 304). The second was that in the circumstances the familiar test for the implication of a term into a contract was satisfied. In that connection, Mr Sellar referred to Gloag on Contract, page 288, where there is set out a well known quotation from the opinion of Lord McLaren in Morton v Muir Brother 1907 SC 1211 at 1224, and in footnote 5 an equally well known quotation from the judgment of Bowen LJ in The Moorcock (1889) 14 PD 64 at 68. He referred also to Rockcliffe Estates plc v Co-operative Wholesale Society Limited 1994 SLT 593 per Lord Maclean at 594J-L. He accepted that it was more difficult to make out a case for implication of a term where the contract has been drafted, as it was here, by professional lawyers specialising in the relevant area of law, but suggested that Lord Maclean set too high a test when he said (at 594J) that:
"the party seeking such an implication must aver that the contract is incapable of practical performance without the implied term".
The matter was to be determined by examining the Interim Agreement. Its purpose was to bring an end to the loan and to the obligation to continue to pay interest on the amount of the loan. It would have been utterly senseless in that context if the swap agreement had not been terminated upon conclusion of the Interim Agreement. That crystallised the amount of the swap termination costs (and equally determined the amount of interest on the loan which formed the principal sum in the first conclusion of the present action). It could have made no sense to any reasonable person that, if the pursuers eventually succeeded on the reserved questions and obtained payment of the principal sums now sued for, they should be out of pocket in the sense of not recovering interest on those sums from the date on which they were crystallised. Because of the outstanding dispute, the period which might elapse before the pursuers recovered those sums was open-ended, and the sums were substantial. Since the Interim Agreement was concerned to reserve the pursuers' claims for breakage costs and interest between April 1996 and March 1997, but did not constitute an obligation to pay those sums, it was understandable that it contained no express obligation to pay interest on them, but the test for implication of such an obligation to pay interest was satisfied.
The third strand of Mr Sellar's argument was based on Nash Dredging (UK) Limited v Kestrel Marine Limited 1987 SLT 641. The circumstances of that case were somewhat complex. The pursuers carried out dredging work for the defenders under a contract which incorporated the ICE Conditions of Contract (fifth edition), which made provision for payment on certificates by the engineer, and for interest at a specified contractual rate if inter alia there was failure on the part of the engineer to issue certificates. In the action the pursuers claimed payment of sums which it was alleged ought to have, but had not, been certified. The action settled on terms which provided for payment of a principal sum of £400,000 on 13 April 1984. It was also agreed that the question of the amount of interest on that principal sum should be determined by the court or agreed between the parties. The pursuers contended for interest at the contractual rate on the ground that there had been failure to certify on the part of the engineer. The defenders were prepared to concede only interest at the judicial rate from the date of citation. The court upheld the submission that there had been failure to certify, and therefore upheld the claim for contractual interest. The contractual interest accrued as at the settlement date (13 April 1984) amounted to some £248,000. The pursuers then sought interest on that sum from 14 April 1984 until payment. That was granted. The defenders reclaimed and argued inter alia that interest did not run on the accrued contractual interest until its amount (£248,000) had been determined by the court. That argument was rejected, and it was held that on a sound construction of the settlement agreement the pursuers were entitled to interest at the judicial rate on the contractual interest of £248,000 from the settlement date. The ratio of the decision is to be found in the opinion of the court at 645D-G:
"It is clear, from the terms of the settlement read as a whole, that what was left to be resolved was not as to the liability of the defenders to pay accrued interest on [the principal sum] but merely about the amount of the interest which had accrued on 13 April 1984. The debt was acknowledged. Only its amount had not been agreed. To make reasonable commercial sense of the agreement it must in our opinion be accepted that parties had set their sights on 13 April 1984 as the critical date. Their subsequent actings were entirely consistent with this view. After the Lord Ordinary made his finding on 26 September 1984 [upholding the contention that interest was payable at the contractual rate because of the failure to certify] the parties proceeded to agree the amount of the arrears of interest down to 13 April 1984, and it was for that amount that the pursuers moved for decree on 18 January 1985. The only reason why the accumulated arrears were not paid over with the principal sum was that the defenders wrongly, as it turned out, refused to accept that clause 60(6) governed the matter. In our opinion, accordingly it is not difficult to read the agreement as one in which the defenders had conceded their liability to pay accrued interest as at 13 April 1984, and in which that date was to be deemed to be the date when the arrears became due and payable for the purpose of the settlement of the action, although it was recognised that, because of the defenders' attitude, payment would in fact be delayed for an indefinite period until either the defenders abandoned their opposition to a clause 60(6) computation, or the dispute about the amount had been resolved by the court. In these circumstances we do not consider that the Lord Ordinary erred in allowing interest from 14 April 1984 until payment, at the legal rate, on the debt consisting of the arrears of interest which had accumulated by and were outstanding on 13 April 1984."
Mr Sellar's submission was that similar reasoning supported the present pursuers' claims for interest on the two principal sums concluded for.
Mr Campbell, while accepting that a banker was entitled as a matter of common usage to charge compound interest on an overdrawn account, submitted that that rule was of no relevance in relation to the claims for interest which the pursuers make in the present action. The first conclusion was for payment of an ascertained amount of debt (albeit made up of accrued interest) fixed as at the date on which the principal sum was repaid. There was no good reason for departure from the normal rule that interest on that debt should run only from the date on which a judicial demand was made. The result in Nash Dredging followed from construction of the particular settlement agreement in that case, which differed materially from the Interim Agreement in the present case. The pursuers' claim for interest from the interim settlement date could only succeed if the usual test for implication of a term was satisfied. It was not enough to justify the implication of a term that the term contended for would have been reasonable (Chitty on Contracts § 13-008; Liverpool City Council v Irwin per Lord Cross at 258B). While provision for payment of interest from the interim settlement date might well have been a reasonable provision if it had been incorporated in the Interim Agreement, to imply such a provision would be to re-write the parties' contract, and that was not legitimate. In the present case, the pursuers could have protected their position adequately by raising an action containing the conclusions for the accrued interest and the breakage costs immediately on conclusion of the Interim Agreement. If they had done so, interest would have run on those sums from that date. There was therefore no basis for saying that the implication of a term providing for the payment of interest from that date was necessary to give business efficacy to the Interim Agreement.
Mr Drummond Young submitted that, following Nash Dredging, it was appropriate to construe a settlement agreement as a whole and positively. In March 1997, when the Interim Agreement was entered into, the defenders were anxious to redeem the loan in order to bring their liability for interest on the principal sum of the loan to an end. The pursuers agreed to put aside for the time being the issue of breakage costs, which was already the subject of litigation. The parties were aware that on repayment of the loan the pursuers would break the swap agreement and incur breakage costs. They were aware that these would be substantial, and that the question whether the defenders were liable to reimburse them would be determined only at an indeterminate future date. They were aware that, if it was held that the pursuers had not been obliged to accept the attempted redemption in April 1996, contractual interest would have continued to run between that date and the interim settlement date. That interest, if payable, was payable in respect of a banker's loan. Such loans attracted compound interest (Gloag on Contract, page 684). It was by reference to these circumstances that the question of implication of an obligation on the defenders' part to pay interest on the accrued interest and the breakage costs was to be judged. A term would be implied if it was necessary to produce a reasonably workable business arrangement - if it was one which every reasonable man would desire for his own protection and no reasonable man would refuse to accede to (Morton v Muir Brother per Lord McLaren at 1224). That was a higher test than merely asking whether the term was a reasonable one, but it was not so high as demanding (as Lord Maclean suggested in Rockcliffe Estates) that it be shown that the contract was incapable of practical performance without it. It was a test which was satisfied in the present case. It would have been obvious to any reasonable man that if liability to reimburse the breakage costs was established (in pursuance of the initial action which was already in dependence at the time of the Interim Agreement), interest on those costs should be paid from the date of the Interim Agreement. Implication of such a provision for interest was necessary to make the Interim Agreement a sensible commercial arrangement. A similar argument supported the implication of a term providing for the payment of interest on the accrued interest from the date of the Interim Agreement. In relation to that matter, the implication was also supported by the normal rule in favour of compound interest on bank loans.
In my opinion, the pursuers' claim for interest from the interim settlement date fails in respect of both conclusions.
I do not consider that the pursuers' position is supported by the passage in Gloag on Contract at 684. What was there under discussion was the general rule that contractual debts do not bear compound interest in the absence of express agreement or established commercial usage. It was noted that in Graham's Executors, Lord McLaren had recognised the entitlement of bankers, based on established usage, to charge interest compounded at customary intervals on overdrawn accounts. The present case is not, however, concerned with an overdrawn account in respect of which the banker's entitlement to interest depends on custom. The Loan Stock Deed was concerned with what was in substance a loan for a fixed period of ten years. There was express provision regulating the pursuers' entitlement to interest at a fixed rate, payable in six-monthly instalments (Clause 4), and making failure in prompt payment an event of default rendering the loan immediately repayable (Clause 9(A)(i)). In my view, the custom referred to in Gloag and in Graham's Executors has no part to play in such a situation. In any event, the pursuers' claim for interest on the sum first concluded for, although a claim for interest on interest, is not a claim for compound interest properly so called.
Nor do I consider that the pursuers can argue by analogy with Nash Dredging. I am of opinion that the decision in that case depended on the construction which the court was prepared to give to the particular settlement agreement. While there are superficial similarities between the claim for interest on interest in that case and the claims for interest on the sums first and second concluded for in the present case, I am of opinion that the differences are more important. In that case, at the settlement date the principal sum fell to be paid, and in addition it was accepted by the defenders that they were liable to pay accrued interest to that date on the principal sum. The outstanding dispute was as to the basis of calculation of that interest. In the present case, at the interim settlement date, it was agreed that the principal amount of the loan with interest to the original proposed redemption date would be paid, but there was no agreement that interest would be paid in respect of the period between the original proposed redemption date and the interim settlement date (the sum now sought in the first conclusion), or that the breakage costs would be reimbursed (the sum now sought in the second conclusion). These issues as to liability were expressly reserved. Thus, while in Nash Dredging the defenders' liability to pay interest on the principal sum down to the settlement date was established by the settlement agreement, and all that remained to be resolved was the basis of computation, in the present case the Interim Agreement did not settle the defenders' liability to pay the sums on which interest is now sought. It is in my view clear on a sound reading of the opinion of the court in Nash Dredging (at 645D-G) that the conclusion that interest should be paid on the accumulated interest from the settlement date was based on the fact that liability to pay the accumulated interest at the settlement date had been conceded and all that remained for resolution was the amount. Nash Dredging is therefore in my opinion distinguishable, and does not assist the pursuers in the present case.
The pursuers' claims for interest from the date of the Interim Agreement therefore in my view depend on whether the submission is sound that there should be implied into the Interim Agreement a term making such interest payable. If the Interim Agreement had provided that, in the event of the pursuers establishing their entitlement to (i) payment of interest on the loan from 17 April 1996 to 7 March 1997 and/or (ii) reimbursement of the breakage costs the defenders would be bound to pay interest on the sum or sums awarded, that provision would not have appeared unreasonable. But it was not disputed that reasonableness was not the test for implication of a term into a contract. The test is often referred to in a shorthand way as "business efficacy". It is as well, however, to remember that when formulated in The Moorcock (at 68) the test was put in the following terms:
"In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men."
The reference is to the presumed intention of both parties, as was further emphasised by Lord McLaren in Morton v Muir Brothers (at 1224), where he said that a term would be implied if it was:
"such that every reasonable man, on the one part, would desire for his own protection to stipulate for the condition, and that no reasonable man, on the other part, would refuse to accede to it."
There was some discussion in the debate of Lord Maclean's dictum in Rockcliffe Estates (at 594J) that it was necessary for the party seeking the implication to aver that:
"the contract is incapable of practical performance without the implied term".
If his Lordship were to be understood as having set a test of absolute impracticability of performance, then my view would be that that goes too far. It seems to me, however, that when read in the context of the passage in which it appeared the phrase "incapable of practical performance" was intended as a gloss on Lord McLaren's dictum, to convey the idea that a term would only be implied if without it the contract would operate in a way which would not be the way in which practical business men on both sides of the transaction would reasonably expect it to operate.
It was recognised by the pursuers' counsel that a term will be more easily implied in a verbal than in a written and formal contract (Crawford v Bruce at 531G). Here it was accepted that the Interim Agreement was drafted on the parties' behalf by specialist solicitors. The proposition that no reasonable business man on either side of the transaction would have failed to recognise that there should be provision for payment of interest on the accrued interest and the breakage costs from the interim settlement date is thus prima facie a difficult one to sustain. The pursuers nevertheless sought to do so by reference to the nature and purpose of the Interim Agreement, and the fact in particular that it was obvious that resolution of the issue of the defenders' liability (i) for interest on the loan from the redemption date to the interim settlement date and (ii) to reimburse the breakage costs, both substantial sums, was likely to be delayed for a material time. In those circumstances, it was not commercially sensible that the pursuers, if successful in the principal claims, should not have interest from the interim settlement date. There seems to me, however, to be one consideration which compels rejection of that argument. Refusal to imply the term sought does not mean that the pursuers were deprived of the opportunity to recover interest from the interim settlement date. There was nothing to stop them from immediately at that stage raising an action containing the principal conclusions contained in the present action. As at the interim settlement date the grounds of action on which the pursuers have in the event succeeded were already available. A relevant summons could have been served. If that had been done, interest would have run from the date of the judicial demand, and the pursuers would have had the protection which they now seek to achieve by means of the implication of a term into the Interim Agreement. When that means of obtaining the protection they seek was available to the pursuers at the time of the Interim Agreement it is, in my opinion, impossible to conclude that a term providing for interest from the interim settlement date requires to be implied into the Interim Agreement to give it business efficacy.
For the reasons which I have given, I am satisfied that, given that the defenders as at the proposed redemption date of 17 April 1996 were denying liability to reimburse the breakage costs, the pursuers were not obliged to allow the defenders to redeem the loan stock on that date, and are accordingly entitled to recover interest at the rate provided for in the Loan Stock Deed on the principal amount of the loan for the period from 17 April 1996 to 7 March 1997. It was not disputed that the pursuers are entitled to recover the amount of the breakage costs. The pursuers are therefore entitled to decree in respect both of the accrued interest and of the breakage costs. Parties were agreed, however, that before decree was granted it would be appropriate to allow them an opportunity to confirm that they are in agreement as to the arithmetical accuracy of the principal sums concluded for. I shall accordingly put the case out By Order for that purpose.
For the reasons which I have given I am of opinion that the pursuers are not entitled to interest on the principal sums for which decree is to be granted from the date of the Interim Agreement. When decree is in due course granted, therefore, I shall grant decree for interest on each of the principal sums at the rate of 8% a year from the date of citation until payment.