A case of no interest on a loan
- AuthorPerdeep Grewal
You decide to loan money to someone under an oral agreement, but you did not consider whether they should pay you added interest. Should interest be implied? Should you be entitled to interest?
This was a significant issue discussed in the case of Al Jaber v Al Ibrahim in the Court of Appeal.
In 2001, Al Jaber alleged that he lent US$30 million to two Saudi brothers, (the Al Ibrahims) to launch a new language broadcaster service in the United Kingdom. The agreement was made over the phone and there was no mention of any interest payments. Some 15 years later, Al Jaber asked for the return of his money (US$30 million) plus added interest, which amounted to an additional, and certainly eye-watering, US$32 million.
The criteria to determine whether interest can be implied into the agreement, is either:
- the obligation to pay interest was necessary to give business efficacy to the loan agreement; or
- the obligation to pay interest would have been so obvious to the parties at the time the agreement was made.
Al Jaber could not satisfy either requirement as his requests for interest emerged gradually and uncertainly. While Al Jaber asked for interest to be repaid at the rate of 8%, he subsequently suggested that he would have been “equally content” with “some benefit” such as an equity return from the business arrangement. The Court of Appeal therefore rejected the argument that the agreement should have an implied term for the repayment of added interest. It was clear that interest was not a necessary part of the agreement.
What could this mean for you?
When parties enter into an agreement, it is imperative that you consider whether interest is payable, the amount of interest payable, and the repayment deadline. There should be an express term referring to interest repayments in a written agreement. If interest is not expressly included in the agreement, then it is important to have a discussion, at the outset, as to whether interest will be charged and the amount payable.
If you are considering entering into an agreement and are unsure to the terms of an agreement, please feel free to contact me for an initial chat. I am based at our Chelmsford offices and can be contacted on 01245 453 804 or, alternatively, you can email me at firstname.lastname@example.org.