No interest loans? The case of Al Jaber v Al Ibrahim
What happens if you agreed to loan money to someone, but didn’t discuss whether they should pay you added interest? If the person to whom you loaned money lives abroad, would you be able to claim your money back in the UK, or would proceedings have to take place where they live? These were some of the key issues discussed in the case of Al Jaber v Al Ibrahim in the Court of Appeal last month.
In 2001 Al Jaber loaned $30 million to two brothers (the Al Ibrahims) to allow them to create a UK based Arabic language news broadcaster called Al-Arabiya, which they hoped would rival Al Jazeera. He agreed to this loan over the phone. The duration of the loan was not discussed, nor was the issue of interest.
In 2015 Al Jaber asked for his money back, plus interest, which amounted to more than $32 million. One of the brothers lived in Saudi Arabia, and so it was up to the UK Courts to decide whether the second brother could be served with a claim in the jurisdiction of England and Wales. The Court of Appeal decided that a claim for repayment and interest would satisfy the Civil Procedure Rules that allow for someone to be served out of the jurisdiction. In other words, Al Jaber’s claim could be heard in England and Wales, despite one of the brothers living in Saudi Arabia. However, it was found that he would not be able to claim interest on the loan.
What’s needed to imply interest?
For interest to be implied into a loan agreement, one of two criteria must be established:
- The obligation to pay interest was necessary to give business efficacy to the loan agreement; or
- the obligation to pay interest was obvious to both parties.
On the facts of this case, neither of these criteria could be established. Over the years, Al Jaber had made inconsistent requests for interest. First asking for 8% interest and then later stating that instead of repaying the loan with interest he would be happy for the brothers to repay him “by way of equity”.
Due to these inconsistent requests, it was clear that interest was not a necessary part of the loan agreement. Moreover, as Al Jaber had never loaned money to the brothers before, it was hard to argue that the obligation to pay interest was obvious.
How this affects you
In most circumstances, any interest payable should be expressly included in an agreement. When a commercial loan is created, it is vital that you are specific and clear from the outset regarding issues such as repayment deadlines, the amount of interest payable, and any additional charges that may occur as a result of the agreement.
If interest is not expressly included then it is important that discussions take place as to whether interest will be charged and at what rate. The key is to raise the issue at the outset and to be consistent in your subsequent requests.
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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
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