Lordsvale Finance Plc v Bank of Zambia
| Jurisdiction | England & Wales |
| Judge | Colman J. |
| Judgment Date | 20 March 1996 |
| Court | Queen's Bench Division |
| Date | 20 March 1996 |
Contract - Construction - Indemnity clause - Default interest - Facility agreement with bank - Agreement providing for increased rate of interest in event of borrower's default - Increase only payable during period of default - Whether penalty - Practice - Judgment in default - Incomplete action - Action for repayment of advance and for contractual default interest - Summary judgment entered for repayment of advance plus interest to be assessed - Second action commenced to recover default interest - Whether plaintiff estopped from claiming default interest in second action - Whether election to pursue claim for interest in first action
The defendant bank entered into two facility agreements with two syndicates of banks under which the sums of U.S.$100m. and $130m. were made available to the defendant. The agreements provided that in the event of default the defendant was to pay interest during the period of default at the aggregate rate of the cost of obtaining dollar deposits to fund the banks' participation, the margin (which was defined as 1 ½ per cent.) and an additional, but unexplained, 1 per cent. When the facility advances fell due for repayment the defendant defaulted. The plaintiffs, who were assignees of the rights of certain members of the syndicates, claimed payment of the principal sum together with default interest due under the agreements. On the hearing of an application for summary judgment under
On the plaintiffs' application for summary judgment in both actions: —
Held, granting the application, (1) that the first action was not an election of one juridical route to compensation to the exclusion of another but an incomplete cause of action for default interest; that the plaintiffs had not omitted to make a claim for default interest in the original proceedings since the cause of action for default interest only arose after commencement of the first action when the demand on the defendant was made; and that when judgment was entered against the defendant in the first action both parties had understood that liability as to interest remained at large (post, pp. 693A–C, 694F, 702E–F).
(2) That there was no reason in principle why a contractual provision the effect of which was to increase the consideration payable under an executory contract upon the happening of a default should be struck down as a penalty if the increase could in the circumstances be explained as commercially justifiable, provided its dominant purpose was not to deter the other party from breach; that if an increased rate of interest applied only from the date of default or thereafter, provision for a modest increase in the rate would not be struck down as a penalty; that the rate of 1 per cent. could not be said to be in terrorem but was consistent only with an increase in the consideration for the loan by reason of the increased credit risk represented by a borrower in default; and that, accordingly, the default interest provision would be fully enforced (post, pp. 699C, 702C–F).
Quaere. Whether the order in the first action was regular given that it left open not only the quantification of interest but also the question of liability for any interest at all (post, pp. 694H–695A).
The following cases are referred to in the judgment:
Burton v. Slattery (
Citibank N.A. v. Nyland (CF8) Ltd. (
David Securities Pty. Ltd. v. Commonwealth Bank of Australia (
Downey v. Parnell (
Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd. [
Elphinstone (Lord) v. Monkland Iron and Coal Co. Ltd. (
General Credit and Discount Co. v. Glegg (
Henderson v. Henderson (
Herbert v. Salisbury and Yeovil Railway Co. (
Holles (Lady) v. Wyse (
Kemble v. Farren (
Ruskin v. Griffiths (
Scarf v. Jardine (
Strode v. Parker (
Talbot v. Berkshire County Council [
United Australia Ltd. v. Barclays Bank Ltd. [
Wallingford v. Mutual Society (
The following additional cases were cited in argument:
Alghussein Establishment v. Eton College [
Hallifax (Marquis of) v. Higgens (
Jobson v. Johnson [
Kok Hoong v. Leong Cheong Kweng Mines Ltd. [
Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd. [
Philips Hong Kong Ltd. v. Attorney-General of Hong Kong (
South American and Mexican Co., In re; Ex parte Bank of England [
Tang Man Sit (Personal Representatives of) v. Capacious Investments Ltd. [
Wright, In re; Blizard v. Lockhart [
Yorke (M.V.) Motors v. Edwards [
SUMMONS
By a writ of summons dated 12 April 1995 and endorsed with a statement of claim, the plaintiff bank, Lordsvale Finance Plc., claimed from the defendant bank, the Bank of Zambia, U.S.$5,612,447.30 together with default interest in the sum of $6,840,435.96 payable to them under two facility agreements on which the defendant had defaulted. The claim was not satisfied and by a summons issued on 27 April 1995 the plaintiffs proceeded by way of
The summons was heard in chambers but judgment was given by Colman J. in open court.
The facts are stated in the judgment.
Barbara Dohmann Q.C. and Michael Lazarus for the plaintiffs.
Michael Brindle Q.C. and Richard Handyside for the defendant.
20 March. COLMAN J. read the following judgment. This is an application for judgment under
The claim arises in this way. On 24 April 1984 an international syndicate of banks entered into an oil import facility agreement with the defendant, a bank, under which a facility of U.S.$130m. was made available to the defendant. Amongst the participating banks were Sumitomo and B.C.C.I. On 19 July 1985 another international syndicate of banks, again including Sumitomo and B.C.C.I., entered into a further oil import facility agreement with the defendant in the sum of $100m.
In the course of 1986 the facility advances fell due for repayment, but the defendant defaulted. In the course of 1991 both Sumitomo and B.C.C.I. assigned their respective rights under both agreements to Lazards. On 23 December 1994 Lazards entered into an agreement to assign its rights under both agreements to the plaintiffs in these proceedings to take effect on 10 January 1995. On 7 March 1995 solicitors acting on behalf of the plaintiffs made a demand on the defendant for payment of the amounts due under the two agreements.
Payment not having been made, the writ in the first action was issued on 12 April 1995. In the points of claim served with the writ the plaintiffs claimed a principal amount due under both agreements of $5,612,447.30. They also claimed default interest in respect of the principal sum due. That default interest exceeded the principal sum and amounted in total to $6,840,435.96. The claim was not satisfied and the plaintiffs proceeded by way of
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