Whitbread Plc v Ucb Corporate Services Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 15 June 2000 |
| Judgment citation (vLex) | [2000] EWCA Civ J0615-17 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 June 2000 |
| Docket Number | A2/99/1167 |
[2000] EWCA Civ J0615-17
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
(MR JUSTICE SCOTT BAKER)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Lord Justice Pill
Lord Justice Potter
Sir Murray Stuart-smith
A2/99/1167
MR TIMOTHY HILL (Instructed by Messrs Glovers, London, WAY 4DY) appeared on behalf of the Respondent
MR BRIAN DYE (Instructed by Messrs Halliwell Landau, Manchester, M2 2JF) appeared on behalf of the Appellant
LORD JUSTICE PILL:This is an appeal against a decision of Scott Baker J given on 20 July 1999. The judge had been asked to decide a preliminary point in a dispute between Whitbread Plc, the claimant, and UCB Corporate Services Limited, the defendant.
The background can be stated briefly. Mr Robert Belding and Mr James Berry ("the borrowers") were publicans at the General Abercrombie Public House in Arundel, West Sussex. They sought loans from more than one source. The defendant lent them the sum of £160,000 for a period of 240 months on an interest only basis. Monthly interest was to be paid during the term and the capital sum repaid its end. The Scottish and Newcastle Brewery also lent money to the publicans. Whitbread became involved as successors to the Scottish and Newcastle Brewery in lending money to the publicans.
By a legal mortgage dated 12 August 1987 the borrowers charged the public house to secure the monies due to the defendant. It was an all monies mortgage. It covered the loan to which I have referred which provided for compound interest. By a further legal charge dated 15 August 1998, the publicans also charged the public house to the claimant in the sum of £200,000.
A dispute has arisen as to the construction of a deed of priority, also dated 15 August 1998, made between the claimant and the defendant. They agreed between them the extent to which the defendant would have priority for the money secured by its charge over and above the money secured by the claimant's charge. The relevant words in the deed of priority were:
"A capital sum of £160,000 together with interest thereon to date of payment."
The dispute is as to the sum in respect of which the defendant is entitled to priority under the deed of priority. The claimant contends that the defendant has priority only for £160,000 and simple interest on that sum and the defendant contends that it has priority in respect of compound interest. Having made regular monthly payments to the defendant on the interest only loan, the defendant defaulted and also defaulted with respect to its obligations to the claimant.
Receivers were appointed and when the public house was sold the proceeds were a little over £250,000. That sum was paid to the defendant late in 1993. The relevance of the dispute is that if the defendant is correct in its contention, no money is due from the defendant to the claimant. The claim based on compound interest and other relevant matters exceeds the proceeds. If however the defendant is entitled only to simple interest, a substantial sum is left out of the £250,000 for payment to the claimant. It is that sum which the claimant seeks from the defendant in the proceedings.
The defendant's legal charge was an all monies' charge. This was made clear in the deed of priority. The first recital states:
"By a Legal Mortgage ('the UCB Mortgage') dated 12 August 1987 and made between ROBERT FREDERICK ARTHUR BELDING and JAMES FREDERICK BERRY together called ('the Borrowers') (1) and UCB (2) the premises known as the General Abercrombie Public House Queen Street Arundel ('the Premises') were charged to the Bank to secure all monies and liabilities for the time being due owing or incurred to the Bank by the Borrower."
It must have been clear to the parties that the obligations of the borrowers to the defendant might include obligations under loans which provided for compound interest (as did the relevant one). It provided for a situation in which, upon a rising balance, there was to be a monthly compounding on the amount then outstanding. Clause 2.1 of the deed provides:
"The UCB Mortgage shall rank so as to secure all monies due owing or incurred to UCB by the Borrower such sum not to exceed the capital sum of one hundred and sixty thousand pounds together with interest thereon to date of repayment commission discount costs and other UCB's charges ('the UCB's limited debt'). IN PRIORITY to the Brewery Charge as a continuing security for repayment to UCB of all monies secured by the UCB Mortgage whether now owing or incurred to hereafter to become owing or incurred to the UCB by the Borrower on any account or in any manner whatsoever but subject to the said limit and the priority of the UCB Mortgage to the said extent shall not be affected by any fluctuations in the amount from time to time due to UCB by the existence at any time of a credit balance on any account."
The operative clause thus also made clear that the mortgage was an all monies mortgage.
Clause 5 of the deed of priority states:
"Each of them the UCB and the Brewery hereby acknowledge the right of the other to production and delivery of copies of their respective Charges."
That obligation arose only upon the signing of the agreement.
Scott Baker J found in favour of the claimant. He said:
"I am not satisfied that, upon consideration of the full circumstances in which the agreement was made, there would be any clear conclusion that the parties intended the reference to 'interest' to be to compound interest. In my judgment, most assistance here is to be obtained from the literal wording of the agreement itself. I have come to the conclusion that the agreement is sufficiently clear on its face to satisfy me that simple interest is the natural construction.
Interest, as a concept, has to have a sum on which to be computed. The word 'thereon' shows that it is to be computed on the capital for the time being outstanding not exceeding £160,000. It is not permissible, in my judgment, to make the interest bite on any extra money as would be the case if one construed the reference to 'interest' as meaning 'compound interest'."
In his submissions on behalf of the claimant, Mr Dye refers to the judgment of Cooper J in the Federal Court of Australia —General Division in Consolidated Fertilisers Limited v Deputy Commissioner of Taxation 107 ALR 456 at 462:
"The terms 'simple interest' and 'compound interest' do not alter the essential character of interest. Rather, the adjective denotes the method of calculation and thus the type of interest. Simple interest is the interest paid on the principal lent or the obligation to pay money. Compound interest is the interest eventually paid on a principal periodically increased by the addition of each fresh amount of interest as it becomes due and remains unpaid."
In that case the judge applied the decision of the High Court of Australia in the case of Bank of New South Wales v Brown (1983) 1151 CLR 514 to which I will refer. Mr Dye refers to the statement in Paget's Law of Banking (11th ed) at page 182 that:
"The computing of interest must be distinguished from compounding, which is the capitalisation of interest so that interest itself yields interest."
He also relies on cases in which mortgage deeds have been construed as to whether the interest referred to is simple or compound interest: National Bank of Greece SA v Pinos Shipping Co Ltd (No 1) & Anor [1990] 1 AC 637 and the earlier case of ( Bank of Credit and Commerce International v Blattner unreported CA transcript 20 November 1986).
The parties agree upon the commercial circumstances in which the deed of priority was made. There was at the time it was made an outstanding capital sum of about £160,000 upon the interest only loan which the defendant had made to the borrowers. Both parties clearly had an interest in agreeing priorities and the claimant had an interest in the sum lent by the defendant to the borrowers not being increased in a way which might defeat the rights of the claimant.
Mr Dye submits that the wording of clause 1, the expression "not to exceed the capital sum with interest thereon" necessarily involves a finding that the interest is simple interest. The effect of compounding is to increase the capital sum. That is inconsistent with the agreement that the capital sum shall not be exceeded as far as priority is concerned. The capital sum was fixed at £160,000. Interest imposed on a larger capital sum is not interest on £160,000 but a combination of interest on that sum and interest on the interest thereon. The effect of the wording the parties used is specifically to prevent compounding being covered by the deed of priority. Reliance is also based on the fact that no basis for the method of compounding is set out in the deed of priority.
It is submitted that reference in an agreement to interest is...
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