K/S Preston Street v Santander (UK) Plc [2012] EWHC 1633 (Ch)

[2012] EWHC 1633 (Ch)Case No HC11C03588
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Rolls BuildingDate Wednesday, 14 th March 2012
Before
HIS HONOUR JUDGE PELLING QC(Sitting as a Judge of the High Court)__________B E T W E E N :
Between
K/S PRESTON STREETClaimantSANTANDER (UK) PLCDefendant__________Transcribed by BEVERLEY F. NUNNERY & COOfficial Shorthand Writers and Tape TranscribersQuality House, Quality Court, Chancery Lane, London WC2A 1HPTel: 020 7831 5627 Fax: 020 7831 7737info@beverleynunnery.com__________MR. ANTRILL (of counsel) appeared for Claimant.MR. LILY (of counsel) appeared for Defendant__________J U D G M E N T
[1]This is a hearing of an application (made by an application notice dated 16th November 2011) by which the claimant seeks summary judgment, in substance, for an order for payment over to the defendant of £200,000 held in an escrow account pending determination of the defendant's claim for an indemnity, pursuant to an express provision contained in a fixed term loan agreement between the claimant and the defendant's assignor. This is also the hearing of the defendant's application for summary judgment in its favour in the sum of £165,580.92 together with interest and costs being the sum it says it is entitled to under the terms of the indemnity contained in the fixed term agreement, to which I have referred.[2]In substance, the issue comes down to this: The loan was repaid early by the claimant. The defendant maintains that, on true construction of the terms of the loan agreement, once early redemption has occurred, it is able to claim - pursuant to the indemnity - losses, including all future losses, calculated on an estimated basis resulting from the early termination of the loan agreement and on that basis is entitled to recover the loss of the contractual rates of interest on the sums loaned for the period of the term. The claimant contends that, on proper construction of the agreement the sums claimed by the defendant are not recoverable under the terms of the indemnity or, alternatively, are not yet recoverable.[3]The circumstances in which the court may give summary judgment against a claimant or defendant on the whole or part of the claim is set out in CPR Part 24, Rule 2, in these terms:
“The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if – (a) it considers that – (i) that claimant has no real prospect of succeeding on the claim or issue; or (ii) that defendant has no real prospect of successfully defending the claim or issue; and (b) there is no other compelling reason why the case or issue should be disposed of at a trial.” (a) it considers that – (i) that claimant has no real prospect of succeeding on the claim or issue; or (ii) that defendant has no real prospect of successfully defending the claim or issue; and (b) there is no other compelling reason why the case or issue should be disposed of at a trial.”
[4]The primary facts that arise in this case are agreed between the parties, although there is a factual dispute relating to the calculation of the sums claimed by the defendant under the indemnity assuming - as a matter of construction - that the defendant is entitled to recover future loss calculated by reference to the contractual rates of interest which would have accrued on the sum loaned, but for the early redemption of the loan.[5]The agreement at the centre of the dispute is a loan agreement contained in a facility letter dated 11th February 2004 by which the defendant's assignor lent the claimant the sum of £2,260,000 for a term of ten years at a fixed interest rate of 5.06% fixed for the full period of the loan. The loan was for the defined purpose of enabling the claimant to purchase specifically identified real property against the title to which the loan was to be secured. Insofar as is material, the loan agreement provided as follows:
“…Allied & Leicester Commercial Bank Plc (“the bank”) is willing to provide K/S Preston Street, 26883768 being a limited partnership incorporated under Danish law (“the partnership”), with a loan (“the loan”) on the terms and conditions of this letter of agreement (“this agreement”): (1) Definitions and interpretations Various words used in this agreement are defined in the schedule and this agreement shall be construed in accordance with that schedule and words importing the singular number shall include the plural, and vice versa. (2) Amount The loan will be available for a maximum total amount of £2,260,000. (3) Term of the loan Subject to the other terms of this agreement, the loan should be for a term of ten years from the date when the loan or any part of it is first drawn… (6) Interest i. Interest payable should be fixed for the full term of the loan (the fixed rate period) at a rate determined by the bank and notified to the partnership at or about the day of drawdown of the loan. ii. In addition to any prepayment costs payable under para.9, the partnership shall indemnify the bank on demand against any cost, loss, expenses or liability (including loss of profit and opportunity costs) which the bank incurs as a result of the repayment of the loan during the fixed rate period or any further period during which the rate of interest applicable to the loan is fixed. iii. Interest will be calculated on the day to day balance outstanding on the loan and should be applied to the loan account quarterly in arrears in April, July, October and January in each year; and, on the final repayment date and for the purpose of calculating the interest payable, such interest shall then form part of the outstanding balance of the loan. (7) Fees The partnership shall pay on demand, unless otherwise stated, the following fees and costs which the bank shall be entitled to debit to the partnership's current or other account… … iii. All costs and expenses arising from the recovery of any sum due under this loan or otherwise in connection with the enforcement of this agreement. … v. Such sums as may be required to indemnify the bank against any loss or expense suffered in connection with the early break in termination or reversing, in whole or in part, of any hedging agreement or any other arrangement entered into by the bank with the partnership for the purposes of or in connection with fixing, capping the rate of or otherwise hedging interest payable under this agreement. (8) Repayment i. Subject to paragraphs 9 and 14 below, the partnership shall repay the loan by forty quarterly capital and interest repayments and a final bullet repayment in accordance with the attached example cash flow. The bank will provide a final cash flow based on the fixed funding rate within twenty days of drawdown. … (9) Prepayment The partnership may prepay the loan in whole or in part in advance of the final repayment date, subject to payment of any fees payable as stated in clause 7 and in addition the following prepayment fees will apply. Year 1 - 1% of the loan. Year 2 - 0.8% of the loan. Year 3 - 0.6% of the loan. Year 4 - 0.4% of the loan. Year 5 - 0.2% of the loan. Years 6 and thereafter - nil. … (14) Events of Default i. Interest payable should be fixed for the full term of the loan (the fixed rate period) at a rate determined by the bank and notified to the partnership at or about the day of drawdown of the loan. ii. In addition to any prepayment costs payable under para.9, the partnership shall indemnify the bank on demand against any cost, loss, expenses or liability (including loss of profit and opportunity costs) which the bank incurs as a result of the repayment of the loan during the fixed rate period or any further period during which the rate of interest applicable to the loan is fixed. iii. Interest will be calculated on the day to day balance outstanding on the loan and should be applied to the loan account quarterly in arrears in April, July, October and January in each year; and, on the final repayment date and for the purpose of calculating the interest payable, such interest shall then form part of the outstanding balance of the loan. … iii. All costs and expenses arising from the recovery of any sum due under this loan or otherwise in connection with the enforcement of this agreement. … v. Such sums as may be required to indemnify the bank against any loss or expense suffered in connection with the early break in termination or reversing, in whole or in part, of any hedging agreement or any other arrangement entered into by the bank with the partnership for the purposes of or in connection with fixing, capping the rate of or otherwise hedging interest payable under this agreement. i. Subject to paragraphs 9 and 14 below, the partnership shall repay the loan by forty quarterly capital and interest repayments and a final bullet repayment in accordance with the attached example cash flow. The bank will provide a final cash flow based on the fixed funding rate within twenty days of drawdown. … Year 1 - 1% of the loan. Year 2 - 0.8% of the loan. Year 3 - 0.6% of the loan. Year 4 - 0.4% of the loan. Year 5 - 0.2% of the loan. Years 6 and thereafter - nil. … 1. If any of the following occurs it should constitute an event of default: (1) The partnership fails to pay any sum hereunder when due or is in breach of any of the other terms and conditions of this agreement or any security document or fails to pay… (15) Enforcement 1. On the occurrence of an event of default and for so long as such is continuing, the bank may by notice to the partnership at any time thereafter: (1) Terminate its obligations under this agreement whereafter the same will be so terminated; and/or (2) declare all amounts outstanding in respect of the loan accrued interest and all other amounts outstanding to be: i. Immediately due and payable whereas the same will become forthwith due and payable without further demand; or ii. Payable upon demand whereupon the same will become repayable on demand being made by the bank and/or (3) Take any other action or pursue any other remedy deemed by the bank to be necessary to enforce its rights under this agreement. 2. Following a demand under this clause, interest shall continue to be charged on any monies remaining unpaid as specified in para.6 of this agreement before as well as after judgment. … (20) Governing Law 1. This agreement shall be governed by and its terms construed in accordance with the laws of England. … Schedule 1 Definitions The Loan: The credit facility placed at the disposal of the partnership or if this agreement is amended the credit facility as so amended from time to time. … Final Repayment Date: Means the date notified by the bank to the partnership by which all amounts due under this agreement shall be repaid…”
[6]On 19th June 2011, the claimant notified the defendant that it was intending to repay the loan in full. On 14th July 2011, the defendant warned the claimant that the defendant would suffer loss if there was an early repayment which would, in consequence, be claimed by or on behalf of the defendant or its assignor, pursuant to clause 2 of the loan agreement. The claimant disputed that it would be liable for such losses, but, in the event, it was agreed that on early repayment the sum of £200,000 would be held on escrow pending resolution of the dispute. It was agreed that that sum would be paid over to the defendant unless, within sixty-three days of 1st September 2011, the claimant commenced what became, in the event, these proceedings.[7]On 1st September 2011, the claimant repaid £1,918,562.18 to the defendant or its assignor. On 5th September 2011 the defendant sought payment of what it claimed was its losses suffered as a result of early payment, which were quantified then in the sum of £165,580.92. In fact recalculation on the part of the defendant has pushed up the gross figure claimed, but the defendants have limited its claim to the figure previously notified of £165,580.92.[8]The basis on which the sum claimed has been calculated is set out in a witness statement from Mr. Adam James Ibrahim, a partner in the firm of DLA Piper (UK) LLP, the solicitors who act for the defendant. Insofar as is material, the sums which are claimed have been calculated by Mr. Ibrahim in the terms set out in para.26 of his witness statement. The evidence which leads to the calculation contained in that paragraph is set out in paragraphs 23 to 25 of his witness statement. Insofar as is material, those paragraphs are as follows: “(23) The defendant has agreed to grant the facility to the claimant at a fixed rate of 5.06% for ten years. At the point of termination approximately 28 months prior to the maturity date of the facility, the defendant would only have been entitled to receive approximately 1.05% interest for the remaining period of the facility if it re-lent funds on a fixed rate. (24) I understand from Andrew Sealy of the defendant's treasury department who calculated the rate used in this specific case that, in accordance with his standard practice, this rate was calculated and can only be calculated on the day by reference to market rates for a 28 month loan as at 1st September 2011. That rate is calculated by feeding the period of the loan into a computer programme that identifies the market rate for such a loan as published by Bloomberg. That calculation is not recorded in the defendant's systems, save for the correspondence referred to in these proceedings and Bloomberg does not retain a record of its rates over such a specific period. But Mr. Sealy has confirmed that he supplied this calculation of 1.05% to the defendant in this case. Since the period remaining on the facility is unique to a given loan, in this case approximately 28 months, Mr. Sealy has also confirmed that he would check these calculations using other rates published by Bloomberg and which are still accessible. As an illustration, a screenshot from the Bloomberg website shows that the market rate for a two year loan as at 2nd September 2011, was approximately 0.9502%. However, a three year loan was trading at a higher rate and so the higher rate of 1.05% in this case reflected the fact that the remaining period of the facility was for 28 months rather than two years… (25) Of course I understand that because of the amount of funds lent by the defendant, the repayment of the facility for a comparatively modest sum in comparison with the funds being loaned by the defendant would not have allowed the defendant to make any loans to non-bank commercial borrowers that it would not otherwise have made in any event. In other words, its lending policy would, unsurprisingly, be unaffected by whether the facility was or was not repaid early. However, it would have been able to re-lend any funds repaid to it on the interbank market at the rates above. (26) As a result of the claimants early termination, the defendant therefore incurred the loss of income and/or loss of profit and/or loss of opportunity costs of approximately £173,463.33 calculated as follows: £1,853,901 multiplied by 4.01% multiplied by 28 months In the calculation above, £1,853,901 constitutes the amount outstanding on the loan at the time of early termination by the claimant. 4.01% constitutes the difference between the fixed rate of interest that the defendant was entitled to under the facility letter 5.06% and the prevailing market interest rate at 1st September 2011 1.05%. In fact the rate of 1.05% is the 'midpoint' in the market rate and funds would be lent by the defendant on one or two bases points (0.01-0.02%) below this rate and borrowed at a similar margin above this figure. Accordingly, the return to the defendant would, if anything, be lower than 1.05% and the defendant's loss correspondingly higher; and 28 months constitutes the period remaining until the expiry of the facility. In fact the sum due is greater since there was more than 28 months remaining on the loan.” £1,853,901 multiplied by 4.01% multiplied by 28 months

be lower than 1.05% and the defendant's loss correspondingly higher; and

[9]In summary, the issues between the parties that arise on these two applications are as follows:(a) Whether the defendant is entitled to recover the sum claimed or any sum, pursuant to clause 6.2 of the agreement? This issue is said to be one of construction; and(b) Whether the defendant is entitled to recover the sum claimed on the current state of the evidence, even if otherwise it would in principle be entitled to recover that sum.[10]There are outstanding issues concerning interest, costs which have been incurred at earlier stages in this litigation; and what, if anything, ought to happen to the balance of the £200,000 contained in the escrow account by which that sum exceeds that claimed by the defendant in these proceedings. It has been agreed by the parties that these subsidiary issues are best left over until after I have determined the substantive issues because my determination of the substantive issues will inform, and therefore focus and de-limit, the submissions that need to be considered in relation to the subsidiary issues.[11]I turn therefore, first, to the construction issue. In my judgment, this has to be judged, at least to an extent, against the relevant commercial background. A fixed rate loan is a mechanism by which a borrower can hedge against interest rate risks - that is the risk that interest rates will move upwards over the time covered by the fixed rate loan. A consequence of a lender lending on fixed rate for a fixed term is that it may become very lucrative for the lender, when measured against interest rates prevailing from time to time over the periods of the loan, if interest rates drop. By the same token, it may become loss making (or theoretically loss making) when compared to rates applicable at any particular time if rates rise. The attraction from a borrower's point of view, as I have explained, is that a fixed term loan at a fixed rate will enable the borrower to fix its interest payments for the period of the loan. It follows, however, that there may come a time when the lender would wish to end the arrangement, but cannot and, by the same token, the borrower may wish to end it as commercial conditions change.[12]The claimant's case depends upon a literalist construction of clause 6.2 of the loan agreement. It is submitted that, on its face, clause 6.2 applies only to losses incurred “…as a result of repayment…” whereas what the claimant submits it has done is to make a “prepayment”, which is exclusively the subject of clause 9 of the agreement. On that basis it is submitted that because early redemption is a prepayment within the meaning of clause 9, the only sums that are recoverable by the defendant from the claimant following such an event are the sums that are identified in clause 9 as payable in those circumstances. Since here the redemption was in or after year 6 of the loan, nothing is payable by the claimant to the defendant under clause 9.[13]The defendant's submission is that this analysis is wrong, makes no commercial sense in the context of the agreement and ought to be rejected. It submits that in the commercial context in which this dispute arises, the only sensible and practical basis for calculating the losses it has suffered as a result of the early redemption of the loan is the method set out by Mr. Ibrahim in his witness statement and that therefore summary judgment ought to be entered for the defendant for the sum that I have referred to above.[14]The principles that apply to the construction of an agreement that is governed by English law (as this one is), are those identified by Lord Hoffman in ICS v. West Bromwich Building Society [1998] 1 WLR at p.912H to 9.13F, where he said this:
“The principles may be summarised as follows: (1) Interpretation is the ascertainment of the meaning, which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and, to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous, but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945. (5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention, which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Neviera SA v Salen Rederierna AB [1985] 1 AC 191, 201: '... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.'” (1) Interpretation is the ascertainment of the meaning, which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and, to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous, but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax. (see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945. (5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention, which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Neviera SA v Salen Rederierna AB [1985] 1 AC 191, 201: '... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.'”
[15]It has to be borne in mind at the outset that this is a loan agreement, which expressly permits early redemption by the lender. This is the effect of clause 9 of the agreement. As such, early redemption is subject to the payment of the fees referred to in that clause. Clause 6.2 expressly states that the sums payable thereunder are payable “in addition to…” the fees payable under clause 9. Had early redemption been a breach of contract, an issue might have arisen as to whether the clause (when read together with clause 9) operated together so as to create, either under one or other, an unenforceable penalty. However, that issue cannot arise in the circumstances of this case since, as I have explained, the contract permits the early redemption of the loan, which, in consequence, means that early redemption cannot constitute a breach of contract; and thus the common law relating to penalties is not engaged. Secondly, the use of the phrase “in addition to…” plainly means that clause 6.2 was intended to apply to an early redemption to which clause 9 of the loan agreement applied. The contrary, in my judgment, is not realistically arguable.[16]Mr. Lily argued that the use of the word “repayment” within the body of clause 6.2 negatived this construction. I do not agree. The word “repayment” is used in different senses throughout the agreement. “Repayment” in clause 8 relates to the repayment of the loan in the ordinary course throughout the period of its term. The word is not used in the same sense in clause 6.2. There the reference to repayment is to repayment of “…the loan during the fixed rate period or any further period during which the rate of interest applicable to the loan is fixed”.[17]Mr. Lily argued that prepayment could not be a repayment during the “fixed rate period” because the period ended on repayment as defined by clause 9. I am not able to agree. The fact that the fixed rate period ended with repayment does not lead to the conclusion that the making of such a repayment does not occur during the fixed rate period. The phrase “fixed rate period” is defined as meaning “the full term of the loan” (see clause6.1 of the agreement). The term of the loan is fixed as being a period of ten years from the date when the loan is first drawn down. Thus any repayment within the term of the loan is a repayment to which clause6.2 applies.[18]It was suggested by Mr. Lily that this part of the phrase I am now considering meant repayment in the ordinary course, pursuant to clause 8, which was either late or otherwise than in accordance with the terms of the agreement. In my judgment, that is not the effect or intended effect of the words used, not least because proper provision has been made for those eventualities elsewhere in the agreement and, in consequence, such a construction makes no sense. Interest is recoverable on late payments, pursuant to clause 6.3 and late payment is an event of default entitling the bank at its option to terminate the loan under clause 15. The manner in which payments are made is fixed by clause 10.1. A failure to comply with this provision could logically result only in either a late or underpayment. In either case, that result is remediable by reference to the other mechanisms contained in the contract.[19]It was submitted that to construe clause 6.2 as applying to a prepayment is not consistent with the words “or any further period, which the rate of interest applicable to the loan is fixed”. Again, I am not able to agree. This phrase applies to a situation in which the period of the loan is extended at a fixed interest rate or a new fixed interest rate is agreed. Such a variation is contemplated by the express terms of the agreement, as I have set them out earlier in this judgment. It is because this is an alternative to prepayment as described in clause 9, that clause 6.2 refers to repayment of the loan either during the fixed rate period, which would technically speaking be a prepayment or any further period during which the rate of interest applicable to the loan is fixed which may not be depending on how any variation was addressed.[20]In my judgment, there is no ambiguity that arises on the face of clause 6.2 - whether that clause is read in isolation or when reading the agreement as a whole and applying the construction principles that I have referred to.[21]In this context, it is important to note that neither party has deployed any evidence as to what might be called factual matrix or background material which is alleged to be relevant to construction of the agreement. It is only because that is so that I am prepared to embark upon the construction exercise I have undertaken. If there had been factual matrix evidence that was not agreed and which was capable of having a material impact upon the construction issue, then it would have been necessary for there to be a trial.[22]The much more difficult issue is what losses clause 6.2 is capable of applying to. The lender's case is that the terms of clause 6.3 entitle it to recover its loss of interest at the contractual rate, less the sum that it maintains it can obtain from re-lending the monies that had been repaid early in the interbank lending market. There is no evidence as to what has actually been done with the money and I infer, although there is no evidence actually confirming this to be so, that the money was paid into the general funds of the defendant and invested as part of a much greater sum.[23]It is accepted on behalf of the defendant that credit will have to be given for accelerated receipt, although in fact the calculations set out by Mr. Ibrahim do not, at any rate, expressly carry that concession into effect. It is also accepted that some allowance would have to be made for the possibility of future increases in interest rates so as to cater, albeit on a broad brush basis for the risk of over-compensation by reason of the calculation of future losses, which, by definition, in the circumstances, will be uncertain. Again, however, this concession has not been carried into effect in the calculations carried by Mr. Ibrahim referred to earlier in this judgment.[24]The notion that the lender should be allowed to recover such a sum might be thought inconsistent with the terms of clause 9 because clause 9 provides for what is described as a “fee” to be paid in the event of early redemption that is expressed, not by reference to a fixed sum, but by reference to a percentage of the total sum loaned which becomes smaller as the period of the loan remaining reduces. This looks like an attempt to pre-estimate the effect of the loss of contractual interest.[25]However, it was submitted on behalf of the defendant that the sum was less than the interest that would remain due on the assumption of an early redemption within the periods identified - given, at any rate, the rates identified by Mr. Ibrahim - and provides for nothing for years 6 and thereafter, which, again, is said to be inconsistent with it being intended that the sums set out in clause 9 should be, in any sense, a pre-estimate of the effect of early redemption on the capacity of the lender to recover contractual interest over the period of the loan that remains unexpired.[26]As I have already observed, this agreement permits early redemption and the terms of the contract, which regulate what is to happen in the event of an early redemption, are the provisions contained in clause 9 and clause 6.2 together with at least clause 7.5 within clause 7. In those circumstances, and having regard to the fact that clause 6.2 refers expressly to an obligation to pay any sum due under clause 6.2 in addition to any of the sums that are payable under clause 9, I have concluded that speculating as to the basis on which the rates referred to in clause 9 have been arrived serves no useful purpose.[27]It is then necessary to return to clause 6.2 in order to decide what the clause is designed to cover. There is no material which assists on what is capable of coming within the phrase “cost, loss, expenses or liability”, but some guidance can be obtained as to the correct approach to be adopted in relation to clause 6.2 by the terms in which it is drafted when viewed as a whole. The clause imposes an obligation on the borrower if redeeming early to “indemnify” the bank in respect of any “cost, loss, expenses or liability”. The use of the word “indemnify” suggests that what is required is for the borrower to indemnify the bank in respect of a crystallised liability or obligation falling within the class identified. Thus it is, it seems to me, that, if the bank is to be indemnified in respect of an expense, the expense must have been incurred.[28]There is no reason, in my judgment, for adopting a different approach in relation to the word “loss”. In my judgment, this approach to the construction of the clause 6.2 is supported also by the use of the word “incurs” because if it had been intended that the lender should be entitled to recover a sum in respect of a future loss then the clause would not have referred to the word “incurs”, but would have used words or words to the effect of “incurs or to be incurred”.[29]Furthermore, it seems to me (although this is perhaps a subsidiary point) that this analysis is supported by what is the trigger event for the obligation to indemnify under clause 6.2. By operation of that clause, the bank becomes entitled to an indemnity only “on demand”. It is difficult to see how it is that the borrower can be expected to indemnify the bank on demand in respect of a loss that has not yet been incurred.[30]It was submitted on behalf of the defendants that this is an unduly mechanicalistic approach to the clause and that the plain commercial sense is that loss, including future loss, ought to be recoverable in one go. In my judgment, that is not a sound approach to this clause. As I have emphasised already in the course of this judgment, the defendant is not recovering damages for breach of contract and thus the rules which would apply for the assessment of future losses in a breach of contract claim have no direct application to the issue I am now considering. In other contexts where contingent or future losses of uncertain value have to be valued then express statutory or contractual provisions are put in place to enable that to be done. In this particular context, for example, it would have been possible to set out a detailed formula, or even possibly a table, from which any repayment of sums for future loss interest could become ascertained easily and without controversy between the parties. That course was not adopted. It seems to me that the word “loss” is a word of ordinary English meaning and which can only mean a loss which has been suffered at the time when demand is made for an indemnity in respect of it.[31]This is a sensible and commercially appropriate course to adopt in relation to this particular clause. It is well illustrated by the evidence that has been filed on behalf of the defendant in relation to the calculation of future losses in this case. In order to arrive at the loss figure concerned, Mr. Ibrahim has been driven to make - on instructions, I accept - a number of assumptions. The paragraphs in his witness statement (to which I have referred earlier in this judgment) set out a calculation based on assumptions and based on instructions, but which are notably lacking any evidence which deals specifically with what actually was done with the money when it was received. This is point is all the more a sensitive issue because the payments that were made by the borrower were not made in the end to the lender, but to an associated or perhaps parent company.[32]No attempt has been made to build into the calculation any sum which reflects accelerated receipt, which itself is an adjustment which - whilst capable of being made mathematically - in the end is going to be made mathematically by reference to a figure which is an approximation because it is a figure which will be based upon future losses yet to be incurred.[33]Finally, allowance would have to be made for future fluctuations in interest rates in order to arrive at some sensible figure as to what future losses might reasonably be. As I have endeavoured to explain, that is an appropriate exercise to undertake where the exercise being undertaken is the assessment of damages for breach of contract. That is not the exercise which is permissible on the proper construction of clause 6.2. The only exercise that the bank can properly embark upon under clause 6.2 is to seek indemnity by demand in respect of losses actually incurred down to the date when demand is made.[34]In those circumstances and for those reasons, I reject the primary construction argument advanced on behalf of the claimant that in principle clause 6.2 is incapable of covering losses resulting from contractual interest lost in relation to the loan over the period of the original term following early redemption, but, by the same token, I reject the notion that the concept of loss as referred to in clause 6.2 is one which incorporates, not merely loss suffered, but loss to be suffered calculated on various contingencies and assumptions all of which may, if adopted, result in over (or, for that matter, under) recovery.[35]In those circumstances, it seems to me that the defendant is in principle entitled to judgment, but it is confined to judgment for the sum which is found due in respect of losses which have accrued down to the date when demand was first made, or possibly when the claim form was issued, or possibly some later date, all of which are questions which will have to be resolved on a future occasion. It is not possible, for the reasons I have identified, to quantify what those losses are at a hearing of this sort, particularly given the inadequacies of the evidence (to which I have referred) and therefore there would have to be an enquiry or hearing at which the losses are to be established.[36]In those circumstances, what I propose to do is to hear counsel as how best to proceed procedurally in the light of the judgment I have delivered as well as to deal with the outstanding issues which remain to be resolved which concern costs in relation to earlier steps in these proceedings, interest issues to the extent that they can be dealt with today as opposed to some subsequent hearing when the loss can be fully quantified and what, if anything, is to happen concerning the escrow sum in the interim. (LATER)[37]The issue that I now have to resolve is a short point concerning an escrow account. The circumstances in which this issue arises follow from a judgment I gave a few moments ago concerning the true meaning and effect of a loan agreement between the parties.[38]When this dispute arose following the early redemption of the loan, an agreement was entered into which is set out in a letter of 1st September 2011, which provided for the holding on escrow of £200,000 pending the resolution of this dispute. The clauses which matter for present purposes within the letter of 1st September 2011 are clauses 2 and 7. Clause 2 provides:
“It is acknowledged that the monies held only relate to the amounts payable under clause 6.2 of the facility agreement together with any associated third party costs in dealing with the dispute that has arisen in relation to clause 6.2 of the agreement.” 39. Clause 7 provides as follows: “If subject to the provisions above a satisfactory resolution has not been reached within 56 days of the date of this letter, we shall transfer such monies up to a maximum of £200,000 as demanded by the bank unless the borrower has formally commenced legal proceedings in accordance with clause 20 of the facility agreement within 63 days of this letter where it will remain pending conclusion of the proceedings.”
[39]The point which is now taken on behalf of the claimant is this: The result of the applications and cross-applications for summary judgment is that I have been able to reject the primary submissions made on behalf of the claimant concerning the effect of the terms of the loan agreement and have concluded that, in principle, losses actually incurred are recoverable by the lender or its assignee, subject to compliance with the requirements of clause 6.2.[40]In those circumstances, it is submitted on behalf of the claimant that I should simply direct that all the money - the subject of the escrow agreement - should be returned to the claimant forthwith on the basis it was submitted that the effect of my decision is that no sums are due and owing in relation to the sums claimed pursuant to clause 6.2. The submissions which are made on behalf of the defendant in relation to that are: First, that it was clearly expressly agreed between the parties that the escrow sum would be maintained until after conclusion of the proceedings; and secondly, that it cannot be contended that the effect of my order is that nothing will be recoverable as my judgment was at pains to point out that the evidence which would enable a conclusion to be reached as to what, if any, sums were due and owing is incomplete and therefore will have to be resolved (unless resolved in a mediation) at an enquiry.[41]In response it is submitted that since the only demand that has been served is a demand contained in an email dated 5th September 2011, and since that demand is formulated on the basis of an assumed loss calculated by reference to the sums payable under the loan agreement less the sums which could notionally be recovered had the sums been re-lent in the market, that leads to the conclusion that the only loss that has been suffered is a future loss claim which is not capable of being quantified.[42]The parties have agreed that the escrow sum would be maintained in the escrow account until conclusion of these proceedings. These proceedings have not, on any view, been concluded. I accept the submission that the effect of my decision is not that nothing is due because, for the reasons set out in the judgment, it is impossible to reach a concluded view as to whether anything is presently due or not given the nature of the evidence that is available. It is possible that it can be demonstrated that actual loss has been suffered as at the date of the demand and it may be arguable that the effects of the demand provisions within the agreement mean that the demand does not have to be specifically for the sum that could be demonstrated as long as a demand has been made in respect of a loss. Thirdly, until the witness statements that I have directed be served have been filed, it is not going to be possible to say for sure whether or not there is a sum which is due and owing or was due and owing at the time when this agreement was entered into. Finally, and in any event, it seems to me that the phrase “any associated third party costs” was designed to apply to costs incurred by solicitors and the like since it is difficult to see what other costs can conceivably be incurred which could come within the scope of the agreement.[43]All of this leads me to conclude that, on the material that is currently available, the position is too uncertain to start directing releases from the escrow account, even if, on proper construction, it could be said that clause 2 permitted, or there was an implied term within the agreement which permitted, the court to make such an order.[44]What I propose to do, therefore, is to stand over any application in relation to the release of funds from the escrow account until after the witness statements that I have directed to be filed have been prepared and served. There will be liberty, by way of exception to the stay that is imposed for the purpose of an enabling this case to be resolved by mediation if possible, for an application to be made for release of some or all of the sums in the escrow account. In my judgment, however, to decide that some sums should be released now would be premature in the circumstances. _________________________

Cited in 1 later judgment