GEORGE DUNBAR & SONS (BUILDINGS) LIMITED against SALIM DATOO
2015SCEDIN59
SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH
Case Ref: A508/14
JUDGMENT OF SHERIFF P A ARTHURSON, QC
in causa
GEORGE DUNBAR & SONS (BUILDERS) LIMITED
Pursuers
against
SALIM DATOO
Defender
Representation: Pursuers: Ms Doohan; Drummond Miller LLP
Defender: Dean; ADLP Limited
_________
EDINBURGH, 19August 2015
The Sheriff, having resumed consideration of the cause:
Finds the following facts to be admitted:
[1] In December 2013 the pursuers loaned to the defender the sum of FIFTEEN THOUSAND POUNDS (£15,000).
[2] The loan was evidenced in writing, in terms of an agreement executed by the defender on 19 December 2013 and on behalf of the pursuers on 23 December 2013.
Finds in fact and law:
[1] The defender has an obligation to repay that sum to the pursuers.
[2] The applicable rate of interest on the said sum being four per centum per annum, interest at that rate falls to be paid by the defender to the pursuers on the said sum from 23 December 2013 until payment thereof.
Therefore:
Sustains the first and second pleas-in-law for the defender; repels the plea-in-law for the pursuers; refuses the first and second craves for the pursuers; pronounces decree in favour of the pursuers for payment of interest only on the principal sum of Fifteen Thousand Pounds (£15,000) at the rate of four per centum per annum from 23 December 2013 until payment of the said principal sum; finds the pursuers entitled to the expenses of process up to and including 26 March 2015; and finds the defender entitled to the expenses of process against the pursuers thereafter until the date hereof.
NOTE
Background
[1] This case called for proof on 28 July 2015. The parties did not lead evidence but tendered a joint minute setting out in extremely short compass the agreed facts and the issue between them. That issue, put short, was whether the applicable rate of interest on a sum loaned by the pursuers to the defender was four per cent per day or four per cent per annum. The written loan agreement between the parties was executed by the defender on 19 December 2013 and on behalf of the pursuers on 23 December 2013. The loan accordingly commenced, by agreement of the parties, on 23 December 2013.
[2] An action was raised for payment on 31 August 2014. By interlocutor of 26 March 2015, on the pursuers’ unopposed motion, the court granted decree ad interim against the defender for payment to the pursuers of the sum loaned, namely Fifteen Thousand Pounds (£15,000). Standing the terms of that interlocutor, accordingly the only issues for the court at proof were the applicable rate of interest falling to be paid on that sum and further the date upon which that interest would apply from.
[3] The parties were agreed that the relevant clause in issue in the loan agreement was in the following terms:
“6. Interest
6.1 The Loan shall bear interest at the rate of Four (4%) per cent.
6.2 Interest will accrue daily on the balance of the Loan outstanding from the Commencement Date until the Loan is repaid in full. Such interest will be payable by the Borrower in arrears. In the event of a default in payment, the aforesaid interest rate shall apply to the total of principal and interest due at the time of default.”
Submissions for the Pursuers
[4] Ms Doohan, solicitor for the pursuers, tendered helpful written submissions to the court and amplified these at the bar. The position which she advanced, in short, was that interest fell due at the rate of four per cent per day from the date of commencement of the loan, 23 December 2013, until the date of commencement of the action, 31 August 2014, and thereafter at the judicial rate of eight per cent per annum. On behalf of the pursuers Ms Doohan contended that there was no ambiguity in the terms of clause six, and while it was accepted that clause six on the interpretation advanced for the pursuers represented a bad bargain for the defender, it was submitted that the function of the court was not to interfere in such matters where there was no ambiguity. The court instead accordingly required, given the clear terms of clause six, to give effect to the terms thereof in the context of a commercial loan where funds were urgently required by one party from another. The contract provided in clause five that the defender repay the loan to the pursuers with all accrued interest in one lump sum no later than 31 January 2014, rendering an interest payment of Twenty Three Thousand Four Hundred Pounds (£23,400). Ms Doohan submitted, therefore, that in the event that the court deemed there to be an ambiguity in clause six, the construction advanced by her on behalf of the pursuers was in any event consistent with business common sense.
[5] In conclusion Ms Doohan invited the court on behalf of the pursuers to pronounce decree in the sum craved less the sum of Fifteen Thousand Pounds (£15,000) referred to in the interlocutor of 26 March 2015, bringing out a total due of One Hundred and Forty Eight Thousand Two Hundred Pounds (£148,200), to which interest would apply from the date of citation until payment at the judicial rate. Ms Doohan moved for the expenses of the cause in the event of the success of her contentions. Ms Doohan referred in the course of her submissions to the following dicta: Lord Drummond Young giving the opinion of the court in Grove Investments Ltd v Cape Building Products Ltd [2014] CSIH 43 at paragraphs 9 to 12; Lord Clarke of Stone-cum-Ebony in Rainy Sky SA v Kookmin Bank [2011] 1WLR at paragraph 14; and Lord Reed in Credential Bath Street Ltd v Venture Investment Placement Ltd 2008 Hous.L.R.2 at paragraph 24.
Submissions for the defender
[6] Mr Dean, solicitor for the defender, also tendered helpful written submissions which he in turn developed at the bar. He explained, under reference to averments uncontested by the pursuers, that the loan was to facilitate the possibility of the purchase of a piece of development ground owned by a director of the pursuers. The purpose of the loan agreement was accordingly not to enable the pursuers to earn interest. Standing the terms of clause six, he submitted, it was not realistic for the pursuers to say that there was no ambiguity. It was evident that two interpretations of clause six were available for consideration by the court, namely whether interest should run at four per cent per calendar day, or whether interest should run at four per cent per annum. In the light of the two constructions available, Mr Dean advanced a primary submission that a proper construction of clause six was that the rate agreed between parties was four per centum per annum, a liability which could be calculated on a daily basis. Such an interpretation could reconcile both sub-clauses 6.1 and 6.2. Interest would accordingly apply for every day that the loan remained unpaid from the commencement date until payment. Putting the matter bluntly, he argued that the rate contended for on behalf of the pursuers was commercially absurd and that in the context of the agreement there was no reasonable requirement for the defender to have agreed such a rate. The interest rate contended for by the pursuers was, he submitted, a penal one.
[7] Mr Dean advanced a secondary position to the effect that the contra proferentem rule came into play in the event that the interpretations contended for by the parties were deemed to be entirely irreconcilable. In this case it was not in issue that the proferens were the pursuers. Mr Dean further advanced a tertiary position to the effect that the interest rate contended for by the pursuers amounted to an unconscionable penalty and therefore should not be enforced even if the interpretation put forward for the pursuers was to be preferred by the court.
[8] In conclusion Mr Dean on behalf of the defender accepted that the pursuer was entitled to be paid interest on the principal sum loaned, but contended that this should fall at the rate of four per cent per annum from the date of commencement of the loan agreement until payment. He accepted that the pursuers were entitled to the expenses of process up to and including the date of their unopposed motion for interim decree as set out in the interlocutor of 26 March 2015, but thereafter, if his submission was to be favoured by the court, he sought the expenses of the action against the pursuers. Mr Dean referred in the course of his submissions to Grove Investments Ltd, supra, at para 11; Rainy Sky SA, supra, at paras 14, 20 and 21; McBryde, The Law of Contract in Scotland, 3rd edition, at paragraphs 8-38 to 8-43, and Keating on Construction Contracts, 8th edition, at paras 9-007 and 9-008.
Discussion and Decision
[9] In the parties’ joint minute setting out the facts agreed for the purposes of the proof, the parties have helpfully expressed what they describe as the “disputed issue” for the court, namely: “Whether the applicable rate of interest is 4% per day on the principal sum until paid (referred to in the Defences as the “First Interpretation”), or whether the applicable rate of interest is 4% per annum on the principal sum until paid (referred to in the Defences as the “Second Interpretation”).” In these circumstances it is plain that the parties themselves recognise that there is an ambiguity apparent ex facie the terms of clause six of the loan agreement, as set out at para 3, supra. Of course clause 6.1 is silent on whether the rate set out therein of four per cent applied per day or per annum. The reference in clause 6.2 to interest accruing daily on the balance of the loan outstanding does not complete that lacuna. There is accordingly an ambiguity in clause six and indeed the parties themselves have correctly identified the conflicting interpretations available to the reader of the clause.
[10] In the light of the ambiguity which I find to be apparent from the terms of clause six, the approach required of the court in construing that clause is that set out by Lord Clarke in Rainy Sky SA, supra, at para 21, which I now set out in full:
“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has 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, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”
[11] I conclude that a sound construction of clause six is that while interest in this clause is calculable and accruable on a daily basis from the date of commencement of the loan agreement until payment, nevertheless the rate itself at which the loan bears interest can and should be properly expressed and read as being on an annual basis, that is at the rate of four per centum per annum. This achieves a consistent interpretation of sub-clauses 6.1 and 6.2 and further favours and achieves the construction set out in the disputed issue between the parties which is “most consistent with business common sense”: Lord Clarke, supra, at para 30. A purposive construction of the agreement between the parties produces the same result: Grove Investments Ltd, supra at para 11. It was not disputed in the arguments before the court that the primary commercial purpose of the loan agreement related to the development of a piece of land, rather than the generation of pecuniary interest to the benefit of the pursuers. The clear words which would surely be required to give effect to the onerous contention advanced on behalf of the pursuers are simply absent. In these circumstances I do not require to address the secondary and tertiary positions advanced by the defender, but should perhaps record that no contrary argument was advanced thereto on behalf of the pursuers. In any event I have elected to determine the matter on the basis set out above and as expressed in the accompanying interlocutor.
Disposal
[12] In all of these circumstances I pronounce decree for interest only on the principal sum loaned, which of course itself has been the subject of an interlocutor of this court by way of interim decree dated 26 March 2015. The interest only decree which I pronounce today is for interest on that principal sum at the rate of 4 per centum per annum from 23 December 2013, being the date of commencement of the loan agreement, until payment. In these circumstances, as a matter of concession the pursuers are entitled to the expenses of process against the defender from the date of commencement of the action up to and including 26 March 2015. Thereafter, standing the decision of this court, I award the expenses of process including the expenses of the proof on 28 July 2015 to the date hereof in favour of the defender.