Commercial

Mortgages - deed of priority - priority in respect of capital sum and interest - interest meaning compound interestWhitbread Plc v UCB Corporate Services Ltd: CA (Pill and Potter LJJ and Sir Murray Stuart-Smith): 15 June 2000

The defendant lent 160,000 to the borrowers for 24 months on an interest-only basis, with interest to be paid monthly and the capital sum repayable at the end of the term.

The borrowers subsequently entered into an all-moneys legal charge with the defendant, on the security of a property, under which the defendant was entitled to compound interest.

By a second legal charge, the borrowers also charged the property to the claimant.

By a deed of priority between the claimant and defendant, priority was given to the defendant over all money due and owing to the defendant by the borrower, such sum not to exceed 160,000, 'together with interest thereon' to date of repayment.

The borrowers defaulted and the property was sold, but the proceeds were insufficient to meet both loans.

The claimant claimed against the defendant part of the proceeds of sale, alleging that the defendant had priority over 160,000 together with simple, not compound, interest thereon.

On a preliminary issue the judge held that interest meant simple interest.

The defendant appealed.Timothy Hill (instructed by Glovers) for the defendant; Brian Dye (instructed by Halliwell Landau, Manchester) for the claimant.Held, allowing the appeal, that the deed of priority did not involve the payment of any interest as between the defendant and claimant, but determined the priorities of their respective rights against the borrowers; and that the reference to interest in the deed was to the compound interest payable by the borrowers to the defendant under the arrangements between them in the underlying transaction.