AL-WAZIR v. ISLAMIC PRESS AGENCY INC. [2001] EWCA Civ 1276

An equitable charge securing repayment of a debt may attract equitable interest even where the underlying loan contract contains no express or implied obligation to pay interest. The interest is imposed on the charged property through the court’s former equitable jurisdiction, rather than as personal liability of the debtor or a third-party property surety.

The ordinary rule may be displaced by sufficiently clear contractual terms or circumstances. Where the security forms part of a tripartite transaction which makes the indebtedness secured, the general equitable rule applies from the contractual repayment date unless the security expressly excludes interest. The court may also allow interest despite delay where the lower court’s exercise of discretion discloses no error.

Abdullah Abbas Al-Wazir advanced money to Islamic Press Agency Ltd (IPAL). The advances were recorded in a memorandum which stated that IPAL’s premises, Crown House, were mortgaged to secure repayment. Crown House was owned by Islamic Press Agency Inc, a Panamanian company whose directors also acted for IPAL.

The High Court held that an enforceable equitable charge existed and ordered payment of the principal sum with interest at the judgment rate from 1 September 1985, the contractual repayment date. The company appealed on the grounds that the underlying loan was interest-free, that it was only a third-party property surety, and that interest should run only from service of the writ.

The central issue was whether equitable interest could be recovered from the charged property when the debt did not carry interest at common law.

1. Appeal dismissed. The order requiring payment of interest from 1 September 1985 was upheld.
2. Per Robert Walker LJ, the ordinary rule is that a mortgage or equitable charge securing a fixed sum payable at a fixed time carries interest in equity from the repayment date, even without an express interest provision. The rule is subject to circumstances or contractual terms which clearly exclude it.
3. The court distinguished between an unsecured interest-free loan and the transaction in this case. The memorandum was a tripartite contract involving IPAL, Inc and Abdullah. It restated the parties’ relationship and made IPAL’s indebtedness a secured indebtedness under a single transaction. The common-law rule concerning unsecured borrowing therefore did not govern.
4. Per Sir Anthony Evans, equitable interest is awarded against the security, not necessarily as personal liability of the debtor or the third-party surety. The absence of a contractual obligation on the debtor to pay interest did not prevent an equitable order against the charged property. A property surety wishing to exclude such liability should make that clear when the security is given.
5. The description of Inc as a surety did not determine the issue. A person may provide property as security for another’s obligation, but the substance of the tripartite relationship and the equitable consequences of the charge were decisive.
6. The court also upheld the date from which interest ran. Abdullah’s delay did not show that the judge had erred in exercising his discretion, particularly in light of evidence that he had delayed enforcement after requests and representations concerning a possible sale.

The appeal was dismissed with costs. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal from the order of Evans-Lombe J dated 14 February 2000. The appeal was dismissed with costs.
• High Court, Chancery Division: An enforceable equitable charge over Crown House was declared, with payment of the principal sum and interest from 1 September 1985 ordered.