Emerald Meats (London) Ltd v AIB Group (UK) Plc

Where an overdraft agreement does not expressly specify the period for which interest is chargeable, the bank’s usual practice may be implied into the contract. The customer is taken to have accepted that practice unless a different term was agreed, or the practice is extortionate or contrary to all acknowledged and approved banking practice. The bank’s arrangements with its clearing bank do not determine the contractual terms between the bank and its customer. A three-day interest cycle was not unreasonable on the evidence, despite the existence of shorter cycles elsewhere.

Emerald Meats maintained an overdraft account with AIB. It claimed repayment of interest charged during the cheque-clearance period, arguing that interest could not be charged once AIB had received value from the paying bank.

The Croydon County Court dismissed the claim. The judge held that the customer had contracted on AIB’s usual terms and practices, including its three-day clearance cycle. The appeal concerned whether that term should be implied, and whether AIB’s receipt of value from its clearing bank made the additional day’s interest irrecoverable.

The appeal was dismissed unanimously.

1. Lord Justice Pill held that the basis on which a bank may charge for an overdraft, including the applicable interest period, is a matter for contractual agreement. In the absence of express agreement, the bank’s standard terms may be implied.

2. The relevant term was that AIB’s standard practice would apply unless the parties had agreed otherwise, or the practice was extortionate or contrary to all acknowledged and approved banking practice. The expert evidence showed that three-day interest cycles were widely used at the material time, although some banks operated shorter cycles.

3. The principle in Lloyds Bank plc v Voller [2000] 2 All ER (Comm) 978 supported incorporation of the bank’s usual overdraft terms. Although Voller concerned the applicable interest rate rather than the clearance period, its reasoning applied to the present contractual issue.

4. Lord Justice Longmore agreed. The fact that AIB received value from Barclays for the whole of the Wednesday did not determine the separate principal-to-principal contract between AIB and its customer. AIB was entitled to make profits from its own banking arrangements, provided the customer-facing practice was reasonable. Charging interest for three days was not unreasonable on the evidence.

5. The order was that the appeal be dismissed. The appellant was ordered to pay the respondent’s appeal costs, subject to disallowance of the costs of the respondent’s notice and amended respondent’s notice. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal from the judgment of His Honour Judge Stow QC dated 21 March 2001 dismissed; permission to appeal to the House of Lords refused.
• Croydon County Court: Claim for repayment of alleged overcharged interest dismissed.