Masri v Consolidated Contractors International UK Ltd & Anor

A running account created after an earlier cash-call arrangement is a distinct contractual arrangement. Earlier dealings do not establish an express or implied interest term unless the parties adopted the same course consistently on former and similar occasions.

Where the account agreement leaves interest to be determined by reasonableness, the court assesses objectively what the parties would have agreed when the arrangement was made. A long-term commercial account ordinarily requires compound interest with periodic rests. Here, the objectively reasonable rate was the relevant syndicated borrowing rate, US LIBOR plus 1.5%, applied equally to debit and credit balances. The earlier agreement to share the benefit of a syndicated loan was superseded by the running account arrangement.

The judgment determined consequential quantum issues following the liability judgment reported at [2006] EWHC 1931 (Comm). The claimant had an interest in an oil concession under the 1992 Agreement. The court had held that both Consolidated Contractors International UK Ltd and Consolidated Contractors (Oil & Gas) were parties, that the agreement remained in existence, and that the claimant’s claims before 8 October 1998 were time-barred.

The issues concerned the liability of both defendants, the duration of the running account, the method and rate of interest, and whether the claimant remained entitled to a notional credit for his share of a syndicated loan.

1. Liability. Both the legal owner and beneficial owner of the concession were liable under the 1992 Agreement. Construing the agreement against the factual matrix, a reasonable person in the claimant’s position would understand both companies to be assuming liability for the relevant payments.
2. Running account. The parties accepted that the running account could be ended by either party on reasonable notice. The earlier cash-call interest arrangements were not carried forward because the financial relationship had materially changed.
3. Interest. The alleged course of dealing did not establish an express or implied term for simple interest at 5 per cent. The court assessed reasonableness objectively by reference to the commercial circumstances in May 1993. Later documents could be used only as a reality cross-check. The running account could have continued for the long term, so simple interest was inappropriate.
4. The WACC and CAPM investment methodology was too sophisticated, uncertain and commercially unrealistic for the parties’ arrangement. The running account did not create a new investment risk for the defendants. The appropriate rate was the syndicated borrowing rate of US LIBOR plus 1.5 per cent, applied to both debit and credit balances and compounded monthly.
5. The claimant was not entitled to a notional credit for his proportionate share of the syndicated loan, followed by debits for loan interest and capital repayments. The November 1992 understanding concerned payment of cash calls and was superseded by the later running account arrangement.
6. Consequential matters and the precise form of order were reserved for further hearing.

The judgment followed the court’s earlier liability decision, reported at [2006] EWHC 1931 (Comm). The Court of Appeal had granted permission to appeal from the consequential orders, but this judgment determined the outstanding quantum issues at first instance.