GML International Ltd & Ors v Harfield

Whether payments constitute loans is determined by the ordinary requirements of contract formation. Written agreements are not essential, but the claimant must prove agreement, legal intention, consideration, certainty and completeness, together with the terms relied upon.

In evaluating disputed historical transactions, contemporaneous documents are ordinarily a powerful guide, particularly where they reveal a consistent course of dealing. They are not an inflexible rule or a substitute for considering all the evidence.

Loans made informally and ad hoc by individuals or companies to assist a friend, without security, interest or formal documentation, may fall outside the business exemption in the Consumer Credit Act 1974. Where repayment is not otherwise specified, the court may infer repayment on demand.

The claimants sought repayment of approximately £850,000 paid to the defendant between 2008 and 2014. They contended that the payments were loans. The defendant accepted receipt but alleged that they were part-performance of an oral compensation agreement said to have been made in 2006.

The court had to determine the legal effect of the payments, whether each was a legally binding loan and repayable on demand, whether the Consumer Credit Act 1974 affected enforceability, and the appropriate date for interest under the Senior Courts Act 1981.

1. Disposition. Judgment was entered for the claimants for the sums claimed, save for two payments made to third parties. Interest was awarded under the Senior Courts Act 1981 from 23 February 2018. The defendant was ordered to pay indemnity costs, payment within 14 days, and £250,000 on account of costs.
2. The alleged compensation agreement did not exist. The contemporaneous documentary record showed repeated requests for financial assistance, acknowledgements of indebtedness, gratitude for loans, references by third parties to loans, and some repayments. It was inconsistent with an entitlement to millions of pounds under an existing compensation agreement.
3. The court applied the ordinary contractual requirements identified in Blue v Ashley [2017] EWHC 1928 (Comm). A written agreement was not legally necessary. The claimants nevertheless bore the burden of proving that each payment was a loan, rather than a gift or ex gratia payment.
4. The approach in Gestmin v Credit Suisse UK & Another [2013] EWHC 3560 (Comm) was important guidance. Human memory is fallible and contemporaneous documents may be especially useful in commercial fact-finding. However, the guidance did not create a fixed rule or irrebuttable presumption requiring documents to prevail over oral evidence. The court also relied on the objective-evidence approach stated in The Ocean Frost [1985] 1 Lloyd's Rep 1 and discussed in Simetra Global Assets & Others [2019] EWCA Civ 1413.
5. All payments were loans except the two payments for Sidley Austin and Cypriot legal fees. Those two payments were not proved to have been made under an agreement requiring repayment. The remaining loans were repayable on demand and were not contingent on recovery of the defendant's Cypriot funds.
6. The court applied the broad, fact-sensitive approach described in Al-Tamini v Khodari [2009] EWCA Civ 1109 to determine whether the loans were made in the course of a business. Although numerous and substantial, the loans were ad hoc, informal, unsecured, interest-free and motivated by personal concern and friendship. They were therefore non-commercial agreements exempt from the relevant statutory formalities.