Refinancing Offers Do Not Stop Mortgage Interest Without a True Tender of Immediately Available Funds

1) Introduction

The appeal arose out of a secured bridging-style loan made by London Credit Limited (“LCL”) to a corporate borrower (CEK Investments Limited, “CEK”), supported by personal guarantees and security over a small portfolio of residential properties (including the family home). After LCL alleged a default and sought to enforce, the borrowers challenged (i) whether LCL could charge default interest and (ii) whether their efforts to refinance (and settle) were enough to stop interest running even though the loan was not repaid.

The Court of Appeal identified three potential issues:

• Tender/interest-stoppage: what, short of actual repayment, must a borrower do to stop contractual interest running?
• Penalty: was the contractual default interest rate an unenforceable penalty?
• Statutory interest: if the default rate were penal, could the lender nonetheless recover statutory interest?

2) Summary of the Judgment

(A) Interest did not stop running

Lewison LJ reaffirmed orthodox “tender” principles in mortgage/secured lending: interest continues until repayment unless the borrower makes a valid tender, which (critically) requires not merely an offer but the availability of funds and their being kept available after refusal (typically by paying into court or setting aside funds so they are effectively the lender’s money on demand). Conditional, contingent, or future settlement proposals in refinancing negotiations were insufficient.

(B) Default interest was not a penalty

Applying Cavendish Square Holding BV v Makdessi [2015] UKSC 67, the Court upheld the judge’s evaluative conclusion that the default interest (Interest Rate + 3% per month, with compounding) was not “out of all proportion” to LCL’s legitimate interests (including “credit risk” concerns in a marginal refinancing exit). The Court stressed appellate restraint when reviewing value judgments, drawing on authorities such as Re Sprintroom Ltd [2019] EWCA Civ 932 and Volpi v Volpi [2022] EWCA Civ 464.

(C) Statutory interest

Because the default rate was upheld, the statutory interest issue did not arise.

3) Analysis

3.1 Precedents Cited (and How They Shaped the Decision)

(i) Tender and stopping interest

• Edmondson v Copland [1911] 2 Ch 301: Joyce J’s classic statement explains the fairness rationale: it is “unreasonable” for a mortgagor to enjoy the mortgagee’s money interest-free after refusal, unless the money is paid into court or kept ready (and any profit accounted for). Lewison LJ used this to anchor the modern restatement of tender’s “set-aside” requirement.
• Shearer v Spring Capital Ltd [2013] EWHC 3148 (Ch): Treated as a careful modern synthesis. The judgment was relied on for (a) the need to set aside money so it is “treated as the mortgagee’s money to be had on demand”, and (b) a refinancing-sensitive formulation: a tender may be valid where funds are available and set aside, even if payment is to be simultaneous with discharge of security (a commercially ordinary redemption mechanism). Lewison LJ treated Shearer as supporting, not loosening, the orthodox rule.
• Gyles v Hall (1726) 2 P Wms 378: Cited (via dissenting commentary in Ҫukurova) as historic authority that interest continues where the “tender” was not maintained by setting money aside.
• Bishop v Church (1751) 2 Ves Sen 371 and Kinnaird v Trollope (1889) 12 Ch D 610: These authorities underline the strict distinction between a tender and a “reasonable offer” to pay. Without strict tender (and continued readiness), courts do not stop interest. Kinnaird also shows that a mortgagee’s demand for more than is due does not automatically stop interest; the borrower must still show continued readiness to pay what is truly due.
• Devon Nominees v Hampstead Holdings Ltd [1981] 1 NZLR 477: Cited as a comparative reinforcement of the tender/offer distinction.
• Rourke v Robinson [1911] 1 Ch 480 and Barratt v Gough-Thomas [1951] 2 All ER 48: Both are refinancing-context cases. Barratt was particularly important: even where a borrower says they can repay immediately, interest continues unless the sum was set aside and ready at any time. Lewison LJ relied on this to reject the attempted “refinancing exception”.

(ii) Equity’s role and the attempted reliance on relief principles

• Ҫukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 4) [2013] UKPC 20, [2016] AC 923: The borrowers argued this enlarged equity’s ability to stop interest where a lender “should” accept repayment in fairness. Lewison LJ confined Ҫukurova to its “exceptional” context: a relief against forfeiture case where (crucially) the tendered money was actually set aside for years in the Namrun account, preventing interest during that period; when the money ceased to be set aside, interest resumed. Far from creating a broad discretion, Ҫukurova exemplified the classic tender logic.
• Law Debenture Trust Corpn plc v Concord Trust [2007] EWHC 1380 (Ch): Endorsed in Ҫukurova for the proposition that equity generally permits performance “late” but does not rewrite contractual redemption terms beyond time stipulations. This supported the Court’s reluctance to re-engineer the parties’ bargain by stopping interest absent tender.
• Bank of New South Wales v O'Connor (1889) 14 App Cas 273: Cited to cast doubt on a simplistic “contractual duty to accept an offer/tender” analysis and to reinforce that the contractual and equitable frameworks must be handled carefully.

(iii) Penalty doctrine and appellate restraint

• Cavendish Square Holding BV v Makdessi [2015] UKSC 67, [2016] AC 1172: Provided the governing test: is the impugned provision a secondary obligation imposing a detriment out of all proportion to a legitimate interest in enforcing the primary obligation? Deterrence is not automatically penal if it protects a legitimate interest beyond compensatory damages.
• Re Sprintroom Ltd [2019] EWCA Civ 932: Used to articulate the limited basis for overturning evaluative decisions (need for an “identifiable flaw” such as a gap in logic or failure to consider a material factor).
• Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5: “Island hopping” warning against selectively extracting evidence to attack a trial judge’s holistic evaluation.
• Volpi v Volpi [2022] EWCA Civ 464, Lidl Great Britain Ltd v Tesco Stores Ltd [2024] EWCA Civ 262, and Gift v Rowley [2025] UKPC 37: Reiterated the high threshold for appellate interference with factual findings and value judgments (rational supportability; assumption the judge considered all evidence unless compellingly shown otherwise).

3.2 Legal Reasoning

(A) Tender: why the borrowers’ refinancing/settlement letters failed

The Court’s reasoning is best understood as a disciplined insistence on function rather than form. The function of tender is to place the lender in a position where (i) it could have taken its money then and there (or at least had it continuously available), and (ii) the borrower is not enjoying the lender’s funds while also being relieved of interest.

The Court held the key defects in the March–April 2021 letters were that they were:

• Conditional compromise proposals, not unconditional payment of what was due under the facility (e.g., release of all security on payment of a partial amount, leaving disputed sums unsecured).
• Contingent on future finance (offers not accepted; term sheets not binding; conditions such as third-party guarantees not evidenced as satisfied).
• Inconsistent with the contractual payment mechanics (not “immediately available funds” and requiring releases not provided for absent full repayment; see clause 9 and the facility’s structure).
• Not accompanied by “set aside” funds (no payment into court; no escrow/client account holding monies available on demand).

The central normative move was in Lewison LJ’s rejection of a refinancing carve-out: if the borrower never draws the new lender’s funds (and pays no interest to the new lender), it would be incoherent for the borrower to use the old lender’s money without interest merely because an offer existed at some point.

(B) The attempted expansion of equity via Ҫukurova

The borrowers sought a broader equitable test: where the borrower offers full repayment backed by available finance and the lender refuses, interest should stop from the “would-have-redeemed” date even if the funds later cease to be available. The Court rejected this as undermining the essential bargain and as going beyond any principled reading of Ҫukurova.

The Court emphasised that even in Ҫukurova (an “exceptional” relief against forfeiture scenario), interest was stopped only for the period in which the money was actually maintained in a dedicated account—i.e., tender logic still did the work.

Newey LJ added an important reservation (left open): a case where a borrower has a binding commitment from a new lender at a lower rate but the offer expires because the old lender refused redemption. The Court did not decide whether interest should, in fairness, continue at the old rate or be adjusted in some way. That reservation flags a future battleground where “availability” and loss of a refinancing opportunity may collide with orthodox tender doctrine.

(C) Penalty: why the default rate survived

The remitted question required the judge to reassess the penalty issue broadly. He treated the default rate as a secondary obligation and then identified LCL’s legitimate interests by reference to relevant events of default, before evaluating proportionality. The Court of Appeal upheld that methodology and found no “identifiable flaw” in the judge’s evaluative conclusions.

A notable feature is the judge’s treatment of a “one-size-fits-many-defaults” default rate: he recognised such clauses can be more vulnerable to a penalty characterisation, and therefore analysed the legitimate interests tied to different defaults separately.

The borrowers’ main attack focused on “credit risk” and the judge’s use of evidence about precarious refinancing. The Court of Appeal held the judge was entitled to find (on the evidence) that the exit strategy was marginal and sensitive to rate movements; that justified a strong deterrent to defaults that could imperil refinance. The Court also rejected attempts to re-run the evidence by selecting particular fragments (including an expert’s colloquial “penalty” remark) and stressed the correct legal test is not “commercial acceptability” or “adequate protection” but whether the detriment is out of all proportion.

3.3 Impact

(A) Practical consequences for borrowers and advisers (especially in refinancing disputes)

• Settlement negotiations do not stop interest: even detailed proposals, supported by indicative funding, will not stop interest unless they amount to tender in the strict sense (funds immediately available and kept available).
• “Pay it into court / escrow” remains the safest route: where proceedings exist, paying into court (or demonstrably ring-fencing funds in a way that satisfies tender doctrine) is the practical mechanism to seek an interest stop.
• Drafting and process matter: redemption mechanics should be aligned with clause 9-style “immediately available funds” requirements; if the borrower needs releases to draw down new funds, evidence of binding commitments and a simultaneous exchange mechanism (as contemplated in Shearer) will be critical.

(B) Consequences for lenders

• Orthodoxy reaffirmed: lenders can take comfort that refusals of conditional settlement offers will not typically deprive them of contractual interest, absent a maintained tender.
• Penalty scrutiny remains contextual: default rates tied to multiple defaults must still be defensible by reference to legitimate interests, but courts will not lightly overturn a trial judge’s proportionality evaluation, especially where the evidential record is imperfect because parties did not adduce targeted expert evidence.

(C) Development of doctrine

The decision consolidates a conservative reading of Ҫukurova: it is not a licence for broad equitable reallocation of interest risk in ordinary secured lending, and it does not dissolve the tender/offer distinction. At the same time, Newey LJ’s reservation signals that “lost refinancing opportunity” arguments may yet drive nuanced future refinements where a binding commitment existed and a lender’s refusal caused its expiry.

4) Complex Concepts Simplified

Tender (in this context)

A “tender” is not merely saying “I will pay” or proposing to pay on conditions. It is (in substance) putting the lender in a position to take the money, and keeping it available if refused. Traditionally:

• the borrower must tender the full sum properly due (including relevant costs/interest);
• the money must be in immediately available funds; and
• if refused, the borrower must pay it into court (if possible) or set it aside so it remains available (and account for any profit earned on it).

Penalty clause (default interest)

A default interest clause is penal only if it is a secondary obligation imposing a detriment “out of all proportion” to the innocent party’s legitimate interests in enforcing the primary obligations. The question is not “is it high?” or “is it more than a pre-estimate of loss?”—but whether it is disproportionate to legitimate interests (which can include deterrence where justified).

Appellate restraint on “value judgments”

When a first-instance judge makes an evaluative assessment (like proportionality under Makdessi), an appeal court will not redo the evaluation from scratch. It will intervene only if there is a clear error such as flawed logic, inconsistency, or ignoring a material factor.

5) Conclusion

Houssein & Ors v London Credit Ltd & Anor [2026] EWCA Civ 830 is a reaffirmation of strict tender doctrine in modern refinancing disputes: to stop interest, a borrower must do more than negotiate or present conditional refinancing proposals—there must be a maintained tender of immediately available funds (or an equivalent mechanism). The decision also illustrates how the Makdessi penalty test operates in practice for default interest in secured lending, and how difficult it is to overturn a trial judge’s proportionality assessment absent a demonstrable analytical flaw. The only open note is Newey LJ’s reservation about cases involving a time-limited binding refinancing commitment at a lower rate—an issue left for a future appeal where it is decisive.