A default provision in terms of settlement requiring payment of a larger sum than the agreed instalments is not a penalty where the terms, properly construed in context, contain an implicit acknowledgment that the larger sum was an existing obligation at the date of settlement. An acknowledgment of a contingent liability for indemnity costs is sufficient to avoid characterisation as a penalty; it is not necessary for the liability to have been established by court determination. It suffices that the acknowledging party reasonably considers there is a real prospect of facing a liability in that amount.
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