Arab Bank Australia Ltd v Sayde Developments Pty Ltd

(2016) 93 NSWLR 231; [2016] NSWCA 328

NSW Court of Appeal

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Interrogate

Catchwords

1. Contract
2. › Penalties
3. › Default interest on commercial loan facility
4. › Whether default interest payable when monthly payments not made within time constituted a penalty
5. › Whether question should be considered on forward-looking basis at date each contract was made
6. › Whether default interest extravagant or unconscionable compared to greatest loss that could be foreseen to flow from breach
7. › Whether purpose of default interest was to punish non-compliance
1. Contract
2. › Penalties
3. › Presumption that stipulation is a penalty
4. › Single sum payable on occurrence of several events occasioning different degrees of damage
5. › Whether presumption is 'weak'
6. › Whether presumption displaced by evidence
1. Contract
2. › Penalties
3. › Temporal assessment
4. › Whether characterisation of stipulation as penalty to be assessed at time of making contract or at time of breach
5. › Distinction between 'minor' and 'major' defaults
6. › Whether distinction necessarily involves retrospective analysis

Quick Take

A 2% default interest rate on a commercial loan facility is not a penalty where the foreseeable costs of default (including provisioning costs) exceed the default rate. The distinction between 'minor' and 'major' defaults is irrelevant to the penalty analysis because it can only be drawn retrospectively. The existence of other contractual remedies available to a lender does not compel the inference that a default interest provision is punitive. The Dunlop presumption that a single sum payable regardless of the nature of default is a penalty is 'weak' and is displaced by evidence of foreseeable costs.