The Court held that a default interest provision imposing an additional 10% per annum on failure to repay at maturity (increasing the rate from 7% to 17%, or 22% inclusive of line fees) was not a penalty, where the lender adduced evidence that the provision was designed to protect its legitimate interest in achieving a targeted 20% IRR for its investment fund, and where the borrower was a sophisticated property developer who negotiated the loan terms. The Court emphasised that the evidentiary burden of proving penalty rests on the party asserting it, and that a contract is not 'heinous on its face' merely because interest rates and fees are said to be 'high' without evidence of comparable market rates. The Court also clarified that in Commercial List proceedings, where Part B ('issues likely to arise') is broader than Part C ('contentions'), the party is bound by the narrower contentions in Part C.
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