Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328

Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328

The default interest provisions were not penalties. The primary judge erred by accepting a distinction between "minor" and "major" defaults and thereby assessing the provision by reference to what occurred at and after default rather than prospectively at the time each contract was made. The contracts did not draw that distinction, and at the time of contracting it could not be known whether any payment default would remain minor or become major. The Bank's foreseeable costs and legitimate commercial interests, including monitoring, impairment and provisioning costs, meant the 2% default interest uplift could not be characterised as extravagant or unconscionable. Sayde did not discharge...

Jurisdiction
Australia
Judgment Date
28 November 2016
Procedural Posture
Appeal in Contract and Penalties Dispute Concerning Default Interest Under a Commercial Loan Facility / Appeal From District Court of New South Wales Decision [2016] NSWDC 76; Primary Judge Held Default Interest Was a Penalty and Gave Judgment for Sayde
Outcome
Appeal allowed with costs; orders below set aside; judgment entered for the defendant/appellant with costs.
Legal Topics
['penalties' 'default Interest' 'commercial Loan Facility' 'prospective Assessment at Time of Contract' 'genuine Pre Estimate of Loss' 'freedom of Contract']
['contract Law' 'banking and Finance' 'equity'] ['penalties' 'default Interest' 'commercial Loan Facility' 'prospective Assessment at Time of Contract' 'genuine Pre Estimate of Loss' 'freedom of Contract']

Case Brief

Summary, issues, holding and outcome

More case intelligence is available

Unlock the full research layer for this judgment.

Full judgment text Downloadable case file Legal principles 1 Authorities cited 2 Party arguments 2 Amounts and remedies 1
Sign in to unlock

Procedural Posture

Appeal in Contract and Penalties Dispute Concerning Default Interest Under a Commercial Loan Facility / Appeal From District Court of New South Wales Decision [2016] NSWDC 76; Primary Judge Held Default Interest Was a Penalty and Gave Judgment for Sayde

Legal Issues

  1. 1 ['Whether default interest payable when monthly interest payments were not made on time constituted a penalty' 'Whether the penalty question should be considered prospectively at the date each contract was made rather than by reference to events at or after default' 'Whether a distinction between "minor" and "major" defaults was relevant to characterising the default interest provision' 'Whether default interest was presumed to be a penalty because the same rate applied regardless of the amount overdue' 'Whether the 2% default interest uplift was extravagant or unconscionable compared with the greatest loss that could conceivably flow from breach' 'Whether the purpose of the default interest provision was to punish non-compliance']

Ratio Decidendi

The default interest provisions were not penalties. The primary judge erred by accepting a distinction between "minor" and "major" defaults and thereby assessing the provision by reference to what occurred at and after default rather than prospectively at the time each contract was made. The contracts did not draw that distinction, and at the time of contracting it could not be known whether any payment default would remain minor or become major. The Bank's foreseeable costs and legitimate commercial interests, including monitoring, impairment and provisioning costs, meant the 2% default interest uplift could not be characterised as extravagant or unconscionable. Sayde did not discharge...

Court Disposition

Appeal allowed with costs; orders below set aside; judgment entered for the defendant/appellant with costs.

Orders

  • ['Appeal allowed with costs.' 'Set aside the orders made by Mahony SC DCJ on 13 May 2016.' 'In place of those orders, order that there be judgment for the defendant with costs.']