‘An interest-ing question: when is a default interest rate a penalty?’

The Court of Appeal has affirmed a three-step test for penalty clauses: (1) is it a secondary obligation; (2) does the clause protect a legitimate interest; and (3) is it extortionate by reference to the legitimate interest? In doing so, it reaffirmed, in the context of default interests cases, that there is generally a legitimate interest in the enforcement of an obligation to repay a loan … (more)

[Jonathan Swil and Arthur Tan, A&O Shearman, 3 July 2024]

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