Torchlight Fund No 1 (Torchlight) contracted with Wilaci Pty Ltd (Wilaci) for a $37m loan. The terms included the payment of a 'late fee' of $500,000 per week. Following default, Torchlight applied for a declaration that the fee was a penalty, and therefore unenforceable. Torchlight also applied for directions as to the payment of the costs of the receivers appointed by Wilaci, arguing that a clause indemnifying Wilaci in respect of a default did not apply to such costs.
The Court confirmed that a clause stipulating for an additional payment upon default will be unenforceable if it is extravagant, and therefore disproportionate, to the loss likely caused by the breach.
However, the indemnity clause in respect of a default was held to cover receivers' costs as a direct cost of Wilaci attempting to remedy the default of Torchlight. The Court considered there was no jurisdiction to review costs without an application under section 34 of the Receiverships Act 1993.
See Court decision here.