Key point

Where an agreement provides for a fee payable in several circumstances including but not limited to breach it may not be a penalty


Edgeworth took an assignment of a junior loan agreement, and an upside fee agreement ("FA").  The FA provided that the defendant would pay a fee on a "Payment Event" which included mandatory repayment upon cross default of the junior loan. Edgeworth applied for an order for payment of a fee under the FA of c. €105 million.  Ramblas argued that the fee was a penalty and so not enforceable.


The court decided that the fee was not a penalty for the following reasons:

  • the fee became payable on any repayment of the junior loan, not just following acceleration for breach or default.  
  • in this case, Ramblas had not breached its contract as the Payment Event which cross defaulted the junior loan was a default on an associated loan agreement not the junior loan itself.  
  • the fee owed was a substantial sum, but the FA had been entered into during the immediate aftermath of the collapse of Lehman Brothers and the risks taken on by the lenders were substantial entitling them to a like reward.


The court will interpret contracts as a whole, as well as consider the context and circumstances in which it was made to assess if a payment provision is a void penalty.  Clever drafting could save a clause which might otherwise be determined to be a void penalty, if the triggers for payment are drafted widely to include but not be limited to breach. 

> Edgeworth Capital (Luxembourg) S.A.R.L.v Ramblas Investments B.V.