Bryan J’s 28 February judgment in Cargill International Trading Pte Ltd v Uttam Galva Steels Ltd upheld a default interest clause in Cargill’s finance agreement with UG after UG defaulted on repayment of what was in effect a loan of US$61.8m. The agreement provided for “default compensation” at 1 month LIBOR plus 12%. UG tried to run a few arguments, in the normal way, including that it was an unenforceable penalty. Bryan J applied the principles and tests set out in the 2016 Makdessi case. UG’s skeleton argument had curiously been based on Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Co Limited, the old 1915 authority on penalties which was supplanted by Makdessi, where it was described as an “artificial categorisation”. Bryan J held this was not, and he mentioned four other recent cases which have upheld more onerous default interest clauses, and for sake of showing the range of permissibility, they were:

  • Taiwan Scott Co Limited v the Masters Golf Company Limited [2009] – 15% p.a.
  • Davenham Trust Plc v Homegold [2009] – 36% p.a. (double the regular interest rate)

Obviously every case turns on its facts and context, but in typical debt finance work, the bar is fairly high.