Elena's Movie Review Madness

Reviews from my 11-year old mind!

Since EWB used a standard and generic provision of the DIR and did not even discuss the provision during the negotiations, the insolvency court concluded that the DIR provision had not been included in the loan agreement due to the parties` “reasonable efforts” to estimate the actual harm suffered by EWB as a result of Altadena`s default. After finding that Article 1671(b) was not applicable, the Tribunal considered whether Altadena had taken the task of determining that the 5% increase in dir at the time of the conclusion of the contract was not a reasonable estimate of the potential harm suffered by EWB if Altadena had been found to default. While this case was of course specific to its own facts and is only a high court decision, the four questions mentioned above provide a useful guide for lenders when considering whether or not it is likely that a certain late rate provision (or even another provision requiring a party to pay a large sum of money if breached) is likely to be considered a penalty. In Arab Bank Australia v. Sayde Developments Pty Ltd [2016], NSWCA 328 found that a 2% delay rate was not a penalty under a facility agreement. The court stated that the amount claimed as default interest was justified as a true expectation of loss. The costs taken into account were real and foreseeable at the time of the conclusion of the contract. In finding that the late payment interest rate does not constitute a sanction, the Tribunal adopted the business approach taken in the recent High Court decision in Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28, confirming ANZ`s right to charge fees for late payments in respect of credit card transactions. By maintaining the clause on the default interest rate, referring to evidence of the bank`s costs resulting from the default, the recent decision has given more security to lenders and utility companies who wish to claim default interest. In this High Court case, these were different clauses of a contract for the sale of shares (not late payment interest clauses) and whether they constituted penalties. However, the judge has reasonably defined our four key issues that must be used to decide whether a sentence is punishable or not: default interest cannot be legally used as an instrument penalizing a defaulting party.

The term “penalty” refers to penalty interest rate clauses within a contract. . . .

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