Arab Bank Australia Ltd v Sayde Developments Pty Ltd

Link copied
Case Copied 45 min read

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: Arab Bank Australia Ltd v Sayde Developments Pty Ltd [2016] NSWCA 328
Hearing dates:09/11/2016
Date of orders: 28 November 2016
Decision date: 28 November 2016
Before: Gleeson JA at [1];
Sackville AJA at [2];
McDougall J at [13]
Decision:

(1) Appeal allowed with costs.
(2) Set aside orders below.
(3) Order judgment for the defendant (appellant) with costs.

Catchwords: CONTRACTS – penalties – contract for commercial loan facility – whether default interest payable when monthly payments were not made within time constituted a penalty – where question should be considered on a forward-looking basis at the date each contract was made - whether default interest is presumed to be a penalty – whether default interest was wholly extravagant or unconscionable compared to the greatest amount of loss that could possibly be foreseen to flow from a breach – whether purpose of default interest was to punish non-compliance
Cases Cited: AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170
Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30
Cavendish Square Holding BV v El Makdessi [2015] UKSC 67; [2016] 2 All ER 519
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79
Imperial Tobacco Co (of Great Britain and Ireland) Ltd v Parslay [1936] 2 All ER 515
Lordsvale Finance PLC v Bank of Zambia [1996] QB 752
Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35; 309 ALR 249
Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; [2015] FCAFC 50
Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28; (2016) 90 ALJR 835
Printing and Numerical Registering Co v Sampson (1875) LR 19 Eq 462
Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71
Wallis v Smith (1882) 21 Ch D 243
Category:Principal judgment
Parties: Arab Bank Australia Ltd (Appellant)
Sayde Developments Pty Ltd (Respondent)
Representation:

Counsel:
NC Hutley SC / TD Castle (Appellant)
DR Pritchard SC / AJ Macauley (Respondent)

  Solicitors:
Gadens (Appellant)
Somerville Legal (Respondent)
File Number(s):2016/160651
 Decision under appeal 
Court or tribunal:
District Court of New South Wales
Jurisdiction:
Civil
Citation:
[2016] NSWDC 76
Date of Decision:
13/05/2016
Before:
Mahony SC DCJ
File Number(s):
2014/195237

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 7 October 2008 Arab Bank Australia Ltd (the Bank) entered into a commercial loan facility agreement with Sayde Developments Pty Ltd (Sayde) in the amount of $6.825 million. The facility was renewed and renegotiated from time to time. At all relevant times, the terms of the contract provided for interest to be payable at a default rate, if monthly interest payments were not made on time. Sayde paid a substantial amount of money, as default interest, over the term of the loan.

Sayde commenced proceedings in the District Court…

CaseChat AU logo

Keep reading for free

Create a free CaseChat account to read Arab Bank Australia Ltd v Sayde Developments Pty Ltd and more:

  • Read every judgment in full
  • Ask AI and get answers linked to paragraphs
  • See how each paragraph was cited in later cases
  • Download judgments as PDF or Word
Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details
Case
[2016] NSWCA 328
Decision Date

CaseChat Overview and Summary

Arab Bank Australia Ltd appealed to the Court of Appeal of New South Wales against a decision of the primary judge concerning a commercial loan facility provided to Sayde Developments Pty Ltd. The dispute centred on whether the default interest rate stipulated in the loan agreement constituted an unenforceable penalty.

The Court of Appeal was required to determine whether the default interest payable upon late monthly payments was a penalty at common law. Specifically, the court considered whether the question of penalty should be assessed prospectively at the time each contract was made, whether default interest is presumed to be a penalty, and whether the stipulated default interest was wholly extravagant or unconscionable when compared to the greatest foreseeable loss arising from a breach, considering its purpose.

The Court of Appeal found that the primary judge erred in concluding that the default interest was a penalty. Applying established principles, the court held that the assessment of whether a clause constitutes a penalty must be made at the time the contract was entered into, considering the potential loss that could reasonably be foreseen. The court determined that the default interest rate was not extravagant or unconscionable in relation to the potential losses the bank might suffer from a breach, and that its purpose was not solely to punish non-compliance but to compensate the bank for the increased risk and administrative burden associated with late payments.

Consequently, the Court of Appeal allowed the appeal, set aside the orders of the primary judge, and ordered judgment for the defendant (appellant) with costs.

Orders

Orders of the court

(1) Appeal allowed with costs.

(2) Set aside orders below.

(3) Order judgment for the defendant (appellant) with costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.