When Is Default Interest Penal?

In our last edition we commented on the risk that default interest under a loan agreement may be unenforceable as being penal. The prevailing market view was that charging an additional 2 or 3% per annum was unlikely to be treated by the courts as penal, but the only recent authority on the point in a lending context was a decision in which an additional 1% was held to be non-penal.

The latest decision of the Privy Council in the long-running dispute between the Cukurova Group and Alfa...