PT-2021-000393 - [2025] EWHC 2749 (Ch)

Fecha: 23-Oct-2025

Is the Default Rate a penalty?

Is the Default Rate a penalty?

The approach set out in my First Judgment

110.

I addressed the penalty issue at paragraphs [195]-[209] of my First Judgment. There, I referenced the decision of the Supreme Court in Cavendish Square Holdings BV v Makdessi [2015] UKSC 67, and specifically the observations made by Lords Neuberger and Sumption at paragraph [32] as to the innocent party’s legitimate interest in the performance of the primary obligations and Lord Hodge at paragraph [255] to their interest in the performance of the contract.

111.

In seeking to apply that test I identified at paragraphs [205]-[208] of my First Judgment four factors that I considered to be relevant:

The Housseins’ historic credit issues had, on the evidence, already been allowed for by increasing the Standard Rate from 0.7% to 1%. It was not clear why a further 3% increase was required in respect of subsequent defaults on other debts to third parties.

ii)

The Default Rate was not specific to the Housseins; it was set centrally and applied to all borrowers. This was a well secured loan, such that the credit risk was mitigated.

iii)

The same rate applied to breaches of different primary obligations, which in turn would protect different legitimate interests, of apparently varying seriousness. It seemed to me that each primary obligation to which the default rate might apply was relevant because if that rate were extortionate or exorbitant by reference to any of them, the provision as a whole could not be enforced.

iv)

The Default Rate was outside what was normal in the market in the case of non-payment default interest.

112.

I was wrong in my approach and the Court of Appeal reversed my decision, remitting these matters to me for further determination.