Clause was declared a penalty - Case Note: Bellas v Powers [2023] NSWSC

A case note on Bellas v Powers [2023] NSW SC, where the NSW Supreme Court held that a clause that imposed a higher interest rate on a loan facility in the Event of Default was a penalty and therefore void and unenforceable. The decision aligns with the new legislative changes effective on 9 November 2023 to 'Unfair Contract Terms' and the crack down on facility agreements that contain provisions that are unconscionable.

Summary

The case of Bellas v Powers [2023] NSW SC involved a dispute over the enforceability of a clause that imposed a higher interest rate on a loan facility in the event of default. The court held that the clause was a penalty as it was extravagant and unconscionable in comparison with the greatest loss that could be proved to have followed from the breach. The term was therefore deemed void and unenforceable.