Default Interest Clauses – Complete Guide

Article Summary

This article examines how Australian courts assess claims for default interest clauses, explaining why such clauses attract closer scrutiny than ordinary contractual interest.

While default interest is not invalid in principle, courts focus on substance rather than labels and assess enforceability by reference to characterisation, proportionality, and legitimate commercial justification at the time of contracting.

Overreaching clauses are not moderated but excluded, leaving claimants confined to statutory interest or proven damages.

In this article, out debt recovery lawyers outline the relevant statutory and common law framework, highlights common drafting and litigation pitfalls, and distils practical implications for parties seeking to manage risk in commercial lending and enforcement disputes.