You can't charge me for that!

We tend to think of penalties only in the context of fines (e.g. for speeding). However, certain clauses in a contract can also be deemed to be a penalty. Often such clauses are included by a party in an attempt to recoup their loss for any breach of the contract. Given the way that Australian contract law has developed, particularly in the last decade, it can be challenging to enforce these clauses, even if both parties were well aware of the provision at the time of signing.

A recent District Court of Queensland case (Zheng v Chen) is a good example of the importance of nominating a reasonable amount for default interest on a loan so as to ensure that it is enforceable.

What happened?