Sheehan v Breccia – Key Decision On Surcharge Interest In Loan Agreements

On 5 February 2016 the Commercial Division of the High Court (Haughton J) handed down judgment in two linked cases: Sheehan v Breccia and others, and Flynn and Benray Limited v Breccia. The facts of the cases are complex but the judgments raise important issues for banks, asset managers and loan purchasers. This note summarises the key issues. A more detailed note of the decisions will follow.

Key Points

The key takeaways from the judgments are as follows:

• A clause providing for surcharge interest that effectively doubled the interest payments is a penalty and is therefore unlawful.
• In order for surcharge interest to be lawful, it should be a genuine pre-estimate of loss arising from a breach and not merely a generic rate.