Court of Appeal puts default interest rate clause to the test in Houssein v London Credit Ltd (2024)

Two important issues in the context of financing transactions were considered by the Court of Appeal in the recent decision in Houssein & Others v London Credit Limited & Another [2024] EWCA Civ 721 (28 June 2024):

1. whether the contractual default interest constituted an unenforceable penalty – the High Court at first instance having found that the default interest rate of 4% per month to be unenforceable as a penalty; and
    
2. should the default interest not be enforceable, whether non-default interest would continue to accrue after the repayment date.

The facility in question set out an interest rate of 1% per month, which increased to 4% per month compounded monthly on either the occurrence of an event of default or non-payment. The lender alleged that the borrowers had breached a covenant not to occupy one of the properties charged as security for the loan and demanded repayment of the loan with default interest. The borrowers challenged the default interest rate on various grounds.

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