Case law

  • Case Details
    • National ID: [2015] IEHC 547
    • Member State: Ireland
    • Common Name:link
    • Decision type: Other
    • Decision date: 13/08/2015
    • Court: High Court
    • Subject:
    • Plaintiff: Flynn & Anor
    • Defendant: Breccia & Anor
    • Keywords: contract law, good faith, unfair terms
  • Directive Articles
    Unfair Contract Terms Directive, link
  • Headnote
    Penalty clauses in a contract continue to be prohibited under Irish law. They fall foul of the Unfair Contract Terms Directive, implemented in to Irish law in S.I. No. 27/1995 - European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995.
  • Facts
    This case concerned a loan agreement originally entered into between the shareholders in Blackrock Hospital Limited and Anglo Irish Bank which became vested in National Asset Loan Management Ltd after the collapse of Anglo. The loan was subsequently purchased by Breccia. When Breccia sought to enforce their security, the first named plaintiff, as guarantor of the borrowings of the second named plaintiff to purchase shares in Blackrock Hospital Limited, and the second named plaintiff, as shareholder, sought declarations in relation to the borrowing and security of same and challenged the appointment of the second named defendant as receiver.

    The High Court considered whether the lender was entitled to include surcharge interest in the amount required to redeem a loan.
  • Legal issue
    Are penalty clauses in a contract prohibited under Irish law?
  • Decision

    The High Court held that the charging of default interest at 4% amounted to a penalty and was therefore unlawful. The High Court held that whilst the general conditions of the loan agreement contractually permitted surcharge interest following a default, in this case it amounted to an unlawful penalty used to deter the borrower from breach of contract and was therefore unenforceable.

    In finding that this constituted a penalty clause and was therefore unenforceable the High Court noted and was influenced by a number of factors including:

    • the additional surcharge rate of 4% would double the overall rate of interest charged during the default period;
    • the default interest clause did not take into account the variables that could affect the amount of the lender’s likely loss and was therefore not a genuine pre-estimate of loss arising from default; and
    • a bank or institution had never tried to charge default interest retrospectively in this manner before.


    Full text: Full text

  • Related Cases

    No results available

  • Legal Literature

    No results available

  • Result
    Mr Justice Haughton found in favour of the Plaintiffs in respect of the charging of default interest at 4% as this amounted to a penalty and was therefore unlawful.