Kowalczuk v Accom Finance [2008] NSWCA 343

In this appeal court case the borrower claimed the loan was unjust under the Contracts Review Act. Quite surprisingly the appeal court held the higher rate of interest was impermissible on the grounds that it was a penalty.

For hundreds of years lenders have been able to charge a higher rate, without it being struck down as a penalty (subject to clever drafting). In the past, when borrowers have argued that clever drafting should be ignored, the courts have considered themselves bound by long established precedent not to interfere. In this case the court applied the principles relating to penalties (ignoring the clever drafting) to reach the conclusion the higher rate is unjust pursuant to the Contracts Review Act.

Notwithstanding, it is hard to say if a new rule has been promulgated. The court went out of its way to emphasise that not all higher rates are unjust. The court also listed a myriad of factors that went towards its conclusion. Probably the most significant of these was that the difference between the higher rate and lower rate was 60%. Accordingly, this decision is probably only of relevance to short-term lending at high rates of interest.

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