Loan Agreement Repayment Clause
Prepayment fees, extension fees and double interest rules in loan contracts are not contrary to English law. The case shows: How the Makdessi1 principles in Makdessi1 apply in the context of a loan: (1) Mark Alan Holyoake (2) Hotblack Holdings Ltd v Nicholas Anthony Christopher Candy – 5 ors  EWHC 3397 (Ch), December 21, 2017 Mark Holyoake (M. Holyoake) wanted to buy a property on the outskirts of Belgravia. It increased the purchase price of a number of sources, including an unsecured private loan of 12 million pounds from CPC Group Ltd (CPC). After stating that Mr. Holyoake was late, CPC entered into a series of complementary agreements with CPC that rescheduled the loan in exchange for Mr. Holyoake, who paid a renewal fee (renewal agreements). The property was eventually sold by Mr. Holyoake and the loan and renewal fees were paid to CPC. Mr. Holyoake applied for reimbursement of the amounts paid to CPC for a number of legal reasons.
This article focuses on his assertion that certain clauses in the loan agreement and renewal contracts were sanctions. Mr. Holyoake attempted to claim three types of clauses as punishable, but failed because of any of the claims. Strike 1: Early repayment clauseThe loan agreement provided for Mr. Holyoake`s ability to repay the loan before maturity, provided that all interest that would have flowed during the term of the loan was also repaid. The judge did not consider this to be a punitive clause. The clause was not presented as an offence; it sets the amounts due in case of prepayment. In Makdessi, the Supreme Court held that the doctrine of sanctions applies only to contractual provisions that work in the event of an infringement. The result of the clause was that CPC received the interest that would have been accrued over the life of the loan, whether the loan was pre-paid or not. The clause was therefore part of Mr.
Holyoake`s main obligations and did not fall within the scope of the sanction clause. Although there was no need to clarify the matter, the judge considered an act of loyalty promulgated by Mr. Holyoake. The transaction provided that, if Mr. Holyoake (among others) did not fully subscribe to the loan repayments, he would be exempt from any debt under the loan contract and that the total amount of the loan, including interest, would be paid as a new commitment the following business day. The act itself did not comy Mr. Holyoake to repay the loans in full. The result of the deed was that Mr. Holyoake agreed to pay the loan and interest not as a penalty for breach of contract, but as a result of refinancing or terminating the loan. The commitment is therefore not part of the sanctions rule. The judge found that this „may be an example of intelligent drawing.“ Strike 2: Loan Renewal FeesIn the context of renewal contracts giving Mr.
Holyoake more time to repay the loan, there were renewal fee clauses in two forms: 1) renewal fees which, if paid on an agreed schedule, would reduce the amount of debt payable; and two. renewal costs that were in any event to be paid, without providing for measures to reduce the amount of debt owed. Again, the judge did not see either of the two types of renewal rights clauses being covered by the anti-sanctions rule. Royalties must be „expressly payable in return for the extension of the period“ and, if amounts are to be paid contractually, the parties are free to decide why those amounts must be paid. With respect to renewal fees, these are counterparties „in the real and material sense“ and not payments due because of a breach of its obligations.