P&K Insights: SGCA Struck Down Unenforceable Penalty

Key Takeaways for Singapore Construction Contracts

On 20 January 2023, the Singapore Court of Appeal in Ethoz Capital Ltd v Im8ex Pte Ltd held that a clause demanding borrower to pay the entire remaining interest of a loan upon default constitutes an unenforceable penalty. In doing so, the Court affirmed its continued application of the common law test for penalties as established in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79. The Court focused on the substance of the default clause, concluding its effect was to compel performance rather than genuinely compensate for loss.

Mino Han and Robin Bae provide insights on the key takeaways from the case.