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'''Comment'''

The court in this case affirmed the true test of a penalty, which was authoritatively laid down in Makdessi v Cavendish Square Holdings BV [2015] UKSC 67, and disapproved an overly rigid reading of the test set out in Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Co Limited [1915] AC. Following Makdessi, litigants should be reminded that the question is not whether a default compensation rate is a genuine pre-estimate of a claimant’s damages after default, but whether a default compensation rate has a legitimate commercial justification and whether the rate is in all the circumstances exorbitant. As such, a very high default interest rate does not automatically render a clause unenforceable.

It is also worth noting that where a contract is expressly governed by English law, illegality under foreign law would be irrelevant, unless illegality under foreign law would render the contract unenforceable as a matter of English law. One instance is where a contract requires a party to do something unlawful in the place of performance – that is the rule in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287. The Ralli Bros rule was, however, inapplicable in the present case because the defendant was required to perform its payment obligation in Singapore, not India. Litigants are reminded to ascertain carefully the place of performance of a contractual obligation if they intend to rely on the Ralli Bros rule.