Cargill International Trading PTE Ltd v Uttam Galva Steels Ltd

A contractual default-interest clause is not a penalty merely because it exceeds ordinary interest or is not a pre-estimate of loss. The question is whether it imposes a detriment out of all proportion to the innocent party’s legitimate interest, assessed in its commercial context. Credit risk, unsecured lending, market rates and arm’s-length negotiation may justify a higher rate. A signed commercial agreement ordinarily binds the signatory even if the term was not read. The unusual-term notice principle is exceptional. A foreign regulatory limit on interest payable on an advance did not govern default compensation after breach. Payment was performed where the contractually specified bank account was located.

Cargill sought summary judgment for contractual default compensation under clause 8.12 of two Advance Payment and Steel Supply Agreements. Teare J had previously entered judgment for Cargill for US$61.8 million in [2018] EWHC 2977 (Comm). Uttam raised three further defences: that the default rate was a penalty; that it was illegal under Indian law and the Reserve Bank of India regulations; and that it was an onerous term insufficiently brought to Uttam’s attention. The court also considered alternative pre-judgment and post-judgment interest and costs.

Summary judgment was granted for Cargill in respect of the contractual default compensation claimed under clause 8.12.

1. Late amendment. The court heard the proposed late defences without separately ruling on permission to amend. If summary judgment was appropriate, permission would not assist Uttam; otherwise the objections to amendment would substantially fall away.
2. Penalty. Applying Cavendish Square Holding BV v Makdessi [2016] AC 1172, the relevant inquiry was whether the secondary obligation imposed a detriment out of all proportion to Cargill’s legitimate interest in repayment. The genuine-pre-estimate-of-loss approach from Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Co Limited [1915] AC 79 was not the current test. A higher rate after default had commercial justification because Uttam was a greater credit risk and the lending was unsecured. Unchallenged evidence of comparable market rates, the Indian steel industry’s difficulties and Uttam’s own borrowing supported the conclusion that LIBOR plus 12% was not exorbitant or unconscionable. The rate was therefore not arguably a penalty.
3. Incorporation. Under the signed-contract principle illustrated by L’Estrange v Graucob [1934] 2 KB 34, Uttam was ordinarily bound whether or not it had read the agreements. The exceptional principles concerning unusual or onerous terms, discussed in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 and Goodlife Foods Limited v Hall Fire Production [2018] EWCA 1371, did not assist. The agreements were signed and stamped on every page by sophisticated commercial parties, and clause 8.12 was neither unusual nor particularly onerous.
4. Indian law and place of performance. The agreements were governed by English law. Regulation 15.1(ii) of the Foreign Exchange Management (Export of Goods and Services) Regulations 2016 limited interest on an advance payment in the ordinary course, not default compensation after breach. Even if the clause were unlawful in India, the rule in Ralli Bros v Compania Naviera Sota y Aznar [1920] 2 KB 287 was not engaged: payment was required into a Singapore bank account and was therefore performed in Singapore. Clauses 23 and 24 did not make payment conditional on RBI approval.
5. Alternative interest and costs. Obiter, if the contractual rate had failed, pre-judgment interest under section 35A of the Senior Courts Act 1981 would have been LIBOR plus 4.5%, and 8% post-judgment interest would have been appropriate under section 44A of the Administration of Justice Act 1970. Cargill received standard-basis costs summarily assessed at £69,500; indemnity costs were refused.

The judgment records that Teare J previously granted summary judgment for Cargill for US$61.8 million in [2018] EWHC 2977 (Comm). The Court of Appeal refused Uttam permission to appeal and refused a stay on 12 February 2019. The present judgment determined the outstanding contractual-interest and costs issues.