What Price Default?

摘要

The potential loss of a defaulting party's interests remains an essential protective provision for non defaulting parties (particularly where no other forms of recovery exist in practical terms in respect of a default). A loss of interest provision which applies a proportionate (rather than an absolute) degree of sequestration stands a better chance of not being impugned as a penalty. And a provision which applies a clear and reasoned algorithm for defining what interest is to be lost will be preferable to relying on a vague narrative as to what sort of outcome is required. The withering interest formulation is a device which is intended to afford a practical commercial remedy for a default (although, as seen above, the value of the remedy becomes questionable where it is applied later in a project's life) and which is also intended to mitigate (to the greatest possible extent, since absolute and guaranteed mitigation is never assured) the possibility of a successful legal challenge to its existence. Yet actual incidences of complete forfeiture are almost nonexistent in reality and there is no concrete jurisprudence on the legal efficacy of the remedy. Thus, despite all the effort which could be devoted to getting it right, whether the withering interest formulation actually works, both commercially and legally, is still a great unknown.