The Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”), as amended by the Late Payment of Commercial Debts Regulations 2002, enables businesses to charge interest on certain debts arising under commercial contracts for the supply of goods and/ or services and for connected purposes.
Who can claim interest under the Act?
Only businesses are able to claim interest under the Act. “Business” includes a profession and the activities of a government department or a local or public authority. Since 2002 businesses of any size can claim interest under the Act.
When can interest under the Act be claimed?
Interest can generally be claimed under the Act if there is a “contract for the supply of goods or services” and the purchaser and the supplier are each acting in the course of a business. There are some exceptions to this for contracts known as “excepted contracts” and it is possible in certain circumstances for businesses to oust or vary the provisions of the Act.
What is a contract for the supply of goods or services?
For the purposes of the Act the following amount to a “contract for the supply of goods or services”:
- A contract for the sale of goods;
- A contract involving the transfer or an agreement to transfer goods to another in return for payment;
- A contract under which someone hires or agrees to hire goods to another in return for payment;
- A contract for the supply of a service in return for payment;
- A transaction in respect of which fees are paid for professional services to a member of the Faculty of Advocates.
Contracts of service and apprenticeships do not amount to contracts for the supply of goods or services for the purpose of the Act.
What is an excepted contract?
The following types of contract are “excepted contracts” and are, therefore, not covered by the Act:
- Consumer credit agreements;
- Contracts intended to operate by way of a mortgage, pledge, charge or other security.
When can Statutory interest be ousted or varied?
It is possible in certain circumstances for businesses to agree to oust or vary the provisions of the Act. However, any attempt to oust or vary the provisions of the Act will only be valid if the parties have agreed that there will be a “substantial remedy” for late payment of the debt.
For the purposes of the Act a remedy does not amount to a “substantial remedy” if it insufficiently compensates the supplier for late payment or insufficiently deters late payment and if it unfair or unreasonable.
When determining whether a remedy is a substantial remedy or not a Court will take into the circumstances of a case, such as the strength of the bargaining positions of the parties.
For more information on:
- How much can be claimed under the Act by way of interest?
- What is the relevant day for the debt?
- Is there an automatic right to interest under the Act?