The Late Payment of Commercial Debts (Interest) Act 1998 (“the Act”) implies a term into commercial contracts that “qualifying debts” arising under commercial contracts for the supply of goods and services carry statutory interest.
The Act does not however, apply to contracts governed by the law of a part of the United Kingdom where there is no “sufficient connection” between the contract and that part of the United Kingdom and, had the parties not chosen for that law to apply, the applicable law would be a foreign law.
The case of Martrade Shipping v United Enterprises involved an appeal to the High Court from an arbitration of charterparty disputes. The charterparty documents were made and concluded in Belgium but governed by English law and disputes were to be settled by arbitration in London. The arbitrators had made an award to the owner of the ship in respect of a claim for unpaid hire on which interest was payable under the Act. The charterers appealed against the award of interest on the sum.
The charterers argued that there was no “sufficient connection” between the charterparty and England so the Act could not apply. The Court considered the factors that would render a “sufficient connection” to England as follows:
i) where the place of performance of the contract is England;
ii) where the nationality of the parties or one of them is English;
iii) where the parties are carrying on a relevant part of their business in England; and
iv) the economic consequences of a delay in payment may be felt in England.
Despite the arguments advanced by the ship’s owner, (namely that the language of the contract was English, the charterer’s logs were in English, general average adjustment was to take place in London and the ship was to be entered in the London P&I Club) the Court was unable to establish a strong enough connection between the charterparty and England, and concluded that the Act did not apply.
It was the Court’s view that the interest rate imposed by the Act was a penal rate intended to deter the late payment of commercial debts and to protect suppliers whose financial position is compromised by late payment. The Act reflects domestic policy issues which might not apply to an international contract, hence the need for a sufficient connection with England.
The case emphasises the importance of including an express contractual provision dealing with interest in the event of late payment in the case of contracts governed by English law where the parties are not based in England and performance and payment do not take place in England.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.