Late Payment of Commercial Debts (Interest) Act 1998

September 24, 2012

A recent decision in the County Court has raised implications in relation to potential claims for interest and compensation under the Late Payments of Commercial Debts (Interest) Act 1998 as amended by the Late Payment of Commercial Debts Regulations 2002.

The County Court Judge was hearing an appeal against the decision of a District Judge in the Small Claims Court on a single point of law concerning the application and interpretation of the Late Payment of Commercial Debts (Interest) Act 1998.

In the original small claims case the Applicant had brought a claim against the Respondent for interest and compensation on invoices stretching back 6 years which had been paid albeit after the terms stated on the invoices. The invoices had stated that the Late Payment Legislation would apply in respect of late payment of the invoices. The invoices in the case had been paid in full and no notice had been given by the Applicant following payment that the Applicant was then going to then make a claim for compensation and interest under the legislation for some months or even years later.

The District Judge in the small claims case used his discretion under section 5 (1) to remit both the interest and the compensation on the grounds that the Applicant took no action against the Respondent for late payment for a number of years after payment of the invoices and did not issue proceedings until 2 years after the contractual arrangements had ceased between the parties. The District Judge held that because statutory interest had been remitted statutory compensation under Section 5A was also not payable. Sub section 5A (1) provides that “once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt). The calculation of the fixed sum is stated as being £40 for a debt less than £1000, £70 for a debt of £1000 or more but less than £10,000 and £100 for a debt of £10,000, or more. The compensation claimed was a figure of £3080 being £40 on each of the 77 invoices. The Applicant had abandoned the excess to bring the claim within the jurisdiction of the Small Claims Court.

The Applicant’s appeal related only to the matter of whether statutory compensation is still payable where all statutory interest claimed has been remitted.

The Applicant argued that although there is an express power to remit interest under Section 5 (1) of the 1998 Act that there is no such power under Section 5A to remit compensation payments. It was argued that therefore once the provisions of the Act are engaged and statutory interest is payable then the compensatory element on each invoice also becomes due and payable. Section 4 (2) states that “statutory interest starts to run on the day after the relevant day for the debt unless Section 5 applies”. The County Court Judge hearing the appeal came to the conclusion that the meaning of the provision “once statutory interest begins to run” refers to the day after the day when payment is due and that the right to interest continues from that date until a court decides whether interest is payable in part or in whole or whether some or all of the interest should be remitted. The Judge considered that even if all interest is remitted in the interests of justice, statutory interest had in each case begun to run when the debt became due. There is no express provision for the remission of statutory compensation and therefore the County Court Judge found in favour of the Applicant and allowed the appeal.

It therefore appears from this decision that anyone who has paid an invoice late where the Late Payment of Commercial Debts (Interest) Act 1998 applies can still be the subject of a claim for compensation on each late invoice up to 6 years after the invoice date regardless of the conduct of the claimant in not having informed the person that a claim for late payment compensation was going to be made even following payment. In instances where a customer is provided with hundreds of small invoices over a long period of time and consistently pays late even by one day this can potentially involve a large claim for compensation retrospectively of between £40 and £100 on each invoice, depending on the amount of the invoice, should relations between the two parties break down at any point. This is something that all customers should be aware of when faced with an invoice referring to the late payments legislation.

Please note: The content of this article is for information purposes only and further advice should be sought from a professional advisor before any action is taken.