Are You Claiming Interest?

3 September, 2008
by: Cripps

If you have been kept out of your money and are bringing a claim do not forget to add a claim for interest. You may be pleasantly surprised.

If you have issued proceedings in the court there is a statutory right to claim interest under s35A of the Supreme Court Act 1981. The court has a discretion as to whether to award interest at 8%. Similarly, an arbitrator has power to award interest at his discretion pursuant to s49 of the Arbitration Act 1996. He can award compound or simple interest at such rates as he considers meet the justice of the case.

There is no statutory right to interest under the Housing Grants, Construction and Regeneration Act 1996 although there may be a discretion under the Statutory Scheme as explained later on.

But first, check your contract. If your contract says that you are to receive interest at 5% on late payment then claim it. That is your contractual entitlement. It is not discretionary to the judge, arbitrator or adjudicator.

If you have borrowed money from the bank or perhaps from a related company, and the wording of your contract allows it, you may also have the right to claim financing charges as part of a claim for direct loss and/or expense (F G Minter v WHTSO (1980)).

Also consider whether the paying party was aware prior to the contract being entered into that your business is funded on borrowing. If so, you may be able to claim interest as special damages and recover your actual interest paid out as opposed to a percentage calculation (AMEC Process & Energy Ltd v Stork Engineers BV (2002)).

Most importantly, consider the Late Payment of Commercial Debts (Interest) Act 1998. When the Act came in some people erroneously believed that it applied only to small companies claiming against big companies, but that was simply the first stage that was implemented in November 1998. From 7 August 2002, when the Act came into force fully, a business of any size can claim from any other size business. The Act implies a term into your contract which the adjudicator can then consider. Note that the Act does not apply where one party is not acting in the course of business, i.e. in a contract between a business and a private consumer.

The business can claim simple interest at 8% above the official base rate of the Bank of England, currently 5%, giving a rate of 13%! The applicable base rate is the rate at 30 June (in respect of interest which starts to run between 1 July and 31 December) or at 31 December (which then applies to interest which starts to run between 1 January to 30 June). Subsequent rate changes do not affect this calculation.

The date by which the debt should have been paid may be in the terms of the construction contract. If not it will be implied by the Statutory Scheme so claim it from that date.

What has caused uncertainty is the position under the Scheme when claiming interest in adjudication. Clause 20(c) says that having “regard to any term of the contract” the adjudicator may award interest. Some adjudicators interpret this as meaning that only if there is a contractual provision do they have the ability to award interest. Others rely on the introduction to clause 20 of the Scheme as giving them wider discretion. You won’t know which way your adjudicator will go unless you ask. If your adjudicator is prepared to award interest he can decide the rate, period and whether to give simple or compound interest, so consider submitting a compound interest calculation as part of your claim.

However, if the contract is silent your best position is almost certainly to claim under the Late Payment of Commercial Debts (Interest) Act if it applies. And there is a nice little bonus too – a penalty fee can be added for each qualifying debt: £40 for debts of less than £1,000, £70 for debts of £1,000 to £9,999, and £100 for debts over £10,000. Where the claim is for a number of unpaid invoices, for example interim invoices for ongoing work, the compensation can potentially be claimed for each unpaid invoice.

The business can claim interest under the Act or the agreed rate of interest under the contract or the court rate of interest but cannot claim more than one type of interest cumulatively.

Reviewed in 2015