Scheme Interest and the Late Payment of Commercial Debts

My last article dealt with the subject of an Adjudicators power to award interest under the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme). The article concluded by saying that where a contract has no provisions relating to the payment of interest, an Adjudicator has no freestanding power to award interest.
 
 

My last article dealt with the subject of an Adjudicator’s power to award interest under the Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”).  The article concluded by saying that where a contract has no provisions relating to the payment of interest, an Adjudicator has no “freestanding power” to award interest.

 
This conclusion followed the judgement in the Court of Appeal case concerning Carillion Construction Ltd v Devonport Royal Dockyard Ltd handed down in November 2005 where Lord Justice Chadwick said:
 
“the adjudicator may decide questions as to interest if, but only if, (i) those questions are “matters in dispute” which have been properly referred to him, or (ii) those are questions which the parties to the dispute have agreed should be within the scope of the adjudication, or (iii) those are questions which the adjudicator considers to be “necessarily connected with the dispute”. Questions which do not fall within one or other of those categories are not within the scope of paragraph 20(c) of the Scheme. There is no freestanding power to award interest.”
 
Just to remind you what paragraph 20(c) of the Scheme says:
 
“20. The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute. In particular, he may -
 
c. having regard to any term of the contract relating to the payment of interest, decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid."
 
So, if your contract has no express provision allowing for the recovery of interest in respect of late payment, is that the end of the line?
 
The answer is no because The Late Payment of Commercial Debts and (Interest) Act 1998 (“the Act”) provides you with the right to claim interest under a qualifying contract. What the Act says is:
 
1 Statutory interest 
 
(1) It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with this Part.
(2) Interest carried under that implied term (in this Act referred to as “statutory interest”) shall be treated, for the purposes of any rule of law or enactment (other than this Act) relating to interest on debts, in the same way as interest carried under an express contract term.
(3) This Part has effect subject to Part II (which in certain circumstances permits contract terms to oust or vary the right to statutory interest that would otherwise be conferred by virtue of the term implied by subsection (1)).
 
So what these provisions mean, in simple terms, is that even if your contract is silent on the right to claim interest, the terms of the Act are parachuted into your contract giving you the right to claim interest in any event.
 
So far so good but what else do you need to consider?
 
Well, remembering what the Court of Appeal said in the Carillion case, it may be a good idea to make sure that your claim for interest under the Act has been made properly and put before your opposing Party well in advance of the adjudication getting under way.  The issue can then be said to be clearly in dispute and there can be no arguments about whether or not the Adjudicator has jurisdiction to deal with the claim.
 
Peter Vinden is a practising adjudicator, mediator, expert and conciliator. He is Managing Director of Vinden and can be contacted by email at pvinden@vinden.co.uk 
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