The new directive on combating late payments in commercial transactions (the “Directive”) was published on 16 February 2011. It is due to be transposed into Irish law prior to 16 March 2013. The Directive was adopted in an effort to develop a business environment supportive of timely payments in commercial transactions and to improve the liquidity of small and medium enterprises in the European Union.
The Directive will replace the existing Late Payments Directive which is implemented in Ireland by way of the European Communities (Late Payments in Commercial Transactions) Regulations 2002 (the “2002 Regulations”).
Provisions of the New Directive
1. Payment Periods
Where the contract does not specify a payment period, the debtor must make payment within 30 calendar days, following the date of receipt of the invoice or, if the date of the receipt of the invoice is uncertain, 30 days after the date of receipt of the goods or services (the “Overdue Date”). The Directive provides that Member States shall ensure that the period for payment fixed in the contract does not exceed 60 days, unless otherwise expressly agreed in the contract.
In the case of commercial transactions between private undertakings and public authorities, the Directive provides that where goods or services are supplied to a e the payment period should not normally exceed 30 calendar days of the Overdue Date. However, a longer payment period is allowed where it is it is objectively justified and expressly agreed in the contract, or where the public authority provides healthcare services or services of an industrial or commercial nature. In any event, the longer payment period referred to above cannot exceed 60 calendar days.
The interest rate to be applied in respect of late payments will be the European Central Bank (the “ECB”) main refinancing rate, plus 8%, unless otherwise agreed. Creditors will be entitled to interest from the day following the date for payment as fixed in the contract or where the date is not specified in the contract, from the Overdue Date. The Directive does not require a creditor to give the debtor any prior notice or reminder of his obligation to pay before imposing interest for late payment.
3. Recovery Costs
The Directive introduces a new concept of compensation for recovery costs. Where interest for payment becomes payable, creditors will be entitled to obtain a minimum fixed sum of €40.00 from the debtor. In addition, the creditor will be entitled to obtain reasonable compensation from the debtor (which may include legal costs) for any recovery costs exceeding the fixed sum.
4. Terms presumed “Grossly Unfair”
The Directive provides that certain terms such as a term which excludes interest for late payment or excludes compensation for recovery costs are presumed grossly unfair. In such a case, Member States have a discretion when implementing the Directive to provide that such a term is either unenforceable or gives rise to a claim for damages.
In determining whether a payment / interest-related term is grossly unfair, it is necessary to consider:
- any gross deviation from good commercial practice;
- the nature of the product or the service; and
- whether the debtor has any objective reason to justify the deviation.
While this is a move in the right direction, in practice it is very difficult to enforce these late payment provisions for reationship reasons and therefore it would be preferable if interest was deemed to apply so that that the debtor was obliged to add the interest for late payment thereby ensuring compliance or compensation.