[2014] EWHC 1884 (Comm)

To what extent does the Late Payment of Commercial Debts  (Interest) Act 1998 apply to international contracts? The legislation  is afterall based on European Union legislation. Here, Mr Justice  Popplewell explained that section 12 of the Late Payments Act  provides that where parties to a contract with an international  dimension have chosen English law to govern the contract, the  choice of English law is not of itself sufficient to ensure that the Act  applies. The Act will only apply if there is a significant connection  between the contract and England or if the contract would be  governed by English law leaving aside the choice of law clause. 

The Judge also reminded everyone of the twin purposes of the Act:  namely to protect commercial suppliers whose financial position  makes them particularly vulnerable if their debts are paid late and  the general deterrence of late payment of commercial debts. This  does not explain why section 12 provides that where parties to  a contract with an international dimension have chosen English  law to govern the contract, the choice of English law is not of itself  sufficient to attract the application of the Act. 

The Judge explained. First it reflected domestic policy  considerations which are not necessarily the same as for contracts  with an international dimension. Second, it is of considerable  economic value that international parties regularly choose  English law and jurisdiction to govern their contracts. Section 12  recognises that subjecting parties to a penal rate of interest on  debts might be a discouragement to those who would otherwise  choose English law to govern contracts arising in the course  of international trade, and accordingly does not make such  consequences automatic. 

The Judge identified the following factors which might justify the  application of a domestic policy of imposing penal rates of interest  on a party to an international commercial contract. They must  provide a real connection between the contract and the effect of  prompt payment of debts on the economic life of the UK:

  1. Where the place of performance of obligations under the  contract is in England;
  2. Where the nationality of the parties or one of them is English;  here, if the paying party was a UK national then the Act may well  be engaged. 
  3. Where the parties are carrying on some relevant part of their  business in England. 
  4. Where the economic consequences of a delay in payment  of debts may be felt in the UK, something which may engage  consideration of related contracts, related parties, insurance  arrangements or the tax consequences of transactions. 

Finally, the Judge was of the view, that when it came to the  performance of the contract, what mattered, at least for a contract  for the supply of services, was the performance of the supplier, not  that of the person who pays for the services.