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:
- Where the place of performance of obligations under the contract is in England;
- 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.
- Where the parties are carrying on some relevant part of their business in England.
- 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.