Martrade Shipping & Transport GmbH v United Enterprises Corp [2014] EWHC 1884 (Comm)

The High Court has allowed an appeal on a point of law under section 69 of the Arbitration Act 1996 against an award of interest, in which the tribunal had found that the penal rates of interest in the Late Payment of Commercial Debts (Interest) Act 1998 (the Act) applied and awarded interest at a rate of 12.75% per annum.

The case concerned a charterparty between two non-UK parties, which provided for English governing law and arbitration in London. Although the Act applies in certain circumstances to an international contract, it does not apply where the parties have simply agreed an English governing law clause, if there is no "significant connection" between the contract and the United Kingdom and but for that choice, the applicable law would be a foreign law. The tribunal had held that there was a significant connection, because, in the absence of an express choice of English law, the choice of London arbitration was a powerful indication in its favour.

However, the High Court decided that an English court jurisdiction or arbitration clause does not constitute a connecting factor. The following examples of factors that might give rise to a “significant connection” were given:

  • where the place of performance of contract obligations, particularly the payment obligation, is England;
  • where the nationality of the parties is English;
  • where the parties are carrying on some relevant part of their business in England; and
  • where the economic consequences of a delay in payment of debts may be felt in the UK.

Given that a choice of English law is not a sufficient reason to engage the Act, there was no reason why a choice of dispute resolution in England should do so.

What this means for you

The case confirms that successful parties will not be able to apply the penal rates of interest set out in the Act where the case has no connection to England. The fact that a contract contains an English jurisdiction or arbitration clause is not a relevant factor for this purpose, as choice of forum governs procedural rights and remedies and not substantive obligations.