The case of Martrade Shipping v United Enterprises was an appeal to the High Court from an arbitration of various charterparty disputes. The charterparty contained a choice of English law and arbitration in London. One of the claims related to unpaid hire. The arbitrators made an award to the owner of the vessel and the appeal was over whether interest should have been added on top under the 1998 Act. The charterers contended on appeal that section 12 of the 1998 Act meant that it did not apply to their arrangement. Where parties choose English law, the Act will not apply to their arrangements if there is “no significant connection” to the UK and, without the choice of English law, the applicable law would have been something else.
The 1998 Act has two main purposes, one is to protect suppliers whose financial position makes them vulnerable to late payment of their invoices and the second is the general deterrence of late payment within the UK. Section 12 recognises that is not always an appropriate approach for non-UK based parties and provides that where a contract is an international one, the choice of English law is not enough for the Act to apply, there has to be more. The Court held that factors which would be capable of fulfilling the requirement of a “significant connection” for an international commercial contract must connect the substantive transaction to England and must be of a kind and significance capable of justifying applying high rates of interest under the 1998 Act. Factors which may provide the “significant connection” include:
- England is the place of performance
- The nationality of one or more parties is English
- The parties are carrying on some part of their business in England
- Where the economic consequences of a delay in payment may be felt in England.
Choice of English law and jurisdiction is not enough to connect a transaction to England and the other factors relied on by the owner, use of English language, London P&I Club, Lloyds register vessel classification and general average adjustment in London, were not enough either. English is a primary language employed in international trade and the use of it does not show a significant connection between the transaction itself and England. Without the choice of law the applicable law would not have been English so the Act did not bite on the charterparty and interest under the Act was not payable.
So, if you choose English law and jurisdiction, but the contract is between international parties and performance and payment are not in England, you should incorporate an interest clause for late payments rather than rely on the 1998 Act.