Businesses and disputed debts

The Court of Appeal has ruled that businesses that withhold all payment for goods or services to strengthen their hand in negotiations will have to pay punitive interest on that retention.

 

The position would be different if they had just cause to do so where say all payment was disputed but where otherwise this cannot be justified objectively the debtor should pay the undisputed part without delay.

 

The Late Payment of Commercial Debts Act was designed to encourage payment of debts on time failing which interest at 8% over the Bank of England’s base rate could be applied.

 

The consequence of failing to act in accordance with the Act would mean interest being payable on the whole sum and not just the disputed part so it would be in the interests of the creditor in the longer run in terms of interest accumulating. Debtors should pay up therefore uncontested parts of a disputed invoice to avoid this penalty.

 

S 5 of the Act confers an important power to the courts to "remit" (i.e. reduce the rate of interest in whole or in part). It says:

5(1) This section applies where, by reason of any conduct of the supplier, the interests of justice require that statutory interest should be remitted in whole or part in respect of a period for which it would otherwise run in relation to a qualifying debt.

(2) If the interests of justice require that the supplier should receive no statutory interest for a period, statutory interest shall not run for that period.

(3) If the interests of justice require that the supplier should receive statutory interest at a reduced rate for a period, statutory interest shall run at such rate as meets the justice of the case for that period.

(4) Remission of statutory interest under this section may be required—

(a) by reason of conduct at any time (whether before or after the time at which the debt is created); and

(b) for the whole period for which statutory interest would otherwise run or for one or more parts of that period.

(5) In this section "conduct" includes any act or omission.

 

 

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