Late Payment Of Commercial Debts Regulations 2013

Wake Smith Solicitors 23 March 2013

The Late Payment of Commercial Debts Regulations 2013 (SI 2013/395) (Regulations) came into force on 16 March 2013 and implements the changes required by the Late Payment Directive (2011/7/EU). By the introduction of these Regulations the government has opted to amend the Late Payment of Commercial Debts (Interest) Act 1998 (1998 Act), rather than repeal and replace it. The Regulations apply to commercial contracts for the supply of goods and services (other than excepted contracts) made on or after 16 March 2013. The main changes to the 1998 Act are:

1. How business to business transactions and business to public authority transactions are treated:

  •  Where a public authority purchases goods or services, interest will start to run onoutstanding payments from 30 days after the later of receipt of the supplier's invoice andreceipt (and acceptance) of the goods or services. It is possible for the parties to agree upona different start date, but that date cannot be more than 30 days.

  •  Where a business purchases goods or services and the contract is silent on the date forpayment, interest will start to run on outstanding payments from 30 days after the later ofreceipt of the supplier's invoice and receipt (and acceptance) of the goods and services. It ispossible for the parties can agree a due date for payment provided that where the paymentperiod is longer than 60 days, the period must not be 'grossly unfair' to the supplier.

A gross unfairness test is a new concept to English law, and fortunately the Regulations do

give some guidance as to its application:

  • anything that is a gross deviation from good commercial practice and contrary to good faithand fair dealing;

  • the nature of the goods or services in question; and

  • whether the purchaser has any objective reason to deviate from the 60 day payment deadline.

There is no legal definition of 'good faith' in English contract law but guidance from the Office of Fair Trading states: "the requirement of 'good' faith embodies a general 'principle of fair and open dealing'. It means that a term should be expressed fully, clearly and legibly and that terms that might disadvantage the consumer should be given appropriate prominence". It will be interesting to see how the courts apply these new concepts.

2. The rate of interest remains unaltered under the Regulations. If the parties do not specify a contractual rate of interest, the default statutory rate is Bank of England base rate plus 8% (European Central Bank plus 8% in the Eurozone). The parties can, of course, exclude this statutory right to interest, but only if the contract provides for an alternative "substantial remedy" for late payments.

3. Where statutory interest applies to the contract, the Regulations provide that, as well as the fixed charge that a supplier may claim as compensation for the cost of recovering a debt (£40, £70 or £100, depending on the size of the debt), the supplier can also claim his other reasonable costs of recovery. Any attempt to exclude or limit this right of recovery will be subject to the reasonableness tests set out in the Unfair Contract Terms Act 1977.

As a result of the introduction of these new Regulations we suggest that you carry out a review of your standard contract documentation to:

  •  Check that the payment periods are no longer than 60 days. If you consider that there arespecial circumstances rendering it more appropriate to have a longer period for payment,consideration should also be given as to whether additional wording to support theargument that the period is not "grossly unfair" should be included; and

  • Review your default interest rates; these must represent a "substantial remedy" for thesupplier, otherwise the statutory rate will apply.

For more information regarding the changes or for specific advice, please contact Rebecca Robinson on 0114 2666660 or email at [email protected].

Tags

Archive

March 20247February 20242January 20248December 20236November 20232October 20235September 20232August 20234July 20232June 20235May 20238March 20234February 20235January 20233December 20225November 20224October 20224September 20223August 20221June 20221May 20227April 20223March 20223February 20223January 20224December 20214November 20213October 20215September 20216August 20212July 202111June 20218May 20216April 20212March 20218February 20218January 20219December 20208November 202013October 20209September 20208August 20203July 20208June 202016May 202013April 20209March 202016February 20209January 202011December 20199November 20199October 201911September 20195August 20194July 20196May 20198April 20196March 20193February 20195January 20194December 20186November 20185October 20182September 20185August 20184July 20189June 20184May 201810April 20185March 20184February 20184January 20183December 20175November 20178October 20177September 20179August 20175July 20176June 201710May 20176April 20178March 201711February 20176January 201712December 20169November 20167October 201610September 201610August 20166July 20167June 20163May 20162April 20166March 20162February 20164January 20165December 20153November 20155October 20156September 20156August 20157July 20157June 20157May 20156April 20159March 20156February 201510January 20156December 20145November 20144October 20142September 20143May 20144March 20146February 20144January 20142December 20132November 20133September 20134July 20132June 20132May 20133April 20131March 20133February 20133January 20136December 20121November 20123October 20122August 20122July 20128June 20123April 20123March 20121January 20124December 20112November 20111October 20112September 20113August 20113July 20117June 20119May 20117April 20115March 20119February 20118January 20111December 20101October 20102September 20102August 20103July 20106June 20101May 20102April 20106March 20102February 20103January 20102December 20095November 20092October 20092September 20092August 20091July 20095June 20095May 20093April 20093March 20093February 20091January 20092November 20082October 20082September 20081August 20083July 20081January 20082

Featured Articles

Contact us