![HT-2023-000006 - [2024] EWHC 2295 (TCC)](https://backend.juristeca.com/files/emisores/logo_yJUntHA.png){kind=logo}
Interest
Interest
A & V claims interest as follows:
The current statutory rate of interest under the [Late Payment of Commercial Debts (Interest) Act 1998] is 8% above the Bank of England’s base rate, which currently is 5.25%, totaling 13.25%. This interest rate should apply to the judgment award sum of £101,543.17 plus Mr Blizzard’s fees of £34,800.
Judgment Sum £101,543.17 +
Mr Blizzard Fees £34,800
Sub-total of £136,343.17
Adding interest rate at 13.25% from 06.05.2021 to 18.06.2024 (1140 days) which is £56,400.67 interest
Totalling of £192,743.84 sums due from JBH to A&V.
J&BH challenges A & V’s interest claim insofar as it depends upon the Late Payment of Commercial Debts (Interest) Act 1998 (“the 1998 Act”). It contends that there is a contractual interest rate which should be applied.
J&BH also claims interest on Mr Smith’s fees and on its enforcement costs.
Judgment sums to which the 1998 Act could apply
A & V’s claim for interest at a rate of 13.52% is based upon the 1998 Act.
A threshold point taken by J&BH is that not all of the sums which I have awarded to A & V can attract interest under that Act.
As I have awarded A & V £17,400 in respect of Mr Blizzard’s fees in this judgment, the principal amounts which I have awarded to A & V are as follows:
Measured Works Claim: £95,446.61;
Loss of profits damages claim: £6,096.64;
Mr Blizzard’s fees: £17,400.
In respect of (1), the Measured Works Claim, J&BH accept that that could be the subject of an interest claim under the 1998 Act, were it not for the existence of a contractual interest rate.
In respect of (2) and (3), J&BH contends that the 1998 Act cannot apply.
Section 3(1) of the 1998 Act provides:
Qualifying debts
(1)
Mr Frampton says, in respect of (2) , that payment of damages for loss of profit is not a debt or created by virtue of an obligation to pay the whole or any part of the contract price, and, in respect of (3), that payment of an adjudicator’s fees is not an obligation to pay the whole or any part of the contract price.
In support of his submission, particularly in respect of the damages award, Mr Frampton refers to the decision of Akenhead J. in Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Ltd (Footnote: 11), in which he said: (Footnote: 12)
The 1998 Act specifically identifies “debt” only as attracting the specific interest provisions. It is only “qualifying” debts which attract statutory attention and those debts are by s 3 specifically to relate to “an obligation under a contract to which this Act applies to pay the whole or any part of the contract price”. There is a very clear distinction to be drawn between the payment of the contract price and any liability for damages for breach of contract because the latter does not usually arise as such pursuant to an obligation to pay the “contract price”. In any event, a debt is usually considered to be a sum due for work done, materials delivered or services rendered which sum is either specifically ascertained and agreed within or by the contract in question or is ascertainable from what has been agreed. Of course, in the case of a claim for breach of contract for (unliquidated) damages, that claimed entitlement can only convert into a debt as a result of a judgment or arbitration award; it does not become a debt until that stage and at that stage it attracts the specified judgment rate of interest for late payment of a judgment sum.
I agree with Akenhead J.’s reasoning and accept that it precludes interest under the 1998 Act being recovered by A & V in respect of the award of damages for loss of profits.
I also accept that the award I make in this judgment in respect of Mr Blizzard’s fees is not an award in respect of a “debt” for the purposes of the 1998 Act, since the debt in respect of Mr Blizzard’s fees is created by this judgment not by virtue of an obligation under a contract. However, in case there should be any confusion, I am dealing here with the obligation for J&BH to pay to A & V part of the sum which A & V was obliged to pay to Mr Blizzard. I am not dealing with an obligation on the part of a party to an adjudication to pay an adjudicator’s fees. I say nothing as to whether that could create a debt falling within the 1998 Act.
Does Clause 12 of the Sub-Contract have the effect of preventing A & V from recovering interest under the 1998 Act?
Given the decision I have made in the previous section of this judgment, the only sum upon which interest under the 1998 Act could be awarded is in respect of my award of £95,446.61 in respect of the Measured Works Claim.
In that respect, Mr Frampton relies upon the combined effect of Clause 12 of the Sub-Contract and Sub-Section 8(2) of the 1998 Act.
Section 8 of the 1998 Act provides:
Circumstances where statutory interest may be ousted or varied.
(1) Any contract terms are void to the extent that they purport to exclude the right to statutory interest in relation to the debt, unless there is a substantial contractual remedy for late payment of the debt.
(2) Where the parties agree a contractual remedy for late payment of the debt that is a substantial remedy, statutory interest is not carried by the debt (unless they agree otherwise).
(3) The parties may not agree to vary the right to statutory interest in relation to the debt unless either the right to statutory interest as varied or the overall remedy for late payment of the debt is a substantial remedy.
(4) Any contract terms are void to the extent that they purport to—
(a) confer a contractual right to interest that is not a substantial remedy for late payment of the debt, or
(b) vary the right to statutory interest so as to provide for a right to statutory interest that is not a substantial remedy for late payment of the debt,
unless the overall remedy for late payment of the debt is a substantial remedy.
(5) Subject to this section, the parties are free to agree contract terms which deal with the consequences of late payment of the debt.
Clause 12 of the Sub-Contract provides:
If J& B Hopkins, fails to make payment to the Sub-Contractor of any sum which is due to the Sub-Contractor under this Sub-Contract by the final date for payment of that sum, J& B Hopkins shall pay to the Sub-Contractor in addition to the amount not paid simple interest thereon for the period from the final date for payment to the date payment is made. The rate of interest shall be 2% over the Base Rate of the Bank of England current at the date of J & B Hopkins default. The Sub-Contractor acknowledges that such rate is a substantial remedy for late payment (as defined in the Late Payment of Commercial Debts (Interest) Act 1998).
Mr Frampton submits that Clause 12 of the Sub-Contract provides a substantial remedy for late payment, and that accordingly the application of the 1998 Act has been effectively ousted.
Section 9 of the 1998 Act defines the meaning of “substantial remedy”:
Meaning of “substantial remedy”.
(1) A remedy for the late payment of the debt shall be regarded as a substantial remedy unless—
(a) the remedy is insufficient either for the purpose of compensating the supplier for late payment or for deterring late payment; and
(b) it would not be fair or reasonable to allow the remedy to be relied on to oust or (as the case may be) to vary the right to statutory interest that would otherwise apply in relation to the debt.
(2) In determining whether a remedy is not a substantial remedy, regard shall be had to all the relevant circumstances at the time the terms in question are agreed.
(3) In determining whether subsection (1)(b) applies, regard shall be had (without prejudice to the generality of subsection (2)) to the following matters—
(a) the benefits of commercial certainty;
(b) the strength of the bargaining positions of the parties relative to each other;
(c) whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise); and
(d) whether the supplier received an inducement to agree to the term.
Mr Frampton contends that Clause 12 is a substantial remedy:
Interest at 2% over the Base Rate, running from the date of default (i.e. immediately) is, applying this test, a substantial remedy:
Per section 9(2) of the Act, “regard shall be had to all the relevant circumstances at the time the terms in question are agreed”. This question must, therefore, be assessed at the time of the Sub-Contract (30 September 2019). At that point, the Bank of England base rate had less than 1% for over 10 years. The inflation and rise in interest rates caused by Covid-19 and the war in Ukraine was not known or foreseeable.
It is not enough, or the test, to say that the rate in the contract is less than the statutory rate. The statutory rate is often described as and is intended to be penal.
The specific contractual wording that A&V “acknowledges that such rate is a substantial remedy for late payment (as defined in the Late Payment of Commercial Debts (Interest Act) 1998” must be considered. It shows that the parties had, objectively, specifically turned their minds to the interest rate, the terms of the Late Payment of Commercial Debts (Interest) Act 1998 and agreed that it was a substantial remedy. There is no basis to go behind this agreement by two commercial entities.
A rate of 1%, 2%, 3% above base is common;
Turning to the specific factors at section 9(3):
The benefits of commercial certainty – this factor points strongly in favour of upholding the agreed rate, particularly given the express reference to the Late Payment Act.
The strength of the bargaining positions of the parties relative to each other – JBH is a larger entity, however there is no evidence that in 2019 the parties’ bargaining positions were significantly different. A&V had been profitable (albeit the use of those profits was mismanaged) and the evidence is it had a client base in London.
Whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise) –the clause was part of JBH’s standard terms. However, it was not “imposed” to A&V’s “detriment”. A&V freely agreed to the terms and conditions.
Whether the supplier received an inducement to agree to the term – there is no evidence of any inducement.
In my judgment, Clause 12 does not provide a substantial remedy.
I accept that there are a number of factors upon which J&BH legitimately relies:
I accept that there had been low interest rates set by the Bank of England for a substantial period before the Sub-Contract was entered into;
I accept that awards of interest rates of 1, 2 or 3% over base rate are common, but certainly rates of 1 or 2% over base tend to be applicable in respect of awards to relatively substantial corporations;
I accept that of the factors specified in sub-section 9(3), factor (a) is in J&BH’s favour.
However, despite those factors in favour of J&BH, in my judgment Clause 12 does not provide a substantial remedy:
As to factor (b) in Sub-Section 9(3), J&BH’s bargaining power was greater by a very substantial margin;
As to factor (c), I understand Clause 12 to be part of J&BH’s standard terms: whether they were “imposed” I have no evidence, but it seems to me that in practical terms A & V was probably faced with “take it or leave it” terms;
As to factor (d), I have no evidence to suggest A & V received any inducement to agree to Clause 12;
Of course, it is right Clause 12 expressly “acknowledges that such rate is a substantial remedy for late payment (as defined in the Late Payment of Commercial Debts (Interest Act) 1998”. However I hope I am not too cynical in thinking that this represents competent drafting on the part of J&BH’s lawyers, rather than a reflection of both parties’ consideration of the pros and cons of including an interest provision in the Sub-Contract which purports to oust the 1998 Act;
I agree with Mr Frampton’s observation at paragraph 17(4)(b) that “the statutory rate is often described as and is intended to be penal”. I have to judge this issue at the time that “the terms in question are agreed” (Sub-Section 9(2)). Accordingly, I ignore the ex post facto evidence that the contractual interest rate did not in fact deter J&BH behaving from a manner in the adjudication process in a manner which elicited disapprobation from the Court of Appeal, a matter to which I have referred in previous judgments. However, it seems to me that J&BH was never likely to be deterred by Clause 12 from playing procedural games in adjudications;
The contractual provision worked in only one direction: if J&BH failed to pay A & V, the clause applied. If A & V failed to pay J&BH, then there was no limit on what interest rate that J&BH could seek to recover;
Clause 12 provided “The rate of interest shall be 2% over the Base Rate of the Bank of England current at the date of J & B Hopkins default”. Thus the rate remains fixed even if interest rates rise during the period of non-payment. In a period of rising interest rates, this is massively weighted in favour of J&BH and against A & V. Given how low interest rates were when this clause was agreed, it was effectively a one-way bet in J&BH’s favour.
For the above reasons, I reject J&BH’s contention that Clause 12 effectively ousts the 1998 Act.
Interest on the Measured Works Claim
I accept J&BH’s submission that the correct starting date for interest is 5 May 2021, which is the final date for payment of A & V’s Payment application 13/14 submitted in March 2021.
The rate will be the statutory rate appropriate for the 1998 Act, namely 8% over the Bank of England base rate from time to time applicable. A & V’s calculation takes a single rate throughout: this is inappropriate.
Interest on the Loss of Profits Damages Award
Mr Frampton submits in paragraph 20 of JBH’s Submissions on Adjudicators Fees and Interest that the appropriate starting date for interest to run is 4 June 2021. I accept that submission for the reason he gives.
He submits that the appropriate rate is the Clause 12 rate of 2.1%, fixed at the date of default.
In contrast J&BH sought, and I awarded, interest at the rate of 4% in my first judgment on the sums due to J&BH. J&BH claims this rate in the alternative.
The fact that J&BH claimed 4% as a fair commercial rate is strong material to suggest that a rate based upon Clause 12 is not a fair rate.
In my discretion, I determine that simple interest at 4% over base is the fair rate to apply given that (as I found in my judgment on the merits) by 2021 A & V were in financial problems. I order 4 per cent over base since that seems likely to me to represent the bottom end of the range of rates at which A & V would be able to borrow in any conventional market. (By contrast, J&BH were likely to be able to borrow at far more advantageous rates, making 4% flat a more appropriate rate in the case of sums due to it).
Interest on Mr Blizzard’s fees
Mr Frampton submits in paragraph 24 of JBH’s Submissions on Adjudicators Fees and Interest that the appropriate starting date for interest to run is 3 March 2022. I accept that submission for the reason he gives.
For the reasons given above, I determine that simple interest at 4% over base is the fair rate to apply.
Interest claimed by J&BH on Mr Smith’s fees
Interest due to J&BH on the enforcement costs
There has been no appeal against my judgment in respect of enforcement.
Consequently the interest consequences in Sections D.1 and D.2 of JBH’s Submissions on Adjudicators Fees and Interest are correct: on Mr Smith’s fees there is pre-judgment interest due in the sum of £160.66 and post-judgment interest to 18 June 2024 of £1,496.42 and continuing at the daily rate of £3.06; and on the enforcement costs there is post-judgment interest to 18 June 2024 of £2,231.66 and continuing at the daily rate of £4.56.
Those sums are due under my first judgment. The relevance to the issues in this judgment will arise when consideration is given to the timing of payment of the sums I have awarded in A & V’s favour. There is no formal set-off.