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Claiming interest in adjudication under Late Payments Act 1998

The adjudicator has no free-standing power to award interest and paragraph 20(c) of the Scheme for Construction Contracts 1998 (if it applies to the adjudication) does not give him one (Carillion v Devonport).

The adjudicator only has power to award interest if that issue has been referred to him or the parties have agreed it falls within the adjudicator’s scope. Alternatively, it may be a matter that the adjudicator considers is “necessarily connected with the dispute”. (This may all change when the revised Scheme is published but, for now, we don’t know when that will be or whether an adjudicator will be given wider powers to award interest, as he considers appropriate.)

Late Payments Act 1998

If a party claims interest under the Late Payment of Commercial Debts (Interest) Act 1998 (LPA) then, if the adjudicator finds money is due to that party, and the amount due constitutes a qualifying debt, he can award interest under the LPA because it is a matter that forms part of the dispute. Interestingly, although this happens in practice, I’m not aware of any TCC authority that supports this point.

How does the adjudicator decide what interest to award?

The LPA provides that interest is due from the day “after the relevant day” for the debt (section 4(2), LPA). As that is from the day after payment should have been made, it may be a long time between when payment should have been made and when it is actually made. That could be a lot of interest.

Section 5 confers discretion “in the interests of justice” on the adjudicator (or other tribunal/court) to remit interest or award a lower rate for the whole or part of the period claimed. In exercising that discretion, the non-paying party’s conduct will be a relevant factor. As section 5 states:

“(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 for one or more parts of that period.

(5) In this section ‘conduct’ includes any act or omission.”

Exercising my section 5 discretion

I was recently invited to exercise my section 5 discretion in an adjudication. As part of the parties’ submissions, I was referred to the judgment of Eady J in Banham Marshalls Services UnLtd v Lincolnshire County Council, where Eady J said of that discretion:

“It is no doubt necessary to have in mind that the mischief to which the statute appears to be primarily directed is that of casual or feckless non-payment. The extent to which the ‘interests of justice’ require that it shall be enforced also upon those who withhold payment because of a bona fide dispute requires careful consideration.

Mr Ramsden points to the considerable delay in bringing these proceedings (well over two years after the relevant debts accrued)… I cannot accept, however, that it is appropriate for a creditor to delay without any particular reason for several years and then to expect to recover interest at the enhanced rate. I have little doubt that ‘conduct’, as used in section 5 of the statute, would embrace conduct prior to or in the course of litigation to recover the debt.” (My emphasis.)

So, in the context of an adjudication, I may have to consider a number of alleged delays, including the delay in one party (Y) bringing its claim, followed by further delays in the other party (X) considering and making payment of those claims. Did Y have “any particular reason” for the delay, along the lines that Eady J referred to, which should reduce the interest rate it was entitled to?

If I were to conclude that there had be an unnecessary delay in notifying a claim, it may well be appropriate to disallow interest for all or part of a period and/or reduce the interest rate from the statutory level of 8%.

The question of whether X was “casual or feckless” in not paying Y is, perhaps, a less straightforward matter. It may well involve considering the question of whether there was a genuine dispute between the parties or whether there was a suggestion of payment being delayed for other reasons.

In the event that there was a genuine dispute, it would appear that there may be a case for exercising my discretion, although the outcome would no doubt ultimately turn on the specific facts.

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