REUTERS | Amit Dave

Claiming interest in adjudication

The issue used to be whether the adjudicator had jurisdiction to award interest under the Scheme for Construction Contracts. There were conflicting interpretations as to whether an adjudicator had a statutory standalone power to award interest (like a judge or arbitrator) or whether he could only award interest if a right existed.

In Carillion v Devonport, the TCC, and then the Court of Appeal, decided that there was no statutory standalone power, but said that the adjudicator was given ad-hoc jurisdiction to award interest on the facts. Therefore for an adjudicator to have the power to award interest, a party needs to establish it has a right under the contract and claim it.

Typical issues I have to decide include:

  • Do the interest provisions in the contract apply or does the Late Payments Act apply?
  • Is the level of contract interest a “substantial remedy”?
  • Do the interest provisions apply to “under payment” situations as opposed to “late payment” situations?

This latter issue often raises questions over whether the sum due following an adjudicator’s decision becomes due on publication of the decision (and therefore not qualifying for interest) or at some earlier date (and therefore (maybe) attracting interest). I have seen it argued that as the JCT interest provisions only apply to “late payment”, the Late Payments Act applies to the “under payment”.

In the case of an amount that an adjudicator orders to be paid as a result of under certification or under payment, there is some strength in the argument that the sum becomes due at the date of the decision. It would follow from the adjudicator’s findings that the paying party was in “breach” by not paying the full amount earlier. Therefore, arguably, the payee is entitled to damages to put it in the position it would have been in had it been paid. For instance, it could recover things such as finance charges (following Sempra Metals).

Interest: a checklist for a party preparing for an adjudication

For any party, there are a few simple points to bear in mind:

  • Check the contract terms to establish:
    • Your rights to interest under the contract; and
    • Whether the Scheme applies to any dispute referred to adjudication.
  • Ensure interest forms part of the dispute by including it in all pre-adjudication correspondence. This is particularly important if the Scheme doesn’t apply to the dispute.
  • Check whether the debt is a “qualifying debt” and is caught by the Late Payments Act regime.
  • Include a claim for interest in the Notice of Adjudication and the Referral Notice. Parties need to expressly claim interest.
  • Specify whether interest is claimed at the contract rate or under the Late Payments Act (and get it right), rather than merely claiming “interest” and leaving the adjudicator to work out the basis of the claim.
  • Calculate the claim for interest from the contractual date for payment on all outstanding sums.
  • Don’t overlook a claim for other elements, such as financing costs.

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