With the continuing and difficult financial crisis caused by the cost of living and rising interest rates, businesses will be faced with a situation where they may have to pursue individuals and other businesses for unpaid invoices. Businesses wishing to enforce a breach of contract claim should be aware of how the courts will apply interest on damages.
In England and Wales, the position is up until judgement interest is awarded at the rate of 8%. The position on contractual disputes is different as the contract can set the rate of interest subject to the rate not being seen as a penalty.
For commercial contracts, the Late Payment of Commercial Debts (Interest) Act will imply an interest rate over the current base rate of the Bank of England. If the Late Payment of Commercial Debts (Interest) Act is not pleaded, the court has the discretion to award an interest rate the court deems suitable. The court's position is to award the claimant compensation for not having access to the money. In commercial cases, the courts usually apply an interest rate at which the defendants would have been charged had the money been borrowed. The courts' usual rate is 1–3% above the base rate.
To reflect the current economic crisis and spiralling interests, the Judge in the case of Harrington Scott Ltd v Coupe Bradbury Solicitors Ltd, said the rate of 8% per annum would soon fail to be considered moderate compensation. The case may signify a possible departure from the court's usual practise when considering and awarding discretionary interest. The case also considered the payment on overdue invoices at a rate of 2% for each 14-day period as a penalty clause and hence not enforceable. The rate would have been equivalent to a 52% annual rate. The Court refused to strike out the application and left this point to be directed at trial.
In the case of Moss & Ors v Martin & Anor, the cost-of-living crisis was looked at differently by the Court. In this case, the judge agreed to vary a freezing injunction by directing the living expenses the defendants were permitted to spend each month to be increased considering the general increase in the current cost of living.
These cases show that any litigation claim will now have to consider the impact of the cost-of-living crisis when considering the award of damages requested by the court.
Businesses should now look to update their commercial terms and conditions and rate of interest for the late payment of invoices. Quest can help you bring these terms up to date to reflect the cost-of-living crisis. Contact the Quest advice line for help and advice on how your business can recover debts and how we can help you bring your trading terms and conditions up to date.
