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Paying penal interest rates has excited the Court of Appeal recently. I will tell you all about it in a moment. The whole idea, parliament鈥檚 idea, is to punish those who don鈥檛 pay their debts on time. Buy cement, bricks, bullets, then pay late, and the rule is that you must stump up a swingeing lump of interest on top. How much? Oh, a mere 8% on top of the bank rate. So, if I owe you 拢10,000 from a year ago, I have worked out that it costs me another 拢1,000 or thereabouts. Time and again adjudicators鈥� awards add cash on the end for interest.

Why has the Court of Appeal raised an eyebrow? Well, it had a look at the approach taken by one of our Technology and Construction Court judges and decided he hadn鈥檛 bashed the debtor with enough penal interest. Parliament insisted in the Late Payment of Commercial Contracts Interest Act that nobody in business will get away with a late payment without also coughing up a 鈥渟ubstantial remedy鈥� for their tardiness. More than that, the idea of the penalty rate is to be a deterrent. True, a contract such as JCT does not impose the 8%; the JCT committee landed on 5% over base. It might be too thin to be a deterrent. It is open to someone to run that argument in an adjudication one day.

Ruttle Plant Hire has had a whopper of a dispute with the government after swine fever then foot and mouth broke out. The cleaning and decontamination work was arranged, as you might expect, in a bit of a rush. Ruttle鈥檚 blokes were dashing hither and thither to defeat the viruses, all on a day-work rate of course. Then came the panic when the people in charge of the public purse balked at the bill. After that was sorted in court, the row began over the interest. The first judge said, disarmingly, that 鈥渢he position on interest was a bit of a muddle鈥�. One key point was why the judge would not award 8%. He gave only 2%.

Well now, it seems to be all about part of the act called 鈥渢he remission of statutory interest鈥�. I tell you this: I have decided hundreds of disputes and I have only seen this angle once before. Let me tell you about it. The word 鈥渞emission鈥� in this case means to diminish, or reduce. The idea, says the act, is that where the person owed money has contributed to the late payment 鈥渂y reason of its conduct鈥�, there will be remission in whole or part 鈥渋n the interests of justice鈥�. Seemingly, the job of the tribunal is to take on board any facts or circumstances involving the conduct, act or omission of the party owed money.

Credit: Simone Lia

We had to do it. Rudolph thought paying late was a reindeer game.

The first judge in Ruttle accepted the argument and reduced the rate to 2% over base. The three-judge Court of Appeal revised it all the way back up to 8%, mainly because they couldn鈥檛 plainly see any reason for a reduction. But if in you see iffy conduct in your dispute 鈥� well then!

The other interesting point is the date or circumstance when interest begins to run. You can鈥檛 ask for interest if it is your job to invoice or ask for money but don鈥檛, nor if you invoice for too low an amount. That, said the Court of Appeal, would be 鈥減ushing the boat out too far鈥�. Interest runs from or on the day after the relevant day for the debt to be paid. In construction, that date is known as 鈥渢he final date for payment鈥� as laid down in the contract, or if vague, or silent, as in the Scheme for Construction Contracts. And the interest is paid on 鈥渁n ascertained debt鈥� such as a fixed sum on an architect鈥檚 certificate. But if an invoice is wrong, that doesn鈥檛 relieve the payer from paying any interest on the right amount. Similarly, an 鈥渁pplication for payment鈥� from a subcontractor, which turns out to be too high, does not obliterate the right to interest. It stacks up on what turns out to be the right amount. An application for payment 鈥� and most invoices 鈥� is merely a sum that the supplier claims is the amount of the debt 鈥� it鈥檚 a provisional view.

The late payment legislation 鈥渧entures towards imposing penalties for socially damaging behaviour鈥�, says the Law Commission report. Plainly, the Court of Appeal agrees. But for some, paying late is normal and fun, and if interest is also payable, well that鈥檚 too bad. What they don鈥檛 know is about the yellow paint. Late payers are soon to have their noses spray painted yellow. Bright and glowing and fun.