It is worth bearing in mind when if you have a monetary claim for loss or damages, interest can be applied to the claim. This can often be for not inconsiderable amounts and this article is designed to provide a brief introduction to the three main types of interest we come across.
If your claim is based on you have under contract a contract, for instance payment for goods or services you have provided, then the chances are that the contract will specify the rate of interest that can be applied in the event of late or withheld payment. This interest rate can be referred to in either pre-action correspondence or recovered under specific head of claim in any subsequent court proceedings.
Your terms and conditions, if they apply, may also contain other useful clauses which can assist in recovering debts owed under contract. For instance a creditor may be entitled to charge an administration fee for an unpaid trade debt after a certain period of time.
All is not lost however if your contract fails to set out an interest rate, or if there is no contract at all. An often overlooked but useful piece of legislation is the Late Payment of Commercial Debts (Interest) Act 1998. It states that a statutory rate of interest can be applied where the debt is of a commercial nature and is owed by one business to another (or owed by a local authority).
What you can claim:
- Interest on the debt at a rate of 8% above base calculated on an annual basis
- Collection Costs:
- £40 if the debt less than £1k
- £70 if the debt is between £1k -£10k
- £100 if the debt is over £10k
- Additional reasonable costs
The ability to claim “additional reasonable costs” is a fairly new addition to the act. We are yet see the extent to which a creditor’s additional costs can be claimed.
A useful and free resource for late payment interest rules can be found here www.payontime.co.uk.
In the event that court proceedings are raised and interest is not being claimed on a contractual or statuary basis, interest will usually be claimed at the “judicial” rate of 8% per year from the date on which the action is raised. This rate is usually used in cases involving actions for damages.
However the 8% rate has come under fire recently in a number of Court actions in Scotland. In one case it was successfully argued that since the second half of 2009 the Bank of England base rate have been very low - ranging from.1.5% to 0.5%. Against this background a judicial rate of 8% is too high and has the effect of over compensating creditors for their losses. This argument found some sympathy with the Court and we have seen it deployed again in other court actions.
Disclaimer: While every effort has been made to ensure the accuracy of this blog post, it is not intended to provide legal advice as individual situations will differ. No recipients of content in this blog post should act or refrain from acting on the basis of the blog post without seeking the appropriate legal advice on the particular facts and circumstances at issue from a qualified solicitor in their jurisdiction. The blog post is for general information only and is not legal advice. The law changes frequently and varies from jurisdiction and jurisdiction. No solicitor-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a solicitor qualified to practise in your jurisdiction. Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200.