Civil Engineering Reference
In-Depth Information
Once the payment is late, interest runs at the prescribed rate from the day after the
relevant day until the principal sum is extinguished by payment. Unless the supplier
accepts a payment on other terms, any payment received goes first to extinguish or
reduce the accrued interest. A claim for interest is made by the supplier informing
the purchaser, once the payment is late, that they are claiming interest. Notification
canbeinanyfashionbutitwouldappearprudenttomakesuchaclaiminwriting.
A claim for interest need not be made immediately. he ordinary rules of prescription
will apply. These are considered in Section 9.9.
It is, of course, common to find standard terms and conditions providing for inter-
est to run on late payment. In recognition of that, the 1998 Act provides that, where
arrangements have already been made, the statutory right to interest will not apply. To
prevent purchasers abusing their right to agree arrangements with a supplier, any con-
tractual remedy must be what is termed a 'substantial remedy'. This term is defined
by s.9 of the 1998 Act. A remedy for late payment is 'substantial' if it is sufficient to
compensate the supplier for the cost of late payment or to deter late payment, and it
isfairandreasonabletoallowtheremedytooustorvarythestatutoryinterestthat
would otherwise apply.
In determining whether or not a remedy satisfies the fair and reasonable test, regard
is to be had to the benefits of commercial certainty; the relative strength of bargaining
power between the parties; whether the term was imposed by one party to the detri-
ment of the other; and whether the supplier received an inducement for agreeing to
the term. If the contractual remedy is not a substantial remedy, it is void.
The scope of the 1998 Act was extended by the introduction of the Late Payment of
Commercial Debts (Scotland) Regulations 2002 ('the 2002 Regulations').
The 2002 Regulations introduce a right to a fixed sum by way of compensation
for the costs suffered by suppliers arising from late payment. This fixed sum is based
on the size of the debt. The 2002 Regulations also provide that a representative body
may bring proceedings on behalf of small and medium-sized enterprises in the Court
of Session where standard terms used by the purchaser include a term varying or
excluding the statutory interest in relation to contracts to which the 1998 Act applies.
'Small and medium-sized enterprises' and 'representative body' are defined in the
Regulations.
The scope of the 1998 Act was further extended on 29 March 2013 by the intro-
duction of the Late Payment of Commercial Debts (Scotland) Regulations 2013 ('the
2013 Regulations').
The 2013 Regulations, which apply to contracts entered after 16 March 2013, pro-
vide for a maximum payment period of up to 30 days where the purchaser is a public
authority. In other cases the payment period can be up to 60 days or longer if agreed
by the parties to the contract and provided if it is not grossly unfair to the supplier. he
2013Regulationsalsoprovideforaperiodofeitherupto30days,orlongerifexpressly
agreed by the parties and if it is not grossly unfair to the supplier, for a purchaser to
confirm that the goods or services they have received from the supplier conform with
the contract before the payment period commences. There is also a right created for
suppliers to compensation for the reasonable costs of recovering a debt incurred if
that amount exceeds the fixed charge sum.
