Does The UK Late Payment Legislation Apply To International Contracts?

In England and Wales, the Late Payment of Commercial Debts (Interest) Act 1998 applies to the vast majority of contracts for the supply of goods and services. It operates by implying a term into those contracts whereby, unless the contact itself provides a substantial remedy for late payment, debts are to carry statutory interest at a rate of 8% above base rate. It can be seen that the interest rate is not intended to be compensatory. It clearly exceeds the interest rates which most parties would be charged if they had to borrow money to cover the shortfall of not being paid. The Late Payment Act, as a matter of general policy, is intended to promote prompt payment of all commercial debts and discourage the use of delay in payment as a business tool for commercial advantage.

One question that has arisen is whether or not this legislation might apply to international contracts, where the parties have chosen English law. And this was the issue that came before Mr Justice Popplewell in the case of Martrade Shipping v United Enterprises [2014] EWHC 1884 (Comm).

Here, the Judge explained that section 12 of the Late Payment Act provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not of itself sufficient to ensure that the Act applies. The Act will only apply if there is a significant connection between the contract and England or if the contract would be governed by English law, leaving aside the choice of law clause.

The Judge also reminded everyone of the twin purposes of the Act: namely, to protect commercial suppliers whose financial position makes them particularly vulnerable if their debts are paid late, and the general deterrence of late payment of commercial debts. This does not explain why section 12 provides that where parties to a contract with an international dimension have chosen English law to govern the contract, the choice of English law is not of itself sufficient to attract the application of the Act.

Mr Justice Popplewell explained. First, it reflected domestic policy considerations which are not necessarily the same as for contracts with an international dimension. Second, it is of considerable economic value that international parties regularly choose English law and jurisdiction to govern their contracts. Section 12 recognises that subjecting parties...