Usury may be a sin, but that doesn’t mean it’s against the law. But then, working out just what the law does say about charging interest can be a bit of a poser …
Allen Wilson Joinery succeeded in its adjudication against Privetgrange Construction. The order was to pay £12,500 plus interest of £564, but last week the court would not summarily enforce this. Now there is to be a trial about whether or not there was a “contract in writing”. Meanwhile, Privetgrange has to pay £10,000 into court. This seems to be an awful lot of fuss about awfully small beer. Ever so much more interesting is what the court will say about the £564 interest. Two adjudicators that I know (I am one) have already been referred to the Allen Wilson judgment as authority for the proposition that “there is no right under the Scheme for Construction Contracts to award interest, Mr Adjudicator”.
The Allen Wilson judgment is impeccable. I have no quarrel with it. Can you feel a “but” coming? The “but” is the notion that the judgment is a reason to say the adjudicator has no authority to award interest. He has. Let’s take it slowly on two fronts. First, why there is a right to award interest and second, why the Allen Wilson judgment was special.
Interest, as a topic, has excited passions for generations. Pope Sixtus V condemned it as “detestable to God and man, damned by the sacred canons and contrary to Christian charity”. English common law, even today, does not provide for interest to be paid on late debt. Mind you, we have tried to work our way around all this. An arbitrator is empowered by statute to award simple and compound interest. Another statute empowers a judge to award interest. Then, in 1998, parliament gave us the Late Payment of Commercial Debts Act.
Pope Sixtus condemned interest as ‘detestable to God and man, damned by the sacred canons and contrary to Christian charity’
Now, let’s get this straight. If you underpay or contractor or subcontractor, or pay late, the common law says you do not have to pay interest. There is, therefore, no right under a construction contract to interest. And since an adjudicator is only empowered to make awards according to the contract, no award for interest is allowable. Put another way, there is no “free-standing right” available to the adjudicator to award interest.
Now look at the Scheme for Construction Contracts Regulations 1998, which applied to this Allen Wilson adjudication. It says in paragraph 20 (C) that the adjudicator, “having regard to any term of the contract relating to the payment of interest, decides the circumstances in, rates at and periods for which simple or compound rates of interest shall be paid”. Well, there you have it. All you have to do is to point the adjudicator towards that term of the contract. It will either stick out like a pope with a large nose (like Sixtus V), or it will be imported into the contract by an act of parliament – as with the Late Payment of Commercial Debts Act.
And by the time that Allen Wilson Joinery and Privetgrange Construction became united under their contract, the Late Payments Act was automatically imported as an implied term into their deal. So if the contract contains a term allowing interest, the adjudicator is empowered under the Scheme to jolly well award £564 interest – and he did.
The high court judge said it made ‘obvious sense for an adjudicator to have power to award interest’
So, how come the judge torpedoed that part of the award? Well, in court, the judge was referred to a previous adjudication interest payment case called Carillion Construction vs Devonport Royal Dockyard. That contract did not include the Late Payments Act – simply because it was formed before the act came into force for that size of contract. It was argued that none of that mattered because there was a “free-standing power” to award interest. The judge said it made “obvious sense for an adjudicator to have power to award interest”. I think he was saying it was so obvious as to be an implied term. But the Court of Appeal judge said he could not find the term in the contract and since there was no “free-standing right” there was no power to award interest.
Now then, concentrate. In Allen Wilson it was pleaded that there was “free-standing right to interest”. And true, the referral pointed to the Late Payment Act. But in court it was correctly argued that since the award was exercised as a “free-standing power” and since there is no free-standing power, there was no jurisdiction. So out went the interest. Ten out of 10 for a technical knock-out. Pope Sixtus V would have approved.
Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple