It can be difficult to judge when interest on money owed starts to run. But firms will get short shrift from the courts if they claim without having issued an invoice first
Classical swine fever is not a subject that you would expect to find covered in these pages. Judges of the Technology and Construction Court would not normally expect to write judgments about it, either. Nevertheless, at least four of these judges have had to grapple with one case that resulted from an outbreak of the disease in August 2000 – Ruttle Plant Hire vs The Secretary of State for Environment, Food and Rural Affairs. There were many different issues that this case covered, but this article is about just one of them: interest.
To set the scene: the Ministry of Agriculture, Fisheries and Food, or MAFF, as it then was, needed plant and labour to control an outbreak of swine fever in East Anglia. Ruttle provided both between August 2000 and June 2001. The two parties could not agree how much Ruttle should be paid, and in January 2006, Ruttle issued court proceedings for nearly £6m.
There was a trial of preliminary issues in December 2006. Mr Justice Jackson was asked to decide 15 issues (he described the exercise as “a formidable examination paper”). He duly gave 15 answers and assumed that the parties would be able to sort out the remainder of the dispute without bothering the courts any further. He was wrong.
Ruttle had lost several of the preliminary issues, but was apparently undeterred. It recalculated its claim, and came up with a revised sum of £16m. Some £5m of that was interest.
The main claim for interest was made under the Late Payment of Commercial Debts (Interest) Act 1998. Both parties agreed that the act applied, and that Ruttle was able to claim interest under that act on any money due. The problems arose over the question of when the interest started to run and at what rate.
If nothing else is agreed, interest starts to run 30 days after a job is completed or the day on which the payer has notice of the amount to be paid, whichever is later. Ruttle had originally invoiced MAFF at a rate which it later decided was too low and had then failed to invoice for a number of charges that it said it was entitled to. It had, in total, invoiced only 65% of the sums that it claimed were really due. It argued that, as MAFF knew what the correct rates were at the time the work was requested, it had had what amounted to notice of the sum to be paid right at the start. Therefore the interest should run from 30 days after the work was carried out.
Just to make sure Ruttle got the point, Judge Coulson added that he would exercise his discretion against awarding any interest on sums that had not been invoiced for
Mr Justice Coulson rejected that argument. It was important, he said, that the paying party had proper notice of the amount it was required to pay. Interest under the late payment legislation should not run until then.
As there was no entitlement under that late payment act to interest on the extra 35% until it was invoiced, it was theoretically possible to claim interest under the Supreme Court Act 1981, which applies in all High Court proceedings. Under this act, there has to be a cause of action for the main sum before any interest can be awarded. As Ruttle had not claimed the additional 35%, there was no cause of action. Ruttle therefore failed again.
Just to make sure Ruttle got the point, Judge Coulson added that even if he was wrong under either act, he would nevertheless exercise his discretion against awarding any interest on the sums that Ruttle had not invoiced.
So what about the rate? The late payment act suggests a rate of 8% over base, which most businesses would consider to be a welcome windfall. This rate is designed to be penal, to discourage payers from holding on to money that should be paid. The judge was clearly not impressed with Ruttle’s invoicing practices, and he was not prepared to thump MAFF by making them pay 13% interest. He exercised his discretion to reduce all Ruttle’s interest claims to 2% above base.
This was an extremely complex case with four reported judgments. It does, however, make the legal position on interest much clearer. The courts will not award interest on sums due for goods or services from a date before the claim is made, and made clearly. Furthermore, the courts will not award interest at the high rate of 8% over base when the claimant shares responsibility for the delay in payment.
This decision does not necessarily affect interest on claims for damages for breach of contract, and there could be an interesting debate about how it affects claims for loss and expense resulting from delay and disruption. Nevertheless, it must be right that firms should make their claims clear promptly to be sure of recovering substantial interest.
John Redmond is head of construction at solicitor Osborne Clarke