In this case the claimant, A & V Building Solution Ltd ("A&V"), entered into a construction contract with the Defendant, J & B Hopkins Ltd ("J&BH"). A&V was a sub-contractor in relation to works being carried out at student accommodation at the University of Brighton. The works related to two podiums and five towers.
The main contractor was Bouygues UK Ltd ("BYUK"). BYUK in turn engaged J&BH pursuant to a sub-contract dated 30 September 2019. J&BH then engaged A&V to carry out plumbing works, pursuant to a sub-sub-contract agreement dated 18 December 2019. A & V left the Project in March 2021 and accepted that the sub-contract works at this stage were incomplete.
The parties became embroiled in a series of adjudications regarding:
- the value of work carried out by A&V at the point in time that it ceased works on the project;
- A&V's alleged losses prior to ceasing works; and
- claims by the parties regarding the financial implications of A&V's decision to cease works.
Ultimately, judgment was awarded in the sum of £101,543.17 to A&V on 18 June 2024. However, the position as to the fees of two of the Adjudicators and also the payment of interest were yet to be resolved, and fell to be decided by the TCC.
This case clarified some of the criteria for determining whether a remedy for the late payment of a debt shall be regarded as a 'substantial remedy', such that parties do not incur any unexpected costs in relation to interest.
Interest
A&V argued that the current statutory rate of interest under the Late Payment of Commercial Debts (Interest) Act 1998 (the "Late Payment Act") is 8% above the Bank of England's base rate.
J&BH countered that clause 12 of the sub-contract provided a substantial remedy for late payment, such that the application of the Late Payment Act was "ousted". More specifically, clause 12 provided for a rate of just 2% over the Base Rate of the Bank of England. It also contained express drafting that A&V "acknowledges that such rate is a substantial remedy for late payment (as defined in the Late Payment of Commercial Debts (Interest Act) 1998". J&B contended that this drafting demonstrated that both parties had turned their minds to interest and agreed that the Late Payment Act should not be applicable.
Decision
The Judge paid heed to section 9 of the Late Payment Act, which states that a remedy for late payment shall be regarded as a 'substantial remedy', unless it:
- Is insufficient either for the purpose of compensating the supplier for late payment or for deterring late payment); and
- Would not be fair or reasonable to allow the remedy to be relied on to oust or (as the case may be) to vary the right to statutory interest that would otherwise apply in relation to the debt.
With regard to the question of whether it would be fair or reasonable to allow the "ousting" or "variance" of a right to statutory interest, the factors that ought to be considered include:
- the benefits of commercial certainty;
- the strength of the bargaining positions of the parties relative to each other;
- whether the term was imposed by one party to the detriment of the other (whether by the use of standard terms or otherwise); and
- whether the supplier received an inducement to agree to the term.
The Judge applied the above criteria and ultimately rejected the argument that clause 12 was a substantial remedy that "effecitively ousts the 1998 Act".
Lessons to be learned
This case demonstrates the uncertainty that can be faced in relation to dealing with interest. Even express drafting acknowledging a rate of interest was "a substantial remedy for late payment (as defined in the Late Payment of Commercial Debts (Interest Act) 1998", was not sufficient to have it considered as such.
Specific advice should be sought regarding the drafting of interest provisions in construction contracts in order that the risk of incurring unexpected costs can be mitigated.
If you would talk about any of the points raised in this article, please contact Stephen McGuigan and David McNeice.
