In a recent case (Lulu Construction vs Mullalley & Co) the
contractor benefitted from a legal uncertainty regarding
compensation for late payment and was awarded his adjudication
costs. Although the case turned on its own facts, it is likely that
others will now be encouraged to try to achieve the same
A quick reminder:
It is generally accepted that it was not Parliament's
intention to allow parties to claim the costs of participating in
an adjudication under the Housing Grants Construction and
Regeneration Act (Construction Act). However there is a
potential conflict between the Construction Act and the
compensation provisions of the Late Payment of Commercial Debts
(Interest) Act 1998 as amended (the Late Payment Act).
The Late Payment Act enables businesses to claim interest for
late payment and recover reasonable debt recovery costs. The
Act applies to contracts for the supply of goods or services (with
a few exceptions) where the purchaser and the supplier are each
acting in the course of business.
Under the Act, contracting parties are free to agree their own
terms for late payment but if those terms do not constitute a
'substantial remedy' they will be void and the following
the interest rate will be 8% per annum above
the Bank of England base rate – very high in today's
climate of low interest rates; and
a fixed sum of compensation (£100 for debts above
£10,000) or, to the extent that sum is insufficient, the reasonable costs of
recovering the debt will be payable to the party which is
out of pocket
The employer asked the adjudicator for a declaration as to the
value of the final account. In its response the contractor
set out its case regarding the final account and included a request
for its 'debt recovery costs' (being the costs of running
the adjudication) as compensation in accordance with the Late
Payment Act. The Adjudicator awarded the contractor his costs.
In enforcing the decision the Court did not look at whether
the adjudicator had made the correct decision and the law in this
area remains unclear.
Until we have clarification in this area, there are likely to be
parties who will try to claim their adjudication costs under the
Late Payment Act. If you are the paying party under any
contract, it would be wise to check your interest provisions to
ensure that the provisions of the Late Payment Act will not be
implied. If you fail to do so, you could end up being embroiled in
lengthy (and costly) legal arguments over this as yet unsettled
area of law – something to avoid.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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