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Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment of Commercial Debts (Interest) Act 1998 (LPCD(I)A 1998, or the Act) creates rights for businesses (and organisations in the public sector) to claim interest for late payment of commercial debts and recover reasonable debt recovery costs when each party is acting in the course of business. It also enables contractual terms that do not provide a substantial remedy for late payments to be challenged.This Practice Note covers the following:•Contracts, organisations and debts subject to the LPCD(I)A 1998•Rights under the Act•Calculating the statutory interest•Express terms for late payment in place of statutory interest•Meaning of ‘grossly unfair’•Challenges by representative bodies under the Act•Which version of the legislation applies?•Related initiativesLPCD(I)A 1998 (as it applies in England and Wales) has been implemented in stages via a series of commencement orders which expanded its remit and has been amended by the following statutory instruments: •the Late Payment of Commercial Debts Regulations 2002, SI 2002/1674•the Late Payment of Commercial Debts Regulations 2013, SI 2013/395•the Late Payment of Commercial Debts (No 2) Regulations 2013,...

Contract interpretation—distinguishing between liquidated damages and penalty clauses

This Practice Note considers what liquidated damages clauses are and briefly when and how they are used. It then focuses, in particular, on the court's approach when determining whether a purported liquidated damages clause is, in fact, a penalty and therefore unenforceable; tracing the authorities through to how the question should now be approached in light of the 2015 Supreme Court Makdessi/ParkingEye decision and considering, in particular, issues such as when contractual provisions for accelerated receipt, default interest, or positive incentives may be considered as a penalty.What is a liquidated damages clause?A liquidated damages clause is a clause whereby the parties to a contract fix in advance a sum of money to be paid by the defaulting party to the innocent party in the event of a breach. The sum payable represents agreed damages (called liquidated damages) and is recoverable without the innocent party needing to prove the actual loss suffered.Liquidated damages clauses can therefore avoid the expense and difficulty of having to prove the actual damage suffered as a...

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How can I ensure the fees and interest in my finance documents do not constitute a penalty?

How can I ensure the fees and interest in my finance documents do not constitute a penalty? What is a penalty clause? A penalty clause is a liquidated damages clause which the court will not enforce on the basis that the provision is excessive and as Clarke LJ stated in Makdessi 'where the amount to be paid or lost is out of all proportion to the loss attributable to the breach'. Liquidated damages clauses which are a genuine pre-estimate of the loss caused by the breach, or clauses requiring a defaulting party to pay sums already due (but unpaid) on termination following an event of breach will not be penal and so are enforceable. Our Practice Note: Contract interpretation—distinguishing between liquidated damages and penalty clauses considers in more detail liquidated damages clauses and when such clauses may be found to be unenforceable as being a penalty clause. This issue tends to be relevant in a banking transaction when the parties are drafting a default interest...

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Commercial weekly highlights—11 July 2024

This week's edition of Commercial weekly highlights includes: commentary on the Supreme Court decision in Lipton v BA Cityflyer Ltd which considered whether the applicable law in a flight cancellation compensation claim was the EU Regulation that was in force at that material time the claim was brought, publication of the Court of Appeal decision in Houssein and others v London Credit Ltd which considered whether a default interest rate according to the terms of a facility letter was an unlawful penalty, and news that the International Chamber of Commerce's Digital Standards Initiative and United Nations Economic Commission for Europe have called for the adoption of globally interoperable standards which are important for achieving worldwide digital trade.

Financial Services weekly highlights—11 July 2024

This week's edition of Financial Services weekly highlights includes: PRA’s Gareth Truran calls on firms to use Solvency II reforms to support productive investments; ESMA deprioritises supervisory expectations on CCP eligible collateral for NFCs pending EMIR 3; BCBS approves disclosure framework and capital standard for banks' cryptoasset exposures; plus dates for your diary over the coming week.