An issue which has sometimes vexed adjudicators is whether they have jurisdiction to award interest. This is because the Construction Act makes no mention of interest.
The power to award interest will arise where:
- there is an express term in the contract;
- there is an implied term under the Late Payment of Commercial Debts (Interest) Act 1998;
- a claim for interest forms part of the dispute referred to the adjudicator; or
- paragraph 20(c) of Part 1 of the Scheme applies
In the case of Partner Projects Ltd v Corinthian Nominees Ltd the Notice of Adjudication and Referral Notice served by PPL sought interest under the Contract, but its Reply sought interest under the Late Payment Act.
The Contract provided for interest on sums certified but not paid at 5% over the base rate current at the final date for payment. This gave rise to a rate of 10.5%.
The Contract also provided that the adjudicator had jurisdiction to open up and review payment certificates and have regard to any contract terms dealing with interest and to decide the circumstances in which and the period for which interest applied.
The rate of interest under the Late Payment Act would have been 8% over the current base rate, giving rise to a rate of 13.5% reducing to 8.5% in March 2009.
The adjudicator awarded interest at the rate of 8.5%, which for the period in question amounted to over £200,000!
Corinthian, perhaps understandably given the sum involved, resisted PPL’s enforcement proceedings on the basis that: (a) interest was awarded under the Late Payment Act, which the adjudicator did not have jurisdiction to do; and (b) interest could not be claimed on sums which had not been certified.
Corinthian’s arguments were dismissed. The Court decided that:
- the adjudicator had power to open up and review payment certificates and substitute the sum the adjudicator considered to be due;
- interest was payable on the substituted amount;
- the adjudicator had actually awarded interest under the Contract (not the Late Payment Act) but had reduced the rate by 2% to reflect PPL’s conduct – which he was also entitled to do under the Contract.
COMMENT: despite discussing proposed changes to the Scheme to create an express power to award interest (i.e. in line with the power of an arbitrator) no changes were actually implemented. Claimants should therefore check their contracts carefully for interest provisions. If there are no express provisions, it may be possible to rely on the Late Payment Act. In any case, a claim for interest should be clearly set out in both the Notice of Adjudication and Referral Notice to ensure that it falls within the ambit of the “dispute” referred.
Parties should also note that the Late Payment Act allows the parties to set their own interest rate (8% over base is the default rate), but this rate must amount to a “substantial remedy”. Therefore, rates of 1% or 2% over base may not be enforceable. However, this will depend on the prevailing base rate and other economic conditions.
Author: James Coppinger, Head of Construction and Engineering.
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