It is now 2 years since The Late Payment of Commercial Debts Regulations (the “Regulations”) (which amended the Late Payment of Commercial Debts (Interest) Act 1998) came into force and which apply to all contracts entered into after 16 March 2013.
The Regulations imply a term into all commercial contracts which entitle creditors to recover “reasonable compensation…for any recovery costs” to the extent that such costs are not met by the fixed compensation amounts (£40 for debts less than £1,000; £70 for debts from £1,000 to £9,999; and £100 for debts of £10,000 or more).
But this is at odds with the amended Construction Act under which so-called “Tolent clauses” are prohibited and where the costs of adjudication are only recoverable if (a) the parties agree, in writing, that the adjudicator has jurisdiction to award costs, and (b) the agreement is made after the Notice of Adjudication has been served.
But which provisions take precedence?
On the face of it, the Regulations would imply a term into a construction contract entitling a successful referring party to recover its costs of adjudicating.
Paragraph 19 of Directive 2011/7/EU states:
“Compensation for the recovery costs should be determined without prejudice to national provisions according to which a national court may award compensation to the creditor for any additional damage regarding the debtor’s late payment.”
But the Regulations do not comply with the Construction Act as the implied term is not made in writing after the Notice of Adjudication is served.
However, the European Communities Act 1972 provides that: “any enactment passed…shall be construed and have effect subject to the foregoing provisions of this section…”. In other words: “community rights prevail over the express terms of domestic law…even in face of plain inconsistency between the two” [Lord Justice Laws in Thoburn v Sunderland (2002)]
Therefore, on the face of it, the Regulations take precedence and so provide an arguable case that successful referring parties are entitled to recover their costs in adjudication proceedings. Whilst industry feedback suggests that this argument has been successful, we are awaiting clear judicial authority on the point.
