How to claim interest

A claim for interest often gets tacked on to the back of claims and applications as a matter of course, even in these days of shrunken rates (all the more so when dusting off old claims). Not everyone appreciates that under common law there is no automatic right to interest. So can you claim interest and, if so, how?

If you have a contractual clause which says interest is payable, life is easy. Read the clause carefully and check when the interest applies from (usually the final date for payment rather than the certificate). Doing the numbers should be easy.

If you are putting in place a contract, make sure you include such a clause and if you are using a standard form ensure that an agreed rate of interest is specified.

But what if there is no clause expressly saying interest is payable? The contract may still save you. The courts have indicated that interest can be part of a claim for loss and/or expense under the contractual provisions which allow such claims (F G Minter v Welsh Technical Service Organisation 1980 13 BLR 1).

You will, however, need to prove an actual loss, for example, that you had some financing costs as a result of not receiving payment. This is typically done by providing evidence as to how a company’s finances are operated.

Interest can also be ahead of damages. More recently, in Sempra Metals Ltd v HM Commissioners of Inland Revenue and another [2007] UKHL 34, proceedings which had lasted for 12 years came to an end and the House of Lords confirmed that since in the commercial world interest is paid on a compound basis, it is only fair that in certain circumstances interest would be recoverable on a compound basis.

Even if there is no clause expressly saying interest is payable, the contract may still save you. You will, however, have to prove an actual loss

If the contract is silent, then the Late Payment of Commercial Debts (Interest) Act 1998 may help and even provide a high rate of interest at 8% above base (and minimal compensation limited to £100). It does not apply to consumers and cannot be used for all types of claims. It can be used, for example, for loss and/or expense, but it cannot be used for claims for damages due to breach of contract.

If you plan to rely on the Act, you will need to check that it does apply and you should also make sure that a demand for payment is made as soon as possible, if that has not already been done.

Interest will accrue from when the obligation of the supplier to which the debt relates is performed, or when the purchaser has notice of the amount of the debt, or (where that amount is unascertained), the sum which the supplier claims is the amount of the debt, whichever is the later.

A clear demand will avoid any argument that the debt was unknown. You will, however, need to check the Late Payment of Commercial Debts Regulations 2002, which set out a very specific way to calculate interest, based on six-month periods.

Are you adjudicating? There are a few simple steps which will increase the ability to obtain a valid award which includes interest. The Housing Grants, Construction and Regeneration Act does not deal with interest and an adjudicator does not have an automatic right to award interest.

However, if the adjudication is carried out under the Scheme for Construction Contracts, paragraph 20(c) gives the adjudicator a right to award interest. This was the subject of the Court of Appeal decision in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15, where it was held that interest can only be awarded if it is a matter in dispute, if the parties agree to include it or if it is necessarily connected with the dispute.

The safe course of action is to ensure that any claims always identify clearly that they include interest and to identify such a claim as part of the dispute in the notice of adjudication as well as part of the remedy requested.

So, it is possible to claim interest but there is no one easy way.

A bit of checking and preparation can help to ensure that such a claim works and results in recovery.

Shy Jackson is a senior associate at Pinsent Masons

This article was originally published under the headline ’Where things get interesting’