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International Business 

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Helping you understand international business late fees

 

 The Late Payment of Commercial Debts (Interest) Act 1998 (later updated under the Late Payment of Commercial Debt Regulations 2013) all contracts between businesses for the supply of goods and services in the UK. The initial purpose of this legislation was to dissuade businesses from perpetually delaying payment of invoices which often caused major pressures on SME's (small medium enterprises) in the UK.

The Act gives UK based businesses a statutory right to claim interest of 8% above the the Base Rate for late payments by other businesses. Fixed compensation sums from £40 to £100 (depending on the invoice value) are also payable by the debtor in addition to the interest.

The Act's interest rate is implied into the contract unless the contract already provides a 'substantial remedy/(clause)' to discourage late payment. The invoice will become late at the end of the credit period stated in the contract. If there is no predetermined clause agreed between both business parties than the standard amount of days is usually set at 30 days.

If your business conducts international business transactions and are having problems with overseas businesses paying their invoices late or withholding payment for goods and services you may be entitled to compensation. 

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In 2014 the English Commerical Court handed down a judgement in the Martrade Shipping & Transport GmbH v United Enterprises Corporation  EWHC 1884 Commercial case, upon which they decided that while the Act did not apply to the specific international contract in question, the Act does apply to international contracts governed by English law i.e. 

1. If there is a significant connection between the contract and England; or ("significant connection test")

2. If the contract would be governed by English law, ignoring the English choice of law clause.  ("but for that choice test") 

 

There are however significant factors needed to justify imposing penal rates of interest (provided by the Act i.e. 8.5%) on a party to an international commercial contract. Whether the factors will be considered significant is a question of fact and degree in each case.

Significant Connection Test

Summarised below are some specific examples of factors which may satisfy the "significant connection test". 

(1) Where the place of performance of obligations under the contract (or other obligations) is in England.

(2) Where the nationality of the parties or one of them is English.

(3) Where the parties are carrying on some relevant part of their business in England.

(4) Where the economic consequences of the delay in payment of debts may be felt in the UK.

But that for Choice Test

The 'but for that choice test' requires the Court to ask what would the law of the contract be if it is assumed there is no choice of law clause. Therefore in order to obtain a verdict the Contracts (Applicable Law) Act 1990, Article 4(2) is cited: "...if the contract is entered into in the course of that party's trade or profession [the party performing the contract i.e. supplying a ship in the case of Martrade Shipping & Transport GmbH v United Enterprises Corporation], that country shall be the country in which the principal place of business is situated"

Therefore, if most of the transaction of the product or service is taking place in England then there is a strong case to suggest that Companies are able to request Late Invoice payment fees from the other (international) party unless there is a recognised agreement prior to the transaction taking place stating otherwise.

 

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