Joint Committee on Statutory Instruments First Report


Memorandum by the Department of Trade and Industry


(S.I. 1998/2480)

1.  The Committee has requested the Department to submit a memorandum on the following point:

    Was the consent of the Treasury obtained to the making of this Order, as required by section 6(1) of the Late Payment of Commercial Debts (Interest) Act 1998? If so, please explain why this is not mentioned in the preamble (see paragraph 2.26 of the Statutory Instrument Practice) and why the instrument does not indicate that it was signed by two of the Lords Commissioners who consented to the making of the Order.

2.  The Department acknowledges that the Order required the consent of the Treasury, and that that consent should have been recited in the preamble and signified by two of the Lords Commissioners. However, due to an oversight, no consent was in fact obtained.

3.  In the circumstances it would appear that the Order was invalid, and that no rate of interest was effectively prescribed under section 6 of the Late Payment of Commercial Debts (Interest) Act 1998 ("the Act").

4.  On receipt of the Committee's request the Department realised the consequences of the error and immediately set in motion the making of a new Order to correct the error. That new Order was made, with the consent of the Treasury, on 12th November 1998, and laid before Parliament in typescript the same day. It came into force on 13th November 1998.

5.  The new Order is the Late Payment of Commercial Debts (Rate of Interest) (No. 2) Order 1998 (S.I. 1998/2765). This Order revokes the defective Order (article 2) and prescribes the rate of interest (article 4). Copies of that Order, and the memorandum laid therewith, are annexed to this memorandum.

6.  The Department considered that the possibility of prejudice to creditors necessitated the immediate replacement of the defective Order. It was thus considered inappropriate to apply the 21 day rule. The new Order came into force at the beginning of the day following laying before Parliament, rather than on the same day, since interest is calculated as a daily amount.

7.  The Department considers that it is unlikely that many creditors would be affected in practice. The Act applies (by virtue of the Late Payment of Commercial Debts (Interest) Act 1998 Commencement (No. 1) Order 1998 (S.I. 1998/2479)) to contracts made on or after 1st November 1998 by small business suppliers with large business or public sector purchasers. Interest would be lost only in circumstances where the relevant day falls on or before 12th November 1998.

8.  Pursuant to section 4(2) of the Act, the rate of interest applicable is that obtaining at the end of the relevant day; interest runs from following day. For the relevant day to have fallen on or before 12th November 1998, all of the following conditions would have to be satisfied —

  (a)  the goods or services would have to be delivered on or before that date;

  (b)  the debt would have to fall due on or before that date;

  (c)  the contract would have had to provide for the debt to be created on a day falling on or before that date;

  (d)  no contractual period of grace applied to allow payment to be made by a date falling on or after 13th November 1998 (if a period of grace was allowed, it would operate as a variation of the right to statutory interest which has the effect of deferring the relevant date).

In addition, the payment would have to be late, for any interest to be involved.

9.  The Committee will be aware that, where the contract does not specify the time for payment, the law provides that payment is due on delivery (section 28 of the Sale of Goods Act 1979 declares this rule for contracts for the sale of goods). In such a case, section 4(5) of the Act provides for a statutory 'period of grace' of 30 days. The relevant day falls at the end of the 30 days, and interest starts to accrue on the thirty first day. Since only 12 days elapsed between the Act coming into force and the error being corrected, no such contracts could be affected.

10.  Further, contracts which satisfy the conditions set out in paragraph 8 above, but which provides a contractual remedy for late payment, will not be affected. No contracts made between 1st and 12th November 1998 which specify a date for payment falling after 12th, or where delivery takes place after 12th, will be affected. Contracts made on or after 13th November 1998 will not be affected.

11.  For the above reasons, the Department considers that very few creditors are likely to have been affected by the error, but nonetheless corrected the error as soon as possible to minimise any prejudice.

16th November 1998  

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries

© Parliamentary copyright 1998
Prepared 17 December 1998