Timing if not made at correct time.

Timing of payment can be vital as
in practice it can have implications if not made at correct time. It is
important to note that where correct form of payment is offered on time but
rejected, there will be no liability for late payment. However, there is no
discharge of the actual debt itself. There are three ways in which payments are
made; cheques, cash and electronic transfers. The time when payment is made via
a cheque is when creditor accepts it and not when it has cleared (Petroleo). In
relation to cash, the time when payment is made is when it is handed over to
the creditor physically. However, as important lawful commercial transactions
involve large sums cash is not considered suitable instead, most payments are
done via electronic transfers. Regulation 89 of Payment Services Regulation
states that if within Europe and it is a single currency transfer or involves
currency conversion from euros to pounds the payment is made as soon as the sum
of money is credited to payees bank. If there is a need for any other currency
conversion then it is at the end of the business day. The US adopted a similar
approach as seen in UCC 4A-209 where payment is made when the bank receives the
funds. However, quite often in most cases involving international transfers the
payment is made at the time when at the ordinary course of business, the payee
has the right to draw on sums unconditionally as demonstrated by Chikuma where
the payee has unrestricted access to the money. It was held by House of Lords
that payment was not held on time – technically, there was no full payment. Brim
Moreover, one case (Ayles v Elis) suggested that the bank has to give notice to
its client and only when it is given that is when payment is made. These two
cases were the original approach followed but the landmark case of Momm v
Barclays bank was vital in relation to timing. 
In this case, where a German bank went bust it was held that that
because the crediting had been complete the transfer was complete and it was
not able to be undone automatically based on insolvency. English law decided
that the moment you have unrestricted access is when the bank decides to credit
the account, the burden of proof is on the payee to prove this and if you
cannot identify the moment then the second test is at the final date which is
why it was critical for Momm to prove this point. Another case, which confirms
Momm, is Libyan Arab Bank v Manufactures Hannover Trust where it was held that
it was valid the moment they took the decision to credit the account of the
Lybian bank in London – that is when the transfer has took place. Therefore, we
can see that Chikuma has been tried in the past but the latter two is what
courts follow now.

 

To address the question asked we
must analyse the current law of late payment. Many legal jurisdictions have a
default position on late payment and they say if a payment is due on a
particular date and not made then there is a default right to interest. In a
situation where a contract is evident in terms of debt recovery there are
usually terms put in to identify what will happen if late payment i.e.
interest. The standard way of doing these in commercial contracts is that
interest at so many percentage at or over LIBOR.  Therefore, it is a matter of charging
whatever interest you like which can be compound. However, the doctrine of
penalty clause will come into tuition where it is considered unreasonable but
usually city interest rates will not fall foul of this. If there is no term in
contract to what interest is payable or it is not drafter correctly then there
is a rule where interest is payable via the discretion of the court which is a
power used to compensate the plaintiff. This rule only applies where the court
actually gives judgment against the defendant and if the payee pays before the
proceedings are issue then there is no interest but if issued proceeding
against the person from that moment the court has discretionary power to make
you pay interest from the day it arose. The Senior Courts Act 1981 provides
only simple interest, which is discretionary so there is no statutory rate. The
act is triggered only when action is filed against default party. The courts
can award 1-4% above the base rate but this depends on the size of corporation.
The smaller the entities the higher the rate and this in turn makes life of
commercial parties easier hence why it was brought in.

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Business customs are a source of
law in England and the body which benefits the most is the banks which have
decided that where money is borrowed from a bank even though they might not
mention interest the payee is still liable to pay a reasonable amount of
interest. Customs are not as important as they used to be and in some
transactions, there is compound interest implied.

 

The Late Payment of Commercial
Debts Act 1998 is of relevance when a business is dealing with another
business. The act provides simple interest, which is 8% above base rate, which
is 0.5% in England. The act can be excluded via contract in some situations
(Section 12) and parties may contract out of the act. A contract will prevail
where the rate in the contract is higher than the one in act and so providing
there is an adequate replacement of interest in contract, if not then the court
will follow the act. The date interest will start accumulating is 30 days after
invoice is given and it may be changed but cannot go further than 60 days.

 

Moreover, courts of equity can
provide simple interest however, there is a way for them to award compound
interest where the claim is for debt/damages and comes from a party that was in
a fiduciary relationship. The question, which arises under English Law that is
not yet resolved, is if there is a claim for fraud without this relationship,
the court can award compound interest but some courts do not agree which is why
it is still open to debate. Other forms of law governing late payment include
Admiralty where in cases involving salvage claims there is simple interest
awarded not compound. The basic rule of s.35 of Senior Courts Act is followed.
Under s.49 of the Arbitration Act 1996 where there is a claim in England,
arbitrators can award compound interest but if there is a claim and you take it
to court then you can only recover simple interest.

 

The landmark case of Sempra v
Inland Revenue had a major change largely on English Law where Sempra brought
an action against tax authorities in England claiming they paid tax they should
not have. The claim was based on a claim for damages and for restitution because
of a mistake in the law. The common law until then said there was no compound
interest as demonstrated in India v La Pintada. The case went to Supreme Court,
which reaffirmed that the rule in Pintanda has gone, and as a rule the court
can award discretionary compound interest if the creditor can show foreseeable
actual loss resulting from debtors failure to pay at time he ought to pay the
creditor can claim these losses. The other use of Sempra is that if the
creditor can prove the amount of interest he has paid he may be able to get
under damages.

 

Therefore, we can see that the
current law in England in respect of payment of debt being late is not ideal
firstly because the rate of interest is discretionary and most of the current
law award simple interest and not compound. In addition, apart from the debt
act, there is no real consistency in the law and the recovery for damages comes
with a high burden of proof. There were plans to change the law in this area as
seen in 2010 where the Law Commission stated the parliament needed to reform
the law to allow courts to award compound interest in all cases and to have a
fixed rate of at least 1% above base interest as well as give the freedom to
the courts to award more than this. However, the draft bill did not become law
so the current law regulated payments remains unchanged. The courts will continue
to follow cases such as Momm that identify the significance of making a payment
on time and the law in this area does not seem to be controversial so there may
not be any need for reform here.

 

 

 

 

b) The legislation of a foreign country (unless that
country is where payment is made) cannot as such alter the value of the debt,
which is owed under English law. Changes in the amount of obligation are of
relevance either as the law of place of payment as seen in Ralli. The decision
in Ralli Bros v Cia raised the issue where if a payment/performance became
illegal in a different jurisdiction, which is governed by English law it will
not be enforceable in England. In this case, a freight, which was illegal in
accordance with the law of Spain, was refused by English courts to enforce the
contract.

Where there is a claim against a company that is
insolvent in England the general rule is that you cannot come and take the
property. Until 2000, each country respectively said that if a debtor has
assets in that country you can come and grab them but under new EU law there is
now consideration taken into foreign insolvency.

 

The law governing a contractual debt is of
significance importance as it effectively determines which law is relevant to
the amount of debt. In a situation where a contract is governed by a specific
law and requires payment in another currency, the law governing the contract is
applicable to the amount owed so the law of the currency is excluded even if
the state issuing the currency says otherwise. The case of Libyan Arab Bank v
Bankers Trust is the leading case in this area. In this case, the Libyan bank
had two separate accounts in two different locations with Banker Trust, one in
London and one in New York.  The bank had
an arrangement to transfer money between the accounts to maintain a balanced
account. The account was frozen at a time where a potential transfer would have
been made but because of the freeze, it was not. As a result, any payment made
to the Libyan bank will constitute an illegal act. The legal issue, which
arose, was whether English or American law governed the London account. It was
held that although there were essentially two contracts with two separate laws,
there was effectively one contract and the rights of both parties for the
London branch was governed by English law.

 

Where there are revolutions, some debts become
confiscated owing to creditors. The question that arises is how far the English
law recognises the confiscation of these debts. The law recognises the
confiscation if the jurisdiction confiscating the debt is the jurisdiction
where the actual debt is situated. If a debt is confiscated, the courts will recognise
the confiscation of the debt. A debt is situated where the debtor resides and
it is there where the confiscation will be recognised. The original case in
this area was Power Curber International v National Bank of Kuwait but this has
been overruled by the case Taurus
Petroleum Ltd v State Oil Marketing Co. The court that heard the case was the
Court of Appeal but until recently, the decision has been reversed. The issue
which arose was does the English law have authority to confiscate the debt in
order to pay the Iranian company. This raises the further issue of whether the
actual debt is situated in London or not. The Court of Appeal stated that the
debt was payable in New York but the Supreme Court reversed this decision and
stated that the debts are situated where the debtor is situated. Therefore,
given that the debt was payable to the London Bank it followed that the debt
was in London and Tauras can come to the English courts and grab the debt.

 

Currency Fluctuations can have implications on the
law governing a debt. Historically English law had two issues with currency. Firstly,
English courts were not permitted to give judgment in foreign currency – had to
award in sterlings and then convert the sterlings into Swiss francs by reference
to date of breach of contract. The landmark case that changed the law in
England was Milliangos v George Frank Textiles that effectively allows courts
to give judgment in foreign currency. If the court gives judgment in foreign
currency they look at date of enforcing judgement not date of breach. English
courts have applied the principle to liquidated damages as seen in Forleas and
Despina R so the rule applies to tort claims. In relation to the foreign
currency obligations there is a principle known as nominalism which states that
where agreement is made to pay in a foreign currency a risk is taken that the
currency will appreciate or depreciate. This in turn can have significant
effects as seen in

Societe des Hotels Le Toquet Paris Plage v Cummins.
There are ways to get out of this principle by stipulating an inflation uplift
as seen in Finland Steamship Co v Felixstowe Dock Co or stipulate a currency
which you think will rise.

 

The law governing the contractual debt can have
different implications on the debt so it is important to clarify which law will
apply in these situations.