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Late Payment of Government Debts (Interest) Bill 2007

Part 3—Contract terms relating to late payment of qualifying debts

9 Contractual remedies for late payment of debts

(1)     Any contract terms are void to the extent that they purport to exclude the right to statutory interest in relation to a debt, unless there is a substantial contractual remedy for late payment of the debt.

(2)     Where the parties agree a contractual remedy for late payment of a debt that is a substantial remedy, statutory interest is not carried by the debt, unless the parties agree otherwise.

(3)     The parties may not agree to vary the right to statutory interest in relation to a debt unless either the right to statutory interest as varied or the overall remedy for late payment of the debt is a substantial remedy.

(4)     Any contract terms are void to the extent that they purport to:

(a) confer a contractual right to interest that is not a substantial remedy for late payment of a debt; or

(b) vary the right to statutory interest so as to provide for a right to statutory interest that is not a substantial remedy for late payment of a debt, unless the overall remedy for late payment of the debt is a substantial remedy.

(5)     Subject to this section, the parties are free to agree contract terms which deal with the consequences of late payment of a debt.

10 Substantial remedy

(1) A remedy for the late payment of a debt shall be regarded as a substantial remedy unless:

(a) the remedy is insufficient either for the purpose of compensating the supplier for late payment or for deterring late payment; and

(b) it would not be fair or reasonable to allow the remedy to be relied on to oust or to vary the right to statutory interest that would otherwise apply in relation to the debt.

(2) In determining whether a remedy is not a substantial remedy, regard must be had to all the relevant circumstances at the time the terms in question are agreed.

(3) In determining whether paragraph (1)(b) applies, regard must be had to the following matters:

(a) the benefits of commercial certainty; and

(b) the strength of the bargaining positions of the parties relative to each other; and

(c) whether the term was imposed by one party to the detriment of the other; and

(d) whether the supplier received an inducement to agree to the term.