Commission recommends statutory right to interest
26 Sep 06
Standard rate proposed regardless of nature of claim
People owed money could benefit from a statutory right to interest on late payment under draft legislation published today.
The Scottish Law Commission has published its recommendations for the reform of the law of interest on debt and damages. The proposed new law would allow interest to be charged on debts such as late payment of wages and late settlement of insurance claims.
The Commission feels that the current law on interest lacks principle and consistency, as different rules apply to claims for debt and claims for damages. In addition, the rate of interest does not reflect the real cost of money to the creditor or debtor as it does not necessarily bear any relation to what would be available commercially.
The Commission's draft bill would create a statutory right to interest throughout the period from the date when the claimant loses the use of money.
Adequate compensation
Interest would run during the same period and at the same rate regardless of whether the claim is for payment of a contractual debt, a non-contractual debt or damages. The Commission wants the rate of interest to be set at a level which adequately compensates the claimant rather than one which punishes the late payment.
For debts arising from a contract, the Commission is recommending the introduction of a statutory right to interest which would run from the date when payment is due, as is currently the case for business to business debts.
It is envisaged that the proposals will apply mainly to contractual disputes, including salaries, but there are also recommendations for non-contract debts.
Parties would remain free to agree that interest would rtun on a different basis, or not at all; and the new rules would not replace other statutory provisions, such as those concerning late payment of tax.
The Commission was asked to examine this area by the Justice Minister Cathy Jamieson, but any legislation would not be introduced until after next May's Holyrood elections.