The problems of late payment and unfair contract terms and practices are felt as painfully in construction as in any other industry, perhaps more so; no other industry has yet had to have its contracts governed by legislation as construction does under the Construction Act, or had adjudication imposed on it in a bid to unfreeze a large proportion of the industry’s cash flow.
A consultation has just finished – at the end of November – that represents the government’s latest attempt to grapple with the problem. The problem with the proposals revealed in the consultation document however is that the government seems to want to simply bypass dealing with the hard issues of definition raised by late payment and related issues like unfair contract terms, and throw it all on to the courts.
Late payment: challenging ‘grossly unfair’ terms and practices – consultation document, issued in conjunction with the Scottish government, followed a discussion paper that was published in February this year, that held out the prospect of trade bodies mounting challenges to unfair practices on behalf of their members.
Views were sought on how to provide business representative bodies with wider powers to challenge ‘grossly unfair’ contract terms and practices. It also asked whether we should better define ‘grossly unfair’ in UK law. Significant changes to the statutory framework surrounding payments and contract terms and practices looked likely.
The consultation was only launched on 26 October, so there hasn’t been too much time to examine the proposals and consider alternatives, if needed. Late payment and unfair contract terms and practices have been the subject of heavy and sustained lobbying by construction bodies over a number of years, but the initiative for the new proposals is as much a result of the need to comply with Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions as it is a response to industry pleas.
The proposed Regulations would amend reg 3 of the Late Payment of Commercial Debts Regulations 2002 to clarify that representative bodies are able to challenge the use of any grossly unfair term. It is clear from the consultation document that the government has no intention of defining what it regards as an unfair term, or of proscribing what is to be regarded as a representative body. All of that is to be left to the courts.
It will take some time, possibly years, to build up sufficient case law to enable suppliers to be sure whether terms they were being asked to agree to were unfair in the eyes of the law. Who would be willing to stick their necks out and take the case to court to find out? Bigger firms and clients would be equally unsure about the status of practices they were intending to impose on suppliers.
And without a definition of what grossly unfair means what representative body would be able to afford to mount the test cases? There would be no certainty that any body would be allowed to prosecute a case until the courts had ruled on whether they were an appropriate body.
The Small Business Commissioner proposal might have some merit but this has also to go through consultation and will only help smaller firms with correspondingly small disputes. We await a firm definition of what size small is – let’s hope not as small as the government’s ambition for eradicating late payment and unfair contract terms.
Nick Barrett
Editor