Late payment interest clauses
Late payment interest (“LPI”) is a very common feature in commercial transactions.
Commonly, Vendors will endorse a LPI clause into invoices issued to a Purchaser. LPI clauses tend to be contained in very fine print at the bottom of an invoice. They generally read as follows:
“Late Payment Interest shall be charged at a rate of 8% per annum on all invoices that remain unpaid after 1 month”
The validity of such LPI clauses, which are unilaterally inserted into invoices, was front-and-centre in the recent (21.07.2022) COA decision of Agromate v Felcra Niaga [W-02(NCC)(W)-1162-08/2020].
The COA began its Grounds by stating as follows:
 The issue in this case is about entitlement to late payment interest on overdue invoices issued for goods sold and delivered.
Agromate involved a full trial involving a LPI clause. The High Court held that the LPI clause would not serve to bind a Purchaser.
On appeal, the COA unanimously allowed the Appeal and set-aside the HC’s decision. It is important to note that there is a caveat pertaining to pleadings and its interplay with LPI clauses.
Ratio of the COA in Agromate
The COA firstly outlined the legal principle that in cases involving goods sold and delivered, the invoices, delivery orders and statements of account collectively constitute the contract between the parties (Caltex Oil v Classic Best  4 MLJ 772; Pernas Trading v Persatuan Peladang Bakti Melaka  2 MLJ 124).
The COA then noted that the learned JC had failed to “…adequately consider authorities that held that failure to object to the interest payment term printed on invoices amounts to acceptance of it”. The COA, quoting Tansa Enterprise v Temenang Engineering  2 MLJ 353, noted that when one fails to raise a protest to a LPI clause on an invoice, one is deemed to have accepted it.
It is important to note that the Defendant in Agromate failed to plead that the interest had been unilaterally imposed. Instead, the Defendant had only pleaded that the quantum of LPI was doubtful. If the matter had been pleaded with clarity, the COA may have been in agreement with the HC.
The COA concluded as follows:
 In the premises, we are of the view that the learned Judicial Commissioner erred in holding that the late payment interest term in the invoices and delivery orders did not bind the defendant and that it was imposed unilaterally.
The decision in Agromate is important, in that it clarifies the oft-times thorny issue of LPI. With such an emphatic pronunciation, contracting parties must be careful and circumspect in all their dealings.
Invoices must be scrutinised with the utmost care and if a party is not agreeable to any particular clause, they must immediately raise an objection.
A failure to object may, in law, amount to an acquiescence (and acceptance) of a LPI clause. Should an objection not have been raised at that material time, it is incumbent upon one’s solicitor to ensure that the unilateral imposition of LPI is pleaded.
Prudence would dictate that one ought to also plead that the LPI had never been agreed. The matter can then be taken at trial and determined accordingly.
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