Tag: statutory interest

SaaS Agreements – International Agreements – Valid Execution

Where an international SaaS agreement is entered into between a non-UK SaaS customer and a non-UK company of a SaaS supplier the parties should ensure that the SaaS agreement has been properly executed in accordance with the law of the country of incorporation of each company. Even where the SaaS agreement is governed by English law, failure to properly authorise or execute the SaaS agreement in accordance with the local law of each party could result in the SaaS agreement not being binding.

Integral Petroleum SA v SCU – Finanz

Two Swiss companies entered into a supply agreement that was governed by English law. The customer sued the supplier for breach of contract in the English courts and lost because the contract was never validly signed by the supplier in accordance with Swiss law requirements. The UK courts determined that the contract was not legally binding.

The Swiss commercial register stated that the supplier could only enter into a binding contract if two representatives of the supplier company signed the contract together. As only one representative signed the contract he had no authority to bind the supplier and the contract was held to not be legally binding. The customer therefore had no claim for breach of contract, as there was no binding contract.

Overseas Companies Regulations 2009

Regulation 4 of the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 sets out the requirements for the execution of documents by overseas companies under English law.

An overseas company will have validly executed a SaaS agreement if:

  • it has done so in a manner provided for in the regulation i.e. the SaaS agreement is signed by a representative acting under the company’s authority, in accordance with the company’s law of incorporation.

Law of Country of Incorporation

In light of the above, the English courts have clarified that where two non-UK SaaS companies sign a SaaS agreement governed by English law, the law that governs the validity of the execution of the SaaS agreement will depend upon where the companies are incorporated. In the above case as both companies were incorporated in Switzerland, Swiss law applied to the validity of the execution of the SaaS agreement.

Summary

Where a SaaS supplier is dealing with an overseas company, the SaaS supplier should not assume that the execution formalities are the same as in English law, even if the SaaS agreement is governed by English law. The SaaS supplier should check that whoever is signing the SaaS agreement on behalf of the SaaS customer is actually authorised to sign and where possible, seek local advice or a legal opinion for the country or countries in which the parties are located.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

Speaker at the Berlin CloudConf 2013.

To register for my newsletter click here

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SaaS Agreements – International Agreements – Interest on Late Payments

SaaS customers often delay payment of invoices. In order to protect your SaaS business and improve cash flow, SaaS suppliers usually include the right to claim interest on late payments in the terms of their SaaS agreement or rely on the statutory right to interest under the Late Payment of Commercial Debts (Interest) Act 1998 (“Act”). However, following the decision in Martrade Shipping and Transport GmbH v United Enterprises Corporation SaaS suppliers should be aware of the limitations of relying upon the Act, particularly where the SaaS customer or SaaS supplier is a non UK entity.

Contractual Right to Claim Interest

SaaS suppliers can state a specific interest rate in their SaaS agreement terms under which interest for any late payment will be claimed. This can be a number i.e. 5%, or a reference to an index i.e. the European Central Bank base rate, or a combination of both i.e. the Bank of England base rate + 2%. The interest rate specified can be higher or lower than the statutory rate.

Statutory Right to Claim Interest

Alternatively, SaaS suppliers can simply say nothing about interest in the SaaS agreement and rely upon their statutory right to claim interest on late payments from a business customer (BTB) under the Act. The statutory interest rate to be applied is the applicable Bank of England Base Rate plus 8%.

Right to Claim Compensation

In addition to claiming statutory interest from a SaaS customer, under the Act SaaS suppliers can claim a fixed amount of compensation. The amount is based upon the amount of the outstanding invoice:

  • £40 – for debts less than £1,000;
  • £70 – for debts between £1,000 to £9,999; and
  • £100 – for debts over £10,000.

Recovery of Costs

Since the 16th of March 2013 SaaS suppliers have the additional right to claim the difference between the fixed compensation amount and their reasonable costs in recovering the debt e.g. the costs of appointing a debt recovery company or lawyer. However this right only applies to debts accrued after the 16th of March 2013.

Limitation to the Right to Claim Statutory Interest

Following the decision in Martrade in June 2014 the High Court disallowed a claim for interest for late payment under the Act on the basis that the parties had no substantial connection to England. Both parties were non-English entities but the contract was governed by English law and provided for arbitration in London.

The restriction imposed by the court is nothing new, it is included in section 12 of the Act, but many SaaS suppliers are unaware of it. Section 12 of the Act only permits the application of statutory interest to late payments if one or both of two further requirements are fulfilled:

  • There must be a significant connection between the contract and England; or
  • the contract must be one which would be governed by English law apart from the choice of law.

The High Court said that the Act did not apply in this case as by simply including a London arbitration or English court jurisdiction clause in the contract was not a connecting factor, as the decision to have disputes heard in London does not connect the substantive transaction itself to England. This therefore prevented the application of the Act and excluded the parties the right to claim penalty interest under the Act.

Implications for International SaaS Agreements

The above decision does not however mean that the application of the Act will be excluded from all international SaaS agreements. The Act and the high interest rate payable under it will apply if there is a substantial connection between the SaaS agreement and England

A substantial connection could for example be:

  • the SaaS supplier or the SaaS customer being an English entity;
  • England being the place of performance of obligations under the SaaS agreement;
  • where the parties carry out some relevant part of the SaaS services in England; or
  • where the SaaS agreement is governed by English law apart from the choice of English law.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 15 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

Speaker at the Berlin CloudConf 2013.

To register for my newsletter click here

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SaaS Agreements – Dealing with Late Payment or Non-payment of Invoices

In the current economic climate, SaaS customers often delay payment of invoices. In order to protect your SaaS business and improve your cash flow, you should consider including the following in the terms of your SaaS agreement.

Right to Claim Interest

There is no requirement to have an interest clause in your SaaS agreement, as you have a statutory right to claim interest on late payments from a business customer (BTB) under the Late Payment of Commercial Debts (Interest) Act 1998 (“Act”). The statutory interest rate to be applied is the applicable Bank of England Base Rate + 8%.

Alternatively you can specify a specific interest rate in your SaaS agreement. This can be a number i.e. 7%, or a reference to an index i.e. the European Central Bank base rate, or a combination of both i.e. the Bank of England base rate + 2%. The interest rate specified can be higher or lower than the statutory rate. Note that if you specify an interest rate in your SaaS agreement, the  statutory rate will not apply, even if the interest rate you specify is lower than the statutory rate.

SaaS suppliers should therefore consider the following when deciding whether or not to include an interest clause and specific interest rate in the terms of their SaaS agreement.

  • By specifying an interest rate in your SaaS agreement you are inviting a business customer to negotiate a lower rate. If you have a weaker bargaining position, you may have to agree to a rate much lower than 8.5%;
  • Time and money could be wasted on protracted negotiations on which index to use and the % rate applicable;
  • Many SaaS customers are not aware that you have a mandatory right to claim interest on late payment and that the statutory rate will apply.

Right to Claim Compensation

In addition to claiming statutory interest from a SaaS customer, under the Act you are also entitled to a fixed amount of compensation. The amount is based upon the amount of the outstanding invoice:

  • £40 – for debts less than £1,000;
  • £70 – for debts between £1,000 to £9,999; and
  • £100 – for debts over £10,000.

Recovery of Costs

Since the 16th of March 2013 SaaS suppliers have the additional right to claim the difference between the  fixed compensation amount and their reasonable costs in recovering the debt e.g. appointing a debt recovery company or lawyer. However this right only applies to debts accrued after the 16th of March 2013.

Right to Terminate or Suspend SaaS Services

If a SaaS customer fails to pay you on time this will be in breach of contract – but not a fundamental breach (which permits you to terminate the SaaS agreement and claim damages). SaaS supplier’s should therefore state in their SaaS terms and conditions that “time is of the essence” for all payments. If the SaaS customer then fails to pay  on time you can terminate the SaaS agreement immediately without notice and claim compensation. However many SaaS customers will not agree to time being of essence.

Alternatively you could include the following specific rights in the SaaS agreement to achieve the same  result:

  • the right of the SaaS supplier to terminate the SaaS agreement for late or non-payment; and/or
  • the right of the SaaS supplier to suspend delivery of the SaaS Services until payment is received.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

To register for my newsletter click here

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