When a debtor delays payment by a year or two, the creditor loses more than time. The value of the sum erodes, the opportunity to invest it is lost, and they may have to borrow at a cost. Are they entitled to a charge for that delay? The answer in Kuwaiti law is not uniform, differing between civil and commercial dealings and turning on whether an agreement exists and from what date entitlement runs. This question is overlooked in most claims, and creditors lose substantial sums simply because they did not ask for them. This article explains the subject in practical terms.
The General Framework
- Commercial dealings: the commercial legislation permits a charge for delay on commercial debts, whether by agreement or by operation of law absent agreement, within limits the law fixes.
- Civil dealings: the position is more delicate and restricted, and assessment involves particular considerations, so the matter is usually addressed through compensation for loss rather than a claim for named interest.
- Damages for delay: an important practical alternative, as a creditor may claim compensation for the actual loss caused by the delay on proving the loss and its extent.
- Maximum rate: a charge may not exceed the limit the law fixes, and any excess is subject to judicial reduction.
- No compounding: compound interest is generally prohibited, so no charge accrues on accumulated charges.
The Role of Agreement
- Importance of an express clause: stipulating a defined delay charge in the contract is the clearest route and the easiest to prove, sparing the creditor the burden of proving loss.
- Drafting: the rate or amount, the unit of calculation, and the date entitlement begins must be stated clearly, as vague drafting empties the clause of effect.
- Penalty clause: an effective alternative, as agreed compensation for delay may be stipulated, relieving the creditor of proving the extent of loss.
- The judge's power: the judge may reduce a penalty clause that is excessive or where the obligation was partly performed, and increase it where the creditor proves loss greatly exceeding it through fraud or gross fault.
- Partial invalidity: where the agreed rate exceeds the permitted limit, the contract is not void in its entirety but reduced to the prescribed limit.
When Entitlement Begins
A practical point with considerable effect on the amount:
- The rule: formal notice: entitlement to a delay charge generally begins only from the date the debtor is put on notice, that is formally demanded to pay.
- Judicial claim: stands in place of notice, as filing proceedings constitutes a formal demand.
- Agreed due date: where a fixed payment date is agreed and it is stipulated that its arrival dispenses with notice, entitlement runs automatically from that date.
- Practical significance: the difference between calculating from the date the debt arose and from the date proceedings were filed may be several years, so serving early notice substantially increases the claim.
- Advice: serve formal notice as soon as a debtor delays, as it both starts entitlement running and interrupts limitation.
Interest in Loans and Finance
- Regulatory framework: the cost of finance in the banking sector is subject to the regulator's instructions fixing limits and controls on its calculation.
- Disclosure: the financier must state the effective cost of finance clearly before contracting, and concealing it is a breach.
- Early settlement: the cost is adjusted for the remaining period on early settlement, so the customer is not charged for a period during which they did not have the benefit.
- Islamic finance: rests on different structures such as murabaha and leasing, treated differently from interest and governed by the terms of the contract.
- Disputes: where a customer considers the cost charged exceeds what was agreed or prescribed, the route is an objection supported by an alternative calculation schedule.
Proof and Claim
- Specify the claim: the statement of claim must expressly seek a delay charge or damages, as the court does not award what is not sought.
- Calculation schedule: attach a schedule setting out the principal, due dates, periods, and method of calculation, which assists the court in ruling.
- Proving loss: where the claim is for damages rather than an agreed charge, the actual loss must be set out: the cost of replacement finance, a lost transaction, or penalties the creditor bore.
- Dated notice: retain the notice and evidence of its service, the basis for fixing the start date.
- Limitation: some periodic claims are subject to shorter limitation periods, so delay of years may extinguish part of the entitlement.
Practical Guidance
- Stipulate a clear delay charge or defined penalty clause in every contract. It is the most valuable provision at the enforcement stage.
- State in the contract that the arrival of the due date dispenses with notice, so entitlement runs automatically.
- Serve formal notice as soon as delay occurs rather than waiting months out of courtesy.
- Claim the delay charge expressly in the statement of claim, as omitting it amounts in practice to waiving it.
- Retain evidence of your loss from the delay if you will claim damages.
- Check the finance cost charged to you against an independent schedule, as calculation errors are more common than supposed.
A delay charge is a right frequently forfeited simply by omitting to claim it or omitting the notice that starts it running. Yamnak Law Firm advises on drafting delay and penalty provisions and conducts financial claims and prepares calculation schedules before the courts.
