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  • Writer's pictureLEE SZE YING

Enforceability of Late Payment Interest Clause

Is the late payment interest clause stated in the purchase order / delivery order / invoice / statement of account enforceable?



“Late payment is subject to interest of 1.5% per month” - Is such a clause valid? Can one argue that the rate is excessive?


When services or goods are rendered or delivered, it is not unfamiliar to find that the vendor’s documents such as invoices / delivery orders / purchase orders / statement of accounts (“the vendor’s documents”) consist of a simple one line late payment interest clause. On careful examination, this late payment interest levied often ranges from 1% to 2% per month, calculated from the due date of the payment until the payment is made. By a simple calculation, it equates to 12% to 24% per annum. This is even higher than the interest rate imposed by the licensed financial institutions for credit facilities!

One would wonder – Is this clause valid? If yes, is the rate imposed excessive?



The case of Tansa Enterprise


In the case of Tansa Enterprise Sdn Bhd v. Temenang Engineering Sdn Bhd [1994] 2 MLJ 353, Justice Haidar J (as his Lordship then was) held that the plaintiff is entitled to claim the interest of 1.5% per month as stipulated in the invoices. His Lordship observed that:


  • As clearly indicated in the invoices presented to the defendant by the plaintiff, it had full knowledge of this interest;

  • Moreover, there was no protest of the claim of interest at all when the invoices were presented to the defendant.


A similar view was adopted in subsequent cases, such as in the case of Enco Systems Sdn Bhd v. Soon Hin Hardware Sdn Bhd [2009] 9 MLJ 535. In this case, Justice VT Singham J (as his Lordship then was) held that:


  1. As a reasonable and prudent business entity, if the defendant was serious that the endorsement for interest payment at 1.5 % per month in the delivery orders and the invoices were arbitrary and not binding, they would have to protest and inform the plaintiff of their objection as expeditious as possible;

  2. Their dispute of the claim of interest after the legal notice from the plaintiff’s solicitor was an afterthought and was done with the view to delay the plaintiff’s claim.



Agreement to the late payment interest by course of dealing


Moreover, in the case of Pos Logistics Bhd. v Kumpulan Perubatan Smarthealth Sdn. Bhd. [2019] MLJU 981, the court allowed the late payment interest of 2% per month on the outstanding sum. It held that the defendant therein agreed to the interest by course of dealing which is proven by the following:

  1. The tax invoices expressly provide for interest;

  2. The defendant did not object to the interest by continuing to seek service from the plaintiff;

  3. The defendant had made part payment to the invoices without protest to the interest.



A different attitude of the court in the case of BHS Book Printing


In the case of BHS Book Printing Sdn Bhd v Penerbitan IMT Sdn Bhd [2016] MLJU 1880*, instead of allowing the late payment interest of 1% per month (12% per annum) as stipulated in the invoices, the court exercised its discretion and ordered that the interest at the rate of 5% per annum on the claimed sum to be paid to the vendor. The court’s rationale is as follows:


  1. If a contract of sale of goods has provided for the interest, the vendor can clearly claim for interest on the price of the goods from the purchaser;

  2. On the other hand, if the contract of sale of goods is silent on the question of interest, the vendor cannot rely on the equitable estoppel doctrine. They cannot contend that they are entitled to interest as provided in the invoice, delivery order and/or statement of account which has not been objected by the purchaser;

  3. The operation of the equitable estoppel principle shall “follow” and be subject to s. 61(2)(a), (b) Sale of Goods Act 1957, s. 11 Civil Law Act 1956 and Order 42 rule 12 Rules of Court 2012;

  4. When there is no contract or agreement to the contrary, the court has the discretion to award interest at such rate as it thinks fit on the amount of the price/debts;

  5. A vendor of goods cannot be equated to a licensed financial institution under the Financial Services Act 2013 or a licensed moneylender under the Moneylenders Act 1951;

  6. The equitable estoppel principle (to allow the Plaintiff to claim interest at the exorbitant rate of 12% per annum) should not be applied to cause injustice and inequity.



As can be seen above, there is no single uniform decision by the court on the validity / enforceability of the late payment interest clause stated in the vendor’s documents or the reasonableness of the rate imposed. However, the court has shown its inclination to allow the late payment interest clause and the rate imposed, even though the interest is as high as 24% per annum.



While the above cases made no reference to section 75 of the Contracts Act 1950, if one is to apply the interpretation of section 75 as decided under the landmark case of Cubic Electronics Sdn Bhd v Mars Telecommunications Sdn Bhd [2018] MLJU 1935, the vendor shall be allowed to enforce the late payment interest clause and based on the rate set out in the vendor’s documents without the need to prove the actual loss or damage.



As a matter of prudence, if the buyers are not agreeable to the late payment interest clause and/or its rate stated in the vendor’s documents, they ought to object to it expeditiously.



* Interestingly, both the cases of Pos Logistics Bhd and BHS Book Printing Sdn Bhd were decided by the same judge.

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