When clients or partners delay payments, what legal remedies can businesses rely on to both deter breaches and recover losses?

In commercial practice, penalty for breach and interest on late payment are two common remedies. Yet, their different legal nature and gaps in current regulations often leave businesses uncertain when drafting contracts or handling disputes.

From a practical lens, here are 4 key issues businesses should keep in mind:
1️⃣ Understand the Nature
*️⃣Penalty for breach → a deterrent, only enforceable if clearly agreed in the contract.
*️⃣Late payment interest → a statutory obligation, applicable even without an explicit agreement.

2️⃣ Conditions for Application
*️⃣Penalties require explicit contractual provisions.
*️⃣Late payment interest arises once the obligation exists, but proper documentation and notices are crucial.

3️⃣ Maximum Limits
*️⃣Commercial contracts: Penalty capped at 8% of the violated obligation’s value.
*️⃣Civil contracts: Interest cannot exceed 20%/year, or the average overdue lending rates of at least 03 major banks.

4️⃣ Can Both Apply Together?
*️⃣Two approaches exist: (i) choose one remedy only, or (ii) apply both simultaneously.
*️⃣Arbitral practice has admitted both penalties and late payment interest together, similar to combining penalties with damages.

📌 Key Takeaway: Businesses should draft contracts with clear penalty and interest clauses, keep robust documentation, and seek legal advice early — using the law not only to prevent risks but also to safeguard and optimize business interests.

📑 Pls refer to the full document available attached herein: https://drive.google.com/file/d/1ikatSBqjIK1-sXzAfuxQDsqABL90fBpe/view?usp=sharing

⚠️ Disclaimer: This article and the attached document are for informational and knowledge sharing purposes only. They do not constitute legal advice. THE LAM LAW LLC – Your legal need, Our Mission and its members accept no legal liability arising from the use of this content without tailored legal consultation.

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