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Errors in invoices not fatal to claims for late payment interest
4 March 2009
In tough times ‘cash is king’. Deterring late payers is one way
of improving cash flow. Since 2002, businesses of any size have
been able to charge penal interest on unpaid invoices under late
payment legislation. The Late Payment of Commercial Debts
(Interest) Act 1998 and associated Regulations are designed to
discourage late payers by imposing a high rate of interest on
commercial debts that are not paid on time. Currently, the
statutory rate is a hefty 8% above base rate and if the customer
does not pay up, the supplier can claim it through the courts.
To claim statutory interest the supplier must notify the
customer of the sum due and what it relates to. But what if there
is some uncertainty about the amount due or the invoice sent to the
customer is defective in some way? Can the customer sit back and
pay nothing and avoid statutory interest by claiming that the
invoice is not completely perfect? The Court of Appeal examined
this question in a judgment handed down last week.
The case of Ruttle Plant Hire Ltd v DEFRA concerned late payment
interest on a contract to supply plant and machinery to combat the
outbreak of swine fever in August 2000. Ruttle undertook
decontamination work for the Government, digging disposal pits on
farms, and the contract was arranged in such a hurry that the terms
were not fully settled. In early 2001 there was an outbreak of foot
and mouth disease and Ruttle was assigned to that work too. Ruttle
was doing so much work that it had to suspend its invoicing
process. Subsequently, the parties got into a dispute about how
much the Government owed Ruttle for the work, when the debt fell
due and how much interest was payable. Ruttle issued proceedings
for some £5 million in interest, mostly claimed under the late
payment legislation.
The High Court ruled that interest under the late payment
legislation did not run until the paying party had received proper
notification of the amount due. The parties had argued about the
rates payable and Ruttle had ended up reissuing certain invoices.
The High Court denied Ruttle some of the interest claimed and, to
the extent it did allow interest, it reduced the rate right down to
2% over base.
Ruttle appealed successfully. The Court of Appeal noted that all
of the invoices issued by Ruttle had been supported by
documentation detailing the hours worked and the machinery used, so
DEFRA could have worked out what it considered was payable to
Ruttle. The relevant section of the legislation gives two
alternatives for triggering statutory interest: the date on which
the purchaser is given either (1) "notice of the amount of the
debt", or (2) "(where that amount is unascertained) the sum which
the supplier claims is the amount of the debt". The latter, said
the Court of Appeal, meant that a provisional view of an amount due
fell within the legislation. If the sum due is not ascertained, the
supplier just has to give notice of what he claims to be due. The
legislation did not require the invoice to be perfect before
interest could run. Otherwise, the paying party could look for the
smallest detail of error in an invoice and, if he found one, he
could delay payment of the whole sum and avoid the statutory
interest. This made no sense and would frustrate the purpose of the
legislation. The wrong invoice might result in a reduced amount of
statutory interest being awarded, but there was no need to read the
‘amount’ as meaning ‘the true amount, the whole true amount and
nothing but the true amount’. The Court of Appeal observed that in
the real world errors in invoices were common and that was why they
were often accompanied by underlying documentation so that the
paying party could check.
So, as the customer, what should you do if it is unclear whether
an invoice is correct? In this situation, the Court of Appeal
advised, the customer should pay the minimum he considers to be
due, and ask the supplier to substantiate the rest. If there is
supporting documentation, at the very least, any reasonable
customer should make a spot check and, if all seems well, pay up
and check the fine detail later. What a customer cannot do, is
withhold all payment and expect to escape punitive interest on sums
which are due on any view. It would be different if the contract
said that nothing was due, unless a correct invoice was supplied,
but that was not the case here.
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